Mr. James Bond reports

KELSO TECHNOLOGIES INC. FINANCIAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023

Kelso Technologies Inc. has released its unaudited consolidated interim financial statements and management discussion and analysis for the nine months ended Sept. 30, 2023.

The unaudited consolidated interim financial statements were prepared in accordance with international financial reporting standards (IFRS) as issued by the International Accounting Standards Board (IASB). All amounts herein are expressed in United States dollars (the company's functional currency) unless otherwise indicated.

The company's unaudited consolidated financial statements and MD&A (management's discussion and analysis) for the nine months ended Sept. 30, 2023, were approved by the board of directors on Nov. 8, 2023.

Liquidity and capital resources

As at Sept. 30, 2023, the company had cash on deposit in the amount of $1,865,160, accounts receivable of $1,069,237 prepaid expenses of $146,879 and inventory of $3,613,431 compared with cash on deposit in the amount of $2,712,446, accounts receivable of $1,381,979, prepaid expenses of $92,768 and inventory of $4,144,196 as at Dec. 31, 2022.

The company had income tax payable of $22,524 at Sept. 30, 2023, compared with $30,626 at Dec. 31, 2022.

The working capital position of the company as at Sept. 30, 2023, was $5,559,748 compared with $7,000,568 as at Dec. 31, 2022. Capital resources and operations are to be expected to continue the company's ability to conduct continuing business as planned for the foreseeable future.

Net equity of the company was $8,906,728 as at Sept. 30, 2023, compared with $10,781,672 as at Dec. 31, 2022. Total assets of the company were $10,041,687 as at Sept. 30, 2023, compared with $12,147,143 as at Dec. 31, 2022. The company had no interest-bearing long-term liabilities or debt as at Sept. 30, 2023 or Dec. 31, 2022.

Outlook

During the first three quarters of the current fiscal year, Kelso continued efforts to strengthen the portfolio of rail products by closely monitoring those products near completion of the required service trial period. The corporate ambition is to increase sales volume from newly developed rail products for a wider variety of rail tank car applications.

The company has generated $142-million since its start-up from its proprietary constant force pressure relief valve for HAZMAT rail tank cars. Over the years the company has grown a highly respected, quality brand and established new direct relationships with HAZMAT shippers. These interested stakeholders have directly helped design the company's new proprietary angle valves for the pressure car market and the company's bottom outlet valves featuring unique ceramic technology advantages.

These new rail products sell for much higher unit values and are expected to grow the company's rail car revenue from an average of $1,500 per tank car to over $10,000 per tank car once AAR approvals are secured. The company's specialized angle valves for the pressure car market have completed their service trial and are in the final stages of the full AAR approval process. The pressure car market fleet for the company to service is currently in the range of 80,000 tank cars which provides a significant growth opportunity in the near future. The company's bottom outlet valves are going into full-service trials and may be able to generate minimal exceedance revenue from motivated customers.

The traditionally cyclical rail tank car market has not recovered well from COVID-related pressures as all facets of logistics, supply chains and manufacturing were severely impacted. Current economic conditions, that include high interest rates and inflationary pressure on raw materials, have remained depressed. This is a major business hurdle making corporate growth objectives very challenging to predict and achieve.

These economic circumstances have altered the rail tank car industry strategic planning to continue to limit new tank car builds while shippers focus on repurposing or requalifying existing tank car fleets. Although a disappointing circumstance, this presents a bona fide opportunity for Kelso to grow its revenues by being able to fully service the repair, retrofit and requalification activities through a broader range of "100 per cent made in the USA" technologies.

During fiscal 2023 the company's KXI Wildertec patent-pending automated traction optimization method for vehicle suspension systems (method) has been filed. This method is the first successful specialized advanced driver-assistance system (ADAS) created specifically designed for specialized no-road commercial/military wilderness operations.

In the automotive industry, ADAS refers to specialized automated technical features that are designed to increase the safety of operating motor vehicles on existing roadways. Current automotive industry design ambitions are to use human-machine interfaces that can assist a driver's ability to react to dangers on established roads. To date no one other than Kelso has created and proven a functional suspension-specific ADAS for commercial wilderness and mission specific applications until the company's recent introduction of its unique method and a fully functional prototype. This is a major technological development advantage for the company to grow future revenues from specialized automotive markets.

Very little emphasis, if any, by the automotive world has addressed ADAS requirements in wilderness operations. The company's strategic business objectives are to lead the way on ADAS for no-road environments for emergency responders, commercial/industrial stakeholders and military customers. The company's business ambition is to participate in the global ADAS software market which is estimated to reach the $80-billion mark by 2030 as reported by industry analysts McKinsey & Company.

The company is now concentrating its resources on developing KXI Wildertec application development agreements with interested customers in, but not limited to, safer working environments for drivers/operators engaged in wilderness fire fighting, medical/evacuation operations, emergency response capabilities, mining, energy transmission and geographic/environmental data mapping systems.

The company has made considerable progress in its research and development to create meaningful new products. The timing of required regulatory approvals on new rail and automotive products and corresponding revenue streams remains unpredictable and cannot be guaranteed to be successful. Management continues to assess the company's research and development discoveries, new product viability, budget restrictions, and market potential of all R&D (research and development) programs. Management adjusts R&D plans based on testing results as part of the company's R&D risk management program. Despite the many financial challenges created by the COVID-19 recession, high inflation, and interest rates and compromised supply chain issues, management remains bullish on the longer-term revenue potentials of the company's new product developments.

Despite depressing business activity in the rail industry, the company remains committed to the reliability and durability of its products and delivering its products on time. The company deploys capital resources sensibly to maintain reasonable financial health and liquidity. The company's working capital was $5,559,748 as at Sept. 30, 2023. Current working capital and anticipated sales activity at above average contribution margins for the remainder of 2023 are expected to protect the company's ability to conduct continuing business operations and R&D initiatives for the foreseeable future.

The company is on course for value creation as it looks forward in both rail and automotive markets. The company has determined a clear path for the commercialization of its new products in order to provide longer-term profitable revenue growth. With no interest-bearing long-term debt to service and improved sales prospects from a larger product portfolio, Kelso can focus on the growth of its equity value from financial performance generated from a wider range of new proprietary products.

About Kelso Technologies Inc.

Kelso is a diverse engineering company that specializes in the creation, production, sales and distribution of proprietary products used in rail and automotive transportation. The company's rail engineering business has been developed as a designer and reliable domestic supplier of unique high-quality rail tank car valves that provide for the safe handling and containment of hazardous and non-hazardous commodities during rail transport. The automotive division of the company has created the first proven automated suspension-based advanced driver assistance system for commercial mission-critical wilderness operations. All Kelso products are specifically designed to address the challenging issues of public safety, worker well-being and potential environmental harm while providing effective and efficient operational advantages to customers. Kelso's innovation objectives are to create products that diminish the potential dangerous effects of human and technology error through the use of the company's portfolio of proprietary products.

We seek Safe Harbor.