KLS Kelso Technologies Inc.

Kelso Technologies Inc. (The "Company" or "Kelso") (TSX VENTURE:KLS)(OTCQX:KEOSF) - 

Kelso reports that the Company has released its condensed interim consolidated
financial statements and management discussion & analysis for the three and six
months ended February 29, 2012. The financial statements have been prepared in
accordance with the new International Financial Reporting Standards ("IFRS") as
issued by the International Accounting Standards Board. As part of the Company's
transition to IFRS all amounts herein are expressed in United States dollars
(the Company's functional currency) unless otherwise indicated.


The financial results for the three and six months ended February 29, 2012 are
indicative of a company with new industrial products being introduced into an
old and established railroad marketplace. The financial results reflect Kelso's
early distribution of its external pressure relief valves ("EPRV") to the
retrofit/repair sector of the railroad equipment supply market. Results also
reflect the high costs of marketing new products, industrial design
modifications, low volume production and investments in regulatory certification
of products and production systems. The strategic plan for commercialization has
required Kelso to make considerable investments in production infrastructure and
pre-sales marketing programs for both its EPRV and our new Kelso Klincher(TM)
("KKS") manway system well in advance of meaningful revenue streams from rail
tank car manufacturers ("OEM").


Results of Operations

For the three months ended February 29, 2012, the Company recorded a loss of
$290,856 against revenue of $240,918 compared to a loss of $179,692 against
revenue of $382,984 for the three months ended February 28, 2011.


Year-to-date for the six months ended February 29, 2012, the Company recorded a
loss of $730,842 against revenue of $421,158 compared to a loss of $409,564
against revenue of $496,472 for the six months ended February 28, 2011.


Included in the loss for the six months ended February 29, 2012 was the measure
of the non-cash based Black-Scholes calculation of the dilutive effect of the
grant of stock-based compensation during the quarter. This calculation involves
numerous assumptive variables that must be estimated in order to determine the
estimated expense of the grant of incentive stock options. Non-cash stock-based
compensation was recorded at $51,062.


Factors in the loss for the three months and six months ended February 29, 2012
included expenses related to the lease costs and development of operational
facilities in Lisle, Illinois and Bonham, Texas as well as product development
and marketing expenses for the KKS technology that have not yet seen sales
results.


Other factors affecting the loss during the three months ended February 29, 2012
include accounting, audit and legal costs which totaled $22,187 that are
necessary for administration of the public company. Research and development
costs of $26,993 represented expenditures on recommended improvements and
modifications to the Company's EPRV and KKS.


Year-to-date for the six months ended February 29, 2012, the Company recorded
accounting and legal costs of $43,241 and research and development costs of
$68,749 for the six months ended February 28, 2011.


The Company has staffed itself for the full scale marketing, sales and
production operations in 2012 hence administrative salaries and benefits costs
of $51,691, management fees of $88,215 and management consulting and investor
relations fees of $47,187 were recorded at the three months ended February 29,
2012. Year-to-date for the six months ended February 29, 2012 administrative
salaries and benefits costs of $96,612, management fees of $176,784 and
management consulting and investor relations fees of $106,973 were recorded.


The gross profit margin realized from the sales of product was $130,402 (30%)
during the six months ended February 29, 2012. The margins remain lower than
anticipated due to low production runs and inefficiencies on start up of the
assembly operations. Future gross profit margins are expected to improve as
production operations become more mature and efficient as assembly runs increase
in size. The Company is gaining better control of its production processes and
cost minimization is a key goal.


Liquidity and Capital Resources

At February 29, 2012 the Company had cash on deposit in the amount of $415,625;
accounts receivable of $182,762; HST receivable of $30,298; prepaid expenses of
$83,318 and inventory of $813,421 compared to cash on deposit of $1,457,934;
accounts receivable of $337,562; HST receivable of $92,551, prepaid expenses of
$45,755 and inventory of $251,171 at August 31, 2011.


The working capital position of the Company at February 29, 2012 was $1,296,650
which includes $8,770 due to related parties compared to a working capital
position of $1,916,036 which includes $17,000 due to related parties at August
31, 2011. At February 29, 2012, the Company has no long-term liabilities.


Outlook

Over the past two years Kelso has successfully improved its business reputation;
developed its production infrastructure; and executed its marketing initiatives.
The key focus has been gaining market share for our EPRV and KKS products and
gaining the coveted recognition as a reliable railroad equipment supplier.


Our experienced executive management team has focused on the business
relationships required to execute commercial business plans for multi-million
dollar sales of our EPRV and KKS products. In 2012 the Company continues its
transition into a full-scale production and distribution organization in the
railroad industry with ambitions for other markets.


Industry skepticism regarding Kelso's business capabilities has diminished
considerably. The railroad industry now seems eager to assess and validate the
value proposition that our products offer. OEM and retrofit customers have
recently confirmed our ability to produce our EPRV products at the capacity
rates that they require. We are now working on adoption and delivery schedules
for 2012 and 2013 with key customers who transport hazardous commodities such as
crude oil, ethanol, petrochemicals and other toxic chemicals.


Growing our production capacity continues to be our primary objective to attract
OEM contracts. Developing supply chains and assembly operations has been a time
consuming and expensive activity but we have now arrived. Our first assembly
plant designed to produce EPRV products has been organized to produce 300 to 400
EPRV units per week.


We continue to build the initial production capacity of our KKS products in our
second assembly plant that we purchased in mid 2011 in Bonham, Texas. A third
full capacity assembly plant is being designed and expected to come on stream in
Bonham, Texas in late 2012. In the interim we have leased 14,000 square feet of
warehouse space to allow for the initial production runs of our KKS.


To date Kelso has received new product orders and commitments for over
$4,000,000 for delivery in 2012. We anticipate consistent business growth due to
the availability of our EPRV in the large quantities required by OEM activity.
This is being fueled by regulatory developments and customer confidence that
Kelso can deliver reliable "best available technology" solutions with proven
economic, reliability and qualitative advantages over our competition.


By late 2012 our new KKS will broaden our product mix available to customers.
The new KKS provides a revolutionary change in the handling dynamics and
infrastructure of the HAZMAT industry. It is a major innovation and addresses
stringent environmental sensitivities and worker safety. Our KKS program is
being well supported by regulators, railroads, customers, industry workers and
emergency response organizations.


Our main challenge to market penetration and business growth is that the
railroad industry is very cautious about new technologies and demands extensive
testing hence they are slow to adopt new technologies. Budgets and testing
requirements are time consuming, and contrary to profit goals. Therefore, in
many cases industrial designs have not changed in decades even though modern
environmental sensitivities and engineering problems haunt and perplex the
industry. This is the circumstance that fuels Kelso with a strong and unique
business position from which to create, develop and distribute innovative
products that provide solutions for customers in terms of improved performance,
reliability, cost benefits and longevity.


Management believes that the economic recovery of the railroad industry in North
America combined with pressure from more stringent enforcement of United States
and Canadian environmental regulations for shippers of chemical commodities and
the adverse effects of wear and tear on existing railroad tank cars will allow
Kelso to grow its business significantly over the upcoming years. Our year end
change to December 31 in 2012 will bring our reporting periods in line with the
railroad industry calendar. This will allow Kelso to better reflect the progress
of our business development when the mid-year cut off at August 31 is
eliminated.


Our ultimate goal is to have our EPRV and KKS become "gold standard" products on
all HAZMAT applications that are produced by rail tank car manufacturers,
retrofitters and repair shops. We are confident that we can build a successful
multi-million dollar business on behalf of the shareholders of Kelso
Technologies based on our patented technologies.


For a more complete business and financial profile of the Company, please view
the Company's website at www.kelsotech.com and public documents posted on
www.sedar.com.


On behalf of the Board of Directors,

James R. Bond, CEO and President

Legal Notice Regarding Forward Looking Statements: This news release contains
"forward-looking statements" within the meaning of applicable Canadian
securities legislation. Forward-looking statements are indicated expectations or
intentions. Forward-looking statements in this news release include that in 2012
the Company will continue to transition into a market driven, full scale
production and distribution organization, that our facility is due to open in
2012 and will allow the Company to generate revenue from the sales of our KKS
products in mid 2012, that future gross profit margins are expected to improve
as production operations become more mature and efficient as assembly runs
increase, that revenue opportunities will improve with new customer confidence
that Kelso can deliver reliable "best available technology" solutions with
proven economic and qualitative advantages over our competition; that our orders
can turn into firm sales; and that from the commercial sales of our EPRV and KKS
products Kelso can build a successful multi-million dollar business on behalf of
the shareholders of Kelso Technologies. The Company's products involve detailed
proprietary and engineering knowledge and specific customer adoption criteria,
hence factors that could cause actual results to be materially different include
that we may be unsuccessful in raising any additional capital needs that may
arise; we may not have sufficient capital to develop, produce and deliver new
orders; product development may face unexpected delays; orders that are placed
may be cancelled; product may not perform as well as expected; markets may not
develop as quickly as anticipated or at all; or that the construction or other
plans for plants run into permit, labor or other problems. Further, we are
reliant on certain key employees who may leave the Company and we may be unable
to protect or defend our intellectual property. Investors are cautioned against
placing undue reliance on forward-looking statements. We assume no
responsibility to update these forward looking statements except to the extent
required by law.

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