Kelso Technologies Inc.
TSX VENTURE : KLS

Kelso Technologies Inc.

April 27, 2011 12:57 ET

Kelso Technologies Inc.: Financial Results for the Second Quarter Ended February 28, 2011

VANCOUVER, BRITISH COLUMBIA--(Marketwire - April 27, 2011) - James R. Bond, CEO and President of the Company (TSX VENTURE:KLS) reports that the Company has released its unaudited consolidated financial statements for the three and six month periods ended February 28, 2011.

Results of Operations

The results for the three and six months ended February 28, 2011 are indicative of a revitalized company establishing a product-for-sale business infrastructure that can reliably supply its customers in the railroad industry. Kelso commenced sales, assembly production and distribution of its external constant pressure valves from Bonham, Texas in January 2011. Initial infrastructure investment has been costly but is expected to become more effective, efficient and economic as productive systems mature over the next 12 to 24 months.

The Company recorded a loss for the three month period ended February 28, 2011 in the amount of $238,391 against revenue of $384,806 compared to a loss of $57,762 against revenue of $1,572 for the three months ended February 28, 2010.

Kelso's year-to-date results record a loss for the six month period ended February 28, 2011 of $468,113 against revenue of $500,728 compared to net income of $189,588 against revenue of $27,711 for the same period last year. At February 28, 2010 the forgiveness of $438,510 of debt by related parties and shareholders provided the reported net income.

Factors in the year-to-date loss include:

  • Non-cash stock-based compensation expense of $93,259 for incentive stock options granted during the quarter and amortization of $4,828.
  • Accounting and legal costs which totaled $63,005. These costs were high due to financing activities and audit requirements.
  • Rent for facilities in Lisle, Illinois and Bonham, Texas totaled $17,577.
  • Product liability insurance totaled $15,917.
  • Research and development costs rose to $86,017 and represented expenditures on the Company's new manway securement system ("MSS") and the new product development laboratory in Lisle, Illinois.
  • Staffing production and marketing operations resulted in salaries and benefits of $105,955.
  • Travel and marketing costs were higher as the Company has undertaken a full scale marketing program to increase customer awareness of products.

Gross profit was maintained at 30%. It is expected to improve as order volumes scale upwards and the Company can realize economies of scale from its assembly production process. Cost control and minimization is paramount to the Company's future production strategy.

Kelso held cash deposits of $256,068 against outstanding customer orders. For reporting purposes these deposits have been recorded as deferred revenue on the balance sheet at February 28, 2011 until the products are distributed in future periods.

Liquidity, Capital Resources and Shareholder Equity

At February 28, 2011, the Company had cash on deposit in the amount of $1,540,737; accounts receivable in the amount of $268,121; HST receivable of $53,304 and prepaid expenses and inventory of $188,156 compared to cash on deposit of $284,207; accounts receivable of $142,834; HST receivable of $28,933 and prepaid expenses of $17,690 at August 31, 2010.

The working capital position of the Company at February 28, 2011 was $1,520,235 which includes $14,530 due to related parties and $256,068 in deferred revenue representing deposits on product purchase orders received compared to working capital of $91,950 which includes $111,344 due to related parties and a $75,000 note payable at August 31, 2010.

Shareholder equity improved to $1,695,890 at February 28, 2011 compared to $128,873 at August 31, 2010. Total assets improved to $2,225,973 at February 28, 2011 compared to $510,587 at August 31, 2010.

Subsequent to the quarter end Kelso focused its strategic plan on product sales of existing patented technologies and suspended its interest in research and development. Business analysis, budget uncertainties and intellectual risks underlay the suspension of Kelso's interest in the development of nanotechnology-based anti corrosion coatings in March 2011. The Company may revisit this potential product in the future.

Outlook

New financial, marketing and production capabilities have greatly improved the business prospects for the Company. Kelso will continue to engineer; market, sell, produce and distribute proprietary mechanical products designed to provide safer containment systems to reduce the risk of environmental harm due to non-accidental events in the transportation of hazardous commodities via railroad tank cars in North America.

Kelso commenced commercial scale production and distribution of its external constant pressure valves in January 2011 in Bonham, Texas. The Company's products have proven to be relevant and economically valuable to customers. The Company's marketing initiatives continue to generate a steady flow of new product orders.

Marketing initiatives for the MSS have shown very strong customer and government support confirming the potential for multi-million dollar sales. Strategic plans are currently being developed and implemented for full scale marketing, production and distribution of the MSS beginning in the fall of 2011.

The economic recovery of transportation systems in North America; the enforcement of the United States and Canadian environmental regulations for shippers of chemical commodities; and the adverse effects of wear and tear on existing railroad fleets leads management to believe that the railroad industry will rebound significantly. These factors along with Kelso's reorganization in 2010 and new vendor status in the railroad industry has set the stage for Kelso to pursue a market made up of over 700 new tank-car builders, major chemical shippers, repair shops and retrofitters. Large scale adoption of Kelso's product offerings by these customers should allow the Company to grow its new MSS and pressure relief valve business successfully over the coming years. The Company will update, by way of news releases, progress reports in the future.

For a more complete business and financial profile of the Company, management encourages interested parties to 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 the Company's infrastructure investment is expected to become more effective, efficient and economic as productive systems mature, that gross profit is expected to improve as order volumes scale upwards and the Company can realize economies of scale; that we will continue to create and distribute proprietary mechanical products for safer containment systems; that we can achieve full scale production an distribution in fall 2011; that we have the potential for multi-million dollar sales; that a market of over 700 potential customers exists; that the railroad industry will rebound significantly and that we can grow our MSS and valve business successfully. 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; 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 productive capacity of Kelso may not be large enough to handle market demand. 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.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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