Kelso Technologies Inc.: Third Quarter Ended May 31, 2012

VANCOUVER, BRITISH COLUMBIA and LISLE, ILLINOIS--(Marketwire - July 26, 2012) - Kelso (TSX VENTURE:KLS)(OTCQX:KEOSF) reports that the Company has released its condensed interim consolidated financial statements and management discussion & analysis for the three and nine months ended May 31, 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.

HIGHLIGHTS OF THIRD QUARTER

• Record quarterly revenue of $519,778
• Record quarterly production of EPRV units
• Quarterly loss of $313,994 in line with management expectations
• Investment in production assets establishes capacity at over 400 EPRV units per week
• Commencement of shipments to first rail tank car OEM to offer EPRV as standard product
• Working capital in the amount of $1,398,955 at May 31, 2012 (5.8:1)
• Company remains long-term debt free

RESULTS OF OPERATIONS

The financial results for the three and nine months ended May 31, 2012 are indicative of a company with new commercial products being introduced to an established and well regulated railroad industry. The growth in revenue and financial results recorded during the third quarter reflect Kelso's commencement of EPRV distribution to the OEM segment of the railroad equipment supply market which began mid-way through the third quarter.

Financial results reflect the investments and high costs associated with intense marketing initiatives (including travel and trade show activity) required to successfully market new products and increasing the volume of production (including training and qualifying human resources). The strategic plan for commercialization has required Kelso to make considerable investments in industrial engineering and testing, railroad regulatory filings, production infrastructure and marketing programs for both its EPRV and KKS well in advance of profitable revenue from OEM customers.

For the three months ended May 31, 2012, the Company recorded a loss of $313,994 against revenue of $519,778 compared to a loss of $337,902 against revenue of $360,039 for the three months ended May 31, 2011. Year-to-date for the nine months ended May 31, 2012, the Company recorded a loss of $1,044,836 against revenue of $940,936 compared to a loss of $747,466 against revenue of $856,511 for the nine months ended May 31, 2011. These results are in line with business development budgets established by management.

Factors in the loss for the three months and nine months ended May 31, 2012 included expenses related to the lease costs of production and headquarter facilities in Lisle, Illinois and Bonham, Texas. Other key factors include product research and development, production infrastructure and marketing expenses for the KKS technology that has not yet seen sales results.

Product research and development costs of $28,816, marketing costs of $48,757 and related travel costs of $35,645 were recorded in the three months ended May 31, 2012. Year-to-date product research and development costs of $97,565, marketing costs of $115,992 and related travel costs of $77,596 were recorded in the nine months ended May 31, 2012.

The heavy investment in product development and marketing the Company's products began to pay off in the third quarter. Shippers of HAZMAT and rail tank car OEM now understand the relevance and value of our EPRV. The Company's marketing initiatives have gained the confidence of customers and now generate new customer orders from all OEM customers. One OEM has adopted our EPRV as a standard product offering on their tank cars.

The growth of marketing, sales and production operations in 2012 reflects in administrative salaries and benefits costs of $56,258, management fees of $104,670 and management consulting and investor relations fees of $55,228 that were recorded during the three months ended May 31, 2012. Year-to-date for the nine months ended May 31, 2012 administrative salaries and benefits costs of $152,865, management fees of $281,454 and management consulting and investor relations fees of $162,201 were recorded.

Non-cash expenses include 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 $5,406 for the third quarter and reached $56,468 for the nine months ended May 31, 2012. An expense allowance for fluctuations in foreign exchange (Company operates in both CDN and US dollars) was recorded in the amount of $28,979 for the third quarter and reached $81,036 for the nine months ended May 31, 2012. Amortization of equipment and patents was recorded in the amount of $7,126 for the third quarter and reached $23,811 for the nine months ended May 31, 2012.

LIQUIDITY AND CAPITAL RESOURCES

At May 31, 2012 the Company had cash on deposit in the amount of $220,768; accounts receivable of $356,456; HST receivable of $47,120; prepaid expenses of $51,827 and inventory of $1,015,723 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 May 31, 2012 was $1,398,955 which includes $15,084 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 May 31, 2012, the Company has no long-term liabilities.

At May 31, 2012, the Company had 36,022,783 common shares issued and outstanding.

OUTLOOK

Over the past two years Kelso has successfully accessed development capital; improved its business reputation; developed its production infrastructure; executed its marketing initiatives; and has now commenced distribution to all North American tank car manufacturers and many retrofit/repair businesses. The key focus has been to position Kelso to gain a share of the market for its EPRV and KKS products by proving ourselves as a reputable and reliable railroad equipment supplier.

We have arrived at this goal. We have gained the confidence, approval and business of all of the major railroad OEM customers. We have proven we can handle their large volume requirements to deliver high-quality EPRV products on time. Our current EPRV production facilities in Bonham, TX have been built and verified as modern and state-of-the-art. We are now working on sales and delivery schedules for 2012 and 2013 with key tank car builders, owners and shippers who transport hazardous commodities such as crude oil, ethanol, petrochemicals and other hazardous and non-hazardous chemicals.

We are extremely bullish about the market outlook for all our products and look forward to the growth of our sales volume over the upcoming years. The successful commercial development of our EPRV line is a key milestone in Kelso's transition into a profitable operating company. We anticipate consistent business growth due to our proven ability to produce large quantities of our entire EPRV line as required by OEM customers.

Our KKS is expected to follow the same path to success in 2013. Our test units have been in service for up to a year and no problems have been detected. Manway technology change is being fueled by regulatory developments, environmental sensitivities and industry consensus. OEM customer confidence will be gained through independent verification that Kelso can deliver reliable "best available" technology solutions with proven economic, reliability and qualitative advantages over our competition.

Our ultimate goal is to have all our products become "gold standard" products on most HAZMAT applications and non-hazardous applications. We are dedicated to our strategic plan and remain confident that we have created a solid foundation on which to build a successful multi-million dollar business on behalf of the shareholders of Kelso 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 sales will show consistent growth with new customer confidence that Kelso can deliver reliable "best available technology solutions with proven economic and qualitative advantages over our competition; that we have will get new orders in 2012 and 2013 from all existing OEM clients; 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.