KELSO TECHNOLOGIES INC.

Consolidated Financial Statements

For the six months ended June 30, 2025

(Unaudited - Prepared by Management)

(Expressed in US Dollars)

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL REPORT

The accompanying unaudited consolidated interim financial report of the Company has been prepared
by and is the responsibility of the Company's management.  The Company's independent auditor has
not performed a review or audit of this financial report.

Kelso Technologies Inc. Consolidated Interim Statements of Financial Position at June 30, 2025 and December 31, 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

See notes to consolidated financial statements

Kelso Technologies Inc. Consolidated Statements of Changes in Equity For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management)   (Expressed in US Dollars)

See notes to consolidated financial statements

Kelso Technologies Inc. Consolidated Statements of Operations and Comprehensive Income Loss For the six months ended June 30, 2025 and 2024 (Expressed in US Dollars)

See notes to consolidated financial statements

Kelso Technologies Inc. Consolidated Statements of Cash Flows For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

Supplemental Cash Flow Information (Note 12)

See notes to consolidated financial statements

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

1. NATURE OF OPERATIONS

Kelso Technologies Inc. (the "Company") was incorporated under the laws of British Columbia on March 16, 1987. Kelso is a diverse product engineering company that specializes in the research, development, production and distribution of proprietary equipment used in various transportation applications. Over the past decade the Company's reputation has been earned as a developer and reliable supplier of high-quality rail tank car equipment used in the handling and containment of hazardous and non- hazardous commodities during transport.  In addition, the Company was previously developing proprietary service equipment to be used in transportation applications. During the year ended December 31, 2024, the Company ceased development activities within its subsidiary, KIQ X Industries Inc. ("KIQ X"), related to the active suspension control system (Note 16).

The Company trades on the Toronto Stock Exchange ("TSX") under the symbol "KLS" and used to trade on the New York Stock Exchange ("NYSE") under the trading symbol "KIQ". The Company listed on the TSX on May 22, 2014 and on the NYSE on October 14, 2014. The Company delisted from the NYSE on March 26, 2024. The Company's head office is located at 305-1979 Old Okanagan Hwy, West Kelowna, British Columbia, V4T 3A4. 

2. BASIS OF PREPARATION

(a) Statement of compliance:

These consolidated financial statements of the Company have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards").

These consolidated financial statements have been prepared under the historical cost basis, except for financial instruments, which are stated at their fair values. These consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

(b) Basis of presentation and consolidation:

The consolidated financial statements include the accounts of the Company and its integrated wholly owned subsidiaries, Kelso Technologies (USA) Inc., Kel-Flo Industries Inc., and KIQ Industries Inc. which are all Nevada, USA corporations as well as KIQ X Industries and KXI Wildertec Industries Inc., which were incorporated in British Columbia, Canada. Intercompany transactions and balances have been eliminated on consolidation.  Subsidiaries are consolidated from the date upon which control is acquired by the Company and all material intercompany transactions and balances have been eliminated on consolidation.

Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

(c) Functional and presentation currency:

The functional and presentation currency of the Company and its subsidiaries is the US dollar ("USD").

7

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

2. BASIS OF PREPARATION (Continued)

(d) Significant management judgments and estimation uncertainty:

The preparation of consolidated financial statements in conformity with IFRS Accounting Standards requires the Company's management to undertake a number of judgments, estimates and assumptions that affect amounts reported in the consolidated financial statements and notes thereto. Actual amounts may ultimately differ from these estimates and assumptions. The Company reviews its estimates and underlying assumptions on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and may impact future periods.

Significant management judgments

The following are significant management judgments in applying the accounting policies of the Company that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses:

(i) Income taxes:

The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the Company generating future taxable income against which the deferred tax assets can be utilized. In addition, significant judgment is required in classifying transactions and assessing probable outcomes of tax positions taken, and in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.

(ii) Functional currency:

The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in which the entity operates. The Company has determined its functional currency and that of its subsidiaries is the USD.  Determination of functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions that determined the primary economic environment. 

(iii) Research and development expenditures:

The application of the Company's accounting policy for research and development expenditures requires judgment in determining whether an activity is determined to be research or development, and if deemed to be development, whether it is probable that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions may change if new information becomes available. If new information becomes available indicating that it is unlikely that future economic benefits will flow to the Company, the amount capitalized is written off to profit or loss in the period the new information becomes available.

8

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

2. BASIS OF PREPARATION (Continued)

(d) Significant management judgments and estimation uncertainty (continued):

Significant management judgments (continued)

(iv) Treatment of restricted share units:

The treatment of restricted share units ("RSUs") requires management to apply judgment in assessing the terms and conditions of the grant, as well as the historical method of settlement, to determine whether RSUs will be equity-settled or cash-settled.

(v) Assets held for sale and discontinued operations:

Judgment is required in determining whether an asset meets the criteria for classification as "assets held for sale" in the consolidated statements of financial position. Criteria considered by management includes the existence of and commitment to a plan to dispose of the assets, the expected selling price of the assets, the expected timeframe of the completion of the anticipated sale, and the period of time any amounts have been classified within assets held for sale. In addition, there is a requirement to periodically evaluate and record assets held for sale at the lower of their carrying value and fair value less costs to sell.

Judgment is applied in determining whether disposal groups represent a component of the entity, the results of which should be recorded as discontinued operations in the consolidated statements of operations and comprehensive income loss.

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses is provided below.  Actual results may be substantially different.

(i) Impairment of long-lived assets:

Long-lived assets consist of intangible assets and property, plant and equipment.

At the end of each reporting period, the Company reviews the carrying amounts of its long-lived assets to determine whether there is any indication that the carrying amount is not recoverable. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Intangible assets with indefinite useful lives and those not in use are tested for impairment annually. When an individual asset does not generate independent cash flows, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

9

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

2. BASIS OF PREPARATION (Continued)

(d) Significant management judgments and estimation uncertainty (continued):

Estimation uncertainty (continued)

(i) Impairment of long-lived assets (continued):

Recoverable amount is the higher of fair value less costs of disposal and value in use.  Fair value is determined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

(ii) Useful lives of depreciable assets:

The Company reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utilization of certain intangible assets and equipment.

(iii) Inventories:

The Company estimates the net realizable value of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices. A change to these assumptions could impact the Company's inventory valuation and impact gross margins.

(iv) Share-based expense:

The Company grants share-based awards to certain officers, employees, directors and other eligible persons. For equity settled awards, the fair value is charged to the consolidated statements of operations and comprehensive income loss and credited to reserves, over the vesting period using the graded vesting method, after adjusting for the estimated number of awards that are expected to vest.

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted for share-based payments made to employees or others providing similar services. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires making assumptions to determine the most appropriate inputs to the valuation model including the fair value of the underlying common shares, the expected life of the share option or warrant, volatility, expected forfeiture rate and dividend yield. Changes in these assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Company's share-based awards. Warrant liabilities are accounted for as derivative liabilities as they are exercisable in Canadian dollars (note 10).

10

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

2. BASIS OF PREPARATION (Continued)

(d) Significant management judgments and estimation uncertainty (continued):

Estimation uncertainty (continued)

(iv) Share-based expense (continued):

Equity-settled restricted and deferred share units are measured using the fair value of the shares on the grant date. Cash-settled restricted and deferred share units are measured using the fair value of the shares on the settlement date (Note 10).

(v) Allowance for credit losses:

The Company provides for doubtful debts by analyzing the historical default experience and current information available about a customer's creditworthiness on an account-by-account basis. Uncertainty relates to the actual collectability of customer balances that can vary from the Company's estimation. 

(vi) Lease liability:

The Company uses estimation in determining the incremental borrowing rate used to measure the lease liability, specific to the asset, underlying currency, and geographic location. Where the rate implicit in the lease is not readily determinable, the discount rate of the lease obligations are estimated using a discount rate similar to the Company's specific borrowing rate. This rate represents the rate that the Company would incur to obtain the funds necessary to purchase the asset of a similar value, with similar payment terms, and security in a similar environment. The Company applies judgment in determining whether the contract contains an identified asset, whether they have the right to control the asset, and the lease term.

(e) Approval of the consolidated financial statements:

The consolidated financial statements of the Company for the year six months ended June 30, 2025 were approved and authorized for issue by the Board of Directors on July 30, 2025.

(f) New accounting standards issued but not yet effective:

The Company has performed an assessment of new standards issued by the International Accounting Standards Board that are not yet effective. The Company has assessed that the impact of adopting these accounting standards on its consolidated financial statements would not be significant.

11

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES

The following is a summary of material accounting policies:

(a) Inventory:

Inventory components include raw materials and supplies used to assemble valves and other products, as well as finished valves and other finished products. All inventories are recorded at the lower of cost on a weighted average basis and net realizable value. The stated value of all inventories includes purchase and assembly costs of all raw materials and supplies, and attributable overhead and amortization. A regular review is undertaken to determine the extent of any provision for obsolescence. When a circumstance that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down is reversed. The amount of the reversal is limited to the amount of the original write-down.

(b) Intangible assets:

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired.  The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.  A change in the expected useful life of the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives as follows:

Patents	- 5 years
Rights	- 2 years
Intellectual Property	- 7 years

Amortization begins when the intangible asset is ready for use. Product and technology development costs, which meet the criteria for deferral and are expected to provide future economic benefits with reasonable certainty are deferred and amortized over the estimated life of the products or technology once commercialization commences.

12

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(c) Property, plant and equipment:

Property, plant and equipment are stated at cost less accumulated amortization and accumulated impairment losses, if any. Leasehold improvements and prototypes are amortized on a straight-line basis over the lease term and estimated useful life respectively.  Amortization is calculated over the estimated useful life of the property, plant and equipment at the following annual rates:

Building	- 4% declining-balance
Production equipment	- 20% declining-balance
Leasehold improvements	- 5 year straight-line
Prototypes	- 2 year straight-line

(d) Revenue recognition:

Revenues from the sale of valves, manway securement systems and related products is recognised when all the performance obligations identified in the customer contract, typically consisting of a purchase order, are satisfied. The performance obligations in a typical purchase order are the manufacture of the pressure relief valve, manway securement system, and related accessories and delivery of those items. The Company recognizes revenue when collection is reasonably assured.

(e) Impairment of long-lived assets:

The Company's tangible and intangible assets with definite useful lives are reviewed for any indication of impairment at each statement of financial position date. If indication of impairment exists, the asset's recoverable amount is estimated. Intangible assets not yet available for use or those with indefinite useful lives are tested annually for impairment. An impairment loss is recognized when the carrying amount of an asset, or its cash-generating unit, exceeds its recoverable amount. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflow from other assets or groups of assets.

The recoverable amount is the greater of the asset's fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

(f) Income taxes:

(i) Current and deferred income taxes:

Income tax expense, consisting of current and deferred tax expense, is recognized in the consolidated statements of operations and comprehensive income loss. 

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period-end, adjusted for amendments to tax payable with regard to previous years.

13

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(f) Income taxes (continued):

(i) Current and deferred income taxes (continued):

Deferred tax assets and liabilities and the related deferred income tax expense or recovery are recognized for deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. 

Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that substantive enactment occurs.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

(ii) Texas margin tax:

Effective January 1, 2007, the state of Texas enacted an annual franchise tax known as the Texas margin tax, which is equal to 1% of the lesser of: (a) 70% of a taxable entity's revenue; and (b) 100% of total revenue less, at the election of the taxpayer: (i) cost of goods sold; or (ii) compensation. A provision for the margin tax owing has been recorded in the consolidated statements of operations and comprehensive income loss.

(g) Foreign currency translation:

The accounts of foreign balances and transactions are translated into USD as follows:

(i) Monetary assets and liabilities, at the rate of exchange in effect at the consolidated statement of financial position date;

(ii) Non-monetary assets and liabilities, at the exchange rates prevailing at the time of the acquisition of the assets or assumption of the liabilities; and

(iii) Revenue and expense items (excluding amortization, which is translated at the same rate as the related asset), at the rate of exchange prevailing at the transaction date.

Gains and losses arising from translation of foreign currency are included in the determination of net income (loss).

14

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(h) Earnings per share:

The Company presents basic earnings per share data for its common shares, calculated by dividing the earnings attributable to common shareholders of the Company by the weighted average number of shares outstanding during the period. The Company uses the treasury stock method for calculating diluted earnings per share. Under this method the dilutive effect on earnings per share is calculated on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to purchase common shares at the average market price during the period. However, the calculation of earnings and diluted loss per share during the period excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive.

(i) Share-based expense:

The Company has a stock option plan, restricted share unit plan, and deferred share unit plan, which are described in note 10. The Company grants equity-settled share-based awards to directors, officers and employees, and consultants. Share-based expense to employees is measured at the fair value of the equity instruments at the grant date. The fair value of share options is measured using the Black-Scholes option pricing model. Restricted and deferred share units are measured using the fair value of the shares on the grant date.  The share-based expense to employees is recognized over the vesting period using the graded vesting method.

Fair value of share-based expenses for non-employees is recognized and measured at the date the good or services are received based on the fair value of the goods or services received. If it is determined that the fair value of goods and services received cannot be reliably measured, the share-based expense is measured at the fair value of the equity instrument issued.

For both employees and non-employees, the fair value of equity-settled share-based expense is recognized on the consolidated statements of operations and comprehensive income loss, with a corresponding increase in reserves. The amount recognized as expense is adjusted to reflect the number of awards expected to vest. Consideration received on the exercise of stock options is recorded in capital stock and the related share-based expense in reserves is transferred to capital stock. When restricted share units ("RSUs") are settled in shares, the recorded fair value is transferred from reserves to capital stock.

For both employees and non-employees, the fair value of cash-settled RSUs is recognized as share-based expense, with a corresponding increase in RSU liability over the vesting period. The amount recognized as an expense is based on the estimate of the number of RSUs expected to vest. Cash-settled RSUs are measured at their fair value at each reporting period on a mark-to-market basis. Upon vesting of the cash settled RSUs, the RSU liability is reduced by the cash payout.

After the initial grant of RSUs, the Company may determine that equity-settled awards should be treated as cash-settled going forward. In this instance, the change is accounted for as a modification of the original awards. On the date of modification, a liability is recognized based on the fair value of the vested awards to date. A corresponding reduction in reserves is recognized only to the extent of the fair value of the original awards. Any incremental fair value of the cash-settled award over the equity-settled award on modification date is recognized immediately in share-based expense.

15

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(j) Capital stock:

Proceeds from the exercise of stock options and warrants are recorded as capital stock in the amount for which the option or warrant enabled the holder to purchase a share in the Company. Any previously recorded share-based expense included in the share-based expenses reserve is transferred to capital stock on exercise of options and warrants. Capital stock issued for non-monetary consideration is valued at the closing market price at the date of issuance.  The proceeds from the issuance of units are allocated between common shares and warrants based on the residual value method. Under this method, the proceeds are allocated first to capital stock based on the fair value of the common shares at the time the units are priced and any residual value is allocated to the warrants reserve. Consideration received for the exercise of warrants is recorded in capital stock, and any related amount recorded in warrants reserve is transferred to capital stock.

Canadian dollar denominated share purchase warrants are classified as a derivative warrant liability under the principles of IFRS 9 Financial Instruments (note 10). As the exercise price of the share purchase warrant is fixed in Canadian dollars and the functional currency of the Company is the USD, the share purchase warrants are considered a derivative liability in accordance with IAS 32 Financial Instruments: Presentation as a variable amount of cash in the Company's functional currency will be received upon exercise. These types of share purchase warrants are recognized at fair value using a option pricing model at the date of issue. Share purchase warrants are initially recorded as a liability at fair value with any subsequent changes in fair value recognized in profit or loss. Upon exercise of the share purchase warrants with exercise prices in a currency other than the Company's functional currency, the share purchase warrants are revalued at the date of exercise and the total fair value of the exercised share purchase warrants is reallocated to capital stock. The proceeds generated from the payment of the exercise price are also allocated to equity.

(k) Financial instruments:

(i) Financial assets:

Initial recognition and measurement

The Company recognizes a financial asset when it becomes a party to the contractual provisions of the instrument. A financial asset is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. On initial recognition, a financial asset is classified as measured at amortized cost or fair value through profit or loss. A financial asset is measured at amortized cost if it meets the conditions that: i) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows, ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and iii) is not designated as fair value through profit or loss.

16

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(k) Financial instruments (continued):

(i) Financial assets (continued):

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Financial assets measured at fair value through profit and loss are carried in the consolidated statements of financial position at fair value with changes in fair value therein, recognized in the consolidated statements of operations and comprehensive income loss. The Company classifies cash as measured at fair value through profit or loss.

Financial assets measured at amortized cost

A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment allowance. The Company classifies accounts receivable, prepaid expenses and deposits as measured at amortized cost.

Derecognition

A financial asset or, where applicable a part of a financial asset or part of a group of similar financial assets is derecognized when:

• The contractual rights to receive cash flows from the asset have expired; or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

(ii) Financial liabilities:

Financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument. A financial liability is derecognized when it is extinguished, discharged, cancelled or when it expires. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or financial liabilities subsequently measured at amortized cost. All interest-related charges are reported in profit or loss within interest expense, if applicable.

Amortized cost

A financial liability at amortized cost is initially measured at fair value less transaction costs directly attributable to the issuance of the financial liability. Subsequently, the financial liability is measured at amortized cost based on the effective interest rate method. The Company classifies accounts payable and accrued liabilities, income tax payable and lease liabilities as measured at amortized cost.

17

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(k) Financial instruments (continued):

(ii) Financial liabilities (continued):

Fair value through profit or loss ("FVTPL")

A financial liability measured at FVTPL is initially measured at fair value with any associated transaction costs being recognized in profit or loss when incurred. Subsequently, the financial liability is re-measured at fair value, and a gain or loss is recognized in profit or loss in the reporting period in which it arises. The Company classifies derivative warrant liability and RSU liability as measured at FVTPL.

Derecognition

The Company derecognizes a financial liability when the financial liability is discharged, cancelled or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the consolidated statements of loss and comprehensive income loss.

(iii) Fair value hierarchy:

The Company categorizes financial instruments measured at fair value at one of three levels according to the reliability of the inputs used to estimate fair values. The fair value of financial assets and financial liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Financial assets and liabilities in Level 2 are valued using inputs other than quoted prices for which all significant inputs are based on observable market data. Level 3 valuations are based on inputs that are not based on observable market data.

(l) Leases:

At inception, the Company assesses whether a contract contains an embedded lease. A contract contains a lease when the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

The Company, as lessee, is required to recognize a right-of-use asset ("ROU asset"), representing its right to use the underlying asset, and a lease liability, representing its obligation to make lease payments.

IFRS 16 Leases, provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value.

The Company recognizes a ROU asset and a lease liability at the commencement of the lease. The ROU asset is initially measured based on the present value of lease payments, plus initial direct cost, less any incentives received. It is subsequently measured at cost less accumulated amortization, impairment losses and adjusted for certain remeasurements of the lease liability. The ROU asset is amortized from the commencement date over the shorter of the lease term or the useful life of the underlying asset. The ROU asset is subject to testing for impairment if there is an indicator of impairment.

18

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(l) Leases (continued):

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. The incremental borrowing rate is the rate which the operation would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment.

Lease payments included in the measurement of the lease liability are comprised of:

• Fixed payments, including in-substance fixed payments;

• Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• Amounts expected to be payable under a residual value guarantee;

• The exercise price under a purchase option that the Company is reasonably certain to exercise;

• Lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option; and

• Penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or a rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

Variable lease payments that do not depend on an index or a rate not included in the initial measurement of the ROU asset and lease liability are recognized as an expense in profit or loss in the period in which they are incurred.

The ROU assets are presented within "Property, plant and equipment" and the lease liabilities are presented in "Lease liability" on the consolidated statements of financial position.

(m) Research and development:

The Company incurs costs on activities that relate to research and development of new products. Research and development costs are expensed, except in cases where development costs meet certain identifiable criteria for deferral, including technical and economic feasibility. Development costs are capitalized only if the expenditures can be reassured reliably, the product or process is technically and commercial feasible, future economic benefits are probable, and the Company intends to, and has sufficient resources to, complete development and to use or sell the asset. Deferred development costs are amortized over the life of related commercial production, or in the case of serviceable property and equipment, are included in the appropriate property group and are depreciated over the estimated useful life. As at June 30, 2025, the Company has capitalized $1 (2024 - $1) of research and development costs as part of intellectual property (Note 8).

19

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

3. MATERIAL ACCOUNTING POLICIES (Continued)

(n) Provisions and contingent liabilities:

Provisions for losses arising from claims, litigation and other sources are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount can be reasonably estimated. Provisions are adjusted as additional information becomes available or circumstances change. Contingent liabilities are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

4. CAPITAL MANAGEMENT

The Company considers its capital to be comprised of shareholders' equity.

The Company's objectives in managing its capital are to maintain its ability to continue as a going concern and to further develop its business. To effectively manage the Company's capital requirements, the Company has a planning and budgeting process in place to meet its strategic goals.

In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. There have been no changes to the Company's approach to capital management during the six months ended June 30, 2025.  Management reviews the capital structure on a regular basis to ensure the above objectives are met. The Company is not subject to externally imposed capital requirements. 

5. FINANCIAL INSTRUMENTS

Financial instruments are agreements between two parties that result in promises to pay or receive cash or equity instruments. The Company's financial instruments classified as level 1 in the fair value hierarchy are cash, accounts receivable, prepaid expenses, deposits, and accounts payable and accrued liabilities and income tax payable, as their carrying values approximate their fair values due to their short-term nature. The RSU liability is classified as level 1 as its value is based on the market price of the Company's common shares. The lease liability is classified as level 3. 

The Company has exposure to the following risks from its use of financial instruments:

• Credit risk;

• Liquidity risk; and

• Market risk.

(a) Credit risk:

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Cash is held with major Canadian and US financial institutions and the Company's concentration of credit risk for cash and maximum exposure thereto is $448,273 (2024 - $153,147).

20

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

5. FINANCIAL INSTRUMENTS (Continued)

(a) Credit risk (continued):

With respect to its accounts receivable, the Company assesses the credit ratings of all customers and maintains provisions for potential credit losses, and any such losses to date have been within management's expectations. The Company's credit risk with respect to customers' accounts receivable and maximum exposure thereto is $1,264,353 (2024 - $982,114). The Company's concentration of credit risk for accounts receivable with respect to its significant customers is as follows: Customer A is $330,730 (2024 - $62,204), Customer B is $554,705 (2024 - $482,500), Customer C is $87,770 (2024 - $127,691), and Customer D is $33,072 (2024 - $44,044) (Note 13). 

To reduce the credit risk of accounts receivable, the Company regularly reviews the collectability of the customers' accounts receivable to ensure there is no indication that these amounts will not be fully recoverable. The Company's aging of customer accounts receivable, excluding goods and services tax receivable, at June 30, 2025 and December 31, 2024 is as follows:

		June 30,			December 31,
		2025			2024
Current	$	1,016,595		$	732,392
1 - 60 days		245,763			203,164
61 days and over		1,995			46,558
	$	1,264,353		$	982,114

(b) Liquidity risk:

Liquidity risk is the risk that the Company will be unable to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquid funds to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.

At June 30, 2025, the Company has $488,273 (2024 - $153,147) of cash to settle current liabilities of $1,830,598 (2024 - $2,282,409) consisting of the following: accounts payable and accrued liabilities of $1,739,348 (2024 - $2,138,658), income tax payable of $16,524 (2024 - $68,024), the current portion of lease liability of $56,997 (2024 - $56,997), and RSU liability of $17,729 (2024 - $18,730). All payables classified as current liabilities are due within a year. The amount of the Company's remaining undiscounted contractual maturities for the lease liability is approximately $47,142 (2024 - $124,387) due within one to three years (Note 9).

During the three months ended June 30, 2025, the Company repaid in full the $250,000 previously drawn on its $500,000 line of credit in the first quarter. As a result, the Company now has access to the entire $500,000 available under its line of credit. Amounts drawn on the line of credit bear interest at the Wall Street Journal prime rate (WSJ Prime Rate) plus 1.00%. At June 30, 2025, the WSJ Prime Rate was 7.50%. The line of credit is secured by a general security agreement over the Company's assets.

21

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

5. FINANCIAL INSTRUMENTS (Continued)

(c) Market risk:

The significant market risks to which the Company could be exposed are interest rate risk and currency risk.

(i) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in market interest rates. As at June 30, 2025, and December 31, 2024, the Company is not exposed to significant interest rate risk.

(ii) Currency risk:

The Company is exposed to currency risk to the extent expenditures incurred or funds received, and balances maintained by the Company are denominated in Canadian dollars ("CAD"). The Company does not manage currency risk through hedging or other currency management tools.

As at June 30, 2025 and December 31, 2024, the Company had the following net monetary assets (liabilities) denominated in CAD (amounts presented in USD):

		June 30,			December 31,
		2025			2024
Cash	$	3,623		$	32,456
Accounts receivable		3,951			70,075
Accounts payable and accrued liabilities		(30,806	)		(278,780	)
	$	(38,379	)	$	(176,249	)

Based on the above, assuming all other variables remain constant, a ~9% (2024 - 9%) weakening or strengthening of the USD against the CAD would result in approximately $3,396 (2024 - $15,862) foreign exchange loss or gain in the consolidated statements of operations and comprehensive income loss.

6.  INVENTORY

		June 30,			December 31,
		2025			2024
Finished goods	$	94,723		$	94,207
Raw materials and supplies		2,579,630			2,948,542
	$	2,674,353		$	3,042,749

For the six months ended June 30, 2025, included in cost of goods sold is $2,675,178 (2024 - $2,408,829) of direct material costs recognized as expense.

22

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

7. PROPERTY, PLANT AND EQUIPMENT

								Leasehold			Production						ROU
Cost		Land			Building			Improvements			Equipment			Prototypes			Asset			Total
Balance, December 31, 2023	$	12,558		$	2,963,983		$	43,715		$	1,032,070		$	3,925,375		$	316,470		$	8,294,171
Additions		-			-			-			69,245			758,454			219,408			1,047,107
Disposals		-			-			-			(134,121	)		-			-			(134,121	)
Lease reduction (Note 9)		-			-			-			-			-			(162,238	)		(162,238	)
Impairment (Note 16)		-			-			-			(55,047	)		(585,843	)		-			(640,890	)
Transfer to assets held for sale (Note 16)		-			-			-			(10,425	)		(79,294	)		-			(89,719	)
Balance, December 31, 2024	$	12,558		$	2,963,983		$	43,715		$	901,722		$	4,018,692		$	373,640		$	8,314,310
Additions		-			1			-			-			-			-			1
Disposals		-			-			-			(35,163	)		-			(8,558	)		(43,721	)
Balance, June 30, 2025	$	12,558		$	2,963,984		$	43,715		$	866,559		$	4,018,692		$	365,082		$	8,270,590
Accumulated Amortization
Balance, December 31, 2023	$	-		$	965,163		$	43,715		$	819,906		$	3,010,363		$	299,848		$	5,138,995
Amortization		-			78,762			-			48,557			1,008,328			74,001			1,209,648
Disposals		-			-			-			(79,878	)		-			(117,004	)		(196,882	)
Balance, December 31, 2024	$	-		$	1,043,925		$	43,715		$	788,585		$	4,018,691		$	256,845		$	6,151,761
Amortization		-			19,690			-			15,660			-			6,029			41,379
Disposals		-			-			-			(40,330	)		-						(40,330	)
Balance, June 30, 2025	$	-		$	1,083,305		$	43,715		$	763,915		$	4,018,691		$	282,736		$	6,152,810
Carrying Value
December 31, 2024	$	12,558		$	1,920,058		$	-		$	113,137		$	1		$	116,795		$	2,162,549
June 30, 2025	$	12,558		$	1,880,679		$	-		$	102,644		$	1		$	82,346		$	2,078,228

Included in cost of goods sold is $42,393 (2024 - $47,325) of amortization related to property, plant and equipment.

Included in amortization expense is $3,741 (2024 - $48,079) of amortization related to property, plant and equipment.

Included in research expense is $Nil (2024 - $445,762) of amortization related to property, plant and equipment.

23

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

8. INTANGIBLE ASSETS

Cost		Patent			Rights			Intellectual Property			Total
Balance, December 31, 2023	$	40,840		$	672,959		$	471,311		$	1,185,110
Additions		-			-			-			-
Impairment (Note 16)		-			-			(471,310	)		(471,310	)
Balance, December 31, 2024	$	40,840		$	672,959		$	1		$	713,800
Accumulated Amortization
Balance, December 31, 2023	$	40,840		$	672,959		$	-		$	713,799
Amortization		-			-			-			-
Balance, December 31, 2024 and June 30, 2025	$	40,840		$	672,959		$	-		$	713,799
Carrying Value
December 31, 2024 and June 30, 2025	$	-		$	-		$	1		$	1

During the year ended December 31, 2010, the Company entered into an agreement to acquire a patent related to their manway securement systems. The Company is obligated to pay a 5% royalty in accordance with the agreement.

On November 10, 2016, the Company entered into a technology development agreement to acquire all intellectual property rights (the "Products") of G&J Technologies, Inc. (the "Vendor"). The Vendor also entered into a consulting agreement with the Company for a fee of $10,000 per month. 

The Company is also required to pay a royalty to the Vendor of 2.5% of the net sales earned by the Company, to be paid within 30 days of the end of each calendar quarter. As at June 30, 2025, the Company has not earned any revenue from the sale of the Products.

On October 25, 2021, the Company entered into a technology services agreement with a third-party developer (the "Agreement") to further develop its internal intellectual property related to the active suspension control system for no road vehicles. The Agreement consists of total payments of $663,419 ($810,000 CAD). Intellectual property developed under the Agreement will be the property of the Company and certain background technology of the developer will be licensed by the Company for the purpose of manufacturing and selling the related products. The royalty payment for the license will be $27,000 CAD per year for a period of 10 years (the "License Fee") with the first-year fee waived and the second year discounted 50%. If the Company purchases a minimum of 10 control systems designed under the Agreement in any year, the License Fee for that year will be waived. The Company may receive an unrestricted license to use the background technology of the developer at any time by paying the cumulative remaining License Fees plus a one-time payment of $50,000

24

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

9. LEASE LIABILITY

The Company has a lease agreement for its warehouse space in West Kelowna, British Columbia.

The continuity of the lease liability for the period ended June 30, 2025 and December 31, 2024 is as follows:

Lease liability		Warehouse			Vehicles			Total
Lease liability, December 31, 2023	$	16,636		$	-		$	16,636
Additions		383,391			-			383,391
Lease payments		(106,099	)		-			(106,099	)
Lease reduction		(178,025	)		-			(178,025	)
Lease liability, December 31, 2024	$	115,903		$	-		$	115,903
Lease payments		(6,829	)		-			(6,829	)
Lease liability, June 30, 2025	$	104,139		$	-		$	104,139
Current portion	$	56,997			-		$	56,997
Long-term portion		47,142			-			47,142
	$	104,139		$	-		$	104,139

During the year ended December 31, 2024, the Company entered into a new lease, commencing February 1, 2024, for a period of three years. The new lease resulted in an increase to the lease liability of $383,391. On September 6, 2024, the lease was renegotiated to reduce the lease space in use, which resulted in a lease liability reduction of $178,025. On April 7, 2025, the company subleased the remaining space but still retains the lease obligations in accordance with accounting standards.

10. CAPITAL STOCK

Authorized:

Unlimited Class A non-cumulative, preferred shares without par value, of which 5,000,000 are designated Class A, convertible, voting, preferred shares. No preferred shares have been issued.

Unlimited common shares without par value.

(a) Common shares:

There were no share issuances during the six months ended June 30, 2025.

During the year ended December 31, 2024, the Company issued 716,664 common shares valued at $152,020. These shares were issued pursuant to RSU agreements.

25

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

10. CAPITAL STOCK (Continued)

(b) Stock options:

The Company has a stock option plan (the "Plan") available to employees, directors, officers and consultants with grants under the Plan approved from time to time by the Board of Directors. Under the Plan, the Company is authorized to issue options to purchase an aggregate of up to 10% of the Company's issued and outstanding common shares. Each option can be exercised to acquire one common share of the Company. The exercise price for an option granted under the Plan may not be less than the market price at the date of grant less a specified discount dependent on the market price.

Options to purchase common shares have been granted to directors, employees and consultants as follows:

Exercise	Expiry		December 31,									Forfeited/			June 30,
Price	Date		2024			Granted			Exercised			Expired			2025
$0.75(USD)	August 18, 2025		750,000			-			-			-			750,000
Total outstanding			750,000			-			-			-			750,000
Total exercisable			750,000			-			-			-			750,000
Exercise	Expiry		December 31,									Forfeited/			December 31,
Price	Date		2023			Granted			Exercised			Expired			2024
$0.78(USD)	August 19, 2024		700,000			-			-			(700,000	)		-
$0.82(USD)	November 8, 2024		10,000			-			-			(10,000	)		-
$0.76(USD)	February 11, 2025		200,000			-			-			-			200,000
$0.75(USD)	August 18, 2025		750,000			-			-			-			750,000
Total outstanding			1,660,000			-			-			(710,000	)		950,000
Total exercisable			1,660,000			-			-			(710,000	)		950,000

A summary of the Company's stock options as at June 30, 2025 and December 31, 2024 and changes for the periods then ended are as follows:

					Weighted
					Average Exercise
		Number			Price
Outstanding, December 31, 2023		1,660,000		$	0.76
Expired		(710,000	)	$	0.78
Outstanding and exercisable, December 31, 2023		950,000		$	0.75
Expired		(200,000	)	$	0.76
Outstanding and exercisable, December 31, 2024		750,000		$	0.75

The weighted average contractual life for the remaining options at June 30, 2025 is 0.13 years (2024 - 0.52 years).

26

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

10. CAPITAL STOCK (Continued)

(b) Stock options (continued):

Share-based expense

Share-based expense of $Nil (2024 - $Nil) was recognized in the three months ended June 30, 2025 for stock options.   

(c) Restricted share units:

On April 28, 2021, the Company implemented a Restricted Share Unit Plan (the "RSU Plan"). Pursuant to the RSU Plan, the Company will grant RSUs to directors, officers, employees, and consultants for services as approved from time to time by the Board. The maximum number of common shares made available for issuance pursuant to the RSU Plan shall not exceed 5% of common shares issued and outstanding and shall not exceed 10% of the common shares issued and outstanding less any common shares reserved for issuance under all other share compensation arrangements. The vesting terms, settlement, and method of settlement of the RSUs granted under the RSU Plan will be determined by the Board of Directors.

A summary of the Company's RSUs as at June 30, 2025 and December 31, 2024 and changes for the periods then ended, are as follows:

Outstanding, December 31, 2023		915,814
Settled		(716,664	)
Repurchased		(251,667	)
Cancelled / forfeited		(155,826	)
Granted		750,000
Outstanding December 31, 2024 and June 30, 2025		541,657

During the year ended December 31, 2024, the Company granted 750,000 (2023 - 525,000; 2022 - 410,000) Incentive RSUs with an estimated fair value of $92,837 (2023 - $61,574; 2022 - $123,000) based on the fair market value of one common share on the date of issuance. The fair value will be recognized as an expense using the graded vesting method over the vesting period. The RSUs granted in 2024 vest as follows: 66.66% immediately, 16.67% one year after grant, and 16.67% the second year after grant. The RSUs granted in 2023 and 2022 vest as follows: 33% one year after grant and 33% every year thereafter.

During the year ended December 31, 2024, the Company repurchased 251,667 (2023 - 130,850) equity-settled RSUs with a fair value of $38,655 (2023 - $66,073) through a cash payment of $32,625 (2023 - $25,288) based on an average share price of $0.13 (2023 - $0.19) on vesting date and recorded a gain on repurchase of RSUs of $6,030 (2023 - $40,785). 

For the period ended June 30, 2025 and year ended December 31, 2024, the RSU liability decreased to $17,729 (2024 - $18,730) to recognize the vested portion of previously granted and outstanding RSUs. This represents 541,657 (2023 - 915,814) RSUs valued at $0.13 (2023 - $0.15).

In connection with the RSUs awarded, the Company recognized share-based expense of $165,510 (2023 - $129,490) for the year ended December 31, 2024

27

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

10. CAPITAL STOCK (Continued)

(d) Deferred share units:

On April 28, 2021, the Company implemented a Non-Employee Directors Deferred Share Unit Plan (the "DSU Plan"). Pursuant to the DSU Plan, non-employee directors may elect to receive deferred share units ("DSUs") in lieu of a cash payment of up to 50% of their annual base compensation determined by the Board. The maximum number of common shares made available for issuance pursuant to the DSU Plan shall not exceed 2% of the common shares issued and outstanding and shall not exceed 10% of the common shares issued and outstanding less any common shares reserved for issuance under all other share compensation agreements. At December 31, 2024 and 2023, no DSUs have been granted to non-employee directors.

11. RELATED PARTY TRANSACTIONS

Related party transactions not otherwise described in these consolidated financial statements are shown below. The remuneration of the Company's directors and other members of key management, being the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer who have the authority and responsibility for planning, directing and controlling the activities of the Company consist of the following amounts:

		June 30,			June 30,
For Six Months ended		2025			2024
Management compensation	$	395,000		$	360,000
Directors' fees		62,875			38,750
	$	457,875		$	398,750

During the three months ended June 30, 2024, the Company paid consulting fees of $30,000 to a consulting company owned by the spouse of the previous Chief Executive Officer. The consulting agreement was terminated at the end of the second quarter of 2024.

12. SUPPLEMENTAL CASH FLOW INFORMATION

		June 30,			June 30,
		2025			2024
Proceeds from sale of equipment included in accounts receivable	$	32,159			-
Interest paid	$	6,507		$	8,378

13. SIGNIFICANT CUSTOMERS

The following table represents sales to individual customers exceeding 10% of the Company's revenues:

		June 30,			June 30,
		2025			2024
Customer A	$	2,230,105		$	2,036,295
Customer B	$	1,279,794		$	468,495
Customer C	$	448,037		$	744,952
Customer D	$	324,668		$	1,012,622

28

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

The customers are major US corporations who have displayed a pattern of consistent timely payment of amounts owing from sales.

14. EMPLOYEE BENEFITS

Total employee benefit expenses, including salary and wages, management compensation, share-based expense and benefits for the six months ended June 30, 2025 amounted to $1,668,985 (2024 - $1,969,740).

15. SEGMENTED INFORMATION

The Company operates one business segment with operations and long-term assets in the United States. The business segment consists of the design, production and distribution of various proprietary products for the rail sector. At June 30, 2025, long-term assets of $1,995,880 (2024 - $2,045,753) relates to this segment.

During the year ended December 31, 2024, the Company ceased operations in its KXI segment and, as such, has disclosed it as a discontinued operation (Note 16). Prior to the ceased operations, the Company also operated a segment development the KXI HD control system for no road vehicles. As at June 30, 2025, long-term assets of $82,347 (2024 - $116,796) relates to the heavy-duty suspension control system located in Canada.

16. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

During the year ended December 31, 2024, the Company ceased operations of its KXI HD control system (within its wholly-owned subsidiary, KIQ X Industries ("KIQ X"). Management determined the operations of KIQ X to have met the definition of discontinued operations in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Consequently, the operations of KIQ X have been classified separately from the Company's continuing operations to show a net loss from discontinued operations as a single line in the consolidated statements of operations and comprehensive income loss.

As a result of ceasing operations within KIQ X, indicators of impairment existed leading to a test of the recoverable amount of the KIQ X cash-generating unit, which consists of equipment, prototypes and intangible assets. A value-in-use calculation is not applicable as the Company does not have any expected cash flows from using the assets at this stage. In estimating the fair value less costs of disposal, management estimated a recoverable amount of $NIL representing no pending sale transactions as at June 30, 2025 compared to $89,719 at December 31, 2024. As this valuation technique requires management's judgment and estimates of the recoverable amount, it is classified within Level 3 of the fair value hierarchy.

29

---

Kelso Technologies Inc. Notes to Consolidated Interim Financial Statements For the six months ended June 30, 2025 and 2024 (Unaudited – Prepared by Management) (Expressed in US Dollars)

16. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Continued)

For the three months and six months ended June 30, 2025 and 2024, the loss from discontinued operations relate to the following:

		Three Months Ended						Six Months Ended
		June 30, 2025			June 30, 2024			June 30, 2025			June 30, 2024
Expenses
Consulting and filing fees		2,500			54,426			2,500			98,285
Accounting and legal		-			(8,587	)		18,125			38,567
Office and administration		9,483			176,683			22,259			297,310
Research		-			156,876			-			313,752
Travel		-			1,997			-			3,808
Marketing		-			31,488			-			48,242
Foreign exchange loss (gain)		(17,613	)		(31,411	)		25,574			20,382
Amortization		19,865			52,733			41,840			94,144
		14,235			434,205			110,298			914,490
Income (Loss) before the following		(14,235	)		(434,205	)		(110,298	)		(914,490	)
Sale of Property Plant & Equipment		15,655			-			19,073			-
Net Income (Loss) from Discontinued Operations		1,420			(434,205	)		(91,225	)		(914,490	)
Cash flows
Operating activities		(40,325	)		65,663			(204,781	)		(145,001	)
Investing activities		88,935			(536,417	)		114,269			(918,585	)
Financing activities		(4,935	)		(47,634	)		(11,764	)		(47,634	)
Cash flows used in discontinued operations		43,675			(518,388	)		(102,276	)		(1,111,220	)

17. SUBSEQUENT EVENT

On July 08, 2025, Kelso Technologies Inc. ("Kelso") and Kitchener Holdings Corp.  ("Kitchener") reached a settlement agreement to resolve the lawsuit filed by Kitchener against Kelso in October 2024. The settlement agreement marks the conclusion of all matters between the parties, bringing an end to the legal proceedings. Both parties have agreed to the terms set out in the settlement agreement, which includes the execution of a Full and Final Release by Kitchener and the dismissal of the lawsuit. Kelso and Kitchener have agreed to maintain confidentiality of the settlement terms and the facts surrounding the settlement. 

30

---

KELSO TECHNOLOGIES INC.

MANAGEMENT DISCUSSION & ANALYSIS

THREE MONTHS AND SIX MONTHS ENDED

June 30, 2025

(Expressed in US Dollars unless otherwise indicated)

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

MANAGEMENT DISCUSSION AND ANALYSIS

HIGHLIGHTS:

• Kelso Technologies Inc. announces its second consecutive profitable quarter.

• The Company reported Q2-2025 net income of $72,175 or $0.00 per share. Excluding discontinued operations, the Company reported net income of $70,705.

• For Q2-2025, gross revenue decreased by 8.6% YoY to $2.64 million compared to $2.89 million in Q2-2024. The revenue decline was mainly due to macroeconomic challenges, as Kelso's main customers adopted a cautious stance in response to new tariffs in April and May. Since the beginning of June, the Company has observed signs of improvement as the industry adjusts to current conditions.

• In the first half of 2025, the Company cut total expenses by 30% ($580,303) year over year through disciplined cost management. While revenue in the second quarter was affected by new tariff-related uncertainty for tank car builds, the Company remained profitable, highlighting strong operational execution. Ongoing strategic planning and innovation continue to support sustainable revenue growth despite persistent challenges.

• For FY2025, the company believes that sales growth will be flat to slightly positive, ranging from 0% to 5%, compared to fiscal year 2024. Looking ahead, the company anticipates that new tank car builds will be lower in 2026 before rebounding in 2027. In preparation for this expected recovery, Kelso is maintaining disciplined cost management and ensuring operational readiness to seize growth opportunities as industry demand strengthens in the coming years. This strategy is designed to position the company to capitalize on the anticipated demand and enhance profitability.

• During the three months ended June 30, 2025, the Company repaid in full the $250,000 previously drawn on its $500,000 line of credit in the first quarter. As a result, the Company now has access to the entire $500,000 available under its line of credit.

• On July 08, 2025, Kelso Technologies Inc. ("Kelso") and Kitchener Holdings Corp.  ("Kitchener") reached a settlement agreement to resolve the lawsuit filed by Kitchener against Kelso in October 2024. The settlement agreement marks the conclusion of all matters between the parties, bringing an end to the legal proceedings. Both parties have agreed to the terms set out in the settlement agreement, which includes the execution of a Full and Final Release by Kitchener and the dismissal of the lawsuit. Kelso and Kitchener have agreed to maintain confidentiality of the settlement terms and the facts surrounding the settlement.

GENERAL

The following management discussion and analysis ("MD&A") of the operations and financial condition of Kelso Technologies Inc. (the "Company" or "Kelso") provides an overview of significant developments that have affected the Company's performance during the three months ended June 30, 2025. It should be read in conjunction with the unaudited interim consolidated financial statements of the Company together with the related notes thereto for the three months ended June 30, 2025.

The unaudited interim consolidated financial statements for the three months ended June 30, 2025 referred to in this MD&A have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). The following MD&A and the Company's unaudited interim consolidated financial statements were approved by the Audit Committee on July 29, 2025 and the Board of Directors on July 30, 2025.

All amounts herein are expressed in United States dollars (the Company's functional currency) unless otherwise indicated.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

NON-IFRS FINANCIAL MEASURES

In addition to the results reported in accordance with IFRS Accounting Standards, the Company uses one non-IFRS financial measure known as "Adjusted EBITDA". Adjusted EBITDA is not recognized under IFRS Accounting Standards as a supplemental indicator of the Company's operating performance and financial position. This non-IFRS financial measure is provided to enhance the user's understanding of the Company's historical and current financial performance and its prospects for the future. This data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS Accounting Standards. The following discussion explains the Company's use of "Adjusted EBITDA".

References to Adjusted EBITDA in this MD&A refer to net earnings from continuing operations before interest, taxes and tax recoveries, amortization, deferred income tax recovery, unrealized foreign exchange losses, non-cash share-based expenses (Black-Scholes option pricing model) gain on revaluation of derivative warrant liability, and write-off of inventory assets. Adjusted EBITDA is not an earnings measure recognized by IFRS Accounting Standards and does not have a standardized meaning prescribed by IFRS Accounting Standards. Adjusted EBITDA is an alternative measure in evaluating the Company's business performance and Management believes it better reflects the Company's operational performance. Readers are cautioned that Adjusted EBITDA should not be construed as an alternative to net income as determined under IFRS Accounting Standards; nor as an indicator of financial performance as determined by IFRS Accounting Standards; nor a calculation of cash flow from operating activities as determined under IFRS Accounting Standards; nor as a measure of liquidity and cash flow under IFRS Accounting Standards. The Company's method of calculating Adjusted EBITDA may differ from methods used by other issuers and, accordingly, the Company's Adjusted EBITDA may not be comparable to similar measures used by any other issuer. Adjusted EBITDA is the only non-GAAP figure disclosed in this management discussion (See page 4 for reconciliation).

LEGAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains "forward-looking statements" within the meaning of applicable securities laws that reflect the Company's current expectations, forecasts and assumptions. Generally, forward looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words or phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to: new rail tank car production tracking replacement demand; revenue streams from rail tank car operations improving slowly over the upcoming years when new product offerings gain final Association of American Railroads ("AAR") regulatory approvals; longer term adoption of new product developments by the rail industry; increasing sales volume from newly developed products for a wider variety of rail tank car applications; expectations for capital resources and operations to continue the Company's ability to conduct ongoing business as planned for the foreseeable future; the strategic focus and obtaining  AAR approvals for the additional  products under field service trial to better grow the Company's financial performance; generating minimal exceedance revenue from motivated customers; revenue growth opportunities; the ability of the Company to exploit its growing competitive advantages in the rail industry; becoming the primary, high quality valve supplier and fully servicing the rail tank car market; being on course for new value creation; the commercialization of Kelso's new products; and growing equity value from financial performance generated from a wider range of new proprietary products.

Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results expressed or implied by such forward-looking statements.

Although Kelso believes the Company's anticipated future results, performance or achievements expressed or implied by the forward-looking statements are based upon reasonable assumptions and expectations, they can give no assurance that such expectations will prove to be correct. The reader should not place undue reliance on forward-looking statements as such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Kelso to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation; the economic condition of the railroad industry, which is affected by numerous factors beyond the Company's control (including tariffs, slow sales cycles, creation and adoption of new technologies, the existence of present and possible government regulation and competition); the risk that the Company's products may not work as well as expected; the Company may not be able to break into new markets because such markets are served by strong and embedded competitors or because of long-term supply contracts; the Company may not be able to grow and sustain anticipated revenue streams; the Company may have underestimated the cost of product development and the time it takes to bring products to market; the Company may not be able to finance the Company's intended product development; that Management may not be able to continue to initiate new product strategies to secure a more reliable growth of financial performance in the future; that testing results for new products may reveal that some or all products being developed are technologically or economically infeasible for market development and may be dropped; that the Company's products may not sell as well as expected, and competitors may offer better or cheaper alternatives to the Company's products; the Company's technologies may not be patentable, and if patents are granted, the Company may not be able to protect the Company's investment in intellectual property if the Company's patents are challenged; the Company's intended technologies may infringe on the intellectual property of other parties; the Company may not have any parties interested in licensing the Company's technology as expected and certain other risks detailed from time-to-time in Kelso's public disclosure documents.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

Although the Company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that could cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements.

Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made. Readers are advised to consider such forward-looking statements in light of the risks set forth in the "Risks and Uncertainties" section of this MD&A (Page 16). The Company does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws. Additional information about the Company and Kelso's business activities is available under the Company's profile on SEDAR at www.sedar.com in Canada and on EDGAR at www.sec.gov in the United States or the Company's website at www.kelsotech.com.

DATE OF REPORT

July 30, 2025

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

(*) FY2024 numbers adjusted for discontinued operations. Refer to Note 16 of the Q2-2025 Financial Statements.

Readers are cautioned that Adjusted EBITDA (Loss) should not be construed as an alternative to net income (loss) as determined under IFRS Accounting Standards; nor as an indicator of financial performance as determined by IFRS Accounting Standards; nor a calculation of cash flow from operating activities as determined under IFRS Accounting Standards; nor as a measure of liquidity and cash flow under IFRS Accounting Standards. The Company's method of calculating Adjusted EBITDA may differ from methods used by other issuers and, accordingly, the Company's Adjusted EBITDA may not be comparable to similar measures used by any other issuer.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

CORPORATE OVERVIEW

Kelso is a diverse product engineering company that specializes in the research, development, production and distribution of proprietary transportation equipment. Over the past decade the Company has earned a reputation as a reliable manufacturer of high-quality tank car equipment used in the handling, containment, and transport of hazardous and non-hazardous commodities.

All Kelso products are developed with an emphasis on providing economic and operational advantages to the customer while mitigating the impact of human error and environmental releases. The Company offers specialized tank car and tank trailer equipment and no-spill fast fuel loading systems.

The Company has firmly established itself as a leading North American manufacturer of specialized tank car equipment. The Company's core tank car products include safety relief valves for general purpose and pressure tank cars. Additionally, other products include vacuum relief valves, bottom outlet valves and angle valves. These products provide some of the key elements of a tank car's structure, ensuring the safe handling, containment and transport of hazardous and non-hazardous materials. With a solid history of innovative technology and a reputation anchored by the reliability of supply, the Company serves many of North America's largest tank car builders, lessors and shippers.

The Company's common shares are publicly traded on the Toronto Stock Exchange ("TSX") under the trading symbol "KLS". The Company first listed on the Toronto Stock Exchange on May 22, 2014 and on the NYSE American Exchange on October 14, 2014. On March 5, 2024 the Company announced that it had notified the NYSE American of its intention to voluntarily delist its common shares ("Shares") from the NYSE American, which occurred on March 25, 2024. The Shares continue to trade on the TSX.

The Company operates in combination with the Company's wholly owned subsidiaries Kelso Technologies (USA) Inc, KIQ Industries Inc., Kel-Flo Industries Inc. (formerly Kelso Innovative Solutions Inc.), KIQ X Industries Inc. and KXI™ Wildertec™ Industries Inc.

Kelso Technologies (USA) Inc (Kelso Rail)

Kelso is a leading developer and supplier of a wide range of rail tank car valves and equipment designed primarily for use in the hazardous and non-hazardous transportation of commodities. The Company's valves help shippers safely deliver hazardous and non-hazardous commodities wherever they need to go in North America. Customer-driven product development and business strategies support the Company's goals of positive financial performance.

The Company keeps rail products smart, simple and focused on customer needs. Kelso concentrates on sound business fundamentals, operational practices, adjusted EBITDA returns and careful capital management. Today, the Company invests in customer driven co-engineered product development to improve the probability of market adoption as it relates to rail-specific products. Management monitors industry trends and regulated technology requirements, as well as select consideration of potential R&D projects that could benefit the Company's future revenue streams.

In the 1990's Kelso's origins were based on unique inventions that better served problematic safety issues in the transport of hazmat commodities by rail tank car. The Company's commercial business evolution began with the adoption of the Company's patented constant force Pressure Relief Valves during the surge in crude-by-rail ("CBR") shipments from 2012 to 2015.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

The Company's products offer strong economic value for tank car stakeholders. This value includes reliable high-quality equipment, industry-leading warranties, high service standards and short lead times for delivery. Over the past decade Kelso has been able to develop a niche in the marketplace for many of the Company's products. Key products include:

Rail and Road Transport Equipment

• Pressure Relief Valves
• Vacuum Relief Valves
• Bottom Outlet Valves (under AAR field service trial)
• Pressure Car Pressure Relief Valves
• Pressure Car Angle Valves (under AAR field service trial)
• DOT 407 PRV/VRV for truck tankers (new market)
• No spill locomotive fueling equipment
• Other specialty valves, parts, equipment and services

Potential Tarriff Impact
 

The rail industry faces risks from potential US tariff actions. These tariffs could drastically increase the cost of imported materials and components, which many companies in the sector rely upon for their manufacturing processes. The increased costs could lead to higher prices for end products, reduced profit margins, and potential disruptions in supply chains.

Kelso believes it is uniquely positioned to mitigate certain of these risks as our valves production takes place in Bonham, Texas. This ensures that all manufacturing processes are under domestic control and not subject to the uncertainties of international trade policies. Moreover, Kelso utilizes US suppliers for its raw materials and components, further insulating the Company from potential US tariff impacts. This strategic approach not only secures a stable supply chain but also enhances the quality and reliability of Kelso's products, providing a significant competitive advantage in a volatile market. Kelso believes that its commitment to domestic production in the US and local sourcing places the Company in a favorable position to navigate the tariff challenges effectively.

Rail Tank Car Market Indicators

The tank car market in North America is not considered a growth industry but rather a cyclical commodity market that is historically unpredictable. Kelso is focused on growing the rail business through the sales of a wider range of pressure relief valves, vacuum relief valves, ball valves, bottom outlet valves, angle valves and other specialized equipment.

Based on current projections from industry analysts (Freight Transportation Research Associates) new tank car demand is expected to exceed 10,000 tank cars in 2025. The anticipated new build and re-qualification activity combined with a growing number of qualified Kelso products are expected to fuel new financial growth from rail operations.

The Company will continue to develop new rail products that are anticipated to provide financial growth opportunities. The Company's focus on core design objectives are:

• To ensure public safety by mitigating the potential negative environmental impacts of non-accidental releases of hazardous materials in transit.
• To manage negative and positive pressure within the tank thereby reducing the risks of implosion or explosion ensuring the safe containment of hazardous materials while being loaded, transported and unloaded.
• To improve the customers' operating effectiveness producing economic rewards with proven reliable equipment.
• To build reliable equipment domestically, featuring high-quality U.S. milled or cast parts.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

• To ensure that customers benefit with more profitable in-service time for tank cars.

The Company's working capital was $2,682,405 as at June 30, 2025 which includes $2,674,352 in inventories required for timely customers' deliveries. Capital resources generated from rail operations are anticipated to sustain the Company's capacity to continue its business activities for the foreseeable future.

Kelso plans to strengthen the portfolio of tank car products with the active field service trials in progress for the angle valve and the standard profile ceramic ball bottom outlet valve.

Over the years the Company has established direct relationships with HAZMAT shippers. These interested stakeholders helped design the proprietary Angle Valve for the pressure car market and our Bottom Outlet Valve, featuring unique ceramic technology advantages.

Due to a multitude of factors, the tank car market has shown a renewed focus on repurposing and/or re-qualifying existing tank car fleets. This has presented Kelso with an opportunity to grow its revenues in the repair, retrofit and requalification space due to manufacturing efficiencies, a reliable supply chain, domestic sourcing initiatives and proven quality and delivery from the facility.

KXI™ Wildertec™ Heavy Duty Suspension System (KXI HD)
 

In 2017 Kelso through the Company's wholly owned subsidiary KIQ X Industries Inc. (KIQ) began the development of a unique vehicle suspension system that provided new rapid response with off-road capabilities regardless of the climate or the severity of the terrain.

The 2024 year-end review of the KXI project, conducted in accordance with accounting standards, has provided valuable insights into its current status and potential future pathways.  It was determined that KXI would not generate commercial revenue in the near future and the expenses for both facility and staff have been accordingly reduced. This review highlighted some key challenges in securing funding for continued development, leading to a prudent adjustment in the project's carrying value.

While the project faces uncertainties, we recognize the potential value of the underlying technology. Accordingly, we are actively exploring strategic alternatives to optimize its future potential, including sale, licensing, and/or royalty agreements. In particular, we are pursuing potential joint venture partnerships and conducting a rigorous value assessment of the project's core technology. As a result of this review, the capitalized research and development (R&D) was lowered to a nominal $1 and the prototype costs were also lowered to $1.  KXI HD research and development operations were located in a facility in West Kelowna, British Columbia, Canada.

This adjustment represents a responsible and forward-looking approach, positioning us to capitalize on future opportunities and maximize the potential of the KXI project.

PRODUCTION FACILITIES

Kelso currently operates two rail equipment production and R&D facilities totaling 50,000 square feet in Bonham, Texas. The Company is fully qualified and certified to produce products for rail and other industries. The Company has been granted the required certifications including an AAR M1002 Class D Registration and AAR M1003 Quality Assurance System Certification from the Association of American Railroads.

PUBLIC INFORMATION POLICY

The Company advises the public about the Company's business progress by way of quarterly and consolidated annual financial statements as well as MD&A reports for those periods. The Company will issue news releases announcing material events that affect the business health of the Company in accordance with the policies and guidelines of the Toronto Stock Exchange. The Company does not give investment advice to investors and does not respond to solicitations to discuss privileged information from the public in accordance with securities laws in Canada and the United States.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

Further, Kelso does not provide forward-looking revenue projections to the public. Kelso is a product development enterprise and Management is unable to measure or determine the future financial impact related to new rail regulations, uncertain technology adoption strategies of customers, and the cyclical conditions surrounding the rail tank car industry. All of these factors are well beyond the control of Kelso.

RESULTS OF OPERATIONS

The financial results for the three months ended June 30, 2025 continue to represent the business development activities of a light industrial engineering organization. The corporate ambition is to build the Company's reputation of its brands and introduce new product innovations through the research, development and marketing of a diverse range of rail and automotive transportation technologies. The current macroeconomic environment of tariff uncertainty, inflation, high interest rates, and supply chain problems have significantly affected the Company's financial performance as the traditional demand for rail tank car equipment remains depressed.

Kelso generates its revenues and working capital from the sales of equipment for service in the rail tank car industry. Sales performance for the three months ended June 30, 2025 was down 8.6% compared to the same period in 2024 while gross margins were also lower at 41% compared to 47% for the same period last year primarily driven by the customer and sales mix. The rail business activities remain unpredictable as the low production rates of the rail tank car producers continue to challenge the Company's operations. Combined with repair, retrofit and re-qualification operations, rail business activity is expected to be adequate enough to allow the continuation and eventual growth of the Company's rail operations based on the anticipated introduction of new products.

Revenues, corresponding expenses, financial performance and capital management during the three months ended June 30, 2025 reflect Kelso's continued ability to manage the Company's capital resources while navigating difficult market conditions. Financial results met the Company's expectations and reflected the revenues and related operational costs of marketing, producing and distributing the Company's rail  equipment as well as key investments in new product development and production capability of a more diverse product mix in both rail and automotive markets in the future.

The Company's longer-term strategic plans require Kelso to make ongoing investments in production capabilities (including equipment, lease costs, training and qualifying human resources); rail and transportation regulatory filings; liability insurance; marketing initiatives; independent lab testing and outsourced specialized industrial engineering services; new patent applications; regulatory public company administration processes in Canada and the United States; pre-sales production planning and tooling for the Company's growing portfolio of rail and transportation products. These costs are written off in the period when they occur and their impact is reflected in the reported financial performance of the Company in the period in which they were incurred.

For the three months ended June 30, 2025, the Company reported a net profit of $72,125 or earnings of $0.00 per share (net income of $70,705 from continuing operations) against revenues of $2,643,208 compared to a net loss of $544,930 ($0.01 per share) against revenues of $2,891,591 for the three months ended June 30, 2024.

For the three months ending June 30, 2025, the Company reported expenses of $1,015,187 on revenue of $2,643,208 compared to expenses of $1,460,765 on revenue of $2,891,591 for the three months ending June 30, 2024. The lower expenses were mainly due to a foreign exchange gain, as well as lower legal, accounting, consulting and investor relation fees. Management expects expenses to normalize during FY2025 as the Company continues to implement its expense control measures amid challenging market conditions.

Gross profit margin returns were $1,075,446 (41% of revenues) for the three months ended June 30, 2025 compared to $1,359,771 (47% of revenues) during the same period last year. Margins remain well above industry averages due to the maintenance of production effectiveness and efficiencies stemming from per order-based pricing models.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

Total operational expenses were $1,015,187 for the three months ended June 30, 2025 (includes FX gain of $94,343) compared to $1,460,765 during the same period last year. Management continues to focus on examining all expenditures with the intention of eliminating nonessential costs.

Management continues to administer the Company's rail operations, with a refocus on longer-term business growth in the United States and improved capital markets exposure. This is reflected in the Company's investments in human resources, engineering, sales and production operations. The Company recorded office and administrative costs of $485,666 (2024 - $538,258) and management fees was $198,923 (2024 - $180,000).  Consulting and filing fees for the three months ended June 30, 2025 were $50,784 (2024 - $68,086) and investor relations fees were $Nil (2024 - $21,000). The drop in consulting fees resulted from reduced reliance on independent experts for the KXI HD system.

Accounting, audit and legal fees are cost components of the Company's corporate and product development strategies, arbitration costs, and the required administration functions of a publicly listed industrial company on a major stock exchange. Costs for these professional audit and legal services were $187,279 for the three months ended June 30, 2025 (2024 - $337,905). Legal costs are higher in Q2 as a result of annual filings and the cost of the Company's Annual General Meeting (AGM). Additionally, these costs also include ongoing US tax and audit requirements. Also included are the costs of complying with the rules and regulations of the Toronto Stock Exchange that involves the complexities of regulatory documentation and disclosures via an Annual Information Form ("AIF") and the Securities Exchange Commission 20-F submission.

The Company's functional currency is US dollars although Kelso also holds various assets in Canadian dollars. The Canadian dollar has remained volatile in value against the US dollar therefore the Company has recorded a foreign exchange gain of $94,343 for the three months ended June 30, 2025.

DISCONTINUED OPERATIONS

During the year ended December 31, 2024, the Company ceased operations of its KXI HD control system within its wholly-owned subsidiary, KIQ X Industries ("KIQ X"). Management determined the operations of KIQ X to have met the definition of discontinued operations in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Consequently, the operations of KIQ X have been classified separately from the Company's continuing operations to show a net loss from discontinued operations as a single line in the consolidated statements of operations and comprehensive income loss.

As a result of ceasing operations within KIQ X, indicators of impairment existed leading to a test of the recoverable amount of the KIQ X cash-generating unit, which consists of equipment, prototypes and intangible assets. A value-in-use calculation is not applicable as the Company does not have any expected cash flows from using the assets at this stage. In estimating the fair value less costs of disposal, management estimated a recoverable amount of $NIL representing no pending sale transactions as at June 30, 2025 compared to $89,719 at December 31, 2024. As this valuation technique requires management's judgment and estimates of the recoverable amount, it is classified within Level 3 of the fair value hierarchy.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

For the three and six months ended June 30, 2025 and 2024, the loss from discontinued operations relates to the following:

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements in conformity with IFRS Accounting Standards requires the Company's Management to undertake a number of judgments, estimates and assumptions that affect amounts reported in the consolidated financial statements and notes thereto. Actual amounts may ultimately differ from these estimates and assumptions. Management reviews the Company's estimates and underlying assumptions on an ongoing basis. Revisions are recognized in the period in which the estimates are revised and may impact future periods.

Information about estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

(a) Impairment of long-lived assets

Long-lived assets consist of intangible assets and property, plant and equipment. Determining the amount of impairment of intangible assets requires an estimation of the recoverable amount, which is defined as the higher of fair value less the cost of disposal or value in use. Many factors used in assessing recoverable amounts are outside of the control of Management and it is reasonably likely that assumptions and estimates will change from period to period.

(b) Useful lives of depreciable assets

The Company reviews the Company's estimate of the useful lives of depreciable assets at each reporting date, based on the expected utilization of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utilization of certain intangible assets and equipment.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

(c) Inventories

The Company estimates the net realizable value of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices. A change to these assumptions could impact the Company's inventory valuation and gross margins.

(d) Share-based expense

The Company grants share-based awards to certain officers, employees, directors and other eligible persons. The fair value of the equity-settled awards is determined at the date of the grant using the Black-Scholes option pricing model. Option pricing models require the input of highly subjective assumptions, including the expected volatility and expected life of the options.

Changes in these assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Company's stock options.

Restricted and deferred share units are measured using the fair value of the shares on the grant date.

(e) Allowance for credit losses

The Company provides for doubtful debts by analyzing the historical default experience and current information available about a customer's creditworthiness on an account-by-account basis. Uncertainty relates to the actual collectability of customer balances that can vary from the Company's estimation. As at June 30, 2025, the Company has not made an allowance for bad debts.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2025 the Company had cash on deposit in the amount of $488,273, accounts receivable of $1,303,613 prepaid expenses of $46,765 and inventory of $2,674,352 compared to cash on deposit in the amount of $153,147, accounts receivable of $1,091,304 prepaid expenses of $30,876 and inventory of $3,042,749 as at December 31, 2024. The Company had income tax payable of $16,524 at June 30, 2025 compared to $68,024 at December 31, 2024.

The working capital position of the Company as at June 30, 2025 was $2,682,405 compared to $2,125,386 as at December 31, 2024. The Company anticipates that its capital resources and operations will enable it to continue conducting business as planned for the foreseeable future.

Total assets of the Company were $6,591,231 as at June 30, 2025 compared to $6,570,345 as at December 31, 2024. Net assets of the Company were $4,713,491 as at June 30, 2025 compared to $4,229,030 as at December 31, 2024.

During the year ended December 31, 2024, the Company also obtained a line of credit of $500,000. During the three months ended June 30, 2025, the Company repaid in full the $250,000 previously drawn on its $500,000 line of credit in the first quarter. As a result, the Company now has access to the entire $500,000 available under its line of credit. Amounts drawn on the line of credit bear interest at the Wall Street Journal Prime Rate (WSJ Prime Rate) plus 1.00%. At June 30, 2025, the WSJ Prime Rate was 7.50%. The line of credit is secured by a general security agreement over the Company's assets.

Management takes all necessary precautions to minimize risks, however additional risks could affect the future performance of the Company. Business risks are detailed in the Risks and Uncertainties section of this MD&A.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

* FY2024 numbers adjusted for discontinued operations in accordance with International Financial Reporting Standards (IFRS). Refer to Note 16 of the Q2-2025 Financial Statements.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION

The Company has performed an assessment of new standards issued by the IASB that are not yet effective. The Company has assessed that the impact of adopting these accounting standards on the Company's consolidated financial statements would not be significant.

FINANCIAL INSTRUMENTS

Financial instruments are agreements between two parties that result in promises to pay or receive cash or equity instruments. The carrying values of cash, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to their short term to maturity. The Company has exposure to the following risks from the Company's use of financial instruments:

• Credit risk;

• Liquidity risk; and

• Market risk.

(a) Credit risk:

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Cash is held with major Canadian and US financial institutions and the Company's concentration of credit risk for cash and maximum exposure thereto is $448,273 (2024 - $153,147).

With respect to its accounts receivable, the Company assesses the credit ratings of all customers and maintains provisions for potential credit losses, and any such losses to date have been within management's expectations. The Company's credit risk with respect to customers' accounts receivable and maximum exposure thereto is $1,264,353 (2024 - $982,114). The Company's concentration of credit risk for accounts receivable with respect to its significant customers is as follows: Customer A is $330,730 (2024 - $62,204), Customer B is $554,705 (2024 - $482,500), Customer C is $87,770 (2024 - $127,691), and Customer D is $33,072 (2024 - $44,044). To reduce the credit risk of accounts receivable, the Company regularly reviews the collectability of accounts receivable to ensure there is no indication that these amounts will not be fully recovered.

(b) Liquidity risk:

Liquidity risk is the risk that the Company will be unable to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquid funds to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.

At June 30, 2025, the Company has $488,273 (2024 - $153,147) of cash to settle current liabilities of $1,830,598 (2024 - $2,282,409) consisting of the following: accounts payable and accrued liabilities of $1,739,348 (2024 - $2,138,658), income tax payable of $16,524 (2024 - $68,024), the current portion of lease liability of $56,997 (2024 - $56,997), and RSU liability of $17,729 (2024 - $18,730). All payables classified as current liabilities are due within a year. The amount of the Company's remaining undiscounted contractual maturities for the lease liability is approximately $47,142 (2024 - $124,387) due within one to three years.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

(c) Market risk:

The significant market risks to which the Company is exposed are interest rate risk and currency risk.

(i) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in market interest rates. The Company's cash consists of cash held in bank accounts that earn interest at variable rates. Due to the short-term nature of this financial instrument, fluctuations in market rates of interest do not have a significant impact on the estimated fair value or future cash flows.

(ii) Currency risk:

The Company is exposed to currency risk to the extent expenditures incurred or funds received, and balances maintained by the Company are denominated in Canadian dollars ("CAD"). The Company does not manage currency risk through hedging or other currency management tools.

As at June 30, 2025 and December 31, 2024, the Company had the following net monetary assets (liabilities) denominated in CAD (amounts presented in USD):

Based on the above, assuming all other variables remain constant, a ~9% (2024 - 9%) weakening or strengthening of the USD against the CAD would result in approximately $3,396 (2024 - $15,862) foreign exchange loss or gain in the consolidated statements of operations and comprehensive income loss.

(d) Other price risk

Other price risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or currency risk. The Company is not exposed to other price risk.

CAPITAL MANAGEMENT

The Company considers the Company's capital to be comprised of capital stock. The Company's objective in managing the Company's capital is to maintain the Company's ability to continue to operate as a going concern and to further develop the Company's business goals.

In order to facilitate the management of the Company's capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. Management reviews the capital structure on a regular basis to ensure that strategic business objectives are met. There were no changes to the Company's approach to capital management during the period ended June 30, 2025. There are no externally-imposed restrictions on the Company's capital.

Management is undertaking a comprehensive review of all operations and is implementing new capital management strategies to maximize cash flow performance. While the Company is mindful of the potential for a working capital shortfall if revenues do not meet expectations, the management team remains steadfast in its pursuit of growth. In order to sustain the Company's strategic initiatives, we are proactively exploring avenues for additional capital, which may include the issuance of securities or securing debt financing. This proactive approach underscores our commitment to the Company's long-term success.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete, accurate, reliable and timely. The disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the annual filings, interim filings or other reports filed under securities legislation is recorded, processed, summarized, and reported within the time periods specified in the securities legislation. Controls and procedures are designed to ensure that information required to be disclosed is accumulated and communicated to Management, including the Company's certifying officers, as appropriate to allow timely decisions regarding required disclosure.

The Chief Executive Officer and Chief Financial Officer of the Company have evaluated, or caused the evaluation of, under their direct supervision, the design effectiveness of the Company's disclosure controls and procedures (as defined in Regulation 52-109 - Certification of Disclosure in Issuer's Annual and Interim Filings) as at December 31, 2024 and have concluded that such disclosure controls and procedures were implemented effectively.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal controls over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS Accounting Standards.

Management has evaluated the design of the Company's ICFR as defined in Regulation 52-109 - Certification of Disclosure in Issuer's Annual and Interim Filings. The evaluation was based on the criteria established in the "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations (2013) ("COSO"). This evaluation was performed by the Chief Executive Officer and Chief Financial Officer of the Company with the assistance of other Company management and staff to the extent deemed necessary. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the ICFR were effectively designed as at December 31, 2024. Despite the Company's evaluation, Management does recognize that any controls and procedures, no matter how well designed and administrated, can only provide reasonable assurance and not absolute assurance of achieving the desired control objectives.

RISKS AND UNCERTAINTIES

The Company's business operations involve several known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results expressed or implied by forward-looking statements in this annual report. The Company is diligent in minimizing exposure to business risk, but by the nature of the Company's activities and size, will always involve some risk. These risks are not always quantifiable due to their uncertain nature.

"The Company's products involve detailed proprietary and engineering knowledge and specific customer adoption criteria. If the Company is not able to effectively protect the Company's intellectual property or cater to specific customer adoption criteria, the Company's business may suffer a material negative impact and could fail."

The success of the Company will be dependent on the Company's ability to successfully develop; qualify under current industry regulations; and protect the Company's technologies by way of patents and trademarks.

The Company has obtained patents for the Company's external Constant Force Spring Pressure Relief Valves and a One-bolt Manway System, Vacuum Relief Valve and Bottom Outlet Valve. If the Company is unable to secure trademarks and patent protections for the Company's intellectual property in the future, or that protection is inadequate for future products, the Company's business may be materially adversely affected.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

Further, there is no assurance that the Company's rail equipment products and other aspects of the Company's business do not or will not infringe upon patents, copyrights or other intellectual property rights held by third parties. Although the Company is not aware of any such claims, the Company may become subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of the Company's business. If the Company is found to have violated the intellectual property rights of others, the Company may be enjoined from using such intellectual property, and the Company may incur licensing fees or be forced to develop alternatives. In addition, the Company may incur substantial expenses and diversion of management time in defending against these third-party infringement claims, regardless of their merit. Successful infringement or licensing claims against the Company may result in substantial monetary liabilities, which may materially and adversely disrupt the Company's business.

"The Company is engaged in complex research and development activities where testing results may deem prospective products technologically or economically infeasible."

The Company invests in R&D activities that focus on the innovation of new products. The primary purpose of these R&D investments is to advance and broaden the Company's portfolio of commercial products that can improve the growth of future financial performance of the Company. These R&D activities focus on a longer-term horizon and are not anticipated to generate immediate financial performance returns. Returns on investment on R&D are always uncertain and cannot be guaranteed. There is a risk that during the processes of R&D development testing results may reveal that some or all products being developed are technologically or economically infeasible for market development and may be dropped.

"The Company may be unable to secure or maintain regulatory qualifications for the Company's products."

The AAR requires all products to follow a lengthy and quite rigorous approval process and subsequent field service trial before they can be applied to tank cars by customers in the rail industry. The Company has been successful in obtaining AAR approvals for the Company's key products; however, there is no guarantee that the Company's products will continue to meet AAR standards or that new products developed by the Company will receive AAR approval. The Company's failure to obtain AAR approval on new products and maintain AAR certification could have a negative impact on the Company's ability to generate revenue.

"International conflict, trade relations and other geopolitical tensions and events, including war, military action, terrorism, trade disputes, tariffs, worker strikes, and international responses thereto have historically led to, and may in the future lead to, uncertainty or volatility in the global supply chain and financial markets."

Currently, there are various factors that impact geopolitical risk and uncertainty, including but not limited to the elevated geopolitical risk exemplified by ongoing active conflicts in the Middle East, between Israel and Palestine, and in Europe, between Russia and Ukraine, as well as risks associated with China-Taiwan tensions. The imposition of strict economic sanctions by Canada, the United States, the European Union, the United Kingdom and others may have a destabilizing effect on commodity prices, supply chain and global economies more broadly. Supply chain disruptions may adversely affect the business, financial condition, and results of operations for the Company. The extent and duration of international conflicts, geopolitical tensions and related international action cannot be accurately predicted, and the effects of such conflicts may magnify the impact of the other risks identified herein.

"Impact of 2025 tariffs and trade measures on the Company's operations and the global economies."

In February, March and April 2025, the US administration implemented tariffs on various goods imported from Canada, Mexico and China and announced an intention to implement targeted and broad-based tariffs on certain other goods imported from several countries including Canada and/or increase the rate or scope of existing tariffs. Canada and China retaliated by imposing tariffs on certain goods imported from the U.S., and Canada and other countries also announced intentions to implement tariffs on goods imported from the U.S. and/or increase the rate or scope of existing tariffs if the U.S. follows through with the implementation of proposed tariffs. China has also imposed retaliatory tariffs on certain goods imported from Canada.  Although discussions continue regarding global trade policies, there remains significant uncertainty over whether tariffs, surtaxes, or other restrictive trade measures or countermeasures will ultimately be implemented and, if so, the scope, impact, and duration of any such measures. Potential measures could include, among others, increased tariffs on Canadian energy exports, restrictions on cross-border supply chains, or additional regulatory barriers that could impact the Company's ability to access international markets.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

The imposition of restrictive trade measures or countermeasures, if implemented for any period of time, could have adverse effects on the Company's operations, supply chain, and overall financial performance and could have a material adverse effect on the U.S., Canadian and/or global economies. Tariffs on steel, aluminum, and other industrial materials may increase the cost of equipment, production and manufacturing processes, potentially impacting capital expenditures and operational efficiency. Any retaliatory measures by Canada or prolonged trade disputes may further increase costs, disrupt supply chains, and introduce regulatory uncertainty. While the Company continues to monitor trade policies and adapt its procurement and operational strategies, any prolonged restrictive trade measures could negatively impact margins and overall market conditions.

"The Company may not have sufficient capital to meet increases in business demands and may be unable to sustain the Company's ability to grow the Company's operations as anticipated."

Although the Company has a positive working capital, the Company may, from time to time, face a working capital deficit. To maintain the Company's activities, the Company may require access to additional capital through the sale of securities or obtaining debt financing. There can be no assurance that the Company will be successful in obtaining such additional financing and failure to do so could result in the inability of the Company to develop new products; meet production schedules; execute delivery orders; and continue the Company's strategic operations.

"The Company has a limited history of earnings and may not be able to achieve the Company's growth objectives."

The Company has a limited history of sustained earnings. The Company is subject to all of the business risks and uncertainties associated with any business enterprise which is transitioning from product development to profitable operations, including the risk that the Company will not achieve the Company's growth objectives.

There is no assurance that the Company will be able to successfully complete the Company's business development plans or operate profitably over the short or long term. The Company is dependent upon the good faith and expertise of Management to identify, develop and operate commercially viable product lines. No assurance can be given that the Company's efforts will result in the development of additional commercially viable product lines or that the Company's current product lines will prove to be commercially viable in the long term. If the Company's efforts are unsuccessful over a prolonged period, the Company may have insufficient working capital to continue to meet ongoing obligations and the Company's ability to obtain additional financing necessary to continue operations may also be adversely affected. Even if the Company is successful in developing one or more additional product lines, there is no assurance that these product lines or the Company's existing product lines will be profitable.

"New commercial markets for the Company's products may not develop as quickly as anticipated or at all."

Markets for the Company's products may not develop as quickly as anticipated, or at all, resulting in the Company being unable to meet the Company's revenue and production targets. This may have a material negative impact on the Company, particularly if the Company has incurred significant expenses to cater to increased market demand and such market demand does not materialize.

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

"Unforeseen competition could affect the Company's ability to grow revenues as projected."

Although the Company has patents, trademarks and other protections in place to protect the proprietary technology on which the Company's business is dependent, competitive products may be developed in the future. Competition could adversely affect the Company's ability to acquire additional market share or to maintain revenue at current and projected levels. While every effort is made to track current and future competitors, new entrants from outside the USA and Canada may be difficult to identify until market entry occurs.

"Customer orders that are placed may be cancelled or rescheduled."

Although the Company makes efforts to ensure customers are satisfied with the Company's products, there is a risk that customers may cancel purchase orders before they are filled. This could have a material negative impact on the Company, particularly if the Company has already ordered the component parts required to assemble the finished products or if the Company has assembled the required finished products. The negative impact may be mitigated by the Company's ability to utilize the component parts and finished products to satisfy other purchase orders, but there is no guarantee that the Company will be able to mitigate the risk of loss to the Company from cancelled orders in this manner. Cancelled orders are normally subject to a cancellation fee to reduce loss.

"The Company is dependent on a small number of OEM customers."

Although Management is optimistic about the Company's future as a railway equipment supplier, the Company is highly dependent upon the success of four major tank car manufacturers as they provide a significant portion of the Company's revenue. The Company does not have any long-term purchase agreements, annual minimum sales requirements or blanket purchase order agreements with customers. Sales are generated on an as needed basis and purchase orders are scheduled according to production availability. The Company expects that this limited number of customers will continue to represent a substantial portion of the Company's sales for the foreseeable future. The loss of any of these customers could have a material negative impact upon the Company and the Company's results of operations.

"Current products may not perform as well as expected."

There is a risk that the Company's products may not perform as well as they have historically, which could result in customer complaints, returned products, product recalls and/or loss of repeat customer orders. Any of these issues could have a material negative impact on the Company's ability to generate revenue and continue operations.

"There may be a shortage of parts and raw materials."

The Company currently dual-sources all components domestically for all product lines. There is a potential risk from time to time that the Company could face a shortage of parts and raw materials so suppliers are unable to support current or increased customer demand. This could have a material negative impact on the business development plans of the Company, the Company's revenues and continued operations.

"Production capacity may not be large enough to handle growth in market demand."

The Company's production facilities may not be large enough to handle growing market demand for the Company's products if market demand is above projected levels. The Company may not have sufficient capital to fund increased production at the Company's existing facilities or to add new production facilities, and even if the Company did have sufficient funds for these purposes, the turnaround time to increase production may not be fast enough to meet market demand. This may have a material negative impact on the Company's ability to maintain existing customers and expand the Company's customer base, and the Company's ability to generate revenue at current and projected levels.

  "The Company's product development efforts may not result in new qualified commercial products."

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

The Company's ambition to design, research and develop proprietary products for the rail industry may not successfully transition into other industries. The inability to break into new markets and industries may in the future have a negative impact on the Company. The Company's investment in new product research is written off in the period in which it is incurred to account for the unpredictable nature of research projects.

"The Company may face uninsurable or underinsured risks."

During development and production of rail equipment products, certain risks, and in particular, destruction of production facilities by a natural disaster, acts of terrorism, acts of war or patent infringement may occur. It is not always possible to fully insure against such risks and the Company may decide not to take out insurance against such risks because of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the securities of the Company. Of the above-listed risks, only an act of war is truly uninsurable. The Company maintains commercial general liability insurance for claims up to $2,000,000 in general aggregate and $1,000,000 each occurrence, as well as $2,000,000 product-completed operations aggregate. Additionally, the Company maintains umbrella liability insurance for claims up to $4,000,000 in annual aggregate.

Although the Company believes that the insurance policies currently in place adequately insure the Company given the size of the Company's customer base and revenues from product sales, there is a risk that the Company's insurance coverage may not be sufficient to cover future products claims.

"Raw materials used by the Company for the production of the Company's products are subject to price fluctuations which could change profitability expectations."

Many of the materials used in the Company's products are common raw materials such as steel and rubber. These raw materials may be subject to significant price fluctuations. A steep rise in the price of such raw materials may have an adverse effect on the financial returns of the Company's products and could negatively impact the Company's operating results. Considering the Company does not have any purchase agreements with customers, the Company is able to mitigate the risks associated with price fluctuations by adjusting the pricing structure as necessary. However, there is no guarantee that customers will continue to purchase the Company's products if prices are adjusted due to the fluctuation in the price of raw materials.

"The success of the Company's business depends substantially on the continuing efforts of the Company's senior executives, and the Company's business may be severely disrupted if the Company loses their services."

The future success of the Company depends upon the continued services of the Company's senior executives and other key employees. In particular, the Company relies on the expertise and experience of the Senior management team of Kelso Technologies Inc. and Kelso Technologies (USA) Inc. If one or more of the Company's senior executives were unable or unwilling to continue in their present positions, the Company might not be able to replace them easily or at all. If any of the Company's senior executives join a competitor or form a competing company, the Company may lose clients, suppliers, key professionals, technical know-how and staff members.

Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, then actual results may vary materially from those described on forward-looking statements.

RELATED PARTY TRANSACTIONS

Related party transactions not otherwise described in these consolidated financial statements are shown below. The remuneration of the Company's directors and other members of key management, being the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer who have the authority and responsibility for planning, directing and controlling the activities of the Company consist of the following amounts:

Kelso Technologies Inc. Management Discussion and Analysis Three Months Ended June 30, 2025 (Expressed in US Dollars unless otherwise indicated)

During the three months ended June 30, 2024, the Company paid consulting fees of $30,000 to a consulting company owned by the spouse of the previous Chief Executive Officer. The consulting agreement was terminated at the end of the second quarter of 2024.

DISCLOSURE OF OUTSTANDING SHARE DATA AS AT JUNE 30, 2025

1) Common shares issued and outstanding: 55,160,086

2) Share purchase options outstanding: 750,000

3) Share purchase warrants outstanding: Nil

4) Restricted share units outstanding: 541,655

OUTLOOK

The company is emerging from a challenging financial landscape, influenced by macroeconomic headwinds in the first half of 2025. The improvements to operational efficiency and reduction of overhead costs undertaken by the new management team are beginning to bear fruit with positive earnings.

Kelso Technologies Inc. anticipates sales growth to be flat to slightly positive, in the range of 0% to 5%, compared to fiscal year 2024. A primary emphasis for the fiscal year 2025 will be to uphold cost management as the company gears up for the expected rise in new tank car production anticipated to commence in the coming years. This strategic plan will enable the company to take advantage of the growing demand and enhance profitability.

Kelso is currently seeking full approval from the Association of American Railroads (AAR) for its Bottom Outlet Valve (BOV) and Angle Valve (AV), both of which are progressing through their required service trial periods. These pending approvals are anticipated to create new revenue opportunities, particularly due to the increased value of comprehensive package offerings for both general purpose and pressure tank cars.

The forecast for tank car deliveries has shown a slight improvement compared to recent trends. After averaging just over 8,700 cars annually from 2021 to 2023, actual deliveries for 2024 exceeded 10,000 cars, with FTR predicting a modest rise to 10,325 in 2025. This production level indicates a 15.8% increase over the average from 2021 to 2023, presenting an opportunity for better outcomes. Industry forecasts predict fewer than 10,000 new builds in 2026, rising to 13,000 units in 2027. Kelso's strategic emphasis on securing AAR approvals is in line with this anticipated market growth, positioning the company to take advantage of future demand increases.

SUMMARY

The Company is confident in its ability to generate new value and expects continued success in its established rail markets. With no long-term debt that accrues interest and optimistic sales outlooks from larger, more diverse markets, Kelso can focus on increasing its equity value through financial performance supported by a wider array of new proprietary products.

Kelso Technologies Inc.

Frank Busch

Chief Executive Officer 

	NEWS RELEASE
Kelso Technologies Inc.
	July 30, 2025
Canada: TSX: KLS
KELSO TECHNOLOGIES INC. FINANCIAL RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2025

West Kelowna, British Columbia and Bonham, Texas - Kelso Technologies Inc. ("Kelso" or the "Company"),(TSX: KLS) reports that the Company has released the unaudited interim consolidated financial statements and Management Discussion and Analysis for the three months ended June 30, 2025.

The unaudited interim consolidated 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 interim consolidated financial statements and MD&A for the three months ended June 30, 2025 were approved by the Board of Directors on July 30, 2025.

HIGHLIGHTS:

• Kelso Technologies Inc. announces its second consecutive profitable quarter. 

• The Company reported Q2-2025 net income of $72,175 or $0.00 per share. Excluding discontinued operations, the Company reported net income of $70,705.

• For Q2-2025, gross revenue decreased by 8.6% YoY to $2.64 million compared to $2.89 million in Q2-2024. The revenue decline was mainly due to macroeconomic challenges, as Kelso's main customers adopted a cautious stance in response to new tariffs in April and May. Since the beginning of June, the Company has observed signs of improvement as the industry adjusts to current conditions.

• In the first half of 2025, the Company cut total expenses by 30% ($580,303) year over year through disciplined cost management. While revenue in the second quarter was affected by new tariff-related uncertainty for tank car builds, the Company remained profitable, highlighting strong operational execution. Ongoing strategic planning and innovation continue to support sustainable revenue growth despite persistent challenges.

• For FY2025, the company believes that sales growth will be flat to slightly positive, ranging from 0% to 5%, compared to fiscal year 2024. Looking ahead, the company anticipates that new tank car builds will be lower in 2026 before rebounding in 2027. In preparation for this expected recovery, Kelso is maintaining disciplined cost management and ensuring operational readiness to seize growth opportunities as industry demand strengthens in the coming years. This strategy is designed to position the company to capitalize on the anticipated demand and enhance profitability.

• During the three months ended June 30, 2025, the Company repaid in full the $250,000 previously drawn on its $500,000 line of credit in the first quarter. As a result, the Company now has access to the entire $500,000 available under its line of credit.

• On July 08, 2025, Kelso Technologies Inc. ("Kelso") and Kitchener Holdings Corp.  ("Kitchener") reached a settlement agreement to resolve the lawsuit filed by Kitchener against Kelso in October 2024. The settlement agreement marks the conclusion of all matters between the parties, bringing an end to the legal proceedings. Both parties have agreed to the terms set out in the settlement agreement, which includes the execution of a Full and Final Release by Kitchener and the dismissal of the lawsuit. Kelso and Kitchener have agreed to maintain confidentiality of the settlement terms and the facts surrounding the settlement. 

(*) FY2024 numbers adjusted for discontinued operations. Refer to Note 16 of the Q2-2025 Financial Statements.

Readers are cautioned that Adjusted EBITDA (Loss) should not be construed as an alternative to net income (loss) as determined under IFRS Accounting Standards; nor as an indicator of financial performance as determined by IFRS Accounting Standards; nor a calculation of cash flow from operating activities as determined under IFRS Accounting Standards; nor as a measure of liquidity and cash flow under IFRS Accounting Standards. The Company's method of calculating Adjusted EBITDA may differ from methods used by other issuers and, accordingly, the Company's Adjusted EBITDA may not be comparable to similar measures used by any other issuer.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2025 the Company had cash on deposit in the amount of $488,273, accounts receivable of $1,303,613 prepaid expenses of $46,765 and inventory of $2,674,352 compared to cash on deposit in the amount of $153,147, accounts receivable of $1,091,304 prepaid expenses of $30,876 and inventory of $3,042,749 as at December 31, 2024. The Company had income tax payable of $16,524 at June 30, 2025 compared to $68,024 at December 31, 2024.

The working capital position of the Company as at June 30, 2025 was $2,682,405 compared to $2,125,386 as at December 31, 2024. The Company anticipates that its capital resources and operations will enable it to continue conducting business as planned for the foreseeable future.

Total assets of the Company were $6,591,231 as at June 30, 2025 compared to $6,570,345 as at December 31, 2024. Net assets of the Company were $4,713,491 as at June 30, 2025 compared to $4,229,030 as at December 31, 2024.

During the year ended December 31, 2024, the Company also obtained a line of credit of $500,000. During the three months ended June 30, 2025, the Company repaid in full the $250,000 previously drawn on its $500,000 line of credit in the first quarter. As a result, the Company now has access to the entire $500,000 available under its line of credit. Amounts drawn on the line of credit bear interest at the Wall Street Journal Prime Rate (WSJ Prime Rate) plus 1.00%. At June 30, 2025, the WSJ Prime Rate was 7.50%. The line of credit is secured by a general security agreement over the Company's assets.

Management takes all necessary precautions to minimize risks, however additional risks could affect the future performance of the Company. Business risks are detailed in the Risks and Uncertainties section of this MD&A.

OUTLOOK
 

The company is emerging from a challenging financial landscape, influenced by macroeconomic headwinds in the first half of 2025. The improvements to operational efficiency and reduction of overhead costs undertaken by the new management team are beginning to bear fruit with positive earnings.

Kelso Technologies Inc. anticipates sales growth to be flat to slightly positive, in the range of 0% to 5%, compared to fiscal year 2024. A primary emphasis for the fiscal year 2025 will be to uphold cost management as the company gears up for the expected rise in new tank car production anticipated to commence in the coming years. This strategic plan will enable the company to take advantage of the growing demand and enhance profitability.

Kelso is currently seeking full approval from the Association of American Railroads (AAR) for its Bottom Outlet Valve (BOV) and Angle Valve (AV), both of which are progressing through their required service trial periods. These pending approvals are anticipated to create new revenue opportunities, particularly due to the increased value of comprehensive package offerings for both general purpose and pressure tank cars.

The forecast for tank car deliveries has shown a slight improvement compared to recent trends. After averaging just over 8,700 cars annually from 2021 to 2023, actual deliveries for 2024 exceeded 10,000 cars, with FTR predicting a modest rise to 10,325 in 2025. This production level indicates a 15.8% increase over the average from 2021 to 2023, presenting an opportunity for better outcomes. Industry forecasts predict fewer than 10,000 new builds in 2026, rising to 13,000 units in 2027. Kelso's strategic emphasis on securing AAR approvals is in line with this anticipated market growth, positioning the company to take advantage of future demand increases.

SUMMARY

The Company is confident in its ability to generate new value and expects continued success in its established rail markets. With no long-term debt that accrues interest and optimistic sales outlooks from larger, more diverse markets, Kelso can focus on increasing its equity value through financial performance supported by a wider array of new proprietary products.

About Kelso Technologies

Kelso is a diverse product engineering company that specializes in the creation, production, sales and distribution of proprietary products used in rail and other transportation. The Company's rail equipment 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 commodities during transport. 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 potentially dangerous effects of human and technology error through the use of the Company's portfolio of proprietary products.

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 under the Company's profile on SEDAR in Canada and on EDGAR in the United States.

On behalf of the Board of Directors,

Frank Busch, CEO

Legal Notice Regarding Forward-Looking Statements: This news release contains "forward-looking statements" within the meaning of applicable securities legislation.  Forward-looking statements indicate expectations or intentions. Forward-looking statements in this news release include that our new rail products will sell once AAR approvals are secured; and that current working capital and anticipated sales activity are expected to protect the Company's ability to conduct ongoing business operations for the foreseeable future.  Although Kelso believes the Company's anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, they can give no assurance that such expectations will prove to be correct. The reader should not place undue reliance on forward-looking statements and information as such statements and information involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Kelso to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information, including without limitation that risks in the rail industry including tariffs, high interest rates, inflation and supply chain issues may reduce or delay business orders from customers; that the development of new products may proceed slower than expected, cost more or may not result in a saleable product;  that tank car producers may produce or retrofit fewer than cars than expected and even if they meet expectations, that customers may not purchase the Company's products for their tank cars; that capital resources may not be adequate enough to fund future operations as intended; that the Company's products may not provide the intended economic or operational advantages to end users; that the Company's new rail products may not receive regulatory certification; that customer orders may not develop or be cancelled;  that competitors may enter the market with new product offerings which could capture some of the Company's market share;  that a new product idea under research and development may be dropped if ongoing product testing and market research reveal engineering and economic issues that render a new product concept infeasible; and that the Company's new equipment offerings may not capture market share as well as expected.  Except as required by law, the Company does not intend to update the forward-looking information and forward-looking statements contained in this news release.

For further information, please contact:

FORM 52-109F2

Certification of Interim Filings

Full Certificate

I, Frank Busch, Chief Executive Officer of Kelso Technologies Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Kelso Technologies Inc. (the "issuer") for the interim period ended June 30, 2025.

2.  No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.

5. Design:  Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.

5.1 Control framework:  The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is published by The Committee of Sponsoring Organizations of the Treadway Commission.

5.2 N/A

5.3 N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on April 1, 2025 and ended on June 30, 2025 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

DATE: July 30, 2025.

FORM 52-109F2

Certification of Interim Filings

Full Certificate

I, Sameer Uplenchwar, Chief Financial Officer of Kelso Technologies Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Kelso Technologies Inc. (the "issuer") for the interim period ended June 30, 2025.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.

5. Design:  Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.

5.1 Control framework:  The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is published by The Committee of Sponsoring Organizations of the Treadway Commission.

5.2 N/A

5.3 N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on April 1, 2025 and ended on June 30, 2025 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

DATE: July 30, 2025.

1526 Texas Ave Bonham, TX 75418 USA

Employment Agreement

THIS EMPLOYMENT AGREEMENT ("Agreement") is executed this 26^th day of June, 2025, by and between KELSO TECHNOLOGIES INC. (hereinafter the "Company") and Amanda Smith  (hereinafter the "Employee").

WHEREAS, the Company desires to employ the Employee under certain terms and conditions, and the Employee desires to be employed by the Company on the terms and conditions set forth below;

NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Employee agree as follows:

1. The Company hereby employs the Employee, and the Employee hereby accepts employment with the Company as an "at will" employee upon the terms and conditions hereinafter set forth.  This Agreement shall have no term and therefore either the Employee or the Company can terminate the employment relationship at any time, for any reason or no reason, with or without cause.  The Employee shall give at least two (2) weeks' written notice prior to termination of employment.

If the Employee is terminated by the Company without cause, the Company shall give the Employee no less than two (2) weeks' written notice of such termination.  The Company's obligation to the Employee shall be the provision of any payments or benefits which have been earned but have not been provided through the date of termination and, contingent upon the Employee's continued compliance with this Agreement and the execution of a Severance and Release agreement prepared by the Company, in consideration for which the Company shall provide as severance to the Employee an amount equal to 6 months  base salary, less withholdings, paid in accordance with the customary payroll practices of the Company.

In the event the Company terminates the Agreement due to any form of re-organization, change of control, amalgamation or takeover bid, the Company will pay to Employee an amount equal to 6 months base salary at that time.  In the event that there is any form of re-organization, change of control, amalgamation or takeover bid of the Company and Employee elects to terminate the agreement, the Company will pay a termination payment to the Employee of an amount equal to 6  months of the base salary at that time; plus the bonus, if any, paid or payable to the Employee for the fiscal year ended immediately prior to the effective date of termination. 

In accordance with the terms of the Company's Stock Option Plan and RSU Plan, if Employee's employment is terminated without cause:  all vested options are exercisable for a period of ninety days after termination; unvested options are immediately cancelled; all outstanding restricted share units ("RSUs") granted shall continue to vest in accordance with the terms of the restricted share unit grant agreement (the "RSU Agreement"); and the payout date in connection shall continue as set out in the RSU Agreement. If the Employee elects to voluntarily terminate employment: all vested options are exercisable for a period of ninety days after termination; unvested options are immediately cancelled; all vested RSUs will continue under the terms of the restricted share grant agreement; and all unvested RSUs will be canceled. If the Employee's employment is terminated  due to a change of control: all unvested options would be immediately vested; all vested options would be exercisable for a period of ninety days after termination; all outstanding restricted share units (RSUs) granted shall continue to vest in accordance with the terms of the restricted share unit grant agreement (the "RSU Agreement"); and the payout date shall continue as set out in the RSU Agreement. The Company will pay any amounts due and owing to Employee at the end of the quarter following the Employee's termination.

If the Employee is terminated for "cause", as such term is hereafter defined, the Company's sole obligation to the Employee shall be the provision of any payments or benefits pursuant to this Agreement, which have been earned but have not been provided through the date of termination.

For purposes of this Agreement, "cause" shall include (1) conviction of any felony or a pleading of nolo contendere to any felony charge; (2) committing any acts of negligence, dishonesty, fraud, misappropriation, or embezzlement; (3) violation of any fiduciary obligation to the Company; (4) knowingly violating any lawful delegation, policy or directive of the Company or the provisions of any court order; (5) committing or being involved in any activity that injures the reputation of the Company, as solely determined by the Company, which would make Employee's continued employment prejudicial to the interests of the Company; or (6) a breach by the Employee of this Agreement or failure to perform the duties of the Employee, which breach or failure to perform remains uncured for more than ten (10) days after receipt of notice from the Company.

2. The Employee shall devote the Employee's full working time, ability, and attention exclusively to the business of the Company and shall not, directly or indirectly, render any services of a business, commercial, or professional nature to any other person, entity, or organization whether for compensation or otherwise, without the prior knowledge and written consent of the Company.

3. The Employee shall be employed as Chief Operating Officer, or such other position with the Company as the Company may assign.  The Employee shall perform such services and duties for the Company as are usually and customarily required of a person holding this position.  In addition to the services and duties required of the assigned position, the Employee may from time to time be assigned by the Company to perform other reasonable duties and services related to the business operations of the Company.  The position description is attached as Exhibit A.

4. The Employee shall promptly obey, comply with and be subject to all rules, regulations and orders that may from time to time be issued by the Company and that are in keeping with the Employee's position with the Company and such rules, regulations and orders shall have the same force and effect as though they were written into this Agreement at this time.

5. As compensation for services rendered under this Agreement, the Employee shall be entitled to receive the following:

a) The Company shall pay to the Employee a base annual salary of $240,000.00, which salary shall be paid in approximately equal installments paid out over such time and in accordance with the customary payroll practices of the Company.

b) The Employee shall be entitled to a performance bonus as determined by the Board of Directors of the Company, paid after the end of the preceding fiscal year-end.  The performance bonus will be paid no later than May 15 following the applicable December 31 year-end; and paid out in accordance with the customary payroll practices of the Company. Management Bonus: For FY2025, the Executive shall be entitled to a bonus calculated as follows: one-third of an annual 10% management performance bonus paid after the end of the preceding fiscal year end. The bonus will be calculated based on the Company's Annual earnings before non-cash items (e.g.: stock-based compensation, deferred taxes, depreciation & amortization and unrealized foreign exchange) and income taxes as determined by the auditor of the Company. If applicable, the bonus will be payable in US dollars no later than May 15 following the applicable December 31 year end.

c) The Executive may be eligible to receive a performance-based bonus calculated based on the achievement of key performance indicators as established by the Compensation Committee of the Board from time to time. Payment of the performance bonus shall be subject to the Executive being actively employed on the date the bonus is payable, and "actively employed" shall mean the Executive is actively performing the Services to the Company and excludes any period of notice of termination, pay in lieu of termination notice, whether under statute, the common law or otherwise.

d) The Employee is eligible to receive incentive stock options and/or Restricted Share Units (RSUs) as granted by the Company's Board of Directors, subject to prior approval from the stock exchange or other necessary regulatory bodies.

e) The Company shall deduct from all payments made to the Employee under this Agreement any federal, state or local withholding or other taxes or charges that the Company is required to deduct under applicable law.  The Company shall have the right to rely upon a written opinion of counsel if any questions arise as to any such deductions.

f) The Employee shall be entitled to any vacation leave, holidays, sick leave, or any other form of leave which may be extended from time to time to similarly situated employees of the Company.

6. The Company shall promptly pay, upon submission of appropriate vouchers and supporting documentation, all pre-approved expenses of the Employee incurred in connection with the rendering of services to or on behalf of the Company as an employee pursuant to this Agreement in accordance with the Company's usual and ordinary practices, provided that such expenses are reasonable and necessary business expenses of the Company.

7. The Company shall from time to time provide confidential and proprietary information required for the Employee to perform his or her duties as an Employee.  The Employee agrees and acknowledges that the Employee's position with the Company is one of the highest trust and confidence both by reason of the Employee's position and by reason of the Employee's access to and contact with the trade secrets and confidential and proprietary business information of the Company.  Both during the Employee's employment by the Company and thereafter, the Employee covenants and agrees to honor and be bound by the Confidentiality and Inventions, Non-Disclosure, Non-Solicitation, and Non-Competition Agreement attached hereto as Exhibit B and incorporated herein by reference.

8. The covenants set forth in Section 6 of this Agreement shall continue to be binding upon the Employee, notwithstanding the termination of the Employee's "at-will" employment relationship with the Company for any reason whatsoever or no reason at all.  Such covenants shall be deemed and construed as separate agreements independent of any other provisions of this Agreement and any other agreement between the Company and the Employee.  The existence of any claim or cause of action by the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any or all such covenants.

9. Both during and after the Employee's employment, the Employee, or anyone on the Employee's behalf, agrees not to make statements about the Company, directly or indirectly, orally or in writing, including through the use of any form of social media, that are defamatory and maliciously untrue, such that they are made with knowledge of the falsity or with reckless disregard for the truth or falsity of the statement, to any individual, agency, organization, company, corporation or other entity, including but not limited to representatives of the media and prospective employers.

10. Any notices to be given hereunder by either party to the other may be accomplished by email, personal delivery in writing or by mail, registered or certified, postage prepaid, with return receipt requested.  Mailed notices shall be addressed as follows:

 a.           If to the Company:

 Kelso Technologies Inc.

 1526 Texas Avenue,

Bonham TX 75418

 Email: busch@kelsotech.com

 b. If to the Employee:

_______________________

_______________________

_______________________

Email:__________________

Either party may change its address for notice by giving notice in accordance with the terms of this Section.

11. THE EMPLOYEE SHALL FOREVER PROTECT, SAVE AND HOLD THE COMPANY HARMLESS AND INDEMNIFY THE COMPANY AND ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, SUCCESSORS, AND SUCCESSORS AND ASSIGNS FROM AND AGAINST ALL CLAIMS, DEMANDS, CAUSES OF ACTION, LOSSES, COSTS, DAMAGES, SUITS, JUDGMENTS, PENALTIES, EXPENSES AND LIABILITIES OF ANY KIND OR NATURE WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ANY AND ALL COSTS OF COURT AND REASONABLE ATTORNEYS' FEES, TO WHICH THE COMPANY MAY BE PUT OR WHICH IT MAY INCUR BY REASON OF, OR IN CONNECTION WITH, THE EMPLOYEE'S CONDUCT OR ACTIVITIES INCLUDING, WITHOUT LIMITATION, ANY AND ALL VIOLATIONS OF ANY FEDERAL, STATE, OR LOCAL LAWS OR REGULATIONS, INCLUDING, BUT NOT LIMITED TO, THE EMPLOYEE'S NEGLIGENCE, RECKLESSNESS, GROSS NEGLIGENCE, OR INTENTIONAL WRONGFUL CONDUCT REGARDLESS OF ANY CAUSE OR FAULT OR NEGLIGENCE OF THE COMPANY, ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, SUCCESSORS, AND ASSIGNS OR OTHERWISE.

12. The Employee agrees to promptly disclose to the Company any legal action or occurrence involving the Employee of any nature whatsoever.  The disclosure required by the Employee under this section shall be made to the Company no later than the next business day following the business day upon which the Employee first learns of such legal or disciplinary action or occurrence.

13. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas.  YOU AGREE THAT THE SOLE AND EXCLUSIVE VENUE FOR DISPUTES SHALL BE STATE COURTS OF FANNIN COUNTY, TEXAS.

14. No term or portion of this Agreement, including exhibits attached hereto, shall prohibit, or limit the Employee's rights under the National Labor Relations Act to discuss terms and conditions of the employment as Section 7 allows, to file an unfair labor relations charge or complaint with any state, federal, or local administrative or governmental agency, or to engage in any agency conducted investigation.

15. This Agreement sets forth the entire understanding of the parties and supersedes all prior or contemporaneous agreements or understandings, whether written or oral, with respect to the subject matter hereof.  No terms, conditions, or warranties, other than those contained herein, and no amendments or modifications hereto, shall be binding unless made in writing and signed by the parties hereto.

16. This Agreement may not be assigned by the Employee.

17. The waiver by either party hereto of a breach of any term or provision of this Agreement shall not operate or be construed as a waiver of a subsequent breach of the same provision by any party or of the breach of any other term or provision of this Agreement.

18. The Employee has carefully read and considered all provisions of this Agreement and agrees that all the restrictions set forth are fair and reasonable and are reasonably required for the protection of the interests of the Company.

[Signature Page to Follow]

COMPANY: KELSO TECHNOLOGIES INC.

EXECUTED as of the date indicated on the first page of this Agreement.

EMPLOYEE:

Exhibit A

Position Summary:  The Chief Operating Officer (COO) oversees the organization's ongoing operations and procedures.  As a key member of the senior management team, the COO reports directly to the CEO and establishes policies that promote company culture and vision through its operations.  The COO is responsible for the efficiency of the business, which includes maintaining control of diverse business operations and establishing and following a set of policies and processes.

By setting comprehensive goals for performance and growth, the COO leads employees and encourages maximum performance and dedication.  The COO role is a high visibility position, requiring strong communication skills to positively represent the organization.  The COO must maintain the highest level of integrity and lead by example in all areas.

Essential Duties and Responsibilities: 

1. Operational Leadership & Optimization:

a. Oversee and manage the daily operations of the company, ensuring efficiency, productivity, quality, and cost-effectiveness across all departments.

b. Identify, analyze, and implement operational improvements, process enhancements, and best practices to streamline workflows and reduce operational costs.

c. Develop, implement, and monitor operational strategies and plans that align with the Company's vision and overall business objectives.

d. Ensure the effective utilization and management of organizational resources, including human capital, technology, and budgets.

2. Strategic Execution & Performance Management:

a. Translate strategic goals into actionable operational plans and ensure their successful execution by relevant teams.

b. Establish, monitor, and report on Key Performance Indicators (KPIs) and operational metrics to track progress, identify areas for improvement, and ensure targets are met.

c. Drive the achievement of key business objectives, including specific goals like revenue targets, customer satisfaction, delivery timelines, product quality and safety.

d. Manage relationships with partners/vendors.

3. Financial & Resource Stewardship:

a. Collaborate with the CEO and CFO to develop and manage operational budgets, ensuring fiscal responsibility and prudent resource allocation.

b. Identify opportunities for cost optimization and efficiency gains within operational processes.

4. Team Leadership & Development:

a. Provide strong, inspiring leadership and guidance to departmental heads and their teams, fostering a culture of accountability, continuous improvement, and collaboration.

b. Mentor and develop internal talent, ensuring teams are well-equipped to meet current and future operational demands.

c. Promote a positive, engaged, and high-performance work environment.

5. Risk Management & Compliance:

a. Identify potential operational risks and develop mitigation strategies to ensure business continuity and minimize disruptions.

b. Ensure compliance with all relevant industry regulations, local bylaws, and company policies.

6. Reporting & Communication:

a. Provide regular, concise, and accurate operational reports and insights to the CEO and, if applicable, the Board of Directors.

b. Facilitate effective communication and collaboration across all levels and departments of the organization.

Exhibit B

Nondisclosure and Non-Competition Agreement

This Nondisclosure and Non-Competition Agreement (this "Agreement") is entered into as of the date set forth below (the "Effective Date") by and between Kelso Technologies (U.S.A.) Inc., a wholly owned subsidiary of Kelso Technologies Inc. ("Employer"), and the undersigned individual employed or to be employed by Employer ("Employee"). Employer and Employee are sometimes referred to herein collectively as the "Parties" and each as a "Party."

NOW, THEREFORE, as a condition of doing work for, providing services to, or receiving specialized training from Employer, and in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Employee, the Parties hereby agree as follows:

Article I: Confidential Information

1.1. Access to Confidential Information. Employee understands and acknowledges that during the course of employment by Employer, he or she will have access to and learn about Confidential Information (as defined below) and other secret and proprietary information of Employer. Employee further understands and acknowledges that Employer maintains much of its Confidential Information on its secured network, and that this Confidential Information and Employer's ability to reserve it for the exclusive knowledge and use of Employer is of great competitive importance and commercial value to Employer, and that improper use or disclosure of the Confidential Information by Employee will cause irreparable harm to Employer, for which remedies at law will not be adequate and may also cause Employer to incur financial costs, loss of business advantages, liability under confidentiality agreements with third parties, civil damages, and criminal penalties.

1.2. Definition of Confidential Information.

(a) For purposes of this Agreement, "Confidential Information" shall mean and include any trade secret, confidential, proprietary, or non-public information and materials concerning Employer and/or its customers or clients ("Clients"), whether such information or materials are memorized, memorialized in any manner, in hard copy, electronic, or other form, or that qualifies as confidential, restricted, or for internal use only pursuant to guidelines or policies established by Employer; Employer's products, business strategies, know-how designs, formulas, processes, and methods; research; marketing; pricing; business relationships; software, software code and other technologies; forecasts; margins; confidential information of other employees; plans and proposals; Client information (including but not limited to lists of Clients, Client names, contact information, personal data or identifying numbers; financial data; historical information; preferences and strategies, as well as any compilations of same); information and materials developed by Employee in the course of his or her employment with Employer; and any other non-public, technical, non-technical, or business information, whether written or oral. Without limiting the generality of the foregoing definition, the term Confidential Information does not include information that: (1) has become known to the public generally through no fault of Employee; or (2) Employer regularly provides to third parties without restriction on use or disclosure.

(b) Employee understands that the foregoing definition of Confidential Information is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.

1.3. Restrictions on Disclosure and Use. With regard to all Confidential Information received by Employee, Employee hereby agrees and covenants that he or she:

a) Will treat all Confidential Information as strictly confidential;

b) Will not directly or indirectly disclose, publish, communicate, or make available any Confidential Information, or allow it to be disclosed, published, communicated, or made available, in whole or in part, to any entity or person whatsoever not having a need and authority to know and use the Confidential Information in connection with the business of Employer and, in any event, not to anyone outside of the direct employ of Employer except as required in the performance of Employee's authorized employment duties to Employer or with Employer's prior written consent (and only within the limits and to the extent of such duties or consent); and

c) Will not access or use any Confidential Information, and not to copy any documents, records, files, media or other resources containing any Confidential Information, or remove any such documents, records, files, media, or other resources from the premises or control of Employer, except as required in the performance of Employee's authorized employment duties to Employer or with Employer's prior written consent (and only within the limits and to the extent of such duties or consent).

1.4. Disclosure Required by Law. Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency; provided, that Employee provides written notice to Employer of the order or request prior to any disclosure of Confidential Information and the disclosure does not exceed the extent of disclosure required by such law, regulation, or order.

1.5. Duration of Confidentiality Obligations. Employee understands and acknowledges that his or her obligations under this Agreement with regard to any particular Confidential Information shall commence immediately upon Employee's initial access to any Confidential Information, either before or after the commencement of Employee's employment or the Effective Date of this Agreement, and shall continue during and after termination his or her employment with Employer until such time as the Confidential Information is no longer deemed to be Confidential Information in accordance with the terms of this Agreement.

Article II: Proprietary Rights

2.1. Work Product. Employee acknowledges and agrees that all writings, works of authorship, technology, inventions, discoveries, ideas and other work product of any nature whatsoever, that are created, prepared, produced, authored, edited, amended, conceived or reduced to practice by Employee individually or jointly with others during the period of his or her employment by Employer and relating in any way to the business or contemplated business, research or development of Employer (regardless of when or where the Work Product is prepared or whose equipment or other resources is used in preparing the same) and all printed, physical and electronic copies, all improvements, rights and claims related to the foregoing, and other tangible embodiments thereof (collectively, "Work Product"), as well as any and all rights in and to copyrights, trade secrets, trademarks (and related goodwill), patents and other intellectual property rights therein arising in any jurisdiction throughout the world and all related rights of priority under international conventions with respect thereto, including all pending and future applications and registrations therefor, and continuations, divisions, continuations-in-part, reissues, extensions and renewals thereof (collectively, the "Intellectual Property Rights"), shall be the sole and exclusive property of Employer.

2.2. Work Made for Hire; Assignment. Employee acknowledges that, by reason of being employed by Employer at the relevant times, to the extent permitted by law, all of the Work Product consisting of copyrightable subject matter is "work made for hire" as defined in the Copyright Act of 1976 (17 U.S.C. § 101), and such copyrights are therefore owned by Employer. To the extent that the foregoing does not apply, Employee hereby irrevocably assigns to Employer, for no additional consideration, Employee's entire right, title and interest in and to all Work Product and Intellectual Property Rights therein, including the right to sue, counterclaim and recover for all past, present and future infringement, misappropriation or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit Employer's rights, title or interest in any Work Product or Intellectual Property Rights so as to be less in any respect than that Employer would have had in the absence of this Agreement.

2.3. Further Assurances; Power of Attorney. During and after his or her employment, Employee agrees to reasonably cooperate with Employer to (i) apply for, obtain, perfect and transfer to Employer the Work Product and Intellectual Property Rights in the Work Product in any jurisdiction in the world; and (ii) maintain, protect and enforce the same, including, without limitation, executing and delivering to Employer any and all applications, oaths, declarations, affidavits, waivers, assignments and other documents and instruments as shall be requested by Employer. Employee hereby irrevocably grants Employer power of attorney to execute and deliver any such documents on Employee's behalf in his or her name and to do all other lawfully permitted acts to transfer the Work Product to Employer and further the transfer, issuance, prosecution and maintenance of all Intellectual Property Rights therein, to the full extent permitted by law, if Employee does not promptly cooperate with Employer's request (without limiting the rights Employer shall have in such circumstances by operation of law). This power of attorney is coupled with an interest and shall not be affected by Employee's subsequent termination or incapacity.

2.4. Moral Rights. To the extent any copyrights are assigned under this Agreement, Employee hereby irrevocably waives, to the extent permitted by applicable law, any and all claims Employee may now or hereafter have in any jurisdiction to all rights of paternity, integrity, disclosure and withdrawal, and any other rights that may be known as "moral rights" with respect to all Work Product and all Intellectual Property Rights therein.

2.5. No License. Employee understands that this Agreement does not, and shall not be construed to, grant Employee any license or right of any nature with respect to any Work Product or Intellectual Property Rights, or any Confidential Information, materials, software, or other tools made available to Employee by Employer.

Article III: Security

3.1. Security and Access. Employee agrees and covenants: (i) to comply with all of Employer's security policies and procedures as may be in force from time to time, including, without limitation, those regarding computer equipment, telephone systems, voicemail systems, facilities access, monitoring, key cards, access codes, internet, social media and instant messaging systems, computer systems, e-mail systems, computer networks, document storage systems, software, data security, encryption, firewalls, passwords, and any and all other Employer facilities, IT resources and communication technologies, as applicable (collectively, the "Facilities Information Technology and Access Resources"); (ii) not to access or use any Facilities and Information Technology Resources except as authorized by Employer; and (iii) not to access or use any Facilities and Information Technology Resources in any manner after the termination of Employee's employment by Employer, whether such termination is voluntary or involuntary. Employee agrees to notify Employer promptly in the event that Employee learns of any violation of the foregoing by others, or of any other misappropriation or unauthorized access, use, reproduction or reverse engineering of, or tampering with any Facilities and Information Technology Access Resources or other Employer property or materials by others.

3.2. Exit Obligations. Upon the (i) voluntary or involuntary termination of Employee's employment or (ii) Employer's request at any time during Employee's employment, Employee shall: (a) provide or return to Employer any and all Employer property, including keys, key cards, access cards, identification cards, security devices, employer credit cards, network access devices, computers, cell phones, equipment, manuals, reports, files, books, compilations, Work Product, e-mail messages, recordings, tapes, thumb drives or other removable information storage devices, hard drives, and data, and all Employer documents and materials belonging to Employer and stored in any fashion, including but not limited to those that constitute or contain any Confidential Information or Work Product, that are in the possession or control of Employee, whether they were provided to Employee by Employer or any of its business associates or created by Employee in connection with his or her employment by Employer; and (b) delete or destroy all copies of any such documents and materials not returned to Employer that remain in Employee's possession or control, including those stored on any non-Employer devices, networks, storage locations and media in Employee's possession or control.

Article IV: Representations, Warranties, and Covenants

4.1. No Outstanding Restrictive Covenants. Employee hereby represents and warrants that, as of the Effective Date of this Agreement, Employee is not a party to any non-compete, non-solicitation, or other restrictive covenant or related contractual limitation that would interfere or hinder with Employee's ability to undertake the obligations and expectations of employment with Employer. Employee further represents and warrants that Employee will not knowingly use any trade secret, confidential information, or other intellectual property rights of any former employer or other third party in the performance of Employee's duties on behalf of Employer. Employee agrees that he or she will immediately notify Employer in writing if Employee learns of any such impediment or intellectual property right of any third party that may be affected by Employee's employment by Employer, and agrees to indemnify and hold Employer harmless from and against any and all suits, claims, and disputes arising out of Employee's breach of this Section 4.1.

4.2. Publicity. Employee hereby consents to any and all uses and displays, by Employer and its agents, of the Employee's name, voice, likeness, image, appearance and biographical information in, on or in connection with any pictures, photographs, audio and video recordings, digital images, websites, television programs and advertising, other advertising, sales and marketing brochures, books, magazines, other publications, CDs, DVDs, tapes and all other printed and electronic forms and media throughout the world, at any time during or after the period of Employee's employment by Employer, for all legitimate business purposes of Employer (collectively, the "Permitted Uses"). Employee hereby forever releases Employer and its directors, officers, employees and agents from any and all claims, actions, damages, losses, costs, expenses and liability of any kind, arising under any legal or equitable theory whatsoever at any time during or after the period of Employee's employment by Employer, in connection with any Permitted Use.

4.3. Non-Disparagement. Employee agrees and covenants that he or she will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments or statements concerning Employer or its businesses, or any of its employees, officers, and existing and prospective customers, suppliers, investors and other associated third parties. This Section 4.3 does not, in any way, restrict or impede Employee from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. Employee shall promptly provide written notice of any such order to an authorized officer of Employer within twenty-four (24) hours of receiving such order, but in any event sufficiently in advance of making any disclosure to permit Employer to contest the order or seek confidentiality protections, as determined in Employer's sole discretion.

4.4. Social Media. In addition to, and without limiting the applicability of, any social media policy maintained by Employer, Employee hereby agrees to exercise common sense standards of decency, integrity, and professionalism in Employee's creation, use or maintenance of any web profiles or pages on networking websites during Employee's employment by Employer. Employee may not use Employer's name and logos, or post any company or customer information unless specifically approved in writing by Employer, and must comply with all provisions of this Agreement (including those related to confidentiality and non-disparagement) in disseminating any information through social media.

4.5. Non-Competition. Employee acknowledges that the services he or she is to render to Employer are of a special and unusual character with a unique value to Employer, the loss of which cannot adequately be compensated by monetary damages in an action or proceeding at law. Therefore, in order to protect the trade secrets of Employer, Employer's Confidential Information, and Employer's business goodwill and competitive position, and in exchange for Employer providing Employee the consideration set forth herein, including the Confidential Information shared with Employee prior to and as a result of signing this Agreement, Employee agrees that during Employee's employment with Employer and for a period of two (2) years following the termination of Employee's employment with Employer for any reason, Employee shall not, either directly or indirectly, engage in Competition (as defined below) with Employer within the Geographic Region (as defined below).

a. Employer's Business and Competition. Employer operates a highly competitive business which includes the design, engineering and sales of patented railway technologies (collectively referred to herein as the "Business"). The terms "Competition" or "Compete," as used herein, mean engaging in the same or any substantially similar Business as Employer in any manner whatsoever (other than as a passive investor), including, without limitation, as a proprietor, partner, shareholder, director, officer, employee, consultant, independent contractor, or otherwise, and further includes rendering advice or services to, or otherwise assisting, any other person or entity in engaging in such Business.

b. Geographic Region. The term "Geographic Region," as used in this Section 4.5, shall mean and include the United States and any foreign country in which Employer has conducted its Business and/or sold or marketed its products or services. 

c. No Preparation for Competition. During the term of Employee's employment with Employer, Employee agrees not to undertake any preparations for competitive activities prohibited by this Agreement.

d. No Violation of Law. Notwithstanding any other provision of this Agreement, the Parties acknowledge that nothing in this Section 4.5 restricts or impedes Employee in any way from exercising protected rights to the extent that such rights cannot be waived by agreement, or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. Employee agrees to promptly provide written notice of any such order to Employer within twenty-four (24) hours of Employee's notification or knowledge thereof.

4.6. Agreement Not to Solicit Employer's Customers. In order to protect the trade secrets of Employer, Employer's Confidential Information, and Employer's business goodwill and competitive position, and in exchange for Employer providing Employee the consideration set forth herein, Employee agrees that during Employee's employment by Employer and for a period of two (2) years following the termination of Employee's employment with Employer for any reason, Employee shall not, either directly or indirectly, call on, service, solicit, or accept Competing business from Employer's customers or prospective customers whom or which Employee or Employer, within the previous two (2) years, had or made contact with, in any form whatsoever, regarding Employer's Business. Employee further agrees that he or she shall not assist any other person or entity in such a solicitation.

4.7. Agreement Not to Recruit Other Employees.  In order to protect the trade secrets of Employer, Employer's Confidential Information, and Employer's business goodwill and competitive position, and in exchange for Employer providing Employee the consideration set forth herein, Employee agrees that during Employee's employment by Employer and for a period of two (2) years following the termination of Employee's employment with Employer for any reason, Employee shall not, either directly or indirectly, call on, recruit, solicit, or induce any employee, contractor, or officer of Employer, with whom Employee had contact within the previous two (2) years in the course of his or her employment, to terminate such other employee, contractor, or officer's relationship with Employer, and will not assist any other person or entity in such a solicitation. Employee further agrees that he or she will not discuss, by any means whatsoever, with any such employee, contractor, or officer of Employer the termination of Employee's relationship with Employer, during the time period set forth above.

4.8. Acknowledgement. Employee acknowledges and agrees that the services to be rendered by Employee to Employer are of a special and unique character; that Employee will obtain knowledge and skill relevant to Employer's industry, methods of doing business and marketing strategies by virtue of Employee's employment; and that the terms and conditions of this Agreement, including the restrictive covenants set forth in this Article IV, are reasonable under these circumstances. Employee further acknowledges that the amount of compensation to be paid to Employee by Employer reflects, in part, Employee's obligations and Employer's rights under this Agreement; that Employee has no expectation of any additional compensation, royalties or other payment of any kind not otherwise referenced herein in connection herewith; that Employee will not be subject to undue hardship by reason of his or her full compliance with the terms and conditions of this Agreement or Employer's enforcement thereof; and that this Agreement is not a contract of employment and shall not be construed as a commitment by either of the Parties to continue an employment relationship for any certain period of time. Nothing in this Agreement shall be construed to in any way terminate, supersede, undermine or otherwise modify the at-will status of the employment relationship between Employer and Employee, pursuant to which either Employer or Employee may terminate the employment relationship at any time, with or without cause, with or without notice.

4.9. Tolling. Should Employee violate any of the terms of the restrictive covenant obligations set forth in this Article IV or elsewhere in this Agreement, the obligation at issue will run from the first date on which Employee ceases to be in violation of such obligation.

4.10. Attorney's Fees. Should Employee breach any of the terms of the restrictive covenant obligations set forth in this Article IV or elsewhere in this Agreement, to the extent authorized by Texas law, Employee will be responsible for payment of all reasonable attorney's fees and costs that Employer incurs in the course of enforcing the terms of this Agreement, including demonstrating the existence of a breach and any other contract enforcement efforts.

4.11. Notification of Future Employers. In the event Employee seeks and obtains employment from any subsequent employer within two (2) years after termination of Employee's employment with Employer, for any reason, Employee agrees to deliver a copy of this Agreement to his or her subsequent employer in order to ensure that the subsequent employer is fully aware of Employee's continuing obligation to Employer hereunder. Employee further authorizes Employer to notify Employer's customers, future employers of Employee, and other parties, in Employer's discretion, of the terms of this Agreement and Employee's obligations pursuant hereto. Employer's notification of customers, employers, or others of the terms of this Agreement shall not give rise to any claim in tort or contract by Employee against Employer.

Article V: Miscellaneous

5.1. Remedies. In the event of any breach or threatened breach by Employee of any of the provisions of this Agreement, Employee hereby agrees and acknowledges that Employer will suffer immediate and irreparable injury, for which monetary damages will not be an adequate remedy. Employee further acknowledges and agrees that Employer shall be entitled to immediate injunctive relief, including a temporary restraining order, a temporary injunction, and a permanent injunction or other equitable relief, against such breach or threatened breach, from any court of competent jurisdiction, without the necessity of showing any actual damages or that monetary damages would not afford an adequate remedy. Employee further agrees and acknowledges that the aforementioned equitable relief shall be in addition to, not in lieu of, and without prejudice to any legal remedies, monetary damages, or other forms of relief Employer may seek.

5.2. Early Resolution Conference. Notwithstanding anything to the contrary in Section 5.1 above, the Parties acknowledge that they are entering into this Agreement with the express understanding that the terms hereof are clear and fully enforceable as written. In the event Employee contends the enforceability or applicability of any term or covenant set forth in this Agreement, Employee hereby agrees that he or she shall, prior to initiating any proceedings in a court of competent jurisdiction or otherwise, notify Employer in writing of Employee's intention to dispute a provision of this Agreement. Employer and Employee agree to meet in an attempt to resolve the purported dispute (a "Resolution Conference") within fourteen (14) days of Employer's receipt of the foregoing notice from Employee. Employee shall be entitled to initiate a proceeding in the event that the Resolution Conference fails to result in a resolution between Employee and Employer. However, if Employee initiates a proceeding related to this Agreement prior to meeting with Employer in accordance with this Section 5.2, Employee hereby acknowledges that the failure to participate in a Resolution Conference constitutes a material breach of this Agreement, and Employee agrees that Employer shall be entitled to a liquidated damage payment from Employee in the amount of Ten Thousand and No/100 Dollars ($10,000.00) (the "Liquidated Damage Payment"). Both Parties acknowledge and agree that the purpose of the Liquidated Damage Payment is solely to compensate Employer for Employee's breach of this Section 5.2, and is not intended as a penalty in any form against Employee.

5.3. Successors and Assigns. Employee may not assign this Agreement or any part hereof, and any purported assignment by Employee shall be null and void and of no legal effect. Notwithstanding the foregoing, Employer may assign this Agreement or any part hereof to any subsidiary or corporate affiliate, or to any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Employer. This Agreement shall inure to the benefit of Employer and its permitted successors and assigns.

5.4. Governing Law; Venue. This Agreement shall be exclusively governed by and construed under the laws of the State of Texas, without application of its conflicts or choice of law rules. Any action or proceeding by either Party to enforce any provision of this Agreement shall be brought only in any state or federal court located in Dallas County, Texas. The Parties hereby irrevocably submit to the jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.

5.5. Entire Agreement. Unless specifically provided herein, this Agreement contains all of the understandings and representations between Employer and Employee pertaining to the subject matter hereof, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter; provided, however, that any and all employment or contractor agreements between Employer and Employee shall remain in full force and effect.

5.6. Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by Employee and by a duly authorized officer of Employer (other than Employee). No waiver by either Party of any breach by the other Party hereto of any condition or provision of this Agreement to be performed by the other Party shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either Party in exercising any right, power or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

5.7. Severability. If any provision of this Agreement shall be conclusively determined by a court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby but shall remain in full force and effect. The Parties agree that any such court is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the Parties as embodied herein, to the maximum extent permitted by law.

5.8. Notices. Any notices to be given by any Party hereunder shall be in writing and shall be given personally or sent by electronic mail; certified mail, return receipt requested; facsimile transmission; overnight delivery; or first class mail, addressed to the Party at the address and, if applicable, to the attention of the authorized representative listed in the signature page hereto. Any Party may change the address to which notices are to be sent by giving notice to the other in the manner provided above. Notices shall be deemed given upon receipt, upon facsimile transmittal, the day after being sent via reputable overnight courier or three (3) days after the mailing, whichever is earlier.

5.9. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, and all of which, taken together, shall constitute one and the same instrument.