KELSO TECHNOLOGIES INC.
Consolidated Financial Statements
For the years ended December 31, 2023, 2022 and 2021
(Expressed in US Dollars)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND DIRECTORS OF KELSO TECHNOLOGIES INC.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Kelso Technologies Inc. (the "Company") and its subsidiaries as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows for the years ended December 31, 2023, 2022 and 2021, and the related notes (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023, 2022 and 2021, in conformity with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of intangible assets in the KXI heavy duty ("KXI HD") operating segment
As discussed in Note 8 to the consolidated financial statements, the intangible asset balance as of December 31, 2023 was $471,311, consisting of intellectual property rights related to the KXI HD operating segment. As the intangible asset is not yet available for its intended use, the Company performs impairment testing on an annual basis or whenever events or changes in circumstances indicate that the carrying value of a cash generating unit ("CGU") might exceed its recoverable amount, which is determined using the value in use method. The significant assumptions were determined to be the discount rate applied in the value in use model, estimated sales volumes, selling prices and costs per unit, and operating costs. The estimated recoverable value exceeds the carrying value as at December 31, 2023, therefore, the Company did not record an impairment charge in the CGU.
We identified the assessment of the fair value of intangible assets in the KXI HD operating segment as a critical audit matter. There was a high degree of auditor judgment required to evaluate the significant assumptions used in determining the recoverable amount. The sensitivity of reasonably possible changes to those assumptions could have a significant impact on the determination of the recoverable amount and the Company's assessment of impairment.
The following are the primary procedures we performed to address this critical audit matter. We assessed the reasonability of the discount rate by reviewing market data and consulting with an auditors' specialist. We evaluated the reasonableness of the Company's estimated sales volumes and selling prices by reviewing market data and through discussions with operational personnel, including discussions regarding the planned business initiatives for the KXI HD operating segment and current plans for commercialization of the product. We evaluated the estimated costs per unit by testing the actual costs to build the prototype units and evaluated operating costs by reviewing actual costs to date in comparison to projected costs.
Chartered Professional Accountants
We have served as the Company's auditor since 2006.
March 22, 2024
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Kelso Technologies Inc. |
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| 2023 | 2022 | |||||
| Assets | ||||||
| Current | ||||||
| Cash (Note 5) | $ | $ | ||||
| Accounts receivable (Note 5) | ||||||
| Prepaid expenses | ||||||
| Inventory (Note 6) | ||||||
| Property, plant and equipment (Note 7) | ||||||
| Deposit (Note 8) | ||||||
| Intangible assets (Note 8) | ||||||
| $ | $ | |||||
| Liabilities | ||||||
| Current | ||||||
| Accounts payable and accrued liabilities (Notes 5 and 12) | $ | $ | ||||
| Income tax payable | ||||||
| Current portion of lease liability (Note 9) | ||||||
| RSU liability (Note 11) | ||||||
| Derivative warrant liability (Note 10) | ||||||
| Long term portion of lease liability (Note 9) | ||||||
| Shareholders' Equity | ||||||
| Capital Stock (Note 11) | ||||||
| Reserves (Note 11) | ||||||
| Deficit | ( |
) | ( |
) | ||
| $ | $ |
| Approved on behalf of the Board: | ||
| "Frank Busch" (signed) | ||
| Frank Busch, Director | ||
| "Paul Cass" (signed") | ||
| Paul Cass, Director |
See notes to consolidated financial statements
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Kelso Technologies Inc. |
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| Capital Stock | |||||||||||||||
| Number of | |||||||||||||||
| Common | |||||||||||||||
| Shares | Amount | Reserve | Deficit | Total | |||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( |
) | $ | |||||||||
| Share-based expense | - | - | - | ||||||||||||
| Private placement, net of issue costs | - | - | |||||||||||||
| Exercise of options | ( |
) | - | ||||||||||||
| Net loss for the year | - | - | - | ( |
) | ( |
) | ||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( |
) | $ | |||||||||
| Share-based expense | - | - | - | ||||||||||||
| Repurchase of RSUs | - | - | ( |
) | - | ( |
) | ||||||||
| Net loss for the year | - | - | - | ( |
) | ( |
) | ||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( |
) | $ | |||||||||
| Shares issued for RSUs | ( |
) | - | - | |||||||||||
| Share-based expense | - | - | - | ||||||||||||
| Repurchase of RSUs | - | - | ( |
) | - | ( |
) | ||||||||
| Modification of RSUs | - | - | ( |
) | - | ( |
) | ||||||||
| Net loss for the year | - | - | - | ( |
) | ( |
) | ||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( |
) | $ | |||||||||
See notes to consolidated financial statements
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Kelso Technologies Inc. |
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| 2023 | 2022 | 2021 | |||||||
| Revenues (Note 15) | $ | $ | $ | ||||||
| Cost of Goods Sold (Notes 6 and 7) | |||||||||
| Gross Profit | |||||||||
| Expenses | |||||||||
| Office and administration (Note 12) | |||||||||
| Management compensation (Note 12) | |||||||||
| Research (Note 7) | |||||||||
| Marketing | |||||||||
| Travel | |||||||||
| Accounting and legal | |||||||||
| Share-based expense (Notes 11 and 12) | |||||||||
| Consulting (Note 12) | |||||||||
| Investor relations | |||||||||
| Foreign exchange (gain) loss | ( |
) | ( |
) | |||||
| Amortization (Notes 7 and 8) | |||||||||
| Bad debts | |||||||||
| Loss Before the Following: | ( |
) | ( |
) | ( |
) | |||
| Gain on repurchase of RSUs (Note 11) | |||||||||
| Gain on revaluation of derivative warrant liability (Note 10) | |||||||||
| Gain (loss) on sale of property, plant and equipment (Note 7) | ( |
) | |||||||
| Write-off of inventory (Note 6) | ( |
) | ( |
) | ( |
) | |||
| Unit issuance costs (Note 11) | ( |
) | |||||||
| Termination settlement (Note 8) | ( |
) | |||||||
| Loss Before Taxes: | ( |
) | ( |
) | ( |
) | |||
| Income Tax Expense (Note 13) | |||||||||
| Current | |||||||||
| Net Loss and Comprehensive Loss for the Year | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Basic and Diluted Loss Per Share | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Weighted Average Number of Common Shares Outstanding |
See notes to consolidated financial statements
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Kelso Technologies Inc. |
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| 2023 | 2022 | 2021 | |||||||
| Operating Activities | |||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Items not involving cash: | |||||||||
| Amortization | |||||||||
| Write-off of inventory | |||||||||
| Loss (gain) on sale of property, plant and equipment | ( |
) | |||||||
| Share-based expense | |||||||||
| Bad debts | |||||||||
| Gain on repurchase of RSUs | ( |
) | ( |
) | |||||
| Gain on revaluation of derivative warrant liability | ( |
) | ( |
) | ( |
) | |||
| Unrealized foreign exchange loss (gain) | ( |
) | ( |
) | |||||
| ( |
) | ( |
) | ( |
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| Changes in non-cash working capital | |||||||||
| Accounts receivable | ( |
) | ( |
) | |||||
| Prepaid expenses | ( |
) | |||||||
| Inventory | ( |
) | |||||||
| Accounts payable and accrued liabilities | ( |
) | ( |
) | |||||
| Income tax payable | ( |
) | ( |
) | |||||
| ( |
) | ||||||||
| Cash Provided by (Used in) Operating Activities | ( |
) | ( |
) | |||||
| Investing Activities | |||||||||
| Proceeds from disposition of property, plant and equipment | |||||||||
| Acquisition of property, plant and equipment | ( |
) | ( |
) | ( |
) | |||
| Deposit on intangible assets | ( |
) | |||||||
| Acquisition of intangible assets | ( |
) | ( |
) | ( |
) | |||
| Cash Used in Investing Activities | ( |
) | ( |
) | ( |
) | |||
| Financing Activities | |||||||||
| Issue of common shares, net of issue costs | |||||||||
| Exercise of options | |||||||||
| Repurchase of RSUs | ( |
) | ( |
) | |||||
| Lease liability payments | ( |
) | ( |
) | ( |
) | |||
| Cash Provided by (Used in) Financing Activities | ( |
) | ( |
) | |||||
| Foreign Exchange Effect on Cash | ( |
) | |||||||
| Inflow (Outflow) of Cash | ( |
) | ( |
) | |||||
| Cash, Beginning of Year | |||||||||
| Cash, End of Year | $ | $ | $ |
Supplemental Cash Flow Information (Note 14)
See notes to consolidated financial statements
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Kelso Technologies Inc. |
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1. NATURE OF OPERATIONS
Kelso Technologies Inc. (the "Company") was incorporated under the laws of British Columbia on March 16, 1987. The Company designs, engineers, markets, produces and distributes various proprietary pressure relief valves and manway securement systems designed to reduce the risk of environmental harm due to non-accidental events in the transportation of hazardous commodities via railroad tank cars. In addition, the Company is an engineering development company specializing in proprietary service equipment used in transportation applications. The Company trades on the Toronto Stock Exchange ("TSX") under the symbol "KLS", and 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's head office is located at 13966 18B Avenue, South Surrey, British Columbia, V4A 8J1. Subsequent to year-end, the Company is in the process of delisting from the NYSE (Note 18).
2. BASIS OF PREPARATION
(a) Statement of compliance
These audited consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").
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., KIQ X Industries Inc. and KXI Wildertec Industries Inc. which are all Nevada, USA corporations except KIQ X Industries Inc., and KXI Wildertec Industries Inc., which were incorporated in British Columbia. 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").
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2. BASIS OF PREPARATION (Continued)
(d) Significant management judgments and estimation uncertainty
The preparation of consolidated financial statements in conformity with IFRS 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.
(iv) Treatment of restricted share units
The initial treatment of restricted share units ("RSUs") requires management to apply judgment in assessing the terms and conditions of the grant to determine whether RSUs will be equity-settled or cash-settled.
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2. BASIS OF PREPARATION (Continued)
(d) Significant management judgments and estimation uncertainty (continued)
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.
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.
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2. BASIS OF PREPARATION (Continued)
(d) Significant management judgments and estimation uncertainty (continued)
Estimation uncertainty (continued)
(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).
Restricted and deferred share units are measured using the fair value of the shares on the grant date (Note 11).
(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 credit worthiness 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 is 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 judgement 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 year ended December 31, 2023 were approved and authorized for issue by the Board of Directors on March 22, 2024.
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2. BASIS OF PREPARATION (Continued)
(f) New accounting standards issued but not yet effective
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 its consolidated financial statements would not be significant.
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 manway covers, as well as finished valves and manway covers. 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 | - |
||
| Rights | - |
||
| Intellectual Property | - |
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.
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Kelso Technologies Inc. |
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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 | - |
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| Production equipment | - |
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| Leasehold improvements | - |
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| Prototypes | - |
(d) Revenue recognition
Revenues from the sale of pressure relief 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 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.
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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
(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).
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Kelso Technologies Inc. |
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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 diluted loss per share 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 11. 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 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.
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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. 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 an 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.
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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 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.
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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 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.
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Kelso Technologies Inc. |
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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 December 31, 2023, the Company has capitalized $
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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. Management reviews the capital structure on a regular basis to ensure the above objectives are met. There have been no changes to the Company's approach to capital management during the year ended December 31, 2023. There are no externally imposed restrictions on the Company's capital.
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 derivative warrant liability and lease liability are classified as level 2 and 3 respectively.
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 $
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Kelso Technologies Inc. |
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5. FINANCIAL INSTRUMENTS (Continued)
(a) Credit risk (continued)
With respect to its accounts receivable, the Company assesses the credit rating 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 accounts receivable and maximum exposure thereto is $
To reduce the credit risk of accounts receivable, the Company regularly reviews the collectability of the accounts receivable to ensure there is no indication that these amounts will not be fully recoverable. The Company's aging of accounts receivable, excluding goods and services tax receivable, at December 31, 2023 and 2022 is as follows:
| December 31, 2023 | December 31, 2022 | |||||
| Current | $ | $ | ||||
| 1 - 60 days | ||||||
| 61 days and over | ||||||
| $ | $ |
(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 December 31, 2023, the Company has $
(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. The Company is not exposed to significant interest rate risk.
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Kelso Technologies Inc. |
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5. FINANCIAL INSTRUMENTS (Continued)
(c) Market risk (continued)
(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 December 31, 2023 and 2022, the Company had the following net monetary assets (liabilities) denominated in CAD (amounts presented in USD):
| December 30, 2023 | December 31, 2022 | |||||
| Cash | $ | $ | ||||
| Accounts receivable | ||||||
| Accounts payable and accrued liabilities | ( |
) | ( |
) | ||
| $ | $ | ( |
) |
Based on the above, assuming all other variables remain constant, a
6. INVENTORY
| December 31, 2023 | December 31, 2022 | |||||
| Finished goods | $ | $ | ||||
| Raw materials and supplies | ||||||
| $ | $ |
Included in cost of goods sold is $
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Kelso Technologies Inc. |
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7. PROPERTY, PLANT AND EQUIPMENT
| Leasehold | Production | ||||||||||||||||||||
| Cost | Land | Building | Improvements | Equipment | Prototypes | ROU Asset | Total | ||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Additions | |||||||||||||||||||||
| Disposals | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Additions | |||||||||||||||||||||
| Disposals | ( |
) | ( |
) | |||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Amortization | |||||||||||||||||||||
| Disposals | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Amortization | |||||||||||||||||||||
| Disposals | ( |
) | ( |
) | |||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Carrying Value | |||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | $ | $ | $ |
Included in inventory is $
Included in cost of goods sold is $
Included in amortization expense is $
Included in research expense is $
23
Kelso Technologies Inc. |
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8. INTANGIBLE ASSETS
| Cost | Patent |
Rights |
Intellectual Property |
Total |
||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ||||||||
| Additions | ||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ||||||||
| Additions | ||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||
| Additions | ||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ||||||||
| Accumulated Amortization | ||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ||||||||
| Amortization | ||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ||||||||
| Amortization | ||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||
| Amortization | ||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ||||||||
| Carrying Value | ||||||||||||
| December 31, 2023 | $ | $ | $ | $ | ||||||||
| December 31, 2022 | $ | $ | $ | $ |
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
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") for consideration of $
In addition, the Company will pay an additional $
• $
• $
• $
The Company is also required to pay a royalty to the Vendor of
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Kelso Technologies Inc. |
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8. INTANGIBLE ASSETS (Continued)
On March 3, 2021, the Company terminated the technology development agreement, including the consulting agreement for $
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 $
During the year ended December 31, 2023, the Company incurred a total of $
9. LEASE LIABILITY
The Company has lease agreements for its warehouse space in Kelowna, British Columbia and for vehicles used in the development of prototypes (Note 7).
The continuity of the lease liability for years ended December 31, 2023 and 2022 is as follows:
| Lease liability | Warehouse | Vehicles | Total | ||||||
| Lease liability, December 31, 2020 | $ | $ | $ | ||||||
| Additions | |||||||||
| Lease payments | ( |
) | ( |
) | ( |
) | |||
| Lease interest | |||||||||
| Lease liability, December 31, 2021 | $ | $ | $ | ||||||
| Disposals | ( |
) | ( |
) | |||||
| Lease payments | ( |
) | ( |
) | ( |
) | |||
| Lease interest | |||||||||
| Lease liability, December 31, 2022 | $ | $ | $ | ||||||
| Lease payments | ( |
) | ( |
) | ( |
) | |||
| Lease interest | |||||||||
| Lease liability, December 31, 2023 | $ | $ | $ | ||||||
| Current portion | $ | $ | $ | ||||||
| Long-term portion | |||||||||
| $ | $ | $ |
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Kelso Technologies Inc. |
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9. LEASE LIABILITY (Continued)
During the year ended December 31, 2023, the Company paid a total of $
10. DERIVATIVE WARRANT LIABILITY
The Company's derivative warrant liability arises as a result of the issuance of warrants exercisable in CAD (Note 11(c)). As the denomination is different from the Company's USD functional currency, the Company recognizes a derivative liability for these warrants and remeasures the liability at the end of each reporting period.
Changes in respect of the Company's derivative warrant liability are as follows:
| Balance, December 31, 2020 | $ | ||
| Fair value of warrants issued | |||
| Fair value of adjustment | ( |
) | |
| Balance, December 31, 2021 | |||
| Fair value of adjustment | ( |
) | |
| Balance, December 31, 2022 | $ | ||
| Fair value of adjustment | ( |
) | |
| Balance, December 31, 2023 | $ |
Valuation of the derivative warrant liability requires the use of highly subjective estimates and assumptions. The expected volatility used is based on the Company's historical share prices. The risk-free interest rate for the periods within the expected life of the warrants is based on Canadian government benchmark bond with an approximate equivalent term. The expected life is based on the contractual term. Changes in the underlying assumptions can materially affect the fair value estimates.
The Company uses an option pricing model to estimate the liability's fair value. The following weighted average assumptions were used:
| As of December 31, | At Issuance - | ||
| 2022 | 2021 | March 4, 2021 | |
| Risk-free interest rate | |
|
|
| Expected live | |
|
|
| Annualized volatility | |
|
|
| Dividend yield | |
|
|
| Fair value per warrant | $ |
$ |
$ |
On March 4, 2023, all of the warrants expired unexercised. As a result, the Company revalued the derivative liability to $
26
Kelso Technologies Inc. |
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11. CAPITAL STOCK
Authorized:
Unlimited Class A non-cumulative, preferred shares without par value, of which
Unlimited common shares without par value.
a) Common shares
During the year ended December 31, 2023, the Company issued
There were no share issuances during the year ended December 31, 2022.
During the year ended December 31, 2021, the Company issued
During the year ended December 31, 2021, the Company issued
(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.
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Kelso Technologies Inc. |
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11. CAPITAL STOCK (Continued)
(b) Stock options (continued)
Options to purchase common shares have been granted to directors, employees and consultants as follows:
| Exercise | Expiry | December 31, | Forfeited/ | December 31, | ||||||||||||
| Price | Date | 2022 | Granted | Exercised | Expired | 2023 | ||||||||||
| $ |
April 17, 2023 | ( |
) | |||||||||||||
| $ |
August 20, 2023 | ( |
) | |||||||||||||
| $ |
May 17, 2024 | ( |
) | |||||||||||||
| $ |
August 19, 2024 | |||||||||||||||
| $ |
November 8, 2024 | |||||||||||||||
| $ |
February 11, 2025 | |||||||||||||||
| $ |
August 18, 2025 | |||||||||||||||
| Total outstanding | ( |
) | ||||||||||||||
| Total exercisable | ( |
) | ||||||||||||||
| Exercise | Expiry | December 31, | Forfeited/ | December 31, | ||||||||||||
| Price | Date | 2021 | Granted | Exercised | Expired | 2022 | ||||||||||
| $ |
July 6, 2022 | ( |
) | |||||||||||||
| $ |
November 28, 2022 | ( |
) | |||||||||||||
| $ |
April 17, 2023 | |||||||||||||||
| $ |
August 20, 2023 | |||||||||||||||
| $ |
May 17, 2024 | |||||||||||||||
| $ |
August 19, 2024 | |||||||||||||||
| $ |
November 8, 2024 | |||||||||||||||
| $ |
February 11, 2025 | |||||||||||||||
| $ |
August 18, 2025 | |||||||||||||||
| Total outstanding | ( |
) | ||||||||||||||
| Total exercisable | ( |
) | ||||||||||||||
A summary of the Company's stock options as at December 31, 2023 and 2022, and changes for the years then ended are as follows:
| Weighted | ||||||
| Average Exercise | ||||||
| Number | Price | |||||
| Outstanding, December 31, 2021 | $ | |||||
|
Forfeited |
( |
) | $ | |||
|
Expired |
( |
) | $ | |||
| Outstanding, December 31, 2022 | $ | |||||
| Expired | ( |
) | $ | |||
| Outstanding and exercisable, December 31, 2023 | $ |
The weighted average contractual life for the remaining options at December 31, 2023 is
Share-based expense
Share-based expense of $
28
Kelso Technologies Inc. |
|
11. CAPITAL STOCK (Continued)
(c) Warrants
Warrants outstanding as at December 31, 2023 and 2022 are summarized below:
| Share Purchase | Weighted average | |||||
| warrants | exercise price | |||||
| Outstanding, December 31, 2021 | $ | (1) | ||||
| Outstanding, December 31, 2022 | $ | (1) | ||||
| Expired | ( |
) | $ | (1) | ||
| Outstanding, December 31, 2023 | $ |
(1) These warrants are denominated in CAD and have been re-translated based on the exchange rate in effect as at December 31, 2022 of $1.00 = $
During the year ended December 31, 2023, all warrants expired unexercised.
(d) 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.
A summary of the Company's RSUs as at December 31, 2023 and 2022, and changes for the years then ended are as follows:
| Outstanding, December 31, 2021 | |||
| Forfeited | ( |
) | |
| Repurchased | ( |
) | |
| Granted | |||
| Outstanding, December 31, 2022 | |||
| Settled | ( |
) | |
| Repurchased | ( |
) | |
| Granted | |||
| Outstanding, December 31, 2023 |
During the year ended December 31, 2023, the Company approved a policy whereby RSUs granted to US residents would be settled in cash. Following this amendment, the RSUs previously granted to US residents were determined to be modified from equity-settled to cash-settled. On the date of modification, a liability was recognized for the vested portion of the previously granted RSUs of $
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Kelso Technologies Inc. |
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11. CAPITAL STOCK (Continued)
(d) Restricted share units (continued)
During the year ended December 31, 2023, the Company granted
During the year ended December 31, 2023, the Company repurchased
In connection with the RSUs awarded, the Company recognized share-based expense of $
(e) Deferred share units
On April 28, 2021, the Company implemented a Non-Employee Directors Deferred Share Unit Plan (the "DSU Plan").
At December 31, 2023, 2022 and 2021, no DSUs have been granted to non-employee directors.
12. 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:
| December 31, | December 31, | December 31, | |||||||
| 2023 | 2022 | 2021 | |||||||
| Management compensation | $ | $ | $ | ||||||
| Share-based expense* | |||||||||
| Directors' fees | |||||||||
| RSU payment** | |||||||||
| $ | $ | $ |
* Share-based expense consists of options and RSUs awarded to key management and directors, measured at the fair value of the equity instrument on grant date and does not include any cash compensation.
** RSU payment consists of cash paid for the repurchase of vested RSUs held by key management and directors.
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Kelso Technologies Inc. |
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12. RELATED PARTY TRANSACTIONS (Continued)
During the year ended December 31, 2023, the Company paid consulting fees of $
As at December 31, 2023, there are no amounts due to related parties included in accounts payable and accrued liabilities.
13. INCOME TAXES
The Company has $
The tax effect items that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31, 2023 and 2022 are as follows:
| December 31, 2023 |
December 31, 2022 |
|||||
| Deferred income tax assets | ||||||
| Non-capital loss carry-forwards | $ | $ | ||||
| Non-capital loss carry-forwards | ( |
) | ||||
| Deferred income tax assets | $ | $ | ||||
| Excess of carrying value over tax value of property, plant and equipment | $ | ( |
) | $ | ( |
) |
| Deferred income tax liability | $ | ( |
) | $ | ( |
) |
| Net deferred tax asset (liability) | $ | $ |
Significant unrecognized tax benefits and unused tax losses for which no deferred tax assets is recognized as of December 31, 2023 and 2022 are as follows:
| December 31, 2023 |
December 31, 2022 |
|||||
| Non-capital losses carried forward | $ | $ | ||||
| Intangible assets | ||||||
| Derivative warrant liability | ||||||
| Lease liability | ||||||
| Unrecognized deductible temporary differences | $ | $ |
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Kelso Technologies Inc. |
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13. INCOME TAXES (Continued)
Income tax expense differs from the amount that would be computed by applying the Canadian statutory income tax rate of
| December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||||
| Loss before income taxes | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Statutory income tax rate | |||||||||
| Income tax benefit computed at statutory tax rate | ( |
) | ( |
) | ( |
) | |||
| Items not deductible for income tax purposes | ( |
) | |||||||
| Under provision of taxes in prior years | ( |
) | |||||||
| Change in timing differences | |||||||||
| Impact of foreign exchange on tax assets and liabilities | ( |
) | |||||||
| Unused tax losses and tax offsets not recognized | |||||||||
| Income tax expense | |||||||||
| Texas margin tax and branch tax | |||||||||
| Income tax expense | $ | $ | $ |
14. SUPPLEMENTAL CASH FLOW INFORMATION
| December 31, | December 31, | December 31, | |||||||
| 2023 | 2022 | 2021 | |||||||
| Property, plant and equipment additions in accounts payable and accrued liabilities | $ | $ | $ | ||||||
| Intangible asset additions in accounts payable and accrued liabilities | $ | $ | $ | ||||||
| Deposit applied to intangible assets | $ | $ | $ | ||||||
| Interest paid | $ | $ | $ | ||||||
| Income taxes paid | $ | $ | $ |
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Kelso Technologies Inc. |
|
15. SIGNIFICANT CUSTOMERS
The following table represents sales to individual customers exceeding 10% of the Company's revenues:
| December 31, | December 31, | December 31, | |||||||
| 2023 | 2022 | 2021 | |||||||
| Customer A | $ | $ | $ | ||||||
| Customer B | $ | $ | $ | ||||||
| Customer C | $ | $ | $ |
The customers are major US corporations who have displayed a pattern of consistent timely payment of amounts owing from sales.
The Company is obligated to pay a
16. EMPLOYEE BENEFITS
Total employee benefit expenses, including salary and wages, management compensation, share-based expense and benefits for the year ended December 31, 2023 amounted to $
17. SEGMENTED INFORMATION
The Company operates in two business segments with operations and long-term assets in United States and Canada. The two business segments include the design, production and distribution of various proprietary products for the rail sector and the development of the KXI HD control system for no road vehicles. At December 31, 2023, long-term assets of $
18. SUBSEQUENT EVENTS
(a) On February 1, 2024, the Company signed a new lease agreement for its warehouse space in Kelowna, British Columbia. Under the lease agreement, the Company has expanded the leased area and will pay $
(b) On March 5, 2024 the Company announced that it had notified the NYSE American ("NYSE American") of its intention to voluntarily delist its common shares ("Shares") from the NYSE American. The Shares will continue to trade on the TSX.
The Company filed a Form 25 with the U.S. Securities and Exchange Commission on March 15, 2024, which Form would become effective 10 days following filing thereof, resulting in the delisting of the Shares from NYSE American on or about March 26, 2024.
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