KLNG 10-Q
Koil Energy Solutions, Inc. (KLNG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including
area code: (
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
As of November 14, 2025, there were shares outstanding of Common Stock, par value $0.001 per share.
IMPORTANT INFORMATION REGARDING THIS FORM 10-Q
Unless otherwise indicated, references to “Koil Energy Solutions, Inc.,” “Koil Energy,” “Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q (“Report”) refer collectively to Koil Energy Solutions, Inc., a Nevada corporation, and its direct and indirect wholly owned subsidiaries.
Forward-Looking Statements
The statements contained or incorporated by reference in this Report that are not historical facts are “forward-looking statements” (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include any statement that may project, indicate or imply future results, events, performance or achievements. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expect,” “may,” “will,” “should,” “intend,” “plan,” “could,” “estimate,” or “anticipate,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.
Given the risks and uncertainties relating to forward-looking statements, investors should not place undue reliance on such statements. Forward-looking statements included in this Report speak only as of the date of this Report and are not guarantees of future performance. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such expectations may prove to be incorrect. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. The risks and uncertainties mentioned previously relate to, among other matters, the following:
| · | Economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog; | |
| · | The volatility of oil and natural gas prices; | |
| · | Our use of percentage-of-completion accounting could result in volatility in our results of operations; | |
| · | A portion of our contracts may contain terms with penalty provisions; | |
| · | Fluctuations in the price and supply of raw materials used to manufacture our products may reduce our profits and could materially impact our ability to meet commitments to our customers; | |
| · | Our operations could be adversely impacted by the continuing effects of government regulations including evolving impacts from implementation of new tariffs and potential retaliatory measures; | |
| · | International and political events may adversely affect our operations; | |
| · | Our operating results may vary significantly from quarter to quarter; |
| i |
| · | We may be unsuccessful at generating profitable internal growth; | |
| · | The departure of key personnel could disrupt our business; | |
| · | Our business requires skilled labor, and we may be unable to attract and retain qualified employees; | |
| · | More sophisticated and targeted cyber-attacks and other security incidents pose risks to our systems, data and business, and our relationships with customers and other third parties; | |
| · | Unfavorable legal outcomes could have a negative impact on our business; and | |
| · | The impact of global health crises, including epidemics and pandemics. |
Document Summaries
Descriptions of documents and agreements contained in this Report are provided in summary form only, and such summaries are qualified in their entirety by reference to the actual documents and agreements filed as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2024, other periodic and current reports we have filed with the SEC, or this Report.
Access to Filings
Access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments thereto, filed with or furnished to the SEC pursuant to Section 13(a) of the Exchange Act, as well as reports filed by our executive officers and directors pursuant to Section 16(a) of the Exchange Act, may be obtained through our website (www.koilenergy.com) as soon as reasonably practicable after we, or our executive officers and directors, have filed or furnished such material with the SEC. The contents of our website are not, and shall not be deemed to be, incorporated into this Report.
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TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KOIL ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2025 | December 31, 2024 | |||||||
| (In thousands, except share and per share amounts) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Employee retention tax credit receivable | ||||||||
| Inventory | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Right-of-use operating lease assets | ||||||||
| Right-of-use finance lease assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contract liabilities | ||||||||
| Deferred revenue | ||||||||
| Short-term borrowings | ||||||||
| Current notes payable | ||||||||
| Current operating lease liabilities | ||||||||
| Current finance lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term notes payable | ||||||||
| Operating lease liability, long-term | ||||||||
| Finance lease liability, long-term | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, shares authorized at $ par value, issued at September 30, 2025 and issued at December 31, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, shares at September 30, 2025 and December 31, 2024, at cost | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 1 |
KOIL ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (In thousands, except per share amounts) | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ||||||||||||
| Interest (income), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Other (income), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Gain) loss on sale of property, plant and equipment | ( | ) | ||||||||||||||
| (Loss) Income before income tax expense | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Fully diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted-average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Fully diluted | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 2 |
KOIL ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Additional | ||||||||||||||||||||||||
| Common Stock | Paid-in | Treasury | Accumulated | |||||||||||||||||||||
| (In thousands) | Shares (#) | Amount ($) | Capital | Stock | Deficit | Total | ||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||
| Stock option exercise | ||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||
| Stock option exercise | ||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Additional | ||||||||||||||||||||||||
| Common Stock | Paid-in | Treasury | Accumulated | |||||||||||||||||||||
| (In thousands) | Shares (#) | Amount ($) | Capital | Stock | Deficit | Total | ||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net income | – | |||||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||
| Stock option exercise | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net income | – | |||||||||||||||||||||||
| Restricted stock award | – | ( | ) | |||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||
| Stock option exercise | – | ( | ) | |||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
KOIL ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| (In thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
| Share-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| (Gain) loss on sale of property, plant and equipment | ( | ) | ||||||
| Bad debt expense | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Contract assets | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets, net | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Capitalized software development costs | ( | ) | ||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Principal payments under finance lease obligations | ( | ) | ( | ) | ||||
| Proceeds from short-term borrowings | ||||||||
| Principal payments on short-term borrowings | ( | ) | ||||||
| Principal payments on long-term notes payable | ( | ) | ||||||
| Proceeds from stock options exercised | ||||||||
| Net cash provided by financing activities | ||||||||
| Change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of non-cash activities: | ||||||||
| Property, plant and equipment acquired via debt | ||||||||
| Operating lease - right-of-use assets obtained in exchange for lease liabilities | ||||||||
| Finance lease - right-of-use assets obtained in exchange for lease liabilities | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)
| NOTE 1: | BASIS OF PRESENTATION |
Basis of Presentation
Unless otherwise indicated, the terms “Koil Energy Solutions, Inc.”, “Koil Energy”, “Company”, “we”, “our” and “us” are used in this Report to refer to Koil Energy Solutions, Inc., a Nevada corporation (“Koil Energy Nevada”), its directly wholly owned subsidiary, Koil Energy Solutions, Inc., a Delaware corporation (“Koil Energy Delaware”), and its directly wholly owned subsidiary Koil Energy Solution do Brasil Ltda., a Brazilian limited liability company (“Koil Energy Brazil”). The accompanying unaudited condensed consolidated financial statements of Koil Energy Solutions, Inc. were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC” or the “Commission”) pertaining to interim financial information and instructions to Form 10-Q. As permitted under those rules, certain notes or other financial information that are normally required by United States generally accepted accounting principles (“US GAAP”) can be condensed or omitted. Therefore, these statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2024.
Preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, then the actual amounts may differ from those included in the accompanying unaudited condensed consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal recurring nature.
Liquidity
The Company’s cash on hand was $
The Company believes it will have adequate liquidity
to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, and potential
sales of PP&E. However, given the inherent volatility in oil prices and global economic activity, the Company cannot predict this
with certainty. To mitigate this uncertainty, the Company exercises discipline when making capital investments and pursues opportunistic
cost containment initiatives, which can include workforce alignment, limiting overhead spending, and limiting research and development
efforts to only critical items. Additionally, on May 24, 2023, the Company entered into a Purchase and Sale Agreement/Security Agreement
(the “Factoring Agreement”) with Zions Bancorporation, N.A., d/b/a Amegy Bank Business Credit (“Amegy”), which
provides for Koil Energy from time to time to sell its accounts receivable and other rights to payment to Amegy, subject to Amegy’s
right to approve or reject future accounts receivable and other rights proposed for sale, in its sole discretion. Any receivables sold
shall bear an interest rate computed as the Wall Street Journal Prime Rate (“Prime Rate”) plus 2.00%. The Prime Rate has a
floor and at no time shall it be less than 8.00% for the purposes of this agreement. On September 30, 2025, the Company had factored invoices
outstanding with Amegy recorded as short-term borrowings in the aggregate amount of $
Intangible Capitalized Software Development Costs, net
The Company capitalizes certain costs related to the implementation of software systems during the application development stage. Capitalized software development costs are capitalized when application development begins and it is probable that the project will be completed and used as intended by the Company.
The capitalization policy provides for capitalizing certain payroll and payroll-related costs for employees who spend time directly associated with the configuration, development, and enhancement of software systems. Costs associated with preliminary project activities, data migration, training, maintenance, and all other post-implementation stage activities are expensed as incurred.
| 5 |
Capitalized software development costs
related to the implementation of the Company’s ERP system are classified as Intangibles on the Condensed Consolidated Balance
Sheets, and costs will be amortized on a straight-line basis over their estimated useful lives and will be included within
depreciation and amortization expense in the condensed consolidated statements of operations. For the nine months ended September
30, 2025, capitalized software development costs totaled $
Principles of Consolidation
The unaudited condensed consolidated financial statements presented herein include the accounts of Koil Energy for the three and nine months ended September 30, 2025, and 2024. All intercompany transactions and balances have been eliminated.
| NOTE 2: | LEASES |
The Company leases land, buildings, and certain equipment under non-cancellable operating leases. We lease office, indoor manufacturing, warehouse, and operating space in Houston, Texas and Macaé, Brazil, and lease storage space in Mobile, Alabama to house our 3,400 metric ton and 3,500 metric ton carousel systems. We classify our leases related to certain office furniture and computer equipment as finance leases. The Company elects to apply the short-term lease exception; therefore, the Company will not record an right of use (“ROU”) asset or corresponding lease liability for leases with an initial term of twelve months or less that is not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The Company elects to apply the practical expedient to not separate lease components from non-lease components and instead account for both as a single lease component for all asset classes.
Most leases include one or more options to renew, with renewal terms that can extend the lease term on a monthly, annual or longer basis. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option that is reasonably certain of being exercised.
The Company elects to not capitalize any lease in which the estimated value of the underlying asset at the commencement date is less than the Company’s capitalization threshold. A lease would need to qualify for the low value exception based on various criteria.
As of September 30, 2025, the Company does not have any subleases.
The following tables present information about our operating and finance leases:
| Classification | September 30, 2025 | December 31, 2024 | ||||||||
| Assets | ||||||||||
| Operating | Right-of-use operating lease assets | $ | $ | |||||||
| Finance | Right-of-use finance lease assets | |||||||||
| Total lease assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Current | ||||||||||
| Operating | Current operating lease liabilities | $ | $ | |||||||
| Finance | Current finance lease liabilities | |||||||||
| Non-current | ||||||||||
| Operating | Operating lease liability, long-term | |||||||||
| Finance | Finance lease liability, long-term | |||||||||
| Total lease liabilities | $ | $ | ||||||||
| 6 |
The components of our lease expense were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| Classification | 2025 | 2024 | 2025 | 2024 | ||||||||||||||
| Finance lease costs | ||||||||||||||||||
| Amortization of ROU assets | Selling, general and administrative | $ | $ | $ | $ | |||||||||||||
| Interest on lease liabilities | Other (income) expense, net | |||||||||||||||||
| Operating lease expense | Cost of sales | |||||||||||||||||
| Operating lease expense | Selling, general and administrative | |||||||||||||||||
| Short term lease expense | Cost of sales | |||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||||
The lease term and discount rate for our operating and finance leases were as follows:
September 30, 2025 | December 31, 2024 | |||||||
| Weighted-average remaining lease terms (years) | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted-average discount rates | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Present value of lease liabilities:
| Operating Leases | Finance Leases | |||||||
| October 1, 2025 - September 30, 2026 | $ | $ | ||||||
| October 1, 2026 - September 30, 2027 | ||||||||
| October 1, 2027 - September 30, 2028 | ||||||||
| October 1, 2028 - September 30, 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: Interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | $ | $ | ||||||
| 7 |
| NOTE 3: | REVENUE FROM CONTRACTS WITH CUSTOMERS |
Revenues are recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. To determine the proper revenue recognition method for our customer contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.
For most of our fixed price contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability even if that single project results in the delivery of multiple units. Hence, the entire contract is accounted for as one performance obligation. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Disaggregation of Revenue
The following table presents our revenues disaggregated by fixed price and service contracts. Sales taxes are excluded from revenues.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Fixed Price Contracts | $ | $ | $ | $ | ||||||||||||
| Service Contracts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Fixed price contracts
For fixed price contracts, we generally recognize revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. In our fixed price contracts, the customer either controls the work in process or we deliver products with no alternative use to the Company and have rights to payment for work performed to date plus a reasonable profit as evidenced by contractual termination clauses.
Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred.
| 8 |
Contracts are often modified to account for changes in contract specifications and requirements. We consider a contract modification to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
We have a company-wide standard and disciplined quarterly estimate at completion process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. Changes in estimates of net sales, cost of sales and the related impact to operating income are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. When estimates of total costs to be incurred exceed total estimates of revenue to be earned on a performance obligation related to fixed price contracts, a provision for the entire loss on the performance obligation is recognized in the period the loss is estimated.
Service Contracts
We recognize revenue for service contracts measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred over time when the services are rendered to the customer on a daily basis. Specifically, we recognize revenue as the services are provided as we have the right to invoice the customer for the services performed. Services are billed on a monthly basis. Payment terms for services are usually 30 days from invoice receipt but can increase to 45, 60, or 90 days depending on the customer.
Contract balances
Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues are recorded based on the extent of progress towards completion but cannot be invoiced under the terms of the contract. Such amounts are invoiced upon completion of contractual milestones. Billings in excess of costs and estimated earnings on uncompleted contracts arise when milestone billings are permissible under the contract, but the related costs have not yet been incurred. All contract costs are recognized currently on jobs formally approved by the customer and contracts are not shown as complete until virtually all anticipated costs have been incurred and the risk of loss has passed to the customer.
Assets related to costs and estimated earnings in excess of billings on uncompleted contracts, as well as liabilities related to billings in excess of costs and estimated earnings on uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond one year; thus, complete collection of amounts related to these contracts may extend beyond one year though such long-term contracts include contractual milestone billings as discussed above. As of September 30, 2025, and December 31, 2024, there were no contracts with terms that extended beyond one year.
| 9 |
The following table summarizes our contract assets, which are “Costs and estimated earnings in excess of billings on uncompleted contracts” and our contract liabilities, which are “Billings in excess of costs and estimated earnings on uncompleted contracts”.
| September 30, 2025 | December 31, 2024 | |||||||
| Costs incurred on uncompleted contracts | $ | $ | ||||||
| Estimated earnings on uncompleted contracts | ||||||||
| Estimated loss on uncompleted contracts | ( | ) | ||||||
| Gross costs and estimated earnings | ||||||||
| Less: Billings to date on uncompleted contracts | ( | ) | ( | ) | ||||
| Costs incurred plus estimated earning less billings on uncompleted contracts, net | $ | $ | ||||||
| Contract assets, contract liabilities, and deferred revenue consisted of the following: | ||||||||
| Contract assets | $ | $ | ||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Deferred Revenue | ( | ) | ( | ) | ||||
| Costs incurred plus estimated earning less billing on uncompleted contracts | $ | $ | ||||||
The contract asset and liability balances as of September 30, 2025, and December 31, 2024, consisted primarily of revenue related to fixed-price projects.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes unexercised contract options, potential orders, and any remaining performance obligations for any sales arrangements that had not fully satisfied the criteria to be considered a contract with a customer pursuant to the requirements of ASC 606.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.
Many of our services contracts are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Further, in many of our service contracts, we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date (for example, a service contract in which we bill a fixed amount for each hour of service provided). For those contracts, we have utilized the practical expedient allowing us to recognize revenue in the amount for which we have the right to invoice.
Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
| 10 |
| NOTE 4: | PROPERTY, PLANT AND EQUIPMENT |
PP&E consisted of the following:
| Range of | ||||||||||
| September 30, 2025 | December 31, 2024 | Asset Lives | ||||||||
| Leasehold improvements | $ | $ | ||||||||
| Equipment | ||||||||||
| Furniture, computers and office equipment | ||||||||||
| Construction in progress | ||||||||||
| Total property, plant and equipment | ||||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||||
| Property, plant and equipment, net | $ | $ | ||||||||
Depreciation expense for the three months ended September 30, 2025,
and 2024 was $
| NOTE 5: | SHARE-BASED COMPENSATION |
Share-based compensation is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and additional paid-in capital in the accompanying unaudited condensed consolidated balance sheets. During the three and nine months ended September 30, 2025, the Company recognized a total of $ and $ of share-based compensation expense, respectively. During the three and nine months ended September 30, 2024, the Company recognized a total of $ and $ of share-based compensation expense, respectively. The unamortized estimated fair value of nonvested stock options was $ and $ on September 30, 2025, and December 31, 2024, respectively. The unamortized estimated fair value of nonvested restricted stock was $ and $ on September 30, 2025, and December 31, 2024, respectively.
| NOTE 6: | TREASURY STOCK |
Treasury shares are accounted for using the cost method.
| NOTE 7: | INCOME TAXES |
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to improve income tax disclosures primarily through enhanced disclosure of income tax rate reconciliation items, and disaggregation of income (loss) from continuing operations, income tax expense (benefit) and income taxes paid, net disclosures by federal, state, and foreign jurisdictions, among others. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024. The Company adopted ASU 2023-09 as of January 1, 2025, and the corresponding impacts will be reflected in the annual disclosures connected to income taxes.
Income tax expense during interim periods is based on applying the estimated annual effective income tax rate to interim period operations. The estimated annual effective income tax rate may vary from the statutory rate due to the impact of permanent items relative to our pre-tax income, as well as by any valuation allowance recorded. We employ an asset and liability approach that results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial basis and the tax basis of those assets and liabilities. A valuation allowance is established when it is more likely than not that some of the deferred tax assets will not be realized. As of September 30, 2025, and December 31, 2024, management has recorded a full deferred tax asset valuation allowance.
| 11 |
| NOTE 8: | COMMITMENTS AND CONTINGENCIES |
CEO Employment Agreement
Our Chief Executive Officer (“CEO”) is employed under an employment agreement containing severance provisions. In the event of termination of the CEO’s employment for any reason, the CEO will be entitled to receive all accrued, unpaid salary and vacation time through the date of termination and all benefits to which the CEO is entitled or vested under the terms of all employee benefit and compensation plans, agreements, and arrangements in which the CEO participates as of the date of termination.
In addition, subject to executing a general release in favor of the Company, the CEO will be entitled to receive certain severance payments in the event his employment is terminated by the Company “other than for cause” or by the CEO with “good reason.” These severance payments include: (i) a lump sum in cash equal to one time the CEO’s annual base salary; (ii) a lump sum in cash equal to a pro rata portion of the annual bonus payable for the period in which the date of termination occurs based on the actual performance under the Company’s annual incentive bonus arrangement, but no less than fifty percent of the CEO’s annual base salary; and (iii) if the CEO’s termination occurs prior to the date that is twelve months following a change of control, then each and every share option, restricted share award and other equity-based award that is outstanding and held by the CEO shall immediately vest and become exercisable.
CFO Employment Agreement
Our Chief Financial Officer (“CFO”) is also employed under an employment agreement containing severance provisions. In the event of termination of the CFO’s employment for any reason, the CFO will be entitled to receive all accrued, unpaid salary and vacation time through the date of termination and all benefits to which the CFO is entitled or vested under the terms of all employee benefit and compensation plans, agreements, and arrangements in which the CFO participates as of the date of termination.
In addition, subject to executing a general release in favor of the Company, the CFO will be entitled to receive certain severance payments in the event his employment is terminated by the Company “other than for cause” or by the CFO with “good reason.” These severance payments include: (i) a lump sum in cash equal to six months of the CFO’s annual base salary; (ii) a lump sum in cash equal to a pro rata portion of the annual bonus payable for the period in which the date of termination occurs based on the actual performance under the Company’s annual incentive bonus arrangement, but no less than fifty percent of the CFO’s annual base salary; and (iii) if the CFO’s termination occurs prior to the date that is twelve months following a change of control, then each and every share option, restricted share award and other equity-based award that is outstanding and held by the CFO shall immediately vest and become exercisable.
Litigation
From time to time, the Company is party to various legal proceedings arising in the ordinary course of business. The Company expenses or accrues legal costs as incurred and is not involved in any material legal proceedings as of the date of these financial statements.
WW Champion Developments Lawsuit
The Company was previously involved in a legal dispute with its former landlord, WW Champion Developments, Inc. ("WW Champion”). On September 23, 2024, WW Champion filed a lawsuit against the Company alleging breach of contract and seeking money damages of $1,229 in the 281st District Court of Harris County in an action styled WW Champion Developments, Inc. vs. Koil Energy Solutions, Inc., Cause Number 2024-65006. WW Champion alleged that Koil Energy breached a lease agreement between the parties by abandoning the premises, failing to maintain proper fire prevention measures, and failing to pay its remaining rental payments.
| 12 |
The matter was settled in June 2025 for $
OMSi Lawsuit
In December 2024, the Company completed work under
purchase orders with OMS International Limited (OMSi), a UK-based subsea engineering firm. The Company successfully completed the project
in March 2025 and issued invoices totaling $
On September 29, 2025, the Company filed a civil
action against OMSi in the United States District Court for the Southern District of Texas seeking to recover the unpaid amounts. OMSi
has not yet filed a response. For the quarter ending September 30, 2025, the Company recorded a reserve of $
| NOTE 9: | EARNINGS PER COMMON SHARE |
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income by the weighted-average number of common shares and dilutive effect of common stock equivalents (warrants, nonvested stock awards and stock options) using the treasury method.
In each relevant period, the net income used in the basic and diluted EPS calculations is the same. The following table reconciles the weighted-average basic number of common shares outstanding and the weighted-average diluted number of common shares outstanding for the purpose of calculating basic and diluted EPS.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||
| Dilutive effect of common stock equivalents | ||||||||||||||||
| Weighted average common shares outstanding - diluted | ||||||||||||||||
| NOTE 10: | EMPLOYEE RETENTION CREDIT |
Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020. and the subsequent extension of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria. Since there are no generally accepted accounting principles for for-profit business entities that receive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a customer, we determined the appropriate accounting treatment by analogy to other guidance. The Company accounted for the employee retention credit by analogy to International Accounting Standards (“IAS”) 20, “Accounting for Government Grants and Disclosure of Government Assistance, of International Financial Reporting Standards (IFRS).”
Under an IAS 20 analogy, a business entity would recognize the employee retention credit on a systematic basis over the periods in which the entity recognizes the payroll expenses for which the grant (i.e., tax credit) is intended to compensate when there is reasonable assurance (i.e., it is probable) that the entity will comply with any conditions attached to the grant and the grant will be received.
| 13 |
The Company recognized a $
| NOTE 11: | FACTORING AGREEMENT |
On May 24, 2023, Koil Energy entered into the Factoring Agreement with Amegy, which provides for the Company from time to time to sell its accounts receivable and other rights to payment to Amegy. Amegy has the right to approve or reject future accounts receivable or other rights to payment proposed for sale under the Factoring Agreement in its sole discretion.
The purchase price for the receivables shall be
the gross amount of the invoice minus the discount. The “discount” means
Amegy has the right to charge back any receivable to Koil Energy, and Koil Energy has the obligation to repurchase such receivable, if (a) the receivable is not paid to Amegy within 90 days from the invoice date, at which time it will be deemed to be in dispute, (b) any dispute arises with respect to such receivable, (c) Koil Energy or Amegy discovers or determines that any representation or warranty made by Koil Energy in the Factoring Agreement or in any document executed in connection with the Factoring Agreement (the “Purchase Documents”) is false or misleading, or (d) Koil Energy breaches any covenant or agreement contained in the Factoring Agreement or in any Purchase Document or is otherwise in default thereof.
The receivables sold shall bear interest at a
rate equal to the Prime Rate plus 2.00%. The Prime Rate has a floor and at no time shall it be less than 8.00% for the purposes of the
Factoring Agreement. On September 30, 2025, the company had factored invoices outstanding with Amegy recorded as short-term borrowings
in the aggregate amount of $
NOTE 12: SEGMENT INFORMATION
The Company operates as a single operating segment, as an energy services company that provides equipment and support services to the world’s energy and offshore industries. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated net income to monitor budget versus actual results in assessing segment performance and the allocation of resources. Significant segment expenses are presented in the Company’s consolidated statements of operations.
Total operating expenses are presented as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Share-based compensation and other personnel costs | ||||||||||||||||
| Materials | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Other cost of sales and selling, general and administrative expenses | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Interest and other (income) expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
The CODM regularly reviews asset information by consolidated assets since we only have one reportable segment.
| 14 |
| NOTE 13: | NOTES PAYABLE |
On May 22, 2025, the Company financed the purchase
of a forklift for $
The note is secured by the forklift and is recorded
as part of the unaudited condensed consolidated balance sheets. As of September 30, 2025, the outstanding principal balance equaled $
| NOTE 14: | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through the date the unaudited condensed consolidated financial statements were filed with the SEC and determined that there have been no events that would require disclosure or adjustment in the condensed consolidated financial statements.
| 15 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands except per share amounts)
The following discussion and analysis provides information that management believes is relevant for an assessment and understanding of Koil Energy’s results of operations and financial condition. This information should be read in conjunction with the Company’s audited historical consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and which is available on the SEC’s website, and the Company’s unaudited condensed consolidated financial statements, and notes thereto, included with this Quarterly Report on Form 10-Q (“Report”) in Part I. Item 1. “Financial Statements.”
General
Koil Energy is an energy services company that provides equipment and support services to the world’s energy and offshore industries. The Company provides innovative solutions to complex customer challenges presented between the production facility and the energy source. Koil Energy's core services and technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, and related services. Additionally, Koil Energy's experienced professionals can support subsea engineering, manufacturing, installation, commissioning, and maintenance projects located anywhere in the world. The Company’s solutions are engineered and manufactured primarily for major integrated, large independent, and foreign national energy companies in offshore areas throughout the world. These products are often developed in direct response to customer requests for solutions to critical needs in the field. The Company primarily serves the offshore oil and gas market; however, the Company’s product offerings and service capabilities are based on core competencies that are indifferent to energy source and can be applied to additional markets, including offshore wind, telecommunications, hydrogen, and liquefied natural gas.
Industry and Executive Outlook
The energy services industry relies heavily on the capital and operating expenditure programs of upstream energy companies. Operators’ decisions to scale back or accelerate exploration, drilling, and production activities are heavily influenced by the broader energy sector dynamics, including fluctuations in commodity prices driven by various global market forces.
Global energy demand continues to rise. Meeting this demand requires incremental oil and natural gas production alongside growth in renewable energy sources. Years of underinvestment in offshore exploration and development are now fueling a resurgence in subsea activity. Deepwater fields naturally decline at an average rate of 7% per year per IHS, underscoring the urgency for new development just to maintain current output. From our perspective, we are seeing global operators allocate more capital toward deepwater and ultra-deepwater developments, particularly in Brazil, the US. and West Africa.
There are three primary methods to maintain or expand subsea production:
| (1) | Long-cycle greenfield development projects; | |
| (2) | Subsea tie-back projects that connect new wells to existing infrastructure; and | |
| (3) | Maintenance and life-extension activities, including upgrades and decommissioning of aging equipment and systems |
Koil Energy provides products and services across all three areas, with a particular focus on subsea tie-back projects.
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Subsea tie-back development continues to gain momentum as a preferred approach among offshore operators. These projects allow operators to access nearby reservoirs, utilize available topside capacity, and leverage existing subsea infrastructure. In mature basins, tie-back strategies have been employed for decades. In emerging regions, operators are increasingly adopting this approach to accelerate first hydrocarbon production and enhance project returns.
A key advantage of subsea tie-back developments is the potential for shorter payback periods than traditional greenfield projects. Leveraging existing assets, these projects frequently have the potential to achieve first oil within two years of final investment decision. However, success hinges on meticulous planning and swift execution. Integrating new equipment into an aging infrastructure presents both technical challenges and opportunities, making adaptability and foresight essential. Proven, practical design, backed by a deep team experienced in subsea installation and commissioning, plays a critical role in ensuring reliability and staying on schedule.
Order intake for subsea tie-back and maintenance projects has increased significantly since the beginning of the year. During this period, we have made a deliberate investment in expanding our team to support our long-term growth strategy. We remain disciplined in balancing profitability with investment and are confident that our expanded capabilities position us well to execute on our growing backlog.
We remain focused on our strategic objective of becoming the leading provider of integrated subsea distribution systems.
Results of Operations
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Revenues
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Revenues | $ | 6,367 | $ | 5,223 | $ | 1,144 | 22 | % | ||||||||
The 22% increase in revenues was primarily driven by both growth in fixed price contract sales for the manufacture of flying leads and hydraulic distribution manifolds and by an increase in the sales and delivery of service contract work when compared to revenues for the three months ended September 30, 2024.
Cost of Sales
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Cost of sales | $ | 4,315 | $ | 3,159 | $ | 1,156 | 37 | % | ||||||||
| Gross profit | $ | 2,052 | $ | 2,064 | $ | (12 | ) | (1) | % | |||||||
| Gross profit % | 32 | % | 40 | % | – | (8) | % | |||||||||
The decline in gross profit was driven by a lower-margin product mix and an increase in direct overhead costs including employee benefits and rent expense for the Brazilian office when compared to the three months ended September 30, 2024.
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The Company records depreciation expense related to revenue-generating PP&E as cost of sales, which totaled $124 and $115 for the three months ended September 30, 2025, and 2024, respectively.
Selling, general and administrative expenses
Three Months Ended September 30, | Increase (Decrease) | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Selling, general & administrative | $ | 2,514 | $ | 1,586 | $ | 928 | 59 | % | ||||||||
| Selling, general & administrative as a % of revenue | 39 | % | 30 | % | – | 9 | % | |||||||||
The increase in selling, general, and administrative expenses (“SG&A”) was due to bad debt expense from the write-off of the OMSi receivable, higher administrative payroll due to increased hiring of key business support functions, and legal fees related to patents, master service agreements, and general corporate needs.
The Company records depreciation and amortization expense related to administrative PP&E and intellectual property as SG&A, which totaled $22 and $29 for the three months ended September 30, 2025, and 2024, respectively.
Other (income) expense, net
Three Months Ended September 30, | (Increase) Decrease | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Other (income), net | $ | (57 | ) | $ | (30 | ) | $ | (27 | ) | Nm | ||||||
| Other (income), net as a % of revenue | 1 | % | 1 | % | – | – | ||||||||||
The increase in other (income), net was driven by an additional $83 gain recognized from the successful resolution of the WW Champion lawsuit.
Adjusted EBITDA
Management evaluates Company performance based on a measure that is not in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which consists of earnings (net income or loss) available to common stockholders before net interest income, income taxes, depreciation and amortization, non-cash share-based compensation expense, non-cash impairments, non-cash gains or losses on the sale of PP&E, other non-cash items and one-time charges (“Adjusted EBITDA”). This measure may not be comparable to similarly titled measures employed by other companies. The measure should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing, or financing activities, or other cash flow data prepared in accordance with US GAAP. The amounts included in the Adjusted EBITDA calculation, however, are derived from amounts included in the accompanying unaudited condensed consolidated statements of operations.
| 18 |
We believe Adjusted EBITDA is a useful measure of a company’s operating performance, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired. It helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest), asset base (primarily depreciation and amortization), and actions that do not affect liquidity (share-based compensation expense) from our operating results. Additionally, it helps investors identify items that are within our operational control. Depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase or acquisition in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.
The following is a reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2025, and 2024:
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net income (loss) | $ | (413 | ) | $ | 523 | |||
| (Deduct) Add: Interest (income) expense, net | – | (17 | ) | |||||
| Add: Income tax expense | 8 | 2 | ||||||
| Add: Depreciation and amortization | 146 | 144 | ||||||
| Add: Share-based compensation | 92 | 23 | ||||||
| Add: Loss (Gain) on litigation settlement | (84 | ) | – | |||||
| Adjusted EBITDA (loss) | $ | (251 | ) | $ | 675 | |||
The $920 decrease in Adjusted EBITDA was primarily driven by the write-off of the OMSi contract and higher direct and administrative overhead during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.
Nine Months Ended September 30, 2025, Compared to Nine Months Ended September 30, 2024
Revenues
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Revenues | $ | 16,799 | $ | 16,793 | $ | 6 | 0 | % | ||||||||
Revenues in the first nine months of 2025 were unchanged compared to the first nine months of 2024. An uptick in third quarter revenue was offset by a slow start of the first half of the year. Revenue from services contract work equaled 45% of revenue compared to 29% of revenues for the nine months ended September 30, 2024.
| 19 |
Cost of Sales
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Cost of sales | $ | 11,341 | $ | 10,449 | $ | 892 | 9 | % | ||||||||
| Gross profit | $ | 5,458 | $ | 6,344 | $ | (886 | ) | (14 | )% | |||||||
| Gross profit % | 32 | % | 38 | % | – | (6 | )% | |||||||||
The decline in gross profit was primarily driven by a product mix that included more lower-margin service contract work and an increase in direct overhead costs including employee benefits and Brazil office rent expenses when compared to the nine months ended September 30, 2024.
The Company records depreciation expense related to revenue-generating PP&E as cost of sales, which totaled $368 and $354 for the nine months ended September 30, 2025, and 2024, respectively.
Selling, general and administrative expenses
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Selling, general & administrative | $ | 6,220 | $ | 4,316 | $ | 1,904 | 44 | % | ||||||||
| Selling, general & administrative as a % of revenue | 37 | % | 26 | % | – | 11 | % | |||||||||
The increase in SG&A was primarily due to bad debt expense from the write-off of the OMSi receivable, higher administrative payroll due to increased hiring of key business support functions, greater spending on industry conferences, legal fees related to the settlement of a lawsuit and general corporate needs, and expenses for outside consultants to strengthen and restructure administrative functions.
The Company records depreciation and amortization expense related to administrative PP&E and intellectual property as SG&A, which totaled $81 and $83 for the nine months ended September 30, 2025, and 2024, respectively.
Other (income) expense, net
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Other (income), net | $ | (375 | ) | $ | (35 | ) | $ | (340 | ) | Nm | ||||||
| Other (income), net as a % of revenue | 2 | % | 0 | % | – | 0 | % | |||||||||
The increase in other (income), net was driven by a $333 gain upon the successful resolution of the WW Champion lawsuit. In addition, the Company received a $34 dividend from its insurance company and a $42 Employee Retention Tax Credit from the federal government.
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Adjusted EBITDA
The following is a reconciliation of net income to Adjusted EBITDA for the nine months ended September 30, 2025, and 2024:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net income (loss) | $ | (381 | ) | $ | 2,083 | |||
| Add (Deduct): Interest (income) expense, net | (16 | ) | (30 | ) | ||||
| Add: Income tax expense | 22 | 7 | ||||||
| Add: Depreciation and amortization | 449 | 437 | ||||||
| Add: Share-based compensation | 241 | 76 | ||||||
| Add (Deduct): Loss (gain) on sale of asset | (12 | ) | 3 | |||||
| Add: Loss (Gain) on Litigation Settlement | (333 | ) | – | |||||
| Add: Restructuring costs | 279 | – | ||||||
| Adjusted EBITDA | $ | 249 | $ | 2,576 | ||||
The $2,327 decrease in Adjusted EBITDA was driven by an increase in bad debt expense, a project mix containing lower gross margin contracts, increased employee benefit costs, investment in building our Brazil operations, and expenses for outside consultants to strengthen and restructure administrative functions during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024.
Liquidity and Capital Resources
As an offshore energy services provider, our revenues, profitability, cash flows, and future rate of growth are generally dependent on the condition of the global oil and gas industry and our customers’ ability to invest capital for offshore exploration, drilling and production, and maintenance of offshore drilling and production facilities. Oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility. At times, we enter into large, fixed-price contracts which may require significant lead time and investment. A decline in offshore drilling and production activity could result in lower contract volume or delays in significant contracts, which could negatively impact our earnings and cash flows. Our earnings and cash flows could also be negatively affected by delays in payments by significant customers or delays in the completion of our contracts for any reason.
The Company believes it will have adequate liquidity to meet its future operating requirements. We are generally dependent on our cash flows from operations to fund our working capital requirements, and the uncertainties noted above create risks that we may not achieve our planned earnings or cash flow from operations. In 2023, the Company entered into a Purchase and Sale Agreement/Security Agreement with Zions Bancorporation, N.A., d/b/a Amegy Bank Business Credit (“Amegy”), which provides for Koil Energy from time to time to sell its accounts receivable and other rights to payment to Amegy, subject to Amegy’s right to approve or reject future accounts receivable and other rights proposed for sale, in its sole discretion. On September 30, 2025, the Company had factored invoices outstanding with Amegy recorded as short-term borrowings in the aggregate amount of $703 on its condensed consolidated balance sheet. As of December 31, 2024, the Company had no factored invoices outstanding with Amegy.
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The principal liquidity needs of the Company are to fund ongoing operations, working capital, and capital expenditures. During the nine months ended September 30, 2025, the Company reported a $1,474 decrease in cash. The Company used $1,038 of net cash in operating activities, primarily driven by net changes in operating assets and liabilities of $1,962. This was partially offset by net income and other adjustments of $925 to reconcile net income to net cash used in operating activities, which mainly includes items such as bad debt expense, share-based compensation, and depreciation and amortization. The Company used $1,152 of net cash for investing activities, primarily to fund capital expenditures. The Company also generated $715 of net cash from financing activities including $703 from short-term borrowings.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates used in the financial statements relate to revenue recognition where the Company measures progress towards completion on a cost-to-cost basis for fixed-price contracts, the allowance for credit losses, and the valuation allowance for deferred income tax assets. These estimates require judgments, which are based on historical experience and on various other assumptions, as well as specific circumstances. Estimates may change as new events occur, additional information becomes available or operating environments change.
Refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2024, for a discussion of our critical accounting policies and estimates.
Recently Issued Accounting Standards
Refer to Note 1 in Part II. Item 8. “Financial Statements and Supplemental Data,” in our Annual Report on Form 10-K for the year ended December 31, 2024, for a discussion of recently issued accounting standards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that such information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including the principal executive and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls and procedures are designed to provide such reasonable assurance.
The Company’s management, with the participation of the principal executive and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2025, as required by Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the principal executive and the principal financial officer have concluded that the Company’s disclosure controls and procedures were not effective as of such date due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Changes in Internal Control Over Financial Reporting
The Company’s management, with the participation of the principal executive and principal financial officer, have concluded there were no changes in internal control over financial reporting during the nine months ended September 30, 2025.
Remediation
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, we began implementing a remediation plan to address the material weakness mentioned above. The weakness will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
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PART II – OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During the quarter
ended September 30, 2025, no director or officer of the Company
ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KOIL ENERGY SOLUTIONS, INC. | ||
| November 14, 2025 | /s/ Erik Wiik | |
| Date | Erik Wiik | |
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 14, 2025 | /s/ Kurt Keller | |
| Date | Kurt Keller | |
| Chief Financial Officer | ||
| (Principal Financial Officer) |
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INDEX TO EXHIBITS
| 31.1* | Certification of Erik Wiik, President and Chief Executive Officer, furnished pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
| 31.2* | Certification of Kurt Keller, Chief Financial Officer, furnished pursuant to Rules 13a-14 and 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
| 32.1* | Statement of Erik Wiik, President and Chief Executive Officer, furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2* | Statement of Kurt Keller, Chief Financial Officer, furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS* | XBRL Instance Document |
| 101.SCH* | XBRL Schema Document |
| 101.CAL* | XBRL Calculation Linkbase Document |
| 101.DEF* | XBRL Definition Linkbase Document |
| 101.LAB* | XBRL Label Linkbase Document |
| 101.PRE* | XBRL Presentation Linkbase Document |
______________________________
* Filed or furnished herewith.
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