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
At August 13, 2026, 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,” the “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 (the “Securities Act”), 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; | |
| · | We may be unsuccessful at generating profitable internal growth; |
| i |
| · | 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, 2025, 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
| iii |
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
KOIL ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2026 | December 31, 2025 | |||||||
| (In thousands, except share and per share amounts) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| 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 | ||||||||
| Borrowing under factoring arrangement | ||||||||
| Borrowings under credit facilities | ||||||||
| Other liabilities | ||||||||
| Current operating lease liabilities | ||||||||
| Current finance lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Other liabilities, long-term | ||||||||
| 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, and issued at June 30, 2026 and December 31, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, and shares at June 30, 2026 and December 31, 2025 respectively, at cost | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income loss | ( | ) | ( | ) | ||||
| 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 June 30, | Six Months Ended June 30, | |||||||||||||||
| (In thousands, except per share amounts) | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| Gain on sale of property, plant and equipment | ||||||||||||||||
| Income before income tax expense | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Net income 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.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (In thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
KOIL ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-in | Treasury | Accumulated Other Comprehensive | Accumulated | ||||||||||||||||||||||||
| (In thousands) | Shares (#) | Amount ($) | Capital | Stock | Loss | Deficit | Total | |||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Net income | – | |||||||||||||||||||||||||||
| Restricted stock comp earned | – | |||||||||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||||||
| Shares issued to employees | ||||||||||||||||||||||||||||
| Foreign currency translation | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Net income | – | |||||||||||||||||||||||||||
| Restricted stock comp earned | – | |||||||||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||||||
| Shares issued to employees | ||||||||||||||||||||||||||||
| Foreign currency translation | – | |||||||||||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Common Stock | Additional Paid-in | Treasury | Accumulated Other Comprehensive | Accumulated | ||||||||||||||||||||||||
| (In thousands) | Shares (#) | Amount ($) | Capital | Stock | Loss | Deficit | Total | |||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Net income | – | |||||||||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
KOIL ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| (In thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Share-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of property, plant and equipment | ( | ) | ( | ) | ||||
| Non-cash lease (income) expense | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Contract assets | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets, net | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Capitalized software development costs | ( | ) | ( | ) | ||||
| Patent acquisitions, net of write-offs | ( | ) | ||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Capitalized patent cost | ( | ) | ||||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Principal payments under finance lease obligations | ( | ) | ( | ) | ||||
| Proceeds from factoring arrangement | ||||||||
| Payments on factoring arrangement | ( | ) | ||||||
| Borrowings under revolving credit facility | ||||||||
| Payments on revolving credit facility | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of non-cash investing 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 | ||||||||
| Cash paid during period for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 5 |
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”, the “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 Solutions 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, 2025.
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 (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
Liquidity
The Company had cash on hand of $
On May 19, 2026, the Company entered into an asset-based
Loan and Security Agreement with nFusion Capital Finance, LLC (“nFusion”). Advances made under the facility bear interest
at a rate equal to the Wall Street Journal Prime Rate (“Prime Rate”) plus 4.75%. The Prime Rate has a floor and at no time
shall it be less than 6.75% for the purposes of this agreement. As of June 30, 2026, the Company had $
The Company believes that its cash on hand, anticipated cash flows from operations, and borrowing capacity under the nFusion facility will provide adequate liquidity to meet its anticipated working-capital requirements and other liquidity needs over the next 12 months. This assessment is based on management’s current operating plan and assumptions regarding customer demand, project timing, customer collections, operating expenditures, and the continued availability of financing under existing arrangements.
| 6 |
The Company’s ability to generate cash from operations and maintain adequate liquidity is subject to risks and uncertainties, including variability in customer demand, the timing of project awards and customer payments, oil and natural gas price volatility, global economic conditions, supply-chain and labor costs, and the Company’s ability to comply with the terms of its financing arrangements. If our plans or assumptions change, or if actual results differ materially from management’s expectations, we may need to raise additional capital from other sources.
To manage liquidity risk, Koil Energy closely monitors cash balances, working capital needs, and forecasted operating cash flows. The Company also maintains discipline over capital expenditures and evaluates cost containment measures as appropriate. Such measures may include aligning workforce levels with business activity, limiting discretionary overhead expenditures, deferring non-essential capital spending, and prioritizing research and development expenditures toward critical initiatives.
Principles of Consolidation
The unaudited condensed consolidated financial statements presented herein include the accounts of Koil Energy for the three and six months ended June 30, 2026 and 2025. All intercompany transactions and balances have been eliminated.
Segments
For the three and six months ended June 30, 2026 and 2025, the Company’s operations were organized as reportable segment and operating segment.
| NOTE 2: | LEASES |
At the inception of a lease, Koil Energy evaluates the agreement to determine whether the lease will be accounted for as an operating or finance lease. The term of the lease used for such an evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured. If the contract contains a substantial penalty for failure to renew or extend the lease, it could lead the Company to conclude it has a significant economic incentive to extend the lease beyond the base rental period.
The Company leases land, buildings, and certain equipment under non-cancellable operating leases. We lease office, indoor manufacturing, warehouse, and operating space in both Houston, Texas and Macaé, Brazil. Leased storage space in Mobile, Alabama houses our carousel systems and other equipment. We classify our leases related to computer equipment as finance leases. The Company elects to apply the short-term lease exception; therefore, the Company will not record a right-of-use (“ROU”) asset or corresponding lease liability for leases with an initial term of twelve months or less that are 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.
On November 19, 2025, Koil Energy Brazil
began subleasing a portion of its administrative offices for 30 Brazilian reals per month (approximately $5 at current exchange
rates). Sublease income recognized during the three and six months ended June 30, 2026, equaled $
| 7 |
The following tables present information about our operating and finance leases:
| Classification | June 30, 2026 | December 31, 2025 | ||||||||
| 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 | $ | $ | ||||||||
The components of our lease expense were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| Classification | 2026 | 2025 | 2026 | 2025 | ||||||||||||||
| Finance lease costs | ||||||||||||||||||
| Amortization of ROU assets | Selling, general and administrative | $ | $ | $ | $ | |||||||||||||
| Interest on lease liabilities | Interest Expense | |||||||||||||||||
| 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:
June 30, 2026 | December 31, 2025 | |||||||
| Weighted-average remaining lease terms (years) | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted-average discount rates | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| 8 |
Present value of lease liabilities:
| Operating Leases | Finance Leases | |||||||
| July 1, 2026 - June 30, 2027 | $ | $ | ||||||
| July 1, 2027 - June 30, 2028 | ||||||||
| July 1, 2028 - June 30, 2029 | ||||||||
| July 1, 2029 - June 30, 2030 | ||||||||
| July 1, 2030 - June 30, 2031 | ||||||||
| Thereafter | ||||||||
| Total lease payments | $ | $ | ||||||
| Less: Interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | $ | $ | ||||||
| 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Fixed Price Contracts | $ | $ | $ | $ | ||||||||||||
| Service Contracts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 9 |
Fixed Price Contracts
For fixed price contracts, we generally recognize revenue over time as work is performed due to 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.
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 may increase to 45, 60, or 90 days depending on the customer.
| 10 |
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 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 on 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. At June 30, 2026 and December 31, 2025, there were no contracts with terms that extended beyond one year, other than one 18-month contract, which is expected to be completed within the next 12 months.
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”.
| June 30, 2026 | December 31, 2025 | |||||||
| Costs incurred on uncompleted contracts | $ | $ | ||||||
| Estimated earnings 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 | $ | $ | ||||||
Included in the accompanying unaudited condensed consolidated balance sheets under the following captions:
| Contract assets | $ | $ | ||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Costs incurred plus estimated earning less billing on uncompleted contracts | $ | $ |
The contract asset and liability balances as of June 30, 2026 and December 31, 2025, 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 Accounting Standards Codification 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.
| 11 |
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.
| NOTE 4: | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following:
| June 30, 2026 | December 31, 2025 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Equipment | ||||||||
| Furniture, computers and office equipment | ||||||||
| Construction in progress | ||||||||
| Total property, plant and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense for the three and six months ended June 30, 2026,
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 six months ended June 30, 2026, the Company recognized a total of $ and $ of share-based compensation expense, respectively. During the three and six months ended June 30, 2025, the Company recognized a total of$ and $ of share-based compensation expense, respectively. The unamortized estimated fair value of nonvested stock options was $ at June 30, 2026.
| 12 |
| NOTE 6: | TREASURY STOCK |
Treasury shares are accounted for using the cost method. For the quarter ending June 30, 2026, treasury shares outstanding decreased by shares and $ related to employee bonuses paid out of treasury stock.
| NOTE 7: | 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 June 30, 2026 and December 31, 2025, management has recorded a full deferred tax asset valuation allowance.
| 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.
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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.
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. For the quarter ended 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 (loss) 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 (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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||
| Dilutive effect of common stock equivalents | ||||||||||||||||
| Weighted average common shares outstanding - diluted | ||||||||||||||||
| NOTE 10: | FACTORING AGREEMENT |
On May 24, 2023, Koil Energy 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 provided for the Company to sell its accounts receivable and other rights to payment to Amegy.
The purchase price for the receivables was the gross amount of the invoice minus the discount. The “discount” means 15% of the gross amount of an invoice that is generated by the rendering of services or selling of goods on a time and materials basis, and 25% of the gross amount of an invoice that is generated by the rendering of services or selling of goods on a milestone billing basis.
The receivables sold bore interest at a rate equal to the Prime Rate plus 2.00%. The Prime Rate had a floor of 8.00% for the purposes of the Factoring Agreement.
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The Factoring Agreement was cancelled in May
2026 in conjunction with entering into the asset-based credit line with nFusion. Accordingly, as of June 30, 2026, Koil Energy had
| NOTE 11: | ASSET-BASED LENDING FACILITY |
On May 19, 2026, Koil Energy entered into a Loan
and Security Agreement with nFusion Capital Finance, LLC, pursuant to which nFusion will make revolving loans to the Company from time
to time, in amounts determined by nFusion in its good faith business judgment, up to a maximum credit limit of $
Obligations under the facility are secured by a first priority security interest in substantially all of Koil Energy’s assets, including accounts receivable, inventory, equipment, deposit accounts, general intangibles and other property, subject to customary exceptions and to nFusion’s agreement to subordinate its security interest in specific equipment to bona fide third-party equipment lenders under certain conditions.
Under the Loan and Security Agreement, nFusion may require Koil Energy to immediately repay any overadvance, may impose fees as set forth in the schedule to the agreement, and may accelerate all outstanding amounts and exercise remedies against the collateral upon the occurrence and continuation of events of default, including payment defaults, covenant defaults and other customary events of default.
Advances under the facility bear interest at a
rate equal to the Prime Rate plus 4.75%. The Prime Rate is subject to a floor and shall at no time be less than 6.75% per annum, with
interest accruing daily and payable monthly. In addition, nFusion charges a monthly fee equal to 0.25% of the average gross balance of
Eligible Accounts of Borrower, which accrues daily and is payable in arrears on the last day of each month. As of June 30, 2026, the effective
interest rate under the facility was
The Company’s Synovus bank account serves
as the depository account for the nFusion facility and had no balance as of June 30, 2026. Any future balance in this account will be
classified as restricted cash while borrowings are outstanding under the nFusion facility. As of June 30, 2026, Koil Energy had $
| 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 CEO, 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.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Share-based compensation and other personnel costs | ||||||||||||||||
| Materials | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Other cost of sales and selling, general and administrative expenses | ||||||||||||||||
| Provision for income tax | ||||||||||||||||
| Interest and other expense (income), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
The CODM regularly reviews asset information by consolidated assets since we only have one reportable segment.
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| NOTE 13: | 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.
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 are amortized on a straight-line basis over their estimated useful lives and are included within depreciation and amortization expense in the condensed consolidated statements of operations.
For the three months ended June 30, 2026 and 2025,
capitalized software development costs equaled $
| NOTE 14: | SUBSEQUENT EVENTS |
We evaluated subsequent events through the date these financial statements were issued and determined that no subsequent events required recognition nor disclosure.
| 16 |
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, 2025, 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 their 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, according to IHS Markit Ltd., 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 the US, Brazil, Norway, the Mediterranean, 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. 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.
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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.
In the second quarter of 2026, bidding activity for subsea tie-back and maintenance projects remained strong, consistent with the first quarter. During the quarter, Koil announced the award of a major project for subsea umbilical handling, spooling, and storage services. This project requires two large carousels, including a large mobile offshore carousel and stationary land-based carousel to execute the work. This award was a pivotal moment for Koil and further validates its strategy to expand its rental equipment and services platform. The project is being executed by Koil’s experienced service team and contributed to second quarter results through early completion of certain activities and mobilization of the asset. The majority of the project work is expected to be performed during the second half of 2026, followed by the long-term storage of the customer’s umbilical system.
To support execution of the project, Koil secured financing and acquired a new mobile carousel, while also redeploying an underutilized carousel from its existing fleet. The newly acquired 3,500-metric-ton modular offshore carousel is designed to be assembled onboard a vessel, enabling rapid mobilization and redeployment to project locations in the United States and internationally. The newly acquired carousel is ready for mobilization.
Subsequent to June 30, 2026, Koil announced that it had secured a significant contract in Brazil marking the Company's first subsea umbilical maintenance campaign in the world's largest deepwater market. Koil has successfully executed similar work many times throughout the industry, providing well-established solutions for the maintenance of critical subsea infrastructure. The project represents an important milestone in establishing Koil as the preferred provider of subsea umbilical maintenance services in Brazil and the broader region.
Results of Operations
Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
Revenues
Three Months Ended June 30, | Increase | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Revenues | $ | 9,229 | $ | 5,183 | $ | 4,046 | 78% | |||||||||
The 78% increase in revenues was primarily driven by a $1,423 increase in fixed-price projects, with an additional $2,623 increase from service work. The increase in fixed-price project revenues was attributable to a large, long-term integrated project, while the increase in service revenues was primarily driven by a large project involving two of the Company’s carousels. Revenues from new customers gained in the prior 12 months contributed $2,981, or 32% of total revenue, while legacy customers accounted for the remaining $6,248, or 68% of total revenue for the three months ended June 30, 2026.
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Cost of Sales
Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Cost of sales | $ | 6,248 | $ | 3,454 | $ | 2,794 | 81% | |||||||||
| Gross profit | $ | 2,981 | $ | 1,729 | $ | 1,252 | 72% | |||||||||
| Gross profit % | 32% | 33% | – | (1% | ) | |||||||||||
Cost of sales increased 81% from the second quarter of 2025 to the second quarter of 2026, generally consistent with higher revenue activity. The rate of increase was slightly above revenue growth, resulting in a 1% decrease in gross profit margin to 32% of sales, compared to 33% in the prior-year period. The primary driver of this change was a shift in revenue mix toward larger, long-term contracts.
The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $147 and $127 for the three months ended June 30, 2026 and 2025, respectively.
Selling, general and administrative expenses
Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Selling, general & administrative | $ | 2,303 | $ | 1,964 | $ | 339 | 17% | |||||||||
| Selling, general & administrative as a % of revenue | 25% | 38% | – | (13% | ) | |||||||||||
Selling, general and administrative expenses (“SG&A”) increased by $339 in the second quarter of 2026 compared to the second quarter of 2025. The increase was primarily driven by higher administrative headcount and employee bonus expense, resulting in a $173 increase in personnel costs, as well as a $57 increase in legal cost to support bidding activity, a $54 increase in IT expenses from added software licenses, and a $55 increase across other cost categories.
The Company records depreciation expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $34 and $29 for the three months ended June 30, 2026 and 2025, respectively.
Other income, net
Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Other income, net | $ | 10 | $ | 291 | $ | (281 | ) | (97% | ) | |||||||
| Other income, net as a % of revenue | 0% | 6% | – | (6% | ) | |||||||||||
The decline in other income, net was primarily due to a $250 gain recognized upon the successful resolution of the WW Champion lawsuit in the second quarter of 2025. In addition, the Company received a $34 dividend from its insurance company during the second quarter of 2025. These items did not recur in the second quarter of 2026.
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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 property, plant and equipment (“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 condensed consolidated statements of operations.
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 June 30, 2026 and 2025:
| Three Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Net income | $ | 652 | $ | 61 | ||||
| Add (Deduct): Interest (income) expense, net | 14 | (2 | ) | |||||
| Add: Income tax expense | 22 | 8 | ||||||
| Add: Depreciation and amortization | 181 | 156 | ||||||
| Add: Share-based compensation | 249 | 79 | ||||||
| Add: (Gain) on sale of asset | – | (11 | ) | |||||
| Add: (Gain) on litigation settlement | – | (250 | ) | |||||
| Add: Restructuring costs | – | 122 | ||||||
| Adjusted EBITDA | $ | 1,118 | $ | 163 | ||||
Adjusted EBITDA increased by $955 for the three months ended June 30, 2026, primarily due to higher project throughput, particularly in time and materials service contracts. A significant contributor was a major project to provide subsea umbilical handling, spooling, and storage services using the Company’s carousels. Share-based compensation increased, reflecting improved financial performance and commissions earned in connection with the booking of new projects. This stronger operating performance contributed to a $591 improvement in net income, from $61 in the quarter ended June 30, 2025, to $652 in the current year period.
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The current year period did not include restructuring costs, while the three months ended June 30, 2025, included $122 of expenses related to efforts to streamline and strengthen administrative functions. In addition, the second quarter of 2025 included a $250 gain from the successful resolution of the WW Champion lawsuit.
Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Revenues
Six Months Ended June 30, | Increase | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Revenues | $ | 17,404 | $ | 10,433 | $ | 6,971 | 67% | |||||||||
Revenues increased 67% for the six months ended June 30, 2026, primarily driven by a $4,141 increase in fixed-price project revenues and a $2,830 increase in service revenues. The increase in fixed-price project revenues was attributable to a large, long-term integrated project, while the increase in service revenues was driven by a large project involving two of the Company’s carousels and increased throughput from Koil’s larger legacy customers. Revenues from customers acquired during the preceding 12 months totaled $5,422, or 31% of total revenues, while legacy customers generated the remaining $11,982, or 69% of total revenues.
Cost of Sales
Six Months Ended June 30, | Increase | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Cost of sales | $ | 11,810 | $ | 7,052 | $ | 4,758 | 67% | |||||||||
| Gross profit | $ | 5,594 | $ | 3,381 | $ | 2,213 | 65% | |||||||||
| Gross profit % | 32% | 32% | – | – | ||||||||||||
Cost of sales increased 67% from the first six months of 2025 to the first six months of 2026, generally consistent with higher revenue activity. Gross margins remained stable at 32% of sales, as increased Brazil office expenses during the first six months of 2026 were offset by a more favorable project mix.
The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $292 and $248 for the six months ended June 30, 2026 and 2025, respectively.
Selling, general and administrative expenses
Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Selling, general & administrative | $ | 4,648 | $ | 3,693 | $ | 955 | 26% | |||||||||
| Selling, general & administrative as a % of revenue | 27% | 35% | – | (8% | ) | |||||||||||
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Selling, general and administrative expenses increased by $955 in the first six months of 2026 compared to the first six months of 2025. The increase was primarily driven by higher administrative headcount and employee bonus expense, resulting in a $626 increase in personnel costs, as well as a $97 increase in sales and marketing expense, a $54 increase in IT expenses from added software licenses, and a $56 increase across other cost categories.
The Company records depreciation expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $66 and $58 for the six months ended June 30, 2026 and 2025, respectively.
Other income, net
Six Months Ended June 30, | (Decrease) | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Other income, net | $ | 5 | $ | 331 | $ | (326 | ) | (98% | ) | |||||||
| Other income, net as a % of revenue | 0% | 3% | – | (3% | ) | |||||||||||
The decline in other income, net was primarily due to a $250 gain recognized upon the successful resolution of the WW Champion lawsuit in the first six months of 2025. In addition, the Company received a $34 dividend from its insurance company during the first six months of 2025. These items did not recur in the first six months of 2026.
Adjusted EBITDA
The following is a reconciliation of net income to Adjusted EBITDA for the six months ended June 30, 2026 and 2025:
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Net income | $ | 893 | $ | 32 | ||||
| Add (Deduct): Interest (income) expense, net | 8 | (16 | ) | |||||
| Add: Income tax expense | 51 | 15 | ||||||
| Add: Depreciation and amortization | 359 | 303 | ||||||
| Add: Share-based compensation | 381 | 149 | ||||||
| Add: (Gain) on sale of asset | 1 | (12 | ) | |||||
| Add: (Gain) on litigation settlement | – | (250 | ) | |||||
| Add: Restructuring costs | – | 279 | ||||||
| Adjusted EBITDA | $ | 1,691 | $ | 500 | ||||
Adjusted EBITDA increased by $1,191 for the six months ended June 30, 2026, primarily due to higher project throughput, particularly in time and materials service contracts. A significant contributor was a major project to provide subsea umbilical handling, spooling, and storage services using the Company’s carousels. Share-based compensation increased, reflecting improved financial performance and commissions earned in connection with the booking of new projects. This stronger operating performance contributed to a $861 improvement in net income, from $32 in the six months ended June 30, 2025, to $893 in the current year period.
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The current year period did not include restructuring costs, while the three months ended June 30, 2025, included $279 of expenses related to efforts to streamline and strengthen administrative functions. In addition, the second quarter of 2025 included a $250 gain from the successful resolution of the WW Champion lawsuit.
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. On May 19, 2026, we entered into a Loan and Security Agreement with nFusion Capital Finance, LLC (“nFusion”), pursuant to which nFusion will make revolving loans to the Company from time to time, in amounts determined by nFusion in its good faith business judgment, up to a maximum credit limit of $5,000. The facility is asset-based, and advances are subject to the weekly delivery of borrowing base certificates. The facility has an initial term of 12 months and is scheduled to mature in May 2027. The Company expects the facility to be renewed at that time, although renewal remains subject to the terms of the agreement and the parties’ mutual agreement.
The Company’s principal liquidity needs are to fund ongoing operations, working capital, and capital expenditures. During the six months ended June 30, 2026, cash decreased by $613. Net cash used in operating activities totaled $704, primarily driven an increase in accounts receivable. Net cash used in investing activities was $1,750, primarily related to capital expenditures, patent costs, and internal software development. Net cash provided by financing activities was $1,856 and included net payments of $541 to extinguish the Factoring Agreement and net borrowings of $2,400 under the nFusion facility.
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 doubtful accounts, 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.
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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, 2025, 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, 2025, for a discussion of recently issued accounting standards. There have been no significant changes to the status or expected impact of these standards during the six months ended June 30, 2026.
Litigation
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 $569. OMSi has not remitted payment on the outstanding invoices and has not responded to the Company’s repeated requests for payment.
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. For the quarter ended September 30, 2025, the Company recorded a reserve of $569 in Allowance for Credit Losses. The Company received a judgment against OMSi in January 2026 in the amount of approximately $575 and intends to pursue full recovery. The Company will adjust the reserve as new information becomes available.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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 June 30, 2026, 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, 2025.
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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 six months ended June 30, 2026.
Remediation
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, 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. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2026.
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PART II – OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 6, 2026, the Company issued an aggregate of 50,000 shares of common stock to a director upon the exercise of non-qualified stock options, in a transaction not registered under the Securities Act. The exercise price of the options was an aggregate of $36,000. The issuance was exempt from registration under the Securities Act pursuant to the exemption provided in Section 4(a)(2) thereof because the transaction was between the Company and a director and did not involve a public offering. The proceeds will be used for working capital and general corporate purposes.
On August 11, 2026, the Company issued an aggregate of 50,000 shares of common stock to a director upon the exercise of non-qualified stock options, in a transaction not registered under the Securities Act. The exercise price of the options was an aggregate of $36,000. The issuance was exempt from registration under the Securities Act pursuant to the exemption provided in Section 4(a)(2) thereof because the transaction was between the Company and a director and did not involve a public offering. The proceeds will be used for working capital and general corporate purposes.
ITEM 5. OTHER INFORMATION
During the quarter
ended June 30, 2026, 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. | ||
| August 14, 2026 | /s/ Erik Wiik | |
| Date | Erik Wiik | |
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| August 14, 2026 | /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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