Koil Energy Solutions, Inc.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 Brazil, the US. and West Africa.

Previous wording

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.

Current wording

The Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $146 and $117 for the three months ended March 31, 2026 and 2025, respectively.

Previous wording

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.

Current wording

The Company records depreciation expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $32 and $29 for the three months ended March 31, 2026 and 2025, respectively.

Previous wording

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.

Current wording

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.

Previous wording

The following is a reconciliation of net income to Adjusted EBITDA for the three months ended September 30, 2025, and 2024:

Current wording

The following is a reconciliation of net income (loss) to Adjusted EBITDA for the three months ended March 31, 2026 and 2025:

Previous wording

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.

Current wording

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 24, 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. As of March 31, 2026 and December 31, 2025, the Company had $8 and $541, respectively, of factored invoices outstanding with Amegy.

Previous wording

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.

Current wording

During the three months ended March 31, 2025, the Company reported a $1,229 decrease in cash. The Company used $766 of net cash in operating activities, primarily driven by net changes in operating assets and liabilities of $995. This was partially offset by other adjustments of $258 to reconcile net loss to net cash used in operating activities, which includes items such as non-cash lease expense, share-based compensation, and depreciation and amortization. The Company used $463 of net cash for investing activities, primarily to fund capital expenditures.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 three months ended March 31, 2026.