Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C., 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31 2017, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-30351000-30351

DEEP DOWN,KOIL ENERGY SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:(281)517-5000

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yeso☐Noþ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o☐Noþ☒

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 (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ☒ Noo☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ☒ Noo

Indicate by check mark if disclosures of delinquent filers in response to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ☒

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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o☐       Accelerated filer o☐Non-accelerated filero☒

Smaller reporting company þ

☒Emerging growth company o☐

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.o☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yeso☐Noþ☒

As of June 30, 2017,2022, the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, was $10,969,184.$7,132,921.20.

At March 26, 2018,30, 2023, the registrant had 13,436,24311,888,202 outstanding shares outstanding of common stock, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

None.None

TABLE OF CONTENTS

Forward-Looking Information

Unless otherwise indicated, the terms “Deep Down,“Koil Energy Solutions, Inc.”, “Deep Down”“Koil Energy”, “Company”, “we”, “our” and “us” are used in this report to refer to Deep Down,Koil Energy Solutions, Inc., a Nevada corporation, and its directlydirect and indirectly wholly-ownedindirect wholly owned subsidiaries.

In this Annual Report on Form 10-K (the “Report”), we may make certain forward-looking statements (“Statements”), including statements regarding our plans, strategies, objectives, expectations, intentions, and resources that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We do not undertake to update, revise, or correct any of the Statements. The Statements should also be read in conjunction with our audited consolidated financial statements and the notes thereto.

The Statements contained in this Report that are not historical fact 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 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”, “expects”, “may”, “will”, “should”, “intend”, “plan”, “could”, “is likely”, or “anticipates”, or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We caution the readers that these Statements are only predictions. No assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these projections and other Statements are based upon a variety of assumptions relating to the business of the Company, which, although considered reasonable by us, may not be realized. Because of the number and range of assumptions underlying our projections and Statements, many of which are subject to significant uncertainties and contingencies that are beyond our reasonable control, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this Report. These Statements are based on current expectations, and we assume no obligation to update this information. Therefore, our actual experience and the results achieved during the period covered by any particular projections or Statements may differ substantially from those projected. Consequently, the inclusion of projections and other Statements should not be regarded as a representation by us or any other person that these estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the Statements contained herein will prove to be accurate.

The risks and uncertainties mentioned previously relate to, among other matters, the following:

PART I

HistoryGeneral

Deep Down,Koil Energy Solutions, Inc. is, a Nevada corporation engaged in the oilfield services industry. As used herein, “Deep Down”(the “Company”, “Company”“Koil Energy”, “we”, “our” and “us” refers to Deep Down, Inc. and/or its subsidiaries. Deep Down, Inc. (OTCQX: DPDW)), a publicly traded Nevada corporation, was incorporated on December 14, 2006, through a reverse merger with MediQuip Holdings, Inc., a publicly traded Nevada corporation.

Deep Down is the parentan energy services company that provides equipment and support services to the following directlyworld’s energy and indirectly wholly-owned subsidiaries: Deep Down,offshore industries. Primary operations are conducted under Koil Energy Solutions, Inc., a Delaware corporation (“Deep DownKoil Energy Delaware”); Deep Down International Holdings, LLC,, which is a Nevada limited liability company (“DDIH”), and Deep Down Brasil - Solucoes em Petroleo e Gas, Ltda, a Brazilian limited liability company (“Deep Down Brasil”). Our current operations are primarily conducted under Deep Down Delaware.wholly owned subsidiary of the Company.

In addition to our strategy of continuing to grow and strengthen our operations, including by expanding our services and products in response to our customers’ demands, we intend to continue to seek strategic acquisitions of complementary service providers, product manufacturers and technologies that are focused primarily on supporting deepwater and ultra-deepwater offshore exploration, development and production of oil and gas reserves and other maritime operations.

OurKoil Energy’s website address iswww.deepdowninc.comwww.koilenergy.com. We makeThe Company makes available, free of charge on or through ourits website, copies of ourits Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after wethe Company electronically filefiles such material with, or furnish itfurnishes them to, the Securities and Exchange Commission (“SEC”(the “SEC”). Paper or electronic copies of such materialthese documents may be requestedobtained upon request by contacting the Company at our corporate offices. Information filedCompany. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, is also availableincluding the Company, at www.sec.gov or may be read and copied at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. Information regarding operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330..

Business Overview

We are a global provider of specializedKoil 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 industry tosource. Koil Energy's core services and technological solutions include distribution system installation support deepwater and ultra-deepwater exploration, developmentengineering services, umbilical terminations, loose-tube steel flying leads, and production of oilrelated services. Additionally, Koil Energy's experienced professionals can support subsea engineering, manufacturing, installation, commissioning, and gas and other maritime operations. While we are primarily a service company, we also produce custom engineered products that assist usmaintenance projects located anywhere in fulfilling service objectives for specific projects on a contractual basis. We design and manufacture athe world. The Company’s broad line of deepwatersolutions are engineered and ultra-deepwater, surface and offshore equipment solutions which are used bymanufactured primarily for major integrated, large independent, and foreign national oil and gasenergy companies in offshore areas throughout the world. OurThese products are often developed in direct response to customer requests for solutions to critical problemsneeds in the field. We serveThe Company primarily serves the growing offshore petroleumoil and maritime industries with technical managementgas market; however, the Company’s product offerings and support services. One of our greatest strengths is the extensive knowledge base of our service engineeringcapabilities are based on core competencies that are energy source agnostic and management personnel in many aspects of the deepwatercan be applied to additional markets, including offshore wind, offshore wave energy, hydrogen, and ultra-deepwater industry. Set forth below is a more detailed description of important services and products we provide.liquefied natural gas.

OurKoil Energy’s goal is to provide superior services and products to ourits customers in a safe, cost-effective, and timely manner. We believeThe Company believes there is significant demand for, and brand name recognition of, ourits established services and products due to the technologicaltechnical capabilities, reliability, cost-effectiveness, timeliness of delivery and execution, and operational efficiency features of these products. Sincesolutions.

In 2022, we changed our formation, we have introduced many new products that continuename from Deep Down, Inc., to broadenKoil Energy Solutions, Inc. In connection with the markets we currently serve.name change, our ticker symbol was changed to “KLNG”.

For the years ended December 31, 20172022 and 2016, we only had2021, the Company’s operations were organized as one operating and reporting segment, Deep Down Delaware. All of the services and products we provide are interrelated, are performed for the same general customers and are marketed as such.reportable segment.

Services and Products

Services. We provide a wide varietyKoil Energy supports all aspects of subsea field development with its engineering and project management services, including the design, installation, and retrieval of subsea equipment and systems, connection and termination operations, well-commissioning services, as well asand construction support and Remotely Operated Vehicle (“ROV”) operations support. We pride ourselves in our abilityThe Company works closely with all customers to collaborate with the engineering functions of oil and gas operators, installation contractors and subsea equipment manufacturers to determineprovide the fastest, safest, and most cost-effective solutions to the full spectruma variety of complex issues which arise in our industry.issues. The Company also serves a range of customers, including operators, installation contractors, and subsea equipment manufacturers.

Project Management and Engineering. OurKoil Energy’s project management teams specializemanagers and engineers have extensive experience and knowledge to support customers both on and offshore. Particularly, the Company specializes in deepwater subsea developments. Our services are centered on the utilizationdesign and engineering of standardized hardware, proven, well-tested installation techniques, and experienced, consistent teams that have proven to be safe and skilled in all aspects of the installation process. Many installation contractors find it beneficial to utilize our services to help reduce on-board personnel since our specialized technicians can perform multiple tasks. Our teams have vast experience with the installation ofsteel tube flying leads, umbilicals, flexible and rigid risers, flowlines, and flowlines, umbilicals, flexiblejumpers. Koil Energy’s comprehensive subsea engineering services oversee all project requirements from conception to final commissioning, including offshore participation during installation to ensure proper execution and rigid jumpers, steel tube and thermoplastic hose flying leads, pipeline end terminations and manifolds. Our engineers have experience ranging from the initial conceptual design phases through manufacturing and installation, and concluding with topside connections and commissioning. Our experience provides us with a levelsafe completion of “hands on” and practical understanding that has proven to be indispensable in enabling us to offer custom solutions to the many problems encountered both subsea and topside. Because of our wide knowledge base, our engineering team is often hired by oil and gas operators, installation contractors and subsea equipment manufacturers to provide installation management and engineering support services. Our engineering team has been involved in several of the innovative solutions used today in deepwater subsea systems. We specialize in offshore installation engineering and the writing of practical installation procedures. We deal with issues involving flying leads, compliant umbilical splices, bend stiffener latchers, umbilical hardware, hold-back clamps, and the development of distribution system components.  We are heavily involved in the fabrication of installation aids to simplify offshore executions, and offer hydraulic, fiber optic, and electrical testing services and various contingency testing tools.projects.

Spooling Services. Our experiencedKoil Energy’s engineering teams provide the planning, supervision, specialized equipment, and coordination with offshore installation personnel are involved infor a customer’s pull-in and spooling needs. The Company has the operationability to manage every stage of the process from terminations, spooling equipment on many projects, including operations, installation, testing, monitoring, and pull-in for other companies to run their spooling equipment.  We have developed a very efficient (in both timeumbilicals and cost) system for spooling, utilizing our horizontal drive units, under-rollers, tensioners, carousels and rapid deployment cartridges.flying leads. 

Testing and Commissioning Services. Umbilical manufacturers, control suppliers, installation contractors, and oil and gas operators utilize our services toThe Company can perform all aspects of testing including initial Factory Acceptance Testing (“FAT”), extended factory acceptance testing and System Integration Testing (“SIT”), related to the connecting of the umbilical termination assemblies, the performing of installations, and the completion ofcompleting the commissioning of the system thereafter. To execute these services, we have assembledThis includes initial factory acceptance testing, extended factory acceptance testing, and system integration testing, and offshore installation and commissioning services. The Company also offers a variety of personnel and equipment to ensure that all testing operations are done in a safe and time-efficient manner, ensuring a reduced overall project cost. We also work hard to utilize the most detailed digital testing and monitoring equipment to ensure that the most accurate data is provided to our customers. We have been hired to perform coiled tubing flushing, cleaning, and hydro testing, umbilical filling, flushing, pressure, flow rate, and cleanliness testing, load out monitoring and testing, installation monitoring, post installation testing, system commissioning, umbilical intermediate testing, and umbilical termination assembly cleanliness, flow, and leak testing. We employ a variety of different pumping systems to meet industry needs and offeroffers maximum flexibility. Our philosophy is to flush through the maximum number of lines at the highest flow rate possible to maximize efficiency.  Due to the different requirements for testing and commissioning of subsea systems, we have an assortment of pumps and equipment to deployflexibility to ensure a safe and efficient commissioning program. We have experience handling all types of commissioning fluids, including asphaltine dispersants, diesel, methanol, xylene, corrosion inhibitors, water-based control fluids, oil-based control fluids, 100 percent glycol, paraffin inhibitors, and alcohol.  We have been involved in the design, procurement, testing, installation, and operation of the testing equipment. Our engineers and service technicians can also assist in writing the testing procedures and sequences from simple FAT to very extensive multiple pressures and fluids testing up to full system SIT procedures. We work closely with the project managers and production platform engineers to help ensure that all aspects of the installation or retrieval project, including potential risks and dangers, are identified, planned for, and eliminated prior to arrival on the production platform.

Storage Management. OurKoil Energy’s facility in Houston, Texas covers more than 255,000approximately 101,000 square feet on 23 acres,of office and warehouse space, offering internal high quality warehousing and workshop capacity, external storage, and a strategic location in Houston's Ship Channel area. Our warehouse is designed to providenear customers with flexible and cost effective warehousing and storage management alternatives. Our professional and experienced warehouse staff, combined with the very latest in information technology, results in a fully integrated warehousing package designed to deliver effective solutions to customer needs.key suppliers. Among other capabilities, we are capable of providingthe Company provides long-term specialized contract warehousing;warehousing, long and short-term storage; modern materialsstorage, material handling equipment; covered loading areas; quality security systems;equipment, integrated inventory management;management, packing, and repacking; computerized stock controls; and labeling.

OurThe Company also leases a 6,500 square foot shore-based facility located at Core Industries, Inc. in Mobile, Alabama has 6,500 square feet and houses our 3,400 ton carousel system, and isAlabama. The Mobile site can be used to store customers’ products. The site is sufficient to allowcustomer products and allows for full system integration testing of our customers’ equipment prior to deployment offshore.

ROV and ROV Tooling Services.  As part of our ROV services, we have observation and light work class ROV units capable of operating in depths of 10,000 feet. Our services include offering these vehicles to strategic alliance partners who lease our vehicles and provide the actual services of platform inspection, platform installation and abandonment, search and recovery, salvage, subsea sampling, subsea intervention, telecommunication cable inspections, anchor handling, ROV consulting and project management, ROV pilots and technicians, and underwater cinematography. We provide an extensive line of ROV intervention tooling, both used to support our own operations and for rental to our customers. Our ROV tooling equipment includes flying lead orientation tools, class 1-5 torque tools, hot stabs, pipe cutting systems, dredging and pumping systems, ROV clamps and ROV-friendly hooks and shackles that are state-of-the-art in design.

Equipment Refurbishment and Intervention Services.In addition to the new products we build, we have cultivated expertise in theThe Company provides refurbishment and repurposing of recovered subsea distribution assetsequipment and providingassociated support services for offshore interventions.

Items refurbished and repurposed for customers include Logic Caps (“LC(s)”), intermediate logic caps, and Hydraulic Distribution Manifolds (“HDM(s)”). Once a recovered asset is received, it is cleaned, any production fluids are flushed out with a water-based control fluid, and the asset is moved into storage. As an emergency or intervention arises, we pull the stored asset rerouteis engineered, reconfigured, and weld the tubing, and then perform FATtested per customer specifications. Finally, we send out ourAdditionally, Koil Energy has developed a suite of proprietary equipment and tools available to address the critical offshore needs of its customers and minimize production disruptions due to unplanned events. A Koil Energy service technicians andtechnician is then deployed with the equipment to support the offshore campaign.

Additionally, we perform various tasks in support of offshore interventions. We reconfigure Deep Down Hydrate Remediation Frames and Hydraulic Flying Leads (“HFL(s)”) at either of our facilities or in the field. Our service technicians go offshore to pre-charge and make any changes to the frame needed to remediate hydrates.Products

We also developed the Fast Response Box (“FRB”), a concept cultivated from our vast offshore campaign experience. Our team identified the necessary components for an emergency reroute of a chemical or hydraulic line performed on the deck of a vessel. After theKoil Energy designs, manufactures, fabricates, inspects, assembles, tests, and installs subsea distribution hardware is brought up, our service technicians safely depressurize, flush, cut out tubing, and reroute as required to get the well or field back up and producing. We then pre-charge the system and assist in overboarding and reinstallation. Our ability to provide a fully functional temporary solution is designed to bring the well or field back into production immediately and allows time for a permanent solution to be developed.

Our capabilities further include in-house software and hardware engineering to provide innovative solutions from wireless testing and monitoring equipment to Dynamic Positioning (“DP”) systems. We have also developed camera systems that can be set up at any site, enabling our customers to witness FATs, SITs or vessel load-outs in real-time, from any location in the world.

Products. We provide installation support equipment and component parts and assemblies for subsea distribution systems. We believe the key to successful installations of hardware is to design the subsea system by considering installation issues first, working backwards to the design of the hardware itself. This is why we have been instrumental in the development of hardware and techniques to simplify deepwater installations. We design, manufacture, fabricate, inspect, assemble and test subsea equipment, surface equipment and offshore equipment that is used by major integrated, large independent, and foreign national oil and gasenergy companies in offshore areas throughout the world. OurThe Company’s products are used during oil and gas exploration, development, and production operations on offshore drilling rigs, suchinstallation and intervention vessels, and as floating rigs and jack-ups, and for drilling andpart of the permanently installed subsea production of oil and gas wells on offshore platforms, tension leg platforms and moored vessels such as Floating Production Storage and Offloading vessels (“FPSO”).infrastructure.

Flying Leads. Deep Down is a leader inKoil Energy designs, manufactures, and installs flying lead design, manufacture and installation; in particularleads, particularly steel tube flying leads. OurFlying leads are umbilical jumpers with a termination plate at either end that support the transmission of hydraulic fluid and/or chemicals between the subsea equipment. The Company’s flagship product, the Loose Steel Tube Flying Lead (“LSFL®”), was developed to eliminate the residual memory left in traditional flying leads due to the bundling process. The loose lay of the tubes significantly reduces stiffness of the assembly, allowsis more compliant allowing the bundle to lay flat on the sea floor and follow the prescribed lay path precisely, bend in a tight radius with minimal resistance and offers maximum compliance for easy makeup in lengths up to 1,000’. When greater lengths up to 10,000’ are required, we utilize our patented Non-Helical Umbilical (“NHU®”) in conjunction with a compliant section on each end of the assembly to achieve the same result. We also offer hybrid LSFL® assemblies which can include any number and combination of electrical, optical, hose and steel tube elements. Hybrid LSFL® technology provides installation savings in both time and money as fewer operations are required to install the combined unit.

Deep Downprecisely. Koil Energy employs the patented Moray® termination system on each end of the LSFL®. The Moray® termination is a light weight,lightweight, high-strength, configurable, and field serviceable framework used to connect any commercially available Multi-Quick Connect (“MQC”) plate to the LSFL® bundle.  The Moray® termination assembly allowsoffers several cost and time saving benefits over traditional competitive solutions that allow the installation load fromCompany to lower the steel tubes or strength member to be transmitted directly to the framework and through to the installation rigging while isolating couplers from the load to maintain maximum compliance. The Moray® termination with compliant section is ideal for umbilical end terminations; it eliminates the need for bulky armor pots and is more manageable than a traditional umbilical end termination. In this application, the Moray® termination can be used to house multiple electrical, optical and auxiliary hydraulic interfaces in integrated ROV panels. Moray® termination assemblies can be outfitted with integrated buoyancy allowing quicker installation times by eliminating the need to recover buoyancy modules. Additionally, this allows for the usetotal installed cost of a smaller class ROV on a vessel should the need for rework arise.customer projects.

Umbilical Hardware. Our blend of experiences withKoil Energy designs and fabricates lightweight and compact umbilical manufacturers, subsea engineers and installation contractors has been effective, giving us a unique perspective when fabricating and designing terminations for umbilical manufacturers.  Members of our team were involved with the designs for the armored thermo plastic umbilicals at Oceaneering Multiflex, the first steel tube umbilical in the Gulf of Mexico for the Shell Popeye® umbilical, and the standardization of many steel tube umbilical terminations. We believe our designs are often much lighter in weight and smaller than the typical hardware that has been created and used incovers the past by our competitors. Our engineering team has designed and fabricated bending restrictors, armor pots, split barrels, tubing fittings and unions, hinging umbilical splices andentire scope of a project’s needs from the topside terminations with our unique threaded welded fittings, umbilicalplatform to the subsea connection. The Company’s compliant splice, and the bend stiffener latcher. We offer both polymer and steel bend limiters. The compliant splice is a patented method of converting spare umbilicals into actual production umbilicals by splicing spare umbilicals together to produce any length required or to repair a damaged umbilical. This termination system eliminates the burdens of dealing with umbilical splices during installation and is capable of housing both electrical and fiber optic termination assemblies while still allowing for the splice to be spooled up onto a reel or carousel. Our Umbilical Termination Assembly (“UTA”) and new compliant UTA allows usthe installation team to terminate thean umbilical with a higher degree of quality, and place the critical components of the base unit on the reel or on the carousel, and handle it with additional ease and safety. Then it isThe UTA can then be combined with the mud mat assembly easily and offers both first endfirst-end stab and hangoverhinge-over features as well as yoke second end landing. The new compliant version allows the UTA to be expanded for multiple J-plates and yet feature the same compliant features in our compliance splicing increasing the ease of handling on the deployment equipment – overboarding – and landing on the seafloor. Our

Koil Energy’s termination services are becoming popular because they offer the ability to takerefurbish existing topside umbilical hang offsterminations from multiple manufacturers which may have been exposed to terrible environmental conditions, and add them to temporary handling clamps – lifting up the umbilical and providingprovide a completely new hangoff arrangement andconnection, thus extending the life of the umbilical and the subsea field. This service is being utilized on a project now.  Bend Stiffener Latchers™ (“BSL™”) are still the leaders in the industry allowing bend stiffenersdesigned to be carried by thesecure a dynamic umbilical topside termination assembly in a more compact and overlapping configuration. BSLs are overboarded with the highest strength and can be installed intoto an existing I-tube with existingor standard flange or an I-tube with a mating bell mouth. They are then latched in by ROV allowingoffering significant cost savings without the bend stiffener to be securely attachedneed for modification to the I-tube transferring allrig interface or the dynamic bending whileuse of divers. The quick-release and locking mechanism allows a single remotely operated vehicle to engage or disengage the umbilical is pulled up and hung off. This process eliminateslocking mechanism resulting in significant savings to the handling of two major pieces of hardware, and the need to have measurements between the components as the system is fully extending and adjustable.customer.

Riser Isolation Valves and Subsea Isolation Valve Services. Deep Down's newKoil Energy's Riser Isolation Valve (“RIV”) and Subsea Isolation Valve (“SSIV”) control systems are unique solutions providingthat provide platform personnel the hydraulic control and electrical indication for subsea production valve manipulation.valves. These systems provide numerous advantages to the customer including:including emergency shutdown capabilities, valve positioning monitoring systems, and auxiliary positions for spare and/or future field development.

In addition to the fabrication of these systems, Deep DownKoil Energy provides subsea installation engineering, consulting, and service personnel to support customers, installation contractors, valve vendors, and more. Our expertise ensures scope is fully defined and delegated allowing for safe and successful installations. The Deep DownKoil Energy team provides commissioning and technical assistance to customers and platform personnel and seeks to ensure that the systems are working properly and all necessary operational information is handed over to the end users.properly.

Capitalizing on our expertise in umbilical manufacturing, Subsea and Topside Umbilical Termination Assemblies (“SUTA” / “TUTA”), hydraulic and electrical flying leads, and super duplex welding, we provide quality products our clients can depend on. We believe our installation friendly project designs help us meet customer specifications. When Deep Down’s expert installation team is on the job, product integrity is preserved, helping us ensure successful installations.

Installation Aids.To help our customers and to meet our own internal needs, we have The Company has developed an extensive array of installation aids, including steel flying lead installation systems, tensioners, lay chutes, many varieties of buoyancy modules, clump weights, Vortex Induced Vibration (“VIV”) strakes, mud mats, dual tank skids, gang boxes, work vans, pumping and testing skids, control booths, fluid drum carriers, crimping systems, load cells,  300under-rollers, 200 ton, 400 ton, 3,400 ton, and 340-ton under-rollers, powered reels, 200-ton, 400-ton and 3,400-ton and 3,500-ton carousel, UTA and bridging jumper3,500 ton carousels, running and parking deployment frames, termination shelters, pipe straighteners, ROV hooks and shackles, stackable SeaStax® tanks, baskets, Subsea Deployment Basket System (SDB®),Basket® system, Horizontal Drive Units, (“HDU”) and Rapid Deployment Cartridges (“RDC”).

Buoyancy Products. We design, engineer and manufacture deepwater buoyancy systems and support hardware essential to installation and operational requirements. Deep Down's rotational molding operations produce high density polyethylene products including bend restrictors, VIV suppression strakes and fairings, protective outer shells for distributed buoyancy modules and other flotation products. Our unique distributed buoyancy module clamps are designed for quick and easy installation for both "over the stinger" and vertical lay system methods.

Further expansion of our flotation product line includes drilling riser buoyancy support hardware and installation services and development of a “Buoyant Rod” concept that we hope to have significant applications in the flotation industry.

Non-Helical Umbilical®. Deep Down's patented Non-Helical Umbilical (“NHU®”) combines our experience manufacturing miles of loose steel tube flying leads, terminating conventional steel umbilicals, and observing installation behavior of all umbilicals. The NHU® can be manufactured in lengths up to 10 miles using super duplex tubes in standard sizes and in any configuration of hydraulic, electrical or optical elements.  It is intended for long-term infield (static) or short-term dynamic service applications.

Multiple tubes may be fed into the patented Deep Down NHU® manufacturing mechanism, bundled, then extruded with a high density polyethylene outer jacket. Umbilicals are not torque balanced on their own, so rather than expending resources to balance and imparting stresses to helically wind them, the NHU® uses the imbalance to its advantage, resulting in a standard bundle.

The proprietary NHU® manufacturing concept is fully containerized, portable and easily transported for setup virtually anywhere in the world. The ability to manufacture in close proximity to subsea fields offers the benefits of reduced lead times, the use of smaller installation vessels, use of compact Deep Down equipment, the incorporation of the appropriate percentages of local content, and more favorable economics.Cartridges.

Manufacturing

OurKoil Energy’s primary operations are currently located at a 255,000 sq. ft.101,000 square foot facility on 23 acres off Beaumont Highway, on the eastern end ofin Houston, Texas, where we have beenthe Company has operated since 2013. In addition to increasing our production capacity, thisOctober 2022. This facility provides the space to build our Steel Tube Flying Lead (“STFL”) Overhead Tracking System. This system allows us to easily move STFLs from stationreduce our carbon footprint, streamline our manufacturing and fabrication capabilities, and attract high caliber talent as the Company continues to station during productionposition for welding, X-ray and FAT.future growth. We have also significantly expanded our clean, stainless steel welding and tube bending environment, which is separated from all carbon steel fabrication.

We have a 12’x60’ wet testing tank, adding the capability to test our products and rigging with buoyancy scenarios in the water. Featuring filtered water and underwater lighting also enables us to launch and test small ROVs and ROV operations.

The most substantial benefit of this facility is expected to be realized when the dock on the property is completed. This will allow us to move large equipment and fabricated items by barge, reducing the costs and eliminating the limitations of highway transportation.

Our manufacturing plantfacility is ISO 9001 certified. We continue to improve our standards and product quality through the use of quality assurance specialists working with our product manufacturing personnel throughout the manufacturing process. We have the capacity to complete large turn-key projects and still have reserve space for unforeseen emergency projects requiring immediate service and the attention oil companiesto which our customers are accustomed to.accustomed.

Customers

Demand for our deepwater and ultra-deepwater services, surface equipment and offshore rig equipment is dependent on the condition of the oil and gasenergy industry and its ability and need to make capital expenditures, as well as continual maintenance and improvements on its offshore exploration, drilling, and production operations. The level of these expenditures is generally dependent upon various factors such as expected commodity prices, of oil and gas, exploration and production costs, of oil and gas, and the level of offshore drilling and production activity. The prevailing view of future oil and gascommodity prices areis influenced by numerous factors affecting the supply and demand for oil and gas.demand. These factors include, but are not limited to, worldwide economic activity, interest rates, cost of capital, environmental regulation, tax policies, and production levels and prices set and maintained by producing nations and the Organization of the Petroleum Exporting Countries. Capital expenditures are also dependent on the cost of exploring for and producing oil and gas, the sale and expiration dates of domestic and international offshore leases, the discovery rate of new oil and gas reserves in offshore areas and technological advances. Oil and gas prices and the level of offshore drilling and production activity have historically been characterized by significant volatility.

Our principal customers are major integrated, oil and gas companies, large independent, oil and gas companies, foreign national oil and gasenergy companies as well as subsea equipment manufacturers and subsea equipment installation contractors involved in the offshore exploration, development, and production.production of natural and renewable resources. Offshore drilling contractors, engineering and construction companies, and other companies involved in maritime operations represent a smaller customer base.

We areKoil Energy is not dependent on any one customer or group of customers. The numberamount and variety of our products and services required in a given period by a customer dependscan depend upon itsthe customer’s capital expenditure budget as well as the results of competitive bids. Consequently, a customer may account for a material portion of revenues in one period and may represent an immaterial portion of revenues in a subsequent period. While we are not dependent on any one customer or group of customers, the loss of one or more of our significant customers could, at least on a short-term basis, have an adverse effect on the results of our operations.operations and cash flows.

Marketing and Sales

We market our services and products worldwide through our Houston-based sales force. We periodically advertise in trade and technical publications targeting our customer base. We also participate in industry conferences and trade shows to enhance industry awareness of our products and services. Our customers generally order products and services after consultationconsulting with us on their project. Orders are typically completed within two weeks to three months depending on the type of product or service. Larger and more complex products may require four to six months to complete, though we have accepted several longer-term projects, requiring significantly more time to complete. Our customers generally select our products and services based on the quality, reliability and reputation of the product or service, price, timely delivery, and advanced technology. For large production system orders, we engage our project management team to coordinate customer needs with our engineering, manufacturing, and service organizations,departments, as well as with our trusted subcontractors and vendors. Our profitability on projects is dependent on performing accurate and cost-effective bids as well as performing efficiently in accordance with bid specifications. Various factors can adversely affect our performance on individual projects that could potentially adversely affect the profitability of a project.

Backlog

Information regarding our backlog is incorporated herein by reference from the section entitled, “Industry and Executive Outlook” in Part II, Item 7 of this Report.

Product Development and Engineering

The technological demands of the oil and gasenergy industry continue to increase as offshore exploration and drilling operations expand into deeper and more hostile environments. Conditions encountered in these environments could soon include well pressures of up to 20,000 psi, mixed flows of oil and gas under high pressure that may also be highly corrosive, and water depths in excess of aroundexceeding 10,000 feet. We are continually engaged in product development activities to generate new products and to improve existing products and services to meet our customers’ specific needs. We also focus our activities on reducing the overall cost to the customer, which includes not only the initial capital costcosts, but also ongoing operating costs associated with our products.

We have an established track record of introducing new products and product enhancements. Our product development work is conducted at our facility in Houston, Texas, and in the field. Our application engineering staff also provides engineering services to customers in connection with the design and sales of our products. Our ability to develop new products and maintain technological advantages is important to our future growth and success.

We believe that the success of our business depends more on the technical competence, performance, creativity, and marketing abilities of our employees than on any individual patent, trademark, or copyright. Nevertheless, as part of our ongoing product development and manufacturing activities, our policy is to seek patents when appropriate on inventions concerning new products and product improvements. All patent rights for products developed by employees are assigned to us.

Competition

The principal competitive factors in the petroleumoffshore drilling, development and production, and maritime equipment markets are quality, reliability, and reputation of the product, price, technology, and timely delivery. We face significant competition from other manufacturers of exploration, production, and maritime equipment. Several of our primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources and have a longer history in the manufacturing of these types of equipment.

Employees

At March 12, 2018,30, 2023, we had a total of 59 full-time employees.49 employees, all of whom are full-time. We also work with a pool of independent contractors who enable us to scale our operations at short notice, as business needs demand. Our employees are not covered by collective bargaining agreements, and we generally consider our employee relations to be good. Our operations depend in part on our ability to attract a skilled labor force. While we believe that our wage rates are competitive and that our relationship with our skilled labor force is good, a significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force andor increases in the wage rates that we pay, or both.

Governmental Regulations

A significant portion of our business activities are subject to federal, state, local and foreign laws and regulations and similar agencies of foreign governments. The technical requirements of these laws and regulations are becoming increasingly expensive, complex, and stringent.  These regulations are administered by various federal, state, and local health and safety and environmental agencies and authorities, including the Occupational Safety and Health Administration of the U.S. Department of Labor and the U.S. Environmental Protection Agency. From time to time, we are also subject to a wide range of reporting requirements, certifications and compliance as prescribed by various federal and state governmental agencies. Expenditures relating to such regulations are made in the normal course of our business and are neither material nor place us at any competitive disadvantage. We do not currently expect that compliance with such laws will require us to make material additional expenditures.

We are also affected by tax policies price controls and other laws and regulations generally relating to the oil and gas industry, including those specifically directed to offshore operations. Adoption of laws and regulations that curtail exploration and development drilling for oil and gas could adversely affect our operations by limiting demand for our services or products. As of the date of this Report, we are also evaluating the impact recent announcements of increased tariffs on imported raw materials will have on our business.

Increased concerns about the environment have resulted in offshore drilling in certain areas being opposed by environmental groups, and certain areas have been restricted. To the extent that new or additional environmental protection laws that prohibit or restrict offshore drilling are enacted and result in increased costs to the oil and gas industry in general, our business could be materially affected. In addition, these laws may provide for "strict liability"“strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for the environmental damage without regard to negligence or fault on the part of such party. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Certain environmental laws provide for joint and several liabilities for remediation of spills and releases of hazardous substances. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources. Such laws and regulations may also expose us to liability for the conduct of or conditions caused by others, or for our acts that were in compliancecomplied with all applicable laws at the time such acts were performed. Compliance with environmental laws and regulations may require us to obtain permits or other authorizations for certain activities and to comply with various standards or procedural requirements.

We cannot determine to what extent our future operations and earnings may be affected by new legislation, new regulations, or changes in existing regulations. We believe that our facilities are in substantial compliance with current regulatory standards. Based on our experience to date, we do not currently anticipate any material adverse effect on our business or consolidated financial position as a result of future compliance with existing environmental laws and regulations controlling the discharge of materials into the environment. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures which may be material.

Intellectual Property

While we are the holder of various patents, trademarks and licenses relating to our business, we do not consider any individual intellectual property to be material to our business operations.

Not Applicable

None

Our principal corporate offices areoperating facility is located at 8827 W. Sam Houston Parkway North, Suite 100,1310 Rankin Road, Houston, Texas 77040. On77073 (“Rankin Rd.”) and includes approximately 101,000 square feet of indoor manufacturing and storage space. The term of the lease is for ten years, which commenced on August 1, 2016,2022 at a base rate of $78,000 per month with a 2% increase each subsequent year. Koil Energy will primarily use the facility as its base of operations, which includes the fabrication of custom engineered products as well as other subsea equipment for both oil and gas and renewable energy applications.

Additionally, we transferredhave a ten year lease on our lease to our subtenant and no longer have monthly lease costs, but still office from this location, and are responsible for utilities and other operating costs of the location. As of the date of this Report, we are finalizing plans to permanently relocate out of this location, and fully consolidate all of our corporate administrative activities at ourformer operating facility, located at 18511-81018511 Beaumont Highway, Houston, Texas 77049 (“Highway 90”Beaumont Hwy”).

Our Highway 90 facility consists of approximately 23 acres of land, and includes 255,000 sq. ft. of indoor manufacturing and storage space. We have a 10-year lease on our Highway 90 facility, which commenced in June 2013 at a base rate of $90,000 per month, adjustable based on the CPI, for the remainder of the lease term. Additionally, weWe also lease, on a month-to-month basis, 6,500 square feet of storage space in Mobile, AL to house our 3,400-ton3,400 metric ton and 3,500 metric ton carousel systemsystems for $5,000$11,000 per month.

We believe that our current space isthese facilities are suitable, adequate and of sufficient capacity to support our current operations.

From time to time, we may be involved inthe Company is party to various legal proceedings arising in the normalordinary course of business. We areThe Company expenses or accrues legal costs as incurred and is not involved in any material legal proceeding.proceeding as of December 31, 2022.

None

PART II

Price RangeMarket for Common Stock

Our common stock tradesis quoted on the QXQB Tier of the OTC Markets Group (OTCQX)(the “OTCQB”) under the symbol OTCQX: DPDW. The following table sets forth, for the quarters ended on the dates indicated below, the high and low bid quotations“KLNG.” Quotations for our common stock as reported byon the OTC Markets.OTCQB represent quotations between dealers without adjustment for retail markup, mark down or commissions, and may not represent actual transactions.

Stockholders of Record

As of March 26, 2018,30, 2023, there were 1,098 stockholdersapproximately 1,700 holders of record of our common stock. All common stock held in street names are recorded in the Company’s stock register as being held by one stockholder.

Dividend Policy

To date, we have not paid any cash dividends and our present policy is to retain earnings for working capital for the growth of our operations.

Issuer Purchases of Equity Securities

No shares were repurchased in the quarter ended December 31, 2017.

On March 26, 2018, the Board of Directors authorized the repurchase of up to $1 million in shares of the Company's common stock. The repurchase program will be funded from cash on hand and cash provided by operating activities.

The time of the purchases and amount of stock purchased will be determined at the discretion of management subject to market conditions, business opportunities and other appropriate factors and may include purchases through one or more broker-assisted plans and methods, including, but not limited to, open-market purchases, privately negotiated transactions and Rule 10b5-1 trading plans. The share repurchase program will expire on March 31, 2019.

Equity Compensation Plan Information

The following table sets forth information regarding our equity compensation plans as of December 31, 2017:

Not Applicable

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in our forward-looking statements.

General

We are an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services, serving the worldwide offshore exploration and production industry. Our services and technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, ROVs and related services. We support subsea engineering, installation, commissioning, and maintenance projects through specialized, highly experienced service teams and engineered technological solutions. Our primary focus is on more complex deepwater and ultra-deepwater oil production distribution system support services and technologies, used between the platform and the wellhead.

Industry and Executive Outlook

The oil and gas industry has largely adapted to lower oil prices, and adjusted operations accordingly. While new deepwater projects are now being sanctioned, we are experiencing the effects of the long period when final investment decisions on new projects were being postponed, and the longer sales cycles of new projects.

Despite the recent uptick in new deepwater activity, our results for 2017 were heavily impacted by this slowdown in new projects. However, despite the lower revenues, we are pleased with the higher margins we were able to realize due to performing an increased proportion of higher-margin service work. We continue to engage with our customers in promising discussions about upcoming projects, albeit with longer than ideal horizons.

To weather the downturn, we have continued to evaluate and streamline our cost structure and contracting strategies. Towards this effort, we are now at our lowest employee levels in several years and have implemented additional temporary reductions in our payroll spending. We are also finalizing plans to permanently relocate our corporate functions out of our corporate office, and into our primary operating facility.

As of March 26, 2018, our committed backlog is $14 million, compared to a backlog of $23 million as of March 31, 2017. We currently expect to realize 90% of this backlog in 2018. Despite our lower backlog of committed work, we are also seeing an increase in inspection, maintenance and repair work, which we do not typically know of well in advance but is a core competence of ours. We expect to continue to perform an increased proportion of this type of higher-margin service work in the near future.

In addition to this service work, our efforts to pursue new customers in emerging frontiers are beginning to bear fruit. We expect to make announcements in the near future on new projects in areas we have never worked in before, for new customers. Our local partnerships in different international markets are also showing increased promise.

We continue to receive strong interest in our services for non-oil and gas organizations, but in light of our current situation, we intend to focus primarily on our core business in 2018, and only complete our sponsorship initiative for Texas A&M students, in support of their participation in the Shell Ocean Discovery XPRIZE competition.

The Texas A&M team is now a finalist in the $7 million global competition challenging teams to advance deep-sea technologies for autonomous, fast and high-resolution ocean exploration, with a top prize of $4 million at stake. The technologies we have developed during this effort, will serve as an enhancement of our ROV services offerings. As of December 31, 2017, we had spent $1.1 million on this effort, and currently expect to spend an additional $0.3 million through the end of the competition. We are also working with Texas A&M and other sponsors, in an effort to have them supplement these costs.

We are grateful for our employees’ strong commitment to play their part in our continued success, and remain optimistic about the future of the Company, and our ability to continue to provide sustained value for our employees, customers, and ultimately, our shareholders.

All remaining dollar and share amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands of dollars and shares, unless otherwise indicated.

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 broad line of 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 energy source agnostic and can be applied to additional markets, including offshore wind, offshore wave energy, hydrogen, and liquefied natural gas.

Industry and Executive Outlook

The energy services industry is dependent on the capital and operating expenditure programs of energy companies. The decision for operators to cut back or accelerate their exploration, drilling, and production operations is substantially driven by the overall condition of the energy industry. Particularly, the oil and gas industry has historically been characterized by fluctuations in commodity prices, which are driven by a variety of market forces.

Our 2022 results reflect the ongoing challenges that face the offshore industry. Our revenues were impacted by global demand and delays in customer drilling schedules. Inflation, certain geopolitical events, and the lingering effects of the pandemic, all of which weighed on our customers’ abilities to commit to long-term deepwater projects. Despite the broader economic dynamics, we believe that the energy markets will remain productive moving forward. We have recently seen an increase in bidding activity and execution of contract awards this year as operators execute their offshore agendas, especially in the current favorable oil price environment. We suspect that the combination of OPEC+’s current proactive stance to reduce production, underperforming US shale production, and limited non-OPEC+ production capacity will encourage increased investment to bring balance to the markets, especially in the offshore arena. Our participation in this potential supply-led upcycle is essential for our business to achieve a sustained level of growth.

To further enhance our growth prospects, we made two significant announcements during 2022: a relocation of the business and a rebranding of the Company.

The transition to our newly leased premises was completed in October, and we are encouraged about the additional enhancements this facility provides serving as our base of operations. Additionally, in connection with our move to the new facility, we received our first purchase order to provide hydrogen energy services in the second quarter of 2022. The scope of this project initially focuses on storage, management and enhancement of customer furnished materials utilizing our alloy welding and other fabrication capabilities. Following validation of these early-stage activities, future phases could lead to systems integration activities potentially including the commissioning of systems being developed for the retail consumer market.

Rebranding the Company from Deep Down, Inc. to Koil Energy Solutions, Inc. was the next step in promoting our core competencies to strengthen our position in existing markets as well as expanding our product and service offerings into new markets. We moved forward with this change operationally in the first quarter of 2022, and we are currently working with our customers under the new brand. Additionally, we received approval from the Financial Industry Regulatory Authority (FINRA) for our name and ticker symbol change in the fourth quarter of 2022.

As we look towards the future, our growth efforts will revolve around three pillars: (i) Systems, (ii) Technology and (iii) Partnerships. These three pillars will be energy source agnostic.

Systems primarily relates to our legacy offerings in the oil and gas segment but represents the shift in our approach to becoming a provider of integrated systems instead of providing only individual components. We have previously realized success with this strategy and have identified several opportunities to pursue on a systematic basis.

Technology entails the development of new equipment and associated services that apply to both traditional oil and gas as well as renewable energy sources. Our product development team is already hard at work and, in just a short amount of time, has already identified a potentially patentable offering. This pillar will also include our ongoing efforts to further enhance the environmental friendliness of our equipment. In addition, at the turn of the new year, we announced the award of a multi-million dollar project to provide 70+ Multi Quick Connect plates to be used for the Shenandoah development in the U.S. Gulf of Mexico. Certain aspects of this project have not been performed before, including qualifying the equipment for 20,000 psi applications, which further solidifies our reputation as an equipment and service provider of choice for unique offshore installation projects. We envision that the successful execution of this project will provide further opportunities in the future.

Partnerships involve the collaboration with like-minded organizations where we will seek to leverage our core competencies to jointly capitalize on future opportunities. This will likely be a longer-term strategy and could develop in a variety of ways, such as project specific consortia, strategic alliances, or operational joint ventures.

We will continue to provide additional details in due course as we work with our team to accomplish our vision of having the most experienced, professional and dependable team, who seek to develop the most innovative solutions, including the most efficient and reliable equipment, with the ultimate goal of providing best-in-class returns for our stockholders.

Results of Operations

Revenues

The 2325 percent decrease in revenue isrevenues was primarily due tothe result of an overall decline in project activity characterized by a reductionshift in customer orders, resultingdemand from delays in sanctioning of new deepwaterproduct oriented, fixed price contracts to short duration projects following the decline in oil prices.utilizing our support services and rental solutions.

Cost of sales and grossGross profit

DespiteThe decrease in gross profit was due to incurring lower revenues we were able to realize higherfor the year ended December 31, 2022. The increase in gross margin percentagesprofit as a percentage of sales was primarily due to an increased proportion of higher-marginincurring less materials costs and decreases in lower margin passthrough service work.costs encountered on certain projects for the year ended December 31, 2022.

We recordThe Company records depreciation expense related to revenue-generating property, plant and equipment as cost of sales, which totaled $1,077$496 and $1,335$663 for the years ended December 31, 20172022 and 2016,2021, respectively. The year-over-year decrease in depreciation was primarily due to certain long-lived assets becoming fully depreciated throughout the year and the sale or disposal of long-lived assets that were non-strategic to the core operations of the business.

Selling, general and administrative expenses

The increase in selling, general and administrative expenses (“SG&A”) as a percentage of revenue was due to lower revenues.

Interest income (expense), net

Net interest income for the year ended December 31, 20172022 was $56mainly due to incurring costs related the relocation of the Company to a new facility and rebranding the Company from Deep Down, Inc. to Koil Energy Solutions, Inc. The Company also incurred higher administrative payroll costs and charges to stock based compensation during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Asset impairment

For the year ended December 31, 2022, the Company recorded impairment charges of $820 for the impairment of its right-of-use operating lease asset (“ROU asset”) related to the lease for the Beaumont Hwy facility. The impairment was the result of relocating from the Beaumont Hwy facility to the Company’s new Rankin Rd. facility in October 2022.

For the year ended December 31, 2021, no charges were recorded for the impairment of long-lived assets.

Interest expense (income), net

Net interest expense for the year ended December 31, 2022 was $15 compared to net interest expense of ($34)$12 for the year ended December 31, 2016.2021. The increase of $90$3 is due to the full repayment of our debt in 2016, and the receiptan increase of interest incomeexpense on cash instruments in 2017.

Gain on sale of assets

During the year ended December 31, 2017 we sold some equipment, including a Remotely Operated Vehicle (“ROV”) which resulted in gains on sales of assets of $559. This is a decrease from the gain on sale of assetsinsurance premium financing for the year ended December 31, 2016 when we sold our Channelview location resulting in a gain2022.

Other income, net

The Company recorded net other income of $55 during the year ended December 31, 2022, which was primarily related to insurance policyholder dividends.

The Company recorded net other income of $2,869 during the year ended December 31, 2021, which was primarily related to the forgiveness of its two PPP loans and employee retention credits.

Gain/loss on sale of assets of $1,070.

Equity in net income of joint venture

In 2017, we received $94 as an earnout distribution from our equity in a joint venture. We no longer have an investment inThe Company recorded gains of $40 and losses of $76 related to equipment sold by the joint ventureCompany during the years ended December 31, 2022 and did not receive any 2016 related distributions.December 31, 2021, respectively.

Modified EBITDA

OurKoil Energy management evaluates ourCompany performance based on a non-GAAPnon-US GAAP measure which consists of earnings (net income or loss) available to common shareholdersstockholders before net interest expense,income, income taxes, depreciation and amortization, non-cash share-based compensation expense, equity in net income or loss of joint venture, non-cash impairments, depreciationnon-cash gains or losses on the sale of property, plant and amortization,equipment (“PP&E”), other non-cash items and one-time charges (“Modified EBITDA”). This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with US GAAP.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 Modified EBITDA calculation, however, are derived from amounts included in the accompanying consolidated statements of operations.

We believe Modified EBITDA is a useful to investors in evaluating our operating performance because it is widely used to 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, equity in net income or loss of joint venture)expense) from our operating results; andresults. 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 (loss) income to Modified EBITDA for the years ended December 31, 20172022 and 2016 (certain prior2021: