Koil Energy Solutions, Inc. 10-K

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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 Washington D.C., 20549

 FORM 10-K/A

 Amendment
No. 1

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

 For the fiscal year ended December 31, 2023

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

 Commission File No. 000-30351

 (Exact name of registrant as specified in its
charter)

 Nevada

 75-2263732

 (State of other jurisdiction of incorporation)

 (I.R.S. Employer Identification No.)

 1310 Rankin Road, Houston, Texas

 77073

 (Address of Principal Executive Office)

 (Zip Code)

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

 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

 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. Yes No

 Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No

 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. Yes No

 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 during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 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

 Accelerated filer

 Non-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
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) Yes No

 As of June 30, 2023, 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 $ 4,275,838.80.

 At March 27, 2024, the registrant had 11,888,202
outstanding shares of common stock, par value $0.001 per share.

 DOCUMENTS INCORPORATED BY REFERENCE

 None

 EXPLANATORY NOTE

 This Amendment No. 1 on Form 10-K/A ("Amendment
No. 1") amends our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on March 27, 2024 (the "Annual
Report"). We are filing this Amendment No. 1 to respond to a comment from the Securities and Exchange Commission to Management's
Report on Internal Control Over Financial Reporting, included in Part II, Item 9A of the Annual Report. No other changes have been made
to the Annual Report, except for filing currently dated certifications of our Principal Executive Officer and Principal Financial Officer
(Exhibits 31.1 and 32.1), as required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

 This Amendment No. 1 continues to speak as
of the date of the Annual Report, does not reflect events that may have occurred subsequent to the Annual Report and does not modify
or update in any way disclosures made in the Annual Report other than as set forth above.

 Item 1

 Business

 Item 1A

 Risk Factors

 Item 1B

 Unresolved Staff Comments

 Item IC

 Cybersecurity

 Item 2

 Description of Property

 Item 3

 Legal Proceedings

 Item 4

 Mine Safety Disclosures

 Item 5

 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item 6

 [Reserved]

 Item 7

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item 7A

 Quantitative and Qualitative Disclosures About Market Risk

 Item 8

 Financial Statements and Supplementary Data

 Item 9

 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 Item 9A

 Controls and Procedures

 Item 9B

 Other Information

 Item 9C

 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 Item 10

 Directors, Executive Officers and Corporate Governance

 Item 11

 Executive Compensation

 Item 12

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item 13

 Certain Relationships and Related Transactions, and Director Independence

 Item 14

 Principal Accountant Fees and Services

 Item 15

 Exhibits and Financial Statement Schedules

 Item 16

 Form 10-K Summary

 Signatures

 i

 Forward-Looking Information

 Unless otherwise indicated, the terms "Koil
Energy Solutions, Inc.", "Koil Energy", "Company", "we", "our" and "us"
are used in this report to refer to Koil Energy Solutions, Inc., a Nevada corporation, and its direct and indirect 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 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:

 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;

 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;

 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;

 Unfavorable legal outcomes could have a negative impact on our business; and

 Impact of global health crises, including epidemics and pandemics.

 ii

 ITEM 1.

 Business.

 General

 Koil Energy Solutions, Inc., a Nevada corporation
(the "Company", "Koil Energy", "we", "our" and "us"), is an energy services
company that provides equipment and support services to the world's energy and offshore industries. Primary operations are conducted
under Koil Energy Solutions, Inc., a Delaware corporation ("Koil Energy Delaware"), which is a wholly owned subsidiary of
the Company.

 Koil Energy's website address is www.koilenergy.com.
The Company makes available, free of charge on its website, its 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 the Company electronically files such material with,
or furnishes them to, the Securities and Exchange Commission (the "SEC"). Paper or electronic copies of these documents may
be obtained upon request by contacting the Company. The SEC maintains an internet website that contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC, including the Company, at www.sec.gov.

 Business Overview

 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.

 Koil Energy's goal is to provide superior
services and products to its customers in a safe, cost-effective, and timely manner. The Company believes there is significant demand
for, and brand name recognition of, its established services and products due to the technical capabilities, reliability, cost-effectiveness,
timeliness of delivery and execution, and operational efficiency features of these solutions.

 In 2022, we changed our name from Deep Down, Inc.,
to Koil Energy Solutions, Inc. In connection with the name change, our ticker symbol was changed to "KLNG".

 For the years ended December 31, 2023 and 2022,
the Company's operations were organized as one reportable and one operating segment.

 Services

 Koil 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, and construction support. The Company works closely with
all customers to provide the fastest, safest, and most cost-effective solutions to a variety of complex issues. The Company also serves
a range of customers, including operators, installation contractors, and subsea equipment manufacturers.

 Project Management and Engineering. Koil
Energy's project managers and engineers have extensive experience and knowledge to support customers both on and offshore. Particularly,
the Company specializes in the design and engineering of steel tube flying leads, umbilicals, flexible and rigid risers, flowlines, and
jumpers. 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 safe completion of projects.

 Spooling Services. Koil Energy's
engineering teams provide the planning, supervision, specialized equipment, and coordination with offshore installation personnel for
a customer's pull-in and spooling needs. The Company has the ability to manage every stage of the process from terminations, spooling
operations, installation, testing, monitoring, and pull-in for umbilicals and flying leads.

 Testing and Commissioning Services. The
Company can perform all aspects of testing related to connecting the umbilical termination assemblies, performing installations, and completing
the commissioning of the system thereafter. This 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 pumping systems
to meet industry needs and offers maximum flexibility to ensure a safe and efficient commissioning program.

 Storage Management. Koil Energy's
facility in Houston, Texas offers high quality warehousing and workshop capacity, external storage, and a strategic location near customers
and key suppliers. Among other capabilities, the Company provides long-term specialized contract warehousing, long and short-term storage,
material handling equipment, integrated inventory management, packing, and labeling.

 Equipment Refurbishment and Intervention Services.
 The Company provides refurbishment and repurposing of recovered subsea equipment and associated support services for offshore interventions.
As an emergency or intervention arises, the stored asset is engineered, reconfigured, and tested per customer specifications. Additionally,
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 technician is then deployed with the equipment to support
the offshore campaign.

 Products

 Koil Energy designs, manufactures, fabricates,
inspects, assembles, tests, and installs subsea distribution equipment used by major integrated, large independent, and foreign national
energy companies in offshore areas throughout the world. The Company's products are used during exploration, development, and production
operations on offshore drilling rigs, installation and intervention vessels, and as part of the permanently installed subsea production
infrastructure.

 Flying Leads. Koil Energy designs, manufactures,
and installs flying leads, particularly steel tube flying leads. Flying 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 is more compliant allowing the bundle to lay flat on the sea floor
and follow the prescribed lay path precisely. Koil Energy employs its Moray termination system on each end of the LSFL. The
Moray termination is a lightweight, high-strength, configurable, and field serviceable framework used to connect any commercially
available multi-quick connect plate to the LSFL bundle. The Moray termination assembly offers several cost and time saving
benefits over traditional competitive solutions that allow the Company to lower the total installed cost of customer projects.

 Umbilical Hardware. Koil Energy designs
and fabricates lightweight and compact umbilical hardware that covers the entire scope of a project's needs from the topside platform
to the subsea connection. The Company's compliant Umbilical Termination Assembly ("UTA") allows the installation team
to terminate an umbilical with a higher degree of quality, place the critical components of the base unit on the reel or on the carousel,
and handle it with additional ease and safety. The UTA can then be combined with the mud mat assembly easily and offers both first-end
stab and hinge-over features as well as yoke second end landing.

 Koil Energy's termination services offer
the ability to refurbish existing topside umbilical terminations from multiple manufacturers and provide a completely new connection,
thus extending the life of the umbilical and the subsea field. Bend Stiffener Latchers are designed to secure a dynamic umbilical
to an existing or standard flange offering significant cost savings without the need for modification to the rig interface or the use
of divers. The quick-release and locking mechanism allows a single remotely operated vehicle to engage or disengage the locking mechanism
resulting in significant savings to the customer.

 Riser Isolation Valves and Subsea Isolation
Valve Services. Koil Energy's Riser Isolation Valve and Subsea Isolation Valve control systems are unique solutions that provide platform
personnel hydraulic control and electrical indication for subsea production valves. These systems provide numerous advantages to the customer
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,
Koil Energy provides subsea installation engineering, consulting, and service personnel to support customers, installation contractors,
valve vendors, and more. The Koil Energy team provides commissioning and technical assistance to customers and platform personnel and
seeks to ensure that the systems are working properly.

 Installation Aids. The Company has developed
an extensive array of installation aids, including flying lead installation systems, tensioners, lay chutes, buoyancy modules, clump weights,
mud mats, pumping and testing skids, control booths, fluid drum carriers, under-rollers, 200 ton, 400 ton, 3,400 ton, and 3,500 ton carousels,
running and parking deployment frames, termination shelters, pipe straighteners, Subsea Deployment Basket system, Horizontal Drive
Units, and Rapid Deployment Cartridges.

 Manufacturing

 Koil Energy's facilities located in Houston,
TX are integral to our operations, serving as the backbone of our manufacturing process. Strategically organized and equipped, these spaces
efficiently facilitate fabrication, manufacturing, assembly, and testing of our products. Within our well-structured environment, our
skilled teams harness their expertise alongside machinery and tools, ensuring precise execution at every stage. We also have a significant
footprint dedicated to our clean, stainless steel welding and tube bending environment, which is separated from all carbon steel fabrication.

 Our manufacturing facility is ISO 9001 certified.
We enhance our standards and product quality by having our quality assurance specialists work alongside 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 to which our customers are accustomed.

 Customers

 Demand for our deepwater and ultra-deepwater services,
equipment and offshore rig equipment is dependent on the condition of the energy 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, exploration and production costs, and the
level of offshore drilling and production activity. The prevailing view of future commodity prices is influenced by numerous factors affecting
supply and 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 primarily major integrated,
large independent, and foreign national energy companies as well as subsea equipment manufacturers and subsea equipment installation contractors
involved in the offshore exploration, development, and 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.

 Koil Energy is not dependent on any one customer
or group of customers. The amount and variety of our products and services required in a given period by a customer can depend upon the
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 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 consulting 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 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 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 affect our performance on individual projects that could potentially adversely affect the profitability of a project.

 Product Development and Engineering

 The technological demands of the energy 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 exceeding 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' needs. We also focus our activities on reducing
the overall cost to the customer, which includes not only the initial capital costs, 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 offshore
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 December 31, 2023, we had a total of 51 employees,
all of whom were 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 or 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 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.

 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" 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 complied
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.

 ITEM 1A.

 RISK FACTORS

 Not Applicable

 ITEM 1B.

 UNRESOLVED STAFF COMMENTS

 None

 ITEM 1C.

 CYBERSECURITY

 Cybersecurity Risk Management and Strategy

 Overall Risk Management

 We maintain a cybersecurity program that is reasonably
designed to protect our information, and that of our customers, against cybersecurity threats that may result in adverse effects on the
confidentiality, integrity, and availability of our information systems.

 The Company integrates cybersecurity risk management
into its broader risk management framework to promote a company-wide culture of cyber risk awareness. The head of our IT department continuously
evaluates and addresses cyber risks in alignment with business objectives, operational needs and industry-accepted standards, such as
the National Institute of Standards and Technology ("NIST").

 The Company has processes and procedures in place
to monitor the prevention, detection, mitigation and remediation of cybersecurity risks. These include but are not limited to:

 Maintaining a defined and practiced incident response plan;

 Maintaining cyber insurance coverage;

 Employing appropriate incident prevention and detection safeguards;

 Maintaining a defined disaster recovery policy and employing disaster recovery software, where appropriate;

 Educating, training and testing our user community on information security practices and identification
of potential cybersecurity risks and threats; and

 Reviewing and evaluating new developments in the cyber threat landscape.

 Managing Third Party Risk

 Koil Energy recognizes the risks associated with
the use of vendors, service providers and other third parties that provide information system services to us, process information on our
behalf, or have access to our information systems, and the Company has processes in place to oversee and manage these risks. We conduct
thorough risk-weighted security assessments of various third-parties and maintain ongoing monitoring to ensure compliance with our cybersecurity
standards. This monitoring includes both annual assessments and assessments on an ongoing basis.

 Risks from Cybersecurity Incidents

 To our knowledge, Koil Energy has not been subject
to cybersecurity incidents that have materially affected, or are reasonably likely to materially affect the Company, its operations or
financial condition.

 Cybersecurity Governance

 Internal Cybersecurity Team

 Our internal cybersecurity team, led by our IT
Manager, is responsible for implementing, monitoring, and maintaining cybersecurity and data protection practices across the company.
Our IT Manager has over 13 years in cybersecurity work experience and managing all levels of the Company's on-premises and cloud
infrastructure.

 Management

 Our management team periodically participates
in the review of our cybersecurity systems, processes, threats and incidents with our internal cybersecurity team, including the controls
and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure
and reporting of such incidents can be made by management in a timely manner.

 Board of Directors

 The Audit Committee of the Company's Board
of Directors (the "Board") is responsible for overseeing the Company's cyber risk. Management has established a process
for the Audit Committee to receive regular updates that encompass a broad range of topics, including:

 Current cybersecurity threat landscape and emerging threats;

 Status of ongoing cybersecurity initiatives and strategies;

 Incident reports and learnings from unique cybersecurity events, including those of other companies;

 Compliance status and efforts with regulatory requirements and industry standards;

 Regulatory updates;

 Vulnerability developments; and

 Other cyber risk topics as requested by the Board.

 ITEM 2.

 Description of Property

 Our operating facility is located at 1310 Rankin
Road, Houston, Texas 77073 ("Rankin Rd.") and includes approximately 101,000 square feet of office, manufacturing, and storage
space. The term of the lease is for ten years, which commenced on August 1, 2022 at a base rate of $78,000 per month with a 2% increase
each subsequent year. Koil Energy uses the facility as its primary 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.

 We also lease, on a month-to-month basis, approximately
19,000 square feet of storage space in Mobile, AL to house our 3,400 metric ton and 3,500 metric ton carousel systems for $11,200 per
month.

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

 ITEM 3.

 Legal Proceedings

 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 proceeding as of December 31, 2023.

 ITEM 4.

 MINE SAFETY DISCLOSURE s

 None

 ITEM 5.

 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 Market for Common Stock

 Our common stock is quoted on the QB Tier of the
OTC Markets Group (the "OTCQB") under the symbol "KLNG." Quotations for our common stock on the 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 6, 2024, there were approximately
1,378 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.

 Securities Authorized for Issuance Under Equity
Compensation Plan

 STOCK OPTIONS ISSUED

 Plan category

 Number of securities to be issued upon exercise of outstanding options

 Weighted-average exercise price of outstanding options

 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 (a)

 (b)

 (c)

 Equity compensation plans not approved by security holders

 950,000

 $
 0.62

 –

 ITEM 6.

 [RESERVED]

 Item 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 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.

 All 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.

 Global oil prices began to ease toward the end
of 2023 due to higher-than-expected OPEC supply and lower demand from the Middle East, Russia, India, and Europe, which was partially
offset by stronger demand from the US and China. However, per the International Energy Agency's February 2024 Oil Market Report,
demand is still expected to increase by 1.2 million barrels per day in 2024. Additionally, we believe a convergence of economic, geopolitical,
trade and policy factors have exacerbated the issue of years of underinvestment in upstream hydrocarbon production and appear to have
triggered a general shift returning focus on increasing production. As a result, the Company anticipates global offshore oil production
to continue its pivotal role in meeting the world's energy demands this year as evidenced by increased utilization rates (80%+) for offshore
drilling rigs/vessels. We believe that several key regions, including the Gulf of Mexico, the North Sea, and areas off the coasts of Brazil
and West Africa, will contribute significantly to this production output. Despite the recent emphasis on alternative energy sources, we
expect the offshore extraction of hydrocarbons will continue to provide a vital component of the global energy mix, and we believe 2024
is poised to see continued steady growth in the sector. Our participation in this supply-driven cycle is essential for our business to
achieve a sustained level of growth.

 The 18% year-over-year increase in our revenues
for 2023 is characteristic of the recovery in the industry, especially in the deepwater segments. We continued to experience the effects
of price pressures we faced during the recent downturn. These pressures led us to strategically price some projects at lower than ideal
margins, which is reflected in our bottom-line results for 2023. These results fell short of our expectations, but we maintain a positive
outlook for 2024 as these lower margins projects are anticipated to conclude in the first half of the year.

 Our growth efforts have been concentrated on further
developing the systems, technology, and techniques that address the critical needs of our customers, and we have started to realize success
with this strategy. Earlier this year, we announced the receipt of an award for the provision of 70+ multi quick connect plates, which
are critical pieces of subsea infrastructure used to enable the transfer of different fluids between subsea systems that will be qualified
for 20,000 psi applications. We also made several announcements in the second half of 2023 regarding the receipt of several contract awards
involving the design, engineering, and manufacturing of hose and steel tube flying leads and electrical and hydraulic distribution manifolds
for various locations in the Gulf of Mexico. We are dedicated to capitalizing on our recent achievements and systematically exploring
further opportunities, fueled by the continued strength in bidding activity.

 During 2023, we also entered into a factoring
agreement with Amegy Bank, which provides us the ability from time to time to sell our accounts receivable to the bank. This agreement
is expected to provide us with additional access to capital, should the need arise, as some of these fixed-price contracts may require
significant lead time and investment.

 We continue progressing towards achieving our
goal of becoming the premier provider of integrated subsea distribution systems. We look forward to sharing 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 increasing profitability
and providing best-in-class returns for our stockholders.

 Results of Operations

 Revenues

 Increase (Decrease)

 2023

 2022

 $

 %

 Revenues

 $
 15,343

 $
 12,977

 $
 2,366

 18%

 The 18 percent increase in revenues was primarily
driven by an increase in product oriented, fixed price contracts as well as a slight increase in projects utilizing our support services
and rental solutions.

 Cost of sales and Gross profit

 Increase (Decrease)

 2023

 2022

 $

 %

 Cost of sales

 $
 10,493

 $
 8,292

 $
 2,201

 27 %

 Gross profit

 $
 4,850

 $
 4,685

 $

 4 %

 Gross profit %

 32%

 36%

 –

 (4)%

 The increase in gross profit was primarily driven
by increased revenues. The decrease in gross profit as a percentage of sales was due to incurring higher materials costs related to certain
projects that were strategically priced at lower margins.

 The Company records depreciation expense related
to revenue-generating property, plant and equipment as cost of sales, which totaled $497 and $496 for the years ended December 31, 2023
and 2022, respectively.

 Selling, general and administrative expenses

 Increase (Decrease)

 2023

 2022

 $

 %

 Selling, general & administrative

 $
 6,460

 $
 6,873

 $
 (413
)

 (6)%

 Selling, general & administrative as a % of revenue

 42%

 53%

 –

 (11)%

 The reduction in selling, general, and administrative
expenses ("SG&A") primarily resulted from the expenses incurred for relocating the Company to a new facility and rebranding
it from Deep Down, Inc. to Koil Energy Solutions, Inc. during the year ended December 31, 2022, which were not incurred again during the
year ended December 31, 2023. This reduction was partially offset by increased research and development expenses and rental expenses related
to the Company's furniture lease.

 The Company records depreciation and amortization
expense related to administrative property, plant and equipment and intellectual property as SG&A, which totaled $108 and $186 for
the years ended December 31, 2023 and 2022, respectively.

 Asset impairment

 For the year ended December 31, 2023, no charges
were recorded for the impairment of long-lived assets.

 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 its prior operating facility (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.

 Interest expense (income), net

 Net interest income for the year ended December
31, 2023 was $7 compared to net interest expense of $15 for the year ended December 31, 2022. The increase of $22 is mainly due to an
increase in interest received on the Company's interest bearing financial instruments during the year ended December 31, 2023.

 Other income, net

 The Company recorded net other income of $50 and
$55 for the years ended December 31, 2023 and December 31, 2022, respectively, which primarily consists of insurance policyholder dividends.

 Gain/loss on sale of assets

 The Company recorded gains of $4 and $40 related
to equipment sold by the Company during the years ended December 31, 2023 and December 31, 2022, respectively.

 Modified 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 ("Modified 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 Modified EBITDA calculation, however, are derived from amounts
included in the accompanying consolidated statements of operations.

 We believe Modified 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 loss
to Modified EBITDA for the years ended December 31, 2023 and 2022:

 2023

 2022

 $
 (1,554
)

 $
 (2,928
)

 (Deduct) Add: Interest (income) expense, net

 (7
)

 Add: Income tax expense

 –

 Add: Depreciation and amortization

 Add: Share-based compensation

 Add: Operating lease ROU asset impairment

 –

 Add: Relocation costs

 Deduct: Gain on sale of asset

 (4
)

 (40
)

 Deduct: Reversal of litigation accrual

 –

 (100
)

 Modified EBITDA

 $
 (882
)

 $
 (957
)

 The $75 increase in Modified EBITDA primarily
resulted from revenue and gross profit growth stemming from an uptick in both fixed-price and service projects during the year ended December
31, 2023 as compared to the year ended December 31, 2022.

 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 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. At December 31, 2023, the Company had no outstanding sales of accounts receivable to Amegy.

 The principal liquidity needs of the Company are
to fund ongoing operations, working capital, and capital expenditures. During the year ended December 31, 2023, the Company reported a
$323 decrease in cash. The Company generated $203 of net cash from operating activities, primarily driven by changes in operating assets
and liabilities of $1,234 and other adjustments to reconcile net loss to net cash provided by operating activities of $523, which includes
items such as non-cash lease expense, gain on sale of property, plant and equipment, share-based compensation, bad debt expense (recovery),
and depreciation and amortization. This was partially offset by a net loss of $1,554. The Company used $226 of net cash for investing
activities, primarily to fund capital expenditures. The Company also used $300 of net cash in financing activities for principal payments
made under its finance lease obligations.

 During the year ended December 31, 2022, the Company
generated $1,242 of net cash from operating activities, primarily driven by changes in operating assets and liabilities of $2,229 and
other adjustments to reconcile net loss to net cash provided by operating activities of $1,941, partially offset by a net loss of $2,928.
The Company used $2,262 of net cash for investing activities, primarily to fund capital expenditures. The Company also used $303 of net
cash in financing activities for the repurchase of common stock and principal payments made under its finance lease obligation, which
resulted in a $1,323 decrease in cash for the period.

 The Company maintains a positive outlook on current
tender volume and views this as an opportunity to capitalize on its product, service, and rental offerings to address the subsea distribution
and cable management needs of its customers. The reasons for this expected increase are set forth in the "Industry and Executive
Outlook" section above. As such, the Company believes it will have adequate liquidity to meet its future operating requirements
through a combination of cash on hand, cash expected to be generated from operations, and potential sales of PP&E. Given the inherent
volatility in oil prices and global economic activity, the Company cannot predict this with certainty. To mitigate this uncertainty and
preserve liquidity, the Company will concentrate capital investments on key growth needs and pursue opportunistic cost containment initiatives,
which can include workforce alignment, restricting overhead spending and limiting research and development efforts to only critical items.

 Summary of Critical Accounting Estimates

 Use of Estimates

 The preparation of financial statements in accordance
with US GAAP requires us to make estimates and judgments that may affect assets and liabilities. On an ongoing basis, we evaluate our
estimates, including those related to revenue recognition and related allowances, contract assets and liabilities, impairments of long-lived
assets, including intangibles, income taxes including the valuation allowance for deferred tax assets, contingencies and litigation, and
share-based payments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable,
the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ
from these estimates under different assumptions or conditions.

 Property, Plant and Equipment

 PP&E is stated at cost, net of accumulated
depreciation, amortization, and related impairments. Depreciation and amortization are computed using the straight-line method over the
estimated useful lives of the respective assets. Replacements and betterments are capitalized, while maintenance and repairs are expensed
as incurred. It is our policy to include amortization expense on assets acquired under finance leases with depreciation expense on owned
assets. Additionally, we record depreciation and amortization expense related to revenue-generating assets as a component of cost of sales
in the accompanying consolidated statements of operations.

 If circumstances associated with our PP&E
have changed or a significant event has occurred that may affect the recoverability of the carrying amount of our PP&E, an impairment
indicator exists, and we test the PP&E for impairment. Before testing for impairment, we group PP&E with other finite-lived long-lived
assets ("long-lived assets") at the lowest level of identifiable cash flows that are largely independent of cash flows from
other assets or groups of assets. Testing long-lived assets for impairment is a two-step process:

 Step 1 - We test the long-lived asset
group for recoverability by comparing the carrying amount of the asset group with the sum of the undiscounted future cash flows from use
and the eventual disposal of the asset group. If the carrying amount of the long-lived asset group is determined to be greater than the
sum of the undiscounted future cash flows from use and disposal, we would need to perform step 2.

 Step 2 - If the long-lived group of
assets fails the recoverability test in step 1, we would record an impairment expense for the difference between the carrying amount and
the fair value of the long-lived asset group.

 During the years ended December 31, 2023 and December
31, 2022, the Company conducted assessments of whether impairment indicators were present that indicate the carrying amount of its long-lived
asset group might not be recoverable and determined that no such events or changes in circumstances were present.

 Revenue Recognition

 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.

 Fixed Price Contracts

 For fixed price contracts, we generally recognize
revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the
customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us
for costs incurred plus a reasonable profit and take control of any work in process. In our fixed price contracts, the customer either
controls the work in process or we deliver products with no alternative use to the Company and have rights to payment for work performed
to date plus a reasonable profit as evidenced by contractual termination clauses.

 Because of control transferring over time, revenue
is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure
progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use
the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as
we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based
on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated
fees or profits, are recorded proportionally as costs are incurred.

 Contracts are often modified to account for changes
in contract specifications and requirements. We consider a contract modification to exist when the modification either creates new, or
changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct
from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as
if they were part of that existing contract. The effect of a contract modification on the transaction price, and our measure of progress
for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction
of revenue) on a cumulative catch-up basis.

 We have a company-wide standard and disciplined
quarterly estimate at completion process in which management reviews the progress and execution of our performance obligations. As part
of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards
completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs.
Changes in estimates of net sales, cost of sales and the related impact to operating income are recognized quarterly on a cumulative catch-up
basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance
obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of
one or more of our performance obligations. When estimates of total costs to be incurred exceed total estimates of revenue to be earned
on a performance obligation related to fixed price contracts, a provision for the entire loss on the performance obligation is recognized
in the period the loss is estimated.

 Service Contracts

 We recognize revenue for service contracts measuring
progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer.
The control over services is transferred over time when the services are rendered to the customer on a daily basis. Specifically, we recognize
revenue as the services are provided as we have the right to invoice the customer for the services performed. Services are billed on a
monthly basis. Payment terms for services are usually 30 days from invoice receipt but can increase to 45, 60, or 90 days depending on
the customer.

 Contract Balances

 Costs and estimated earnings in excess of billings
on uncompleted contracts arise when revenues are recorded based on the extent of progress towards completion but cannot be invoiced under
the terms of the contract. Such amounts are invoiced upon completion of contractual milestones. Billings in excess of costs and estimated
earnings on uncompleted contracts arise when milestone billings are permissible under the contract, but the related costs have not yet
been incurred. All contract costs are recognized currently on jobs formally approved by the customer and contracts are not shown as complete
until virtually all anticipated costs have been incurred and the risk of loss has passed to the customer.

 Assets related to costs and estimated earnings
in excess of billings on uncompleted contracts, as well as liabilities related to billings in excess of costs and estimated earnings on
uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond one year,
thus complete collection of amounts related to these contracts may extend beyond one year, though such long-term contracts include contractual
milestone billings as discussed above. For the years ended December 31, 2023 and 2022, there were no contracts with terms that extended
beyond one year.

 Allowance for Credit Losses

 The estimation of anticipated credit losses that
may be incurred as we work through the invoice collection process with our customers requires us to make judgments and estimates regarding
our customers' ability to pay amounts due. We monitor our customers' payment history and current credit worthiness, if needed,
to determine that collectability is reasonably assured. We provide an allowance for credit losses based by reviewing each accounts receivable
balance with respect to a debtor's ability to make payments. We also evaluate historical loss rates as well as consider forward-looking
factors specific to the debtors, the overall economic environment, and management expectations to determine expected losses. When certain
accounts are determined to require an allowance, they are expensed by a provision for bad debts in that period. At December 31,
2023 and 2022, we estimated the allowance for credit losses requirement to be $0. Bad debt expense (recovery) totaled $1 and $(9) for
the years ended December 31, 2023 and 2022, respectively. We believe that our allowance for credit losses is adequate to cover the anticipated
credit losses under current conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse
or positive, could impact the amount and timing of any additional credit losses that may be required.

 Income Taxes

 We follow the asset and liability method of accounting
for income taxes. This method considers the differences between financial statement treatment and tax treatment of certain transactions.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

 We record a valuation allowance to reduce the
carrying value of our deferred tax assets when it is more likely than not that some or all of the deferred tax assets will expire before
realization of the benefit or that future deductibility is not probable. The ultimate realization of the deferred tax assets depends upon
our ability to generate sufficient taxable income of the appropriate character in the future. This requires management to use estimates
and make assumptions regarding significant future events such as the taxability of entities operating in the various taxing jurisdictions.
In evaluating our ability to recover our deferred tax assets, we consider all reasonably available positive and negative evidence, including
our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In
estimating future taxable income, we develop assumptions, including the amount of future state, and federal pre-tax operating income,
the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require
significant judgment. When the likelihood of the realization of existing deferred tax assets changes, adjustments to the valuation allowance
are charged in the period in which the determination is made, either to income or goodwill, depending upon when that portion of the valuation
allowance was originally created.

 We record an estimated tax liability or tax benefit
for income and other taxes based on what we determine will likely be paid in the various tax jurisdictions in which we operate. We use
our best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent upon various
matters, including resolution of tax audits, and may differ from amounts recorded. An adjustment to the estimated liability would be recorded
as a provision or benefit to income tax expense in the period in which it becomes probable that the amount of the actual liability or
benefit differs from the recorded amount.

 Our future effective tax rates could be adversely
affected by changes in the valuation of our deferred tax assets or liabilities or changes in tax laws or interpretations thereof. If and
when our deferred tax assets are no longer fully reserved, we will begin to provide for taxes at the full statutory rate. In addition,
we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess
the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

 Recent Accounting Pronouncements

 Recent Accounting Pronouncements are included
in Note 1, "Description of Business and Summary of Significant Accounting Policies and Estimates", of the Notes to Consolidated
Financial Statements included in this Report.

 Item 7A.

 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Not Applicable

 Item 8.

 Financial Statements AND SUPPLEMENTAry DATA

 The financial statements are included herewith commencing on page F-1.

 Report of Independent Registered Public Accounting Firm (PCAOB ID: 659)

 Consolidated Balance Sheets – December 31, 2023 and 2022

 Consolidated Statements of Operations – Years ended December 31, 2023 and 2022

 Consolidated Statements of Stockholders' Equity – Years ended December 31, 2023 and 2022

 Consolidated Statements of Cash Flows – Years ended December 31, 2023 and 2022

 Notes to Consolidated Financial Statements – Years ended December 31, 2023 and 2022

 Item 9.

 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 None

 Item 9A.

 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 accounting 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 principal executive and principal
accounting officer, with assistance from other members of management, evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of December 31, 2023, as required by Rule 13a-15(e) of the Exchange Act. Based upon
that evaluation, the principal executive and principal accounting officer have concluded that the Company's disclosure controls
and procedures were effective as of December 31, 2023.

 Management's Report on Internal Control
Over Financial Reporting. The Company's management is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our internal control over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. GAAP.

 Although the internal controls over financial
reporting were not audited, the Company's management, including the principal executive and principal accounting officer, assessed
the effectiveness of internal control over financial reporting as of December 31, 2023, based on revisions and updates issued
in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to its report entitled "Internal Control-Integrated
Framework."

 As disclosed in Part II Item 9A, Controls and
Procedures, in our Annual Report on Form 10-K for the year ended December 31, 2022, we identified a material weakness in internal control
related to the controls designed to assess the subsequent measurement of our ROU assets based on a newly adopted accounting principle.

 During 2022, management implemented our previously
disclosed remediation plan that included: (i) enhancing the Company's quarterly analysis of impairment indicators for its remaining
long-lived assets by including an assessment of impairment indicators for its remaining ROU assets; (ii) improving documentation of underlying
internal controls to promote knowledge transfer upon personnel and function changes; and (iii) enhanced quarterly reporting on the remediation
measures to the Audit Committee of the Board of Directors.

 During the fourth quarter of 2023, we completed
our testing of the operating effectiveness of the implemented controls and found them to be effective. As a result, we have concluded
the material weakness has been remediated as of December 31, 2023.

 Changes in Internal Control Over Financial
Reporting. Except for the changes in connection with our implementation of the remediation plan discussed above, the Company's
management, with the participation of the principal executive and principal accounting officer, have concluded that there were no other
changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2023. Based on our evaluation,
management has concluded that our internal control over financial reporting was effective as of December 31, 2023.

 Item 9B.

 Other Information

 During the quarter ended December 31, 2023, none
of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a "Rule 10b5-1 trading arrangement"
or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.

 ITEM 9C.

 DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 Not Applicable.

 Item 10.

 Directors, Executive Officers and Corporate Governance

 Current Directors and Executive Officers

 The following table sets forth the names, ages and positions of our
directors and executive officer as of December 31, 2023:

 Name

 Age

 Position Held with Koil Energy

 Charles K. Njuguna

 President, Chief Executive Officer, Chief Financial Officer, and Director

 Mark Carden

 Chairman of the Board of Directors

 David J. Douglas

 Director

 Neal I. Goldman

 Director

 Biographical information regarding each of these
directors and executive officer is as follows. The following paragraphs also include specific information about each director's
experience, qualifications, attributes, or skills that led the Board of Directors to the conclusion that the individual should serve on
the Board as of the time of this filing, in light of our business and structure:

 Charles K. Njuguna, President, Chief Executive
Officer, Chief Financial Officer, and Director. Mr. Njuguna has served as the Company's Chief Executive Officer since September
2019. Since September 2017, Mr. Njuguna has served as the Company's Chief Financial Officer. Mr. Njuguna joined the Company in early
2012 to manage the Company's corporate accounting activities, was later appointed to manage all of the Company's commercial
activities, and was subsequently promoted to Business Manager, with oversight for a wide range of financial, operational, and administrative
functions. Additionally, Mr. Njuguna has over 20 years of international business experience, including various operational and financial
management roles in Africa, the UK, and the US. Mr. Njuguna holds an MBA from the University of Texas at Austin.

 Mr. Njuguna is qualified to serve as a director
based on his in-depth knowledge of the Company's operations and his international business experience.

 Mark Carden, Chairman of the Board of Directors.
Mr. Carden has served as Chairman of the Board since September 30, 2017. Mr. Carden joined the Board as an independent director effective
May 1, 2014 and was appointed Chairman of the Audit Committee of the Board of Directors. Mr. Carden was a Partner at Coopers & Lybrand,
LLP, now PricewaterhouseCoopers, LLP and held multiple senior-level financial positions specializing in electric and gas utilities from
1981 to 1999; he most recently served as Chief Operating Officer, Global Energy Assurance Practice. Additionally, Mr. Carden was one of
three CPAs in the US selected to serve a two-year fellowship at the Financial Accounting Standards Board from 1991 to 1993. Mr. Carden
holds a BBA from Texas A&M University. He is currently the Executive Pastor and Elder at Clear Creek Community Church, in League City,
Texas. Mr. Carden is also a member of the Compensation Committee.

 Mr. Carden is qualified for service on the Board
based on his experience and expertise in management, notably his knowledge of the energy market and business strategy, and is a financial
expert as defined in Item 407(d)(5)(ii) of Regulation S-K.

 David J. Douglas, Director.

 Mr. Douglas joined the Board as an independent
director effective April 16, 2019. Mr. Douglas is the Principal of Jamaka Capital Management, LLC, the Company's largest institutional
investor. Mr. Douglas has over 30 years of investment experience as a principal, including 25 years in the family office industry. Mr.
Douglas is a graduate of the University of Pennsylvania's Wharton School earning a BS in Economics, Magna Cum Laude. Mr. Douglas
is a member of the Audit Committee and Chairman of the Compensation Committee.

 Mr. Douglas is qualified to serve as a director
based on his significant finance and investment experience.

 Neal I. Goldman, Director.

 Mr. Goldman joined the Board as an independent
director effective April 16, 2019. Mr. Goldman is the President and Founder of Goldman Capital Management, Inc., a family office since
2018, which was previously an investment advisory firm founded in 1985. Mr. Goldman is a Chartered Financial Analyst (CFA). Mr. Goldman
received his B.A. degree in Economics from The City University of New York (City College). Mr. Goldman is a member of the Audit and Compensation
Committees.

 Mr. Goldman is qualified to serve as a director
based on his significant finance and investment background.

 Changes in Directors and Executive Officers
Following December 31, 2023

 On March 4, 2024, Mr. Njuguna resigned as President,
Chief Executive Officer, Chief Financial Officer and as a member of the Board, effective as of March 31, 2024.

 On March 6, 2024, the Board appointed Erik Wiik
as the Company's Chief Executive Officer, effective April 1, 2024. Mr. Wiik, age 60, served as President of ReAdapt Inc., an engineering
consultancy firm providing subject matter expertise within subsea technology, since July 2018. From March 2015 to June 2018, he was Group
President of CIRCOR Energy, a manufacturer of products for the oil and gas industry. Prior to that, he served in various capacities over
24 years with Aker Solutions, a provider of integrated solutions, products and services to the global energy industry. His most recent
position with Aker was as Regional President of North America, and he also served as president of business units within subsea controls
and umbilicals, marine contracting, well services, engineering and floating production within Aker. Mr. Wiik also served on the Board
of Directors of the United Stated National Ocean Industry Association, Spindletop Charities and the Norwegian American Chamber of Commerce.
Mr. Wiik was commissioned as an officer in the Norwegian Navy and has an Engineering degree from Texas A&M University.

 On March 8, 2024, the Board appointed Mr. Wiik
as a member of the Board, effective immediately. Mr. Wiik is qualified to serve as a director based on his significant industry experience.

 Corporate Governance

 Code of Ethics

 The Company has adopted Codes of Ethical Conduct
that apply to all its directors, officers (including its chief executive officer, chief operating officer, controller and any person performing
such functions) and employees. These Codes of Ethical Conduct are filed as Exhibits 14.1 and 14.2 to this Report. Copies of the Company's
Codes of Ethical Conduct may also be obtained at the Investors section of the Company's website, www.koilenergy.com, or by
written request addressed to the Corporate Secretary, Koil Energy Solutions, Inc., 1310 Rankin Rd., Houston, TX 77073. The Company intends
to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of its code
of ethics that apply to the Chief Executive Officer, Vice President of Finance or Controller by posting such information on the Company's
website. Information contained on the website is not part of this Report.

 The Company's Board of Directors is responsible
for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results, and effectiveness
of the annual audit of the Company's financial statements and other services provided by the Company's independent public accountants.
The Board of Directors reviews the Company's internal accounting controls, practices, and policies. Our Board of Directors has determined
that Mr. Carden qualifies as an independent audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.

 Delinquent Section 16(a) Reports

 Section 16(a) of the Exchange Act requires
our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports
of securities ownership and changes in such ownership with the SEC. Officers, directors and greater than ten percent shareholders also
are required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.

 Based solely on the Company's review of
the copies of such forms received by it, the Company believes that all Section 16(a) filing requirements applicable to its officers
and directors and greater-than ten percent beneficial owners during the year ended December 31, 2023 were satisfied.

 Item 11.

 Executive Compensation

 The following table sets forth information concerning
total compensation earned in the years ended December 31, 2023 and 2022 by our Principal Executive Officer (our "Named Officer").

 Summary Compensation Table for the years ended December 31, 2023
and 2022

 Name and Principal Position

 Year

 Salary

 Stock Awards

 All Other Compensation (1) (2)

 Total

 Charles K. Njuguna,

 2023

 $
 325,000

 $
 –

 $
 46,056

 $
 371,056

 President, Chief Executive Officer, and Chief Financial Officer

 2022

 $
 325,000

 $
 –

 $
 69,395

 $
 394,395

 (1)

 Amounts in 2023 represent:

 Automobile allowances of $19,500 to Mr. Njuguna; and

 Reimbursement of $26,556 to Mr. Njuguna for healthcare premiums

 (2)

 Amounts in 2022 represent:

 Automobile allowances of $19,500 to Mr. Njuguna;

 Reimbursement of $24,895 to Mr. Njuguna for healthcare premiums; and

 Payments for vacation not taken in 2020 of $25,000 for Mr. Njuguna.

 Narrative Disclosure to Summary Compensation Table

 On September 18, 2019, the Company amended the
existing employment agreement with Mr. Njuguna for a term of three years, effective September 1, 2019, and subject to automatic annual
renewals, unless at least 90 days prior to the applicable renewal date, the Company shall give notice that the employment agreement shall
not be extended. On September 1, 2023, Mr. Njuguna's employment agreement was automatically renewed for another year. The employment
agreement provides that Mr. Njuguna receives annual cash compensation of $325,000. Due to his resignation, the employment agreement with
Mr. Njuguna has been terminated effective as of March 31, 2024.

 Outstanding Equity Awards

 The following table summarizes information with
respect to unexercised options for our Named Officer as of December 31, 2023.

 OPTION AWARDS

 Number of securities underlying unexercised options

 Name

 (#) exercisable

 (#) unexercisable

 Option exercise price ($)

 Option expiration date

 Charles K Njuguna

 150,000

 –

 $
 0.65

 9/24/2024

 Benefits payable upon change in control

 Mr. Njuguna's employment agreement contains
provisions related to a change in control.

 In the event of termination of Mr. Njuguna's
employment for any reason, he will be entitled to receive all accrued, unpaid salary and vacation time through the date of termination
and all benefits to which he is entitled or vested under the terms of all employee benefit and compensation plans, agreements, and arrangements
in which he is a participant as of the date of termination. In addition, subject to executing a general release in favor of us, Mr. Njuguna
will be entitled to receive certain severance payments in the event his employment is terminated by the Company "other than for
cause" or by him with "good reason." These severance payments include the following:

 (i) a lump
sum in cash equal to one times his annual base salary (at the rate in effect on the date of termination), provided, however, that if such
termination occurs prior to the date that is twelve months following a change of control, then such payment will be equal to two times
the Executive's annual base salary (at the rate in effect on the date of termination);

 (ii) a lump
sum in cash equal to the average annual bonus paid to him for the prior two full fiscal years preceding the date of termination; provided,
however, that if such termination occurs prior to the date that is twelve months following a change of control, then such payment will
be equal to two times the average annual bonus paid to him for the prior two full fiscal years preceding the date of termination;

 (iii) 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 our annual incentive bonus arrangement; provided, however, that such pro rata portion shall be calculated based
on his annual bonus for the previous fiscal year; but if no previous annual bonus has been paid to him, then the lump sum cash payment
for this current pro rata annual bonus obligation shall be no less than fifty percent of his annual base salary; and

 (iv) if his
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 Executive shall immediately vest and become exercisable.

 Mr. Njuguna has agreed to not, during the term
of his employment and for a one-year period after his termination, engage in "Competition" (as defined in his employment agreement)
with us, solicit business from any of our customers or potential customers, solicit the employment or services of any person employed
by or a consultant to us on the date of termination or within six months prior thereto, or otherwise knowingly interfere with our business
or accounts or any of our subsidiaries.

 Mr. Njuguna's employment agreement also
provides that we, to the extent permitted by applicable law and our by-laws, will defend, indemnify and hold harmless him from any and
all claims, demands or causes of action, including reasonable attorneys' fees and expenses, suffered or incurred by him as a result
of the assertion or filing of any claim, demand, litigation or other proceedings based upon statements, acts or omissions made by or on
behalf of him pursuant to his employment agreement or in the course and scope of his employment with us. We will also maintain and pay
all applicable premiums for directors' and officers' liability insurance which shall provide full coverage for the defense
and indemnification of Mr. Njuguna, to the fullest extent permitted by applicable law.

 Compensation of Directors

 The Compensation Committee of the Board of Directors
makes all decisions regarding director compensation. Only directors who are not employees, independent contractors, or consultants of
the Company or any of its subsidiaries or affiliates ("Independent Directors"), are entitled to receive a fee, plus reimbursement
of reasonable out-of-pocket expenses incurred to attend Board meetings.

 The Company uses equity-based compensation, in
the form of restricted stock or stock options, to attract and retain qualified candidates to serve on the Board. We believe our compensation
arrangement for Independent Directors is comparable to the standards of peer companies within our industry and geographical location.

 The following table provides certain information
with respect to the 2023 compensation awarded or earned by our Independent Directors who served in such a capacity during the year.

 Name

 Option Awards

 ($) (1)(2)

 Total

 Mark Carden

 $

 $

 David J. Douglas

 $

 $

 Neal I. Goldman

 $

 $

 (1)

 On October 20, 2022, the Company's independent directors each received stock options to purchase 50,000 shares of our common stock with an exercise price of $0.63 per share. Fair value of these stock options was $0.39 per share at the date of grant. Twenty-five percent of the shares vested on each of October 31, 2022, November 30, 2022, February 28, 2023, and May 31, 2023.

 (2)

 On August 2, 2023, the Company's independent directors each received stock options to purchase 50,000 shares of our common stock with an exercise price of $0.55 per share. Fair value of these stock options was $0.32 per share at the date of grant. Twenty-five percent of the shares vested on each of August 31, 2023, November 30, 2023, February 28, 2024, and the remainder are scheduled to vest on May 31, 2024. In addition to the foregoing, all shares shall vest immediately prior to a change in control.

 Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Set forth below is certain information with respect
to beneficial ownership of Common Stock as of March 27, 2024, except as otherwise noted below, by (i) each person known by us to beneficially
own more than 5 percent of the outstanding shares of our common stock; (ii) each Director as of such date; (iii) our "Named Officers"
(as determined under Item 402(m) of Regulation S-K); and (iv) all directors and executive officers of Koil Energy as a group. To our knowledge,
all persons listed in the table have sole voting and investment power with respect to their shares, except to the extent that authority
is shared with their respective spouse under applicable law.

 Name

 Number of
 Shares of
 Common Stock
 Beneficially
 Owned

 Number of
 Shares That
 May Be
 Acquired By
 Options
 Exercisable
 Within 60 Days

 Total

 Percent of
 Outstanding
 Common Stock (1)

 Ronald E. Smith

 2,449,383

 (2)

 –

 2,449,383

 20.6%

 Galloway Capital Partners, LLC

 985,651

 (3)

 –

 985,651

 8.3%

 MAZ Capital Advisors, LLC

 827,496

 (4)

 –

 827,496

 7.0%

 Aegis Financial Corporation

 813,000

 (5)

 –

 813,000

 6.8%

 Directors and Executive Officers:

 David J. Douglas

 1,484,091

 (6)

 237,500

 1,721,591

 14.2%

 Neal I. Goldman

 500,000

 (7)

 237,500

 737,500

 6.1%

 Charles K. Njuguna

 267,350

 150,000

 417,350

 3.5%

 Mark Carden

 60,980

 (8)

 237,500

 298,480

 2.5%

 All directors and executive officers as a group (4 persons)

 2,312,421

 862,500

 3,174,921

 24.9%

 __________________

 (1)

 The percentages in the table are calculated using the total shares outstanding as of March 27, 2024 or a total of 11,888,202 shares, plus the number of shares that may be acquired by such person or group upon the exercise of options that are exercisable within 60 days of such date.

 (2)

 Based on a Schedule 13D filed with the SEC dated November 26, 2019, by Ronald E. Smith, 1447 FM 1010 Rd., Cleveland, TX 77327. This amount includes 710,562 shares held indirectly through an IRA, 930,651 shares held directly by Mr. Smith's spouse, and 23,071 shares held indirectly by Mr. Smith's spouse through an IRA.

 (3)

 Based on a Schedule 13D filed with the SEC dated March 6, 2024, by Galloway Capital Partners, LLC, 323 Sunny Isles Blvd, 7 th Floor, Sunny Isles Beach, FL 33160.

 (4)

 Based on a Schedule 13D filed with the SEC dated February 21, 2023, by MAZ Partners, LP, 8774 Lakes Boulevard, West Palm Beach, FL 33412.

 (5)

 Based on a Schedule 13G/A filed with the SEC dated February 8, 2024, by Aegis Financial Corporation, 6862 Elm Street, Suite 830, McLean, VA 22101.

 (6)

 Based on a Schedule 13D/A filed with the SEC dated September 2, 2022, by Jamaka Capital Management LLC, 3889 Maple Avenue, Dallas, TX 75219.

 (7)

 Based on a Form 3 filed with the SEC dated April 16, 2019, by Neal I. Goldman, Goldman Capital Management Inc., 767 Third Ave, New York, NY 10017.

 (8)

 Includes 980 shares held indirectly in retirement and trading accounts owned by Mr. Carden and his wife.

 ITEM 13.

 Certain Relationships and Related Transactions, and Director Independence

 Certain Relationships and Related Transactions

 Our Board of Directors and management recognize
that related person transactions present a heightened risk of conflicts of interest, and therefore we review all relationships and transactions
in which we and our directors, director nominees and executive officers or their immediate family members, as well as holders of more
than 5 percent of any class of our voting securities and their family members, have a direct or indirect material interest. As required
under SEC rules, transactions that are determined to be directly or indirectly material to us or a related person are disclosed in the
appropriate annual and/or quarterly statements filed with the SEC.

 Director Independence

 We believe that Messrs. Carden, Douglas, and Goldman
are "independent" under the requirements of Rule 303A.02 of the NYSE Listed Company Manual.

 ITEM 14.

 Principal Accountant Fees and Services

 The Company's independent registered public
accounting firm is Moss Adams LLP ("Moss Adams"); issuing office is Houston, TX; PCAOB ID: 659. The following table sets forth
the aggregate fees billed by Moss Adams for audit services rendered in connection with the Company's consolidated financial statements
and reports for the years ended December 31, 2023 and 2022 and for other services rendered during those years on behalf of Koil Energy
and its subsidiaries:

 2023

 2022

 Audit Fees

 $
 225,000

 $
 198,650

 Audit Related Fees

 –

 –

 Tax Fees

 50,000

 72,293

 All Other Fees

 –

 –

 Audit Fees: Consists of fees and expenses
billed for professional services rendered for the audit of Koil Energy's consolidated financial statements, the review of interim
condensed consolidated financial statements included in quarterly reports, services that are normally provided in connection with statutory
and regulatory filings or engagements and attest services, except those not required by statute or regulation.

 Audit-Related Fees: Consists of fees billed
for assurance and related services that are reasonably related to the performance of the audit and review of Koil Energy's consolidated
financial statements and are not reported under "Audit Fees."

 Tax Fees: Consists of tax compliance, tax
preparation and other tax services. Tax compliance and tax preparation consists of fees and expenses billed for professional services
related to assistance with tax returns. Other tax services consist of fees billed for other miscellaneous tax consulting.

 All Other Fees: None.

 Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors

 The Board of Directors pre-approves all audit
and permissible non-audit services provided by Moss Adams. These services may include audit services, audit-related services, tax services
and other services. The Board of Directors may also pre-approve particular services on a case-by-case basis and may delegate pre-approval
authority to one or more directors. If delegated, the director must report any pre-approval decision to the Board of Directors at its
first meeting after the pre-approval was obtained.

 ITEM 15.

 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 Information required by this item is incorporated herein by reference
from the section entitled "Exhibit Index" of this Report.

 ITEM 16.

 FORM 10-K SUMMARY

 None

 SIGNATURES

 Pursuant to the requirements
of Section 13 or 15(d) 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.

 By: /s/ Erik Wiik

 Erik Wiik

 President and Chief Executive Officer

 (Principal Executive Officer)

 Date: June 26, 2024

 By: /s/ Trevor Ashurst

 Trevor Ashurst

 Vice President of Finance

 (Principal Financial Officer)

 Date: June 26, 2024

 By: /s/ Troy Aymond

 Troy Aymond

 Corporate Controller

 (Principal Accounting Officer)

 Date: June 26, 2024

 Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities
and on the date indicated:

 Signature

 Title

 Date

 /s/ Erik
 Wiik

 President, Chief Executive Officer, and Director

 June 26, 2024

 Erik Wiik

 (Principal Executive Officer)

 *

 Chairman of the Board of Directors

 June 26, 2024

 Mark Carden

 *

 Director

 June 26, 2024

 David J. Douglas

 *

 Director

 June 26, 2024

 Neal I. Goldman

 * By: /s/ Erik Wiik

 Erik Wiik, as Attorney-in-Fact pursuant
to Power of Attorney previously filed

 EXHIBIT INDEX

 Exhibit Number

 Description
 of Exhibit

 2.1

 Agreement
 and Plan of Reorganization among MediQuip Holdings, Inc., Deep Down, Inc., and the majority shareholders of Deep Down, Inc. (incorporated by reference from Exhibit 2.1 to our Form
 10-KSB/A filed on May 1, 2008).

 3.1

 Articles
 of Incorporation of Deep Down, Inc., conformed to include the amendment of the Articles of Incorporation filed with the Secretary
 of State of the State of Nevada on September 29, 2008 (incorporated
 by reference from Exhibit A to our Schedule 14C filed on August 15, 2008).

 3.2

 Articles of Merger of Deep Down, Inc. and Koil Energy Solutions, Inc. and Agreement and Plan of Merger between Deep Down, Inc. and Koil Energy Solutions, Inc. filed with the Secretary of State of the State of Nevada on February 22, 2022 (incorporated by reference from Exhibit 3.2 to our
 Form 10-K filed on March 30, 2023)

 3.3

 Amended
 and Restated By-Laws of Deep Down, Inc. (incorporated
 by reference from Exhibit B to our Schedule 14C filed on August 15, 2008).

 4.1

 Description
 of Securities Registered Under Section 12 of the Exchange Act (incorporated
 by reference to Exhibit 4.3 to our Form 10-K filed on March 30, 2020)

 10.1

 Employment
 Agreement, amended dated effective as of September 18, 2019 between Deep Down, Inc. and Charles K. Njuguna (incorporated
 by reference from Exhibit 10.1 to our Form 8-K filed on September 24, 2019).

 10.2

 Employment
 Agreement, effective as of April 1, 2024 between Koil Energy Solutions, Inc. and Erik Wiik (incorporated
 by reference from Exhibit 10.1 to our Form 8-K filed on March 11, 2024).

 10.4

 Commercial
 Lease Agreement between Wellbore Integrity Solutions, LLC, as Landlord, and Deep Down, Inc., as Tenant, dated effective May 5, 2022 (incorporated by reference from Exhibit 10.4 to our Form
 10-K filed on March 29, 2022).

 14.1

 Directors
 Code of Business Conduct (incorporated by reference
 from Exhibit 14.1 to our Form 10-K filed on April 15, 2010).

 14.2

 Financial
 Officer's Code of Business Conduct (incorporated
 by reference from Exhibit 14.2 to our Form 10-K filed on April 15, 2010).

 21.1

 Subsidiary
 list (incorporated by reference from Exhibit 21.1 to our Form 10-K filed on March 27, 2024)

 24.1

 Power
 of Attorney (included on signature page to our Form 10-K filed on March 27, 2024)

 31.1*

 Rule
 13a-14(a)/15d-14(a) Certification of the President and Chief Executive Officer

 31.2*

 Rule 13a-14(a)/15d-14(a) Certification of the Vice President of Finance

 32.1#

 Section 1350 Certification of the President, Chief Executive Officer

 32.2#

 Section 1350 Certification of the Vice President of Finance

 101.INS*

 101.SCH*

 101.CAL*

 Linkbase Document

 101.DEF*

 Linkbase Document

 101.LAB*

 Document

 101.PRE*

 Linkbase Document

 Cover Page Interactive

 * Filed herewith.

 # Furnished herewith.

 Exhibit constitutes a management contract or compensatory
plan or arrangement.

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

 To the
Stockholders and the Board of Directors of

 Koil
Energy Solutions, Inc.

 Opinion on the Financial Statements

 We have audited the accompanying consolidated balance
sheets of Koil Energy Solutions, Inc. (the "Company") as of December 31, 2023 and 2022, the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred
to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of
its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
States of America.

 Basis for Opinion

 These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.

 Critical Audit Matter

 The critical audit matter communicated below is a matter
arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to
the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any
way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 F- 1

 Revenue Recognition - Determination of Estimated Costs
to Complete for Fixed Price Contracts

 As described in Note 3 to the consolidated financial statements,
total revenue of approximately $6,951,000 for the year ended December 31, 2023 is generated from fixed price contracts. For the Company's
fixed price contracts, 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. The Company uses the cost-to-cost measure of progress for its contracts because it
best depicts the transfer of control to the customer which occurs as the Company incurs costs on the 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. Management's estimation of total cost at completion is subject to many variables and requires significant
judgment. There are many factors which impact management's estimate, including, but not limited to, the ability to properly execute
the engineering, design and fabrication phases consistent with customers' expectations, the availability and costs of labor and
materials resources, productivity, weather, and level of success in the installation phase.

 Each of these factors can affect the accuracy of cost estimates,
and ultimately, future profitability.

 The principal considerations in our determination that
revenue recognition, specifically determination of estimated costs to complete for fixed price contracts, is a critical audit matter are
the complexity of these estimates and exercise of significant judgment by management when developing these estimates for fixed price contracts.
This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence
related to the estimates of costs to complete.

 The primary procedures we performed to address this critical
audit matter included:

 Evaluating management's process and methodology for developing estimated costs to complete.

 Identifying, evaluating, and testing significant assumptions utilized by management, including:

 o
 Obtaining executed purchase orders, agreements, and support for actual costs incurred.

 o
 Discussing progress of contracts' completion with management.

 o
 Performing corroborative inquiries of appropriate project managers.

 o
 Confirming contract terms, billings, and estimated completion dates with customers.

 o
 Performing a look-back analysis on completed contracts during the year to assess variances between actual
and prior year estimated costs to complete.

 Testing the completeness, accuracy and relevance of the underlying data used in developing estimated
costs to complete, including:

 o
 Testing the accuracy and occurrence of the actual costs incurred to-date.

 Houston, Texas

 March 27, 2024

 We have served as the Company's auditor since 2017.

 F- 2

 CONSOLIDATED BALANCE SHEETS

 December 31,

 2023

 2022

 (In thousands, except share and per share amounts)

 ASSETS

 Current assets:

 Cash

 $
 2,030

 $
 2,353

 Accounts receivable, net

 4,228

 2,920

 Employee retention tax credit receivable

 Inventory

 Contract assets

 Prepaid expenses and other current assets

 Total current assets

 7,849

 6,610

 Property, plant and equipment, net

 2,968

 3,305

 Intangibles, net

 Right-of-use operating lease assets

 5,856

 6,184

 Right-of-use finance lease assets

 Other assets

 Total assets

 $
 17,062

 $
 16,615

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:

 Accounts payable and accrued expenses

 $
 3,353

 $
 1,516

 Contract liabilities

 1,377

 Current operating lease liabilities

 Current finance lease liabilities

 Total current liabilities

 5,284

 2,989

 Operating lease liability, long-term

 6,136

 6,518

 Finance lease liability, long-term

 –

 Total liabilities

 11,444

 9,507

 Commitments and contingencies (Note 9)

 –

 –

 Stockholders' equity:

 Common stock, 24,500,000 shares authorized at $ 0.001 par value, 15,906,010 issued at December 31, 2023 and December 31, 2022

 Additional paid-in capital

 73,840

 73,776

 Treasury stock, 4,017,808 shares at December 31, 2023 and December 31, 2022, at cost

 ( 3,135
)

 ( 3,135
)

 Accumulated deficit

 ( 65,103
)

 ( 63,549
)

 Total stockholders' equity

 5,618

 7,108

 Total liabilities and stockholders' equity

 $
 17,062

 $
 16,615

 The accompanying notes are an integral part of
the consolidated financial statements.

 F- 3

 CONSOLIDATED STATEMENTS OF OPERATIONS

 (In thousands, except per share amounts)

 2023

 2022

 Revenues

 $
 15,343

 $
 12,977

 Costs and expenses

 Cost of sales

 10,493

 8,292

 Selling, general and administrative

 6,460

 6,873

 Right-of-use operating lease asset impairment

 –

 Total costs and expenses

 16,953

 15,985

 Operating loss

 ( 1,610
)

 ( 3,008
)

 Interest (income) expense, net

 ( 7
)

 Other income, net

 ( 50
)

 ( 55
)

 Gain on sale of property, plant and equipment

 ( 4
)

 ( 40
)

 Loss before income tax expense

 ( 1,549
)

)

 Income tax expense

 –

 $
)

 $
)

 Net loss per share:

 Basic

 $
 ( 0.13
)

 $
 ( 0.24
)

 Fully diluted

 $
 ( 0.13
)

 $
 ( 0.24
)

 Weighted-average shares outstanding:

 Basic

 11,888

 11,981

 Fully diluted

 11,888

 11,981

 The accompanying notes are an integral part of
the consolidated financial statements.

 F- 4

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY

 Common Stock

 Additional

 Paid-in

 Treasury

 Accumulated

 (In thousands)

 Shares (#)

 Amount ($)

 Capital

 Stock

 Deficit

 Total

 Balance at December 31, 2021

 15,906

 $

 $
 73,686

 $
 ( 2,809
)

 $
 ( 60,621
)

 $
 10,272

 –

 –

 –

 –

)

)

 Treasury shares purchased

 –

 –

 –

 ( 326
)

 –

 ( 326
)

 Share-based compensation

 –

 –

 –

 –

 Balance at December 31, 2022

 15,906

 $

 $
 73,776

 $
 ( 3,135
)

 $
 ( 63,549
)

 $
 7,108

 –

 –

 –

 –

)

)

 Share-based compensation

 –

 –

 –

 –

 Balance at December 31, 2023

 15,906

 $

 $
 73,840

 $
 ( 3,135
)

 $
 ( 65,103
)

 $
 5,618

 The accompanying notes are an integral part of
the consolidated financial statements.

 F- 5

 CONSOLIDATED STATEMENTS OF CASH FLOWS

 2023

 2022

 (In thousands)

 Cash flows from operating activities:

 $
)

 $
)

 Adjustments to reconcile net loss to net cash provided by operating activities:

 Share-based compensation

 Depreciation and amortization

 Gain on sale of property, plant and equipment

 ( 4
)

 ( 40
)

 Bad debt expense (recovery)

 ( 9
)

 Non-cash lease expense

 Loss on right-of-use operating lease asset impairment

 –

 Changes in operating assets and liabilities:

 Accounts receivable

 ( 982
)

 3,018

 Contract assets

 ( 199
)

 Inventories

 ( 228
)

 Prepaid expenses and other current assets

 ( 155
)

 ( 103
)

 Other assets

 ( 83
)

 ( 98
)

 Accounts payable and accrued expenses

 ( 794
)

 Contract liabilities

 1,044

 Net cash provided by operating activities

 1,242

 Cash flows from investing activities:

 Proceeds from sale of property, plant and equipment

 Purchases of property, plant and equipment

 ( 230
)

 ( 2,537
)

 Payments received on note receivable

 –

 Net cash used in investing activities

 ( 226
)

 ( 2,262
)

 Cash flows from financing activities:

 Repurchase of common shares

 –

 ( 250
)

 Principal payments under finance lease obligations

 ( 300
)

 ( 53
)

 Net cash used in financing activities

 ( 300
)

 ( 303
)

 Change in cash

 ( 323
)

 ( 1,323
)

 Cash, beginning of year

 2,353

 3,676

 Cash, end of year

 $
 2,030

 $
 2,353

 Supplemental schedule of non-cash investing and financing activities:

 Shares of common stock received in exchange for property, plant and equipment

 $
 –

 $

 The accompanying notes are an integral part of
the consolidated financial statements.

 F- 6

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 All dollar and share amounts in the Notes to
Consolidated Financial Statements are in thousands of dollars and shares, unless otherwise indicated, except per share amounts.

 NOTE 1: DESCRIPTION OF BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

 Description of Business

 Koil Energy Solutions, Inc., a Nevada corporation
("Koil Energy Nevada"), and its direct wholly owned subsidiary, Koil Energy Solutions, Inc., a Delaware corporation ("Koil
Energy Delaware", and together with Koil Energy Nevada, "Koil Energy", "we", "us" or the "Company"),
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.

 Liquidity

 Koil Energy's cash on hand was $ 2,030 and
working capital was $ 2,565 as of December 31, 2023. As of December 31, 2022, cash on hand and working capital were $ 2,353 and $ 3,621,
respectively. The Company generally depends on cash on hand, cash flows from operations, and the potential opportunistic sales of property,
plant and equipment ("PP&E") to satisfy its liquidity needs.

 The Company believes it will have adequate liquidity
to meet its future operating requirements through a combination of cash on hand, cash expected to be generated from operations, and potential
sales of PP&E. Given the inherent volatility in oil prices and global economic activity, the Company cannot predict this with certainty.
To mitigate this uncertainty, the Company exercises discipline when making capital investments and pursues opportunistic cost containment
initiatives, which can include workforce alignment, limiting overhead spending, and limiting research and development efforts to only
critical items. Additionally, on May 24, 2023, the Company entered into a Purchase and Sale Agreement/Security Agreement with Zions Bancorporation,
N.A., d/b/a Amegy Bank Business Credit ("Amegy"), which provides for Koil Energy from time to time to sell its accounts receivable
and other rights to payment to Amegy, subject to Amegy's right to approve or reject future accounts receivable and other rights
proposed for sale, in its sole discretion. Any receivables sold shall bear an interest rate computed as Wall Street Journal Prime Rate
("Prime Rate") plus 2.00%. The Prime Rate has a floor and at no time shall it be less than 8.00% for the purposes of this
agreement. At December 31, 2023, the Company had no outstanding sales of accounts receivable to Amegy.

 Summary of Significant Accounting Policies and Estimates

 Principles of Consolidation

 The consolidated financial statements include
the accounts of Koil Energy for the years ended December 31, 2023 and 2022. All intercompany transactions and balances have been eliminated.

 F- 7

 Use of Estimates

 The preparation of these financial statements
in accordance with accounting principles generally accepted in the United States of America ("US GAAP") requires us to make
estimates and judgments that may affect assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related
to revenue recognition and related allowances, contract assets and liabilities, impairments of long-lived assets, income taxes including
the valuation allowance for deferred tax assets, contingencies and litigation, and share-based payments. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments
about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

 Segments

 For the years ended December 31, 2023 and 2022,
the Company's operations were organized as one reportable segment and one operating segment.

 Cash and Cash Equivalents

 We consider all highly liquid investments with
maturities from date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit
with domestic banks which, at times, may exceed federally insured limits.

 Fair Value of Financial Instruments

 Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. We utilize a fair value hierarchy, which maximizes
the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy has three
levels of inputs that may be used to measure fair value:

 Level 1 – Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 Level 2 – Quoted prices in markets that
are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 Level 3 – Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable.

 Our financial instruments consist primarily of
cash, accounts receivable and accounts payable. The carrying values of cash, accounts receivables, and payables approximated their fair
values at December 31, 2023 and 2022 due to their short-term maturities.

 Accounts Receivable and Allowance for Credit Losses

 Accounts receivable are uncollateralized customer
obligations due under normal trade terms. The estimation of anticipated credit losses that may be incurred as we work through the invoice
collection process with our customers requires us to make judgments and estimates regarding our customers' ability to pay amounts
due. We monitor our customers' payment history and current credit worthiness, if needed, to determine that collectability is reasonably
assured. We provide an allowance for credit losses based by reviewing each accounts receivable balance with respect to a debtor's
ability to make payments. We also evaluate historical loss rates as well as consider forward-looking factors specific to the debtors,
the overall economic environment, and management expectations to determine expected losses. Generally, we do not charge interest on past
due accounts. When certain accounts are determined to require an allowance, they are expensed by a provision for bad debts in that period.
At December 31, 2023 and 2022, we estimated the allowance for credit losses requirement to be $ 0. Bad debt expense (recovery) totaled
$ 1 and $ ( 9) for the years ended December 31, 2023 and 2022, respectively. We believe that our allowance for credit losses is adequate
to cover the anticipated credit losses under current conditions; however, uncertainties regarding changes in the financial condition of
our customers, either adverse or positive, could impact the amount and timing of any additional credit losses that may be required.

 F- 8

 Concentration of Revenues and Credit Risk

 Koil Energy's revenues are derived from
the sale of products and services to customers who participate in the offshore sector of the energy industry. Customers may be similarly
affected by economic and other changes in the energy industry. For the year ended December 31, 2023, our five largest customers accounted
for 29 percent, 19 percent, 14 percent, 10 percent, and 6 percent of total revenues. For the year ended December 31, 2022, our five largest
customers accounted for 31 percent, 13 percent, 12 percent, 9 percent, and 6 percent of total revenues. The loss of one or more of these
customers could have a material impact on our results of operations and cash flows.

 As of December 31, 2023, three of our customers
accounted for 47 percent, 13 percent, and 10 percent of total accounts receivable. As of December 31, 2022, three of our customers accounted
for 50 percent, 12 percent, and 9 percent of total accounts receivable.

 Inventory

 Koil maintains an inventory of components that
would otherwise have long lead times to purchase as needed. Inventory costs are determined principally by the use of the specific identification
method. Company manufactured inventory is valued using direct costs incurred. We periodically review the value of items in inventory and
record write-downs or write-offs of inventory based on our assessment of obsolescence or marketability. We did not record any write-downs
or write-offs of inventory in recent years.

 Property, Plant and Equipment

 PP&E is stated at cost, net of accumulated
depreciation, amortization, and related impairments. Depreciation and amortization are computed using the straight-line method over the
estimated useful lives of the respective assets. Replacements and betterments are capitalized, while maintenance and repairs are expensed
as incurred. It is our policy to include amortization expense on assets acquired under finance leases with depreciation expense on owned
assets. Additionally, we record depreciation and amortization expense related to revenue-generating assets as a component of cost of sales
in the accompanying consolidated statements of operations.

 If circumstances associated with our PP&E
have changed or a significant event has occurred that may affect the recoverability of the carrying amount of our PP&E, an impairment
indicator exists, and we test the PP&E for impairment. Before testing for impairment, we group PP&E with other finite-lived long-lived
assets ("long-lived assets") at the lowest level of identifiable cash flows that are largely independent of cash flows from
other assets or groups of assets. Testing long-lived assets for impairment is a two-step process:

 Step 1 – We test the long-lived asset
group for recoverability by comparing the carrying amount of the asset group with the sum of the undiscounted future cash flows from use
and the eventual disposal of the asset group. If the carrying amount of the long-lived asset group is determined to be greater than the
sum of the undiscounted future cash flows from use and disposal, we would need to perform step 2.

 Step 2 – If the long-lived group of
assets fails the recoverability test in step 1, we would record an impairment expense for the difference between the carrying amount and
the fair value of the long-lived asset group.

 During the years ended December 31, 2023 and December
31, 2022, the Company conducted assessments of whether impairment indicators were present that indicate the carrying amount of its long-lived
asset (group) might not be recoverable and determined that no such events or changes in circumstances were present.

 Lease Obligations

 In February 2016, the FASB issued ASU 2016-02,
Leases ("ASC Topic 842"). Under this guidance, lessees are required to recognize on the balance sheet a lease liability and
a right-of-use ("ROU") asset for all leases, except for short-term leases with terms of twelve months or less. The lease liability
represents the lessee's obligation to make lease payments arising from a lease and will initially be measured as the present value
of the lease payments. The ROU asset represents the lessee's right to use a specified asset for the lease term, and will be measured
at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee's initial direct costs.

 F- 9

 ROU assets and lease liabilities are recognized
at the commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the
lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental
borrowing rate based on the information available at the lease commencement date. Lease agreements with lease and non-lease components
are generally accounted for as a single lease component. The Company's operating lease expense is recognized on a straight-line
basis over the lease term and a portion is recorded in cost of sales, and the remainder is recorded in selling, general and administrative
expenses. The accounting for some leases may require significant judgment, which includes determining whether a contract contains a lease,
determining the incremental borrowing rate to utilize in our net present value calculation of lease payments for lease agreements which
do not provide an implicit rate, and assessing the likelihood of renewal or termination options and impairment.

 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,
and 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. See further discussion in Note 2.

 Income Taxes

 We follow the asset and liability method of accounting
for income taxes. This method considers the differences between financial statement treatment and tax treatment of certain transactions.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

 We record a valuation allowance to reduce the
carrying value of our deferred tax assets when it is more likely than not that some or all of the deferred tax assets will expire before
realization of the benefit or that future deductibility is not probable. The ultimate realization of the deferred tax assets depends upon
our ability to generate sufficient taxable income of the appropriate character in the future. This requires management to use estimates
and make assumptions regarding significant future events such as the taxability of entities operating in the various taxing jurisdictions.
In evaluating our ability to recover our deferred tax assets, we consider all reasonably available positive and negative evidence, including
our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In
estimating future taxable income, we develop assumptions, including the amount of future state and federal pre-tax operating income, the
reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant
judgment. When the likelihood of the realization of existing deferred tax assets changes, adjustments to the valuation allowance are charged
in the period in which the determination is made, either to income or goodwill, depending upon when that portion of the valuation allowance
was originally created.

 We record an estimated tax liability or tax benefit
for income and other taxes based on what we determine will likely be paid in the various tax jurisdictions in which we operate. We use
our best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent upon various
matters, including resolution of tax audits, and may differ from amounts recorded. An adjustment to the estimated liability would be recorded
as a provision or benefit to income tax expense in the period in which it becomes probable that the amount of the actual liability or
benefit differs from the recorded amount.

 Our future effective tax rates could be adversely
affected by changes in the valuation of our deferred tax assets or liabilities or changes in tax laws or interpretations thereof. If and
when our deferred tax assets are no longer fully reserved, we will begin to provide for taxes at the full statutory rate. In addition,
we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess
the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

 F- 10

 Share-Based Compensation

 We record share-based awards exchanged for employee
service at fair value on the date of grant and expense the awards in the consolidated statements of operations over the requisite employee
service period. These awards are valued at the grant date fair market value using the closing price of our stock on the QB Tier of the
OTC Markets Group. Share-based compensation expense is generally recognized over the expected term of the award on a straight-line basis,
and forfeitures are recorded as they occur. At December 31, 2023 and December 31, 2022, the Company's share-based compensation was
in the form of stock options. See further discussion in Note 6.

 Earnings or Loss per Common Share

 Basic earnings or loss per common share ("EPS")
is calculated by dividing net income or loss by the weighted-average number of common shares outstanding for the period. Diluted EPS is
calculated by dividing net income or loss by the weighted-average number of common shares and dilutive common stock equivalents (stock
options) outstanding during the period. Diluted EPS reflects the potential dilution that could occur if stock options and warrants to
purchase common stock were exercised for shares of common stock. In periods where losses are reported, the weighted-average number of
common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

 Recently Issued Accounting Standards

 In November 2019, the Financial Accounting Standards
Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2019-10 "Financial Instruments—Credit
Losses (Topic 326)." The FASB issued this update to extend and simplify how effective dates are staggered between larger public
companies and all other entities for the aforementioned updates. Topic 326 is effective for fiscal years and interim periods beginning
after December 15, 2022 for smaller reporting companies. The adoption of ASU No. 2019-10 did not have a material impact on our financial
statements and disclosures.

 In December 2023, the FASB issued ASU 2023-09,
"Improvements to Income Tax Disclosures," which requires significant additional disclosures about income taxes, primarily
focused on the disclosure of income taxes paid and the rate reconciliation table. The new guidance will be applied prospectively (with
retrospective application permitted) and is effective in the 2025 annual period and in 2026 for interim periods, with early adoption permitted.
We are currently evaluating the impact of this amendment on our consolidated

 financial statements.

 We consider the applicability and impact of all
ASUs. We assessed ASUs not listed above and determined that they either were not applicable or were not expected to have a material impact
on our financial statements.

 NOTE 2: LEASES

 We lease land, buildings, and certain equipment
under non-cancellable operating leases. The Company leases office, indoor manufacturing, warehouse, and operating space in Houston, Texas
and leases storage space in Mobile, Alabama to house its 3,400 metric ton and 3,500 metric ton carousel systems. We classify our leases
related to certain office furniture and computer equipment as financing leases. The Company elects to apply the short-term lease exception;
therefore, the Company will not record an 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.

 For the year ended December 31, 2022, the Company
recorded impairment charges of $ 820 for the impairment of its ROU operating lease asset related to the remaining lease of its former operating
facility. The impairment was the result of abandoning the former operating facility to move to the Company's current operating facility
in October 2022.

 F- 11

 As of December 31, 2023 and 2022, the Company
does not have any subleases.

 The following tables present information about
our operating and finance leases:

 Schedule of operating and finance leases

 Classification

 December 31, 2023

 December 31, 2022

 Assets

 Operating

 Right-of-use operating lease assets

 $
 5,856

 $
 6,184

 Finance

 Right-of-use finance lease assets

 Total lease assets

 $
 5,959

 $
 6,459

 Liabilities

 Current

 Operating

 Current operating lease liabilities

 $

 $

 Finance

 Current finance lease liabilities

 Non-current

 Operating

 Operating lease liability, long-term

 6,136

 6,518

 Finance

 Finance lease liability, long-term

 –

 Total lease liabilities

 $
 6,714

 $
 7,658

 The components of our lease expense were as follows:

 Schedule of components of our lease expense

 Classification

 2023

 2022

 Finance lease costs

 Amortization of ROU assets

 Selling, general and administrative

 $

 $

 Interest on lease liabilities

 Interest (income) expense, net

 Operating lease expense

 Cost of sales

 1,238

 Operating lease expense

 Selling, general and administrative

 Short term lease expense

 Cost of sales

 Total lease expense

 $
 1,271

 $
 1,904

 F- 12

 The lease term and discount rate for our operating and financing leases
were as follows:

 Schedule of lease term and discount rate

 December 31, 2023

 December 31, 2022

 Weighted-average remaining lease terms (years)

 Operating leases

 8.7

 8.4

 Finance leases

 1.7

 0.0

 Weighted-average discount rates

 Operating leases

 7.97 %

 6.25 %

 Finance leases

 7.44 %

 8.23 %

 Present value of lease liabilities:

 Schedule of present value of lease liabilities

 Years ending December 31,

 Operating Leases

 Finance Leases

 2024

 $

 $

 2025

 1,006

 2026

 1,021

 2027

 1,041

 –

 Thereafter

 5,233

 –

 Total lease payments

 $
 9,291

 $

 Less: Interest

 ( 2,675
)

 ( 6
)

 Present value of lease liabilities

 $
 6,616

 $

 For the year ended December 31, 2023, the Company did not have any
sale/leaseback transactions. We had no material non-cash financing or operating leases entered into during the year ended December 31,
2023.

 Supplemental cash flow information related to leases for the years
ended December 31, 2023 and 2022

 Schedule of lease obligations

 2023

 2022

 Right-of-use assets obtained
 in exchange for lease liabilities

 Operating leases

 $

 6,345

 Finance leases

 F- 13

 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.

 Schedule of disaggregation of revenues

 2023

 2022

 Fixed price contracts

 $
 6,951

 $
 4,941

 Service contracts

 8,392

 8,036

 Total

 $
 15,343

 $
 12,977

 Fixed price contracts

 For fixed price contracts, we generally recognize
revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control to the
customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us
for costs incurred plus a reasonable profit and take control of any work in process. In our fixed price contracts, the customer either
controls the work in process or we deliver products with no alternative use to the Company and have rights to payment for work performed
to date plus a reasonable profit as evidenced by contractual termination clauses.

 Because of control transferring over time, revenue
is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure
progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use
the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as
we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based
on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated
fees or profits, are recorded proportionally as costs are incurred.

 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.

 F- 14

 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 have increased to 45, 60, or 90 days depending
on the customer.

 Contract balances

 Costs and estimated earnings in excess of billings
on uncompleted contracts arise when revenues are recorded based on the extent of progress towards completion but cannot be invoiced under
the terms of the contract. Such amounts are invoiced upon completion of contractual milestones. Billings in excess of costs and estimated
earnings on uncompleted contracts arise when milestone billings are permissible under the contract, but the related costs have not yet
been incurred. All contract costs are recognized currently on jobs formally approved by the customer and contracts are not shown as complete
until virtually all anticipated costs have been incurred and the risk of loss has passed to the customer.

 Assets related to costs and estimated earnings
in excess of billings on uncompleted contracts, as well as liabilities related to billings in excess of costs and estimated earnings on
uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond one year;
thus, complete collection of amounts related to these contracts may extend beyond one year though such long-term contracts include contractual
milestone billings as discussed above. For the years ending 2023 and 2022, there were no contracts with terms that extended beyond one
year.

 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".

 Schedule of earnings in excess of billings on uncompleted contracts

 December 31, 2023

 December 31, 2022

 Costs incurred on uncompleted contracts

 $
 2,575

 $

 Estimated earnings on uncompleted contracts

 Estimated loss on uncompleted contracts

 ( 130
)

 –

 Gross costs and estimated earnings

 2,844

 Less: Billings to date on uncompleted contracts

 ( 3,741
)

 ( 859
)

 Costs incurred plus estimated earning less billings on uncompleted contracts, net

 $
 ( 897
)

 $
 ( 52
)

 F- 15

 Accounts receivable, net, contract assets, and contract liabilities
consisted of the following:

 Schedule of accounts receivable, net, contract assets, and contract liabilities

 December 31, 2023

 December 31, 2022

 December 31, 2021

 Accounts receivable, net

 $
 4,228

 $
 2,920

 $
 5,929

 Contract assets

 Contract liabilities

 1,377

 Total accounts receivable, net, contract assets, and contract liabilities

 $
 1,857

 $

 $

 Contract
assets and liabilities fluctuate period to period based on various factors, including, among others, changes in the number and size of
projects in progress at period end; variability in billing and payment terms, such as up-front or advance billings, interim or milestone
billings, or deferred billings; and recognized unapproved change orders and contract claims. The contract asset and liability balances
at December 31, 2023 and 2022 consisted primarily of revenue related to fixed-price projects.

 Remaining Performance Obligations

 Remaining performance obligations represent the
transaction price of firm orders for which work has not been performed and excludes unexercised contract options, potential orders, and
any remaining performance obligations for any sales arrangements that had not fully satisfied the criteria to be considered a contract
with a customer pursuant to the requirements of ASC 606.

 Practical Expedients and Exemptions

 We generally expense sales commissions when incurred
because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative
expenses.

 Many of our services contracts are short-term
in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient exempting the Company
from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract
that has an original expected duration of one year or less.

 Additionally, our payment terms are short-term
in nature with settlements of one year or less. We have, therefore, utilized the practical expedient exempting the Company from adjusting
the promised amount of consideration for the effects of a significant financing component given that the period between when the entity
transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

 Further, in many of our service contracts, we
have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance
completed to date (for example, a service contract in which we bill a fixed amount for each hour of service provided). For those contracts,
we have utilized the practical expedient allowing us to recognize revenue in the amount for which we have the right to invoice.

 Accordingly, we do not disclose the value of unsatisfied
performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize
revenue at the amount to which we have the right to invoice for services performed.

 F- 16

 NOTE 4: PROPERTY, PLANT AND EQUIPMENT

 Net property, plant and equipment consisted of the following:

 Schedule of net property, plant and equipment

 December 31,

 2023

 December 31,

 2022

 Range of

 Asset Lives

 Leasehold improvements

 $
 2,272

 $
 2,228

 lease term

 Equipment

 5,861

 5,698

 2 - 30 years

 Furniture, computers and office equipment

 2 - 8 years

 Construction in progress

 –

 -

 Total property, plant and equipment

 8,313

 8,114

 Less: Accumulated depreciation

 ( 5,345
)

 ( 4,809
)

 Property, plant and equipment, net

 $
 2,968

 $
 3,305

 Depreciation expense included in cost of sales
in the accompanying consolidated statements of operations was $ 497 and $ 496 for the years ended December 31, 2023 and 2022, respectively.
Depreciation expense excluded from cost of sales in the accompanying consolidated statements of operations was $ 53 and $ 124 for the years
ended December 31, 2023 and 2022, respectively.

 Construction in progress represents assets that
are not ready for service or are in the construction stage. Assets are depreciated once they are placed into service.

 NOTE 5: 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 (loss) by the weighted-average number of common shares and the dilutive effect of common stock equivalents (warrants,
nonvested stock awards and stock options) using the treasury method.

 In each relevant period, the net income used
in the basic and diluted EPS calculations is the same. The following table reconciles the weighted-average basic number of common shares
outstanding, and the weighted-average diluted number of common shares deemed outstanding for the purpose of calculating basic and diluted
EPS.

 Schedule of reconciliation of number of shares in earnings per share calculation

 2023

 2022

 Numerator:

 $
)

 $
)

 Denominator:

 Weighted average number of common shares outstanding:

 Basic

 11,888

 11,981

 Diluted

 11,888

 11,981

 Loss per common share outstanding:

 Basic

 $
 ( 0.13
)

 $
 ( 0.24
)

 Diluted

 $
 ( 0.13
)

 $
 ( 0.24
)

 At December 31, 2023 and 2022, there were outstanding
options that were vested and exercisable into 875 and 725 shares of common stock, respectively; however, they have been excluded from
the calculation of EPS because their exercise would be anti-dilutive.

 F- 17

 NOTE 6: SHARE-BASED COMPENSATION

 On August 2, 2023, the Company's
independent directors each received stock options to purchase 50,000
shares of our common stock with an exercise price of $ 0.55
per share. Fair value of these stock options was $ 0.32
per share at the date of grant. Twenty-five percent 25 of the shares vested on each of August 31, 2023, November 30, 2023, February
28, 2024, and the remainder are scheduled to vest on May 31, 2024. In addition to the foregoing, all shares shall vest immediately
prior to a change in control.

 On October 20, 2022, the Company's
independent directors each received stock options to purchase 50,000
shares of our common stock with an exercise price of $ 0.63
per share. Fair value of these stock options was $ 0.39
per share at the date of grant. Twenty-five percent 25 of the shares vested on each of October 31, 2022, November 30, 2022, February
28, 2023, and May 31, 2023.

 The following table summarizes the activity of
our nonvested stock options for the years ended December 31, 2023 and 2022:

 Schedule of option activity

 Shares

 Underlying

 Options

 Weighted-

 Average

 Exercise Price

 Weighted-

 Average

 Remaining Contractual Term

 (in years)

 Outstanding at December 31, 2021

 $
 0.74

 4.0

 Granted

 0.63

 Vested

 ( 200
)

 0.70

 Outstanding at December 31, 2022

 0.63

 4.8

 Granted

 0.55

 Vested

 ( 150
)

 0.59

 Outstanding at December 31, 2023

 $
 0.55

 4.6

 Exercisable at December 31, 2023

 $
 0.63

 2.0

 For the years ended December 31, 2023 and 2022,
we recognized a total of $ 64 and $ 90, respectively, of share-based compensation expense related to stock options, which is included in
selling, general and administrative expenses in the accompanying consolidated statements of operations. The unamortized estimated fair
value of nonvested stock options was $ 24 and $ 40 at December 31, 2023 and 2022, respectively. These costs are expected to be recognized
as expenses over a weighted-average period of 0.42 years.

 NOTE 7: TREASURY STOCK

 No shares of common stock were purchased during
the year ended December 31, 2023. During the year ended December 31, 2022, 500 shares of common stock were purchased in privately negotiated
transactions for an aggregate amount of $ 326. The Company had 4,018 shares of common stock held in treasury as of December 31, 2023 and
2022. Treasury shares are accounted for using the cost method.

 F- 18

 NOTE 8: INCOME TAXES

 Income tax expense is comprised of the following:

 Schedule of income tax expense

 2023

 2022

 Federal:

 Current

 $

 –

 $

 –

 Deferred

 –

 –

 Total

 –

 –

 State:

 Current

 –

 Deferred

 –

 –

 Total

 –

 Total income tax expense (benefit)

 $

 $
 –

 Income tax expense (benefit) differs from the
amount computed by applying the U.S. statutory income tax rate to loss before income taxes for the reasons set forth below.

 Schedule of income tax expense (benefit)

 2023

 2022

 Income tax benefit at federal statutory rate

 ( 21.00)%

 ( 21.00)%

 State tax expense (benefit), net of federal benefit

 0.23 %

 ( 0.01)%

 Valuation allowance

 20.49 %

 21.10 %

 Research and development credits

 0.45 %

 0.04 %

 Other permanent differences

 0.17 %

 ( 0.14)%

 Total effective rate

 0.34 %

 0.00 %

 F- 19

 Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, as well as operating loss and tax credit carryforwards. The tax effects of the temporary differences and carry
forwards are as follows:

 Schedule of deferred income taxes

 December 31,

 2023

 2022

 Deferred tax assets:

 Net operating loss carryforwards

 $
 6,090

 $
 5,748

 Research and development and other credit carryforwards

 Share-based compensation

 Intangible amortization

 ( 12
)

 –

 Right-of-use operating lease liabilities

 1,389

 1,550

 Other

 ( 5
)

 ( 12
)

 Total deferred tax assets

 8,908

 8,726

 Less: valuation allowance

 ( 7,546
)

 ( 7,235
)

 Net deferred tax assets

 $
 1,362

 $
 1,491

 Deferred tax liabilities:

 Depreciation on property and equipment

 $
 ( 132
)

 $
 ( 113
)

 Right-of-use operating lease assets

 ( 1,230
)

 ( 1,378
)

 Total deferred tax liabilities

 $
 ( 1,362
)

 $
 ( 1,491
)

 Net deferred tax position

 $
 –

 $
 –

 We have $ 28,513 of federal and $ 1,336 of state
net operating loss ("NOL") carryforwards and $ 630 in research and development and other credits available to offset future
taxable income. These federal and state NOLs will expire at various dates through 2034, except for federal NOLs generated in 2018 and
subsequent years. Management analyzed its current operating results and future projections and determined that a full valuation allowance
was needed due to our cumulative losses in recent years. We have no uncertain tax positions at December 31, 2023. Accordingly, we do not
have any accruals for penalties or interest related to our tax returns. Should an examination or audit arise, we would evaluate the need
for an accrual and record one, if necessary. Our federal tax returns from the tax years ended December 31, 2019 through December 31, 2023
are open to examination by the Internal Revenue Service.

 NOTE 9: COMMITMENTS AND CONTINGENCIES

 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.

 F- 20

 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 to two times the CEO's annual base salary; (ii) a lump sum in cash equal to one to two times the average
annual bonus paid to the CEO for the prior two full fiscal years preceding the date of termination; (iii) 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
(iv) 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.

 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.

 In November 2011, the Company delivered equipment
to Aker Solutions, Inc. ("Aker"), but Aker declined to pay the final invoice in the aggregate amount of $270 alleging some
warranty items needed to be repaired. The Company made repairs, but Aker continued to claim further work was required. The Company repeatedly
attempted to collect on the receivable and ultimately filed suit on November 16, 2012, in the Harris County District Court. Aker subsequently
filed a counter claim on March 20, 2013 in the aggregate amount of $1,000 for reimbursement of insurance payments allegedly made for repairs.
The parties convened for mediation on March 9, 2022, and on May 9, 2022, the Company and Aker finalized the terms of a definitive settlement
agreement with a mutual dismissal with prejudice of all claims by and between them. The Company subsequently reversed a liability accrual
of $ 100, and no liability remained as of December 31, 2022.

 NOTE 10: RELATED PARTY TRANSACTIONS

 On January 5, 2022, the Company repurchased 235
shares of common stock from Mr. Ronald Smith, the Company's founder, at a total cost of $ 150. On March 24, 2022, the Company repurchased
 119 shares of common stock from Mr. Smith in exchange for several long-lived assets that were non-strategic to the core operations of
the business, valued at $76. On June 3, 2022, the Company repurchased 147 shares of common stock from Mr. Smith at a total cost of $100.
The price per share used for each transaction was market price, and the average price per share paid to Mr. Smith was $0.65.

 NOTE
11: EMPLOYEE RETENTION CREDIT

 Under the provisions of the Coronavirus Aid, Relief,
and Economic Security Act (the "CARES Act") signed into law on March 27, 2020 and the subsequent extension of the CARES Act,
the Company was eligible for a refundable employee retention credit subject to certain criteria. Since there are no generally accepted
accounting principles for for-profit business entities that receive government assistance that is not in the form of a loan, an income
tax credit or revenue from a contract with a customer, we determined the appropriate accounting treatment by analogy to other guidance.
The Company accounted for the employee retention credit by analogy to International Accounting Standards (IAS) 20, "Accounting for
Government Grants and Disclosure of Government Assistance," of International Financial Reporting Standards.

 Under an IAS 20 analogy, a business entity would
recognize the employee retention credit on a systematic basis over the periods in which the entity recognizes the payroll expenses for
which the grant (i.e., tax credit) is intended to compensate when there is reasonable assurance (i.e., it is probable) that the entity
will comply with any conditions attached to the grant and the grant (i.e., tax credit) will be received.

 The Company initially recognized a $ 650 employee
retention credit as other income on its condensed consolidated statement of operations for the year ended December 31, 2021. As of December
31, 2023, the Company has a $ 323 employee retention tax credit receivable balance recorded on its consolidated balance sheet. The Company
filed for refunds of the employee retention credits and as of the date of this Report, had received a $ 344 refund for the employee retention
credit filed for the first quarter of 2021.

 F- 21

 NOTE 12: SUBSEQUENT EVENTS

 On March 4, 2024, Mr. Charles K. Njuguna resigned
as President, Chief Executive Officer, Chief Financial Officer and as a member of the board of directors (the "Board") of
the Company, effective as of March 31, 2024. As a result of his resignation, the Company and Mr. Njuguna agreed to terminate the employment
agreement dated effective September 1, 2019, between the Company and Mr. Njuguna. The termination of Mr. Njuguna's employment agreement
is effective as of March 31, 2024. The resignation of Mr. Njuguna did not involve any disagreement with the Company.

 On March 6, 2024, the Board appointed Erik Wiik
as the Company's Chief Executive Officer, effective April 1, 2024, and on March 8, 2024, the Board appointed Mr. Wiik as a member
of the Board, effective immediately. Mr. Wiik, age 60, most recently served as President of ReAdapt Inc., an engineering consultancy firm
providing subject matter expertise within subsea technology, since July 2018. In connection with Mr. Wiik's appointment, the Company
entered into an employment agreement with Mr. Wiik (the "Employment Agreement"), with an effective date of April 1, 2024.

 Under the terms of the Employment Agreement, Mr.
Wiik is entitled to receive an annual base salary (the amount of which is $325,000), subject to annual adjustment by the Company's
Board. Mr. Wiik is also entitled to receive an annual bonus based upon the achievement of financial objectives by the Company, which objectives
shall be set by the Board annually. Further, the Employment Agreement provides that Mr. Wiik is eligible to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable generally to all other peer executives of the Company, to receive
fringe benefits in accordance with the plans, practices, programs and policies of the Company for other peer executives, and to receive
reimbursement for reasonable business expenses. In the event of a change of control (as defined in the Employment Agreement), the awards
and grants to Mr. Wiik that are comprised of or based upon equity securities under the Company's plans, practices, policies and
programs will immediately vest.

 The Employment Agreement provides that if any
payment or distribution to an executive would be subject to any additional tax or excise tax, or any interest or penalties are incurred
by Mr. Wiik with respect to such excise tax, then Mr. Wiik will be entitled to receive from the Company an additional payment ("Gross-Up
Payment") in an amount such that after payment of all taxes Mr. Wiik will retain an amount of the Gross-Up Payment equal to the
tax imposed upon such payment or distribution.

 In the event of termination of Mr. Wiik's
employment for any reason, Mr. Wiik will be entitled to receive all accrued, unpaid salary and vacation time through the date of termination
and all benefits to which Mr. Wiik is entitled or vested under the terms of all employee benefit and compensation plans, agreements and
arrangements in which Mr. Wiik is a participant as of the date of termination. In addition, subject to executing a general release in
favor of the Company, Mr. Wiik will be entitled to receive certain severance payments in the event his employment is terminated by the
Company "other than for cause" or by Mr. Wiik with "good reason." These severance payments include the following:

 (i)
 a lump sum in cash equal to one time Mr. Wiik's annual base salary (at the rate in effect on the
date of termination);

 (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; provided, however,
that such pro rata portion shall be calculated based on Mr. Wiik's annual bonus for the previous fiscal year; provided further that
if no previous annual bonus has been paid to Mr. Wiik, then the lump sum cash payment shall be no less than fifty percent of Executive'
annual base salary; and

 (iii)
 if Mr. Wiik's termination occurs prior to the date that is twelve months following a Change in Control
(as defined in the Employment Agreement), then each and every share option, restricted share award and other equity-based award that is
outstanding and held by Mr. Wiik shall immediately vest and become exercisable.

 Mr. Wiik has agreed, during the term of his employment
and for a one-year period after his termination, not to engage in Competition (as defined in the Employment Agreement) with the Company,
solicit business from any customer or potential customer of the Company, solicit the employment or services of any person employed by
or a consultant to the Company on the date of termination or with six months prior thereto, or otherwise knowingly interfere with the
business or accounts of the Company or any of its subsidiaries.

 F- 22

 The Employment Agreement also provides that the
Company, to the extent permitted by applicable law and the by-laws of the Company, will defend, indemnify and hold harmless Mr. Wiik from
any and all claims, demands or causes of action, including reasonable attorneys' fees and expenses, suffered or incurred by Mr.
Wiik as a result of the assertion or filing of any claim, demand, litigation or other proceedings based upon statements, acts or omissions
made by or on behalf of Mr. Wiik pursuant to the Employment Agreement or in the course and scope of Mr. Wiik's employment with the
Company. The Company will also maintain and pay all applicable premiums for directors' and officers' liability insurance which
shall provide full coverage for the defense and indemnification of Mr. Wiik, to the fullest extent permitted by applicable law.

 In connection with entering into the Employment
Agreement, the Company granted 300,000 shares of restricted stock, and options for 300,000 shares, to Mr. Wiik. Each of the foregoing
will vest in three equal installments on the anniversaries of the grant date.

 The above description of the Employment Agreement
is qualified in its entirety by reference to the full text of the Employment Agreement, a copy of which is filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2023.

 No family relationship exists between Mr. Wiik
and any of the Company's directors or executive officers. There are no arrangements or understandings between Mr. Wiik and any other
person pursuant to which Mr. Wiik was selected as an officer of the Company, nor are there any transactions to which the Company is or
was a participant and in which Mr. Wiik had or will have a direct or indirect material interest subject to disclosure under Item 404(a)
of Regulation S-K.

 F- 23