What changed in this filing

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Item 1. Business

2023-03-23 compared with 2022-03-31 · 117 added, 77 removed, 90 unchanged (68% of the section changed)

Flotek Industries, Inc.

creates solutions to reduce the environmental impact of energy on air, water, land and people.

A technology-driven, specialty green chemistry and data technology company, Flotek helps customers across industrial, commercial, and consumer markets improve their ESG performance.

The Company serves specialty chemistry needs for both domestic and international energy markets as well as applications of U.S.

manufactured surface cleaners, disinfectants for industrial, commercial and consumer use.

The Company’s Chemistry Technologies (“CT”) segment develops, manufactures, packages, distributes, delivers and markets green, specialty chemicals that help their customers meet their ESG and operational goals, enhancing the profitability of hydrocarbon producers and supplying professional chemistries that clean surfaces in both commercial and personal settings to help reduce the spread of bacteria, viruses and germs.

The Company’s Data Analytics (“DA”) segment enables users to maximize the value of their hydrocarbon associated processes by providing real-time data and analytics associated with the streams in seconds rather than minutes or days.

These real-time data and analytics prevents waste, reduces reprocessing, and allows users to pursue automation of their hydrocarbon streams to maximize their profitability, thereby improving ESG performance.

During the second quarter of 2020, the Company acquired 100% ownership of JP3 in a cash-and-stock transaction.

JP3’s real-time data platforms combine the energy industry’s only field-deployable, inline optical analyzer with proprietary cloud visualization and analytics, delivers increased profitability for its customers.

In conjunction with the acquisition of JP3, the Company created the DA segment.

Flotek creates unique solutions to reduce the environmental impact of energy on air, water, land and people.

A technology-driven, specialty green chemistry and data company, Flotek helps customers across industrial and commercial markets improve their environmental performance.

The Company serves specialty chemistry needs for both domestic and international energy markets.

The Company’s Chemistry Technologies (“CT”) segment designs, develops, manufactures, packages and distributes green, specialty chemicals that help their customers meet their environmental, social and governance (“ESG”) and operational goals, aiming to enhance the profitability of hydrocarbon producers.

The Company’s Data Analytics (“DA”) segment aims to enable users to maximize the value of their hydrocarbon associated processes by providing analytics associated with their hydrocarbon streams in seconds rather than minutes or days.

The real-time access to information prevents waste, reduces reprocessing and allows users to pursue automation of their hydrocarbon streams to increase their profitability.

The Company was initially incorporated under the laws of the Province of British Columbia in 1985.

In October 2001, the Company changed its corporate domicile to the State of Delaware.

Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are posted to the Company’s website, www.flotekind.com , as soon as practicable subsequent to electronically filing or furnishing to the SEC.

In December 2007, the Company’s common stock began trading on the New York Stock Exchange (“NYSE”) under the stock ticker symbol “FTK.” 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”) are posted to the Company’s website, www.flotekind.com , as soon as practicable subsequent to electronically filing or furnishing to the SEC.

Information contained in the Company’s website is not to be considered as part of any regulatory filing.

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Recent Developments

On February 2, 2022, Flotek entered into a Private Investment in Public Equity (PIPE) transaction with a consortium of investors to secure growth capital for the Company.

Pursuant to the PIPE transaction on February 2, 2022, Flotek issued $21.2 million aggregate initial principal amount of convertible notes for net cash proceeds of approximately $19 million.

The investors are ProFrac Holdings, LLC, Burlington Ventures Ltd., entities associated with North Sound Management, certain funds associated with one of Flotek's directors including the D3 Family Fund and the D3 Bulldog Fund, and Firestorm Capital LLC.

The convertible notes accrue paid-in-kind interest at a rate of 10% per annum, have a maturity of one year, and are converted into common stock of Flotek (a) at the holder's option at any time prior to maturity, at a price of $1.088125 per share, (b) at Flotek's option, if the volume-weighted average trading price of Flotek's common stock equals or exceeds $2.50 for 20 trading days during a 30 consecutive trading day period, or (c) at maturity, at a price of $0.8705.

The issuance of the additional shares may trigger a change in ownership defined as 50% or more under IRC Section 382 that will limit the amount of net operating losses deductible and tax credits allowable starting in 2022.

Also on February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (the “ProFrac Agreement”) in exchange for $10 million of convertible notes with terms substantially the same as those described above.

Under the ProFrac Agreement, ProFrac Services, LLC is obligated to order chemicals from the Company at least equal to the greater of (a) the chemicals required for 33% of their hydraulic fracturing fleets and (b) a baseline measured by the first ten hydraulic fracturing fleets deployed by ProFrac Services, LLC.

The term of the ProFrac Agreement is three years starting April 1, 2022.

On February 16, 2022, the Company entered into an amended agreement with ProFrac Holdings, LLC to expand the Profrac Agreement.

Closing of the transaction is expected to occur in the second quarter of 2022 and is subject to a vote of the shareholders of Flotek’s common stock, as well as other customary conditions.

It is anticipated that the expansion of the Profrac Agreement will increase revenue backlog by at least $1 billion, and up to $2.1 billion, over the next ten years.

As part of the transaction, at closing Flotek would (a) issue to ProFrac notes convertible into Flotek’s common stock with a maturity of one year, with the amount of notes based on the size of expansion, and (b) grant ProFrac the right to appoint two members to Flotek’s board of directors, for a total of four out of seven directors.

Conversion price of the convertible notes is $ 1.088125 per share under certain conditions prior to maturity, or $ 0.8705 per share at maturity.

The convertible notes contain other terms and conditions similar to the convertible notes issued to Profrac on February 2, 2022.

Subsequent to December 31, 2021, the Company entered into a contract to sell the Waller manufacturing facility for proceeds of $4.2 million.

The transaction is expected to close in April 2022.

On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (the “Initial ProFrac Agreement”) upon issuance of $10 million in aggregate principal amount of the convertible notes (the “Contract Consideration Convertible Notes Payable”) to ProFrac Holdings LLC.

Under the Initial ProFrac Agreement, ProFrac Services, LLC was obligated to order chemicals from the Company at least equal to the greater of (a) the chemicals required for 33% of ProFrac Services, LLC’s hydraulic fracturing fleets and (b) a baseline measured by the first ten hydraulic fracturing fleets deployed by ProFrac Services, LLC during the term of the Initial ProFrac Agreement.

If the minimum volumes are not achieved in any given year, ProFrac Services LLC shall pay to the Company, as liquidated damages an amount equal to twenty-five percent (25%) of the difference between (i) the aggregate purchase price of the quantity of products comprising the minimum purchase obligation and (ii) the actual purchased volume during such calendar year.

The Initial ProFrac Agreement has a term of 3 years from April 1, 2022.

On May 17, 2022, the Company entered into an amendment to the Initial ProFrac Agreement (the “Amended ProFrac Agreement” and collectively the “ProFrac Agreement”) upon issuance of $50 million in aggregate principal amount of Contract Consideration Convertible Notes Payable.

The Initial ProFrac Agreement was amended to (a) increase ProFrac Services LLC’s minimum purchase obligation for each year to the greater of 70% of ProFrac Services LLC’s requirements and a baseline measured by ProFrac Services LLC’s first 30 hydraulic fracturing fleets, and (b) increase the term to 10 years.

On February 1, 2023, the Company entered into an amendment to the ProFrac Agreement (the “Amended ProFrac Agreement No.

2”) dated February 2, 2022.

The Amended ProFrac Agreement No.

2 has an effective date of January 1, 2023.

The ProFrac Agreement was amended to (1) provide a ramp-up period from January 1, 2023 to May 31, 2023 for ProFrac Services, LLC to increase the number of active hydraulic fracturing fleets to 30 fleets, (2) waive any liquidated damages payment relating to any potential order shortfall prior to January 1, 2023, (3) add additional fees to certain products, and (4) provide margin increases based on revenue percentages from non-ProFrac customers.

The Company believes the net present value of the economic benefit attributable to the Amended ProFrac Agreement No.

2 will exceed the value of the liquidated damages payments that would have been received for the period from April 1, 2022 through December 31, 2022.

On February 2, 2023, the Convertible Notes Payable and certain Contract Consideration Convertible Notes Payable previously issued on February 2, 2022 were converted upon maturity into 10,355,840 shares of common stock and 25,366,561 Pre-Funded Warrants to purchase common stock for a nominal exercise price of $0.0001 per share exercisable subject to the limitations on exercise described therein.

All of the holders elected to receive shares of common stock upon conversion except for Profrac Holdings LLC, which elected to receive the Pre-Funded Warrants.

On January 19, 2023, the Company announced the departure of John W.

from his role as Chief Executive Officer and President of the Company, effective January 19, 2023.

Gibson also stepped down from his role as Chairman of the Board of Directors (the “Board”) of the Company.

Gibson’s departure was treated as a termination without cause.

Gibson’s departure as Chairman of the Board, Chief Executive Officer and President of the Company was not due to any disagreement with the Company or any matter relating to the Company’s operations, policies or practices.

The Board has an active search process underway to select a permanent Chief Executive Officer of the Company.

During the transition period, Harsha V.

Agadi, who has served as a member of the Board since July 2020, will serve as the Company’s interim Chief Executive Officer.

Description of Operations and Segments

The Company’s continuing operations has two business segments, CT and DA, which are both supported by the Company’s Research & Innovation (“R&I”) advanced laboratory capabilities.

Financial information about the Company’s operating segments and geographic concentration is provided in Note 21, “Business Segment, Geographic and Major Customer Information” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report.

The Company’s operations have two business segments, CT and DA, which are both supported by the Company’s Research & Innovation (“R&I”) advanced laboratory capabilities.

Financial information about the Company’s operating segments and geographic concentration is provided in Note 19, “Business Segment, Geographic and Major Customer and Supplier Information” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report.

Chemistry Technologies

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The Company designs, develops, manufactures, packages, distributes and markets optimized chemistry solutions that accelerate existing sustainability practices to reduce the environmental impact of energy on the air, water, land and people.

Customers of the CT segment include those of energy related markets as well as consumer and industrial applications.

Major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil companies, geothermal energy companies, solar energy companies and advanced alternative energy companies benefit from best-in-class technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices

Customers of the CT segment include those of energy related markets, such as our related party ProFrac Services, LLC, with whom we have a long-term supply agreement, as well as consumer and industrial applications.

Major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil companies, geothermal energy companies, solar energy companies and advanced alternative energy companies benefit from our best-in-class technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices

Data Analytics

The DA segment delivers real-time information and insights to our customers to enable optimization of operations and reduction of emissions and their carbon intensity.

Real-time composition and physical properties are delivered simultaneously on their refined fuels, NGLs, natural gas, crude oil, and condensates using the industry’s only field-deployable, in-line optical near-infra-red spectrometer that generates no emissions.

Real-time composition and physical properties are delivered simultaneously on their refined fuels, natural gas liquids (NGLs), natural gas, crude oil, and condensates using the industry’s only field-deployable, in-line optical near-infra-red spectrometer that generates no emissions.

The instrument's response is processed with advanced chemometrics modeling, artificial intelligence, and machine learning algorithms to deliver these valuable insights every 15 seconds.

Customers using this technology have obtained significant benefits including additional profits by enhancing operations in crude/condensates stabilization, blending operations, reduction of transmix, increasing efficiencies and optimization of gas plants, and ensuring product quality while reducing giveaways i.e., providing higher value products at the lower value products prices.

More efficient operations has the benefit of reducing their carbon footprint e.g., less flaring and reduction in energy expenditure for compression and re-processing.

Our customers in North America include the supermajors, some of the largest midstream companies and large gas processing plants.

We have developed a new line of Verax analyzers for deployment internationally which was recently certified for compliance in hazardous locations and harsh weather conditions

Our customers in North America include the supermajors, some of the largest midstream companies and large gas processing plants as well as ProFrac Services, LLC, to whom twenty JP3 units are expected to be deployed in 2023.

We have developed a line of Verax™ analyzers for deployment internationally in hazardous locations and harsh weather conditions.

Research & Innovation

R&I supports both segments through green chemistry formulation, specialty chemical formulations, Food and Drug Administration (“FDA”) and Environmental Protection Agency (“EPA”) regulatory guidance, technical support, basin and reservoir studies, data analytics and new technology projects.

The purpose of R&I is to supply the Company’s segments with enhanced products and services that generate current and future revenues, while advising Company management on opportunities concerning technology, environmental and industry trends.

R&I supports the acceleration of ESG solutions for both business segments through green chemistry formulation and Environmental Protection Agency (“EPA”) regulatory guidance, technical support, basin and reservoir studies, data analytics and new technology projects.

The purpose of R&I is to supply the Company’s business segments with enhanced products and services that generate current and future revenues, while advising Company management on opportunities concerning technology, environmental and industry trends.

The R&I facilities support advances in chemistry performance, detection, optimization and manufacturing.

For the years ended December 31, 2022 and 2021, the Company incurred $ 4.4 million and $ 5.5 million, respectively, of research and development expense.

In 2021, research and development expense was approximately 12.8% of consolidated revenue.

The Company expects that its 2022 research and development investment will continue to support new product development, especially in support of enhanced environmental, social and governance (“ESG”) standards, increased adoption of green chemistry and conventional customization initiatives for its clients.

Overall, operations are not significantly affected by seasonality;

however, weather conditions can pose delays in clients’ activity levels.

The Company expects that its 2023 research and development investment will continue to support new product development, especially in support of enhanced ESG standards, increased adoption of green chemistry and conventional customization initiatives for its clients.

Overall, operations generally are not significantly affected by seasonality;

however, weather conditions can cause delays in clients’ activity levels.

Certain working capital components build and recede throughout the year in conjunction with established purchasing and selling cycles that can impact operating results and financial position.

The performance of the Company’s services can be susceptible to both weather and naturally occurring phenomena, including, but not limited to, the following:

The sale of the Company’s products and performance of the Company’s services can be susceptible to both weather and naturally occurring phenomena, including, but not limited to, the following:

• the severity and duration of winter temperatures in North America, which impacts natural gas storage levels, drilling activity, commodity prices and operations at the Company’s facilities;

• material deviations from normal seasonality for an extended period can impact access to operations, reduced performance at manufacturing facilities, inability to deploy required personnel, supply chain interruptions, facility damage and customer activity levels;

• the timing and duration of the Canadian spring thaw and resulting restrictions that impact activity levels;

• the timing and impact of hurricanes upon coastal and offshore operations;

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Product Demand and Marketing

Demand for the Company’s energy-focused products and services in both the CT and DA segments is driven by energy supply and demand, as well as operator desire to deploy improved ESG solutions.

Demand for the Company’s energy chemistry

products and services is dependent on levels of conventional and unconventional oil and natural gas well drilling and completion activity, both domestically and internationally.

The Company markets its products to end use customers using both direct and indirect sales channels.

Demand for the Company’s energy-focused product s and services in both the CT and DA segments is driven by energy supply and demand, as well as operator desire to deploy improved ESG solutions.

Demand for the Company’s energy chemistry products and services is dependent on levels of conventional and unconventional oil and natural gas well drilling and completion activity, both domestically and internationally.

The Company markets its products to end user customers using both direct and indirect sales channels.

These sales channels are accessed using a mix of in-house sales professionals as well as certain contractual agency agreements.

The Company also actively participates in industry trade shows, both live and virtual, publishes articles in industry publications, and participates in podcasts and creates other online content to educate the market on its product and service offerings.

While the Company’s primary marketing efforts remain focused in North America, resources and effort are also focused on emerging international markets, especially in the Middle East.

In addition to direct marketing and relationship development, the Company also markets products and services through the use of third-party agents, primarily in international markets.

The Company estimates that entry into the ProFrac Agreement has resulted in a backlog of $225 million of contracted revenue over the next three years, which is expected to increase to at least $1 billion, and up to $2.1 billion, over the next ten years in the event that the ProFrac Amendment Transaction closes.

This is all subject to macro- environmental factors and geo-political stability.

While the Company’s primary marketing efforts remain focused in North America, resources and efforts are also deployed on emerging international markets, especially in the Middle East.

Product revenues include significant sales to related parties as described in Note 18, “Related Party Transactions” in Part II, Item 8 - “Financial Statements and Supplementary Data” of this Annual Report.

Facilities and Offices

See Part 1, Item 2 - “Properties”, for information regarding our manufacturing, warehouse and research facilities and sales offices.

Intellectual Property

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The decision to pursue patent protection is dependent upon several factors, including whether patent protection can be obtained, cost effectiveness, and alignment with operational and commercial interests.

The Company believes its patent and trademark portfolio, combined with confidentiality agreements, FDA and EPA registrations and licensing, trade secrets, proprietary designs, and manufacturing and operational expertise, are sufficient to protect its intellectual property and provide continued strategic advantage.

The Company believes its patent and trademark portfolio, combined with confidentiality agreements, EPA registrations and licensing, trade secrets, proprietary designs, and manufacturing and operational expertise, are sufficient to protect its intellectual property and provide continued strategic advantage.

As of December 31, 2022, the Company had 136 granted patents, including 111 patents in our CT segment and 24 patents in our DA segment.

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and abroad, covering a variety of its goods and services.

The ability to compete is dependent upon the Company’s ability to differentiate its products and services by providing superior quality and service, and maintaining a competitive cost structure with sufficient raw material supplies.

Our ability to compete is dependent upon the Company’s ability to differentiate its products and services by providing superior quality and service, and maintaining a competitive cost structure with sufficient and reliable access to raw material supplies.

Activity levels in the oilfield goods and services industry are impacted by current and expected oil and natural gas prices, oil and natural gas drilling activity, production levels, customer drilling and completion-designated capital spending, and customer commitment to improved ESG performance.

The unpredictability of the energy industry and commodity price fluctuations creates both increased risk and opportunity for the products and services of both the Company and its competitors.

The Company’s CT segment also competes with established companies and brands in the sanitizers, surface cleaners and disinfectants market.

The unpredictability of the energy industry and commodity price fluctuations create both increased risk and opportunity for the products and services of both the Company and its competitors.

The DA segment faces competition from other providers of equipment and services for real-time information in the upstream, midstream, refining and distribution market.

Raw Materials

Materials and components used in the Company’s servicing and manufacturing operations, as well as those purchased for sale, are generally available on the open market from multiple sources.

Materials and components used in the Company’s servicing and manufacturing operations, as well as those purchased for sale, are generally avail able on the open market from multiple sources.

When able, the Company uses multiple suppliers, both domestically and internationally, to purchase raw materials on the open market.

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Higher prices for chemistries and certain raw materials could adversely impact future sales, contract fulfillment and product margins.

The Company is diligent in its efforts to identify alternate suppliers in its contingency planning by reducing the number of contractually obligated volumes and utilizing competitive bidding practices to proactively reduce costs and potential supply shortages.

The Company is diligent in its efforts to identify alternate suppliers in its contingency planning utilizing competitive bidding practices to proactively reduce costs and potential supply shortages.

During 2022, the Company worked to broaden the technical specifications of some products to help ensure that required molecules could be sourced from more than one supplier.

The DA segment currently sources spectrometers from a single supplier.

Due to long lead times, supply chain disruption could adversely impact the results of the segment in the years 2022 and beyond, although re-ordering for 2022 has already begun.

Due to long lead times, supply chain disruption could adversely impact the results of the segment in 2023 and the years beyond.

Government Regulations

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In the event of a leak or spill in association with Company operations, the Company could be exposed to risk of material cost, net of insurance proceeds, if any, to remediate any contamination.

No environmental claims are currently being litigated or investigated (to the Company’s knowledge), and the Company does not expect that costs related to remediation requirements will have a significant adverse effect on the Company’s consolidated financial position or results of operations.

To the Company’s knowledge, no environmental claims are currently being litigated or investigated.

Sustainability

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We have green, sustainable chemistry at our core, and we focus on providing responsible specialty chemistry solutions that are environmentally friendly and cost-competitive.

Our products offered by our CT segment displace harmful chemicals such as BTEX in energy production, and our logistics and delivery methodology results in lower product usage and lower carbon emissions due to delivery.

Our products offered by our CT segment displace harmful chemicals such as benzene, toluene, ethylbenzene and xylenes (BTEX) in energy production, and our logistics and delivery methodology results in lower product usage and lower carbon emissions due to delivery.

The analyzers produced by our DA segment are a closed-loop system, meaning that samples of potentially harmful gasses and fluids do not need to be routinely taken and flared, as is the case with gas chromatographs.

This results in lower emissions.

In addition, our analyzers’ ability to determine the mixing of two batches of product (“transmix”) in real time results in less time, energy and resources spent processing transmix.

In addition, our analyzers’ ability to determine the mixing of two batches of product (“transmix”) in real-time results in less time, energy and resources spent processing the transmix.

Human Capital

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The Company is committed to acting with care to protect the health and safety of people, resources and the environment.

Each of us owns health, safety and environment (“HSE”), as it is not isolated to certain individuals or roles.

Each employee is responsible for working towards the health, safety and environment (“HSE”) goals, as they are not isolated to certain individuals or roles.

We aim to hold each other accountable to a high standard.

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Our safety, health and environmental goals are designed to sustain our drive to zero incidents.

As a result, safety is woven into the fabric of the Company, from our robust training programs to our ESG moments that begin team meetings, to our Hazardous Observation Card program.

As a result, safety is woven into the fabric of the Company, from our robust training programs, to our safety moments that begin team meetings, to our Hazardous Observation Card program.

Our training program is fundamental to operating safely and protecting people and the environment.

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We continuously monitor all operational activities and update training programs as needed to ensure the curriculum remains relevant and effective for minimizing risk and protecting our employees and the environment.

We have a strong company commitment to safety in all aspects of our operations through training, safety culture, and tracking of key safety metrics.

In 2021, we realized our goal of 0.0 Total Recordable Incident Rate (TRIR) company wide.

The TRIR is a key safety performance metric which calculates the number of recordable incidents per full-time workers during a one-year

When comparing to the safety record of the chemical manufacturing sector, Flotek’s safety performance is an industry leader.

This achievement is the result of the focus of our entire organization on building and sustaining a safety culture.

We have a strong commitment to safety in all aspects of our operations through training, safety culture, and tracking of key safety metrics.

In 2022, the Company recorded a Total Recordable Incident Rate (TRIR) of 0.397.

The TRIR is a key safety performance metric which calculates the number of recordable incidents per full-time workers during a one-year period.

Compensation:

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We align our programs to attract, retain and motivate employees to achieve high-impact results that create value for all of our stakeholders.

In addition to competitive base wages, all employees are eligible for a discretionary bonus, which is based upon individual and triggered by company performance.

A key component of our compensation program is benefits.

In addition to competitive base wages, all employees are eligible for a discretionary bonus, which is based upon individual performance and triggered by company performance, subject to the Company’s liquidity position.

Benefits are a key component of our compensation program.

We engage an outside benefits consulting firm to independently evaluate the effectiveness and competitiveness of our employee benefits program, as well as to tailor our program to the unique needs of the Company’s employee base.

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The Company continues to prioritize mental health and wellness for employees, maintaining an ongoing dialogue with employees and providing resources through its employee assistance program, which is available to all employees and their families.

Our business is subject to numerous variables which impact our outlook and expectations given the shifting conditions of the industry.

We have based our outlook on the market conditions we perceive today.

Changes often occur.

Going into 2023 we believe that we are in the early years of a tight supply cycle for oil and gas triggered by a long period of underinvestment in energy development, infrastructure and new sources of oil and gas production.

While the demand for oil and gas could fluctuate depending on the macroeconomic condition, we believe that this tight supply cycle could last and could provide support to high oil prices for multiple years.

We expect that the strongest potential growth throughout 2023 will likely come from independent, rather than large major exploration and production companies.

Independent exploration and production companies operate the majority of U.S.

land rigs and react quickly to changing commodity prices.

In the current commodity price environment, we expect these companies to increase activity and the larger companies to have modest spending increases in the year ahead.

Digital Analytics

The use of data and digital analytics is a growing trend in all industries where technology is leveraged to analyze large datasets of operational information to improve performance, as well as for predictive maintenance, advanced safety measures and reduced environmental impact of operations.

We believe Verax ™ analyzers have gained a foothold in North American markets for critical applications where compositional information is needed in real-time.

The technology delivers insight on valuable operational data like vapor pressure, boiling point, flash point, octane level, API gravity, viscosity, BTU and more, simultaneously.

We continue to work with our customers to identify further facilities and applications where our technology has the highest value.

To drive recurring revenue, we continue to build on the modular nature of our sensor and analysis packages with new data processing techniques that enhance the value of our installations.

AIDA (Automated Interface Detection Algorithm) provides real-time detection of interfaces in a liquids pipeline without the need for additional sampling or chemometric modeling.

The application can identify products such as refined fuels, crude and NGLs with its advanced machine learning algorithms and detect interfaces real-time versus traditional lab analysis.

We believe this allows customers to cut batches quickly and accurately, reduce transmix and minimize off-spec product that requires downgrades.

We are also gaining traction leveraging the Verax™ in applications where operators and service companies are using field gas as a substitute for

diesel in dual fuel engines as the market moves to Tier 4 equipment and eFleets.

Analyzing this in real-time allows companies to maximize the substitution rate while lowering emissions, reducing fuel consumption/costs, and protecting the equipment from damage.

ESG-focused solutions continue to be an emphasis for the Company as the energy, industrial and consumer markets are seeking to accelerate their focus on sustainability and minimized impact on the environment.

We anticipate the Company’s products and services could offer a significant benefit to businesses seeking to improve their ESG performance, including improving safety, reliability and efficiency of their operations.

The Company offers sustainable chemistry solutions, tailoring product selection to enable operational efficiencies, improve water management and reduce greenhouse gas emissions for its customers in the exploration and production sector of the oil and gas industry.

Further, the Company’s patented line of Complex nano-Fluid® (also known as CnF®) products are formulated with highly effective, plant-based solvents offering safer, renewable and sustainable alternatives to toxic BTEX-based (benzene, toluene, ethylbenzene and xylene) chemicals.

Additionally, we believe the Company’s real-time sensor technology helps to enable process and operational efficiencies, minimize waste and processing and reduce emissions.

We believe the industry focus on maintaining a “social license to operate” provides the platform to accelerate the sale of our products and services that we believe can help the customer achieve a greener goal.

We believe the performance driven ESG focus of the Company assists in reducing environmental liabilities and improving returns for our customers.

The principal supply issues facing our industry for the next twelve months will include:

• Fluctuating freight costs for shipping to our customers;

• Availability of raw materials;

• Delays due to port congestion;

• Labor shortages;

• Demand forecasting.

All bidding will require the risk of shipping costs and delays to be factored into proposals.

Trucking availability and pricing will impact North American opportunities while sea-freight costs will impact sales of North American manufactured goods being delivered internationally for the foreseeable future.

The import of raw materials from China will also incur price increases.

Accelerating tensions between China and the U.S.

could also result in supply disruption.

The impacts of COVID-19 pandemic continue to affect the U.S.

and global economy.

We believe our protocols and processes established to maintain business continuity with COVID-19 have proven robust enough to diminish concern about business disruption unless new variants emerge.

The pandemic has already affected and may continue to affect the U.S.

economy, including capital expenditures of our customers.

In addition, depending upon the length and severity of the pandemic, which cannot be predicted, we may experience disruptions to business operations in the future if new COVID-19 variants emerge.

Available Information and Website

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Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available (see the “Investor Relations” section of the Company’s website), as soon as reasonably practicable, subsequent to electronically filing or otherwise providing reports to the SEC.

Corporate governance materials, guidelines, by laws, and code of business conduct and ethics are also available on the website.

A copy of corporate governance materials is available upon written request to the Company.

Corporate governance materials, including but not limited to our corporate governance guidelines, board committee charters, bylaws, certain policies, and code of business conduct and ethics are also available on the website.

A copy of corporate governance materials is also available upon written request to the Company.

The SEC maintains the www.sec.gov website, which contains reports, proxy and information statements, and other registrant information filed electronically with the SEC.

The Company filed, or furnished, as applicable, all principal executive officer and financial officer certifications as required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 with this Annual Report.

Information with respect to the Company’s executive officers and directors is incorporated herein by reference to information to be included in the proxy statement for the Company’s 2022 Annual Meeting of Stockholders.

The Company has disclosed and will continue to disclose any changes or amendments to the Company’s code of business conduct and ethics as well as waivers to the code of ethics applicable to executive management by posting such changes or waivers on the Company’s website or in filings with the SEC.

Information with respect to the

Company’s executive officers and directors is incorporated herein by reference to information to be included in the definitive proxy statement for the Company’s 2023 Annual Meeting of Stockholders.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business