What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-10 · 377 added, 401 removed, 495 unchanged (61% of the section changed)

1 unchanged sentence

FLOTEK INDUSTRIES INC, UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Restricted cash 101 100

Accounts receivable, net of allowance for doubtful accounts of $ 566 and $ 659 at September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance for credit losses of $ 645 and $ 623 at March 31, 2023 and December 31, 2022, respectively

15,609 19,136

3 unchanged sentences

Current contract assets 7,066 7,113

Assets held for sale 535 2,762

Total current assets 81,859 81,087

22 unchanged sentences

TOTAL LIABILITIES 106,250 162,214

Commitments and contingencies (See Note 12)

Stockholders’ equity:

2 unchanged sentences

Common stock, $ 0.0001 par value, 240,000,000 shares authorized;

83,424,763 shares issued and 77,283,733 shares outstanding at September 30, 2022 ;

94,613,664 shares issued and 88,170,936 shares outstanding at March 31, 2023 ;

83,915,918 shares issued and 77,788,391 shares outstanding at December 31, 2022

3 unchanged sentences

Treasury stock, at cost;

6,141,030 and 6,022,634 shares at September 30, 2022 and December 31, 2021 , respectively

6,442,728 and 6,127,527 shares at March 31, 2023 and December 31, 2022 , respectively

( 34,451 ) ( 34,251 )

5 unchanged sentences

(in thousands, except per share data)

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Revenue from external customers $ 11,652 $ 10,382

1 unchanged sentence

Total revenues 48,007 12,879

Cost of goods sold 47,465 4,022 92,500 26,876

Gross income (loss) ( 1,842 ) 6,157 ( 4,626 ) 4,238

Cost of sales 46,127 13,358

Gross profit (loss) 1,880 ( 479 )

Operating costs and expenses:

Selling, general, and administrative 6,451 4,886

Depreciation of property and equipment 177 233 554 793

Depreciation 176 195

Research and development 614 1,415

(Gain) loss on sale of property and equipment ( 10 ) 14 ( 1,916 ) ( 55 )

Severance costs 2,223 ( 7 )

Loss on sale of property and equipment — 8

Gain on lease termination — ( 584 )

4 unchanged sentences

Other income (expense):

Paycheck protection plan loan forgiveness — — — 881

Payment protection plan loan forgiveness 4,522 —

Interest expense ( 1,672 ) ( 668 )

Other expense, net ( 187 ) ( 102 ) ( 67 ) ( 62 )

Other income (expense), net ( 9 ) 224

Total other income (expense) 2,841 ( 444 )

Income (loss) before income taxes 21,352 ( 10,728 )

Income tax expense ( 7 ) ( 3 ) ( 101 ) ( 30 )

Income tax (expense) benefit ( 9 ) 4

Net income (loss) $ 21,343 $ ( 10,724 )

1 unchanged sentence

Basic $ 0.22 $ ( 0.15 )

Diluted $ ( 0.25 ) $ 0.01 $ ( 0.31 ) $ ( 0.21 )

Diluted (see Note 14, “Earnings (Loss) Per Share”) $ ( 0.02 ) $ ( 0.15 )

Weighted average common shares:

Weighted average common shares used in computing basic income (loss) per common share 98,808 73,858

Weighted average common shares used in computing diluted income (loss) per common share 75,312 70,176 74,095 68,665

Weighted average common shares used in computing diluted loss per common share 158,441 73,858

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Net income (loss) $ 21,343 $ ( 10,724 )

5 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

Net loss $ ( 23,278 ) $ ( 14,337 )

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss) $ 21,343 $ ( 10,724 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Change in fair value of contingent consideration ( 359 ) 94

3 unchanged sentences

Amortization of contract assets 1,251 —

Depreciation and amortization 554 793

Provision for doubtful accounts, net of recoveries 147 ( 42 )

Inventory purchase commitment settlement — ( 7,633 )

Inventory write down 1,036 —

Depreciation 176 195

Provision for credit losses, net of recoveries 23 238

Provision for excess and obsolete inventory 258 310

3 unchanged sentences

Stock compensation expense ( 1,112 ) 739

Deferred income tax (benefit) expense 1 13

Deferred income tax benefit ( 6 ) ( 4 )

Paycheck protection plan loan forgiveness ( 4,522 ) —

5 unchanged sentences

Other assets ( 470 ) ( 220 )

Contract assets ( 3,600 ) —

Accounts payable 8,554 616

3 unchanged sentences

Interest payable ( 8 ) 12

Net cash used in operating activities ( 47,166 ) ( 18,279 )

Net cash provided by (used in) operating activities 1,140 ( 8,474 )

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sale of assets — 24

Net cash provided by investing activities 4,040 43

Net cash (used in) provided by investing activities ( 157 ) 24

Cash flows from financing activities:

Payment for forfeited stock options ( 617 ) —

Payments on long term debt ( 15 ) —

Proceeds from issuance of convertible notes — 21,150

Payment of issuance costs of convertible notes — ( 1,084 )

Proceeds from issuance of warrants 19,500 —

Payment of issuance costs of stock warrants ( 1,170 ) —

Payments to tax authorities for shares withheld from employees ( 200 ) ( 59 )

1 unchanged sentence

Payments for finance leases ( 6 ) ( 14 )

Net cash provided by (used in) financing activities 38,199 ( 451 )

Net cash (used in) provided by financing activities ( 818 ) 19,993

Effect of changes in exchange rates on cash and cash equivalents ( 21 ) 8

Net change in cash, cash equivalents and restricted cash ( 4,716 ) ( 18,757 )

Net change in cash and cash equivalents and restricted cash 144 11,551

Cash and cash equivalents at the beginning of period 12,290 11,534

3 unchanged sentences

Restricted cash at the end of period 101 40

Cash, cash equivalents and restricted cash at end of period $ 8,608 $ 20,567

Cash and cash equivalents and restricted cash at end of period $ 12,534 $ 24,875

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three and Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(In thousands of U.S.

dollars and shares)

Three months ended September 30, 2022

Common Stock Treasury Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated

Deficit Total Stockholders’ Equity

Value Shares Cost

Balance, June 30, 2022 82,885 $ 8 6,111 $ ( 34,238 ) $ 386,310 $ 176 $ ( 313,698 ) $ 38,558

Net loss — — — — — — ( 18,794 ) ( 18,794 )

Foreign currency translation adjustment — — — — — 116 — 116

Restricted stock granted 502 — — — — — — —

Restricted stock forfeited — 5 — — — — —

Restricted stock units vested 58 — — — — — — —

Stock compensation expense — — — — 671 — — 671

Shares withheld to cover taxes ( 20 ) — 25 ( 30 ) ( 23 ) — — ( 53 )

Balance, September 30, 2022

83,425 $ 8 6,141 $ ( 34,268 ) $ 386,958 $ 292 $ ( 332,492 ) $ 20,498

Nine months ended September 30, 2022

Three months ended March 31, 2023

Common Stock Treasury Stock Additional

4 unchanged sentences

Balance, December 31, 2022

Net loss — — — — — — ( 23,278 ) ( 23,278 )

83,916 $ 8 6,127 $ ( 34,251 ) $ 388,177 $ 181 $ ( 351,519 ) $ 2,596

Net income — — — — — — 21,343 21,343

Foreign currency translation adjustment — — — — — ( 21 ) — ( 21 )

3 unchanged sentences

Restricted stock units vested 387 — — — — — —

Stock compensation expense — — — — 2,262 — — 2,262

Shares withheld to cover taxes ( 35 ) — 113 ( 168 ) ( 23 ) — — ( 191 )

Issuance of stock warrants, net of transaction fee — — — — 9,930 — — 9,930

Equity contribution — — — — 8,400 — — 8,400

Conversion of notes to common stock 2,793 — — — 2,948 — — 2,948

Balance, September 30, 2022 83,425 $ 8 6,141 $ ( 34,268 ) $ 386,958 $ 292 $ ( 332,492 ) $ 20,498

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Three months ended September 30, 2021

Common Stock Treasury Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated Deficit Total Stockholders’ Equity

Value Shares Cost

Balance, June 30, 2021 79,607 $ 8 5,628 $ ( 34,017 ) $ 361,424 $ 13 $ ( 293,534 ) $ 33,894

Net loss — — — — — — 509 509

Foreign currency translation adjustment — — — — — 38 — 38

Stock issued under employee stock purchase plan — — ( 28 ) 20 ( 89 ) — — ( 69 )

Restricted stock granted 9 — — — — — — —

Restricted stock forfeited ( 6 ) — 4 8 3 — — 11

Forfeited stock options purchased — — — — ( 617 ) — — ( 617 )

Stock compensation expense — — ( 1,112 ) — — ( 1,112 )

Shares withheld to cover taxes — — 171 ( 200 ) — — — ( 200 )

Balance, September 30, 2021

79,610 $ 8 5,649 $ ( 33,925 ) $ 362,174 $ 51 $ ( 293,025 ) $ 35,283

Nine months ended September 30, 2021

Conversion of Initial ProFrac Agreement Contract Consideration Convertible Notes Payable to Pre-Funded Warrants — — — — 15,092 — — 15,092

Conversion of convertible notes payable to Pre-Funded Warrants — — — — 11,040 — — 11,040

Conversion of convertible notes payable to Common Stock 10,336 1 — — 8,996 — — 8,997

Balance, March 31, 2023 94,614 $ 9 6,442 $ ( 34,451 ) $ 421,596 $ 160 $ ( 330,176 ) $ 57,138

Three months ended March 31, 2022

Common Stock Treasury Stock Additional

4 unchanged sentences

Balance, December 31, 2021

79,484 $ 8 6,022 $ ( 34,100 ) $ 363,417 $ 81 $ ( 309,214 ) $ 20,192

Net loss — — — — — — ( 10,724 ) ( 10,724 )

Foreign currency translation adjustment — — — — — 8 — 8

Stock issued under employee stock purchase plan — — ( 112 ) ( 110 ) ( 136 ) — — ( 246 )

Restricted stock granted 287 — — — — — — —

2 unchanged sentences

Shares withheld to cover taxes — 43 ( 59 ) — — — ( 59 )

Other (see Note 13, “Stockholders’ Equity”) ( 613 ) — — — — — — —

Balance, September 30, 2021 79,610 $ 8 5,649 $ ( 33,925 ) $ 362,174 $ 51 $ ( 293,025 ) $ 35,283

Conversion of convertible notes payable notes to common stock 2,793 — — — 2,948 — — 2,948

Balance, March 31, 2022 82,564 $ 8 6,073 $ ( 34,159 ) $ 367,104 $ 89 $ ( 319,938 ) $ 13,104

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Flotek Industries, Inc.

(“Flotek” or the “Company”) creates 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, commercial, and consumer markets improve their environmental performance.

(“Flotek” or the “Company”) 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’s Chemistry Technologies (“CT”) segment develops, manufactures, packages, distributes, delivers, and markets green specialty chemicals that aim to enhance the profitability of hydrocarbon producers.

3 unchanged sentences

For further discussion of our operations and segments, see Note 17, “Business Segment, Geographic and Major Customer Information.”

As a result of a series of transactions in 2022 with ProFrac Holdings, LLC, Flotek has become a consolidated subsidiary of ProFrac Holding Corp.

since May 17, 2022.

Sources and Uses of Liquidity

The Company currently funds its operations and growth primarily from cash on hand and other liquid assets.

The ability of the Company to grow and be competitive in the marketplace is dependent on the availability of adequate capital.

The Company has a history of losses and negative cash flows from operations and expects to utilize a significant amount of cash in the twelve months subsequent to the date of filing the consolidated financial statements.

The availability of capital is dependent on the Company’s operating cash flow principally derived from its long-term supply agreement with ProFrac Services, LLC (see Note 16, Related Party Transactions).

We believe that our cash and other liquid assets and our forecasted operating cash flows expected to be generated from the ongoing execution of the long-term supply agreement with ProFrac Services, LLC will provide us with sufficient financial resources to fund operations and meet our capital requirements and anticipated obligations as they become due in the next twelve months.

However, the Company cannot guarantee a sufficient level of cash flows in the future.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

Going Concern

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) assuming the Company will continue as a going concern.

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

However, substantial doubt about the Company’s ability to continue as a going concern exists.

The Company currently funds its operations from cash on hand and other current assets.

The Company has a history of losses and negative cash flows from operations and expects to utilize a significant amount of cash within one year after the date of filing the unaudited condensed consolidated financial statements.

The availability of capital is dependent on the Company’s operating cash flow currently expected to be principally derived from the ProFrac Agreement (see Note 9, “Debt and Convertible Notes Payable” and Note 16, “Related Party Transactions”).

It is not certain that the Company’s cash and other current assets and the Company’s forecasted operating cash flows currently expected to be generated from the ongoing execution of the ProFrac Agreement will provide the Company with sufficient financial resources to fund operations and meet the Company’s capital requirements and anticipated obligations as they become due in the next twelve months.

The Company may require additional liquidity to continue its operations over the next twelve months to sufficiently alleviate or mitigate the conditions and events noted above, which results in substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are filed.

The Company is evaluating strategies to obtain additional funding for future operations.

These strategies may include, but are not limited to, obtaining equity financing, issuing debt or entering into other financing arrangements, obtaining higher prices for its products and services, increasing the percentage of its sales from higher margin products, monetizing non-core assets, and reducing expenses.

However, the Company may be unable to access further equity or debt financing when needed.

As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all.

The unaudited condensed consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements reflect all adjustments, in the opinion of management, necessary for the fair statement of the financial condition and results of operations for the periods presented.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, in the opinion of management, necessary for the fair statement of the financial condition and results of operations for the periods presented.

All such adjustments are normal and recurring in nature.

The financial statements, including selected notes, have been prepared in accordance with applicable rules and regulations of the SEC regarding interim financial reporting and do not include all information and disclosures required by accounting principles generally accepted in the United States of America (“U.S.

The financial statements, including selected notes, have been prepared in accordance with applicable rules and regulations of the SEC regarding interim financial reporting and do not include all

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

information and disclosures required by accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for comprehensive financial statement reporting.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s 2022 Annual Report.

A copy of the 2021 Annual Report is available on the SEC’s website, www.sec.gov, under the Company’s ticker symbol (“FTK”) or on Flotek’s website, www.flotekind.com.

A copy of the 2022 Annual Report is available on the SEC’s website, www.sec.gov or on Flotek’s website, www.flotekind.com.

The information contained on the Company’s website does not form a part of this Quarterly Report.

4 unchanged sentences

Restricted Cash

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s restricted cash is $ 0.1 million and $ 1.8 million as of September 30, 2022 and December 31, 2021, respectively.

The Company’s restricted cash as of September 30, 2022 consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its credit card program with a financial institution.

The restricted cash balance as of December 31, 2021 included cash maintained in accordance with the credit card program and cash held in escrow of $ 1.75 million for amounts due under the terms of the legal settlement discussed in Note 12, “Commitments and Contingencies”.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable, including those with related party, arise from product sales and services and are stated at estimated net realizable value.

This value incorporates an allowance for doubtful accounts to reflect any loss anticipated on accounts receivable balances.

The Company regularly evaluates its accounts receivable to estimate amounts that will not be collected and records the appropriate allowance for doubtful accounts as a charge to operating expenses.

The allowance for doubtful accounts is based on a combination of the age of the receivables, individual customer circumstances, credit conditions, and historical write-offs and collections.

The Company’s restricted cash is $ 0.1 million and $ 0.1 million as of March 31, 2023 and December 31, 2022, respectively.

The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its credit card program with a financial institution.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable and accounts receivable, related party, arise from product sales and services and are stated at estimated net realizable value.

This value incorporates an allowance for credit losses to reflect any loss anticipated on accounts receivable balances.

The Company applies the current expected credit loss (CECL) model, which requires immediate recognition of expected credit losses over the contractual life of receivables and records the appropriate allowance for credit losses as a charge to operating expenses.

The allowance for credit losses is based on a combination of the individual customer circumstances, credit conditions, and historical write-offs and collections.

The Company writes off specific accounts receivable when they are determined to be uncollectible.

The recovery of accounts receivable previously written off is recorded as a reduction to the allowance for doubtful accounts charged to operating expense.

The recovery of accounts receivable previously written off is recorded as a reduction to the allowance for credit losses charged to operating expense.

The majority of the Company’s customers are engaged in the energy industry.

2 unchanged sentences

Contract Assets

The Company’s contract assets represent consideration issued in the form of convertible notes and other incremental costs related to obtaining a contract with a related party customer.

The contract assets are amortized over the term of the related party contract based on forecasted revenues as goods are transferred to the related party customer and the amortization is presented as a reduction of the transaction price included in related party revenue in the consolidated statements of operations.

The contract assets are tested for recoverability on a recurring basis and the Company will recognize an impairment loss to the extent that the carrying amount of the contract assets exceeds the amount of consideration the Company expects to receive in the future for the transfer of goods under the contract less the direct costs that relate to providing those goods in the future.

Inventories consist of raw materials and finished goods and are stated at the lower of cost determined using the weighted-average cost method, or net realizable value.

The Company’s contract assets represent consideration issued in the form of convertible notes (Contract Consideration Convertible Notes Payable as discussed in Note 9, “Debt and Convertible Notes Payable”) and other incremental costs related to obtaining the ProFrac Agreement.

The contract assets are amortized over the term of the ProFrac Agreement ( 10 years) based on forecasted revenues as goods are transferred to ProFrac Services, LLC, and the amortization is presented as a reduction of the transaction price included in related party revenue in the consolidated statements of operations.

The contract assets are tested for recoverability on a recurring basis and the Company will recognize an impairment loss to the extent that the carrying amount of the contract assets exceeds the amount of consideration the Company expects to receive in the future for the transfer of goods under the ProFrac Agreement less the direct costs that relate to providing those goods in the future.

Inventories consist of raw materials and finished goods and are stated at the lower of cost determined by using the weighted-average cost method, or net realizable value.

Finished goods inventories include raw materials, direct labor and production overhead.

1 unchanged sentence

Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its net realizable value if those amounts are determined to be less than cost.

Write-downs or write-offs of inventory are charged to cost of goods sold.

Write-downs or write-offs of inventory are charged to cost of sales.

Property and equipment

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment are stated at cost.

The cost of ordinary maintenance and repair is charged to operating expense, while replacement of critical components and major improvements are capitalized.

Depreciation or amortization of property and equipment, including right-of-use assets (“ROU”), is calculated using the straight-line method over the asset’s estimated useful life as follows:

Depreciation or amortization of property and equipment, including operating lease right-of-use assets (“ROU”), is calculated using the straight-line method over the shorter of the lease term or the asset’s estimated useful life as follows:

Buildings and leasehold improvements 2 - 30 years

5 unchanged sentences

Property and equipment, including ROU assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

If events or changes in circumstances indicate

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the carrying amount of an asset or asset group may not be recoverable, the Company first compares the carrying amount of an asset or asset group to the sum of the undiscounted future cash flows expected to result from the use and eventual disposal of the asset.

If events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable, the Company first compares the carrying amount of an asset or asset group to the sum of the undiscounted future cash flows expected to result from the use and eventual disposal of the asset.

If the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposal of the asset, the Company will determine the fair value of the asset or asset group.

3 unchanged sentences

Upon sale or other disposition of an asset, the Company recognizes a gain or loss on disposal measured as the difference between the net carrying amount of the asset and the net proceeds received.

The Company leases certain facilities, land, vehicles, and equipment.

The Company determines if an arrangement is classified as a lease at inception of the arrangement.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the related lease.

Finance leases are under the current and non-current liabilities and the underlying assets are included in property and equipment on the consolidated balance sheet.

As most of the Company’s leases do not provide an implicit rate of return, on a quarterly basis, the Company’s incremental borrowing rate is used, together with the lease term information available at commencement date of the lease, in determining the present value of lease payments.

Operating lease liabilities include related options to extend or terminate lease terms that are reasonably certain of being exercised.

Leases with an initial term of 12 months or less (“short term leases”) are not recorded on the balance sheet;

and the lease expense on short-term leases is recognized on a straight-line basis over the lease term.

Convertible Notes Payable and Liability Classified Contract Consideration Convertible Notes Payable

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The Company categorizes financial assets and liabilities using a three-tier fair value hierarchy, based on the nature of the inputs used to determine fair value.

Inputs refer broadly to assumptions that market participants would use to value an asset or liability and may be observable or unobservable.

Inputs refer broadly to assumptions that market participants would use to value an asset or liability

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and may be observable or unobservable.

When determining the fair value of assets and liabilities, the Company uses the most reliable measurement available.

1 unchanged sentence

Revenue Recognition

The Company recognizes revenue to depict the transfer of control of promised goods or services to its customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

The Company recognizes revenue when it satisfies performance obligations under the terms of the contract with a customer, and control of the promised goods are transferred to the customer or services are performed, in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods or services.

The Company recognizes revenue based on a five-step model when all of the following criteria have been met:

1 unchanged sentence

Products and services are sold with fixed or determinable prices.

Certain sales include right of return provisions, which are considered when recognizing revenue and deferred accordingly.

Deposits and other funds received in advance of delivery are deferred until the transfer of control is complete.

Certain sales include discounts offered to customers for prompt payment and right of return provisions, which are considered when recognizing revenue and deferred accordingly.

The Company does not act as an agent in any of its revenue arrangements.

In recognizing revenue for products and services, the Company determines the transaction price of contracts with customers, which may consist of fixed and variable consideration.

Determining the transaction price may require judgment by management, which includes identifying performance obligations, estimating variable consideration to include in the transaction price, and determining whether promised goods or services can be distinguished in the context of the contract.

The majority of the CT segment revenue is chemical products that are sold at a point in time based on when control transfers to the customer determined by agreed upon delivery terms.

Contracts with customers for the sale of products generally state the terms of the sale, including the quantity and price of each product purchased.

Additionally, the CT segment offers various services associated to products sold which includes field services, installation, maintenance, and other functions.

These services are recognized upon completion of commissioning and installation due to the short-term nature of the performance obligation when the Company has a right to invoice the customer.

The DA segment recognizes revenue for sales of equipment at the time of sale based on when control transfers to the customer based on agreed upon delivery terms.

Additionally, the Company offers various services associated with products sold which includes field services, installation, maintenance, and other functions.

Services are recognized upon completion of commissioning and installation due to the short-term nature of the performance obligation.

There may be additional performance obligations related to providing ongoing or reoccurring maintenance.

Revenue for these types of arrangements is recognized ratably over time throughout the contract period.

Additionally, the Company may provide subscription-type arrangements with customers in which monthly reoccurring revenue is recognized ratably over time in accordance with agreed upon terms and conditions.

Customers may be invoiced for such maintenance and subscription-type arrangements, and revenue not yet recognizable is reported under accrued liabilities and deferred revenue on the consolidated balance sheets.

Subscription-type arrangements were not a material revenue stream in the three months ended March 31, 2023 and March 31, 2022.

Payment terms for both the CT and DA segments are customarily 30 - 60 days for domestic and 90 - 120 days f or international from invoice receipt.

Under revenue contracts for both products and services, customers are invoiced once the performance obligations have been satisfied, at which point payment is unconditional.

Contract assets associated with incomplete performance obligations are not material.

The Company applies several practical expedients including:

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Such taxes are included in accrued liabilities on our consolidated balance sheet until remitted to the governmental agency.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold in our consolidated statement of operations.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency Translation

Financial statements of foreign subsidiaries are prepared using the currency of the primary economic environment of the foreign subsidiaries as the functional currency.

Assets and liabilities of foreign subsidiaries are translated into U.S.

The Company’s functional currency is primarily the U.S.

The Company operates principally in the United States and substantially all assets and liabilities of the Company are denominated in U.S.

Financial statements of foreign subsidiaries that are not U.S.

dollar functional currency are prepared using the currency of the primary economic environment of the foreign subsidiaries as the functional currency.

Assets and liabilities of those foreign subsidiaries are translated into U.S.

dollars at exchange rates in effect as of the end of identified reporting periods.

21 unchanged sentences

Stock Warrants

The Company evaluated the Prefunded Warrants issued in June 2022 in accordance with ASC 815-40, “Contracts in Entity’s Own Equity” and determined that the warrants meet the criteria to be classified within stockholders’ equity and recorded the proceeds received for the Prefunded Warrants within additional paid in capital in the consolidated balance sheets.

The Company evaluated the Pre-Funded Warrants issued in June 2022 (the “June 2022 Warrants”) and the Pre-Funded Warrants issued in February 2023 (the “February 2023 Warrants”) (see Note 13, “Stockholders’ Equity) in accordance with ASC 815-40, “Contracts in Entity’s Own Equity” and determined that the June 2022 Warrants and the February 2023 Warrants meet the criteria to be classified within stockholders’ equity and recorded the proceeds received for the June 2022 Warrants and the February 2023 Warrants within additional paid in capital in the consolidated balance sheets.

Use of Estimates

2 unchanged sentences

Actual results could differ from these estimates.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Significant items subject to estimates and assumptions include the useful lives of property and equipment;

1 unchanged sentence

stock-based compensation expense;

valuation allowances for accounts receivable, inventories, and deferred tax assets;

allowance for credit losses for accounts receivable;

valuation allowances for inventories, and deferred tax assets;

recoverability and timing of the realization of contract assets;

and fair value of liability classified Contract Consideration Convertible Notes Payable and equity classified Stock Warrants.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

Certain prior year amounts in the unaudited condensed consolidated statement of operations have been reclassified to conform to the current year presentation.

In the fourth quarter of 2021, the Company changed its financial statement presentation to report cost of goods sold and gross loss and eliminated the reporting of operating expenses (excluding depreciation and amortization) on the consolidated statements of operations to conform to customary industry reporting practices.

In connection with this change in presentation, the Company reclassified selling costs of $ 1.4 million and $ 4.4 million to selling, general and administrative expenses which were previously reported in operating expenses for the three and nine months ended September 30, 2021 respectively.

The reclassifications and change in presentation of the statements of operations did not impact previously recorded income (loss) from operations, net income (loss) or stockholders’ equity.

and fair value of liability classified Contract Consideration Convertible Notes Payable.

Recent Accounting Pronouncements

5 unchanged sentences

The FASB issued ASU No.

2020-06, “ Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

” This standard changes the accounting for convertible instruments by reducing the number of accounting models, amends the requirements for a conversion option to be classified in equity and amends diluted earnings per share calculations for certain convertible debt instruments.

The pronouncement is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, with early adoption allowed for fiscal years beginning after December 15, 2020.

The Company adopted this standard as of January 1, 2022, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures as of January 1, 2022 as there were no convertible debt instruments outstanding as of that date.

The FASB issued ASU No.

2021-10, “Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance.” This standard provides guidance on disclosures for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.

The pronouncement is effective for fiscal years beginning after December 15, 2021.The Company adopted this standard as of January 1, 2022 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

New Accounting Standards Issued But Not Adopted as of September 30, 2022

The FASB issued ASU No.

2016-13, “ Measurement of Credit Losses on Financial Instruments .” This standard replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects estimates of expected credit losses over their contractual life that are recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts.

The pronouncement is effective for smaller reporting companies for fiscal years beginning after December 15, 2022.

The Company is currently evaluating the impact of this standard, including subsequent amendments, on the consolidated financial statements and related disclosures.

The Company adopted this standard prospectively as of January 1, 2023 and the adoption did not have a material impact of the Company’s consolidated financial statements and related disclosures, and there was no cumulative effect on retained earnings.

Note 3 — Revenue from Contracts with Customers

Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods or services.

In recognizing revenue for products and services, the Company determines the transaction price of purchase orders or contracts with customers, which may consist of fixed and variable consideration.

Determining the transaction price may require significant judgment by management, which includes identifying performance obligations, estimating variable consideration to include in the transaction price, and determining whether promised goods or services can be distinguished in the context of the contract.

Variable consideration typically consists of product returns and is estimated based on the amount of consideration the Company expects to receive and discounts offered to customers for prompt payment.

The majority of the products from the CT segment are sold at a point in time and service contracts are short-term in nature.

The DA segment recognizes revenue for sales of equipment at the time of sale.

Revenue related to service and support is recognized on an over time basis.

Payment terms are customarily 30-60 days for domestic and 90-120 days f or international from invoice receipt.

In addition, sales taxes are excluded from revenues.

Disaggregation of Revenue

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company differentiates revenue based on whether the source of revenue is attributable to product sales (point-in-time revenue recognition) or service revenue (over-time revenue recognition).

Revenue disaggregated by revenue source is as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

The Company differentiates revenue based on whether the source of revenue is attributable to product sales or service revenue.

Total revenue disaggregated by revenue source is as follows (in thousands):

Three months ended March 31,

$ 46,767 $ 12,199

Services 1,240 680

$ 48,007 $ 12,879

(1) Product revenue includes sales to related parties as described in Note 16, “Related Party Transactions.”

Disaggregation of Cost of Sales

The Company differentiates cost of sales based on whether the cost is attributable to tangible goods sold, cost of services sold or other costs which cannot be directly attributable to either tangible goods or services.

Total cost of sales disaggregated is as follows (in thousands):

Three months ended March 31,

Cost of sales:

Tangible goods sold $ 41,529 $ 9,788

Services 141 ( 53 )

Other 4,457 3,623

$ 46,127 $ 13,358

(1) Product revenues for 2022 include sales to related parties as described in Note 16, “Related Party Transactions.”

Arrangements with Multiple Performance Obligations

The Company primarily sells chemicals and equipment recognized at a point in time based on when control transfers to the customer determined by agreed upon delivery terms.

Additionally, the Company offers various services associated to products sold which includes field services, installation, maintenance, and other functions.

Services are recognized upon completion of commissioning and installation due to the short-term nature of the performance obligation.

There may be additional performance obligations related to providing ongoing or reoccurring maintenance.

Revenue for these types of arrangements is recognized ratably over time throughout the contract period.

Customers may be invoiced for such maintenance and subscription-type arrangements and revenue not yet recognizable is reported under accrued liabilities and deferred revenue on the balance sheet.

Subscription-type arrangements were not a material revenue stream in the three and nine months ended September 30, 2022 and 2021.

Under revenue contracts for both products and services, customers are invoiced once the performance obligations have been satisfied, at which point payment is unconditional.

Contract assets associated with incomplete performance obligations are not material.

Other cost of sales represent costs directly associated with the generation of revenue but which cannot be attributed directly to tangible goods sold or services.

Examples of other costs of sales are certain personnel costs and equipment rental and insurance costs.

Cost of sales split between external and related party sales is as follows (in thousands):

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31,

Cost of sales:

Cost of sales for external customers $ 11,196 $ 10,768

Cost of sales for related parties 34,931 2,590

$ 46,127 $ 13,358

Note 4 - Contract Assets

Contract assets are as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Contract assets $ 83,060 $ 83,060

1 unchanged sentence

Contract assets, net 78,438 79,689

In connection with entering into the ProFrac Agreements on February 2, 2022 and May 17, 2022 as discussed in Note 9, “Debt and Convertible Notes Payable”, the Company recognized contract assets of $ 10.0 million and $ 69.5 million, respectively, and associated fees of $ 3.6 million.

As of September 30, 2022, $ 73.9 million of the contract assets are classified as long term based upon our estimate of the forecasted revenues from the ProFrac agreements which will not be realized within the next twelve months of the ProFrac Agreements.

Less current contract assets ( 7,066 ) ( 7,113 )

Contract assets, long term $ 71,372 $ 72,576

In connection with entering into the ProFrac Agreement on February 2, 2022 and May 17, 2022 as discussed in Note 9, “Debt and Convertible Notes Payable” and Note 16, “Related Party Transactions”, the Company recognized contract assets of $ 10.0 million and $ 69.5 million, respectively, and associated fees of $ 3.6 million.

As of March 31, 2023 and December 31, 2022, $ 71.4 million and $ 72.6 million, respectively, of the contract assets are classified as long term based upon our estimate of the forecasted revenues from the ProFrac Agreement which will not be realized within the next twelve months of the ProFrac Agreement.

The Company’s estimate of the timing of the future contract revenues is evaluated on a quarterly basis.

During the three and nine months ended September 30, 2022 the Company recognized $ 1.2 million and $ 2.0 million, respectively, of contract assets amortization which is presented as a reduction of the transaction price included in the related party revenue in the consolidated statement of operations.

The below table reflects our estimated amortization per year (in thousands) based on the Company’s current forecasted revenues from the ProFrac Agreements.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended March 31, 2023 the Company recognized $ 1.3 million of contract assets amortization which is recorded as a reduction of the transaction price included in the related party revenue in the consolidated statement of operations.

The below table reflects our estimated amortization per year (in thousands) based on the Company’s current forecasted revenues from the ProFrac Agreement.

Years ending December 31, Amortization

2022 (excluding the nine months ended September 30, 2022 )

2023 (excluding the three months ended March 31, 2023)

Thereafter through May 2032 38,066

Total contract assets $ 78,438

Based on our tests of recoverability, we did not identify impairment of such contract assets as of September 30, 2022.

Based on our tests of recoverability, we did not identify impairment of such contract assets as of March 31, 2023.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Inventories

Inventories are as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Raw materials $ 6,503 $ 5,800

3 unchanged sentences

Inventories, net $ 15,904 $ 15,720

The provision recorded in the three months ended September 30, 2022 and 2021 was $ 44.8 thousand and $ 0.1 million for the CT segment and $ 14.4 thousand and nil for the DA segment, respectively.

The provision recorded in the nine months ended September 30, 2022 and 2021 was $ 0.8 million and $ 0.5 million for the CT segment and $ 0.1 million and $ 0.2 million for the DA segment, respectively .

The Company wrote off inventory of $ 1.0 million in the three and nine months ended September 30, 2022 relating to the Company’s decision to cease the manufacture and sale of hand sanitizers.

There were no inventory write offs in the three and nine months ended September 30, 2021.

The provision recorded in the three months ended March 31, 2023 and 2022 was $ 0.1 million and $ 0.3 million for the CT segme nt and $ 0.2 million and zero for the DA segment, respectively.

Note 6 — Property and Equipment

Property and equipment are as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Land $ 886 $ 886

8 unchanged sentences

Property and equipment, net $ 4,807 $ 4,826

Depreciation expense totaled $ 0.2 million and $ 0.2 million for the three months ended September 30, 2022 a nd 2021, and $ 0.6 million and $ 0.8 million for the nine months ended September 30, 2022 and 2021, respectively.

During 2021, the Company committed to plans to sell its warehouse facility in Monahans, Texas in its current condition and as a result the associated assets in the amount of $ 0.5 million are classified as held for sale as of September 30, 2022 and

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021.

The company also classified $ 2.3 million for the Waller, Texas facility as held for sale as of December 2021.

The Waller, Texas facility was sold on April 18, 2022 and the Company recognized a gain on the sale of the facility of $ 1.9 million during the nine months ended September 30, 2022.

Depreciation expense totaled $ 0.2 million and $ 0.2 million for the three months ended March 31, 2023 a nd 2022.

Note 7 — Leases

In July 2021, the Company entered into a long-term rental agreement to lease its manufacturing facility in Waller, Texas, for $ 40.0 thousand per month for sixty-four months .

Rental income recognized during nine months ended September 30, 2022 was $ 121.0 thousand, and was included in other expense, net in the consolidated statement of operations.

Rental income recognized during the three and nine months ended September 30, 2021 was nil .

As discussed in Note 6, “Property and Equipment” this facility was sold on April 18, 2022 and the lease agreement between the tenant and the Company terminated.

In August 2021, the Company entered into a five-year triple net operating lease agreement to lease its warehouse facility in Monahans, Texas, for $ 21.0 thousand per month, and the tenant occupied the warehouse facility in September 2021.

Rental income recognized during the three and nine months ended September 30, 2022 was $ 65.0 thousand and $ 196.0 thousand, respectively, and was included in other expense, net in the consolidated statement of operations.

Rental income recognized during the three and nine months ended September 30, 2021 was $ 12.0 thousand and was included in other expense, net in the consolidated statement of operations.

Prior to their sale in 2022, the Company leased its facilities in Waller, Texas and Monahans, Texas and during the three months ended March 31, 2022 recognized rental income of $ 121 thousand and $ 185 thousand, respectively, which is included in other income on the unaudited condensed consolidated statement of operations.

The lease agreements between the tenants and the Company were terminated on the sale of the facilities.

The components of lease expense and supplemental cash flow information are as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31,

Operating lease expense $ 240 $ 228

Finance lease expense:

Amortization of right-of-use assets 4 4 11 11

Amortization of assets 4 4

Interest on lease liabilities 1 3

6 unchanged sentences

Financing cash flows from finance leases 1 3

Maturities of lease liabilities as of September 30, 2022 are as follows (in thousands):

Maturities of lease liabilities as of March 31, 2023 are as follows (in thousands):

Years ending December 31, Operating Leases Finance Leases

2022 (excluding the nine months ended September 30, 2022)

2023 1,221 39

2023 (excluding the three months ended March 31, 2023)

2024 2,394 23

6 unchanged sentences

Supplemental balance sheet information related to leases is as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Operating Leases

18 unchanged sentences

Current accrued liabilities are as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Severance costs $ 4,375 $ 2,617

Loss on purchase commitments — 1,750

Payroll and benefits 919 684

5 unchanged sentences

Total current accrued liabilities $ 9,870 $ 8,984

Note 9 — Debt and Convertible Notes Payable

Long Term Debt

In April 2020, the Company received a $ 4.8 million loan (the “Flotek PPP loan”) under the Paycheck Protection Program (“PPP”), which was created through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and is

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

administered by the U.S.

Note 9 — Debt and Convertible Notes Payable

Long Term Debt

Paycheck Protection Program Loans

Small Business Administration (“SBA”).

In connection with the acquisition of JP3 in May 2020, the Company assumed a PPP loan of $ 0.9 million obtained by JP3 (the “JP3 PPP loan”) in April 2020 prior to its acquisition by Flotek.

The PPP loans had a fixed interest rate of 1 % and originally a two-year term, maturing in April and May 2022, respectively.

No payments of principal or interest were required during the three or nine months ended September 30, 2022 and 2021.

A portion of the loans may be eligible for forgiveness by the SBA depending on the extent of proceeds used for payroll costs and other designated expenses incurred for up to 24 weeks following loan origination, subject to adjustments for headcount reductions and compensation limits and provided that at least 60 % of the eligible costs incurred were used for payroll.

Receipt of these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support ongoing operations of the Company.

This certification further required the Company to take into account current business activity and the ability to access other sources of liquidity sufficient to support ongoing operations in a manner that was not significantly detrimental to the business.

The forgiveness of the loans is dependent on the Company having initially qualified for the loans and qualifying for the forgiveness of such loans based on our past and future adherence to the forgiveness criteria.

The PPP loans are subject to any new guidance and new requirements released by the Department of the Treasury, which initially indicated that all companies that have received funds in excess of $2.0 million will be subject to audit by the SBA to further ensure PPP loans are limited to eligible borrowers in need.

During the second quarter of 2021, the Company applied for forgiveness of the JP3 PPP loan with the SBA.

In June 2021, the Company received notice from the SBA that the JP3 PPP loan and accrued interest were fully forgiven.

Accordingly, during the second quarter of 2021, the Company recorded $ 0.9 million for the amount of principal and accrued interest forgiven associated with the JP3 PPP loan in other expense, net on the consolidated statement of operations.

In October 2021, the Flotek PPP loan maturity date was extended from April 15, 2022 to April 15, 2025.

During the third quarter of 2021, the Company submitted to the S BA, request for forgiveness of substantially all of the Flotek PPP loan.

As of the date of this filing, the Company has not received a forgiveness notice.

If the loan is not forgiven, monthly payments will be due over the remaining term o f the loan upon notice from the SBA that it will not be forgiven.

Long-term debt, including current portion, assuming forgiveness is not obtained, is as follows (in thousands):

September 30, 2022 December 31, 2021

On January 5, 2023 the Company received notice from the SBA that $ 4.4 million of the $ 4.8 million principal amount and accrued interest to that date of $ 0.1 million, was forgiven.

The remaining principal amount of $ 0.4 million and accrued interest, is to be repaid in monthly installments of $ 15 thousand over the remaining term of the loan through April 15, 2025, beginning on March 15, 2023.

The forgiveness of the Flotek PPP loan is accounted for as an extinguishment of the debt and the Company has recorded a $ 4.5 million gain in the three months ended March 31, 2023, comprising the principal amount forgiven of $ 4.4 million and accrued interest of $ 0.1 million.

Long-term debt, including current portion, is as follows (in thousands):

March 31, 2023 December 31, 2022

Flotek PPP loan

6 unchanged sentences

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

The PIPE transaction was exempted from the registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state securities laws.

Pursuant to the PIPE transaction, Flotek issued $ 21.2 million in aggregate initial principal amount of Convertible Notes Payable for net cash proceeds of approximately $ 20.1 million.

Pursuant to the PIPE transaction, Flotek issued $ 21.2 million in aggregate initial principal amount of Convertible Notes Payable for net cash proceeds of approximately $ 20.1 million (the “Convertible Notes Payable”).

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 Payable 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 Convertible Notes Payable accrue paid-in-kind interest at a rate of 10 % per annum, had a maturity of one year, and were convertible into common stock of Flotek or Pre-Funded Warrants to purchase 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 per share, or $ 1.741 per share, for 20 trading days during a 30 consecutive trading day period, or (c) at maturity, at a price of $ 0.8705 .

On March 21, 2022, $ 3.0 million of the Convertible Notes Payable, plus accrued paid-in-kind interest thereon, were converted at the holder’s option into approximately 2.8 million shares of common stock.

As of September 30, 2022, the remaining Convertible Notes Payable are recorded at carrying value of $ 19.1 million, including accrued paid-in-kind interest of $ 1.3 million, and net of unamortized issuance costs of $ 0.3 million.

The estimated fair value of the Convertible Notes Payable at September 30, 2022 was $ 22.8 million.

ProFrac Agreement Contract Consideration Convertible Notes Payable

The issuance cost of $ 1.1 million was amortized on a straight-line basis over the term of the Convertible Notes Payable and the amortization was included in interest expense in the unaudited condensed consolidated statements of operations.

On February 2, 2023, the Convertible Notes Payable, excluding those held by ProFrac Holdings, LLC, with a carrying value of $ 9.0 million, including accrued paid-in-kind interest of $ 0.8 million, were converted, upon maturity, into 10,335,840 shares of common stock at a price of $ 0.8705 per share.

The Convertible Notes Payable held by ProFrac Holding, LLC, with a carrying value of $ 11.0 million, including accrued paid-in-kind interest of $ 1.0 million, were converted, upon maturity, into 12,683,280 February 2023 Warrants with an exercise price of $ 0.0001 per share.

Initial ProFrac Agreement Contract Consideration Convertible Notes Payable

On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (the “Initial ProFrac Agreement”), a subsidiary of ProFrac Holdings LLC, in exchange for $ 10 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (“Initial ProFrac Agreement Contract Consideration Convertible Notes Payable”), under the same terms as the Convertible Notes Payable issued in the PIPE transaction described above, including paid-in-kind interest at a rate of 10 % per annum and conversion features.

The Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were accounted for as liability classified convertible instruments and were initially recorded at fair value of $ 10.0 million on the issuance date with a corresponding contract asset.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (the “ProFrac Agreement”), a subsidiary of ProFrac Holdings LLC, in exchange for $ 10 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (“ProFrac Agreement Contract Consideration Convertible Notes Payable”), under the same terms as the Convertible Notes Payable issued in the PIPE transaction.

This offering of the Contract Consideration Convertible Notes Payable was exempted from the registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state securities laws.

The ProFrac Agreement Contract Consideration Convertible Notes Payable are accounted for as liability classified convertible instruments and were initially recorded at fair value of $ 10.0 million on the issuance date and remeasured to fair value of $ 12.6 million as of September 30, 2022 which includes paid-in-kind interest of $ 0.7 million.

The fair value adjustment was an increase of $ 0.6 million and a $ 1.9 million in the three and nine months ended September 30, 2022, respectively.

See Note 10, “Fair Value Measurements”.

On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable, remeasured to and carried at a fair value of $ 15.1 million, were converted, upon maturity, into 12,683,281 February 2023 Warrants with an exercise price of $ 0.0001 per share (see Note 10, “Fair Value Measurements”).

Amended ProFrac Agreement Contract Consideration Convertible Notes Payable

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

This offering of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable was exempted from the registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state securities laws.

The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable may be converted at any time prior to the maturity date, which is one year from the date of issuance under the same stock conversion terms as the Convertible Notes Payable issued in the PIPE transaction.

The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable are accounted for as liability classified convertible instruments and were initially recorded at fair value of $ 69.5 million on the issuance date and remeasured to fair value of $ 60.5 million as of September 30, 2022 which includes paid-in-kind interest of $ 1.9 million.

The fair value adjustment was a $ 3.6 million increase and a $ 10.9 million decrease in the three and nine months ended September 30, 2022.

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

The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable accrue paid-in-kind interest at a rate of 10 % per annum and may be converted at any time prior to the maturity date, which is one year from the date of issuance under the same conversion terms as the Convertible Notes Payable issued in the PIPE transaction described above.

The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable were remeasured to fair value of $ 43.8 million as of March 31, 2023 which includes paid-in-kind interest of $ 4.6 million.

The fair value adjustment resulted in an a $ 26.9 million decrease in the three months ended March 31, 2023 and is recognized as a gain in fair value Contract Consideration Convertible Notes Payable, net on the unaudited condensed consolidated statement of operations.

See Note 10, “Fair Value Measurements”.

12 unchanged sentences

The following table presents the Company’s liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy (in thousands):

September 30, December 31,

March 31, December 31,

Level 1 Level 2 Level 3 2023 Level 1 Level 2 Level 3 2022

Contingent earnout consideration $ — $ — $ 225 $ 225 $ — $ — $ 583 $ 583

ProFrac Agreement contract consideration convertible notes $ — $ — 12,570 $ 12,570 $ — $ — $ — $ —

Initial ProFrac Agreement Contract Consideration Convertible Notes — — — — — — 14,220 14,220

Amended ProFrac Agreement Contract Consideration Convertible Notes — — 43,800 43,800 — — 69,350 69,350

1 unchanged sentence

Contingent Earnout Consideration Key Inputs

The estimated fair value of the remaining stock performance earn-out provision, with respect to the JP3 transaction, is included in accrued liabilities as of September 30, 2022 and December 31, 2021.

The estimated fair value of the remaining stock performance earn-out provision, with respect to the JP3 transaction, is included in accrued liabilities as of March 31, 2023 and December 31, 2022.

The estimated fair value of the earn-out provision at the end of each period was valued using a Monte Carlo model analyzing 20,000 simulations performed using Geometric Brownian Motion with inputs such as risk-neutral expected growth and volatility.

The key inputs into the Monte Carlo simulation used to estimate the fair value of the earn-out provision were as follows:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Risk-free interest rate 4.03 % 4.34 %

3 unchanged sentences

Discount rate 10.92 % 9.95 %

ProFrac Agreement Contract Consideration Notes Payable Key Inputs

The ProFrac Agreement Contract Consideration Convertible Notes Payable were measured at fair value at issuance and on a recurring basis.

The ProFrac Agreement Contract Consideration Convertible Notes Payable had an initial fair value of $ 10.0 million on February 2, 2022.

The ProFrac Agreement Contract Consideration Convertible Notes Payable were classified as Level 2 at the initial measurement due to the use of a quoted price for a similar liability, and classified as Level 3 subsequently due to the use of unobservable inputs.

The estimated value of the ProFrac Agreement Contract Consideration Convertible Notes Payable as of September 30, 2022 was valued using a Monte Carlo simulation with inputs such as the market trading price of the Company’s common stock, the expected volatility of the Company’s stock price based on historical trends, a risk-free rate of interest based on US Treasury note rates and the term of the debt, the time to liquidation based on the maturity date of the notes, and a discount rate based on the risk free rate of interest.

The key inputs into the Monte Carlo simulation used to estimate the fair value of the ProFrac Agreement Contract Consideration Convertible Notes Payable maturing February 2, 2023, as of September 30, 2022 were as follows:

Initial ProFrac Agreement Contract Consideration Notes Payable Key Inputs

The Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were measured at fair value at issuance and on a recurring basis.

The Initial ProFrac Agreement Contract Consideration Convertible Notes Payable had an initial fair value of $ 10.0 million on February 2, 2022.

The Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were classified as Level 2 at the initial measurement upon issuance due to the use of a quoted price for a similar liability at that date (the PIPE transaction), and subsequently classified as Level 3 due to the use of unobservable inputs.

On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were remeasured, at maturity, to a fair value of $ 15.1 million based on the closing price of the shares of common stock of $ 1.19 , on the date of conversion.

The fair value adjustment was a $ 0.8 million increase and a $ 3.9 million decrease in the three months ended March 31, 2023 and 2022, respectively.

The estimated value of the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable as of December 31, 2022 was valued using a Monte Carlo simulation.

The key inputs into the Monte Carlo simulation used to estimate the fair value of the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable maturing February 2, 2023, as of December 31, 2022 were as follows:

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

December 31, 2022

Risk-free interest rate 4.12 %

3 unchanged sentences

Discount rate 4.12 %

The valuation of the ProFrac Agreement Contract Consideration Convertible Notes Payable was $ 12.6 million as of September 30, 2022.

Amended ProFrac Agreement Contract Consideration Convertible Notes Payable Key Inputs

On May 17, 2022, the Company measured the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable classified as Level 3 using a Monte Carlo simulation at an estimated fair value of $ 69.5 million.

The estimated value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable was valued using a Monte Carlo simulation with inputs such as the market trading price of the Company’s common stock, the expected volatility of the Company’s stock price based on historical trends, a risk-free rate of interest based on US Treasury note rates and the term of the debt, the time to liquidation based on the maturity date of the notes, and a discount rate based on the risk free rate of interest.

The key inputs into the Monte Carlo simulation used to estimate the fair value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable, as of September 30, 2022 were as follows:

September 30, 2022

The Company reduced the discount rate assumed due to the reduced likelihood of occurrence of any of the default events in the shorter term remaining on the notes.

The estimated value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable as at March 31, 2023 and December 31, 2022 was valued using a Monte Carlo simulation.

The key inputs into the Monte Carlo simulation used to estimate the fair value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable, as of March 31, 2023 and December 31, 2022 were as follows:

March 31, 2023 December 31, 2022

Risk-free interest rate 4.77 % 4.59 %

3 unchanged sentences

Discount rate 4.77 % 4.59 %

The value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable as of September 30, 2022 was $ 60.5 million.

Assets Measured at Fair Value on a Nonrecurring Basis

The Company’s non-financial assets, including property and equipment and operating lease right-of-use assets, are measured at fair value on a non-recurring basis and are subject to fair value adjustment in certain circumstances.

The Company’s non-financial assets, including property and equipment and operating lease ROU assets, are measured at fair value on a non-recurring basis and are subject to adjustment to their fair value in certain circumstances.

Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company estimated the fair value of the remaining stock performance earn-out provision as of September 30, 2022 and 2021 and adjusted the estimated fair value of the contingent liability to $ 0.5 million and $ 0.7 million, respectively.

The Company records changes in the fair value of the contingent consideration and achievement of performance targets in cost of goods sold.

The Company estimated the initial fair value of $ 10.0 million of the ProFrac Agreement Contract Consideration Convertible Notes Payable on February 2, 2022, by reference to the cash purchase price paid by third party investors for equivalent notes issued simultaneously by the Company.

The Company estimated the fair value of the additional $ 69.5 million of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable on the issuance date of May 17, 2022 using a Monte Carlo simulation.

The Company adjusted the estimated fair value of the Contract Consideration Convertible Notes Payable to $ 73.0 million as of September 30, 2022.

The following table presents the changes in the assets and liabilities measured at fair value on a recurring basis classified as Level 3 (in thousands):

The following table presents the changes in balances of liabilities for the three months ended March 31, 2023 and 2022 classified as Level 3 (in thousands):

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Balance - beginning of period $ 84,153 $ 608

Transfer of ProFrac Agreement Contract Consideration Convertible Notes Payable from Level 2 — 10,000

Issuance of Amended ProFrac Agreement contract consideration convertible notes payable — — 69,460 —

Increase in principle of ProFrac Agreement contract consideration convertible notes payable for paid-in-kind interest 266 — 681 —

Increase in principle of Amended ProFrac Agreement contract consideration convertible notes payable for paid-in-kind interest 1,293 — 1,905 —

Increase in principal of Initial ProFrac Agreement Contract Consideration Convertible Notes Payable for paid-in-kind interest 85 158

Increase in principal of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable for paid-in-kind interest 1,331 —

Change in fair value of contingent earnout consideration ( 358 ) 94

Change in fair value of ProFrac Agreement contract consideration convertible notes payable 634 — 1,889 —

Change in fair value of Initial ProFrac Agreement Contract Consideration Convertible Notes Payable 786 3,892

Change in fair value of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable ( 26,881 ) —

Conversion of Initial ProFrac Agreement Contract Consideration Convertible Notes Payable on maturity ( 15,091 ) —

Balance - end of period $ 44,025 $ 14,752

Note 11 — Income Taxes

A reconciliation of the U.S.

federal statutory tax rate to the Company’s effective income tax rate is as follows:

Three months ended September 30, 2022 Nine months ended September 30, 2022

The income tax benefit differed from the amounts computed by applying the U.S.

federal income tax rate of 21% respectively, to loss before income tax for the reasons set forth below:

Three months ended March 31,

federal statutory tax rate

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State income taxes, net of federal benefit

— — — ( 0.2 )

income taxed at different rates

0.2 0.8 ( 0.3 ) 0.3

Increase (reduction) in tax benefit related to stock-based awards 0.4 ( 0.1 )

— ( 0.3 ) ( 0.4 ) 1.2

Non-deductible expenses

0.5 5.8 0.4 1.1

Increase in valuation allowance

( 20.4 ) ( 20.8 )

2018 IRS exam assessment

Permanent differences

( 1.1 ) ( 0.4 )

Non-deductible expenses 0.1 —

Effective income tax rate

— % — % ( 0.4 ) % ( 0.2 ) %

Fluctuations in effective tax rates have historically been impacted by permanent tax differences with no associated income tax impact, changes in state apportionment factors, including the effect on state deferred tax assets and liabilities, and non-U.S.

income taxed at different rates.

Note 12 — Commitments and Contingencies

The Company is subject to routine litigation and other claims that arise in the normal course of business.

Management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on the Company’s financial position, results of operations or liquidity.

Former CEO Matter

Internal Revenue Code (“IRC”) section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change.

During 2023, the Company converted various debt instruments into Company stock and warrants causing an ownership change within the meaning of IRC section 382 that subjected certain of the Company’s tax attributes, including net operating losses ("NOLs"), to an IRC section 382 limitation.

As of March 31, 2023, the Company has an estimated $ 181.6 million in U.S.

federal NOL carryforwards, $ 104.9 million in certain state NOL carryforwards, $ 7.5 million in section 163(j) interest limitation carryforwards and $ 3.8 million in tax credit carryforwards.

As a result of the change of control experienced in 2023, the Company’s ability to use NOLs to reduce taxable income is generally limited to an annual amount which is currently estimated to be $ 3.5 million a year as a result of the section 382 limitation which may be revised based on further detailed analysis.

NOLs that exceed the section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year.

Federal NOLs incurred prior to 2018 generally have a 20-year life until they expire in varying amounts between 2029 and 2037.

Federal NOLs generated in 2018 and after are carried forward indefinitely.

State NOLs have various carryforward periods depending on the legislation in the respective state jurisdiction.

The Company’s use of new NOLs arising after the date of an ownership change would not be impacted by the 382 limitation.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carryforward periods, then the ability to apply those NOLs as offsets to future taxable income is lost.

Based on the preliminary section 382 limitation, the Company estimates that $ 41.9 million of the state NOL carryforwards and $ 3.8 million of the tax credit carryforwards will expire unutilized.

The tax effected amount of the estimated expirations is included in the Company’s valuation allowance.

Note 12 — Commitments and Contingencies

The Company is subject to routine litigation and other claims that arise in the normal course of business.

Except as disclosed below, management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on the Company’s financial position, results of operations or liquidity.

Former CEO (J Chisholm) Matter

During the year ended December 31, 2021, Flotek commenced an internal investigation into the activities of John Chisholm (Flotek’s previous CEO) due to irregularities in expenses and transactions during the years from 2014 to 2018.

5 unchanged sentences

Although Flotek believes its claims are supported by the available evidence, the timing and amount of any outcome cannot reasonably be predicted.

Terpene Supply Agreement

On October 29, 2021, the Company reached agreement (“the ADM Settlement) with Archer-Daniels-Midland Company (“ADM”), Florida Chemical Company (“FCC”) and other parties to pay $ 1.75 million and resolve all claims between the parties in relation to lawsuit claiming damages relating to the terpene supply agreement between Flotek Chemistry, LCC (“Flotek Chemistry”), a wholly owned subsidiary of the Company and FCC.

The one-time payment of $ 1.75 million from Flotek to ADM was paid on January 3, 2022 and was included as restricted cash on the consolidated balance sheet as of December 31, 2021.

Other Commitments and Contingencies

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Note 13 — Stockholders’ Equity

On March 21, 2022, the Convertible Notes Payable which had been purchased by certain funds associated with one of the Company’s directors, which aggregated $ 3.0 million plus $ 39 thousand of accrued interest, were converted into 2,793,030 shares of the Company’s common stock.

On June 21, 2022, ProFrac Holdings II, LLC paid $ 19.5 million for PreFunded Warrants of the Company.

The PreFunded Warrants were recorded at their fair value of $11.1 million, less $1.2 million of transaction costs paid.

The remaining cash received of $ 8.4 million was recognized as an equity contribution.

This offering of the Prefunded Warrants was exempted from the registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state securities laws.

The Prefunded Warrants will permit ProFrac Holdings II, LLC to purchase 13,104,839 shares of common stock of the Company at an exercise price equal to $ 0.0001 per share, representing a 20 % premium to the 30-day volume average price of the Company’s common stock at the close of business on the day prior to the date of the issuance of the Prefunded Warrants.

The Prefunded Warrants, net of transaction fees of $ 1.1 million, and the equity contribution of $ 8.4 million from ProFrac are included in additional paid-in capital as of September 30, 2022.

ProFrac Holdings and its affiliates may not receive any voting or consent rights in respect of the Prefunded Warrants or the underlying shares unless and until (i) the Company has obtained approval from a majority of its shareholders excluding ProFrac Holdings and its affiliates and (ii) ProFrac Holdings has paid an additional $ 4.5 million to the Company.

The additional $ 4.5 million will be accounted for as equity contribution when received.

During the first quarter 2021, the Company identified 0.6 million shares that were improperly included in the December 31, 2020 issued share count, and the Company adjusted the issued share count presented on the statement of stockholders’ equity.

This adjustment was not material to the September 30, 2022 consolidated financial statements or basic and diluted earnings per share.

On February 2, 2023, the Convertible Notes Payable pursuant to the PIPE transaction discussed in Note 9, “Debt and Convertible Notes Payable”, excluding those held by ProFrac Holdings, LLC, were converted, upon maturity, into 10,335,840 shares of common stock at a price of $ 0.8705 per share.

The Convertible Notes Payable converted into common stock shares had a carrying value of $ 9.0 million, including accrued paid-in-kind interest of $ 0.8 million and were recorded as additional paid-in-capital as of March 31, 2023.

The Convertible Notes Payable held by ProFrac Holding, LLC, with a carrying value of $ 11.0 million, including accrued interest of $ 1.0 million, were converted, upon maturity, into 12,683,280 February 2023 Warrants with an exercise price of $ 0.0001 per share and were recorded as additional paid-in-capital.

On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable discussed in Note 9, “Debt and Convertible Notes Payable”, remeasured to and carried at a fair value of $ 15.1 million, were converted, upon maturity, into 12,683,281 February 2023 Warrants and were recorded as additional paid-in-capital.

The February 2023 Warrants permit ProFrac Holdings II, LLC to purchase 25,366,561 shares of common stock of the Company at an exercise price equal to $ 0.0001 per share and may be exercised at any time.

Since there are no contingent conditions to be satisfied prior to exercise, the February 2023 Warrants are included in calculation of basic earnings (loss) per share.

(See Note 14, “Earnings (Loss) Per Share”).

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Net Loss Per Share

Basic income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period.

Diluted income (loss) per common share is calculated by dividing the adjusted net income (loss) by the weighted average number of common shares outstanding combined with dilutive common share equivalents outstanding, if the effect is dilutive.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 21, 2022, ProFrac Holdings II, LLC paid $ 19.5 million for Pre-Funded Warrants (the “June 2022 Warrants”) of the Company.

The June 2022 Warrants were recorded in equity at their fair value of $ 11.1 million, estimated using a Black-Scholes Option Pricing model, less $ 1.2 million of transaction costs paid.

The remaining cash received of $ 8.4 million was recognized as an equity contribution.

The June 2022 Warrants permit ProFrac Holdings II, LLC to purchase 13,104,839 shares of common stock of the Company at an exercise price equal to $ 0.0001 per share, and a $ 4.5 million exercise fee representing a 20 % premium to the 30-day volume average price of the Company’s common stock at the close of business on the day prior to the date of the issuance of the June 2022 Warrants.

The June 2022 Warrants, net of transaction fees of $ 1.1 million, and the equity contribution of $ 8.4 million from ProFrac Holdings II, LLC were recorded as additional paid-in capital.

The key inputs into the Black-Scholes Option Pricing Model used to estimate the fair value of the June 2022 Warrants as of the issuance on June 21, 2022 were as follows:

Risk-free interest rate 3.21 %

Expected volatility 90.0 %

Term until liquidation (years) 2.00

Stock price $ 1.11

Strike price (exercise fee) $ 4.5 million

ProFrac Holdings II, LLC and its affiliates may not receive any voting or consent rights in respect of the June 2022 Warrants or the underlying shares of common stock unless and until (i) the Company has obtained approval from a majority of its shareholders excluding ProFrac Holdings II, LLC and its affiliates and (ii) ProFrac Holdings II, LLC has paid an additional $ 4.5 million to the Company.

The additional $ 4.5 million will be accounted for as an equity contribution if received.

On March 21, 2022, the Convertible Notes Payable issued pursuant to the PIPE transaction discussed in Note 9, “Debt and Convertible Notes Payable”, which had been purchased by certain funds associated with one of the Company’s directors including the D3 Family Fund and the D3 Bulldog Fund, which aggregated $ 3.0 million plus $ 39 thousand of accrued interest, were converted into 2,793,030 shares of the Company’s common stock.

Note 14 — Earnings (Loss) Per Share

Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period, which includes the February 2023 Warrants (See Note 9, “Debt and Convertible Notes Payable”, and Note 13, “Stockholders’ Equity”).

Diluted earnings (loss) per common share is calculated by dividing the adjusted net income (loss) by the weighted average number of common shares outstanding combined with dilutive common share equivalents outstanding, if the effect is dilutive.

Potentially dilutive common share equivalents consist of incremental shares of common stock issuable upon conversion of convertible notes payable, exercise of stock warrants and vesting and settlement of stock awards.

The dilutive effect of non-vested stock issued under share‑based compensation plans, shares issuable under the Employee Stock Purchase Plan (ESPP), employee stock options outstanding, and the prefunded stock warrants are computed using the treasury stock method.

The dilutive effect of non-vested stock issued under share‑based compensation plans, shares issuable under the Employee Stock Purchase Plan (ESPP), employee stock options outstanding, and the Pre-Funded stock warrants are computed using the treasury stock method.

The dilutive effect of the Convertible Notes is computed using the if‑converted method in accordance with ASU 2020-06, which was adopted by the Company on January 1, 2022 (see Note 2, “Summary of Significant Accounting Policies”).

The calculation of the basic and diluted income (loss) per share for the three and nine months ended September 30, 2022 is as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

The calculation of the basic and diluted earnings (loss) per share for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31,

Net income (loss) for basic earnings per share $ 21,343 $ ( 10,724 )

Anti-dilutive Adjustment to Net Income available to shareholders excluded from Numerator for Diluted Earnings Computation

Paid-in-Kind interest expense on convertible notes payable, net of tax 2,043 3,861

Valuation (gain) loss on convertible notes carried at FV, net of tax 4,250 ( 9,016 )

Adjustments to net income available to shareholders

Paid-in-Kind interest expense on convertible notes payable and Contract Consideration Convertible Notes Payable 1,571 —

Valuation (gain)/loss on Contract Consideration Convertible Notes Payable carried at FV ( 26,095 ) —

Adjusted net income (loss) for diluted earnings per share $ ( 3,181 ) $ ( 10,724 )

Anti-dilutive adjustments to net income available to shareholders excluded from Numerator for Diluted Earnings calculation

Paid-in-Kind interest expense on convertible notes payable and Contract Consideration Convertible Notes Payable — 485

Valuation (gain)/loss on Contract Consideration Convertible Notes Payable carried at FV — 3,892

Total numerator adjustment excluded from diluted earnings computation $ — $ 4,377

Basic and diluted weighted average shares outstanding 75,312 74,095

Basic weighted average shares outstanding 98,808 73,858

Average number of diluted shares for convertible notes payable and Contract Consideration Convertible Notes Payable 59,633 —

Diluted weighted average shares outstanding 158,441 73,858

Basic earnings (loss) per share $ 0.22 $ ( 0.15 )

Diluted loss per share $ ( 0.02 ) $ ( 0.15 )

Anti-dilutive incremental shares excluded from denominator for diluted earnings computation

Average number of diluted shares for convertible notes payable 74,395 47,354

Average number of diluted shares for stock warrants 8,897 3,324

Average number of diluted shares for options and restricted 418 571

Basic and diluted loss per share ( 0.25 ) ( 0.31 )

For the three and nine months ended September 30, 2022 paid-in-kind interest expense, net of tax, on convertible notes payable and the change in fair value related to the contract consideration convertible notes payable, net of tax, were not included in the dilution calculation since including them would have an anti-dilutive effect on the loss per share due to the net loss incurred during the periods.

For the three and nine months ended September 30, 2022 weighted average shares for convertible notes payable, weighted average shares for stock warrants and weighted average shares for employee stock awards were not included in the dilution calculation since including them would have an anti-dilutive effect on the loss per share due to the net loss incurred during the periods.

For the three months ended September 30, 2021, diluted earnings per common share included 851,702 common share equivalents.

For the nine months ended September 30, 2021, weighted average shares for employee stock awards of 1,130,719 , were not included in the calculation of diluted loss per share since including them would have an anti-dilutive effect on the loss per share due to the net loss incurred during the periods.

Average number of diluted shares for June 2022 stock warrants 8,997 —

Average number of diluted shares for options and restricted stock 1,023 609

For the three months ended March 31, 2023 weighted average shares for the June 2022 stock warrants and weighted average shares for employee stock awards were not included in the dilution calculation since including them would have an anti-dilutive effect as it would reduce the loss per share.

For the three months ended March 31, 2022, paid-in-kind interest expense on convertible notes payable and Contract Consideration Convertible Notes Payable and the change in fair value related to the Contract Consideration Convertible Notes Payable, were not included in the dilution calculation since including them would have an anti-dilutive effect on the loss per share due to the net loss incurred during the period.

For the three months ended March 31, 2022 weighted average shares for convertible notes payable and Contract Consideration Convertible Notes Payable and weighted average shares for employee stock awards were not included in the dilution calculation since including them would have an anti-dilutive effect on the loss per share due to the net loss incurred during the periods.

FLOTEK INDUSTRIES, INC.

2 unchanged sentences

Supplemental cash flow information is as follows (in thousands):

Nine months ended September 30,

Three months ended March 31,

Supplemental cash flow information:

Interest paid $ 18 $ 5

Income taxes received — ( 351 )

Supplemental non-cash activities:

Employee retention credit — 2,851

Non cash financing and investing activities:

Supplemental non cash financing and investing activities:

Issuance of convertible notes payable as consideration for ProFrac Agreements — 10,000

Conversion of convertible notes payable to common stock 8,996 2,948

Conversion of convertible notes payable to February 2023 Warrants 11,040 —

Conversion of initial Contract Consideration Convertible Notes Payable to February 2023 Warrants 15,092 —

Note 16 — Related Party Transactions

In January 2017, the Internal Revenue Service (“IRS”) notified the Company that it was examining the Company’s federal tax returns for the year ended December 31, 2014.

As a result of this examination, the IRS informed the Company on May 1, 2019, that certain employment taxes related to the compensation of our former CEO, Mr.

Chisholm, were not properly withheld in 2014 and proposed an adjustment.

Chisholm’s affiliated companies through which he provided his services have agreed to indemnify the Company for any such taxes, and Mr.

Chisholm executed a personal guaranty in favor of the Company, supporting this indemnification.

In October 2019, an amendment to the employment agreement of Mr.

Chisholm was executed, giving the Company the contractual right of offset for any amounts owed by Mr.

Chisholm to the Company for the IRS matter, and giving the Company the right to withhold payments to Mr.

Chisholm equal to amounts reasonably estimated to potentially become due to the Company by the affiliated companies for the IRS matter from any amounts owed under the employment agreement.

On December 31, 2019, the Company netted the related party receivable against the severance payable and recorded $ 1.8 million for potential liability to the IRS.

On January 5, 2020, Mr.

Chisholm ceased to be an employee of the Company.

In September 2020, the Company informed Mr.

Chisholm it would cease payment of future severance.

During first quarter of 2020, an additional accrual was recorded for $ 0.2 million related to potential penalties and interest on the IRS obligation.

As of September 30, 2022 and December 31, 2021, the receivable from Mr.

Chisholm was $ 1.4 million, which equaled the payable to the IRS and netted with Mr.

Chisholm’s severance liability.

Both the IRS and severance liabilities are recorded in accrued liabilities on the consolidated balance sheet.

Brown was a Director of the Company beginning in November of 2013 and is the President and CEO of Confluence Resources LP (“Confluence”), a private oil and gas exploration and production company.

As of April 15, 2022 Ted D.

Brown stepped down from being a Director of the Company and Confluence will no longer be considered a related party as of April 15, 2022.

The Company’s revenues for chemical sales to Confluence were $ 1.4 million through April 15, 2022.

The Company’s revenues from chemical sales to Confluence for the three and nine months ended September 30, 2021 were $ 1.3 million and $ 1.3 million, respectively.

As of December 31, 2021, Confluence owed $ 1.3 million which is recorded in accounts receivable, related party on the consolidated balance sheet.

On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (the “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 (see Note 9, “Debt and Convertible Notes Payable”).

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 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 ProFrac Agreement.

On February 2, 2022, the Company entered into 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 (see Note 9, “Debt and Convertible Notes Payable”).

Under the Initial 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 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 term of the ProFrac Agreement is three years starting on April 1, 2022.

On May 17, 2022, the Company entered into the Amended ProFrac Agreement upon issuance of $ 50 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (see Note 9, “Debt and 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 held by ProFrac Holding, LLC, with a carrying value of $ 11.0 million, including accrued paid-in-kind interest of $ 1.0 million, were converted, upon maturity, into 12,683,280 February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”).

On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable, with a carrying value of $ 11.0 million, including accrued interest of $ 1.0 million, were converted, upon maturity, into 12,683,281 February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”).

The fair value of the Initial ProFrac Agreement Contact Consideration Convertible Notes Payable, as of February 2, 2023, was $ 15.1 million (see Note 10, “Fair Value Measurements”).

During the three months ended March 31, 2023 and 2022, the Company’s revenues from ProFrac Services LLC were $ 36.4 million and $ 1.1 million , respectively.

For the three months ended March 31, 2023 and 2022, these revenues were net of amortization of contract assets of $ 1.3 million and nil .

Cost of sales attributable to these revenues were $ 34.9 million and

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 17, 2022, the Company entered into an amendment to the ProFrac Agreement (the “Amended ProFrac Agreement” and collectively the “ProFrac Agreements”) upon issuance of $ 50 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”).

The 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 June 21, 2022, the Company issued prefunded warrants (the “PreFunded Warrants”) to ProFrac Holdings II, LLC, in exchange for $ 19.5 million in cash as discussed in Note 13, “Stockholders’ Equity”.

During the three and nine months ended September 30, 2022, the Company’s revenues from c hemical sales to ProFrac Services LLC were $ 30.4 million and $ 48.1 million respectively.

These revenues were net of amortization of contract assets of $ 1.2 million and $ 2.0 million for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2022 and December 31, 2021, our accounts receivable from ProFrac Services, LLC was $ 25.9 million and zero , respectively which is recorded in accounts receivable, related party on the consolidated balance sheet.

On March 21, 2022, the Convertible Notes Payable which had been purchased by certain funds associated with one of the Company’s directors including the D3 Family Fund and the D3 Bulldog Fund, which aggregated $ 3.0 million plus $ 39 thousand of accrued interest, were converted into 2,793,030 shares of the Company’s common stock.

$ 1.1 million, respectively for the three months ended March 31, 2023 and 2022.

As of March 31, 2023 and December 31, 2022 our accounts receivable from ProFrac Services, LLC was $ 26.2 million and $ 22.7 million, respectively which is recorded in accounts receivable, related party on the consolidated balance sheet.

Also, during 2023 and 2022, we had the following related party transactions with ProFrac Holdings, LLC and ProFrac Holdings II, LLC:

• PIPE Transaction (see Note 9, “Debt and Convertible Notes Payable”)

• June 2022 Warrants (see Note 13, “Stockholders’ Equity)

On March 21, 2022, the Convertible Notes Payable which had been purchased by certain funds associated with one of the Company’s directors including the D3 Family Fund and the D3 Bulldog Fund, which aggregated $ 3.0 million plus $ 39 thousand of accrued interest and amortization of issuance costs of $ 90 thousand, were converted into 2,793,030 shares of the Company’s common stock.

Brown was a Director of the Company beginning in November of 2013 and is the President and CEO of Confluence Resources LP (“Confluence”), a private oil and gas exploration and production company.

The Company’s revenues and related cost of sales for product sales to Confluence were $ 1.4 million and $ 1.4 million, for the three months ended March 31, 2022.

As of June 9, 2022 Mr.

Brown stepped down from being a Director of the Company and Confluence is no longer considered a related party as of June 9, 2022.

Note 17 — Business Segment, Geographic and Major Customer Information

3 unchanged sentences

Chemistry Technologies.

The CT segment includes green specialty chemistries, logistics and technology services, which enable its customers to pursue improved efficiencies and performance throughout the life cycle of their wells, helping customers improve their environmental, social and governance (“ESG) and operational goals.

Customers of the CT segment include major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil companies, and international supply chain management companies .

Data Analytics.

The DA segment, created in the second quarter of 2020 in conjunction with the acquisition of JP3 on May 18, 2020, includes the design, development, production, sale and support of equipment and services that create and provide valuable information on the composition and properties of energy customers’ hydrocarbon fluids.

The DA segment includes the design, development, production, sale and support of equipment and services that create and provide valuable information on the composition and properties of energy customers’ hydrocarbon fluids.

The company markets products and services that support in-line data analysis of hydrocarbon components and properties.

7 unchanged sentences

Summarized financial information of the reportable segments is as follows (in thousands):

As of and for the three months ended September 30,

As of and for the three months ended March 31,

Chemistry Technologies Data Analytics

1 unchanged sentence

Revenue from external customers

Revenue from related party 30,417 — — 30,417

Change in fair value of contract consideration convertible notes 4,250 — — 4,250

Loss from operations ( 10,603 ) ( 745 ) ( 4,931 ) ( 16,279 )

Depreciation and amortization 162 14 1 177

Additions to long-lived assets 25 33 112 170

Revenue from external customers $ 8,044 $ 803 $ — $ 8,847

Products $ 8,561 $ 1,941 $ — $ 10,502

Services 664 486 — 1,150

Total revenue from external customers 9,225 2,427 — 11,652

Revenue from related party —

Products 36,265 — — 36,265

Services — 90 — 90

Total revenue from related parties 36,265 90 — 36,355

Gross profit 434 1,446 — 1,880

Change in fair value of Contract Consideration Convertible Notes Payable ( 26,095 ) — — ( 26,095 )

Income (loss) from operations 23,379 457 ( 5,325 ) 18,511

Depreciation and amortization 215 17 1 233

Additions to long-lived assets — — — —

As of and for the nine months ended September 30,

Chemistry Technologies Data Analytics Corporate and Other Total

Revenue from external customers $ 34,933 $ 3,479 $ — $ 38,412

Revenue from related party 49,462 — — 49,462

Change in fair value of contract consideration convertible notes ( 9,016 ) — — ( 9,016 )

Loss from operations ( 1,716 ) ( 2,751 ) ( 14,057 ) ( 18,524 )

Depreciation and amortization 507 45 2 554

Paid-in-kind interest on Contract Consideration Convertible Notes Payable 1,416 — — 1,416

Paid-in-kind interest on convertible notes payable — — 155 155

Depreciation 157 18 1 176

Additions to long-lived assets 30 95 32 157

Revenue from external customers

Products $ 8,909 $ 793 $ — $ 9,702

Services 402 278 — 680

Total revenue from external customers 9,311 1,071 — 10,382

Revenue from related party

Products 2,497 — — 2,497

Services — — — —

Total revenue from related parties 2,497 — — 2,497

Gross profit (loss) ( 662 ) 183 — ( 479 )

Change in fair value of Contract Consideration Convertible Notes Payable 3,892 — — 3,892

Loss from operations ( 6,057 ) ( 808 ) ( 3,419 ) ( 10,284 )

Depreciation and amortization 739 52 2 793

Paid-in-kind interest on Contract Consideration Convertible Notes Payable 158 — — 158

Paid-in-kind interest on convertible notes payable — — 327 327

Depreciation 178 16 1 195

Additions to long-lived assets — — — —

2 unchanged sentences

Assets of the Company by reportable segments are as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Chemistry Technologies $ 142,033 $ 146,542

2 unchanged sentences

Total assets $ 163,388 $ 164,810

The increase in Chemistry Technologies assets is primarily due to contact assets of $ 81.1 million.

Geographic Information

Revenue by country is based on the location where services are provided and products are sold.

No individual countries other than the U.S.

For the three months ended March 31, 2023 no individual countries other than the U.S.

accounted for more than 10% of revenue.

For the three months ended March 31, 2022 no individual countries other than the U.S.

and the United Arab Emirates (“UAE”) accounted for more than 10% of revenue.

Revenue by geographic location is as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

(1) $ 46,126 $ 10,334

7 unchanged sentences

Revenue from major customers, as a percentage of consolidated revenue, is as follows (in thousands):

Three months ended September 30, Revenue % of Total Revenue

Three months ended March 31, Revenue % of Total Revenue

Customer A (Related Party) $ 36,355 75.7 %

Customer C $ 3,041 29.9 %

Customer D 1,332 13.1 %

Customer B $ 2,607 20.2 %

Customer C (Related Party) 1,389 10.8 %

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine months ended September 30, Revenue % of Total Revenue

Customer A (Related Party) $ 48,074 54.7 %

Customer B 10,905 12.4 %

Customer C $ 7,701 24.8 %

Customer D 4,067 13.1 %

The majority of t he Company’s revenue consists predominantly of customers within the oil and gas industry.

Customers within the oil and gas industry include ProFrac and other oilfield services companies, integrated oil and natural gas companies, independent oil and natural gas companies, and state-owned national oil companies.

The concentration with ProFrac and in the oil and gas industry increases credit and business risk .

The concentration with ProFrac Services, LLC and in the oil and gas industry increases credit, commodity and business risk .

Major Suppliers

Expenditure with major suppliers, as a percentage of consolidated supplier expenditure, is as follows (in thousands):

Expenditure % of Total Expenditure

Three months ended March 31,

Supplier A $ 16,954 40.1 %

Supplier B 7,145 16.9 %

Supplier C 4,504 10.6 %

Supplier B 2,117 27.0 %

Supplier D 933 11.9 %

Note 18 — Subsequent Events

The Company has evaluated the effects of events that have occurred subsequent to September 30, 2022, and there have been no material events that would require recognition in the September 30, 2022 interim financial statements or disclosure in the notes to the consolidated financial statements.

We have evaluated the effects of events that have occurred subsequent to March 31, 2023, and there have been no material events that would require recognition in the March 31, 2023 interim financial statements or disclosure in the notes to the consolidated financial statements, except as disclosed below.

Sublease of Corporate Headquarters

On April 1, 2023, the Company entered into an agreement to sublease the facility in Houston, Texas, which is currently the Company’s corporate headquarters, beginning September 1, 2023, or earlier, and ending October 30, 2030.

The Company plans to lease a smaller facility to relocate the headquarters before September 1, 2023.

New York Stock Exchange (“NYSE”) Continued Listing Requirements

The Company’s common stock is currently listed on the NYSE.

On April 12, 2023, the Company received written notice from the NYSE that the average closing price of the Company’s shares of common stock was below $ 1.00 per share over a period of 30 consecutive days, which is below the requirement for continued listing on the NYSE.

In accordance with applicable NYSE procedures, the Company has notified the NYSE that it intends to cure the $1.00 per share deficiency.

Based on the applicable NYSE procedures, the Company has six months following the receipt of the NYSE’s notice to cure the deficiency and regain compliance.

The NYSE’s notice has no immediate impact on the listing of the Company’s common stock, which will continue to trade on the NYSE subject to the Company’s continued compliance with the other listing requirements of the NYSE.

The common stock of the Company will continue to trade under the symbol “FTK” but will have an added designation of “.BC” to indicate that the status of the common stock is “below compliance” with the NYSE continued listing standards.

The “.BC” indicator will be removed at such time as the Company is deemed to be in compliance.

The Company intends to explore available options to regain compliance, which may include, if necessary, effectuating a reverse stock split.

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-Q

Item 1. Financial Statements