What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-11 · 246 added, 140 removed, 732 unchanged (35% of the section changed)

1 unchanged sentence

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Restricted cash 101 100

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

Accounts receivable, net of allowance for credit losses of $ 682 and $ 623 at June 30, 2023 and December 31, 2022, respectively

16,855 19,136

Accounts receivable, related party 26,230 22,683

Accounts receivable, related party, net of allowance for credit losses of $ 0 at June 30, 2023 and December 31, 2022, respectively

23,033 22,683

Inventories, net 18,397 15,720

29 unchanged sentences

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

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

158,220,075 shares issued and 151,541,446 shares outstanding at June 30, 2023 ;

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

3 unchanged sentences

Treasury stock, at cost;

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

6,678,629 and 6,127,527 shares at June 30, 2023 and December 31, 2022, respectively

( 34,480 ) ( 34,251 )

5 unchanged sentences

(in thousands, except per share data)

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Revenue from external customers $ 17,820 $ 12,824 $ 29,472 $ 23,206

8 unchanged sentences

Severance costs ( 2,279 ) 610 ( 56 ) 603

Loss on sale of property and equipment — 8

Gain on sale of property and equipment — ( 1,914 ) — ( 1,906 )

Gain on lease termination — — — ( 584 )

(Gain) loss in fair value of Contract Consideration

Convertible Notes Payable ( 26,095 ) 3,892

Gain in fair value of Contract Consideration Convertible Notes Payable ( 3,874 ) ( 17,158 ) ( 29,969 ) ( 13,266 )

Total operating costs and expenses 3,232 ( 10,344 ) ( 13,399 ) ( 539 )

6 unchanged sentences

Income (loss) before income taxes ( 14 ) 6,338 21,338 ( 4,390 )

Income tax (expense) benefit ( 9 ) 4

Income tax expense ( 7 ) ( 98 ) ( 16 ) ( 94 )

Net income (loss) $ ( 21 ) $ 6,240 $ 21,322 $ ( 4,484 )

9 unchanged sentences

(in thousands)

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Net income (loss) $ ( 21 ) $ 6,240 $ 21,322 $ ( 4,484 )

5 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

Net income (loss) $ 21,322 $ ( 4,484 )

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

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

Change in fair value of contingent consideration ( 324 ) ( 134 )

8 unchanged sentences

Gain on lease termination — ( 584 )

Non-cash lease expense 977 56

Lease expense 1,621 112

Stock compensation expense ( 836 ) 1,591

7 unchanged sentences

Other assets ( 6 ) ( 232 )

Contract assets — ( 3,600 )

Accounts payable 11,574 12,154

3 unchanged sentences

Interest payable ( 8 ) 24

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

Net cash used in operating activities ( 2,234 ) ( 23,915 )

Cash flows from investing activities:

7 unchanged sentences

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

Proceeds from issuance of warrants — 19,500

Payments to tax authorities for shares withheld from employees ( 229 ) ( 138 )

13 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2023 and 2022

Three and six months ended June 30, 2023 and 2022

(In thousands of U.S.

dollars and shares)

Three months ended March 31, 2023

Three months ended June 30, 2023

Common Stock Treasury Stock Additional

3 unchanged sentences

Value Shares Cost

Balance, December 31, 2022

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

Net loss — — — — — — ( 21 ) ( 21 )

Foreign currency translation adjustment — — — — — ( 13 ) — ( 13 )

Stock issued under employee stock purchase plan — — ( 22 ) — 13 — — 13

Restricted stock forfeited — — 214 — — — — —

Restricted stock units vested 109 — — — — — — —

Stock compensation expense — — — — 276 — — 276

Shares withheld to cover taxes — — 43 ( 29 ) — — — ( 29 )

Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable to Common Stock 63,497 6 — — 40,632 — — 40,638

Balance, June 30, 2023

158,220 $ 15 6,677 $ ( 34,480 ) $ 462,517 $ 147 $ ( 330,197 ) $ 98,002

Three months ended June 30, 2022

Common Stock Treasury Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated Deficit Total Stockholders’ Equity

Value Shares Cost

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

Net income — — — — — — 6,240 6,240

3 unchanged sentences

Restricted stock forfeited ( 3 ) — 12 — — — — —

Stock compensation expense — — — — 852 — — 852

Shares withheld to cover taxes ( 15 ) — 45 ( 79 ) — — — ( 79 )

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

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

Balance, June 30, 2022

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

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

Six months ended June 30, 2023

Common Stock Treasury Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated Deficit Total Stockholders’ Equity

Value Shares Cost

Balance, December 31, 2022 83,916 $ 8 6,127 $ ( 34,251 ) $ 388,177 $ 181 $ ( 351,519 ) $ 2,596

Net income — — — — — — 21,322 21,322

Foreign currency translation adjustment — — — — — ( 34 ) — ( 34 )

Stock issued under employee stock purchase plan — — ( 43 ) — 33 — — 33

Restricted stock granted 15 — — — — — — —

Restricted stock forfeited ( 40 ) — 379 — — — — —

Restricted stock units vested 496 — — — — — — —

3 unchanged sentences

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

Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable to Common Stock 63,497 6 — — 40,632 — — 40,638

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

Balance, June 30, 2023

158,220 $ 15 6,677 $ ( 34,480 ) $ 462,517 $ 147 $ ( 330,197 ) $ 98,002

Six months ended June 30, 2022

Common Stock Treasury Stock Additional

1 unchanged sentence

Comprehensive

Income (Loss) Accumulated Deficit Total Stockholders’ Equity

Income Accumulated Deficit Total Stockholders’ Equity

Value Shares Cost

Balance, December 31, 2021 79,484 $ 8 6,022 $ ( 34,100 ) $ 363,417 $ 81 $ ( 309,214 ) $ 20,192

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

Net loss — — — — — — ( 4,484 ) ( 4,484 )

Foreign currency translation adjustment — — — — — 95 — 95

Stock issued under employee stock purchase plan — — ( 19 ) — 24 — — 24

Restricted stock granted 626 — — — — — — —

2 unchanged sentences

Shares withheld to cover taxes ( 15 ) — 88 ( 138 ) — — — ( 138 )

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

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, June 30, 2022

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

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

42 unchanged sentences

Restricted Cash

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 is $ 0.1 million and $ 0.1 million as of June 30, 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.

47 unchanged sentences

The Company accounts for the Convertible Notes Payable at amortized cost pursuant to Financial Accounting Standards Board (“FASB”) ASC Topic 470, Debt.

The Company accounts for the Contract Consideration Convertible Notes Payable issued as consideration related to a related party contract (see Note 9, “Debt and Convertible Notes Payable”), as liability classified convertible instruments in accordance with FASB ASC 718, “Stock Compensation” (“ASC 718”).

The Company accounted for the Contract Consideration Convertible Notes Payable issued as consideration related to a related party contract (see Note 9, “Debt and Convertible Notes Payable”), as liability classified convertible instruments in accordance with FASB ASC 718, “Stock Compensation” (“ASC 718”).

Under ASC 718, liability classified convertible instruments are measured at fair value at the grant date and at each reporting date (see Note 10, “Fair Value Measurements”) with the change in fair value included in the consolidated statements of operations.

27 unchanged sentences

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.

Subscription-type arrangements were not a material revenue stream in the six months ended June 30, 2023 and June 30, 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.

40 unchanged sentences

Stock Warrants

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.

Accordingly, the Company recorded the proceeds received for the June 2022 Warrants within additional paid in capital.

In addition, the Company reclassified the balance of the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”) for the February 2023 Warrants within additional paid in capital upon conversion.

Use of Estimates

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The preparation of financial statements in conformity with U.S.

1 unchanged sentence

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;

19 unchanged sentences

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

$ 49,062 $ 28,588 $ 95,829 $ 40,787

Services 1,532 785 2,773 1,465

4 unchanged sentences

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Cost of sales:

3 unchanged sentences

$ 46,690 $ 31,678 $ 92,817 $ 45,036

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

1 unchanged sentence

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,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Cost of sales:

4 unchanged sentences

Contract assets are as follows (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Contract assets $ 83,060 $ 83,060

4 unchanged sentences

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.

As of June 30, 2023 and December 31, 2022, $ 69.6 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 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.

During the three and six months ended June 30, 2023 the Company recognized $ 1.1 million and $ 2.4 million, respectively, 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.

During each of the three and six months ended June 30, 2022, the Company recognized $ 0.7 million of contract assets amortization.

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

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

2023 (excluding the six months ended June 30, 2023)

Thereafter through May 2032 38,153

Total contract assets $ 77,299

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

Based on our tests of recoverability, we did not identify impairment of such contract assets as of June 30, 2023.

FLOTEK INDUSTRIES, INC.

2 unchanged sentences

Inventories are as follows (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Raw materials $ 7,404 $ 5,800

3 unchanged sentences

Inventories, net $ 18,397 $ 15,720

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.

The provision r ecorded in the three months ended June 30, 2023 and 2022 was $ 0.2 million and $ 0.4 million for the CT segment and $ 6 thousand and $ 49 thousand for the DA segment, respectively.

The provision recorded in the six months ended June 30, 2023 and 2022 was $ 0.4 million and $ 0.7 million for the CT segment and $ 0.1 million and $ 49.0 thousand for the DA segment, respectively.

Note 6 — Property and Equipment

Property and equipment are as follows (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Land $ 886 $ 886

8 unchanged sentences

Property and equipment, net $ 4,753 $ 4,826

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

Depreciation expense totaled $ 0.2 million and $ 0.2 million for the three months ended June 30, 2023 a nd 2022, respectively.

Depreciation expense totaled $ 0.3 million and $ 0.4 million for the six months ended June 30, 2023 a nd 2022, respectively.

Note 7 — Leases

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):

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Operating lease expense $ 237 $ 220 $ 478 $ 448

6 unchanged sentences

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used in operating leases $ 1,365 $ 375

Operating cash flows from operating leases $ 1,550 $ 350 $ 2,915 $ 726

Operating cash flows from finance leases 7 10 17 20

Financing cash flows from finance leases 1 3 2 6

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

Maturities of lease liabilities as of June 30, 2023 are as follows (in thousands):

Years ending December 31, Operating Leases Finance Leases

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

2023 (excluding the six months ended June 30, 2023)

2024 2,624 23

6 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Operating Leases

12 unchanged sentences

Operating leases 5.4 years 5.3 years

Finance leases 1.3 years 1.6 years

Finance leases 1.0 year 1.6 years

Weighted Average Discount Rate

3 unchanged sentences

Current accrued liabilities are as follows (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Severance costs $ 1,314 $ 2,617

14 unchanged sentences

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

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.

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 were 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.

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 six months ended June 30, 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

June 30, 2023 December 31, 2022

Flotek PPP loan

4 unchanged sentences

$ 149 $ 2,736

Loan repayments are scheduled as follows (in thousands):

Years ending December 31, Repayment

2023 (excluding the six months ended June 30, 2023)

Total Flotek PPP loan $ 328

Convertible Notes Payable

2 unchanged sentences

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, 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 .

The Convertible Notes Payable accrued 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 per share.

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.

3 unchanged sentences

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, 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”).

1 unchanged sentence

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 are accounted for as liability classified convertible instruments and were initially recorded at fair value of $ 69.5 million on the issuance date with a corresponding contract asset.

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”.

The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable accrued paid-in-kind interest at a rate of 10 % per annum.

The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable were accounted for as liability classified convertible instruments and were initially recorded at fair value of $ 69.5 million on the issuance date with a corresponding contract asset.

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable, remeasured to and carried at a fair value of $ 40.6 million, were converted, upon maturity, into 63,496,922 shares of common stock at a price of $ 0.8705 per share (see Note 10, “Fair Value Measurements”).

Note 10 — Fair Value Measurements

11 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):

March 31, December 31,

June 30, December 31,

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

4 unchanged sentences

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 March 31, 2023 and December 31, 2022.

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 June 30, 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.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Risk-free interest rate 4.93 % 4.34 %

7 unchanged sentences

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.

On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were remeasured, upon 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 in each of the three and six months ended June 30, 2023, and a $ 2.6 million decrease and a $ 1.3 million increase in the three and six months ended June 30, 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.

11 unchanged sentences

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

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

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable were remeasured, at maturity, to a fair value of $ 40.6 million based on the closing price of the shares of common stock of $ 0.64 , on the date of conversion.

The fair value adjustment was a decrease of $ 3.9 million and $ 30.8 million in the three and six months ended June 30, 2023, and a decrease of $ 14.5 million in each of the three and six months ended June 30, 2022, respectively.

The key inputs into the Monte Carlo simulation used to estimate the fair value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable maturing May 17, 2023, as of December 31, 2022 were as follows:

December 31, 2022

Risk-free interest rate 4.59 %

6 unchanged sentences

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

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):

The following table presents the changes in balances of liabilities for the three and six months ended June 30, 2023 and 2022 classified as Level 3 (in thousands):

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Balance - beginning of period $ 44,025 $ 14,752 $ 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 — 69,460

Increase in principal of Initial ProFrac Agreement Contract Consideration Convertible Notes Payable for paid-in-kind interest — 257 85 415

4 unchanged sentences

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

Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable on maturity ( 40,638 ) — ( 40,638 ) —

Balance - end of period $ 260 $ 67,694 $ 260 $ 67,694

1 unchanged sentence

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

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

federal statutory tax rate

1 unchanged sentence

State income taxes, net of federal benefit

120.4 — 0.1 0.1

income taxed at different rates

( 96.7 ) 3.8 — ( 1.9 )

Increase (reduction) in tax benefit related to stock-based awards 1291.8 3.1 0.7 ( 2.0 )

4 unchanged sentences

Non-deductible expenses 278.8 ( 0.4 ) 0.2 0.1

Other — 3.8 — ( 2.2 )

Effective income tax rate

120.4 % 3.8 % 0.1 % ( 1.9 ) %

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.

As of June 30, 2023, the Company has an estimated $ 196.1 million in U.S.

federal NOL carryforwards, $ 119.4 million in certain state NOL carryforwards, $ 7.1 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.

NOLs that exceed the section 382 limitation in any

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

2 unchanged sentences

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.

If the 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.

3 unchanged sentences

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.

The investigation revealed evidence of related party transactions/self-dealing, inappropriate personal expenses, and general corporate waste.

Flotek’s board engaged a third party to review the findings of the investigation.

After the third-party review, Flotek concluded that its current and historical financial statements can be relied upon, that proper action had been taken, and that no members of current management were implicated in any way.

Beginning in December 2021, Flotek sent demand letters to, and subsequently filed arbitration or other legal proceedings against, John Chisholm, Casey Doherty/Doherty & Doherty LLP (Flotek’s former outside general counsel) and Moss Adams LLP (Flotek’s former independent public audit firm) to recover damages.

John Chisholm subsequently filed a counterclaim against Flotek in the arbitration proceeding for his remaining severance (currently accrued by the Company, but payment for which was suspended).

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

Former CEO (John Chisholm) Matter

On May 23, 2023, the Company entered into an agreement with John Chisholm (a former CEO of the Company) to resolve a claim made by Mr.

Chisholm in arbitration for payment of outstanding severance and claims made by the Company against Mr.

The settlement resulted in the reversal of $ 2.3 million of accrued severance costs during the three and six months ended June 30, 2023 and is included in severance costs in our consolidated statements of operation.

The Company had withheld payment of outstanding severance to Mr.

Chisholm subsequent to an investigation conducted during the year ended December 31, 2021 into corporate practices when Mr.

Chisholm was CEO during the years from 2014 to 2018.

The Company concluded upon completion of that investigation that its historical financial statements could be relied upon, that proper action had been taken, and that no members of current management were implicated in any improper corporate practices.

The Company subsequently commenced arbitration and other legal proceedings against Mr.

Chisholm, Casey Doherty/ Doherty & Doherty LLP (Flotek’s former outside general counsel) and Moss Adams LLP and its predecessor, Hein & Associates LLP (Flotek’s former independent public audit firm) to recover damages.

Chisholm filed a counterclaim against the Company in the arbitration proceeding for his remaining severance, and that dispute has been resolved as previously stated.

Further, on June 16, 2023, the Company entered into a settlement with Moss Adams LLP and its predecessor, Hein & Associates LLP, regarding the claims between the Company and Moss Adams LLP and Hein & Associates LLP.

The arbitration action between the Company and Mr.

Casey Doherty and Doherty & Doherty LLP remains outstanding.

Other Commitments and Contingencies

3 unchanged sentences

Note 13 — Stockholders’ Equity

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable discussed in Note 9, “Debt and Convertible Notes Payable”, were converted, upon maturity, into 63,496,922 shares of common stock at a price of $ 0.8705 per share.

The Contract Consideration Convertible Notes Payable converted into common stock shares, remeasured to a fair value of $ 40.6 million upon maturity, were recorded as additional paid-in-capital as of June 30, 2023.

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 CONSOLIDATED FINANCIAL STATEMENTS

On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable discussed in Note 9, “Debt and Convertible Notes Payable”, remeasured to a fair value of $ 15.1 million upon maturity, were converted, upon maturity, into 12,683,281 February 2023 Warrants and were recorded as additional paid-in-capital as of June 30, 2023.

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.

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

10 unchanged sentences

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;

provided, however, that ProFrac Holdings II may exercise the June 2022 Warrants immediately prior to the sale of the shares of common stock subject to such exercise to a non-affiliate of ProFrac Holdings II.

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

6 unchanged sentences

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

The calculation of the basic and diluted earnings (loss) per share for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Net income (loss) for basic earnings per share $ ( 21 ) $ 6,240 $ 21,322 $ ( 4,484 )

2 unchanged sentences

Valuation (gain)/loss on Contract Consideration Convertible Notes Payable carried at FV ( 3,874 ) ( 13,229 ) ( 29,969 ) ( 10,228 )

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

Adjusted net loss for diluted earnings per share $ ( 3,183 ) $ ( 5,961 ) $ ( 6,363 ) $ ( 13,310 )

Basic weighted average shares outstanding 143,433 74,861 121,244 73,476

6 unchanged sentences

Average number of diluted shares for options and restricted stock 545 692 718 662

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.

For the three and six months ended June 30, 2023 and 2022, 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.

FLOTEK INDUSTRIES, INC.

2 unchanged sentences

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

Three months ended March 31,

Six months ended June 30,

Supplemental cash flow information:

1 unchanged sentence

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 3,038

1 unchanged sentence

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

Conversion of Amended Contract Consideration Convertible Notes Payable to common stock 40,638 —

Issuance of convertible notes payable as consideration for ProFrac Agreements — 79,460

Issuance cost of stock warrants included in accrued accounts payable — 1,170

Note 16 — Related Party Transactions

8 unchanged sentences

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 unchanged sentences

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 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

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

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 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.

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable, with a carrying value of $ 55.3 million, including accrued interest of $ 5.3 million, were converted, upon maturity, into 63,496,922 shares of common stock at a price of $ 0.8705 per share (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”).

The fair value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable, as of May 17, 2023 was $ 40.6 million (see Note 10, “Fair Value Measurements”).

During the three months ended June 30, 2023 and 2022, the Company’s revenues from ProFrac Services, LLC were $ 32.8 million and $ 16.5 million , respectively.

During the six months ended June 30, 2023 and 2022, the Company’s revenues from ProFrac Services LLC were $ 69.1 million and $ 18.9 million, respectively.

For the three months ended June 30, 2023 and 2022, these revenues were net of amortization of contract assets of $ 1.1 million and $ 0.7 million .

For the six months ended June 30, 2023 and 2022, the revenues were net of amortization of contract assets of $ 2.4 million and $ 0.7 million, respectively.

Cost of sales attributable to these revenues were $ 30.2 million and $ 17.8 million, respectively for the three months ended June 30, 2023 and 2022 and $ 65.1 million and $ 19.0 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022 our accounts receivable from ProFrac Services, LLC was $ 23.0 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:

3 unchanged sentences

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.

The Company’s revenues and related cost of sales for product sold to Confluence were $ 1.4 million and $ 1.4 million, for the three and six months ended June 30, 2022.

As of June 9, 2022 Mr.

5 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 ESG and operational goals.

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, and also helping customers improve their 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 .

6 unchanged sentences

Various functions, including certain sales and marketing activities and general and administrative activities, are provided centrally by the corporate office.

Costs associated with corporate office functions, other corporate income and expense items, and income taxes are not allocated to the reportable segment.

Costs associated with corporate office functions, other corporate income and expense items, and income taxes are not allocated to the reportable segments.

FLOTEK INDUSTRIES, INC.

1 unchanged sentence

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

As of and for the three months ended March 31,

As of and for the three months ended June 30,

Chemistry Technologies Data Analytics

12 unchanged sentences

Paid-in-kind interest on Contract Consideration Convertible Notes Payable 712 — — 712

Depreciation 155 18 1 174

Additions to long-lived assets — 135 — 135

Revenue from external customers

Products $ 11,740 $ 299 $ — $ 12,039

Services 371 414 — 785

Total revenue from external customers 12,111 713 — 12,824

Revenue from related party

Products 16,549 — — 16,549

Services — — — —

Total revenue from related parties 16,549 — — 16,549

Gross loss ( 1,568 ) ( 737 ) — ( 2,305 )

Change in fair value of Contract Consideration Convertible Notes Payable ( 17,158 ) — — ( 17,158 )

Loss from operations 14,944 ( 1,198 ) ( 5,707 ) 8,039

Paid-in-kind interest on Contract Consideration Convertible Notes Payable 868 — — 868

Paid-in-kind interest on convertible notes payable — — 466 466

1 unchanged sentence

Additions to long-lived assets 5 — — 5

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the six months ended June 30,

Chemistry Technologies Data Analytics

Corporate and Other Total

Revenue from external customers

6 unchanged sentences

Total revenue from related parties 68,883 247 — 69,130

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

Gross profit 3,038 2,747 — 5,785

Change in fair value of Contract Consideration Convertible Notes Payable ( 29,969 ) — — ( 29,969 )

Income (loss) from operations 27,174 587 ( 8,577 ) 19,184

Paid-in-kind interest on Contract Consideration Convertible Notes Payable 2,129 — — 2,129

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

Depreciation 312 36 1 349

Additions to long-lived assets 30 230 32 292

Revenue from external customers

Products $ 20,650 $ 1,091 $ — $ 21,741

Services 772 693 — 1,465

Total revenue from external customers 21,422 1,784 — 23,206

Revenue from related party

Products 19,046 — — 19,046

Services — — — —

Total revenue from related parties 19,046 — — 19,046

Gross loss ( 2,231 ) ( 553 ) — ( 2,784 )

Change in fair value of Contract Consideration Convertible Notes Payable ( 13,266 ) — — ( 13,266 )

Loss from operations 8,887 ( 2,006 ) ( 9,126 ) ( 2,245 )

6 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Chemistry Technologies $ 139,921 $ 146,542

4 unchanged sentences

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

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

For the three and six months ended June 30, 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.

For the three and six months ended June 30, 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 March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

(1) $ 48,725 $ 25,955 $ 94,851 $ 36,289

UAE 1,509 3,139 2,912 4,450

6 unchanged sentences

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

Three months ended March 31, Revenue % of Total Revenue

Three months ended June 30, Revenue % of Total Revenue

Customer A (Related Party) $ 32,774 64.8 %

Customer A (Related Party) $ 16,549 52.2 %

Customer B 5,611 19.1 %

Customer C (Related Party) 1,389 10.8 %

Six months ended June 30, Revenue % of Total Revenue

Customer A (Related Party) $ 69,129 70.1 %

Customer A (Related Party) $ 17,657 38.9 %

Customer B 8,218 19.5 %

FLOTEK INDUSTRIES, INC.

4 unchanged sentences

Expenditure % of Total Expenditure

Three months ended March 31,

Three months ended June 30,

Supplier A $ 13,155 32.6 %

1 unchanged sentence

Supplier C 4,489 11.1 %

Supplier A 7,576 31.9 %

Supplier B 4,036 17.0 %

Supplier D 933 11.9 %

Supplier C 2,679 11.3 %

Expenditure % of Total Expenditure

Six months ended June 30,

Supplier A $ 30,109 36.4 %

Supplier B 15,194 18.4 %

Supplier C 8,993 10.9 %

Supplier A 7,624 24.2 %

Supplier B 6,154 19.5 %

Note 18 — Subsequent Events

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.

We have evaluated the effects of events that have occurred subsequent to June 30, 2023, and there have been no material events that would require recognition in the June 30, 2023 interim financial statements or disclosure in the notes to the consolidated financial statements.

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