What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-08 compared with 2023-08-09 · 248 added, 189 removed, 789 unchanged (36% of the section changed)

Financial Statements

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

June 30, 2023 December 31, 2022

FLOTEK INDUSTRIES INC, UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

September 30, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Restricted cash 102 100

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

Accounts receivable, net of allowance for credit losses of $ 704 and $ 623 at September 30, 2023 and December 31, 2022, respectively

15,568 19,136

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

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

24,765 22,683

17 unchanged sentences

Current portion of finance lease liabilities 31 36

Asset-based loan 3,370 —

Current portion of long-term debt 179 2,052

11 unchanged sentences

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

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

Additional paid-in capital 462,517 388,177

30,739,820 shares issued and 29,629,902 shares outstanding at September 30, 2023;

13,985,986 shares issued and 12,964,732 shares outstanding at December 31, 2022 (As adjusted, see Note 13)

Additional paid-in capital (As adjusted, see Note 13) 462,799 388,184

Accumulated other comprehensive income 194 181

1 unchanged sentence

Treasury stock, at cost;

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

1,109,918 and 1,021,255 shares at September 30, 2023 and December 31, 2022, respectively (As adjusted, see Note 13)

( 34,482 ) ( 34,251 )

5 unchanged sentences

(in thousands, except per share data)

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

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

2023 2022 2023 2022

11 unchanged sentences

Gain on lease termination — — — ( 584 )

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

(Gain) loss in fair value of Contract Consideration Convertible Notes Payable — 4,250 ( 29,969 ) ( 9,016 )

Total operating costs and expenses 7,428 14,437 ( 5,971 ) 13,898

1 unchanged sentence

Other income (expense):

Payment protection plan loan forgiveness — — 4,522 —

Paycheck protection plan loan forgiveness — — 4,522 —

Interest expense ( 160 ) ( 2,321 ) ( 2,537 ) ( 4,586 )

Other income (expense), net 19 ( 104 ) 9 120

Other expense, net ( 91 ) ( 187 ) ( 82 ) ( 67 )

Total other income (expense) ( 251 ) ( 2,508 ) 1,903 ( 4,653 )

2 unchanged sentences

Net income (loss) $ 1,287 $ ( 18,794 ) $ 22,609 $ ( 23,278 )

Income (loss) per common share:

Income (loss) per common share (As adjusted, see Note 14) :

Basic $ 0.04 $ ( 1.50 ) $ 0.97 $ ( 1.89 )

Diluted (see Note 14, “Earnings (Loss) Per Share”) $ ( 0.02 ) $ ( 0.05 ) $ ( 0.04 ) $ ( 0.12 )

Weighted average common shares:

Diluted $ 0.04 $ ( 1.50 ) $ ( 0.18 ) $ ( 1.89 )

Weighted average common shares (As adjusted, see Note 14) :

Weighted average common shares used in computing basic income (loss) per common share 29,358 12,552 23,291 12,349

Weighted average common shares used in computing diluted loss per common share 169,500 124,335 164,165 107,086

Weighted average common shares used in computing diluted income (loss) per common share 30,688 12,552 28,034 12,349

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

2 unchanged sentences

(in thousands)

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

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

2023 2022 2023 2022

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

7 unchanged sentences

Depreciation 530 554

Amortization of asset-based loan origination costs 36 —

Provision for credit losses, net of recoveries 97 147

26 unchanged sentences

Payments on long term debt ( 104 ) —

Proceeds from asset-based loan 27,750 —

Payments on asset-based loan ( 24,380 ) —

Payment of asset-based loan origination costs ( 502 ) —

Proceeds from issuance of convertible notes — 21,150

1 unchanged sentence

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 ( 246 ) ( 191 )

1 unchanged sentence

Payments for finance leases ( 24 ) ( 30 )

Net cash (used in) provided by financing activities ( 888 ) 39,431

Net cash provided by financing activities 1,925 38,199

Effect of changes in exchange rates on cash and cash equivalents 13 211

9 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three and six months ended June 30, 2023 and 2022

Three and six months ended September 30, 2023 and 2022

(In thousands of U.S.

dollars and shares)

Three months ended June 30, 2023

Three months ended September 30, 2023

Common Stock Treasury Stock Additional

3 unchanged sentences

Value Shares Cost

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

Net loss — — — — — — ( 21 ) ( 21 )

(As adjusted, see Note 13)

Balance, June 30, 2023 26,370 $ 3 1,113 $ ( 34,480 ) $ 462,529 $ 147 $ ( 330,197 ) $ 98,002

Net income — — — — — — 1,287 1,287

Foreign currency translation adjustment — — — — — 47 — 47

Stock issued under employee stock purchase plan — — ( 4 ) — 15 — — 15

Restricted stock granted 145 — — — — — — —

Restricted stock forfeited — — 1 — — — — —

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

Stock compensation expense — — — — 270 — — 270

Shares withheld to cover taxes ( 3 ) — — ( 2 ) ( 15 ) — — ( 17 )

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

Balance, June 30, 2023

Exercise of February 2023 pre-funded warrants 4,228 — — — — — — —

Balance, September 30, 2023

30,740 $ 3 1,110 $ ( 34,482 ) $ 462,799 $ 194 $ ( 328,910 ) $ 99,604

Three months ended June 30, 2022

Three months ended September 30, 2022

Common Stock Treasury Stock Additional

3 unchanged sentences

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

(As adjusted, see Note 13)

Balance, June 30, 2022 13,814 $ 1 1,019 $ ( 34,238 ) $ 386,317 $ 176 $ ( 313,698 ) $ 38,558

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

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

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

Restricted stock granted 84 — — — — — — —

Restricted stock forfeited — — 1 — — — — —

Restricted stock units vested 10 — — — — — — —

Stock compensation expense — — — — 671 — — 671

Shares withheld to cover taxes ( 3 ) — 4 ( 30 ) ( 23 ) — — ( 53 )

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

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

Balance, June 30, 2022

Balance, September 30, 2022

13,905 $ 1 1,024 $ ( 34,268 ) $ 386,965 $ 292 $ ( 332,492 ) $ 20,498

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

Six months ended June 30, 2023

Nine months ended September 30, 2023

Common Stock Treasury Stock Additional

3 unchanged sentences

Value Shares Cost

(As adjusted, see Note 13)

Balance, December 31, 2022 13,986 $ 1 1,021 $ ( 34,251 ) $ 388,184 $ 181 $ ( 351,519 ) $ 2,596

8 unchanged sentences

Shares withheld to cover taxes ( 3 ) — 36 ( 231 ) ( 15 ) — — ( 246 )

Exercise of pre-funded warrants 4,228 — — — — — — —

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

2 unchanged sentences

Conversion of convertible notes payable to Common Stock 1,723 — — — 8,996 — — 8,996

Balance, June 30, 2023

Balance, September 30, 2023

30,740 $ 3 1,110 $ ( 34,482 ) $ 462,799 $ 194 $ ( 328,910 ) $ 99,604

Six months ended June 30, 2022

Nine months ended September 30, 2022

Common Stock Treasury Stock Additional

3 unchanged sentences

Value Shares Cost

(As adjusted, see Note 13)

Balance, December 31, 2021 13,247 $ 1 1,004 $ ( 34,100 ) $ 363,424 $ 81 $ ( 309,214 ) $ 20,192

4 unchanged sentences

Restricted stock forfeited ( 1 ) — 4 — — — — —

Restricted stock units vested 10 — — — — — — —

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

3 unchanged sentences

Conversion of notes to common stock 466 — — — 2,948 — — 2,948

Balance, June 30, 2022

Balance, September 30, 2022

13,905 $ 1 1,024 $ ( 34,268 ) $ 386,965 $ 292 $ ( 332,492 ) $ 20,498

16 unchanged sentences

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 Company currently funds its operations with cash on hand, availability under the Asset Based Loan (“ABL”) (see Note 9, “Debt and Convertible Notes Payable”) and other current assets.

While the Company generated $ 22.6 million of net income in the nine months ended September 30, 2023, the Company has a recent 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.

It is not certain that the Company’s cash, availability under the ABL and other current assets, along with the Company’s forecasted cash flows from operations, 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.

During the third quarter of 2023, the Company entered into the ABL providing up to $ 10.0 million of initial credit availability, which is limited by a borrowing base.

In October 2023, the maximum credit availability under the ABL was increased by $ 3.8 million.

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

4 unchanged sentences

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

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.

GAAP”) for comprehensive financial statement reporting.

These interim financial statements should be read in conjunction with

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.

the audited consolidated financial statements and notes included in the Company’s 2022 Annual Report.

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.

5 unchanged sentences

Restricted Cash

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 is $ 0.1 million and $ 0.1 million as of September 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.

2 unchanged sentences

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.

14 unchanged sentences

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 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:

Depreciation or amortization of property and

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

20 unchanged sentences

Convertible Notes Payable and Liability Classified Contract Consideration Convertible Notes Payable

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

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

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.

As of September 30, 2023, the Convertible Notes Payable and Contract Consideration Convertible Notes Payable were converted through a series of transactions into the Company’s common stock.

See Note 13, “Stockholders’ Equity” for additional information.

Fair Value Measurements

10 unchanged sentences

(i) a contract with a customer exists, (ii) performance obligations have been identified, (iii) the price to the customer has been determined, (iv) the price to the customer has been allocated to the performance obligations, and (v) performance obligations are satisfied.

Products and services are sold with fixed or determinable prices.

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

13 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 six months ended June 30, 2023 and June 30, 2022.

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

42 unchanged sentences

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

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”) upon conversion for the February 2023 Warrants within additional paid in capital.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

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

18 unchanged sentences

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.

New Accounting Standards Issued and Not Adopted

The Company has not identified any new issued accounting standards that are expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

Note 3 — Revenue from Contracts with Customers

2 unchanged sentences

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

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

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

2023 2022 2023 2022

5 unchanged sentences

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.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

2023 2022 2023 2022

4 unchanged sentences

$ 38,221 $ 47,465 $ 131,037 $ 92,500

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):

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

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

2023 2022 2023 2022

5 unchanged sentences

Contract assets are as follows (in thousands):

June 30, 2023 December 31, 2022

September 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 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.

As of September 30, 2023 and December 31, 2022, $ 68.2 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 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.

During the three and nine months ended September 30, 2023, the Company recognized $ 1.3 million and $ 3.7 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 the three and nine months ended September 30, 2022, the Company recognized $ 1.2 million and $ 2.0 million, respectively, 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.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Years ending December 31, Amortization

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

2023 (excluding the nine months ended September 30, 2023)

Thereafter through May 2032 38,651

Total contract assets $ 76,023

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

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Based on our tests of recoverability, we did not recognize any impairment of such contract assets as of September 30, 2023.

Note 5 — Inventories

Inventories are as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Raw materials $ 5,603 $ 5,800

3 unchanged sentences

Inventories, net $ 15,885 $ 15,720

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.

The provision r ecorded in the three months ended September 30, 2023 and 2022 was $ 0.1 million and $ 44.8 thousand, respectively, for the CT segment and $ 16 thousand and $ 14.4 thousand, respectively, for the DA segment.

The provision recorded in the nine months ended September 30, 2023 and 2022 was $ 0.5 million and $ 0.8 million, respectively, for the CT segment and $ 0.2 million and $ 0.1 million, respectively, for the DA segment.

Note 6 — Property and Equipment

Property and equipment are as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Land $ 886 $ 886

8 unchanged sentences

Property and equipment, net $ 4,844 $ 4,826

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

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

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

Depreciation expense totaled $ 0.5 million and $ 0.6 million for the nine months ended September 30, 2023 a nd 2022, respectively.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 7 — Leases

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,

2023 2022 2023 2022

10 unchanged sentences

Financing cash flows from finance leases 1 1 3 5

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

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

Years ending December 31, Operating Leases Finance Leases

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

2023 (excluding the nine months ended September 30, 2023)

2024 2,909 22

6 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Operating Leases

12 unchanged sentences

Operating leases 4.6 years 5.3 years

Finance leases 1.0 year 1.6 years

Finance leases 0.8 years 1.6 years

Weighted Average Discount Rate

1 unchanged sentence

Finance leases 8.5 % 8.9 %

Sublease Income

On April 1, 2023, the Company entered into an agreement to sublease its office and lab space in Houston, Texas beginning September 1, 2023 and continuing until October 30, 2030.

The rental income from the sublease is included in the Company’s statement of operations in Other income (expense), net, and offsets the rental expense from the Company’s lease of the facility from the landlord.

Sublease rental income for future years are as follows (in thousands):

Years ending December 31, Rental Income

2023 (excluding the nine months ended September 30, 2023)

Thereafter 2,173

Total rental income $ 5,433

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Accrued Liabilities

Current accrued liabilities are as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Severance costs $ 935 $ 2,617

6 unchanged sentences

Total current accrued liabilities $ 5,430 $ 8,984

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 — Debt and Convertible Notes Payable

Long Term Debt

Paycheck Protection Program Loans

Asset Based Loan

On August 14, 2023, the Company entered into a 24-month revolving loan and security agreement in connection with the ABL.

The ABL is classified as current debt on our consolidated balance sheet due to the nature of the payment arrangements outlined within the ABL whereby the lender is paid from customer payments received into the Company’s collections account.

The ABL provides up to $ 10 million of initial credit availability, which is limited by a borrowing base consisting of:

• 85 % of eligible accounts receivable, plus

• 60 % of the value of eligible inventory not to exceed 100 % of the eligible accounts receivable.

Under the initial terms of the ABL, the maximum credit availability could be increased based on the lesser of (i) 50 % of the appraised value of real estate collateral held by the Company and (ii) $ 5 million.

On October 5, 2023, the ABL was amended to increase its maximum borrowing base from $ 10 million to $ 13.8 million (the “Amended ABL”) subsequent to the appraisal of the real estate.

As of September 30, 2023, the Company had $ 3.4 million outstanding under the ABL.

During the three and nine months ended September 30, 2023, the Company paid $ 0.2 million in interest and fees related to the ABL, which included the annual fee of $ 0.1 million.

As of September 30, 2023, the Company had incurred origination costs of $ 0.5 million related to the ABL that was recorded as deferred financing costs to be amortized over the term of the ABL.

Borrowings under the ABL bear interest at the Wall Street Journal Prime Rate (subject to a floor of 5.50 %) plus 2.5 % per annum.

The interest rate under the ABL was 11.0 % as of September 30, 2023.

The ABL contains an annual commitment fee equal to 1.0 % of the ABL’s borrowing base.

Additionally, the Company will be assessed a non-usage fee of 0.25 % per quarter based on the difference between the average daily outstanding balance and the borrowing base limit of the ABL.

If the ABL is terminated prior to the end of its 24-month term, the Company is required to pay an early termination fee of 2.50 % of the borrowing base limit of the ABL (if terminated with more than 12 months remaining until the maturity date) or 1.50 % of the borrowing base limit of the ABL (if terminated with less than 12 months remaining until the maturity date).

The ABL contains customary representations, warranties, covenants and events of default, the occurrence of which would permit the lender to accelerate the payment of any amounts borrowed.

The ABL requires the Company to maintain a minimum Tangible Net Worth (as defined in the ABL) of not less than $ 11.0 million.

In addition, the ABL provides the lender a blanket security interest on all or substantially all of the Company’s assets.

The Company was in compliance with all of the covenants under the ABL as of September 30, 2023.

Paycheck Protection Program Loan

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 administered by the U.S.

2 unchanged sentences

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 six months ended June 30, 2023, comprising the principal amount forgiven of $ 4.4 million and accrued interest of $ 0.1 million.

The remaining

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 nine months ended September 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):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Flotek PPP loan

6 unchanged sentences

Years ending December 31, Repayment

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

2023 (excluding the nine months ended September 30, 2023)

Total Flotek PPP loan $ 283

2 unchanged sentences

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 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.

The investors were 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 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 on a pre-Reverse Stock Split basis, (b) at Flotek's option, if the volume-weighted average trading price of Flotek's common stock equals or exceeds $ 2.50 per share on a pre-Reverse Stock Split basis, or $ 1.741 per share on a pre-Reverse Stock Split basis, for 20 trading days during a 30 consecutive trading day period, or (c) at maturity, at a price of $ 0.8705 per share on a pre-Reverse Stock Split basis.

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.

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 on a pre-Reverse Stock Split basis, 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 on a pre-Reverse Stock Split basis, 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.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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”).

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 on a pre-Reverse Stock Split basis, 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

2 unchanged sentences

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”).

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 on a pre-Reverse Stock Split basis, upon maturity, into 63,496,922 shares of common stock at a price of $ 0.8705 per share (see Note 10, “Fair Value Measurements”).

As a result of the Reverse Stock Split, these shares were converted into 10,582,821 common shares.

Note 10 — Fair Value Measurements

6 unchanged sentences

Fair Value of Other Financial Instruments

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accrued liabilities and accounts payable approximate fair value due to the short-term nature of these accounts.

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accrued liabilities, accounts payable and ABL approximate fair value due to the short-term nature of these accounts.

FLOTEK INDUSTRIES, INC.

2 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):

June 30, December 31,

September 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 June 30, 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 September 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.

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Risk-free interest rate 5.19 % 4.34 %

1 unchanged sentence

Term until liquidation (years) 1.63 2.38

Stock price $ 0.73 $ 1.12

Stock price (pre-Reverse Stock Split basis) $ 4.43 $ 1.12

Discount rate 13.31 % 9.95 %

3 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, 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.

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:

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 pre-Reverse Stock Split 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 for the nine months ended September 30, 2023, and a $ 0.6 million increase and a $ 1.9 million increase in the three and nine months ended September 30, 2022, respectively.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

December 31, 2022

2 unchanged sentences

Term until liquidation (years) 0.09

Stock price $ 1.12

Stock price (pre-Reverse Stock Split basis)

Discount rate 4.12 %

3 unchanged sentences

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.

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 pre-Reverse Stock Split closing price of the shares of common stock of $ 0.64 , on the date of conversion.

The fair value adjustment was a decrease of $ 30.8 million in the nine months ended September 30, 2023.

There was no fair value adjustment for the three months ended September 30, 2023.

The fair value adjustment was an increase of $ 3.6 million and a decrease of $ 10.9 million in the three and nine months ended September 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:

3 unchanged sentences

Term until liquidation (years) 0.38

Stock price $ 1.12

Stock price (pre-Reverse Stock Split basis)

Discount rate 4.59 %

1 unchanged sentence

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 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 June 30, Six months ended June 30,

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 and nine months ended September 30, 2023 and 2022 classified as Level 3 (in thousands):

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

2023 2022 2023 2022

11 unchanged sentences

Note 11 — Income Taxes

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

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,

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

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

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

2023 2022 2023 2022

2 unchanged sentences

State income taxes, net of federal benefit

120.4 — 0.1 0.1

income taxed at different rates

6 unchanged sentences

Non-deductible expenses ( 6.6 ) 0.5 ( 0.2 ) 0.4

Other — 3.8 — ( 2.2 )

2018 IRS exam assessment — — — ( 0.4 )

Effective income tax rate

2 unchanged sentences

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 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

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.

As of September 30, 2023, the Company has an estimated $ 196.6 million in U.S.

federal NOL carryforwards, $ 119.8 million in certain state NOL carryforwards, $ 7.2 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 amount 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.

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

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

1 unchanged sentence

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.

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.

7 unchanged sentences

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

The Company had withheld payment of outstanding severance to Mr.

5 unchanged sentences

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.

During June 2023, the Company entered into a settlement with Moss Adams LLP and its predecessor, Hein & Associates LLP.

During October 2023, the Company entered into a settlement with Mr.

Casey Doherty and Doherty & Doherty LLP.

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 June 30, 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 as of June 30, 2023.

Reverse stock split

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 notified the NYSE that it intended to cure the $1.00 per share deficiency.

On September 14, 2023, the Company announced that the Board of Directors approved a reverse stock split of its common stock at a ratio of 1-to-6 (“Reverse Stock Split”).

The Reverse Stock Split was completed on September 25, 2023 and resulted in 184,438,695 issued and outstanding shares of common stock being converted into 30,739,820 shares of common stock.

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.

The Reverse Stock Split had no effect on the par value or on the number of authorized shares of common stock.

The Company issued one whole share of common stock to any shareholder that would have received a fractional share as a result of the Reverse Stock Split.

Therefore, no fractional shares were issued in connection with the Reverse Stock Split and no cash or other consideration was paid in connection with any fractional shares that resulted from the Reverse Stock Split.

As the par value per share of common stock was not changed in connection with the Reverse Stock Split, we recorded a decrease of $ 15 thousand and $ 7 thousand to common stock on our consolidated balance sheet with a corresponding increase in additional paid-in capital as of September 30, 2023 and December 31, 2022, respectively.

We also adjusted the number of outstanding shares of common stock and treasury stock on the consolidated balance sheet and in the statement of changes in stockholders’ equity for all periods presented to reflect the impacts of the Reverse Stock Split.

Where we disclose the number of shares of common stock within the footnotes to the consolidated financial statements we have presented both the pre-Reverse Stock Split and post-Reverse Stock Split amount as denoted.

Unless otherwise noted, all references in the consolidated financial statements and notes to consolidated financial statements to the number of shares, per share data, restricted stock and stock option data have been retroactively adjusted to give effect to the Reverse Stock Split.

Conversion of Convertible Notes Payable

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable discussed in Note 9, “Debt and Convertible Notes Payable”, were converted on a pre-Reverse Stock Split basis, upon maturity, into 63,496,922 shares of common stock at a price of $ 0.8705 per share ( 10,582,821 shares of common stock on a post-Reverse Stock Split basis).

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 on a pre-Reverse Stock Split basis, 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 interest of $ 1.0 million, were converted on a pre-Reverse Stock Split basis, 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 upon conversion.

On September 6, 2023, the February 2023 Warrants issued upon the conversion of the Convertible Notes Payable held by ProFrac Holding, LLC were exercised and the Company issued, on a pre-Reverse Stock Split basis, 12,683,280 shares of the Company’s common stock ( 2,113,880 shares of the Company’s common stock on a post-Reverse Stock Split basis).

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 on a pre-Reverse Stock Split basis, upon maturity, into 12,683,281 February 2023 Warrants and were recorded as additional paid-in-capital upon conversion.

On September 6, 2023, the February 2023 Warrants issued upon the conversion of the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were exercised and the Company issued on a pre-Reverse Stock Split basis, 12,683,281 shares of the Company’s common stock ( 2,113,881 shares of the Company’s common stock on a post-Reverse Stock Split basis).

Pre-Funded Warrants

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

1 unchanged sentence

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 permit ProFrac Holdings II, LLC to purchase on a pre-Reverse Stock Split basis 13,104,839 shares of common stock of the Company ( 2,184,140 shares of the Company’s common stock on a post-Reverse Stock Split basis) at an exercise price equal to $ 0.0001 per share, and a $ 4.5 million exercise fee.

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.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

2 unchanged sentences

Term until liquidation (years) 2.00

Stock price $ 1.11

Stock price (pre-Reverse Stock Split basis)

Strike price (exercise fee) $ 4.5 million

2 unchanged sentences

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

3 unchanged sentences

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

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.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

For all periods presented, weighted average shares and earnings (loss) per share reflect the effects of the Reverse Stock Split.

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

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

2023 2022 2023 2022

5 unchanged sentences

Basic weighted average shares outstanding 29,358 12,552 23,291 12,349

Average number of diluted shares for convertible notes payable and Contract Consideration Convertible Notes Payable 26,067 49,474 42,921 33,610

Dilutive effect of convertible notes payable — — 4,743 —

Dilutive effect of warrants outstanding 1,238 — — —

Dilutive effect of stock options and restricted shares 92 — — —

Diluted weighted average shares outstanding 30,688 12,552 28,034 12,349

Basic earnings (loss) per share $ 0.04 $ ( 1.50 ) $ 0.97 $ ( 1.89 )

Diluted loss per share ( 0.02 ) ( 0.05 ) ( 0.04 ) ( 0.12 )

Diluted earnings (loss) per share $ 0.04 $ ( 1.50 ) $ ( 0.18 ) $ ( 1.89 )

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

Average number of diluted shares for convertible notes payable (1)

— 12,399 — 7,892

Average number of diluted shares for June 2022 stock warrants (1)

— 1,483 1,308 554

Average number of diluted shares for options and restricted stock (1)

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.

— 113 111 110

(1) These items were not included in the dilution calculation for their respective periods due to their 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):

Six months ended June 30,

Nine months ended September 30,

Supplemental cash flow information:

6 unchanged sentences

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

1 unchanged sentence

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.

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”).

1 unchanged sentence

On February 2, 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 margins with 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 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 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 Contract Shortfall Fee 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 margins with non-ProFrac customers.

The current measurement period for Contract Shortfall Fees is June 1, 2023 through December 31, 2023.

The Company does not expect that the minimum purchase requirements will be met during the current measurement period, and as a result, the revenues for the three and nine months ended September 30, 2023 reflect expected Contract Shortfall Fee payments.

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 on a pre-Reverse Stock Split basis, upon maturity, into 12,683,280 February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”) and subsequently exercised on September 6, 2023.

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 on a pre-Reverse Stock Split basis, upon maturity, into 12,683,281 February 2023 Warrants and subsequently exercised on September 6, 2023 (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”).

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”).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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”).

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 on a pre-Reverse Stock Split basis, 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.

As a result of the Reverse Stock Split, these shares were converted into 10,582,821 common shares.

During the three months ended September 30, 2023 and 2022, the Company’s revenues from ProFrac Services, LLC were $ 29.5 million and $ 30.4 million , respectively.

During the nine months ended September 30, 2023 and 2022, the Company’s revenues from ProFrac Services LLC were $ 98.6 million and $ 48.1 million, respectively.

For the three months ended September 30, 2023 and 2022, these revenues were net of amortization of contract assets of $ 1.3 million and $ 1.2 million .

For the nine months ended September 30, 2023 and 2022, the revenues were net of amortization of contract assets of $ 3.7 million and $ 2.0 million, respectively.

Cost of sales attributable to these revenues were $ 23.8 million and $ 31.6 million, respectively for the three months ended September 30, 2023 and 2022 and $ 88.6 million and $ 32.8 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023 and December 31, 2022 our accounts receivable from ProFrac Services, LLC was $ 24.8 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:

1 unchanged sentence

• 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.

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 on a pre-Reverse Stock Split basis into 2,793,030 shares of the Company’s common stock ( 465,505 common shares on a post-Reverse Stock Split basis).

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 sold to Confluence were $ 1.4 million and $ 1.4 million, for the three and six months ended June 30, 2022.

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

As of June 9, 2022 Mr.

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

As of and for the three months ended June 30,

As of and for the three months ended September 30,

Chemistry Technologies Data Analytics

9 unchanged sentences

Gross profit 8,240 807 — 9,047

Change in fair value of Contract Consideration Convertible Notes Payable ( 3,874 ) — — ( 3,874 )

Income (loss) from operations 5,519 ( 37 ) ( 3,863 ) 1,619

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

Depreciation 149 26 6 181

6 unchanged sentences

Products 30,417 — — 30,417

Services — — — —

Total revenue from related parties 30,417 — — 30,417

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

Gross profit (loss) ( 2,406 ) 564 — ( 1,842 )

Change in fair value of Contract Consideration Convertible Notes Payable 4,250 — — 4,250

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

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

Paid-in-kind interest on convertible notes payable — — 483 483

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the six months ended June 30,

As of and for the nine months ended September 30,

Chemistry Technologies Data Analytics

21 unchanged sentences

Products 49,462 — — 49,462

Services — — — —

Total revenue from related parties 49,462 — — 49,462

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

Gross profit (loss) ( 4,637 ) 11 — ( 4,626 )

Change in fair value of Contract Consideration Convertible Notes Payable ( 9,016 ) — — ( 9,016 )

7 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Chemistry Technologies $ 134,489 $ 146,542

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

For the three and six months ended June 30, 2023 no individual countries other than the U.S.

For the three and nine months ended September 30, 2023 and 2022 no individual countries other than the U.S.

accounted for more than 10% of revenue.

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 June 30, Six months ended June 30,

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

2023 2022 2023 2022

(1) $ 46,401 $ 42,670 $ 141,251 $ 78,959

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

Other countries 867 2,953 4,619 8,915

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

Three months ended June 30, Revenue % of Total Revenue

Three months ended September 30, Revenue % of Total Revenue

Customer A (Related Party) $ 29,462 62.3 %

Customer A (Related Party) $ 30,417 66.7 %

Customer B 5,611 19.1 %

Six months ended June 30, Revenue % of Total Revenue

Nine months ended September 30, Revenue % of Total Revenue

Customer A (Related Party) $ 98,592 67.6 %

1 unchanged sentence

Customer B 10,905 12.4 %

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

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 June 30,

Three months ended September 30, Expenditure % of Total Expenditure

Supplier A $ 6,094 25.3 %

4 unchanged sentences

Supplier C 5,552 16.7 %

Expenditure % of Total Expenditure

Six months ended June 30,

Nine months ended September 30, Expenditure % of Total Expenditure

Supplier A $ 36,318 32.5 %

3 unchanged sentences

Supplier B 11,706 18.0 %

Supplier C 8,826 13.6 %

Note 18 — Subsequent Events

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.

We have evaluated the effects of events that have occurred subsequent to September 30, 2023, and there have been no material events that would require recognition in the September 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