What changed in this filing

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Item 1A. Risk Factors

2025-03-12 compared with 2024-03-15 · 102 added, 119 removed, 289 unchanged (43% of the section changed)

The Company’s business, financial condition, results of operations, cash flows, liquidity and prospects are subject to various risks and uncertainties.

Readers of this Annual Report should not consider any descriptions of these risk factors to be a

complete set of all potential risks that could affect the Company.

Readers of this Annual Report should not consider any descriptions of these risk factors to be a complete set of all potential risks that could affect the Company.

These factors should be carefully considered together with the other information contained in this Annual Report and the other reports and materials filed by the Company with the SEC.

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Such a combination could materially increase the severity of the impact of these risks on the Company’s business, results of operations, financial condition, cash flows, liquidity or prospects.

This Annual Report contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties.

This Annual Report contains “forward-looking statements,” as defined in Section 27A of the Securities Act and Section 21E of the Exchange Act that involve risks and uncertainties.

Forward-looking statements discuss Company prospects, expected revenue, expenses and profits, strategic and operational initiatives, and other activities.

Forward-looking statements also contain suppositions regarding future oil and natural gas industry and other conditions, both domestically and internationally.

The Company’s results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including r isks described below and elsewhere.

The Company’s results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including risks described below and elsewhere.

See “Forward-Looking Statements” at the beginning of this Annual Report.

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The Company’s business is largely dependent upon its customers’ spending in the oil and gas industry.

Spending could be adversely affected by industry conditions or by new or increased governmental regulations;

Spending could be adversely affected by industry conditions;

new or increased governmental regulations;

changes to existing governmental regulations;

global economic conditions;

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• political and economic uncertainty, and sociopolitical unrest including the current military conflicts in Ukraine and Middle East and ongoing sanctions imposed on Russia;

• the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and the impact of non-OPEC producers on global supply;

• the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to influence production levels and the impact of non-OPEC producers on global supply;

• availability and quantity of natural gas storage;

• import and export volumes and pric ing of liquefied n atural gas;

• import and export volumes and pricing of liquefied natural gas;

• domestic and international refining activity;

• rising demand for electricity in the U.S.

and technological improvements to competing sources of power generation, including wind, solar and hydrogen;

• pipeline capacity to critical markets and out of producing regions;

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• technological advances impacting energy production and consumption;

• interest rates;

• the timing and rate of economic recovery from the effects of the pandemic;

• new or increased governmental regulation or changes to existing governmental regulations;

• expectations for inflation and the resulting impact on interest rates;

• the imposition of tariffs or trade sanctions;

• weather conditions;

• foreign exchange rates.

The volatility of commodity prices and the consequential effect on the activities of the Company’s target customer base could adversely impact the activity levels of the Company’s customers.

Demand for the Company’s goods and services may be adversely impacted if volatile economic conditions weaken customer expenditures, specifically as it concerns the continued adoption of chemistry solutions with lower overall impact on the environment.

It is difficult to predict the pace of industry growth, the direction of oil and natural gas prices, the direction and magnitude of economic activity, the demand for professional chemistry products, and to what extent these conditions could affect the Company.

Volatile commodity prices could adversely impact the activity levels of the Company’s customers.

Demand for the Company’s goods and services may be adversely impacted if volatile economic conditions weaken customer expenditures.

It is difficult to predict the pace of industry growth, the direction of oil and natural gas prices, the direction and magnitude of economic activity, the demand for chemistry and data analytics products, and to what extent these conditions could affect the Company.

However, reduced cash flow and capital availability could adversely impact the financial condition of the Company’s customers, which could result in customer project modifications, delays or cancellations, general business disruptions, and delay in, or nonpayment of, amounts that are owed to the Company.

This could cause a negative impact on the Company’s results of operations and cash flows.

Furthermore, if key suppliers were to experience significant cash flow constraints or become insolvent as a result of such conditions, a reduction or interruption in supplies or a significant increase in the price of supplies could occur, adversely impacting the Company’s results of operations and cash flows.

The Company’s reliance on the ProFrac Agreement could adversely impact our financial condition, results of operations and cash flows.

The ProFrac Agreement is a major source of the Company’s liquidity and we expect it to remain so over the term of the contract.

Revenues attributable to the ProFrac Agreement represented 65% of our total revenues during 2023.

If the Company became unable to execute the requirements of the agreement financially and operationally, from procuring inventory to meet the needs of ProFrac Services, LLC under the ProFrac Agreement and executing timely billing and collection, the Company’s

liquidity could be adversely impacted.

Further, our relationship with ProFrac Services, LLC may impact their competitors willingness to purchase products from the Company or to seek price concessions.

We are also dependent on ProFrac Services, LLC’s compliance in meeting their committed activity levels and paying for products provided, including any Contract Shortfall Fees, in a timely basis, in accordance with the terms of the ProFrac Agreement.

Our financial condition, results of operations and cash flows may be adversely impacted if ProFrac Services, LLC’s financial condition or its spending level under the ProFrac Agreement is negatively impacted and they are unable to pay their outstanding obligations to the Company, including those payments related to Contract Shortfall Fees.

As of March 11, 2024, approximately $10.0 million of Contract Shortfall Fees from 2023 have been collected with the remaining $10.1 million due on or before April 8, 2024.

Revenues attributable to the ProFrac Agreement represented 62% and 65% of our total revenues during 2024 and 2023, respectively.

If the Company became unable to execute the requirements of the agreement financially and operationally, from procuring inventory to meet the needs of ProFrac Services, LLC under the ProFrac Agreement to executing timely billing and collection, the Company’s liquidity could be adversely impacted.

Further, our relationship with ProFrac Services, LLC may impact their competitors’ willingness to purchase products from the Company or to seek price concessions from the Company.

We are also dependent on ProFrac Services, LLC’s compliance in meeting their committed activity levels and paying for our products, including any Contract Shortfall Fees, on a timely basis, in accordance with the terms of the ProFrac Agreement.

Our financial condition, results of operations and cash flows may be adversely impacted if ProFrac Services, LLC’s financial condition or its spending level under the ProFrac Agreement is negatively impacted and it is unable to pay its outstanding obligations to the Company, including those payments related to Contract Shortfall Fees.

As of December 31, 2024, amounts due to the Company from ProFrac Services, LLC totaled $52.4 million, including $32.4 million related to 2024 Contract Shortfall Fees.

ProFrac Services, LLC has the right to terminate the ProFrac Agreement by providing written notice to the Company after the occurrence of any of the following events:

(i) the Company’s bankruptcy;

(ii) the Company’s failure to produce and deliver the product in accordance with the specifications, or failure to timely deliver product, and the Company has been unable to cure such failure within a commercially reasonable period determined by ProFrac Services, LLC;

(ii) the Company’s failure to produce and deliver the products in accordance with the specifications, or failure to timely deliver products, and the Company has been unable to cure such failure within a commercially reasonable period determined by ProFrac Services, LLC;

(iii) the Company fails to meet pricing requirements set forth in the ProFrac Agreement;

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Termination of the ProFrac Agreement would have a material adverse impact on the Company’s financial condition, results of operations and cash flows.

In addition, ProFrac Services, LLC has customary rights to audit our compliance with the terms of the ProFrac Agreement.

Any adverse findings during such an audit could have an adverse impact on the Company’s financial condition, results of operations and cash flows.

The Company’s inability to develop and/or introduce new products or differentiate existing products could have an adverse effect on its ability to be responsive to customers’ needs and could result in a loss of customers, as well as adversely affecting the Company’s future success and profitability.

The industries in which the Company does business are characterized by technological advancements that have historically resulted in, and will likely continue to result in, substantial improvements in the scope and quality of specialty chemistries and analytical services.

Consequently, the Company’s future success is dependent, in part, upon the Company’s continued ability to timely develop innovative products and services.

Successful introduction of new technology requires time and resources, and there is no assurance that the Company will be able to commercialize new technology in a timely manner.

If the Company fails to successfully develop and introduce innovative products and services that appeal to customers, or if existing or new market competitors develop superior products and services, the Company’s revenue and profitability could deteriorate.

If the Company fails to successfully develop and introduce innovative products and services at price points that appeal to customers, or if existing or new market competitors develop superior products and services, the Company’s revenue and profitability could deteriorate.

The Company’s business, financial condition, operating results and ability to grow and compete may be affected adversely if adequate capital is not available.

The Company’s existing resources including cash on hand and availability under its ABL, may not be sufficient to finance operations and strategies.

The Company may therefore need to rely on external financing sources, including commercial borrowings and issuances of debt and equity securities.

While we believe that our cash, liquid assets, and availability under the ABL will provide us with sufficient financial resources to fund operations to meet our capital requirements and anticipated obligations as they become due, uncertainty surrounding the long-term stability and strength of the oil and gas markets, and the resulting potential impact on our customers’ ability to pay their obligations to us in a timely manner, could have a negative impact on our liquidity.

The availability of capital is dependent on the Company’s operating cash flow, which is currently expected to be principally derived from the ProFrac Agreement.

The Company may need additional financing sources, including commercial borrowings and issuances of debt and/or equity securities.

The Company’s ability to procure debt financing, is dependent on, among other things, the willingness of banks and other financial institutions to lend into the Company’s industry and on their evaluation of the Company’s credit risk.

There is no guarantee that the Company will be able to procure additional debt financing or, in the event that it is able to procure additional debt financing, that the financing will be on favorable terms and conditions or at favorable rates of interest.

If the Company cannot access capital on acceptable terms when required, the Company’s business, financial conditions and operating results may be adversely affected.

The Company’s ability to access the capital markets, is dependent on, among other things, the willingness of investors to purchase new debt and/or equity issuances from the Company.

There is no guarantee that the Company will be able to procure additional capital markets financing or, in the event that is it is able to do so, that the capital raises will be on favorable terms or conditions to the Company.

If the Company cannot access capital on acceptable terms, the Company’s business, financial condition and operating results may be adversely affected.

Further, the ability of the Company to grow and be competitive in the marketplace may be adversely impacted as the Company may not be able to finance strategic growth plans, take advantage of business opportunities or respond to competitive pressures.

Increased competition could exert downward pressure on prices charged for the Company’s products and services.

The Company operates in a competitive environment populated by large and small competitors.

Competitors with greater resources and lower cost structures or who are trying to gain market share may be successful in providing competing products and services to the Company’s customers at lower prices than the Company currently charges.

The Company operates in an environment with relatively low barriers to entry;

employees of the Company may leave and compete directly with the Company.

The Company operates in a competitive environment populated by large and small competitors and with relatively low barriers to entry.

Absent an applicable restrictive covenant, employees of the Company may leave and compete directly with the Company.

currently charges.

This may require the Company to lower its prices, resulting in an adverse impact on revenues, margins, and operating results.

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The Company relies on a combination of patents, trademarks, copyrights, trade secrets, non-disclosure agreements and other methods to access markets and create a competitive advantage.

Although the Company believes that existing measures are

reasonably adequate to protect intellectual property rights, there is no assurance that the measures taken will prevent misappropriation of proprietary information or dissuade others from independent development of similar products or services.

Although the Company believes that existing measures are reasonably adequate to protect intellectual property rights, there is no assurance that the measures taken will prevent misappropriation of proprietary information or dissuade others from independent development of similar products or services.

Moreover, there is no assurance that the Company will be able to prevent competitors from copying, reverse engineering, modifying or otherwise obtaining, infringing and/or using the Company’s technology, intellectual property or proprietary rights to create competitive products or services.

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Even if the Company chooses to enforce its patent or other intellectual property rights against a third party, there may be risk that the Company’s patent or other intellectual property rights become invalidated or otherwise unenforceable through legal proceedings.

These could result in the Company having to discontinue the use, manufacture and sale of certain products and services, increase the cost of selling certain products and services, or result in damage to the Company’s reputation.

These could result in the Company having to discontinue the use, manufacture and sale of certain products and services, increases in the cost of selling certain products and services, or damage to the Company’s reputation.

An award of damages, including material royalty payments, or the entry of an injunction order against the use, manufacture and sale of any of the Company’s products and services found to be infringing, could have an adverse effect on the Company’s results of operations and ability to compete.

Certain of the Company’s products and facilities, especially those related to the professional chemistry products, have been registered with the EPA.

The failure of the Company to maintain such EPA registrations could result in the inability of the Company to market or sell its products.

In the event that the Company cannot maintain its registrations or licenses or is unable to procure new licenses or registrations for new products or in response to changes to regulatory requirements, the ability of the Company to sell its products and obtain revenue may be adversely affected.

Certain of the Company’s products and facilities have been qualified or registered with the EPA.

The failure of the Company to maintain such EPA qualifications or registrations could result in the inability of the Company to market or sell its products.

In the event that the Company cannot maintain its qualifications, registrations or licenses or is unable to procure new qualifications, licenses or registrations for new products or in response to changes to regulatory requirements, the ability of the Company to sell its products and obtain revenue may be adversely affected.

The loss of key customers could have an adverse impact on the Company’s results of operations and could result in a decline in the Company’s revenue.

In the CT segment in aggregate, revenue derived from the Company’s three largest customers as a percentage of consolidated revenue for the years ended December 31, 2023 and 2022, totaled 73% and 44%, respectively.

The Company has seen customer concentration risk increase due to the entry int o the ProFrac Agreement.

Unlike the ProFrac Agreement, customer relationships are substantially governed by purchase orders or other short-term contractual obligations as opposed to long-term contracts.

Revenue derived from the Company’s three largest customers as a percentage of consolidated revenue for the years ended December 31, 2024 and 2023, totaled 75% and 73%, respectively.

The Company has seen customer concentration risk increase substantially due to its entry into the ProFrac Agreement.

Unlike the ProFrac Agreement, our other large customer relationships are typically governed by purchase orders or other short-term contractual obligations as opposed to long-term contracts.

Losses of customers also may occur due to product, service or pricing issues, as well as industry consolidation.

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Loss of key suppliers, the inability to secure raw materials on a timely basis, or the Company’s inability to pass commodity price increases on to its customers could have a material adverse effect on the Company’s ability to service its customers’ needs and could result in a significant loss of customers.

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

Raw materials used in servicing and manufacturing operations, as well as those purchased for sale, are generally available on the open market from multiple sources.

Acquisition costs and transportation of raw materials to the Company’s facilities have historically been impacted by extreme weather conditions.

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During a period of scarcity of supply the Company may also be negatively impacted by prioritization decisions enacted by its suppliers.

Furthermore, if key suppliers were to experience significant cash flow constraints or become insolvent, a reduction or interruption in supplies or a significant increase in the price of supplies could occur, adversely impacting the Company’s results of operations and cash flows.

The Company may be unable to pass along price increases to its customers, which could result in a materially adverse impact on margins and operating profits.

The Company currently does not hedge commodity prices, but may consider such strategies in

the future, and there is no guarantee that the Company’s purchasing strategies will prevent cost increases from resulting in materially adverse impacts on margins and operating profits.

The Company currently does not hedge commodity prices, but may consider such strategies in the future, and there is no guarantee that the Company’s purchasing strategies will prevent cost increases from resulting in materially adverse impacts on margins and operating profits.

The Company’s DA segment is dependent on its ability to source appropriate technical components for its Verax™ measurement system, certain of which are specialty products that are sole-sourced and are not easily replaceable with other sources.

Any inability to source appropriate components in the future could result in significant difficulty supplying equipment or services to the Company’s customers.

Removal of members of management or directors may be difficult or costly.

The Company’s management and employees may have retention, employment or severance agreements in place.

In the event that our employees, management or directors do not have the proper skills for management or operation of the Company, or the Company otherwise wishes to remove them from their position(s), the Company may be required to pay severance or similar payments.

In addition, the loss of key management personnel or directors and the required transition may cause interruption in

the operations, governance, strategies or management of the Company, which may significantly reduce the Company’s ability to manage operations effectively and implement strategic business initiatives.

Failure to maintain effective disclosure controls and procedures and internal control over financial reporting could have an adverse effect on the Company’s operations and the trading price of the Company’s common stock.

Effective internal controls are necessary for the Company to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company.

If the Company cannot provide reliable financial reporting or effectively prevent fraud, the Company’s reputation and operating results could be harmed.

If the Company is unable to maintain effective disclosure controls and procedures and internal controls over financial reports, the Company may not be able to provide reliable financial reporting, which in turn could affect the Company’s operating results or cause the Company to fail to meet its reporting obligations.

Ineffective internal controls could also cause investors to lose confidence in reported financial information, which could negatively affect the trading price of the Company’s common stock, limit the ability of the Company to access capital markets in the future, and require additional costs to improve internal control systems and procedures.

The new Trump Administration may make substantial changes to fiscal, tax, and international trade policies that may adversely affect our business, financial condition, and results of operations.

The Trump administration has called for substantial change to various fiscal, tax, and international trade policies.

We cannot predict the impact, if any, of these changes to our business, financial condition and results of operations.

However, it is possible that these changes could adversely affect our business.

It is likely that some policies adopted by the new administration will benefit us and others will negatively affect us.

Until we know what changes are enacted, we will not know whether in total we benefit from, or are negatively affected by, the changes.

Failure to collect for goods and services sold to key customers could have an adverse effect on the Company’s financial results, liquidity and cash flows.

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however, credit analysis does not provide full assurance that customers will be willing and/or able to pay for goods and services purchased from the Company.

Furthermore, collectability of international sales can be subject to the laws of foreign countries, which may provide more limited protection to the Company in the event of a dispute over payment.

Furthermore, collectability of international sales can be subject to the laws of foreign countries, which may provide less protection to the Company in the event of a dispute over payment.

Because sales to domestic and international customers are generally made on an unsecured basis, there can be no assurance of collectability.

The Company’s sales revenues are concentrated among customers operating in the oil and gas industry.

Furthermore, the Company has seen an increase in concentration risk in 2022 and 2023, which it anticipates will continue in 2024 and beyond as a result of the Company’s entry into the ProFrac Agreement.

Furthermore, the Company has seen an increase in concentration risk as a result of the Company’s entry into the ProFrac Agreement.

If one or more major customers, including ProFrac Services, LLC, are unwilling or unable to pay their obligations to the Company, it could have an adverse effect on the Company’s financial results, liquidity and cash flows.

Failure to adapt to changing buying habits of the Company’s potential and existing customers could have a negative effect on the Company’s ability to attract and retain business.

The demographics and habits of the purchasing departments of many of the Company’s customers and potential customers is changing.

Key decision makers may be less experienced and show different buying habits and approaches.

Customers are increasingly requiring vendors to integrate with purchasing modules and are using advanced analytics to make purchasing decisions.

If the Company does not adapt to these changing purchasing trends, the Company may not be able to attract or retain business.

Cyberattacks may have a significant and adverse impact on the Company’s operations and related financial condition.

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See “Item 1C.

Cybersecurity” within this Part I.

Cybersecurity” in Part I of this Annual Report.

Unforeseen contingencies such as litigation could adversely affect the Company’s financial condition.

The Company is, and from time to time may become, a party to legal proceedings incidental to the Company’s business involving alleged injuries arising from the use of Company products, exposure to hazardous substances, patent infringement, employment matters, commercial disputes, claims related to adverse physical reactions to the Company’s products such as rashes or allergic reactions and shareholder lawsuits.

The Company is, and from time to time may become, a party to legal proceedings incidental to the Company’s business involving, among other matters, alleged injuries, exposure to hazardous substances, patent infringement, employment matters, commercial disputes and shareholder lawsuits.

The defense of these lawsuits may require significant expenses, divert management’s attention, and may require the Company to pay damages that could adversely affect the Company’s financial condition.

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The Company’s current insurance policies may not adequately protect the Company’s business from all potential risks.

The Company’s operations are subject to risks inherent in the specialty chemical industry, such as, but not limited to, accidents, explosions, fires, severe weather, oil and chemical spills, and other hazards.

The Company’s operations are subject to risks inherent in the oil and gas industry, such as, but not limited to, accidents, explosions, fires, severe weather, oil and chemical spills, and other hazards.

These conditions can result in personal injury or loss of life, damage to property, equipment and the environment, as well as suspension of customers’ oil and gas operations.

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• lack of customer retention;

• lack of familiarity with applicable legal, regulatory and compliance requirements;

• technological obsolescence;

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The Company’s potential future acquisitions, joint ventures, and divestitures involve risks that could adversely affect the Company’s business.

Negotiations of potential acquisitions, joint ventures, or other strategic relationships, integration of newly acquired businesses, and/or sales of existing businesses could be time consuming and divert management’s attention from other business concerns.

Negotiations of potential acquisitions, joint ventures, or other strategic relationships, integration of newly acquired businesses, and/or dispositions of existing businesses or assets could be time consuming and divert management’s attention from other business concerns.

Acquisitions and joint ventures could also expose the Company to unforeseen liabilities or risks associated with new markets or businesses.

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Additionally, acquisitions could result in the commitment of capital resources without the realization of anticipated returns.

Divestitures could result in the loss of future earnings without adequate compensation and the loss of unrealized strategic opportunities.

The Company’s ability to use net operating losses and tax attribute carryforwards to offset future taxable income has become limited due to an “ownership change” in 2023.

Dispositions could result in the loss of future earnings without adequate compensation and the loss of unrealized strategic opportunities.

The Company’s ability to use net operating losses and tax attribute carryforwards to offset future taxable income became limited due to an “ownership change” in 2023.

Under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on the Company’s ability to utilize pre-change net operating losses (“NOLs”), and certain other tax attributes to offset future taxable income.

In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).

During 2023, the conversion of various debt instruments into the Company’s common stock and warrants to purchase the Company’s common stock resulted in an ownership change limiting the Company’s ability

to utilize existing NOLs and tax attribute carryforwards.

Additional information about these limitations is provided in Note 11, “Income Taxes” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report.

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Such amendments or reinterpretations of existing laws or regulations, or the adoption of new laws or regulations, could curtail exploratory or developmental drilling for, and production of, oil and natural gas which, in turn, could limit demand for the Company’s products and services.

Some environmental laws and regulations could also impose joint and strict liability, meaning that the Company could be exposed in certain situations to increased liabilities as a result of the Company’s conduct that was lawful at the time it occurred or conduct of, or conditions caused by, prior operators or other third parties.

Remediation expense and other damages arising as a result of such laws and regulations could be substantial and have a material adverse effect on the Company’s financial condition and results of operations.

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periodically enacts laws and imposes regulations prohibiting or restricting trade with certain nations.

The current sanctions imposed on trade with Russia does not currently impact because the Company does not have any activity within that region.

The current sanctions imposed on trade with Russia do not currently directly impact us because the Company does not have any activity within that region.

government could also change these laws or enact new laws that could restrict or prohibit the Company from doing business in identified foreign countries.

The Company conducts, and will continue to

conduct, business in currencies other than the U.S.

The Company conducts, and will continue to conduct, business in currencies other than the U.S.

Historically, the Company has not hedged against foreign currency fluctuations.

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Regulations restricting volatile organic compounds (“VOC”) exist in many states and/or communities, which limit demand for certain products.

Although citrus oil is considered a VOC, its health, safety, and environmental profile is preferred over other solvents (e.g., benzene, toluene, ethylbenzene and xylene), which is currently creating new market opportunities around the world.

Changes in the perception of citrus oils as a preferred VOC, increased consumer activism against hydraulic fracturing or other regulatory or legislative actions by governments could potentially result in materially reduced demand for the Company’s products and services and could adversely affect the Company’s business, financial condition, and results of operations.

Changes in the perception of VOCs, increased consumer activism against hydraulic fracturing or other regulatory or legislative actions by governments could potentially result in materially reduced demand for the Company’s products and services and could adversely affect the Company’s business, financial condition, and results of operations.

Perceptions and related usage of chemistry solutions that are currently considered safe and acceptable, within specified parameters, may be subject to change in future periods as research and testing of environmental impacts mature.

Changes in laws and regulations relating to hydraulic fracturing may have a negative effect on the Company’s operations.

The majority of the Company’s revenue in its CT segment is derived from customers engaged in hydraulic fracturing services.

Some states have adopted regulations which require operators to publicly disclose certain non-proprietary information.

The majority of the Company’s revenue is generated from its CT segment and the majority of the CT segment’s revenue is derived from customers engaged in hydraulic fracturing services.

Some states have adopted regulations which require operators to publicly disclose certain formulation information.

These regulations could require the reporting and public disclosure of the Company’s proprietary chemistry formulas.

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The imposition and enforcement of stringent greenhouse gas emissions reduction requirements could severely and adversely impact the oil and natural gas industry and therefore significantly reduce the value of the Company’s business.

Certain financial institutions, institutional investors and other sources of capital have begun to limit or eliminate their investment in financing of conventional energy-related activities due to concerns about climate change, which could make it more difficult for our customers and for the Company to finance our respective businesses.

Certain financial institutions, institutional investors and other sources of capital have limited or eliminated their investment in financing of certain energy-related activities due to concerns about climate change, which could make it more difficult for our customers and for the Company to finance our respective businesses.

Increasing attention to climate change, ESG and sustainability has resulted in governmental investigations, and public and private litigation, which could increase the Company’s costs or otherwise adversely affect our business or results of operations.

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Any or all of these ESG and sustainability initiatives may result in significant operational changes and expenditures, reduced demand for the Company’s products and services, and could materially adversely affect the Company’s business, financial condition, results of operations, stock price or access to capital markets.

The persistence and/or emergence of new pandemic threats can significantly reduce demand for our services and adversely impact our financial condition, results of operations and cash flows.

Actions taken by businesses and governments in efforts to mitigate pandemic threats have the potential to negatively impact international and U.S.

economic activity for an indeterminable duration.

These effects can directly impact the demand for oil and natural gas, as well as our oil and gas related services and products.

Furthermore, pandemic conditions can create disruptions in raw materials, logistics, and access to other critical resources such as human capital and financial markets.

Risks Related to the Company’s Industry

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Worldwide economic uncertainty can reduce the availability of liquidity and credit markets to fund the continuation and expansion of industrial business operations worldwide.

The shortage of liquidity and credit combined with pressure on worldwide equity markets could continue to impact the worldwide economic climate.

The shortage of liquidity and credit combined with pressure on worldwide equity markets may impact the worldwide economic climate.

Geopolitical unrest around the world may also impact demand for the Company’s products and services both domestically and internationally.

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A continuous period of swings in oil and natural gas prices could result in further reductions in demand for the Company’s products and services and adversely affect the Company’s business, financial condition, and results of operations.

The markets for the Company’s products, especially oil and gas markets, have historically been volatile.

The markets for the Company’s products, especially oil and gas markets, have historically been very volatile.

Such volatility in oil and natural gas prices, or the perception by the Company’s customers of unpredictability in oil and natural gas prices, could adversely affect spending levels.

The oil and natural gas markets may be volatile in the future.

The demand for the Company’s products and services is, in large part, driven by general levels of exploration and production spending and drilling activity by its customers.

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If the Company is unable to increase the prices of products and services to compensate for increases in compensation including inflation, or is unable to attract and retain qualified personnel, operating results could be adversely affected.

Our DA segment may be materially and negatively affected by government regulations and/or facility disruptions.

The demand for our equipment and services offerings in our DA segment could be materially affected by additional regulations on the upstream, midstream, and downstream portions of the oil and gas sectors.

Additional regulation on oil and gas

production, transportation, or processing of hydrocarbons may result in significantly reduced demand for our offerings, either individually or as a result of a decline in the overall oil and gas markets in the United States and abroad.

Our DA segment may be negatively affected by government regulations.

The demand for our equipment and services offerings in our DA segment could be materially affected by additional regulations or changes to existing regulations on the upstream, midstream, and downstream portions of the oil and gas sectors.

Additional regulation on oil and gas production, transportation, or processing of hydrocarbons may result in significantly reduced demand for our offerings, either individually or as a result of a decline in the overall oil and gas markets in the United States and abroad.

Changes to existing regulations related to the energy industry could also materially affect our DA segment.

During the second quarter of 2024, the EPA designated one of our DA segment’s measurement systems as an approved measurement technology with respect to recently enacted flare monitoring regulations.

The optical measurement system, designed for precise measurement of net heating values in flare gases, was the first to be approved as an alternative method under the New Source Performance Standards OOOOb regulations.

Following the EPA’s approval of our analyzer, we recognized our first revenues

from flare monitoring in August 2024.

We believe that this approval could facilitate opportunities to access this new application as a source of future growth;

however, future changes in EPA regulations could impact or eliminate the applicability of the measurement system and have an adverse effect on our results of operations.

In addition, our products are subject to export control laws and regulations, and changes to those laws and regulations may negatively impact our ability to pursue international opportunities.

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The Company’s business could be materially and adversely affected by severe weather conditions.

Hurricanes, tropical storms, flash floods, blizzards, cold weather, and other severe weather conditions could result in curtailment of services, damage to equipment and facilities, interruption in transportation of products and materials, and loss of productivity.

Hurricanes, tropical storms, flash floods, blizzards, extreme cold weather, and other severe weather conditions could result in curtailment of services, damage to equipment and facilities, interruption in transportation of products and materials, and loss of productivity.

If the Company’s customers are unable to operate or are required to reduce operations due to severe weather conditions, and as a result curtail purchases of the Company’s products and services, the Company’s business could be adversely affected.

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• fluctuations in oil and natural gas prices;

• issuances of common stock or other securities in the future, including debt or warrants convertible into the Company’s common stock and earnings per share;

• issuances of common stock or other securities in the future, including warrants convertible into the Company’s common stock;

• additions or departures of key personnel;

• inability to execute the ProFrac Agreement

• inability of either party to perform its obligations under our agreement with ProFrac Services, LLC regarding the purchase of our chemicals;

• announcements by the Company or the Company’s competitors of new business, acquisitions, or joint ventures;

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This could be expensive and divert management’s attention and Company resources, as well as have an adverse effect on the Company’s business, operating results, cash flows, financial condition or securities.

The Company’s common stock is thinly traded;

therefore, our stock price may fluctuate more than the stock market as a whole and it may be difficult to sell large numbers of our shares at prevailing trading prices.

As a result of the thin trading market for shares of our common stock, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent, our stock price

may fluctuate significantly more than the stock market as a whole or the stock prices of similar companies.

Without a larger public float, shares of our common stock will be less liquid than the shares of common stock of companies with broader public ownership, and as a result, it may be difficult for investors to sell the number of shares they desire at an acceptable price.

Trading of a relatively small volume of shares of our common stock may have a greater effect on the trading price than would be the case if our public float were larger.

Accordingly, we cannot assure you of the likelihood that an active trading market for our common stock will develop or be maintained, your ability to sell your shares of our common stock when desired or the prices that you may obtain for your shares.

The Company’s relationship with ProFrac Services, LLC and certain of its affiliates may create a conflict of interest.

The Company derived 62% and 65% of its revenue for the years ended December 31, 2024 and 2023, respectively, from ProFrac Services LLC.

In addition to being the Company’s largest customer, certain affiliates of ProFrac Services LLC, entered into various convertible debt transactions with the Company during 2022, which were subsequently converted into shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock in 2023 (see Note 9, “Debt and Convertible Notes Payable” and Note 17, “Related Party Transactions,” in Part II, Item 8 - “Financial Statements and

Supplementary Data” of this Annual Report).

As a result, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s common stock as of December 31, 2023 making them the Company’s largest shareholder.

In addition, ProFrac Holdings, LLC also has the right to elect four out of seven Board members and currently consolidates Flotek in their financial results.

Pursuant to this right, Matt Wilks was nominated and elected to serve on the Board at the Company’s 2022 annual meeting of shareholders and Evan Farber was appointed to the Board on October 11, 2022.

As a result of the operational and financial relationship with ProFrac Services LLC and its affiliates, as both the largest customer and a majority shareholder, certain conflicts of interest may occur.

An active market for the Company’s common stock may not continue to exist or may not continue to exist at current trading levels.

Trading volume for the Company’s common stock historically has been very volatile when compared to companies with larger market capitalization.

The Company cannot presume that an active trading market for the Company’s common stock will continue or be sustained.

Sales of a significant number of shares of the Company’s common stock in the public market could lower the market price of the Company’s stock.

As a result, ProFrac Holdings, LLC or its affiliates owned approximately 51% of the Company’s common stock as of December 31, 2024 making them the Company’s largest shareholder.

In addition, ProFrac Holdings, LLC currently consolidates the Company’s financial results in its financial results and also has the right to elect four out of seven members of the Company’s Board of Directors.

Pursuant to this right, Matt Wilks was nominated and elected to serve on our Board at the Company’s 2022 annual meeting of shareholders and Evan Farber was appointed to our Board on October 11, 2022.

As a result of the operational and financial relationship with ProFrac Services LLC and its affiliates, as the Company’s largest customer, a Board member and the Company’s majority shareholder, certain conflicts of interest may occur.

If the Company cannot meet the New York Stock Exchange (“NYSE”) continued listing requirements, the NYSE may delist the Company’s common stock.

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In the future, if the Company is not able to meet the continued listing requirements of the NYSE, the Company’s common stock may be delisted.

If the Company is unable to satisfy the NYSE criteria for continued listing, its common stock would be subject to delisting.

A delisting of its common stock could negatively impact the Company by, among other things, reducing the liquidity and market price of its common stock;

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If an acquirer were discouraged from offering to acquire the Company or prevented from successfully completing a hostile acquisition by these anti-takeover measures, stockholders could lose the opportunity to sell their shares at a favorable price.

The Company has no plans to pay dividends on the Company’s common stock, and, therefore, investors will have to look to stock appreciation for return on investments.

ProFrac Holdings, LLC, together with its affiliates, owned approximately 51% of our common stock as of December 31, 2024 making them our largest shareholder.

This level of ownership of shares of our common stock could have the effect of discouraging or impeding an unsolicited acquisition proposal.

The Company has no current plans to pay dividends on the Company’s common stock, and, therefore, investors will have to look to stock appreciation for return on investments.

The Company does not anticipate paying any cash dividends on the Company’s common stock within the foreseeable future.

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The lack of plans for dividends may make the common stock of the Company an unattractive investment for investors who are seeking dividends.

We identified a material weakness in our internal control over financial reporting in 2022, which has been remediated as of December 31, 2023.

If we experience material weaknesses or other deficiencies in the future, or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately or timely report our financial results, which could result in loss of investor confidence and adversely impact our stock price.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act and other applicable securities rules and regulations.

In particular, we are subject to reporting obligations under Section 404 of the Sarbanes-Oxley Act that require us to include a management report on our internal control over financial reporting in our Annual Report, which contains management’s assessment of the effectiveness of our internal control over financial reporting.

Internal controls must be evaluated continuously and be properly designed and executed by a sufficient level of properly trained staff to maintain adequate internal control over financial reporting.

As disclosed in Part II, Item 9A, during the fourth quarter of 2022, management identified a material weakness in the design and operation of internal controls related to accounting for leases, prepaid assets and related-party revenues.

During the year ended December 31, 2023, we implemented measures to improve our internal control over financial reporting to remediate this material weakness.

Such measures included ensuring sufficient and appropriate resources in our finance and accounting department, enhancing required training specific to internal control over financial reporting and revenue recognition and other measures to enhance our risk control assessment process and communication processes.

After testing the design, implementation and operating effectiveness of the enhanced controls, management concluded that the material weakness was remediated as of December 31, 2023.

Our ability to comply with the annual internal control report requirements will depend on the continual effectiveness of our financial reporting controls across our company.

We expect these systems and controls to involve significant expenditures and to become more complex as our business grows.

To effectively manage this complexity, we will continue to monitor the execution of our controls to ensure their effectiveness and make enhancements when and where necessary.

Our inability to successfully avoid or remediate any future material weaknesses or other deficiencies in our internal control over financial reporting or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations or

result in material misstatements in our financial statements.

These events could limit our liquidity and access to capital markets, adversely affect our business and investor confidence in our financial statements, and adversely impact our stock price.

General Risk Factors

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From time to time, taxing authorities conduct audits of the Company’s tax filings and may make claims for increased taxes and, in some cases, assess interest and penalties.

The assessments for back taxes, interest, and penalties could be significant.

The assessments for back taxes, interest, and penalties could be

If the Company is unsuccessful in contesting these claims, the resulting payments could result in a drain on the Company’s capital resources and liquidity.

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

What changed 10-K

Item 1A. Risk Factors