What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-12 compared with 2024-03-15 · 368 added, 491 removed, 746 unchanged (54% of the section changed)

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Flotek Industries, Inc.

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, cash flow, and stockholders’ equity for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

Critical Audit Matter

The critical audit matter communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

1 unchanged sentence

Recoverability of contract assets

As described in Note 2 to the Company’s consolidated financial statements, the Company’s contract assets represent consideration issued in the form of convertible notes and other incremental costs related to obtaining the ProFrac Agreement, during the year ended December 31, 2023.

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

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We performed sensitivity analyses over the Company’s contract asset recoverability assessment by evaluating the effect of changes in the forecasted revenue and costs over the term of the ProFrac Agreement.

We assessed the reasonableness of forecasted revenue and costs by considering whether such amounts were consistent with evidence obtained in other areas of the audit.

Going concern

As discussed in Note 1 to the Company’s consolidated financial statements, the Company currently funds its operations with cash on hand, availability under the Asset Based Loan (ABL) and other liquid assets.

Although the Company has a history of negative cash flows from operations and losses, the Company recognized $24.3 million and $24.7 million of gross profit and net income, respectively, during the year ended December 31, 2023.

The ProFrac Agreement contains minimum requirements for chemistry purchases.

If the minimum volumes are not achieved within the applicable measurement period, ProFrac Services, LLC is required to pay to the Company, as liquidated damages (contract shortfall fees), 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 the measurement period.

The current measurement period for contract shortfall fees is June 1, 2023 through December 31, 2023.

The minimum purchase requirements were not met during the current measurement period, and as a result, related party revenues and receivables for the year ended and as of December 31, 2023 include $20.1 million in contract shortfall fees of which $10.0 million has been collected through March 11, 2024.

The Company expects to receive the remaining $10.1 million on or before April 8, 2024.

For 2024, the measurement period will be January 1, 2024 through December 31, 2024.

If the minimum purchase requirements are not met during the year ended December 31, 2024, there will be additional contract shortfall fees due during the first quarter of 2025.

Based upon the improvement in the Company’s outlook for future cash flows from operations that includes the collection of the contract shortfall fees related to 2023 of $20.1 million, combined with cash on hand and availability under the ABL, the Company believes it has sufficient financial resources to fund operations and meet its capital requirements and anticipated obligations as they become due in the next twelve months.

Uncertainty surrounding the long term stability and strength of oil and gas markets could have a negative impact on the Company’s liquidity.

We identified the evaluation of the Company’s assessment of its ability to continue as a going concern and related disclosures as a critical audit matter.

There was significant auditor judgment required in evaluating forecasted revenue, including the contract shortfall fees, and direct and indirect product expenses used in the Company’s forecasted cash flows analysis for the twelve-month period subsequent to issuance of the consolidated financial statements.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design of a control related to the Company’s assessment of its ability to continue as a going concern, including the development of the forecasted revenue, including the contract shortfall fees, and direct and indirect product expenses over the twelve-month period following the date the consolidated financial statements are issued.

To assess the Company’s ability to forecast revenue, including the contract shortfall fees, and direct and indirect product expenses, we compared historical revenue, including the contract shortfall fees, and direct and indirect product expense forecasts to actual results.

We assessed the reasonableness of the Company’s assumptions related to forecasted revenue, including contract shortfall fees, and direct and indirect product expenses by considering whether the assumptions were consistent with evidence obtained in other areas of the audit.

We assessed the Company’s disclosures related to its going concern assessment by comparing the disclosures to the audit evidence obtained.

We have served as the Company’s auditor since 2021.

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(in thousands, except share data)

December 31, 2024 December 31, 2023

Current assets:

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17,386 13,687

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

Accounts receivable, related party, net of allowance for credit losses of $ 0 at December 31, 2024 and December 31, 2023, respectively

52,370 34,569

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Other current assets 2,952 3,564

Current contract assets 5,836 7,113

Current contract asset 5,939 5,836

Total current assets 96,456 76,447

Long-term contract assets 68,820 72,576

Long-term contract asset 63,105 68,820

Property and equipment, net 6,178 5,129

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Income taxes payable 48 45

Interest payable — 130

Current portion of operating lease liabilities 1,486 2,449

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Current portion of long-term debt 60 179

Convertible notes payable — 19,799

Contract consideration convertible notes payable — 83,570

Total current liabilities 50,368 47,782

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Long-term operating lease liabilities 6,514 7,676

Long-term finance lease liabilities — 19

Long-term debt — 60

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30,938,073 shares issued and 29,826,508 shares outstanding at December 31, 2024;

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) 463,140 388,184

30,772,837 shares issued and 29,664,130 shares outstanding at December 31, 2023

Additional paid-in capital 464,620 463,140

Accumulated other comprehensive income 251 127

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Treasury stock, at cost;

1,108,707 and 1,021,255 shares at December 31, 2023 and December 31, 2022, respectively (As adjusted, see Note 13)

1,111,565 and 1,108,707 shares at December 31, 2024 and December 31, 2023, respectively

( 34,666 ) ( 34,504 )

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Cost of sales 147,639 163,795

Gross profit (loss) 24,263 ( 6,700 )

Gross profit 39,386 24,263

Operating costs and expenses:

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Research and development 1,714 2,486

Severance costs ( 46 ) —

Gain on disposal of property and equipment ( 38 ) ( 2,916 )

Gain on lease termination — ( 584 )

Gain on sale of property and equipment ( 124 ) ( 38 )

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

Total operating costs and expenses 27,190 1,040

Income (loss) from operations 23,223 ( 35,421 )

Income from operations 12,196 23,223

Other income (expense):

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Interest expense ( 1,095 ) ( 2,857 )

Other income, net ( 26 ) 145

Total other income (expense) 1,639 ( 6,906 )

Income (loss) before income taxes 24,862 ( 42,327 )

Income tax (expense) benefit ( 149 ) 22

Net income (loss) $ 24,713 $ ( 42,305 )

Income (loss) per common share (As adjusted, see Notes 13 and 15):

Other income (expense), net 46 ( 26 )

Total other (expense) income ( 1,049 ) 1,639

Income before income taxes 11,147 24,862

Income tax expense ( 649 ) ( 149 )

Net income $ 10,498 $ 24,713

Income (loss) per common share:

Basic $ 0.36 $ 1.00

Diluted $ 0.34 $ ( 0.10 )

Weighted average common shares (As adjusted see Notes 13 and 15):

Weighted average common shares:

Weighted average common shares used in computing basic income (loss) per common share 29,534 24,830

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FLOTEK INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Years ended December 31,

Net income (loss) $ 24,713 $ ( 42,305 )

Net income $ 10,498 $ 24,713

Other comprehensive income:

Foreign currency translation adjustment 124 ( 54 )

Comprehensive income (loss) $ 24,659 $ ( 42,205 )

Comprehensive income $ 10,622 $ 24,659

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

FLOTEK INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOW

(in thousands)

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Cash flows from operating activities:

Net income (loss) $ 24,713 $ ( 42,305 )

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

Net income $ 10,498 $ 24,713

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

Change in fair value of contingent consideration 71 ( 527 )

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

Amortization of convertible note issuance cost 83 1,002

Amortization of convertible note issuance costs — 83

Paid-in-kind interest expense — 2,284

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Amortization of asset-based loan origination costs 314 121

Provision for credit losses 138 203

Provision for credit losses, net of recoveries 181 138

Provision for excess and obsolete inventory 645 959

Gain on sale of property and equipment ( 124 ) ( 38 )

Gain on lease termination — ( 584 )

Non-cash lease expense 2,094 3,014

Stock compensation expense 1,366 ( 254 )

Deferred income tax expense (benefit) 104 ( 125 )

Deferred income tax expense 249 104

Paycheck protection plan loan forgiveness — ( 4,522 )

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Inventories ( 1,110 ) 1,938

Income taxes receivable — 14

Income tax receivable 8 —

Other assets 561 ( 836 )

Contract assets — ( 3,600 )

Accounts payable 6,368 ( 1,670 )

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Interest payable — ( 8 )

Net cash used in operating activities ( 11,297 ) ( 44,632 )

Net cash provided by (used in) operating activities 3,361 ( 11,297 )

Cash flows from investing activities:

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Proceeds from sale of assets 124 67

Net cash (used in) provided by investing activities ( 1,014 ) 5,331

Net cash used in investing activities ( 1,816 ) ( 1,014 )

Cash flows from financing activities:

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Payment of asset-based loan origination costs ( 164 ) ( 574 )

Proceeds from issuance of convertible notes — 21,150

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

Proceeds from issuance of warrants — 19,500

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

Payments to tax authorities for shares withheld from employees ( 162 ) ( 268 )

Proceeds from issuance of stock 77 133

Proceeds from issuance of stock under Employee Stock Purchase Plan 114 77

Payments for finance leases ( 22 ) ( 33 )

Net cash provided by financing activities 5,928 38,267

Net cash (used in) provided by financing activities ( 3,116 ) 5,928

Effect of changes in exchange rates on cash and cash equivalents 124 ( 54 )

Net change in cash, cash equivalents and restricted cash ( 6,437 ) ( 934 )

Net change in cash and cash equivalents and restricted cash ( 1,447 ) ( 6,437 )

Cash and cash equivalents at the beginning of period 5,851 12,290

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Restricted cash at the end of period 102 102

Cash, cash equivalents and restricted cash at end of period $ 5,953 $ 12,390

Cash and cash equivalents and restricted cash at end of period $ 4,506 $ 5,953

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

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2023 and 2022

(In thousands of U.S.

dollars and shares)

(in thousands)

Year Ended December 31, 2024

Common Stock Treasury Stock Additional

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Balance, December 31, 2023 30,773 $ 3 1,109 $ ( 34,504 ) $ 463,140 $ 127 $ ( 326,806 ) $ 101,960

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

Net income — — — — — — 10,498 10,498

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Restricted stock units vested 71 — — — — — — —

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

Stock compensation expense — — — — 1,366 — — 1,366

Shares withheld to cover taxes — — 23 ( 162 ) — — — ( 162 )

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

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

Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable to common stock 10,583 1 — — 40,637 — — 40,638

Conversion of convertible notes payable to common stock 1,723 1 — — 8,996 — — 8,997

Other 35 — — — — — — —

Exercise of February 2023 warrants 4,228 — — — — — — —

Balance, December 31, 2024

30,938 $ 3 1,112 $ ( 34,666 ) $ 464,620 $ 251 $ ( 316,308 ) $ 113,900

Year Ended December 31, 2023

Common Stock Treasury Stock Additional

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Comprehensive

Income (Loss) Accumulated Deficit Total Stockholders’ Equity

Income Accumulated Deficit Total Stockholders’ Equity

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

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

Net loss — — — — — — ( 42,305 ) ( 42,305 )

Net income — — — — — — 24,713 24,713

Foreign currency translation adjustment — — — — — ( 54 ) — ( 54 )

3 unchanged sentences

Restricted stock units vested 82 — — — — — — —

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

Stock compensation expense — — — ( 254 ) — — ( 254 )

Shares withheld to cover taxes ( 3 ) 42 ( 253 ) ( 15 ) — — ( 268 )

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

Issuance of stock warrants, net of transaction fee — — — — 15,092 — — 15,092

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

Conversion of notes to common stock 467 — — — 3,038 — — 3,038

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

Conversion of convertible notes payable to Common Stock 1,723 1 — — 8,996 — — 8,997

Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable to Common Stock 10,583 1 — — 40,637 — — 40,638

Other 35 — — — — — — —

Balance, December 31, 2023

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Note 1 — Organization and Nature of Operations

Flotek Industries, Inc.

(“Flotek” or the “Company”) creates unique solutions to reduce the environmental impact of energy on air, water, land and people.

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

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

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

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

The Company’s two operating segments, CT and DA, are supported by its Research & Innovation advanced laboratory capabilities.

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

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

The Company seeks to provide sustainable and optimized chemistry and data technology solutions for both domestic and international energy markets.

The Company’s Chemistry Technologies (“CT”) segment designs, develops, manufactures, packages and distributes specialty chemicals that help customers improve their return on invested capital, lower operational costs and realize tangible environmental benefits aimed at enhancing the profitability of hydrocarbon producers.

The Company’s Data Analytics (“DA”) segment provides innovative analytical measurement solutions.

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

The Company’s operating segments, CT and DA, are supported by its Research & Innovation (“R&I”) advanced laboratory capabilities.

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

Going Concern

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

Although the Company has a history of negative cash flows from operations and losses, the Company recognized $ 24.3 million and $ 24.7 million of gross profit and net income, respectively, during the year ended December 31, 2023.

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 could have a negative impact on our liquidity.

As defined and discussed in Note 9, “Debt and Convertible Notes Payable” and Note 17, “Related Party Transactions”, the ProFrac Agreement contains minimum requirements for chemistry purchases.

If the minimum volumes are not achieved within the applicable measurement period, ProFrac Services LLC is required to pay to the Company, as liquidated damages (“Contract Shortfall Fees”), 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 the measurement period.

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

The minimum purchase requirements were not met during the current measurement period, and as a result, related party revenues and receivables for the year ended and as of December 31, 2023 include $ 20.1 million in Contract Shortfall Fees of which $ 10.0 million has been collected through March 11, 2024.

The Company expects to receive the remaining $ 10.1 million on or before April 8, 2024.

For 2024, the measurement period will be January 1, 2024 through December 31, 2024.

If the minimum purchase requirements are not met during the year ended December 31, 2024, there will be additional Contract Shortfall Fees due during the first quarter of 2025.

Based upon the improvement in our outlook for future cash flows from operations that includes the collection of the Contract Shortfall Fees related to 2023 of $ 20.1 million, combined with cash on hand and availability under the ABL, the Company believes it has sufficient financial resources to fund operations and meet its capital requirements and anticipated obligations as they become due in the next twelve months.

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

The Company had previously disclosed in the consolidated financial statements as of and for the year ending December 31, 2022, that substantial doubt about the Company’s ability to continue as a going concern existed.

As described, the Company has concluded that those conditions and events raising the substantial doubt no longer exist.

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

As used herein, “Flotek,” the “Company,” “we,” “our” and “us” refers to Flotek Industries, Inc.

and/or the Company’s wholly-owned subsidiaries.

The use of these terms is not intended to connote any particular corporate status or relationship.

Note 2 — Summary of Significant Accounting Policies

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The Company does not have investments in any unconsolidated subsidiaries.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Equivalents

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Restricted Cash

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

The Company’s restricted cash as of December 31, 2023 and 2022 consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its credit card program with a financial institution.

The Company’s restricted cash was $ 0.1 million and $ 0.1 million as of December 31, 2024 and 2023, respectively.

The Company’s restricted cash as of December 31, 2024 and 2023 consisted of cash that the Company is contractually obligated to maintain in accordance with the terms of its credit card program with a financial institution.

Accounts Receivable and Allowance for Credit Losses

On January 1, 2023, the Company adopted Financial Accounting Standards Board (“FASB”) ASC Topic 326, Financial Instruments – Credit Losses (“ASC 326”), which requires the measurement of expected credit losses.

The adoption of ASC 326 using a modified retrospective approach did not have a material impact on the consolidated financial statements.

ASC 326 requires estimated credit losses to be determined for the expected life of the asset compared to an incurred model which was in effect for periods prior to January 1, 2023.

Accounts receivable and accounts receivable, related party, arise from product sales and services and are recorded at the invoiced amount, net of an allowance for credit losses.

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Additionally, certain customers are located in international areas that are inherently subject to risks of economic, political, and civil instability, which can impact the collectability of receivables.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the allowance for credit losses are as follows (in thousands):

Years ended December 31,

December 31, 2024 December 31, 2023

Balance, beginning of year $ 745 $ 623

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Balance, end of year $ 447 $ 745

As of December 31, 2023 and 2022 the Company has not recorded an allowance for credit losses for the related party accounts receivable, including ProFrac Services, LLC (see Note 17, “Related Party Transactions”).

As of December 31, 2024 and December 31, 2023, the Company had not recorded an allowance for credit losses for the related party accounts receivable from ProFrac Services, LLC (see Note 17, “Related Party Transactions”).

Contract Assets

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Based on our tests of recoverability, we did not identify an impairment of the contract assets during the years ended December 31, 2024 and 2023 .

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Company periodically reviews inventories on hand and current market conditions to determine if the cost of raw materials and finished goods inventories exceed current market prices and impairs the cost basis of the inventory accordingly.

The Company periodically reviews inventories on hand and current market conditions to determine if the cost of raw materials and finished goods inventories exceeds current market prices and impairs the cost basis of the inventory accordingly.

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

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The amount of impairment loss recognized is the excess of the asset or asset group’s carrying amount over its fair value.

Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

party independent appraisals, as considered necessary.

There were no impairments of property and equipment, including ROU assets, during the years ended December 31, 2024 and 2023 .

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

The Company recognizes a ROU asset and a lease liability at the lease commencement date.

The Company recognizes an ROU asset and a lease liability at the lease commencement date.

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

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

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company entered into a sublease for its former headquarters, which is being accounted for under lessor accounting.

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Since the former facility is not a component of the Company’s central operations, the income from the sublease and the expenses under the original lease are recorded in Other income, net on our Consolidated Statement of Operations.

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 (“ASC 470”).

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.

The Contract Consideration Notes Payable matured and were converted during the year ended December 31, 2023 in accordance with their terms (see Note 9, “Debt and Convertible Notes Payable”).

Fair Value Measurements

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Revenue Recognition

The Company only has revenue from customers.

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

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

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

Determining the transaction price may require judgment by management, which includes identifying performance obligations, estimating variable consideration to include in the

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

transaction price, and determining whether promised goods or services can be distinguished in the context of the contract.

The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable included in accounts receivable, net and accounts receivable, related party on our Consolidated Balance Sheet.

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

Additionally, the Company offers various services associated to products sold which

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

includes field services, installation, maintenance, and other functions.

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

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

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Revenue and expense transactions are translated using the average monthly exchange rate for the reporting period.

Resultant translation adjustments are recognized as other comprehensive income (loss) within stockholders’ equity.

Comprehensive Income (Loss)

Comprehensive income (loss) encompasses all changes in stockholders’ equity, except those arising from investments and distributions to stockholders.

The Company’s comprehensive income (loss) includes consolidated net income and foreign currency translation adjustments.

Resultant translation adjustments are recognized as other comprehensive income within stockholders’ equity.

Comprehensive Income

Comprehensive income encompasses all changes in stockholders’ equity, except those arising from investments and distributions to stockholders.

The Company’s comprehensive income includes consolidated net income and foreign currency translation adjustments.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Research and Development Costs

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The establishment of a valuation allowance requires significant judgment and is impacted by various estimates.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets.

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

The Company evaluated the Pre-Funded Warrants issued in February 2023 (the “February 2023 Warrants”) (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity") to ProFrac Services, LLC upon conversion of the Convertible Notes Payable and Initial ProFrac Agreement Contract Consideration Convertible Notes Payable and determined the February 2023 Warrants meet the criteria to be classified within stockholders’ equity.

The February 2023 Warrants were exercised during the year ended December 31, 2023.

Use of Estimates

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recoverability and timing of the realization of contract assets;

and the fair value of liability classified Contract Consideration Convertible Notes Payable until they were converted and equity classified Pre-Funded Warrants.

Reclassification

Certain items have been reclassified from prior periods to conform to the current period presentation.

These reclassifications had no effect on the previously reported financial condition, results of operations or cash flows.

and the fair value of liability classified Contract Consideration Convertible Notes Payable until they were converted.

Recent Accounting Pronouncements

Changes to U.S.

GAAP are established by the FASB.

GAAP are established by the Financial Accounting Standards Board (“FASB”).

We evaluate the applicability and impact of all authoritative guidance issued by the FASB.

Guidance not listed below was assessed and determined to be either not applicable, clarifications of items listed below, immaterial or already adopted by the Company.

New Accounting Standards Issued But Not Adopted as of December 31, 2023

The FASB issued Accounting Standards Update (“ASU”) No.

2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures.” This standard improves reportable segment disclosure requirements through enhanced disclosures around significant segment expenses.

The amendments require interim and annual disclosures of significant segment expenses regularly provided to the chief operating decision maker (“CODM”).

In addition, public entities are required to disclose the amount of “other segment items” by segment and their composition;

annual disclosures about a reportable segment’s profit/loss and assets;

clarify if the CODM uses more than one measure of a segment’s profit or loss in assessing performance and resource allocation and disclose the name and title of the CODM.

This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted and the amendments are applied retrospectively to all prior periods presented.

The Company is currently evaluating the impact of the adoption of the ASU on the related disclosures.

Guidance not listed below was assessed and determined to be either not applicable, clarifications of items listed below, have no material effect on the Company’s financial statements or are already adopted by the Company.

New Accounting Standards Issued and Adopted as of December 31, 2024

The Company has adopted ASU 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), effective retrospectively for the year ended December 31, 2024.

ASU 2023-07 enhances the disclosures required for operating segments in the Company's annual and interim consolidated financial statements.

As a result of this adoption, the Company's segment disclosure now includes significant expense categories.

See "Note 18, “Business Segment, Geographic and Major Customer Information" for the enhanced disclosures associated with the adoption of ASU 2023-07.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The FASB issued ASU No.

2023-09, “ Improvements to Income Tax Disclosures” (“ASU 2023-09”).

This amendment was created as a response to requests from investors, lenders, creditors and other parties to enhance transparency and effectiveness of tax disclosures to help them better assess how an entity’s operations and related tax risks affect an entity’s tax rate and potential future cash flows.

ASU 2023-09 requires that entities annually disclose the amount of taxes paid (net of refunds received) disaggregated by federal, state and foreign jurisdictions and that those amounts are also disaggregated by individual jurisdictions equal to or greater than 5% of total income taxes paid (net of funds received).

ASU 2023-09 adds a requirement that entities disaggregate income (loss) from continuing operations before income tax expense (benefit) between domestic and foreign.

The amendments also require entities to disaggregate income tax expense (benefit) by federal, state and foreign jurisdictions.

The amendments under ASU 2023-09 also remove certain prior requirements.

Public business entities are no longer required to disclose the nature and estimate of change in the unrecognized tax benefits balance in the next 12 months or make a statement that an estimate cannot be determined.

In addition public business entities are no longer required to disclose the cumulative amount of each type of temporary difference for which a deferred tax liability has not been recognized due to the exception to recognizing deferred taxes related to subsidiaries and corporate joint ventures.

ASU 2023-09 goes into effect for annual periods beginning after December 15, 2024 and early adoption is permitted for annual financial statements not yet issued or made available for issuance.

Adoption of the ASU is on a prospective basis, with the option to apply retrospectively.

The Company is currently evaluating the impact of the adoption of the ASU on the related disclosures.

New Accounting Standards Issued and Not Adopted as of December 31, 2024

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information.

ASU 2023-09 is effective for the Company prospectively to all annual periods beginning after December 15, 2024.

The Company continues to evaluate the impact of this standard on its disclosures.

The FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures" ("ASU 2024-03"), which enhances the disclosures required for certain expense captions in the Company's annual and interim consolidated financial statements.

ASU 2024-03 is effective prospectively or retrospectively for fiscal years beginning after December 15, 2026 and for interim periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently evaluating the impact of this standard on its disclosures.

Note 3 — Revenue from Contracts with Customers

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

Product and service revenues include sales to related parties as described in Note 17, “Related Party Transactions.”

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

Years ended December 31,

$ 182,695 $ 132,521

Products $ 180,470 $ 182,695

Services 6,555 5,363

$ 187,025 $ 188,058

(1) Product revenues include sales to related parties as described in Note 17, “Related Party Transactions.”

Disaggregation of Cost of Sales

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

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Years ended December 31,

1 unchanged sentence

Cost of sales for external customers $ 67,205 $ 64,498

Cost of sales for related parties 99,297 85,948

Cost of sales for related party 80,434 99,297

$ 147,639 $ 163,795

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Contract Assets

Contract assets are as follows (in thousands):

December 31, 2024 December 31, 2023

Contract assets $ 83,060 $ 83,060

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Contract assets, long term $ 63,105 $ 68,820

In connection with entering into the ProFrac Agreement in 2022 as discussed in Note 9, “Debt and Convertible Notes Payable” and Note 17, “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 December 31, 2023, $ 68.8 million 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.

During the years ended December 31, 2023 and 2022 the Company recognized $ 5.0 million and $ 3.4 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.

In connection with entering into the Initial ProFrac Agreement and Amended ProFrac Agreement on February 2, 2022 and May 17, 2022, respectively, as discussed in Note 9, “Debt and Convertible Notes Payable” and Note 17, “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 December 31, 2024 and December 31, 2023, $ 63.1 million and $ 68.8 million, respectively, of the contract assets were classified as long term based upon our estimate of the forecasted revenues from the ProFrac Agreement that 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 years ended December 31, 2024 and 2023, the Company recognized $ 5.6 million and $ 5.0 million, respectively, of contract assets amortization that is recorded as a reduction of the transaction price included in the related party revenue in the consolidated statement of operations.

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

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Inventories are as follows (in thousands):

December 31, 2024 December 31, 2023

Raw materials $ 4,945 $ 5,299

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Inventories, net $ 13,303 $ 12,838

During the years ended December 31, 2024 and 2023, additional reserves recorded were $ 0.6 million and $ 0.8 million, respectively, for the CT segment and $ 13 thousand and $ 0.2 million, respectively, for the DA segment.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in the reserve for excess and obsolete inventory are as follows (in thousands):

Years ended December 31,

Balance, beginning of year $ 8,210 $ 10,141

Charged to provisions 959 1,734

Deductions for sales and disposals ( 3,048 ) ( 3,665 )

Balance, end of the year

$ 6,121 $ 8,210

The provisions recorded in the years ended December 31, 2023 and 2022 w ere $ 0.8 million and $ 1.6 million, respectively, for the CT segment an d $ 0.2 million and $ 0.1 million, respectively, for the DA segment.

The CT segment provision includes $ 1.0 million for the year ended December 31, 2022 for the exit of the hand sanitizers business line.

Note 6 — Property and Equipment

Property and equipment are as follows (in thousands):

December 31, 2024 December 31, 2023

Land $ 886 $ 886

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Property and equipment, net $ 6,178 $ 5,129

Depreciation expense totaled $ 0.7 million and $ 0.7 million for the years ended December 31, 2023 and 2022 , respectively.

During 2022, the Company sold two facilities for aggregate proceeds of $ 5.8 million resulting in a net gain of $ 2.9 million.

Depreciation expense totaled $ 0.9 million and $ 0.7 million for the years ended December 31, 2024 a nd 2023, respectively.

Note 7 — Leases

Rental income recognized from leasing manufacturing facilities was $ 0.4 million for the year ended December 31, 2022 and is included in other, net in the consolidated statement of operations.

As discussed in Note 6, “Property and Equipment” these facilities were sold in 2022 and the lease agreements between the tenants and the Company terminated.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Maturities of lease liabilities as of December 31, 2024 are as follows (in thousands):

Years ending December 31, Operating Leases Finance Leases

2024 $ 3,215 $ 22

Years ending December 31, Operating Leases

Thereafter 1,407

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Current portion of finance lease liabilities $ — $ 22

Long-term finance lease liabilities — 19

Total finance lease liabilities $ — $ 22

1 unchanged sentence

Operating leases 5.4 years 5.5 years

Finance leases 0.5 years 1.6 years

Finance leases — 0.6 years

Weighted Average Discount Rate

2 unchanged sentences

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 31, 2030.

The rental income of $ 0.3 million for the year ended December 31, 2023 from the sublease is included in the Company’s statement of operations in Other income, net, and offsets the rental expense from the Company’s lease of the facility from the landlord.

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 through October 30, 2030.

The Company recorded rental income from the sublease of $ 0.7 million and $ 0.3 million for the years ended December 31, 2024 and 2023, respectively, which is included in the Company’s statement of operations in Other income (expense), net.

Rental income from the sublease offsets the monthly rental expense from the Company’s lease of the facility.

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

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Current accrued liabilities are as follows (in thousands):

Severance costs (see Note 12, “Commitments and Contingencies”) $ 648 $ 2,617

December 31, 2024 December 31, 2023

Severance costs $ 380 $ 648

Payroll and benefits 2,901 2,138

1 unchanged sentence

Contingent liability for earn-out provision 127 56

Deferred revenue, current 550 655

Taxes other than income taxes 656 1,884

Deferred revenue 808 550

Financed insurance 1,074 1,573

Other 523 888

Total current accrued liabilities $ 5,912 $ 5,890

As of December 31, 2023, we accrued for bonus compensation to be paid in early 2024.

We did not recognize or accrue for bonus compensation as of December 31, 2022.

Note 9 — Debt and Convertible Notes Payable

Asset Based Loan

On August 14, 2023, the Company entered into a 24-month revolving loan and security agreement in connection with an asset-based loan (the “ABL”).

The ABL is classified, under ASC 470, as current debt on our consolidated balance sheet due to the nature of the payment arrangements where the lender is paid from customer payments received into the Company’s collections account.

The ABL provides up to $ 13.8 million of credit availability, which is limited by a borrowing base consisting of:

(i) 85 % of eligible accounts receivable, plus (ii) 60 % of the value of eligible inventory not to exceed 100 % of the eligible accounts receivable.

As of December 31, 2023, the Company had $ 7.5 million outstanding under the ABL.

During the year ended December 31, 2023, the Company incurred $ 0.5 million in interest and fees related to the ABL, which included the annual fee of $ 0.1 million, that is included in interest expense in the Company’s statement of operations.

As of December 31, 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.

In August 2023, the Company entered into a 24-month revolving loan and security agreement in connection with an Asset Based Loan, which was amended in October 2023 and August 2024 (as amended the “ABL”).

The August 2024 amendment to the ABL extended the maturity to August 2026, increased the credit availability and lowered the interest rate spread.

The ABL provides up to $ 20.0 million of credit availability, which is limited by a borrowing base consisting of (i) 85 % of eligible accounts receivable, plus (ii) 60 % of the value of eligible inventory not to exceed 100 % of the eligible accounts receivable, plus (iii) 60 % of the value of certain real estate holdings.

As of December 31, 2024 and 2023, the Company had $ 4.8 million and $ 7.5 million, respectively, outstanding under the ABL.

As of December 31, 2024, the Company had approximately $ 8.9 million of available borrowings under the ABL.

During the years ended December 31, 2024 and 2023, the Company incurred $ 0.7 million and $ 0.5 million, respectively, in interest and fees related to the ABL.

As of December 31, 2024 and 2023, the Company recorded $ 0.3 million and $ 0.5 million, respectively, of unamortized deferred financing costs related to the ABL.

Borrowings under the ABL bear interest at the Wall Street Journal Prime Rate (subject to a floor of 5.50 %) plus 2.0 % per annum.

The interest rate under the ABL was 11.0 % as of December 31, 2023.

The interest rate under the ABL was 9.5 % and 11.0 % as of December 31, 2024 and 2023, respectively.

For the year ended December 31, 2024, the weighted-average interest rate was 10.8 %.

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 2.5 % of the borrowing base limit of the ABL if terminated with more than 12 months remaining until the maturity date or 1.5 % of the borrowing base limit of the ABL if terminated with less than 12 months remaining until the maturity date.

If the ABL is terminated prior to the end of its 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.

1 unchanged sentence

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 the covenants under the ABL as of December 31, 2023.

Paycheck Protection Program Loans

The Company was in compliance with all of the covenants under the ABL as of December 31, 2024.

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.

1 unchanged sentence

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

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

The remaining principal amount of $ 0.4 million and accrued interest, will be repaid over the remaining term of the loan through April 15, 2025 beginning on March 15, 2023.

The forgiveness of the Flotek PPP loan was accounted for as an extinguishment of the debt and resulted in the Company recording a $ 4.5 million gain in the first quarter of 2023 comprising the principal amount forgiven of $ 4.4 million and accrued interest of $ 0.1 million.

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.

The forgiveness of the Flotek PPP loan was accounted for as an

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

extinguishment of the debt and the Company recorded a $ 4.5 million gain in the year ended December 31, 2023, comprising the principal amount forgiven of $ 4.4 million and accrued interest of $ 0.1 million.

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

December 31, 2024 December 31, 2023

Flotek PPP loan

Less current maturities

( 60 ) ( 179 )

Total long-term debt, net of current portion

Loan repayments are scheduled as follows (in thousands):

Years ending December 31,

Total Flotek PPP loan $ 239

Convertible Notes Payable

1 unchanged sentence

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 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 (as defined in Note 13, “Stockholders’ Equity”) 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.

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 2,793,030 shares of common stock on a pre-Reverse Stock Split basis ( 465,505 on a post-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 consolidated statements of operations.

Interest expense for the years ended December 31, 2023 and 2022 included $ 0.2 million and $ 1.8 million, respectively, of accrued paid-in-kind interest and $ 83 thousand and $ 1.0 million, respectively, of issuance cost amortization related to these Convertible Notes Payable.

Interest expense relating to the Convertible Notes Payable held by ProFrac Holdings, LLC (related party) was $ 85 thousand and $ 1.0 million for the years ended December 31, 2023 and 2022.

Upon maturity 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 into 10,335,840 shares of common stock ( 1,722,640 shares of the Company’s common stock on a post-Reverse Stock Split basis) 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 (see Note 13, “Stockholders’ Equity”).

On September 6, 2023, the February 2023 Warrants 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).

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The issuance cost 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 consolidated statements of operations.

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

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 2,113,880 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 were exercised and the Company issued 2,113,880 shares of the Company’s common stock.

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 the paid-in-kind interest at a rate of 10 % per annum and conversion features.

Interest expense for the years ended December 31, 2023 and 2022 included $ 85 thousand and $ 1.0 million, respectively, of accrued paid-in-kind interest related to the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable.

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

On September 6, 2023, the February 2023 Warrants 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).

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 (see Note 10, “Fair Value Measurements”), were converted, upon maturity, into 2,113,881 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 were exercised and the Company issued 2,113,881 shares of the Company’s common stock.

Amended ProFrac Agreement Contract Consideration Convertible Notes Payable

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

Interest expense for the years ended December 31, 2023 and 2022 included $ 2.0 million and $ 3.2 million, respectively, of accrued paid-in-kind interest related to the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable.

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.

Upon maturity 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 (see Note 10, “Fair Value Measurements”), were converted on a pre-Reverse Stock Split basis, upon maturity, into 63,496,922 shares of common stock at a pre-Reverse Stock price of $ 0.8705 per share ( 10,582,821 common shares on a pre-Reverse Stock Split basis).

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 (see Note 10, “Fair Value Measurements”), were converted, upon maturity, into 10,582,821 shares of common stock.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, ABL, accrued liabilities and accounts payable approximate fair value due to the short-term nature of these accounts.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Liabilities Measured at Fair Value on a Recurring Basis

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Contingent earnout consideration $ — $ — $ 127 $ 127 $ — $ — $ 56 $ 56

Initial ProFrac Agreement contract consideration convertible notes — — — — — — 14,220 14,220

Amended ProFrac Agreement contract consideration convertible notes — — — — — — 69,350 69,350

Total $ — $ — $ 127 $ 127 $ — $ — $ 56 $ 56

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 December 31, 2023 and 2022 .

The estimated fair value of $ 56 thousand and $ 0.6 million 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.

In connection with the acquisition of one of the Company’s wholly owned subsidiaries, JP3 Measurement, LLC, the Company entered into a stock performance earn-out provision with the sellers.

The estimated fair value of the remaining stock performance earn-out provision, with respect to this transaction, is included in accrued liabilities as of December 31, 2024 and December 31, 2023.

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.

December 31, 2024 December 31, 2023

Risk-free interest rate 4.30 % 4.58 %

1 unchanged sentence

Term until liquidation (years) 0.38 1.38

Stock price (pre-Reverse Stock Split basis for 2022) $ 3.92 $ 1.12

Stock price $ 9.53 $ 3.92

Discount rate 8.00 % 11.86 %

2 unchanged sentences

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

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

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 that matured on February 2, 2023, as of December 31, 2022 were as follows:

December 31, 2022

Risk-free interest rate 4.12 %

Expected volatility 100.0 %

Term until liquidation (years) 0.09

Stock price (pre-Reverse Stock Split basis)

Discount rate 4.12 %

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 and $ 3.3 million increase for the years ended December 31, 2023 and 2022, respectively.

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

The fair value adjustment was a $ 0.8 million increase for the year ended December 31, 2023.

FLOTEK INDUSTRIES, INC.

1 unchanged sentence

Amended ProFrac Agreement Contract Consideration Convertible Notes Payable Key Inputs

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

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

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

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

December 31, 2022

Risk-free interest rate 4.59 %

Expected volatility 100.0 %

Term until liquidation (years) 0.38

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

Discount rate 4.59 %

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 for the twelve months ended December 31, 2023.

The fair value adjustment was a decrease of $ 3.3 million for the twelve months ended December 31, 2022.

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

The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable had an initial fair value of $ 69.5 million on May 17,2022.

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 on the date of conversion resulting in a gain in fair value of Amended ProFrac Agreement Contract Consideration Convertible Note Payable of $ 30.8 million for the year ended December 31, 2023.

Assets Measured at Fair Value on a Nonrecurring Basis

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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 years ended December 31, 2023 and 2022 classified as Level 3 balances (in thousands):

The following table presents the changes in balances of liabilities for the years ended December 31, 2024 and 2023 classified as Level 3 (in thousands):

Years ended December 31,

Balance - beginning of period $ 56 $ 84,153

Transfer of Initial ProFrac Agreement contract consideration convertible notes payable from Level 2 — 10,000

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

Increase in principle of Initial ProFrac Agreement contract consideration convertible notes payable for paid-in-kind interest 85 954

Increase in principle of Amended ProFrac Agreement contract consideration convertible notes payable for paid-in-kind interest 2,044 3,231

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

Increase in principal of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable for paid-in-kind interest — 2,043

Change in fair value of contingent earnout consideration 71 ( 527 )

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Change in fair value of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable — ( 30,754 )

Conversion of Initial ProFrac Agreement contract consideration convertible notes on maturity ( 15,092 ) —

Conversion of Amended ProFrac Agreement contract consideration convertible notes on maturity ( 40,638 ) —

Conversion of Initial ProFrac Agreement Contract Consideration Convertible Notes Payable on maturity — ( 15,092 )

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

Balance - end of period $ 127 $ 56

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Income Taxes

Components of the income tax expense (benefit) are as follows (in thousands):

Components of the income tax expense are as follows (in thousands):

Years ended December 31,

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State 249 104

Total deferred expense (benefit) 104 ( 125 )

Income tax expense (benefit) $ 149 $ ( 22 )

The components of income (loss) before income taxes are as follows (in thousands):

Total deferred expense 249 104

Income tax expense $ 649 $ 149

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Current state income tax expense during the year ended December 31, 2024 related to the resolution of certain state tax audits for the years ended December 31, 2016 and 2017.

The components of income before income taxes are as follows (in thousands):

Years ended December 31,

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Foreign 147 ( 453 )

Income (loss) before income taxes $ 24,862 $ ( 42,327 )

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

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

Income before income taxes $ 11,147 $ 24,862

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

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

Years ended December 31,

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net operating loss carryforwards (“NOLs”) of $ 187.0 million, including $ 40.6 million expiring in various amounts from 2029 through 2037 which can offset 100 % of taxable income and $ 146.4 million that has an indefinite carryforward period which can offset 80 % of taxable income per year.

Additionally, the Company has an estimated $ 94.2 million in certain state NOL carryforwards, $ 0.2 million in Section 163(j) interest limitation carryforwards and $ 3.8 million in tax credit carryforwards.

As a result of the ownership change experienced in 2023, the Company’s ability to use NOLs to reduce taxable income is generally limited by Section 382 of the Internal Revenue Code of 1986 to an annual amount, of $ 3.5 million plus an uplift of $ 24.5 million.

Additionally, the Company has an estimated $ 75.7 million in certain state NOL carryforwards and $ 3.8 million in tax credit carryforwards.

As a result of the ownership change experienced in 2023 (see Note 17, “Related Party Transaction”), the Company’s ability to use NOLs to reduce taxable income is generally limited by Section 382 of the Internal Revenue Code of 1986 to an annual amount, of $ 3.5 million plus an uplift of $ 24.5 million.

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.

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

Based on an analysis of the Section 382 limitation, the Company estimates that $ 31.3 million of the state NOL carryforwards (subject to additional state-by-state analysis) and $ 3.8 million of the tax credit carryforwards will expire unutilized.

Based on an analysis of the Section 382 limitation, the Company estimates that $ 0.9 million of the state NOL carryforwards and $ 3.8 million of the tax credit carryforwards will expire unutilized.

Although the ownership change will significantly limit the ability of the Company to utilize the pre-change net operating losses and credits, the Company does not expect a significant impact to its financial statements given the valuation allowance that is recorded to estimate the realizability of the deferred tax assets.

The Company’s cumulative losses (before permanent items) of $ 48.0 million in the recent three years ended December 31, 2023 are negative evidence that it will not likely generate sufficient future income to utilize its deferred tax assets.

Therefore, the Company believes that it is not more likely than not that it will realize its deferred tax assets in all taxing jurisdictions with the exception of a portion related to the states of Louisiana and Texas.

Therefore, the Company recorded a valuation allowance for the years ended December 31, 2023 and December 31, 2022 to reflect the estimated amount of deferred tax asset realizability.

The Company’s cumulative losses (before permanent items) of $ 6.3 million in the three years ended December 31, 2024 are negative evidence that it will not likely generate sufficient future taxable income to utilize its deferred tax assets.

Therefore, the Company recorded a valuation allowance as of December 31, 2024 and December 31, 2023 to reflect the estimated amount of deferred tax asset realizability.

The change in valuation allowance was ($ 2.7 ) million and ($ 5.2 ) million during the years ended December 31, 2024 and 2023, respectively.

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subsidiaries.

As of December 31, 2023 and 2022, the Company had approximately $ 6.3 million and $ 6.4 million, respectively, in unremitted earnings from its foreign jurisdictions.

As a result of the 2017 Tax Act these earnings have been previously taxed in the U.S.

although they have not been repatriated.

However, certain withholding taxes may need to be paid upon repatriation depending

As of December 31, 2024 and 2023, the Company had approximately $ 6.4 million and $ 6.3 million, respectively, in unremitted earnings from its

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

on the US treaty with the applicable country.

foreign jurisdictions.

As a result of the 2017 Tax Act these earnings have been previously taxed in the U.S.

although they have not been repatriated.

However, certain withholding taxes may need to be paid upon repatriation depending on the US treaty with the applicable country.

Because all of the Company’s foreign earnings have been previously taxed, the requirement to record a deferred tax liability on such unremitted earnings is not applicable.

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As of December 31, 2024, the Company is not under examination in any federal/national jurisdictions.

However, the 2016 and 2017 report years with respect to research and development credits are under review by the Texas Comptroller’s office.

The tax returns for the years ended 2020 through 2022 remain subject to examination in the US, and the tax returns for the years ended 2019 through 2022 remain subject to examination in various state jurisdictions.

The tax returns for the years ended 2021 through 2023 remain subject to examination in the US, and the tax returns for the years ended December 31, 2020 through 2023 remain subject to examination in various state jurisdictions.

Note 12 — Commitments and Contingencies

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

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

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

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

The settlement resulted in the reversal of $ 2.3 million of accrued severance costs during the twelve months ended December 31, 2023 and is included as a reduction to severance costs in our consolidated statements of operations.

In connection with the matter related to Mr.

Chisholm, the Company commenced arbitration and other legal proceedings against Casey Doherty/ Doherty & Doherty LLP (Flotek’s former outside general counsel) and Moss Adams LLP and its predecessor, Hein & Associates LLP (Flotek’s former independent public audit firm) to recover damages.

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.

As a result of the various settlements during 2023, the Company considers this matter closed.

From time to time, the Company is subject to litigation and other claims that arise in the normal course of business.

As of December 31, 2024, the Company was not party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

However, the results of current or future matters cannot be predicted with certainty;

an unfavorable resolution of one or more of such matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

Other Commitments and Contingencies

The Company is subject to concentrations of credit risk within trade accounts receivable and related party accounts receivable, as the Company does not generally require collateral as support for trade receivables.

In addition, the majority of the Company’s cash is invested in major U.S.

In addition, the majority of the Company’s cash is invested in three major U.S.

financial institutions and balances often exceed insurable amounts.

Note 13 — Stockholders’ Equity

Reverse stock split

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.

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 to common stock on our consolidated balance sheet with a corresponding increase in additional paid-in capital as of December 31, 2022.

The Company 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 for each period presented.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Conversion of Convertible Notes Payable

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 ( 1,722,640 shares of the Company’s common stock on a post-Reverse Stock Split basis).

The Convertible Notes Payable converted into common stock had a carrying value of $ 9.0 million, including accrued paid-in-kind interest of $ 0.8 million, that was recorded as additional paid-in-capital upon conversion.

The Convertible Notes Payable held by ProFrac Holding, LLC pursuant to the PIPE transaction had 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.

The February 2023 Warrants met the criteria for equity accounting 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 with an exercise price of $ 0.0001 per share.

The February 2023 Warrants met the criteria for equity accounting 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).

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).

The Contract Consideration Convertible Notes Payable converted into common stock, remeasured to a fair value of $ 40.6 million upon maturity, were recorded as additional paid-in-capital as of December 31, 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 1,722,640 shares of common stock.

The Convertible Notes Payable converted into common stock 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 upon conversion.

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 2,113,880 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 2,113,880 shares of the Company’s common stock.

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 into 2,113,881 February 2023 Warrants and were recorded as additional paid-in-capital upon conversion.

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 10,582,821 shares of common stock.

The Contract Consideration Convertible Notes Payable, remeasured to a fair value of $ 40.6 million upon maturity, were recorded as additional paid-in-capital upon conversion.

Pre-Funded Warrants

On June 21, 2022, ProFrac Holdings II, LLC paid $ 19.5 million for Pre-Funded Warrants of the Company, representing a 20 % premium to the 30-day volume average price of the Company’s common stock at the close of business on the day prior to the date of the issuance of the Prefunded Warrants.

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

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

Th e Prefunded 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.

The Prefunded Warrants, net of transaction fees of $ 1.1 million, and the equity contribution of $ 8.4 million from ProFrac Holdings, II, LLC are included in additional paid-in capital.

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

Risk-free interest rate 3.21 %

Expected volatility 90.0 %

Term until liquidation (years) 2.00

Stock price (pre-Reverse Stock Split) $ 1.11

Strike price (exercise fee) $ 4.5 million

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

The June 2022 Warrants permit ProFrac Holdings II, LLC to purchase 2,184,140 shares of the Company’s common stock at an exercise price equal to $ 0.0001 per share, subject to a $ 4.5 million exercise fee.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Company obtained approval from a majority of its shareholders excluding ProFrac Holdings II, LLC and its affiliates, with respect to the exercise of the PreFunded Warrants in connection with a special meeting of shareholders held on September 5, 2023.

As of December 31, 2023, the PreFunded Warrants have not been exercised.

ProFrac Holdings II, LLC and its affiliates may not receive any voting or consent rights in respect of the June 2022 Warrants or the underlying shares of common stock unless and until ProFrac Holdings II, LLC has paid an additional $ 4.5 million to the Company;

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

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

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The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity.

During the years ended December 31, 2023 and 2022 , the Company withheld 42,000 shares and 19,133 shares, respectively, of the Company’s common stock at market value as payment of income tax withholding owed by employees upon the vesting of restricted shares and the exercise of stock options.

Shares issued as restricted stock awards to employees under the 2018 long-term incentive plan that were forfeited were 20,000 and 6,591 during the years ended December 31, 2023 and 2022, respectively, are accounted for as treasury stock.

During the years ended December 31, 2023 and 2022, forfeited stock awards returned to treasury stock were 66,000 shares and 5,009 shares, respectively.

During the years ended December 31, 2024 and 2023, the Company withheld 23 thousand shares and 42 thousand shares, respectively, of the Company’s common stock at fair market value for payment of income tax withholding owed by employees upon the vesting of restricted shares and the exercise of stock options.

Shares issued as restricted stock awards to employees under the 2018 long-term incentive plan are accounted for as treasury stock when forfeited.

During the years ended December 31, 2024 and 2023, forfeited stock awards returned to treasury stock were 11 thousand shares and 66 thousand shares, respectively.

Note 14 — Stock-Based Compensation and Other Benefit Plans

Stock-Based Incentive Plans

Stockholders approved an increase in shares during its 2023 Annual meeting to long-term incentive plans created in 2018 (the “2018 Plan”) under which the Company may grant equity awards to officers, key employees, non-employee directors and service providers in the form of stock options, restricted stock, restricted stock units, and certain other incentive awards.

The maximum number of shares that may be issued under long-term incentive plans created in 2020 and 2019 (the “2020 Plan” and “2019 Plan,” respectively) and 2018 Plan are 0.5 million, 0.2 million, and 1.9 million, respectively.

At December 31, 2023 and 2022, the Company had an aggregate o f 0.6 million and 0.7 million shares remaining, respectively, to be granted under the 2020 Plan, 2019 Plan and 2018 Plan.

In June 2024, Company stockholders approved an amendment to the Flotek Industries, Inc.

2018 Long-Term Incentive Plan (the “2018 Plan”) to increase the number of shares of Company common stock eligible for issuance under the 2018 Plan.

The 2018 Plan permits the Company to grant equity awards to officers, key employees, non-employee directors and service providers in the form of stock options, restricted stock, restricted stock units, and certain other incentive awards.

In addition, the Company has two other long-term incentive plans, which were created in 2020 and 2019 (the “2020 Plan” and “2019 Plan,” respectively).

The maximum number of shares that may be issued under the 2020 Plan, the 2019 Plan and 2018 Plan are 0.5 million, 0.2 million, and 2.4 million, respectively.

At December 31, 2024 and 2023, the Company had 0.6 million and 0.6 million shares remaining, respectively, to be granted under the 2020 Plan, 2019 Plan and 2018 Plan in the aggregate.

Stock Options

All stock options are granted with an exercise price equal to the market value of the Company’s common stock on the date of grant.

During the year ended December 31, 2023, 0.1 million market-based stock options and 0.1 million performance-based stock options were granted compared to none during the year ended December 31, 2022.

During the year ended December 31, 2024, there were no grants of market-based or performance-based stock options compared to 0.1 million market-based stock options and 0.1 million performance-based stock options that were granted during the year ended December 31, 2023.

The market-based and performance-based options are restricted until criteria defined in the stock option agreements are met.

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Stock-based compensation expense is recorded for all equity awards expected to vest.

During the year ended December 31, 2023 no stock options vested compared to 0.1 million for the year ended December 31, 2022.

During the year ended December 31, 2024, 24 thousand stock options vested compared to none for the year ended December 31, 2023.

The total fair value of the stock options that vested was $ 0.1 million for the year ended December 31, 2024 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock option activity for the years ended December 31, 2023 and 2022, are as follows:

Stock option activity for the years ended December 31, 2024 and 2023 , was as follows:

Shares Weighted-Average

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Weighted-average remaining contractual term in years 8.12 4.64 8.03

The following table sets forth significant assumptions used in the Monte Carlo model for performance-based options to determine the fair value of the options awarded in June 2023 at the date of grant for the year ended December 31, 2023.

The following table sets forth significant assumptions used in the Monte Carlo model for market-based options to determine the fair value of the 61,984 options awarded in June 2023 at the date of grant.

June 7, 2023 Awards

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Dividend yield — %

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth significant assumptions used in the Black-Scholes model for market-based options to determine the fair value of the options awarded in December 2023 at the date of grant for the year ended December 31, 2023.

The following table sets forth significant assumptions used in the Black-Scholes model for performance options to determine the fair value of the 128,744 options awarded in December 2023 at the date of grant.

December 5, 2023 Awards

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There were no options granted during the year ended December 31, 2024 .

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock

The Company grants employees and directors either time-vesting or market-based restricted shares in accordance with terms specified in the Restricted Stock Agreements.

During the years ended December 31, 2023 and 2022 , all of the restricted stock granted were time-vesting restricted shares.

Grantees of restricted shares retain voting rights for the granted shares.

• Time-vesting restricted shares vest after a stipulated period has elapsed after the date of grant, generally three years .

Certain time-vested shares have also been issued with a portion of the shares granted vesting immediately.

• Market-based restricted shares are issued with criteria defined over a designated period and vest only when, and if, the outlined criteria are met.

Restricted stock share activity for the years ended December 31, 2023 and 2022, are as follows:

The Company grants employees and directors either time-vesting or performance-based restricted shares of common stock (“RSAs”) in accordance with terms specified in the applicable RSA Agreements.

During the years ended December 31, 2024 and 2023, all of the RSAs granted were time-vested.

Grantees of RSAs retain voting rights for the granted restricted shares.

• Time-vesting RSAs vest after a stipulated period has elapsed after the date of grant, generally three years .

Certain time-vested RSAs have also been issued with a portion of the shares granted vesting immediately.

• Performance-based RSAs are issued with criteria defined over a designated period and vest only when, and if, the outlined criteria are met.

RSA activity for the years ended December 31, 2024 and 2023 , are as follows:

Restricted Stock Shares Shares Weighted-

Value at Date of

Non-vested at December 31, 2021

Non-vested RSAs at December 31, 2022

384,534 $ 8.23

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Forfeited ( 95,667 ) $ 9.25

Non-vested at December 31, 2022

Non-vested RSAs at December 31, 2023

249,013 $ 5.97

Granted 93,760 $ 4.43

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Forfeited ( 11,528 ) $ 7.77

Non-vested at December 31, 2023

Non-vested RSAs at December 31, 2024

148,926 $ 5.46

The total fair value of restricted stock that vested during the years ended December 31, 2023 and 2022 was $ 0.9 million and $ 1.3 million, respectively.

The grant-date fair value is the market price of the shares on the date of grant.

At December 31, 2023 and 2022 , unrecognized compensation expense related to non-vested restricted stock was $ 0.9 million and $ 2.0 million, respectively.

The total fair value of RSAs that vested during the years ended December 31, 2024 and 2023 was $ 0.9 million and $ 0.9 million, respectively.

The grant-date fair value is the market price of the RSAs on the date of grant.

At December 31, 2024 and 2023, unrecognized compensation expense related to non-vested RSAs was $ 0.4 million and $ 0.9 million, respectively.

The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock Units

The Company grants either time-vesting or performance-based restricted share units (“RSUs”) in accordance with terms specified in the applicable RSU Agreements.

Grantees of RSUs do not have voting rights for the granted RSUs until such time as the applicable RSUs vests and shares of common stock are issued.

• Time-vesting RSUs vest after a stipulated period has elapsed after the date of grant, generally three years.

• Performance-based RSUs are issued with criteria defined over a designated period and vest only when, and if, the outlined criteria are met.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

The Company grants time-vesting restricted share units in accordance with terms specified in the Restricted Stock Unit Agreements.

Restricted stock units activity for the years ended December 31, 2023 and 2022 , are as follows:

RSU activity for the years ended December 31, 2024 and 2023, was as follows:

Restricted Stock Units Units Weighted-

Value at Date of

RSUs at December 31, 2021

Non-vested RSUs at December 31, 2022

102,481 $ 11.42

Granted 230,816 $ 3.82

Vested ( 82,730 ) $ 10.64

Forfeited ( 38,000 ) $ 11.58

RSUs at December 31, 2022

Non-vested RSUs at December 31, 2023

212,567 $ 3.44

2 unchanged sentences

Forfeited ( 48,098 ) $ 3.28

RSUs at December 31, 2023

Non-vested RSUs at December 31, 2024

552,047 $ 4.55

T he total fair value of restricted stock that vested during the years ended December 31, 2023 and 2022 was $ 0.5 million and $ 0.1 million, respectively.

T he total fair value of RSUs that vested during the years ended December 31, 2024 and 2023 was $ 0.5 million and $ 0.5 million, respectively.

The grant-date fair value is the market price of the shares on the date of grant.

At December 31, 2023 and 2022 , unrecognized compensation expense related to restricted stock units was $ 0.7 million and $ 0.4 million.

The RSUs granted in 2024 included 147,050 performance-based RSUs, half of which will vest upon achievement of a market-based criteria and half of which will vest upon achievement of a non-market-based criteria.

The units with a market-based vesting criteria were valued using a Monte Carlo valuation model to determine the fair value of the awards as of the date of the grant.

The following table sets forth significant assumptions used in the Monte Carlo model to determine the grant date fair value of the 73,525 performance-based RSUs with a market-based vesting criteria awarded in 2024.

October 30, 2024 Awards

Risk-free interest rate 4.20 %

Expected volatility of common stock 53.10 %

Expected life of RSU in years 1.2

Dividend yield — %

At December 31, 2024 and 2023, unrecognized compensation expense related to RSUs was $ 2.3 million and $ 0.7 million, respectively.

The unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.3 years.

RSUs outstanding at December 31, 2023 consist of only time-vesting awards.

Employee Stoc k Purchase Plan

Non-vested RSUs at December 31, 2024 consist of both time-vesting and performance-based awards.

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) was approved by stockholders in 2012.

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The fair v alue of the discount associated with shares purchased under the plan is recognized as stock-based compensation expense and wa s $ 20 thousand and $ 14 thousand for the years ended December 31, 2024 and 2023 , respectively.

The total fair value of the shares purchased under the plan during each of the years ended December 31, 2023 and 2022 was $ 0.1 million and $ 0.1 million , respectively .

The total fair value of the shares purchased under the plan during the years ended December 31, 2024 and 2023 was $ 0.1 million and $ 0.1 million , respectively .

The employee payment associated with participation in the plan occurs through payroll deductions.

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Stock based compensation expense for the year ended December 31, 2023 included an adjustment for actual forfeitures of $ 1.6 million that reduced the total stock-compensation expense.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2023, the Company settled vested equity awards of a terminated officer through a cash payment.

2 unchanged sentences

The Company used the Black-Scholes Model to value the vested equity awards.

This transaction resulted in a reduction of the Company's equity awards liability and a corresponding outflow of cash for $ 617 thousand.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

This transaction resulted in a reduction of the Company's equity awards liability and a corresponding outflow of cash for $ 0.6 million.

The key inputs to the Black-Scholes Model used to estimate the fair value of the vested equity awards, as of the date of the termination were as follows:

3 unchanged sentences

Expected life of options in years 6.92

Stock price (pre-Reverse Stock Split basis) $ 1.37

Stock price (1) $ 1.37

Strike Price $ 1.93

(1) Stock price is based on the price of common shares prior to the Company’s 1-for-6 reverse stock split in September 2023.

401(k) Retirement Plan

The Company maintains a 401(k) retirement plan for the benefit of eligible employees in the U.S.

All employees are eligible to participate in the plan upon employment.

The Company currently matches contributions at 100 % of up to 2 % of an employee’s compensation .

based employees are eligible to participate in the plan upon employment.

The Company currently matches contributions at 100 % of up to 2 % of an employee’s contributions .

During the years ended December 31, 2024 and 2023, compensation expense included $ 0.3 million and $ 0.3 million, respectively, related to the Company’s 401(k) match.

Note 15 — Earnings (Loss) Per Share

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

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

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

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

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

The dilutive effect of 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.

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.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The calculation of the basic and diluted earnings (loss) per share for the years ended December 31, 2024 and 2023 is as follows (in thousands):

Year ended December 31,

Net income (loss) for basic earnings per share $ 24,713 $ ( 42,305 )

Adjustments to net income (loss) available to shareholders for diluted earnings

Paid-in-Kind interest expense on convertible notes payable and contract consideration convertible notes payable, net of tax 2,284 —

Valuation gain on convertible notes carried at fair value, net of tax ( 29,969 ) —

Net loss for fully dilutive earnings per share $ ( 2,972 ) $ ( 42,305 )

Years ended December 31,

Net income for basic earnings per share $ 10,498 $ 24,713

Adjustments to net income available to shareholders

Paid-in-Kind interest expense on convertible notes payable and Contract Consideration Convertible Notes Payable — 2,284

Valuation gain on Contract Consideration Convertible Notes Payable carried at fair value — ( 29,969 )

Adjusted net income (loss) for diluted earnings per share $ 10,498 $ ( 2,972 )

Basic weighted average shares outstanding 29,534 24,830

Dilutive effect of convertible notes payable — 3,547

Dilutive effect of the June 2022 warrants 1,210 —

Dilutive effect of stock options and restricted shares 145 —

Diluted weighted average shares outstanding 30,889 28,377

Basic earnings (loss) per share $ 1.00 $ ( 3.41 )

Diluted loss per share $ ( 0.10 ) $ ( 3.41 )

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2023, weighted average shares for employee stock awards and weighted average shares for the Pre-Funded Warrants were not included in the dilution calculation since including them would have an anti-dilutive effect on the loss per share due to the adjusted net loss incurred during the period.

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

For the year ended December 31, 2022 weighted average shares for convertible notes payable, weighted average shares for stock warrants and weighted average shares for employee stock awards were not included in the dilution calculation since including them would have an anti-dilutive effect on the loss per share due to the net loss incurred during the period.

The table below summarizes net income items that were excluded from the numerator for the diluted earnings calculation and shares that were excluded from the denominator for the diluted earnings calculation due to their anti-dilutive effects on earnings (loss) per share (in thousands):

Year ended December 31,

Anti-dilutive adjustment to net income available to shareholders excluded from numerator for diluted earnings computation

Paid-in-Kind interest expense on convertible notes payable and contract consideration convertible notes payable, net of tax $ — $ 5,956

Valuation gain on convertible notes carried at fair value, net of tax — ( 75 )

Total numerator adjustment excluded from diluted earnings computation $ — $ 5,881

Basic earnings per share $ 0.36 $ 1.00

Diluted earnings (loss) per share $ 0.34 $ ( 0.10 )

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

Average number of diluted shares for convertible notes payable and contract consideration convertible notes payable — 9,108

Average number of diluted shares for stock warrants 1,251 802

Average number of diluted shares for stock options and restricted stock 94 128

Total incremental shares excluded from denominator for diluted earnings computation 1,345 10,038

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

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

(1) These items were not included in the dilution calculation for the year ended December 31, 2023 due to their anti-dilutive effect as it would reduce the loss per share.

Note 16 — Supplemental Cash Flow Information

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Years ended December 31,

Supplemental cash payment information:

Supplemental cash flow information:

Interest paid $ 846 $ 434

Income taxes 50 —

Supplemental non cash financing and investing activities:

3 unchanged sentences

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

Transfer from fixed assets to inventory 15 —

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

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest for the year ended December 31, 2023 includes $ 0.4 million in interest paid related to the ABL, which was entered into during the third quarter of 2023.

Interest for the year ended December 31, 2022 was related to interest payments on capitalized leases.

Note 17 — Related Party Transaction

Note 17 — Related Party Transactions

On February 2, 2022, the Company entered into the Initial ProFrac Agreement, upon issuance of $ 10 million in aggregate principal amount of the convertible notes (the “Contract Consideration Convertible Notes Payable”) to ProFrac Holdings LLC (see Note 9, “Debt and Convertible Notes Payable”).

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

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

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

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

If the minimum volumes are not achieved in any given year, ProFrac Services LLC is required to 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 (“Contract Shortfall Fees”).

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

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

On February 2, 2023, the Company entered into an amendment to the ProFrac Agreement (the “Amended ProFrac Agreement No.

On February 2, 2023, the Company entered into another amendment to the ProFrac Agreement (the “Amended ProFrac Agreement No.

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 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 Services, LLC customers.

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

The minimum purchase requirements were not met during the current measurement period, and as a result, related party revenues for the year ended December 31, 2023 and related party receivables as of December 31, 2023 include $ 20.1 million of Contract Shortfall Fees, of which 10.0 was collected through March 11, 2024 with the remainder due on or before April 8, 2024.

During the measurement period for Contract Shortfall Fees of January 1, 2024 through December 31, 2024, the minimum purchase requirements were not met and, as a result, related party revenues for the year ended December 31, 2024 reflect variable consideration for Contract Shortfall Fees of $ 32.4 million.

The measurement period for 2023 was June 1, 2023 through December 31, 2023.

Related party revenues for the year ended December 31, 2023 included $ 20.1 million of Contract Shortfall Fees.

During the years ended December 31, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $ 115.8 million and $ 121.5 million, respectively.

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Cost of sales attributable to these revenues were $ 80.4 million and $ 99.3 million, respectively, for the years ended December 31, 2024 and 2023.

As of December 31, 2023 and 2022 our accounts receivable from ProFrac Services, LLC was $ 34.6 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 entered into the following related party transactions with ProFrac Holdings, LLC and ProFrac Holdings II, LLC:

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

As of December 31, 2024 and December 31, 2023 our accounts receivable from ProFrac Services, LLC was $ 52.4 million and $ 34.6 million, respectively, which is recorded in accounts receivable, related party on the consolidated balance sheets.

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

• Conversion of Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)

• Conversion of Contract Consideration Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)

• Exercise of February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”)

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

• Pre-Funded Warrants (see Note 13, “Stockholders’ Equity)

As a result of the above related party transactions, ProFrac Holdings, LLC or its affiliates owns approximately 51 % of the Company’s common stock as of December 31, 2024.

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 (pre-Reverse Stock Split) of the Company’s common stock.

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

As of April 15, 2022 Mr.

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

Note 18 — Business Segment, Geographic and Major Customer Information

Segment Information

The Company's segments are determined as those components whose results are reviewed regularly by the chief operating decision maker ("CODM"), who is the Company's Chief Executive Officer, in deciding how to allocate resources and assess performance.

Each segment is organized and managed based upon the nature of the Company's markets and customers and consists of similar products and services.

Gross profit and income (loss) from operations for each segment are used by the CODM to assess the performance of each segment in a financial period.

The CODM uses segment gross profit and income (loss) from operations as the measure to make resource (including financial or capital resources) allocation decisions for each

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s revenues and related cost of sales for product sales to Confluence were $1.4 million and $ 1.4 million, respectively, through April 15, 2022.

Note 18 — Business Segment, Geographic and Major Customer and Supplier Information

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision-maker in deciding how to allocate resources and assess performance.

Accounting policies have been applied consistently by each segment for all reporting periods.

Intercompany revenue and expense amounts, if any, have been eliminated within each segment to report on the basis that management uses internally for evaluating segment performance.

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

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

The operations of the Company are categorized into the following reportable segments:

Chemistry Technologies.

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

The CT segment includes specialty chemistries, logistics and technology services, which we believe enables our customers to pursue improved efficiencies and performance throughout the life cycle of their wells, and also helps our customers improve their ESG and operational goals.

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

Data Analytics.

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

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

Customers of the DA segment span across the entire oil and gas market, from upstream production to midstream facilities to refineries and distribution networks.

Performance is based upon a variety of criteria.

The primary financial measure is segment operating income (loss).

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

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

The DA segment provides innovative analytical measurement solutions.

The DA segment seeks to deliver real-time information and insights to our customers to enable optimization of operations and reduction of emissions and their carbon intensity Customers of the DA segment span across the entire oil and gas market, from upstream production to midstream facilities to refineries and distribution networks.

FLOTEK INDUSTRIES, INC.

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

As of and for the years ended December 31, Chemistry Technologies Data Analytics

As of and for the years ended December 31,

Chemistry Technologies Data Analytics

Corporate and Other Total

7 unchanged sentences

Total revenue from related parties 114,947 815 — 115,762

Cost of sales 141,948 5,691 — 147,639

Gross profit 36,213 3,173 — 39,386

Change in fair value of contract consideration convertible notes ( 29,969 ) — — ( 29,969 )

Selling, general and administrative 7,861 3,489 13,359 24,709

Other segment items 1,750 623 108 2,481

Income (loss) from operations $ 26,602 $ ( 939 ) $ ( 13,467 ) $ 12,196

Paid-in-kind interest on contract consideration convertible notes payable 2,129 — — 2,129

Paid-in-kind interest on convertible notes payable — — 238 238

Interest on ABL — — 453 453

Other interest — — 37 37

Depreciation 613 95 26 734

Additions to long-lived assets 180 466 435 1,081

Income tax expense — — ( 149 ) ( 149 )

Reconciliation of profit to income before income taxes:

Interest expense $ ( 1,095 ) $ ( 1,095 )

Other income, net 46 46

Income before income taxes $ 11,147

Revenue from external customers

Product $ 47,004 $ 3,903 $ — $ 50,907

Service 1,956 1,481 — 3,437

Products $ 56,721 $ 5,275 $ — $ 61,996

Services 2,295 2,227 — 4,522

Total revenue from external customers 59,016 7,502 — 66,518

Revenue from related party

Product 81,614 — — 81,614

Service 4 130 — 134

Products 120,698 2 — 120,700

Services 205 635 — 840

Total revenue from related parties 120,903 637 — 121,540

Gross profit (loss) ( 7,317 ) 617 — ( 6,700 )

Change in fair value of contract consideration convertible notes ( 75 ) — — ( 75 )

Loss from operations ( 14,729 ) ( 2,877 ) ( 17,815 ) ( 35,421 )

Paid-in-kind interest on contract consideration convertible notes payable 4,185 — — 4,185

Paid-in-kind interest on convertible notes payable — — 1,771 1,771

Accrued issuance costs on convertible notes payable — — 912 912

Depreciation 668 63 3 734

Additions to long-lived assets 56 134 231 421

Income tax benefit — — 22 22

Cost of sales 159,574 4,221 — 163,795

Gross profit 20,345 3,918 — 24,263

Selling, general and administrative 8,815 3,272 15,740 27,827

Other segment items ( 27,513 ) 699 27 ( 26,787 )

Income (loss) from operations $ 39,043 $ ( 53 ) $ ( 15,767 ) $ 23,223

Reconciliation of profit to income before income taxes:

Paycheck protection plan loan forgiveness $ 4,522 $ 4,522

Interest expense ( 2,857 ) ( 2,857 )

Other income, net ( 26 ) ( 26 )

Income before income taxes $ 24,862

Other segment items for the year ending December 31, 2024 includes depreciation of $ 0.6 million and $ 0.2 million in the CT and DA segments, respectively;

R&D of $ 1.2 million and $ 0.5 million in the CT and DA segments, respectively;

and gain on sale of property and equipment in the CT and DA segments of $ 0.1 million and $ 15 thousand, respectively.

Other segment items for the year ended December 31, 2023 includes $ 30.0 million gain related to the change in fair value of Contract Consideration Convertible Notes Payable in the CT segment and depreciation of $ 0.6 million and $ 0.1 million in the CT and DA segments, respectively;

R&D of $ 1.9 million and $ 0.6 million in the CT and DA segments, respectively;

and gain on sale of property and equipment in the CT and DA segments of $ 21 thousand and $ 17 thousands, respectively.

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

December 31, 2024 December 31, 2023

Chemistry Technologies $ 152,161 $ 138,559

2 unchanged sentences

Total assets $ 170,796 $ 157,513

Additions to long-lived assets by reportable segments and corporate and other are as follows (in thousands):

As of and for the years ended December 31,

Chemistry Technologies Data Analytics

Corporate and Other Total

Additions to long-lived assets $ 360 $ 1,492 $ 88 $ 1,940

Additions to long-lived assets $ 180 $ 466 $ 435 $ 1,081

Geographic Information

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

For the years ended December 31, 2023 and 2022, no individual countries other than the U.S accounted for more than 10% of revenue.

For the years ended December 31, 2024 and 2023 no country other than the U.S.

accounted for more than 10% of revenue.

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

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Total revenue $ 187,025 $ 188,058

(1) Includes revenue from related parties of $ 121,540 and $ 81,748 , respectively.

(1) Includes revenue from related party

Long-lived assets held in countries other than the U.S.

4 unchanged sentences

Year ended December 31, 2024

Customer A (related party - ProFrac Services, LLC) $ 121,540 64.6 %

ProFrac Services, LLC

$ 115,762 61.9 %

Year ended December 31, 2023

Customer A (related party - ProFrac Services, LLC) $ 80,359 59.0 %

Customer B $ 14,395 10.6 %

ProFrac Services, LLC

$ 121,540 64.6 %

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

Major Suppliers

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

Expenditure % of Total Expenditure

Year ended December 31, 2023

Years ended December 31, Expenditure % of Total Expenditure

Supplier A $ 24,064 18.9 %

1 unchanged sentence

Supplier C 20,333 16.0 %

Year ended December 31, 2022

Supplier A $ 25,057 27.7 %

Supplier B 15,302 16.9 %

Supplier C $ 42,684 30.1 %

FLOTEK INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 — Subsequent Events

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

Supplier D 28,222 19.9 %

Supplier E 16,447 11.6 %

Note 19 — Subsequent Event

The Company has evaluated the effects of events that have occurred subsequent to December 31, 2024 and there have been no material events that would require recognition in the 2024 consolidated financial statements or disclosure in the notes to the consolidated financial statements.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not Applicable.

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 8. Financial Statements and Supplementary Data