What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-16 compared with 2025-03-12 · 121 added, 78 removed, 106 unchanged (65% of the section changed)

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Executive Summary

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

A technology-driven, specialty chemistry and data technology 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 two operating segments, CT and DA, are supported by the Company’s continuing Research and Innovation (“R&I”) advanced laboratory capabilities.

Flotek strives to be the collaborative partner of choice for solutions that reduce the environmental impact of energy on air, water, land and people.

An advanced technology-driven, chemical and data analytics company, Flotek seeks to provide unique and innovative solutions to its customers in both the domestic and international energy markets.

The Company is committed to delivering products and services that endeavor to maximize customer returns by leveraging chemistry as the common value creation platform.

The Company has two operating segments, Chemistry Technologies (“CT”) and Data Analytics (“DA”), which are both supported by the Company’s continuing Research and Innovation (“R&I”) advanced laboratory capabilities.

Company Overview

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The Company’s CT segment provides sustainable, optimized chemistry solutions that we believe maximize our customers’ value by improving return on invested capital, lowering operational costs and providing tangible environmental benefits.

The Company’s proprietary green chemistries, specialty chemistries, logistics, and technology services enable its customers to pursue improved efficiencies and performance throughout the life cycle of their desired chemical applications program.

The Company’s proprietary chemistries, specialty chemistries, logistics and technology services seek to enable our customers to pursue improved efficiencies and performance throughout the life cycle of their desired chemical applications program.

The Company designs, develops, manufactures, packages, distributes and markets optimized chemistry solutions that are designed to accelerate existing sustainability practices to reduce the environmental impact of energy on the air, water, land and people.

Customers of the CT segment include those of energy related markets, such as our related party ProFrac Services, LLC, with whom we have a long-term supply agreement, as well as industrial companies.

Customers of the CT segment include energy-related companies, such as our related party ProFrac Services, LLC (“ProFrac Services”), with whom we have a long-term chemistry supply agreement, as well as industrial companies.

Major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil companies, geothermal energy companies, solar energy companies and advanced alternative energy companies may benefit from our best-in-class technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices.

ProFrac Supply Agreement

On February 2, 2022, the Company entered into a Chemical Products Supply Agreement with ProFrac Services, LLC, which was subsequently amended on May 17, 2022 and February 1, 2023 (collectively, the “ProFrac Agreement”).

On February 2, 2022, the Company entered into a Chemical Products Supply Agreement with ProFrac Services, which was subsequently amended on May 17, 2022 and February 1, 2023 (collectively, the “ProFrac Agreement”).

The ProFrac Agreement contains minimum requirements for chemistry purchases.

If the minimum volume purchases are not achieved within the applicable measurement period, 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 the measurement period (“Contract Shortfall Fees”).

The ProFrac Agreement provides that payment of Contract Shortfall Fees is to be made within 30 days after the applicable measurement period.

The measurement period for Contract Shortfall Fees during 2023 was June 1, 2023 through December 31, 2023.

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

The minimum purchase requirements were not met during the 2024 measurement period of January 1, 2024 through December 31, 2024 and, as a result, the Company recorded revenue related to Contract Shortfall Fees of $ 32.4 million.

If the minimum volume purchases are not achieved within the applicable measurement period, ProFrac Services 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 the measurement period (“Contract Shortfall Fees”).

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

The minimum purchase requirements were not met during the 2025 measurement period of January 1, 2025 through December 31, 2025 and, as a result, related party revenues for the year ended December 31, 2025 reflected Contract Shortfall Fees of $27.4 million.

On March 12, 2026, the Company and ProFrac entered into an agreement (as amended, the “OSP Agreement”) regarding the settlement of 2025 Contract Shortfall Fees payable to the Company under the ProFrac Agreement for the measurement period of January 1, 2025 to December 31, 2025.

The OSP Agreement provides for the payment of an aggregate of $19.7 million

(which amount represents $27.4 million of 2025 Contract Shortfall Fees, net of a $7.2 million offset payable under the Purchase Agreement as described in “Part II, Item 8.

Financial Statements and Supplementary Data - Note 3” (the “OSP Offset”) and other minor adjustments) of consideration to the Company as follows:

$7.2 million to be paid in cash and $12.5 million to be satisfied through an equipment construction and rental credit (the “Equipment Credit”).

Under the OSP Agreement, the Company has committed to purchase and/or rent $12.5 million of equipment from ProFrac to be used for opportunities within the Data Analytics segment, with the costs of such equipment to be offset by the Equipment Credit.

The Company expects to utilize the Equipment Credit during 2026, however any unused amounts at the end of 2026 would be available for use in 2027 until the full credit is utilized.

Data Analytics

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

Real-time composition and physical property measurements are delivered simultaneously on refined fuels, natural gas liquids (“NGLs”), natural gas, crude oil, and condensates using the industry’s only field-deployable, in-line optical near-infrared spectrometer that generates no emissions.

The instrument's response is processed with advanced chemometrics modeling, artificial intelligence, and machine learning algorithms to deliver valuable insights every fifteen seconds.

We believe customers using this technology have obtained significant benefits, including additional profits, by enhancing operations in crude/condensates stabilization, enhancing blending operations, reducing time impacting transmix operations,

increasing efficiencies and optimization of gas plants, allowing for the use of significantly lower cost field gas instead of diesel to generate power, lowering emissions and protecting equipment, and ensuring product quality while reducing giveaways, i.e., providing higher value products at the lower value products prices.

More efficient operations have the benefit of reducing carbon footprint, e.g., less flaring and reduction in energy expenditure for compression and re-processing.

Our customers in North America include oil and gas supermajors, some of the largest midstream oil and gas companies, large gas processing plants and independent exploration and production companies.

We have developed a line of Verax™ analyzers for deployment internationally, which was certified for compliance in hazardous locations and harsh weather conditions.

The Company’s Data Analytics (“DA”) segment provides analytical measurement and digital solutions, including measure-and-control services, that deliver near real-time insights for process control across the oil and gas value chain and emerging applications in power and digital valuation.

DA solutions help customers optimize performance, improve decision-making, and reduce emissions and carbon intensity, supported in part by recurring service and lease revenues.

The DA segment generates revenues through a combination of short and long-term equipment rentals (service revenue) and capital sales (product revenue).

Customers of the DA segment span across the oil and gas industry, including oil and gas supermajors, some of the largest midstream oil and gas companies, large gas processing plants, independent exploration and production companies and oil field service companies that provide hydraulic fracturing services.

We believe customers using our technology may obtain significant benefits, including additional profits, by enhancing operations in crude/condensates stabilization, enhancing blending operations, reducing time impacting transmix operations and increasing efficiencies and optimization of gas plants.

The DA segment has expanded its presence in providing mobile power generation solutions through the acquisition of the assets described in “Part II, Item 8.

Financial Statements and Supplementary Data - Note 3.” These assets facilitate the use of significantly lower-cost field gas, as a replacement to diesel, to generate power, lower emissions and protect equipment through the continuous measurement of gas quality.

Power Services Contract

On March 3, 2026, the Company announced that it had been awarded its first contract to deliver power services for utilities infrastructure support.

Under the agreement, the Company expects to coordinate the installation of up to 50 MW of power generation equipment including the Company’s gas distribution and conditioning assets to support critical federal disaster recovery initiatives.

The initial term of the agreement is for six-months, with customer option to extend to four years.

The Company expects to begin deploying equipment during the second quarter of 2026.

Research & Innovation

R&I supports both our business segments through green chemistry formulation, specialty chemical formulations and EPA regulatory guidance, technical support, basin and reservoir studies, data analytics and new technology projects.

R&I supports both our business segments through chemistry formulation, specialty chemical formulations and EPA regulatory guidance, technical support, basin and reservoir studies, data analytics and new technology projects.

The purpose of R&I is to supply the Company’s business segments with enhanced products and services that generate current and future revenues, while advising Company management on opportunities concerning technology, environmental and industry trends.

The R&I facilities support advances in CT and DA performance, optimization and manufacturing.

The R&I facilities support advances in CT and DA segment performance, optimization and manufacturing.

For the years ended December 31, 2025 and 2024, the Company incurred $1.8 million and $1.7 million, respectively, of research and development expense.

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Selling, general and administrative % 11.8 % 13.2 %

Asset acquisition expenses 4,362 —

Depreciation 1,836 891

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Gain on disposal of property and equipment (7) (124)

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

Severance expense 530 —

Income from operations 23,244 12,196

Operating margin % 9.8 % 6.5 %

Other income (expense)

Paycheck protection plan loan forgiveness — 4,522

Other expense

Interest expense and other income, net (3,589) (1,049)

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

Total other expense (3,589) (1,049)

Income before income taxes 19,655 11,147

Income tax expense (649) (149)

Income tax benefit (expense) 10,873 (649)

Net income $ 30,528 $ 10,498

Net income % 12.9 % 5.6 %

Consolidated revenue for the year ended December 31, 2024 decreased $1.0 million versus the same period of 2023.

The decrease in revenue during the year ended December 31, 2024 was driven primarily by a decrease in activity under the ProFrac Agreement, partially offset by increased Contract Shortfall Fees and higher revenue from external customers and higher DA revenues.

Consolidated cost of sales for the year ended December 31, 2024 decreased $16.2 million, or 10%, versus the same period of 2023.

The decrease is primarily driven by decreased activity with ProFrac Services, LLC and lower freight and equipment

rental costs due to the decreased volume of business, partially offset by higher costs related to increased non-related party volumes and increased salaries and wages.

The reduction in cost of sales as a percentage of revenue in 2024 was the result of higher revenue from Contract Shortfall Fees, which have no associated costs.

Consolidated revenue for the year ended December 31, 2025 increased $50.2 million versus the same period of 2024.

The increase in revenue during the year ended December 31, 2025 was driven primarily by increases in both external and related party product sales and $16.1 million in PWRtek rental revenue, partially offset by decreased Contract Shortfall Fees.

Consolidated cost of sales for the year ended December 31, 2025 increased $29.8 million, or 20%, versus the same period of 2024.

The increase is primarily driven by increased material costs, increased service costs and increased freight costs as a result of increased volume of business.

Selling, general and administrative (“SG&A”) expenses are not directly attributable to products sold or services provided.

SG&A expenses for the year ended December 31, 2024, decreased $3.1 million, or 11%, versus the same period of 2023 as a result of reduced legal fees in 2024, partially offset by higher stock compensation expense.

Research and development (“R&D”) costs decreased $0.8 million, or 31%, for the year ended December 31, 2024, versus the same period of 2023 driven by lower personnel costs resulting from headcount optimization.

Operating income decreased by $11.0 million to $12.2 million for the year ended December 31, 2024 versus the same period in 2023.

The decrease in 2024 is primarily due to the $30.0 million gain in fair value of the Contract Consideration Convertible Notes Payable for the year ended December 31, 2023 with no corresponding activity for the year ended December 31, 2024, partially offset by a $15.1 million increase in gross profit resulting from higher Contract Shortfall Fees, a $3.1 million decrease in SG&A expenses and a $0.8 million decrease in R&D expenses.

Total other (expense) income for the year ended December 31, 2024 decreased $2.7 million, driven primarily by a $4.5 million gain for the forgiveness of the Flotek PPP loan during 2023 with no corresponding activity in 2024, partially offset by a $1.8 million decrease in interest expense related to the maturity of the Contract Consideration Convertible Notes Payable in the first half of 2023.

SG&A expenses for the year ended December 31, 2025, increased $3.3 million, or 14%, versus the same period of 2024 as a result of increased salaries and wages, increased stock compensation expense and higher contract labor and audit costs, partially offset by reduced legal and consulting fees.

Asset acquisition expenses were $4.4 million for the year ended December 31, 2025 and were related to accounting, legal and other professional fees associated with the Asset Acquisition.

There was no corresponding activity for the same period of 2024.

Research and development (“R&D”) costs increased $0.1 million, or 6%, for the year ended December 31, 2025, versus the same period of 2024 driven by higher personnel costs resulting from headcount optimization.

Operating income increased by $11.0 million to $23.2 million for the year ended December 31, 2025 versus the same period in 2024.

The increase in 2025 is primarily due to a $20.4 million increase in gross profit resulting from higher product sales and rental revenues, partially offset by $4.4 million in Asset Acquisition expenses, a $3.3 million increase in SG&A expenses and a $0.9 million increase in depreciation expense.

Total other expense for the year ended December 31, 2025 increased $2.5 million, driven primarily by a $2.8 million increase in interest expense primarily the result of interest from the PWRtek Note, partially offset by a $0.3 million decrease in other

The changes for the 2025 period are driven by the partial release of the Company’s valuation allowance on its deferred tax assets (see “Part II, Item 8.

Financial Statements and Supplementary Data - Note 12”).

Total income tax benefit was $10.9 million for the year ended December 31, 2025 compared to income tax expense of $0.6 million for the same period of 2024.

Results by Segment (in thousands):

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CT revenue from external customers for the year ended December 31, 2025, increased $16.4 million, or 26% compared to 2024 due to increased sales with both new and existing customers.

Revenue from related party for the year ended December 31, 2024, including accrued Contract Shortfall Fees, decreased $6.0 million, or 5%, primarily driven by decreased product sales under the ProFrac Agreement, partially offset by increased Contract Shortfall Fees.

Income from operations for the CT segment for the year ended December 31, 2024 decreased $12.4 million, compared to 2023.

The decrease was driven by the gain in fair value of the Contract Consideration Convertible Notes Payable of $30.0 million for the year ended December 31, 2023 without corresponding activity for the year ended December 31, 2024, partially offset by an increase in gross profit of $15.9 million attributable to higher Contract Shortfall Fees and lower freight costs.

Revenue from related party for the year ended December 31, 2025, increased $15.3 million, or 13%, primarily driven by increased product sales under the ProFrac Agreement, partially offset by decreased Contract Shortfall Fees.

Income from operations for the CT segment for the year ended December 31, 2025 increased $3.8 million, compared to 2024.

The increase was driven by an increase in gross profit of $5.3 million attributable to higher product volumes, partially offset by an increase in cost of sales.

Data Analytics Results of Operations:

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Revenue from related party 16,605 815

Loss from operations (939) (53)

Income (loss) from operations 7,882 (939)

DA external customer revenue for the year ended December 31, 2025, increased $2.8 million, or 35%, compared to revenue for 2024.

The increase was driven by increased service sales primarily related to the Company’s near-infrared spectrometer measurement system, partially offset by decreased product sales.

Related party revenue increased by $0.2 million, or 28%, compared to 2023 relating to services provided to ProFrac Services, LLC outside of the ProFrac Agreement.

Loss from operations for the DA segment for the year ended December 31, 2024 increased $0.9 million compared to 2023.

The increase in losses was primarily due to increased cost of sales related to the change in contingent earnout valuations (see Note 10) and credits included in cost of sales for the year ended December 31, 2023 with no corresponding activity for the year ended December 31, 2024.

The increase was driven primarily by increased unit sales.

Related party revenue increased by $15.8 million compared to 2024 primarily due to $16.1 million of rental income under the Lease Agreement partially offset by decreased revenue relating to services provided to ProFrac Services outside of the ProFrac Agreement.

Income from operations for the DA segment for the year ended December 31, 2025 increased $8.8 million compared to 2024.

The increase was driven by an increase in gross profit of $15.2 million primarily attributable to rental revenues under the Lease Agreement and increased product sales, partially offset by a $3.4 million increase in the cost of sales for the year ended year ended December 31, 2025.

Corporate and Other Results of Operations:

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Loss from operations $ (15,023) $ (13,467)

Loss from operations for the year ended December 31, 2024 decreased by $2.3 million, or 15%, compared to the same period of 2023 due to decreased professional fees, partially offset by increased stock compensation expense.

Loss from operations for the year ended December 31, 2025 increased by $1.6 million, or 12%, compared to the same period of 2024 due to increased severance expenses, increased stock compensation expenses and increased contract labor and audit fees.

Capital Resources and Liquidity

The Company’s capital requirements relate to the acquisition and maintenance of equipment and funding of working capital requirements.

During the year ended December 31, 2024 , the Company funded working capital requirements with cash on hand and borrowings under the ABL (defined below).

The Company’s working capital requirements relate to the acquisition and maintenance of materials and equipment and funding of obligations as they become due.

During the year ended December 31, 2025, the Company funded working capital requirements with cash on hand, borrowings under the ABL (defined below) and cash flow from operations.

We believe our cash and cash equivalents, cash generated from operating activities, which includes the impact of the transactions described in “Part II, Item 8.

Financial Statements and Supplementary Data - Note 3”, the collection or offset utilization of future Contract Shortfall Fees as described below, and availability under the ABL will be sufficient to fund our capital requirements and anticipated obligations as they become due over the next twelve months.

However, sustained weakness in the oil and gas markets, and the resulting potential impact on our customers’ ability to pay their obligations to us in a timely manner could have a negative impact on our liquidity.

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

The minimum purchase requirements under the ProFrac Agreement were not met during the current measurement period of January 1, 2025 through December 31, 2025, and as a result, related party revenues for the year ended December 31, 2025 reflect Contract Shortfall Fees of $27.4 million.

As described in “- Company Overview” above, on March 12, 2026, the Company and ProFrac entered into the OSP Agreement regarding the settlement of 2025 Contract Shortfall Fees.

As of December 31, 2025 , the Company had unrestricted cash and cash equivalents of $5.7 million compared to $4.4 million on December 31, 2024 .

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During the year ended December 31, 2025 , the Compan y had $23.2 million of operating income, $7.2 million of cash provided by operating activities, $2.0 million of cash used in investing activities and $3.7 million of cash used in financing activities.

While we believe our cash and cash equivalents, cash generated from operating activities, which includes the collection of the Contract Shortfall Fees as described further below, and availability under the ABL will be sufficient to fund our capital requirements and anticipated obligations as they become due, uncertainty surrounding the long-term stability and strength of the oil and gas markets, and the resulting potential impact on our customers’ ability to pay their obligations to us in a timely manner could have a negative impact on our liquidity.

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

The minimum purchase requirements under the ProFrac Agreement were not met during the 2024 measurement period of January 1, 2024 through December 31, 2024, and as a result, the Company recorded revenue related to Contract Shortfall Fees of $32.4 million, of which $15.0 million was collected through March 12, 2025.

Asset Based Loan

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 again in 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.

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, August 2024 and April 2025 (as amended, the “ABL”).

The August 2024 amendment to the ABL extended the maturity date 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, the Company had $4.8 million outstanding under the ABL.

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

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

As of December 31, 2025 and 2024, the Company had $3.3 million and $4.8 million outstanding under the ABL, respectively.

During the years ended December 31, 2025 and 2024, the Company incurred $1.0 million and $0.7 million, respectively, in interest and fees related to the ABL.

As of December 31, 2025 and 2024, the Company recorded $0.3 million and $0.3 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 8.75% and 9.5% as of December 31, 2025 and 2024, respectively.

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

For the years ended December 31, 2025 and 2024, the weighted-average interest rate was 9.3% and 10.8%, respectively.

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

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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.

The ABL requires the Company to maintain a minimum Tangible Net Worth (as defined in the ABL) of not less than $11 million.

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

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

In connection with the Company’s entry into the Purchase Agreement, the Company entered into the Letter Agreement with the lender whereby the lender will not test compliance with respect to the Tangible Net Worth (as defined in the ABL) covenant through and including December 31, 2025.

Pursuant to the Letter Agreement, the Company will be required to maintain positive trailing three-month consolidated net income on a monthly basis through and including December 31, 2025.

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

On October 28, 2025, the lender provided its consent to the assignment of the PWRtek Note and various amendments to the PWRtek Note and related documents.

Consolidated cash flows by type of activity are noted below (in thousands):

Years ended December 31,

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

Net cash provided by operating activities $ 7,204 $ 3,361

Net cash used in investing activities (1,977) (1,816)

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

Net cash used in financing activities (3,743) (3,116)

Effect of changes in exchange rates on cash and cash equivalents (155) 124

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Operating Activities

Net cash provided by (used in) operating activities was $3.4 million and ($11.3) million during the years ended December 31, 2024 and 2023, respectively.

Net cash provided by operating activities was $7.2 million and $3.4 million during the years ended December 31, 2025 and 2024, respectively.

Consolidated net income for the years ended December 31, 2025 and 2024 was $30.5 million and $10.5 million, respectively.

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• For the year ended December 31, 2025, non-cash adjustments included amortization of contract assets of $6.3 million, stock compensation expense of $2.3 million and non-cash lease expense of $1.0 million primarily due to ROU asset amortization for equipment leases.

Non-cash adjustments also include a deferred tax benefit of $11.2 million, $1.8 million of depreciation expense, $0.3 million of amortization of loan origination costs, provision for doubtful accounts of $0.6 million and the provision for excess and obsolete inventory of $0.4 million.

• For the year ended December 31, 2024, non-cash adjustments included amortization of contract assets of $5.6 million, stock compensation expense of $1.4 million and non-cash lease expense of $2.1 million primarily due to ROU asset amortization for equipment leases.

Non-cash adjustments also include $0.9 million of depreciation expense, $0.3 million of amortization of loan origination costs and the provision for excess and obsolete inventory of $0.6 million.

• For the year ended December 31, 2023, non-cash adjustments included a $30.0 million gain on the fair value valuation of the Contingent Convertible Notes, a gain of $4.5 million for the Flotek PPP loan forgiveness, paid-in-kind interest on the Convertible Notes Payable and Contract Consideration Convertible Notes Payable of $2.3 million, amortization of contract assets and convertible note issuance costs of $5.0 million and $0.1 million, respectively, and stock compensation of ($0.3) million.

The non-cash adjustment for the provision for excess and obsolete inventory was $1.0 million and depreciation was $0.7 million.

Non-cash lease expense was $3.0 million primarily due to ROU Asset amortization for equipment leases which were added in 2022.

During the year ended December 31, 2025, changes in working capital used $24.9 million of cash as compared to $18.4 million used for the same period of 2024.

• For the year ended December 31, 2024, changes in working capital resulted primarily from increases in accounts receivable, including related party, of $21.6 million, and an increase in inventories of $0.7 million.

• For the year ended December 31, 2025, changes in working capital resulted primarily from increases in accounts receivable, including related party, of $38.9 million, partially offset by an increase in inventories of $3.1 million.

Accrued liabilities increased $11.8 million and operating lease liabilities decreased $1.5 million primarily due to payments on equipment leases.

• For the year ended December 31, 2023, changes in working capital resulted primarily from increases in accounts receivable, including related party, of $6.5 million, and a decrease in inventories of $1.9 million due to reduced sales with ProFrac Services, LLC in late 2023.

Accounts payable and accrued liabilities decreased $1.7 million and $2.6 million, respectively.

The decrease in accrued liabilities is primarily due to accrued severance, sales taxes and professional fees, partially offset by higher bonus accruals.

Operating lease liabilities decreased $3.4 million primarily due to payments on equipment leases.

• For the year ended December 31, 2024, changes in working capital resulted primarily from increases in accounts receivable, including related party, of $21.6 million, and partially offset by an increase in inventories of $0.7 million.

Accrued liabilities increased $5.7 million and operating lease liabilities decreased $2.4 million primarily due to payments on equipment leases.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2025 was $2.0 million primarily due to capital expenditures related to capital additions.

Net cash used in investing activities for the year ended December 31, 2024 was $1.8 million primarily due to capital additions, including new equipment and sensors expected to be utilized in flare monitoring.

Net cash used in investing activities for the year ended December 31, 2023 was $1.0 million primarily due to system enhancements and capital additions.

Financing Activities

Net cash used in financing activities was $3.7 million for the year ended December 31, 2025, primarily from $1.5 million in net payments on the ABL, $1.6 million in payments for shares withheld for taxes, $0.5 million in payments for note payable issuance costs and $0.7 million in stock warrant issuance costs, partially offset by $0.6 million in proceeds from stock option exercises and $0.2 million in proceeds from the issuance of stock related to the employee stock purchase plan.

Net cash used in financing activities was $3.1 million for the year ended December 31, 2024, primarily from $2.7 million in net payments on the ABL and $0.4 million in payments for loan origination fees and shares withheld for taxes.

Net cash provided by financing activities was $5.9 million for the year ended December 31, 2023, primarily from net proceeds from the ABL.

Net cash provided was partially offset by severance payments attributed to our former chief executive officer’s forfeited vested stock options, loan origination fees, and payments for shares withheld for taxes.

Critical Accounting Estimates

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The Company regularly reviews judgments, assumptions and estimates related to the critical accounting estimates.

Leases — Lessor Accounting

We lease equipment to customers under operating lease arrangements.

At contract inception we perform an evaluation to determine if a lease arrangement conveys the right to control the use of an identified asset.

To the extent such rights of control are conveyed, we further make an assessment as to the applicable lease classification.

The determination of appropriate lease classification (sales-type lease or operating lease) may require the use of management judgment, including economic life of the leased equipment, the rate implicit in the lease used to determine the fair value of lease payments, and the fair value of leased equipment.

Contract Assets

The Company’s contract assets represent consideration which was issued in the form of convertible notes (Contract Consideration Convertible Notes Payable as discussed in Note 9, “Debt and Convertible Notes Payable” in Part II, Item 8) and other incremental costs related to obtaining the ProFrac Agreement in 2022.

The Company’s contract assets represent consideration which was issued in the form of convertible notes (Contract Consideration Convertible Notes Payable as discussed in Note 10, “Debt” in Part II, Item 8) and other incremental costs related to obtaining the ProFrac Agreement in 2022.

The contract assets are amortized over the term of the ProFrac Agreement based on forecasted revenues.

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

Significant or unanticipated changes to our forecast could impact the recoverability of the contract assets.

The amount of consideration the Company expects to receive in the future for the transfer of goods under the contract and the direct costs that relate to providing those goods used in the Company’s contract assets recoverability analysis consider both historical and anticipated purchases by ProFrac over the remaining life of the ProFrac Agreement, taking into account the effect of the Contract Shortfall Fee that is payable to the Company if the annual minimum purchase obligation is not met.

The Contract Shortfall Fee mitigates the impact of a failure to meet the expected annual minimum purchase obligation by providing the Company consideration to offset the gross profit lost as a result of ProFrac’s purchases not meeting the annual minimum purchase obligation.

Due to the Contract Shortfall Fee, if actual purchases under the ProFrac Agreement are less than the annual minimum purchase obligation, there is negligible impact on the amount of gross profit generated by the ProFrac Agreement.

As a result, the Company believes there is minimal sensitivity to amounts purchased under the ProFrac Agreement to the ProFrac Agreement’s expected profitability when considering the contract assets recoverability assessment.

Income Taxes:

Valuation Allowance

Accounting for income taxes involves estimates and judgments relating to the tax bases of assets and liabilities and the future recoverability of deferred tax assets.

In assessing the realization of deferred tax assets, we determine whether it is more likely than not that the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income in future years when deferred tax assets are recoverable or are expected to reverse.

Factors that may affect estimates of future taxable income include, but are not limited to, changes in revenue, costs or profit margins, market share, and execution of new long-term contracts with customers.

In practice, positive and negative evidence is reviewed with objective evidence receiving greater weight.

If, based on the weight of available evidence, it is more likely than not that all, or some portion, of the deferred tax assets will not be realized, we record a valuation allowance.

The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed for all, or some portion, of the deferred tax assets.

The Company considered both positive and negative evidence and determined that a full valuation allowance was no longer required for certain deferred tax assets during the year ended December 31, 2025.

Positive evidence included our results of operations reaching an adjusted three-year cumulative income position during the year that indicates a trend of profitability;

future reversals of existing taxable temporary differences;

and an evaluation of currently available information about future years forecasted taxable income, specifically, the forecasted future income based on existing contracts including the ProFrac Agreement and the Lease Agreement.

The Company’s adjusted three-year cumulative income position considered the impact of unusual and non-recurring items on historical book income or losses.

However, because of the lack of objectively verifiable information in years after the expiration of the ProFrac Agreement and Lease Agreement, it was determined that forecasted

future income may not be sufficient to realize all the deferred tax assets.

Therefore, a partial release of valuation allowance for both federal and state deferred tax assets was recorded during the year ended December 31, 2025 totaling $15.5 million.

The Company will continue to evaluate both positive and negative evidence that could require changes to the remaining federal and state valuation allowances.

In assessing forecasted future income in the years after the expiration of the ProFrac Agreement and Lease Agreement when assessing if it is more likely than not that the deferred tax assets will be realized, the Company will consider the impact of sustained pre-tax income growth derived from non-related party customers;

renewals or extensions to current long-term customer contracts;

signing of new contracts with customers with positive margins;

and macroeconomic and industry specific conditions.

Refer to “Item 1A.-Risk Factors” in this Annual Report for more information.

We intend to continue maintaining a valuation allowance on a substantial portion of our deferred tax assets until there is sufficient evidence to support a reversal of such allowances.

Reserve for Excess and Obsolete Inventory

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What changed 10-K

Item 7. Management’s Discussion and Analysis