UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-K
ý
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20172023
or
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number 1-13270
FLOTEK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
FLOTEK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware90-0023731
Delaware90-0023731
(State orof other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
10603 W.
5775 N. Sam Houston Parkway N. #300
W., Suite 400, Houston, TX
7706477086
(Address of principal executive offices)(Zip Code)
(713) (713) 849-9911
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueFTKNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark:
•      if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ ☐ No ý☒
•      if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ ☐ No ý☒
•      whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý ☒ No ¨☐
•      whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý ☒ No ¨
•      if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨☐
•      whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ ☐Accelerated filer ý ☐Non-accelerated filer ¨ (Do not check if a smaller reporting company)☒
Smaller reporting company ¨ ☒Emerging growth company ¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
•Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements .☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to o § 240.10D-1(b). .☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐ No ý☒
The aggregate market value of votingcommon stock held by non-affiliates of the registrant as of June 30, 20172023 (based on the closing market price on the NYSE Composite TapeNew York Stock Exchange on June 30, 2017)2023 ) was approximately $437,821,000.$63.1 million. At January 31, 2018,March 7, 2024, there were 56,756,48029,662,759 outstanding shares of the registrant’s common stock, $0.0001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The information requiredPortions of the Company’s definitive proxy statement in connection with the 2024 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A are incorporated by reference into Part III of thethis Annual Report on Form 10-K is incorporated by reference to the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A for the registrant’s 2018 Annual Meeting of Stockholders.
10-K.



TABLE OF CONTENTS
 
PART I
Forward-Looking Statements
13
Item 1.
PART I
Business3
1
Item 1A.
1.		Business
Risk Factors3
4
Item 1A.Risk Factors
8
Item 1B.
Unresolved Staff Comments
1420
Item 2.
1C.		Cybersecurity
Properties25
14
Item 3.
2.		Properties
Legal Proceedings21
15
Item 3.Legal Proceedings
21
Item 4.
Mine Safety Disclosures
1521
16
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
1622
Item 6.
[Reserved]
Selected Financial Data22
18
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2022
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
3928
Item 8.
4130
Item 9.
Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
7568
Item 9A.
7668
Item 9B.
Other Information
Other Information69
76
PART III
Item 9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
7769
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
7770
Item 11.
Executive Compensation
Executive Compensation70
77
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
7770
Item 13.
Certain Relationships and Related Transactions, and Director Independence
7770
Item 14.
PrinciplePrincipal Accountant Fees and Services
7770
PART IV
78
Item 15.
Exhibits and Financial Statement Schedules
7871
Item 16.Form 10-K Summary
74
SIGNATURES
8175



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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (the(this “Annual Report”), and in particular, Part II, Item 7 –— “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” within the meaning of the safe harbor provisions 15 U.S.C. § 78u-5, of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent the Company’s current assumptions and beliefs regarding future events of Flotek Industries, Inc. (“Flotek” or the “Company”), many of which, by their nature, are inherently uncertain and outside the Company’s control. Such statements include estimates, projections, and statements related to the Company’s business plan, objectives, expected operating results, and assumptions upon which those statements are based. The forward-looking statements contained in this Annual Report are based on information available as of the date of this Annual Report.
The forward lookingforward-looking statements relate to future industry trends and economic conditions, forecast performance or results of current and future initiatives and the outcome of contingencies and other uncertainties that may have a significant impact on the Company’s business, future operating results and liquidity. These forward-looking statements generally are identified by words such asincluding, but not limited to, “anticipate,” “believe,” “estimate,” “commit,” “budget,” “aim,” “potential,” “schedule,” “continue,”“intend, “intend,” “expect,” “plan,” “forecast,” “target,” “think,” “likely,” “project”
and similar expressions, or future-tense or conditional constructions such as “will,” “may,” “should,” “could” and “would,” or the negative thereof or other variations thereon or comparable terminology. The Company cautions that these statements are merely predictions and are not to be considered guarantees of future performance. Forward-looking statements may also include statements regarding the anticipated performance under long-term supply agreements or amendments thereto and the potential value thereof or potential revenue or liquidated damages thereafter. Forward-looking statements are based upon current expectations and assumptions that are subject to risks and uncertainties that can cause actual results to differ materially from those projected, anticipated or implied.
A detailed discussion of potential risks and uncertainties that could cause actual results and events to differ materially from forward-looking statements include, but are not limited to, those discussed in Part I, Item 1A –— “Risk Factors” of this Annual Report and periodically in futuresubsequent reports filed with the Securities and Exchange Commission (the “SEC”(“SEC”).
The Company has no obligation, and it disclaims any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information or future events, except as required by law.


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PART I
Item 1. Business.
General
Flotek Industries, Inc. (“Flotek” orcreates unique solutions to reduce the “Company”) is a global, diversified,environmental impact of energy on air, water, land and people. A technology-driven, company that develops and suppliesspecialty green chemistry and servicesdata company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company serves specialty chemistry needs for both domestic and international energy markets.
The Company’s Chemistry Technologies (“CT”) segment designs, develops, manufactures, packages and distributes green, 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 aims to enable users to maximize the oilvalue 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 gas industries, and high value compoundsallows users to companies that make food and beverages, cleaning products, cosmetics, and other products that are sold in consumer and industrial markets.pursue automation of their hydrocarbon streams to increase their profitability.
The Company was originallyinitially incorporated inunder the laws of the Province of British Columbia on May 17,in 1985. In October 2001, the Company moved thechanged its corporate domicile to Delaware and effected a 120 to 1 reverse stock split by waythe State of a reverse merger with CESI Chemical, Inc. (“CESI”). Since then, the Company has grown through a series of acquisitions and organic growth.
Delaware. In December 2007, the Company’s common stock began trading on the New York Stock Exchange (“NYSE”) under the stock ticker symbol “FTK.” Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are posted to the Company’s website, www.flotekind.com, as soon as practicable subsequent to electronically filing or furnishing to the SEC. Information contained in the Company’s website is not to be considered as part of any regulatory filing.
As used herein, “Flotek,” the “Company,” “we,” “our,”“our” and “us” refers to Flotek Industries, Inc. and/or the Company’s wholly ownedwholly-owned subsidiaries. The use of these terms is not intended to connote any particular corporate status or relationship.

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Recent Developments
DuringThe Board appointed Dr. Ryan Ezell, the fourth quarterCompany’s then existing President, as its Chief Executive Officer, effective as of 2016,June 6, 2023. Dr. Ezell was also appointed to the Board, effective as of June 8, 2023.
On August 14, 2023, the Company initiatedentered into an asset-based loan (the “ABL”) providing for a strategic restructuring24-month term with up to $10 million of its businessinitial credit availability for eligible accounts receivable and eligible inventory. On October 5, 2023, the maximum credit availability under the ABL was increased by $3.8 million to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry. During 2017,total of $13.8 million.
In order to regain compliance with New York Stock Exchange rules regarding minimum share price, the Company completed a 1-for-6 reverse split of its common stock (the “Reverse Stock Split”). The shares of common stock began trading on the sale of substantially all of the assets and transfer of certain specified liabilities and obligations of each of the Drilling Technologies and Production Technologies segments. An investment banking advisory services firm was engaged and actively marketed these segments. The Company has classified the assets, liabilities, and results of operations for these two segments as “Discontinued Operations” for all periods presented.
In August 2016, the Company opened its new Global Research & Innovation Center. This state-of-the-art research facility fosters the development of next-generation innovative chemistries and permits expanded collaboration between clients, leaders from academia, and Company scientists. These collaborative opportunities are important and will distinguishsplit-adjusted basis under the Company’s chemistry technologies and capability within the industry.
In July 2016, the Company acquired 100% of the stock and interests in International Polymerics, Inc. (“IPI”) and related entities for $7.9 million in cash consideration, net of cash acquired, and 247,764 shares of the Company’s common stock. IPI is a U.S. based manufacturer of high viscosity guar gum and guar slurry for the oil and gas industry with a wide selection of stimulation chemicals.
In January 2015, the Company acquired 100% of the assets of International Artificial Lift, LLC (“IAL”) for $1.3 million in cash consideration and 60,024 shares of the Company’s common stock. IAL specializes in the design, manufacturing and service of next-generation hydraulic pumping units that serve to increase and maximize production for oil and natural gas wells. The assets, liabilities, and results of operations of IAL are included in discontinued operations.existing trading symbol, “FTK” on September 26, 2023.
Description of Operations and Segments
The Company hasCompany’s operations have two strategic business segments: Energy Chemistry Technologiessegments, CT and Consumer and Industrial Chemistry Technologies. The Drilling Technologies and Production Technologies segments were sold during 2017 and all historical information is classified as discontinued operations.
The Company offers competitive products and services derived from technological advances, some ofDA, which are patented, that are responsive to industry demands in both domestic and international markets. Flotek operates and/or distributes its products in over 20 domestic and international markets.
supported by the Company’s Research & Innovation (“R&I”) advanced laboratory capabilities. Financial information about the Company’s operating segments and geographic concentration is provided in Note 18, – “Segment“Business Segment, Geographic and GeographicMajor Customer and Supplier Information” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report.
Information aboutChemistry Technologies
We believe that the Company’s two operating segments is below.
Energy Chemistry Technologies
CT segment provides sustainable, optimized chemistry solutions that maximize our customers value by improving return on invested capital, lowering operational costs, and providing tangible environmental benefits. The Energy Chemistry Technologies (“ECT”) segmentCompany’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 designs, develops, manufactures, packages, distributes and markets specialty chemistries for use inoptimized chemistry solutions that 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 applications. Major integrated oil and gas (“O&G”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 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 the Initial ProFrac Agreement, 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 volumes 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%) well drilling, cementing, completion,of the difference between (i) the aggregate purchase price of the quantity of products comprising the minimum purchase obligation and stimulation activities designed(ii) the actual purchased volume during the measurement period (“Contract Shortfall Fees”). 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 reflect Contract Shortfall Fees of $20.1 million, of which $10.0 million was collected through March 11, 2024, with the remainder due on or before April 8, 2024.
Data Analytics
The DA segment delivers real-time information and insights to maximize recoveryour customers to enable optimization of operations and reduction of emissions and their carbon intensity. Real-time composition and physical properties are delivered simultaneously on their refined fuels, natural gas liquids (NGLs), natural gas, crude oil, and condensates using the industry’s only field-deployable, in-line optical near-infra-red spectrometer that generates no emissions. The instrument's response is processed with advanced chemometrics modeling, artificial intelligence, and machine learning algorithms to deliver these valuable insights every 15 seconds.
We believe customers using this technology have obtained significant benefits, including additional profits, by enhancing operations in both newcrude/condensates stabilization, blending operations, reduction of transmix, increasing efficiencies and mature fields. These specialty chemistries possess enhanced performance characteristicsoptimization of gas plants, allowing for the use of significantly lower cost field gas instead of diesel to generate power, lower emissions and are manufactured to withstand a broad rangeprotect 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 downhole pressures, temperaturesreducing their carbon footprint, e.g., less flaring and other well-specific conditions to be compliant with customer specifications. This segment has technical services laboratoriesreduction in energy expenditure for compression and a research and innovation laboratory that focus on design improvements, development and viability testing of new chemistry formulations, and continued enhancement of existing products. Chemistries branded

re-processing. Our customers in North America include the
Complex nano-Fluid® technologies (“CnF® products”) are patented both domestically and internationally and are proven strategically cost-effective performance additives within both oil and natural gas markets. The CnF® product mixtures are environmentally friendly, stable mixtures of plant derived oils, water, and surface active agents which organize molecules into nano structures. The combined advantage of solvents, surface active agents and water, and the resultant nano structures, improve well treatment results as compared to the independent use of solvents and surface active agents. CnF® products are composed of renewable, plant derived, cleaning ingredients and oils that are certified as biodegradable. CnF® chemistries help achieve improved operational and financial results for the Company’s customers in low permeability sand and shale reservoirs.
Consumer and Industrial Chemistry Technologies4

The Consumer and Industrial Chemistry Technologies (“CICT”) segment sources citrus oil domestically and internationally and is onesupermajors, some of the largest processors of citrus oils in the world. Products produced from processed citrus oil include (1) high value compounds used as additives bymidstream companies in the flavors and fragrances markets and (2) environmentally friendly chemistries for use in the oil &large gas industry and numerous other industries around the world. The CICT segment designs, develops, and manufactures products that are sold to companies in the flavor and fragrance industries and specialty chemical industry. These technologies are used within food and beverage, fragrance, and household and industrial cleaning products industries.
Discontinued Operations
Drilling Technologies. The Drilling Technologies segment, reported as discontinued operations, provided downhole drilling tools for use in energy and mining activities. This segment assembled, rented, sold, inspected, and marketed specialized equipment used in energy, mining, and industrial drilling activities. Established tool rental operations were located throughout the United States (the “U.S.”) and in a number of international markets.
Production Technologies. The Production Technologies segment, reported as discontinued operations, provided pumping system components, electric submersible pumps (“ESPs”), gas separators, production valves, and complementary services. Through the Company’s acquisition of IAL, the Company providedprocessing plants. We have developed a line of next generation hydraulic pumping unitsVerax™ analyzers for deployment internationally which was certified for compliance in hazardous locations and harsh weather conditions.
Research & Innovation
R&I supports both business segments through green chemistry formulation, specialty chemical formulations and Environmental Protection Agency (“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 servedgenerate current and future revenues, while advising Company management on opportunities concerning technology, environmental and industry trends. The R&I facilities support advances in chemistry performance, detection, optimization and manufacturing. For the years ended December 31, 2023 and 2022, the Company incurred $2.5 million and $4.4 million, respectively, of research and development expense. The Company expects that its 2024 research and development investment will continue to increasesupport new product development, especially in support of enhanced environmental demands, increased adoption of green chemistry and maximize productionconventional customization initiatives for oil and natural gas wells.its clients.
Seasonality
Overall, operations generally are not significantly affected by seasonality; however, winter weather conditions can posecause delays in clients’ activity levels, primarily in oil and gas.levels. Certain working capital components build and recede throughout the year in conjunction with established purchasing and selling cycles that can impact operationsoperating results and
financial position. In particular, citrus oil inventories increase during the first and second quarters in-line with the citrus crop harvest and processing season. The performance of certain services within eachsale of the Company’s segmentsproducts and performance of the Company’s services can be susceptible to both weather and naturally occurring phenomena, including, but not limited to, the following:
•the severity and duration of winter temperatures in North America, which impacts natural gas storage levels, drilling activity, commodity prices and commodity prices;operations at the Company’s facilities;
the timing•material deviations from normal seasonality for an extended period, which can impact access to operations, reduced performance at manufacturing facilities, inability to deploy required personnel, supply chain interruptions, facility damage and duration of the Canadian spring thaw and resulting restrictions that impactcustomer activity levels;
the timing and impact of •hurricanes upon coastal and offshore operations; and
adverse weather and disease can affect citrus crops in Florida and Braziloperations, which can negatively impact the availability of citrus oils for the CICT business unit.access to operations, reduced performance at manufacturing facilities, inability to deploy required personnel, supply chain interruptions, facility damage and customer activity levels; and
•pandemics or similar phenomena, which may impact seasonal purchasing and selling cycles.
Product Demand and Marketing
Demand for the Company’s energy-focused products and services in both the CT and DA segments is driven by energy supply and demand, as well as operator desire to improve profitability and returns. Demand for the Company’s energy chemistry products and services is dependent on levels of conventional and non-conventionalunconventional oil and natural gas well drilling and completion activity, both domestically and internationally. Products in
The Company markets its products to end user customers using both the Energy Chemistry Technologiesdirect and Consumer and Industrial Chemistry Technologies segmentsindirect sales channels. These sales channels are marketed directly to customers through the Company’s directaccessed using a mix of in-house sales force and throughprofessionals as well as certain contractual agency arrangements. Established customer relationships provide repeat sales opportunities within all segments.agreements. The Company also actively participates in industry trade shows, both live and virtual, publishes articles in industry publications, and participates in podcasts and creates other online content to educate the market on its product and service offerings. While the Company’s primary marketing efforts remain focused in North America, a growing amount of resources and effortefforts are focusedalso deployed on emerging international markets, especially in the Middle EastEast.
Product revenues include significant sales to related parties as described in Note 17, “Related Party Transactions” in Part II, Item 8 - “Financial Statements and North Africa (“MENA”)Supplementary Data” of this Annual Report.
Facilities and Offices
See Part 1, Item 2 - “Properties”, Asia-Pacific,for information regarding our manufacturing, warehouse and South America. In addition to direct marketingresearch facilities and relationship development, the Company also markets products and services through the use of third party agents primarily in international markets.
Customers
The Company’s customers primarily include major integrated oil and natural gas companies, oilfield service companies, independent oil and natural gas companies, pressure pumping service companies, international supply chain management companies, national and state-owned oil companies, household and commercial cleaning product companies, fragrance and cosmetic companies, and food and beverage manufacturing companies. In the two segments reported in continuing operations, the Company had one major customer for the year ended December 31, 2017, which accounted for 13% of consolidated revenue, two major customers for the year ended December 31, 2016, which accounted for 16% and 13% of consolidated revenue, and three major customers for the year ended December 31, 2015, which accounted for 17%, 15%, and 11% of consolidated revenue. In aggregate, the Company’s largest three customers collectively accounted for 27%, 36%, and 43% of consolidated revenue for the years ended December 31, 2017, 2016, and 2015, respectively.

Research and Innovation
The Company is engaged in research and innovation activities focused on the design of reservoir specific, customized chemistries in the Energy Chemistry Technologies segment and improvement of flavor and fragrance additives in the Consumer and Industrial Chemistry Technologies segment. In these two segments, for the years ended December 31, 2017, 2016, and 2015, the Company incurred $13.6 million, $9.3 million, and $6.7 million, respectively, of research and innovation expense. In 2017, research and innovation expense was approximately 4.3% of consolidated revenue. The Company expects that its 2018 research and innovation investment will continue to remain a material portion of overall spending to support new product development and customization initiatives for its clients.
Backlog
Due to the nature of the Company’s contractual customer relationships and the way they operate, the Company has historically not had significant backlog order activity.sales offices.
Intellectual Property
The Company’s policy isCompany endeavors to protect its intellectual property, both within and outside of the U.S. The Company considers patent protection for all products and methods deemed to have commercial significance and that may qualify for patent protection. The decision to pursue patent protection is dependent upon several factors, including whether patent protection can be obtained, cost-effectiveness,cost effectiveness, and alignment with operational and commercial interests. The Company believes its patent and trademark

5

portfolio, combined with confidentiality agreements, EPA registrations and licensing, trade secrets, proprietary designs, and manufacturing and operational expertise, are necessary and appropriatesufficient to protect its intellectual property and ensureprovide continued strategic advantage. TheAs of December 31, 2023, the Company currently has 28 issuedhad 138 granted patents, including 114 patents in our CT segment and over seven dozen24 patents in our DA segment. In addition, the Company also had 4 pending patent applications filed in the U.S. and abroad, onincluding 1 for the CT segment and 3 for the DA segment. The patents of the CT segment cover various chemical compositions and methods of use. The patents of the DA segment cover various systems and software methods.methods of use for online determination of chemical composition and data analysis. We believe the duration of our patents is adequate relative to the expected lives of our products. In addition, the Company currently has 70had 41 registered trademarks and over two dozen pending trademark applications filed in the U.S. and abroad, covering a variety of its goods and services.
Competition
TheOur ability to compete in the oilfield services industry and the consumer and industrial markets is dependent upon the Company’s ability to differentiate its products and services provideby providing superior quality and service, and maintainmaintaining a competitive cost structure with sufficient and reliable access to raw material supplies. Activity levels in the oil fieldoilfield goods and services industry are impacted by current and expected oil and natural gas prices, oil and natural gas drilling activity, production levels, and customer drilling and completion designatedcompletion-designated capital spending. Domesticspending, and international regions in which Flotek operates are highly competitive.customer commitment to improved environmental performance. The unpredictability of the energy industry and commodity price fluctuations
creates create both increased risk and opportunity for the products and services of both the Company and its competitors.
Certain oil and natural gas service companies competing with the Company are larger and have access to more resources. Such competitors could be better situated to withstand industry downturns, compete on the basis of price, and acquire and develop new equipment and technologies, all of which could affect the Company’s revenue and profitability. Oil and natural gas service companies also compete for customers and strategic business opportunities. Thus, competition could have a detrimental impact upon the Company’s business.
The citrus-based terpene (d-limonene) is a major feedstock for many of the Company’s CnF® chemistries. In addition, the Company utilizes naturally derived terpenes from other sources and bio-based solvents from other natural sources when it determines the efficacy of such formulas is appropriate. The Company has the ability to purify these alternative solvents to ensure they meet Flotek’s rigorous environmental standards.
The Company’s Consumer and Industrial Chemistry Technologies DA segment faces competition from other citrus processors, flavor companies,providers of equipment and other solvent sources. Other terpenesservices for real-time information in the upstream, midstream, refining and esters can provide an effective substitute to the Company’s citrus-based terpenes, although, without refinement and enhanced formulations efforts, are generally of lower quality. Such terpenes and esters can be cheaper than citrus terpenes, but, as noted above, can contain unfavorable characteristics and compounds that have varying degrees of toxicity and performance limitations. The Company’s chemistries are intended to replace these undesirable qualities. In addition, the segment’s flavor ingredients compete with synthetic and bio-engineered substitutes that are cheaper than natural flavors derived from citrus oils. These substitutes lack complexity and impact of the Company’s natural flavors and fragrances.distribution market.
Raw Materials
Materials and components used in the Company’s servicing and manufacturing operations, as well as those purchased for sale, are generally availableavailable on the open market from multiple sources. CollectionWhen able, the Company uses multiple suppliers, both domestically and transportation ofinternationally, to purchase raw materials to Company facilities, however, could be adversely affected by extreme weather conditions. Additionally, certain raw materials used byon the chemistries segments are available from limited sources. Disruptions to suppliers could materially impact sales.open market. The prices paid for raw materials vary based on energy, citrus, guar, andavailability, weather, other commodity price fluctuations, contractual obligations, tariffs, duties on imported materials, foreign currency exchange rates, business cycle position and global demand. Higher prices for chemistries citrus, guar, and othercertain raw materials could adversely impact future sales, contract fulfillment and contract fulfillments.
product margins. The Company is diligent in its efforts to identify alternate suppliers in its contingency planning forutilizing competitive bidding practices to proactively reduce costs and potential supply shortages and in its proactive efforts to reduce costs through

competitive bidding practices. When able, the Company uses multiple suppliers, both domestically and internationally, to purchase raw materials on the open market.
Citrus greening disease has adversely affected the availability of citrus crops around the world, thereby negatively impacting the supply and increasing the price of citrus terpenes. shortages. The Company’s market position, inventory, and forward purchases helps ensure availability for its patented CnF® technologies, as well as its existing customer base within CICT. As mentioned previously, the Company has also developed new CnF® formulations utilizing alternative solvents. These new formulations not only diversifyworked to broaden the Company’s dependence on citrus terpenes, but they also provide certain performance benefits necessary for specific customer and reservoir challenges.technical specifications of some products to help ensure that required molecules can be sourced from more than one supplier.
Government Regulations
The Company is subject to federal, state, and local environmental,laws and regulations, including laws related to the environment, occupational safety, health, transportation and health laws and regulationstrade within the U.S. and other countries in which the Company does business. These laws and regulations strictly govern the manufacture, storage, transportation, sale, use and disposal of chemistry products. The Company strives to ensure full compliance with all regulatory requirements and is unaware of any material instances of noncompliance.requirements.
The Company continually evaluates the environmental impact of its operations and attempts to identify potential liabilities and costs of any environmental remediation, litigation or associated claims. Several products of the Energy Chemistry Technologies and Consumer and Industrial Chemistry Technologies segmentsCT segment are considered hazardous materials. In the event of a leak or spill in association with Company operations, the Company could be exposed to risk of material cost, net of insurance proceeds, if any, to remediate any contamination. NoTo the Company’s knowledge, no environmental claims are currently being litigated or investigated.
Sustainability
Flotek’s vision is to create solutions to reduce the environmental impact of energy on air, water, land and people. Our mission is to be the Company doescollaborative partner of choice for sustainable chemistry technology and digital analytics solutions. We believe that green chemistry and digital transformation reduce the total cost of ownership and environmental risk of our customers and can transform business by reducing carbon footprints, energy consumption, emissions and overall environmental impact.
We have green, sustainable chemistry at our core, and we focus on providing responsible specialty chemistry solutions that are environmentally friendly and cost-competitive. Our products offered by our CT segment displace harmful chemicals such as benzene, toluene, ethylbenzene and xylenes (BTEX) in energy production, and our logistics and delivery methodology results in lower product usage and lower carbon emissions due to delivery. The analyzers produced by our DA segment are a closed-loop system, meaning that samples of potentially harmful gasses and fluids do not expect that costs relatedneed to remediation requirements will have a significant adverse effect onbe routinely taken and flared, as is the Company’s consolidated financial position orcase with gas chromatographs. This results in lower emissions. In addition, our analyzers’ ability to determine the mixing of operations.two batches of product (“transmix”) in real-time results in less time, energy and resources spent processing the transmix. Finally, our analyzers, when used to monitor field gas for well-site power generation, allow customers to significantly reduce the use of higher emission and more expensive diesel.
Employees

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Human Capital
Employee Overview
As of December 31, 2017,2023, the Company had 334approximately 146 employees, exclusive of existing worldwide agency relationships. None
of the Company’s employees are covered by a collective bargaining agreement and labor relations are generally positive. Certain international locationsgood.
Employees & Health, Safety & Environment
The Company is committed to acting with care to protect the health and safety of people, resources and the environment. Each employee is responsible for working towards the health, safety and environment (“HSE”) goals, as they are not isolated to certain individuals or roles. We aim to hold each other accountable to a high standard. Thus, every employee is empowered and expected to stop any activity, big or small, that could jeopardize people, the environment or assets.
Our safety, health and environmental goals are designed to sustain our drive to zero incidents. As a result, safety is woven into the fabric of the Company, from our robust training programs, to our safety moments that begin team meetings, to our Hazardous Observation Card program. Our training program is fundamental to operating safely and protecting people and the environment. The Company maintains a robust health, safety and environmental training program that includes both classroom and online curriculum. We assign specific trainings to employees based on their role and function within the Company. Additionally, the Company’s field and plant personnel complete more than 24 hours of training annually. We continuously monitor all operational activities and update training programs as needed to ensure the curriculum remains relevant and effective for minimizing risk and protecting our employees and the environment.
We have staffing or work arrangementsa strong commitment to safety in all aspects of our operations through training, safety culture, and tracking of key safety metrics. In 2023, the Company recorded a Total Recordable Incident Rate (TRIR) of 0.00. The TRIR is a key safety performance metric which calculates the number of recordable incidents per full-time workers during a one-year period.
Compensation: Wages & Benefits
The Company’s compensation programs are designed to provide employee wages that are contingentcompetitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. We align our programs to attract, retain and motivate employees to achieve high-impact results that create value for all of our stakeholders. In addition to competitive base wages, all employees are eligible for a discretionary bonus, which is based upon local work councilsindividual performance and triggered by company performance, subject to the Company’s liquidity position.
Benefits are a key component of our compensation program. We engage an outside benefits consulting firm to independently evaluate the effectiveness and competitiveness of our employee benefits program, as well as to tailor our program to the unique needs of the Company’s employee base.
All full-time employees are eligible for comprehensive health insurance, including medical insurance, prescription drug benefits, dental insurance and vision insurance. Additionally, the Company offers flexible spending and health savings accounts, life and disability/accident coverage, telemedicine, critical illness insurance and paid leave. Eligible employees may elect to participate in the Company’s employee stock purchase plan and retirement plans, including its 401(k) plan in the U.S. The Company currently matches 401(k) contributions at 100% of up to 2% of an employee’s compensation. The Company also offers access to online and personalized financial planning services as a component of its retirement plan benefit.
The Company continues to prioritize mental health and wellness for employees, maintaining an ongoing dialogue with employees and providing resources through its employee assistance program, which is available to all employees and their families.
Outlook
Our business is subject to numerous variables which impact our outlook and expectations given the shifting conditions of the industry. We have based our outlook on the market conditions we perceive today. Changes often occur.
Energy
The demand for oil and gas and related services fluctuates due to numerous factors including weather and macroeconomic and geopolitical conditions. Despite the near term volatility in commodity pricing, leading to the recent weakness in onshore drilling and completion activity, the fundamentals for energy related services remain strong. The overall expansion of the global economy should continue to create substantial demand for all forms of energy which will increase service intensity. Independent exploration and production companies operate the majority of U.S. land rigs and react quickly to changing commodity prices. In the current commodity price environment, we expect these companies in oil-weighted basins to maintain or other regulatory approvals.increase activity while companies in gas-weighted basins are expected to maintain or decrease activity over the next 12

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months. In general, we expect the major exploration and production companies to maintain activity levels over the next 12 months.
Digital Analytics
The use of data and digital analytics is a growing trend in all industries where technology is leveraged to analyze large datasets of operational information to improve performance, as well as for predictive maintenance, advanced safety measures and reduced environmental impact of operations. We believe Verax™ analyzers have gained a foothold in North American markets for critical applications where compositional information is needed in real-time. The technology delivers insight on valuable operations data like vapor pressure, boiling point, flash point, octane level, API (American Petroleum Institute) gravity, viscosity, BTU (British Thermal Unit) and more, simultaneously. We continue to collaborate with our customers to identify further facilities and applications where our technology has the highest value. To drive recurring revenue, we continue to build on the modular nature of our sensor and analysis packages with new data processing techniques that enhance the value of our installations. AIDA (Automated Interface Detection Algorithm) provides real-time detection of interfaces in a liquids pipeline without the need for additional sampling or chemometric modeling. The application can identify products such as refined fuels, crude and NGLs with its advanced machine learning algorithms and detect interfaces real-time versus traditional lab analysis. We believe this allows customers to cut batches quickly and accurately, reduce transmix and minimize off-spec product that requires downgrades. We are also gaining traction leveraging the Verax™ in applications where operators and service companies are using field gas as a substitute for diesel in dual fuel engines as the market moves to Tier 4 equipment and eFleets. Analyzing this in real-time allows companies to maximize the field gas for diesel substitution rate providing significant cost savings while lowering emissions, reducing fuel consumption/costs, and protecting the equipment from damage.
Supply Chain
The principal supply issues facing our industry for the next twelve months will include:
•Fluctuating freight costs for shipping to our customers;
•Availability of raw materials;
•Labor shortages; and
•Demand forecasting.
All bidding will require the risk of shipping costs and delays to be factored into proposals. Trucking availability and pricing will impact North American opportunities while security of delivery for sea-freight could impact sales of North American manufactured goods being delivered internationally for the foreseeable future. The overall flow of materials globally could experience price increases. Military conflicts in the Middle East could also result in supply disruption.
Available Information and Website
The Company’s website is accessible at www.flotekind.com. Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available (see the “Investor Relations” section of the Company’s website), as soon as reasonably practicable, subsequent to electronically filing or otherwise providing reports to the SEC. Corporate governance materials, including but not limited to our corporate governance guidelines, by-laws,board committee charters, bylaws, certain policies, and code of business conduct and ethics are also available on the website. A copy of corporate governance materials is also available upon written request to the Company.
All material filed with the SEC’s “Public Reference Room” at 100 F Street NE, Washington, DC 20549 is available to be read or copied. Information regarding the “Public Reference Room” can be obtained by contacting the SEC at 1-800-SEC-0330. Further, theThe SEC maintains the www.sec.gov website, which contains reports, proxy and information statements, and other registrant information filed electronically with the SEC.
The 2017 Annual Chief Executive Officer Certification required by the NYSE was submitted on May 1, 2017. The certification was not qualified in any respect. Additionally, the Company has filed, or furnished, as applicable, all principal executive officer and financial officer certifications as required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 with this Annual Report. Information with respect to the Company’s executive officers and directors is incorporated herein by reference to information to be included in the definitive proxy statement for the Company’s 20182024 Annual Meeting of Stockholders.
The Company has disclosed and will continue to disclose any changes or amendments to the Company’s code of business conduct and ethics as well as waivers to the code of ethics applicable to executive management by posting such changes or waivers on the Company’s website.
website in the “Corporate Governance” section under “Investor Relations” or in filings with the SEC.
Item  1A. Risk Factors.Factors
The Company’s business, financial condition, results of operations, and cash flows, liquidity and prospects are subject to various risks and uncertainties. Readers of this reportAnnual Report should not consider any descriptions of these risk factors to be a

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complete set of all potential risks that could affect Flotek.the Company. These factors should be carefully considered together with the other information contained in this Annual Report and the other reports and materials filed by the Company with the SEC. Further, many of these risks are interrelated and, as a result, the occurrence of certain
risks could trigger and/or exacerbate other risks. Such a combination could materially increase the severity of the impact of these risks on ourthe Company’s business, results of operations, financial condition, cash flows, liquidity or liquidity.prospects.
This Annual Report contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements discuss Company prospects, expected revenue,

expenses and profits, strategic and operational initiatives, and other activities. Forward-looking statements also contain suppositions regarding future oil and natural gas industry conditions, as well as market conditions impacting the consumer and industrial business,other conditions, both domestically and internationally. The Company’s results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including risksrisks described below and elsewhere. See “Forward-Looking Statements” at the beginning of this Annual Report.
Risks Related to the Company’s Business
The Company’s business is largely dependent upon domestic and internationalits customers’ spending in the oil and natural gas industry spending, as well as consumer trends in the Company’s consumer and industrial business.industry. Spending could be adversely affected by industry conditions consumer trends or by new or increased governmental regulations,regulations; global economic conditions,conditions; the availability of credit,credit; and lower oil and natural gas prices. All
Demand for and prices of these factors are beyond the Company’s control. The resulting reductions in customers’ expenditures could have a significant adverse effect on Company revenue, margins, and overall operating results.
The Company’s energy segment is dependent upon customers’ willingness to make operating and capital expenditures for exploration, development and production of oil and natural gas in both North American and global markets. Customers’ expectations of a decline in future oil and natural gas market prices could result in curtailed spending, thereby reducing demand for the Company’s products and services. Industry conditions are influenced by numerous factors over which the Company has no control, including the supply of and demand for oil and natural gas, domestic and international economic conditions, political instability in oil and natural gas producing countries and merger and divestiture activity among oil and natural gas producers and service companies.
The price for oil and natural gas is subject to a variety of factors, including, but not limited to:
•global demand for energy as a result of population growth, economic development, and general economic and business conditions;
•political and economic uncertainty, and sociopolitical unrest including the current military conflicts in Ukraine and Middle East and ongoing sanctions imposed on Russia;
•the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and the impact of non-OPEC producers on global supply;
•availability and quantity of natural gas storage;
•import and export volumes and pricingpricing of liquefied naturalnatural gas;
•domestic and international refining activity;
•pipeline capacity to critical markets;markets and out of producing regions;
political and economic uncertainty and socio-political unrest;
•cost of exploration, production and transport of oil and natural gas;
•sustained market adoption of green chemistry solutions;
•technological advances impacting energy production and consumption;
•interest rates;
•the timing and
rate of economic recovery from the effects of the pandemic;
•weather conditions; and
weather conditions.•foreign exchange rates.
The volatility of oil and natural gascommodity prices and the consequential effect on exploration and production activitythe activities of the Company’s target customer base could adversely impact the activity levels of the Company’s customers.
One indicator of drilling and completion spending is drilling activity as measured by rig count, which the Company actively monitors to gauge market conditions and forecast product and service demand. In addition, the U.S. Energy Information Administration (“EIA”) and other industry data sources report completion activity which is utilized by the Company. A reduction in drilling and completion activity could cause a decline in the demand for, or negatively affect the price of, some of the Company’s products and services. Domestic demand for oil and natural gas could also be uniquely affected by public attitude regarding drilling in environmentally sensitive areas, vehicle emissions and other environmental standards, alternative fuels, taxation of oil and gas, perception of “excess profits” of oil and gas companies, and anticipated changes in governmental regulation and policy.
Volatile economic conditions could weaken customer exploration and production expenditures, causing reduced demandDemand for the Company’s productsgoods and services and a significant adverse effectmay be adversely impacted if volatile economic conditions weaken customer expenditures, specifically as it concerns the continued adoption of chemistry solutions with lower overall impact on the Company’s operating results.environment. It is difficult to predict the pace of industry growth, the direction of oil and natural gas prices, the direction and magnitude of economic activity, the demand for professional chemistry products, and to what extent these conditions could affect the Company. However, reduced cash flow and capital availability could adversely impact the financial condition of the Company’s customers, which could result in customer project modifications, delays or cancellations, general business disruptions, and delay in, or nonpayment of, amounts that are owed to the Company. This could cause a negative impact on the Company’s results of operations and cash flows.
The Company’s consumer and industrial business is dependent on consumer demand for environmentally preferred solvents, as well as flavors and fragrances that are based on the unique attributes of citrus oils. Synthetic and bio-derived chemicals compete with the Company’s line of naturally derived products and could affect future demand.
Furthermore, if certain of the Company��skey suppliers were to experience significant cash flow constraints or become insolvent as a result of such conditions, a reduction or interruption in supplies or a significant increase in the price of supplies could occur, adversely impacting the Company’s results of operations and cash flows.
The Company’s reliance on the ProFrac Agreement could adversely impact our financial condition, results of operations and cash flows.
The ProFrac Agreement is a major source of the Company’s liquidity and we expect it to remain so over the term of the contract. Revenues attributable to the ProFrac Agreement represented 65% of our total revenues during 2023. If the Company became unable to execute the requirements of the agreement financially and operationally, from procuring inventory to meet the needs of ProFrac Services, LLC under the ProFrac Agreement and executing timely billing and collection, the Company’s

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liquidity could be adversely impacted. Further, our relationship with ProFrac Services, LLC may impact their competitors willingness to purchase products from the Company or to seek price concessions.
We are also dependent on ProFrac Services, LLC’s compliance in meeting their committed activity levels and paying for products provided, including any Contract Shortfall Fees, in a timely basis, in accordance with the terms of the ProFrac Agreement. Our financial condition, results of operations and cash flows may be adversely impacted if ProFrac Services, LLC’s financial condition or its spending level under the ProFrac Agreement is negatively impacted and they are unable to pay their outstanding obligations to the Company, including those payments related to Contract Shortfall Fees. As of March 11, 2024, approximately $10.0 million of Contract Shortfall Fees from 2023 have been collected with the remaining $10.1 million due on or before April 8, 2024.
ProFrac Services, LLC has the right to terminate the ProFrac Agreement by providing written notice to the Company after the occurrence of any of the following events: (i) the Company’s bankruptcy; (ii) the Company’s failure to produce and deliver the product in accordance with the specifications, or failure to timely deliver product, and the Company has been unable to cure such failure within a commercially reasonable period determined by ProFrac Services, LLC; (iii) the Company fails to meet pricing requirements set forth in the ProFrac Agreement; or (iv) the Company is affected by a force majeure event, and such force majeure event has not been remedied within 30 days of the initial occurrence of such event. ProFrac Services, LLC also has the right to terminate the ProFrac Agreement for any other material breach of the ProFrac Agreement by the Company if the breach is capable of being cured, but is not cured within 30 days after written notice. Termination of the ProFrac Agreement would have a material adverse impact on the Company’s financial condition, results of operations and cash flows.
The Company’s inability to develop and/or introduce new products or differentiate existing products could have an adverse effect on its ability to be responsive to customers’ needs and could result in a loss of customers, as well as adversely affecting the Company’s future success and profitability.

The oil and natural gas industry isindustries in which the Company does business are characterized by technological advancements that have historically resulted in, and will likely continue to result in, substantial improvements in the scope and quality of oilfieldspecialty chemistries and their function and performance.analytical services. Consequently, the Company’s future success is dependent, in part, upon the Company’s continued ability to timely develop innovative products and services. Increasingly sophisticated customer needsSuccessful introduction of new technology requires time and resources, and there is no assurance that the abilityCompany will be able to anticipate and respond to technological and operational advancescommercialize new technology in the oil and natural gas industry is critical.a timely manner. If the Company fails to successfully develop and introduce innovative products and services that appeal to customers, or if existing or new market competitors develop superior products and services, the Company’s revenue and profitability could deteriorate.
ConsumerThe Company’s business, financial condition, operating results and industrial chemistry markets that purchaseability to grow and compete may be affected adversely if adequate capital is not available.
The Company’s existing resources including cash on hand and availability under its ABL, may not be sufficient to finance operations and strategies. The Company may therefore need to rely on external financing sources, including commercial borrowings and issuances of debt and equity securities. The Company’s ability to procure debt financing, is dependent on, among other things, the willingness of banks and other financial institutions to lend into the Company’s citrus-based products are largely influenced by consumer preferenceindustry and regulatory requirements. While citrus-based beverage flavorings, retail cleaning products, and fine fragrances perpetually rank high in consumer surveys,on their evaluation of the Company’s continued success requires new product innovationcredit risk. There is no guarantee that the Company will be able to keep pace with consumer trendsprocure additional debt financing or, in the event that it is able to procure additional debt financing, that the financing will be on favorable terms and regulatory issues.conditions or at favorable rates of interest. If the Company fails to provide innovative products and services to its customers or to introduce performance products that comply with new environmental regulations,cannot access capital on acceptable terms when required, the Company’s business, financial performance couldconditions and operating results may be impacted.adversely affected. Further the ability of the Company to grow and be competitive in the marketplace may be adversely impacted as the Company may not be able to finance strategic growth plans, take advantage of business opportunities, or respond to competitive pressures.
Increased competition could exert downward pressure on prices charged for the Company’s products and services.
The Company operates in a competitive environment characterizedpopulated by large and small competitors. Competitors with greater resources and lower cost structures or who are trying to gain market share may be successful in providing competing products and services to the Company’s customers at lower prices than the Company currently charges. The Company operates in an environment with relatively low barriers to entry; employees of the Company may leave and compete directly with the Company. This may require the Company to lower its prices, resulting in an adverse impact on revenues, margins, and operating results. Thus, competition could have a detrimental impact on the Company’s business.
If the Company is unable to adequately protect intellectual property rights or is found to infringe upon the intellectual property rights of others, or is unable to maintain the registrations and certifications of its products and facilities, the Company’s business is likely to be adversely affected.
The Company relies on a combination of patents, trademarks, copyrights, trade secrets, non-disclosure agreements and other security measuresmethods to establishaccess markets and protect the Company’s intellectual property rights.create a competitive advantage. Although the Company believes that existing measures are

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reasonably adequate to protect intellectual property rights, there is no assurance that the measures taken will prevent misappropriation of proprietary information or dissuade others from independent development of similar products or services. Moreover, there is no assurance that the Company will be able to prevent competitors from copying, reverse engineering, modifying or otherwise obtaining, infringing and/or using the Company’s technology, andintellectual property or proprietary rights to create competitive products or services. The Company may not be able to enforce intellectual property rights outside of the U.S. Additionally, the laws of certain
countries in which the Company’s products and services are manufactured or marketed may not protect the Company’s proprietary rights to the same extent as do the laws of the U.S. Furthermore, other third parties may infringe, challenge, invalidate, or circumvent the Company’s patents, trademarks, copyrights and trade secrets. In each case, the Company’s ability to compete could be significantly impaired.
A portion of the Company’s products and services are without patent protection. The issuance of a patent does not guarantee validity or enforceability. The Company’s patents may not necessarily be valid or enforceable against third parties. The issuance of a patent does not guarantee that the Company has the right to use the patented invention. Third parties may have blocking patents that could be used to prevent the Company from marketing the Company’s own patented products and services and utilizing the Company’s patented technology.
The Company is exposed and, in the future, may be exposed to allegations of patent and other intellectual property infringement from others. The Company may allege infringement of its patents and other intellectual property rights against others. Under either scenario, the Company could become involved in costly litigation or other legal proceedings regarding its patent or other intellectual property rights, from both an enforcement and defensive standpoint. Even if the Company chooses to enforce its patent or other intellectual property rights against a third party, there may be risk that the Company’s patent or other intellectual property rights become invalidated or otherwise unenforceable through legal proceedings. If intellectual property infringement claims are asserted against the Company, the Company could defend itself from such assertions or could seek to obtain a license under the third party’s intellectual property rights in order to mitigate exposure. In the event the Company cannot obtain a license, third parties could file lawsuits or other legal proceedings against the Company, seeking damages (including treble damages) or an injunction against the manufacture, use, sale, offer for sale, or importation of the Company’s products and services. These could result in the Company having to discontinue the use, manufacture and sale of certain products and services, increase the cost of selling certain products and services, or result in damage to the Company’s reputation. An award of damages, including material royalty payments, or the entry of an injunction order against the use, manufacture and sale of any of the Company’s products and services found to be infringing, could have an adverse effect on the Company’s results of operations and ability to compete.
Certain of the Company’s products and facilities, especially those related to the professional chemistry products, have been registered with the EPA. The failure of the Company to maintain such EPA registrations could result in the inability of the Company to market or sell its products. In the event that the Company cannot maintain its registrations or licenses or is unable to procure new licenses or registrations for new products or in response to changes to regulatory requirements, the ability of the Company to sell its products and obtain revenue may be adversely affected.
The loss of key customers could have an adverse impact on the Company’s results of operations and could result in a decline in the Company’s revenue.
The Company has critical customer relationships which are dependent upon production and development activity related to a handful of customers. In the two segments reportedCT segment in continuing operations,aggregate, revenue derived from the Company’s three largest customers as a percentage of consolidated revenue for the years ended December 31, 2017, 2016,2023 and

2015, 2022, totaled 27%, 36%,73% and 43%44%, respectively. CustomerThe Company has seen customer concentration risk increase due to the entry into the ProFrac Agreement. Unlike the ProFrac Agreement, customer relationships are historicallysubstantially governed by purchase orders or other short-term contractual obligations as opposed to long-term contracts. Losses of customers also may occur due to product, service or pricing issues, as well as industry consolidation. The Company competes in a highly competitive environment and must work diligently to create and maintain productive customer relationships, and the failure to maintain those relationships could result in the loss of one or more key customers. The loss of one or more key customers could have an adverse effect on the Company’s results of operations and could result in a decline in the Company’s revenue.
Loss of key suppliers, the inability to secure raw materials on a timely basis, or the Company’s inability to pass commodity price increases on to its customers could have ana material adverse effect on the Company’s ability to service customer’sits customers’ needs and could result in a significant loss of customers.
Materials used in servicing and manufacturing operations, as well as those purchased for sale, are generally available on the open market from multiple sources. Acquisition costs and transportation of raw materials to Companythe Company’s facilities have historically been impacted by extreme weather conditions. Certain raw materials used by the Energy Chemistry Technologies and the Consumer and Industrial Chemistry Technologies segments are available only from limited sources; accordingly, any disruptions to critical suppliers’ operations could adversely impact the Company’s operations. PricesAdditionally, prices paid for raw materials could be affected by energy products and other commodity prices; weather and disease associated with the Company’sour crop dependent raw materials, specifically citrus greening;materials; tariffs and duties on imported materials; evolving geopolitical risks; foreign currency exchange rates; and phases of the general business cycle and global demand. The Energy Chemistry Technologies and the Consumer and Industrial Chemistry Technologies segments secure short and long term supply agreements for critical raw materials from both domestic and international vendors.
The prices of key raw materials including citrus terpenes and natural polymers (guar) are subject to market fluctuations, which at times can be significant and unpredictable. Availability of key raw materials, weather events, natural disasters, and health epidemics in countries from which the Company sources raw materials may significantly impact prices. During a period of scarcity of supply the Company may also be negatively impacted by prioritization decisions enacted by its suppliers.
The Company may be unable to pass along price increases to its customers, which could result in ana materially adverse impact on margins and operating profits. The Company currently uses purchasing strategies designed, where possible, to align the timing of customer demand with supply commitments. However, the Company currently does not hedge commodity prices, but may consider such strategies in

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the future, and there is no guarantee that the Company’s purchasing strategies will prevent cost increases from resulting in materially adverse impacts on margins and operating profits.
IfThe Company’s DA segment is dependent on its ability to source appropriate technical components for its Verax™ measurement system, certain of which are specialty products that are sole-sourced and are not easily replaceable with other sources. Any inability to source appropriate components in the Company losesfuture could result in significant difficulty supplying equipment or services to the servicesCompany’s customers.
Removal of key members of management or directors may be difficult or costly.
The Company’s management and employees may have retention, employment or severance agreements in place. In the event that our employees, management or directors do not have the proper skills for management or operation of the Company, or the Company otherwise wishes to remove them from their position(s), the Company may not be ablerequired to managepay severance or similar payments. In addition, the loss of key management personnel or directors and the required transition may cause interruption in
the operations, and implement growth strategies.
The Company depends on the continued servicegovernance, strategies or management of the Chief Executive Officer and President, the Chief Financial Officer, the Executive Vice President of Operations, and other key members of the executive management team, who possess significant expertise and knowledge of the Company’s business and industry. Furthermore, the Chief Executive Officer and President serves as Chairman of the Board of Directors. The Company, has entered into employment
agreements with certain of these key members; however, at December 31, 2017, the Company only carries key man life insurance for the Chief Executive Officer and the Executive Vice President of Operations. Any loss or interruption of the services of key members of the Company’s management couldwhich may significantly reduce the Company’s ability to manage operations effectively and implement strategic business initiatives. Effective February 13, 2017, Robert M. Schmitz retired as the Company’s Executive Vice President and Chief Financial Officer. On June 30, 2017, Steven A. Reeves retired as the Company’s Executive Vice President of Operations. On October 7, 2017, Robert C. Bodnar departed from the Company as the Executive Vice President and Performance and Transformation Officer. The Company can provide no assurance that appropriate replacements for key positions could be found should the need arise.
Failure to maintain effective disclosure controls and procedures and internal controlscontrol over financial reporting could have an adverse effect on the Company’s operations and the trading price of the Company’s common stock.
Effective internal controls are necessary for the Company to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company. If the Company cannot provide reliable financial reportsreporting or effectively prevent fraud, the Company’s reputation and operating results could be harmed. If the Company is unable to maintain effective disclosure controls and procedures and internal controls over financial reporting,reports, the Company may not be able to provide reliable financial reports,reporting, which in turn could affect the Company’s operating results or cause the Company to fail to meet its reporting obligations. Ineffective internal controls could also cause investors to lose confidence in reported financial information, which could negatively affect the trading price of the Company’s common stock, limit the ability of the Company to access capital markets in the future, and require additional costs to improve internal control systems and procedures.
Network disruptions, security threatsFailure to collect for goods and activityservices sold to key customers could have an adverse effect on the Company’s financial results, liquidity and cash flows.
The Company performs credit analysis on potential customers; however, credit analysis does not provide full assurance that customers will be willing and/or able to pay for goods and services purchased from the Company. Furthermore, collectability of international sales can be subject to the laws of foreign countries, which may provide more limited protection to the Company in the event of a dispute over payment. Because sales to domestic and international customers are generally made on an unsecured basis, there can be no assurance of collectability. The Company’s sales revenues are concentrated among customers operating in the oil and gas industry. Furthermore, the Company has seen an increase in concentration risk in 2022 and 2023, which it anticipates will continue in 2024 and beyond as a result of the Company’s entry into the ProFrac Agreement. If one or more major customers, including ProFrac Services, LLC, are unwilling or unable to pay their obligations to the Company, it could have an adverse effect on the Company’s financial results, liquidity and cash flows.
Failure to adapt to changing buying habits of the Company’s potential and existing customers could have a negative effect on the Company’s ability to attract and retain business.
The demographics and habits of the purchasing departments of many of the Company’s customers and potential customers is changing. Key decision makers may be less experienced and show different buying habits and approaches. Customers are increasingly requiring vendors to integrate with purchasing modules and are using advanced analytics to make purchasing decisions. If the Company does not adapt to these changing purchasing trends, the Company may not be able to attract or retain business.
Cyberattacks may have a significant and adverse impact on the Company’s operations and related to global cyber-crime pose risks to our key operational, reporting and communication systems.financial condition.
The Company relies on access to information systems for its operations. Failuresoperational, reporting and communication functions. Impairments of or interference with, access to these systems, such as ransomware and network communications disruptions, could have an adverse effect on our ability to conduct operations and could directly impact consolidated reporting. Phishing attacks could result in sensitive or confidential information being released by the Company. Security breaches pose a risk to confidential data and intellectual property, which could result in damages to our competitiveness and reputation. The Company hasCompany’s policies and procedures, in place, including system monitoring and data back-up processes tomay not prevent or mitigate the effects of thesedetect potential disruptions or breaches. However, therebreaches in a timely or effective manner. There can be no assurance that existing or emerging threats will not have an adverse impact on our systems or communications networks. While the Company does carry cybersecurity insurance, the coverage and amount of such insurance may not be sufficient to adequately compensate the Company for cybersecurity loss. See “Item 1C. Cybersecurity” within this Part I.

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Unforeseen contingencies such as litigation could adversely affect the Company’s financial condition.
The Company is, and from time to time may become, a party to legal proceedings incidental to the Company’s business involving alleged injuries arising from the use of Company products, exposure to hazardous substances, patent infringement, employment matters, commercial disputes, claims related to adverse physical reactions to the Company’s products such as rashes or allergic reactions and shareholder lawsuits. The defense of these lawsuits may require significant expenses, divert management’s attention, and may require the Company to pay damages that could adversely affect the Company’s financial condition. In addition, any insurance or indemnification rights that the Company may have might be insufficient or unavailable to protect against potential loss exposures.
The Company’s current insurance policies may not adequately protect the Company’s business from all potential risks.
The Company’s operations are subject to risks inherent in the specialty chemical industry, such as, but not limited to, accidents, explosions, fires, severe weather, oil and chemical spills, and other hazards. These conditions can result in personal injury or loss of life, damage to property, equipment and the environment, as well as suspension of customers’ oil and gas operations. These events could result in damages requiring costly repairs, the interruption of Company business, including the loss of revenue and profits, and/or the Company being named as a defendant in lawsuits asserting large claims. The Company does not have insurance against all foreseeable or unforeseeable risks. Consequently, losses and liabilities arising from uninsured or underinsured events could have an adverse effect on the Company’s business, financial condition and results of operations.
If the Company does not manage the potential difficulties associated with expansion successfully, the Company’s operating results could be adversely affected.
The Company believes future success will depend, in part, on the Company’s ability to adapt to market opportunities and changes, to successfully integrate the operations of any businesses acquired, to enhance existing product and service lines, and potentially expand into new product and service areas in which the Company may not have prior experience. Factors that could result in strategic business difficulties include, but are not limited to:
•failure to effectively integrate acquisitions, joint ventures or strategic alliances;
•failure to effectively execute on the ProFrac Agreement;
•failure to effectively plan for risks associated with expansion into areas in which management lacks prior experience;
•lack of experienced management personnel;
•increased administrative burdens;
•lack of customer retention;
•technological obsolescence; and
•infrastructure, technological, communication and logistical problems associated with large, expansive operations.
If the Company fails to manage potential difficulties successfully, the Company’s operating results could be adversely impacted.
The Company may pursue strategic acquisitions, joint ventures and strategic divestitures, which could have an adverse impact on the Company’s business.
The Company’s past and potential future acquisitions, joint ventures, and divestitures involve risks that could adversely affect the Company’s business. Negotiations of potential acquisitions, joint ventures, or other strategic relationships, integration of newly acquired businesses, and/or sales of existing businesses could be time consuming and divert management’s attention from other business concerns. Acquisitions and joint ventures could also expose the Company to unforeseen liabilities or risks associated with new markets or businesses. Unforeseen operational difficulties related to acquisitions and joint ventures could result in diminished financial performance or require a disproportionate amount of the Company’s management’s attention and resources. Additionally, acquisitions could result in the commitment of capital resources without the realization of anticipated returns. Divestitures could result in the loss of future earnings without adequate compensation and the loss of unrealized strategic opportunities.
IfThe Company’s ability to use net operating losses and tax attribute carryforwards to offset future taxable income has become limited due to an “ownership change” in 2023.
Under Section 382 of the Company does not manage the potential difficulties associated with expansion successfully, the Company’s operating results could be adversely affected.
The Company has grown over the last several years through internal growth, strategic alliances, and strategic business and asset acquisitions. The Company believes future success will depend, in part,Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on the Company’s ability to adaptutilize pre-change net operating losses (“NOLs”), and certain other tax attributes to market opportunities and changes, to successfully integrateoffset future taxable income. In general, an ownership change occurs if the operationsaggregate stock ownership of any businesses acquired, expansioncertain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). During 2023, the conversion of existing product and service lines, and potentially expandvarious debt instruments into new product and service areas in which the Company may not have prior experience. Factors that could result in strategic business difficulties include, but are not limited to:
failure to effectively integrate acquisitions, joint ventures or strategic alliances;
failure to effectively plan for risks associated with expansion into areas in which management lacks prior experience;
lack of experienced management personnel;
increased administrative burdens;
lack of customer retention;
technological obsolescence; and
infrastructure, technological, communication and logistical problems associated with large, expansive operations.
If the Company fails to manage potential difficulties successfully, the Company’s operating results could be adversely impacted.
Thecommon stock and warrants to purchase the Company’s common stock resulted in an ownership change limiting the Company’s ability to grow and compete could be adversely affected if adequate capital is not available.

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to utilize existing NOLs and tax attribute carryforwards. Additional information about these limitations is provided in Note 11, “Income Taxes” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report.
The ability ofIn addition, under the Company to grow and be competitive in the market place is dependent on the availability of adequate capital. Access to capital is dependent, in large part, on the Company’s cash flows and the availability of and access to equity and debt financing. The Company’s revolving loan agreements require approval and place limits on certain capital transactions and various business acquisitions and combinations. The Company cannot guarantee that cash flows will be sufficient, or that the Company will continue to be able to obtain equity or debt financing on acceptable terms, or at all. As a result, the Company may not be able to finance strategic growth plans, take advantage of business opportunities, or to respond to competitive pressures. The Company filed a “universal” shelf registration on September 21, 2017 to permitTax Act, the ability to sell securitiescarry back NOLs to the publicprior taxable years is generally eliminated, and while NOLs arising in a timely manner and which it expects to keep active.
The Company’s revolving credit facility has variable interest rates that could increase.
At December 31,tax years beginning after 2017 the Company had a $75 million revolving credit facility commitment subject to collateral availability limits. The interest rate on advances under the revolving credit facility varies based on the level of borrowing. Rates range (a) between PNC Bank’s base lending rate plus 1.5% to 2.0% or (b) between the London Interbank Offered Rate (LIBOR) plus 2.5% to 3.0%. The Company is required to pay a monthly facility fee of 0.25% per annum, on any unused amount under the commitment based on daily averages. The current credit facility remains in effect until May 10, 2022.
There canmay be no assurance that the revolving credit facility will not experience significant interest rate increases.
Failure to collect for goods and services sold to key customers could have an adverse effect on the Company’s financial results, liquidity and cash flows.
The Company performs credit analysis on potential customers; however, credit analysis does not provide full assurance that customers will be willing and/or able to pay for goods and services purchased from the Company. Furthermore, collectability of international sales can be subject to the laws of foreign countries, whichcarried forward indefinitely, these post-2017 NOLs may provide more limited protection to the Company in the event of a dispute over payment. Because sales to domestic and international customers are generally made on an unsecured basis, there can be no assurance of collectability. If one or more major customers are unwilling or unable to pay its debts to the Company, it could have an adverse effectonly reduce 80% of the Company’s financial results, liquiditytaxable income in a tax year. Limitations imposed on the ability to use NOLs and cash flows.
Unforeseen contingencies such as litigationtax credits to offset future taxable income could adversely affectreduce or eliminate the Company’s financial condition.
The Company is,benefit of the NOLs and from time to time may become, a party to legal proceedings incidental to the Company’s business involving alleged injuries arising from the use of Company products, exposure to hazardous substances, patent

infringement, employment matters, commercial disputes,tax attributes and shareholder lawsuits. The defense of these lawsuits may require significant expenses, divert management’s attention, and maycould require the Company to pay damagesU.S. federal income taxes in excess of that could adversely affect the Company’s financial condition. In addition, any insurance or indemnification rights that the Companywhich would otherwise be required if such limitations were not in effect. Similar rules and limitations may have may be insufficient or unavailable to protect against potential loss exposures.
The Company’s current insurance policies may not adequately protect the Company’s business from all potential risks.
The Company’s operations are subject to risks inherent in the oil and natural gas industry, such as, but not limited to, accidents, blowouts, explosions, fires, severe weather, oil and chemical spills, and other hazards. These conditions can result in personal injury or loss of life, damage to property, equipment and the environment, as well as suspension of customers’ oil and gas operations. These events could result in damages requiring costly repairs, the interruption of Company business, including the loss of revenue and profits, and/or the Company being named as a defendant in lawsuits asserting large claims. The Company maintains insurance coverage it believes is adequate and customary to the oil and natural gas services industry to mitigate liabilities associated with these potential hazards. The Company does not have insurance against all foreseeable risks. Consequently, losses and liabilities arising from uninsured or underinsured events could have an adverse effect on the Company’s business, financial condition, and results of operations.
Regulatory pressures, environmental activism, and legislation could result in reduced demandapply for the Company’s products and services, increase the Company’s costs, and adversely affect the Company’s business, financial condition, and results of operations.
Regulations restricting volatile organic compounds (“VOC”) exist in many states and/or communities which limit demand for certain products. Although citrus oil is considered a VOC, its health, safety, and environmental profile is preferred over other solvents (e.g., BTEX), which is currently creating new market opportunities around the world. Changes in the perception of citrus oils as a preferred VOC, increased consumer activism against hydraulic fracturing or other regulatory or legislative actions by governments could potentially result in materially reduced demand for the Company’s products and services and could adversely affect the Company’s business, financial condition, and results of operations.state income tax purposes.
The Company is subject to complex foreign, federal, state and local environmental, health, and safety laws and regulations, which expose the Company to liabilities that could adversely affect the Company’s business, financial condition, and results of operations.
The Company’s operations are subject to foreign, federal, state, and local laws and regulations related to, among other
things, the protection of natural resources, injury, health and safety considerations, chemical exposure assessment, waste management, and transportation of waste and other hazardous materials. The Company’s operations expose the Companyare exposed to risks of environmental liability that could result in fines, penalties, remediation, property damage, and personal injury liability. In order to remain compliant with laws and regulations, the Company maintains permits, authorizations, registrations, and certificates as required from regulatory authorities. Sanctions for noncompliance with such laws and regulations could include assessment of administrative, civil and criminal penalties, revocation of permits, and issuance of corrective action orders.
The Company could incur substantial costs to ensure compliance with existing and future laws and regulations. Laws protecting the environment have generally become more stringent and are expected to continue to evolve and become more complex and restrictive intoin the future. Failure to comply with applicable laws and regulations could result in material expense associated with future environmental compliance and remediation. The Company’s costs of compliance could also increase if existing laws and regulations are amended or reinterpreted. Such amendments or reinterpretations of existing laws or regulations, or the adoption of new laws or regulations, could curtail exploratory or developmental drilling for, and production of, oil and natural gas which, in turn, could limit demand for the Company’s products and services. Some environmental laws and regulations could also impose joint and strict liability, meaning that the Company could be exposed in certain situations to increased liabilities as a result of the Company’s conduct that was lawful at the time it occurred or conduct of, or conditions caused by, prior operators or other third parties. Remediation expense and other damages arising as a result of such laws and regulations could be substantial and have a material adverse effect on the Company’s financial condition and results of operations.
Material levelsThe Company and the Company’s customers are subject to risks associated with doing business outside of the U.S., including political risk, foreign exchange risk, and other uncertainties.
Less than 10 % of the Company’s revenue for the year ended December 31, 2023 was from customers based outside of the U.S. The Company and its customers are subject to risks inherent in doing business outside of the U.S., including, but not limited to:
•governmental instability;
•corruption;
•war and other international conflicts;
•civil and labor disturbances;
•requirements of local ownership;
•cartel behavior;
•partial or total expropriation or nationalization;
•currency devaluation; and
•foreign laws and policies, each of which can limit the movement of assets or funds or result in the deprivation of contractual rights or appropriation of property without fair compensation.
Collections from international customers could also prove difficult due to inherent uncertainties in foreign law and judicial procedures. The Company could experience significant difficulty with collections or recovery due to the political or judicial climate in foreign countries where Company operations occur or in which the Company’s products are sold.
The Company’s international operations must be compliant with the Foreign Corrupt Practices Act and other applicable U.S. laws. The Company could become liable under these laws for actions taken by employees. Compliance with international laws and regulations could become more complex and expensive thereby creating increased risk as the Company’s international business portfolio grows. Further, the U.S. periodically enacts laws and imposes regulations prohibiting or restricting trade with certain nations. The current sanctions imposed on trade with Russia does not currently impact because the Company does not have any activity within that region. The U.S. government could also change these laws or enact new laws that could restrict or prohibit the Company from doing business in identified foreign countries. The Company conducts, and will continue to

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conduct, business in currencies other than the U.S. dollar. Historically, the Company has not hedged against foreign currency fluctuations. Accordingly, the Company’s profitability could be affected by fluctuations in foreign exchange rates.
The Company has no control over and can provide no assurances that future laws and regulations will not materially impact the Company’s ability to conduct international business.
Regulatory pressures, environmental activism, and legislation could result in reduced demand for the Company’s products and services, increase the Company’s costs, and adversely affect the Company’s business, financial condition and results of operations.
Regulations restricting volatile organic compounds (“VOC”) exist in many states and/or communities which limit demand for certain products. Although citrus oil is considered a VOC, its health, safety, and environmental profile is preferred over other solvents (e.g., benzene, toluene, ethylbenzene and xylene), which is currently creating new market opportunities around the world. Changes in the perception of citrus oils as a preferred VOC, increased consumer activism against hydraulic fracturing or other regulatory or legislative actions by governments could potentially result in materially reduced demand for the Company’s products and services and could adversely affect the Company’s business, financial condition, and results of operations.
Perceptions and related usage of chemistry solutions that are currently considered safe and acceptable, within specified parameters, may be subject to change in future periods as research and testing of environmental impacts mature.
Changes in laws and regulations relating to hydraulic fracturing may have a negative effect on the Company’s operations.
The majority of the Company’s revenue in its CT segment is derived from customers engaged in hydraulic fracturing services, a process that creates fractures extending from the well bore through the rock formation to enable natural gas or oil to flow more easily through the rock pores to a production well.services. Some states have adopted regulations which require operators to publicly disclose certain non-proprietary information. These regulations could require the reporting and public disclosure of the Company’s proprietary chemistry formulas. The adoption of any future federal or state laws or local requirements, or the implementation of regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process, could increase the difficulty of oil and natural gas well production activity and could have an adverse effect on the Company’s future results of operations.
RegulationClimate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require significant operational changes and expenditures, reduce demand for the Company’s products and services and adversely affect the Company’s business, financial condition, results of operations, stock price or access to capital markets.
Climate change, environmental, social and governance (“ESG”) initiatives and sustainability are a growing global movement. Continuing political and social attention to these issues has resulted in both existing and pending international agreements and national, regional and local legislation, regulatory measures, reporting obligations and policy changes. Also, there is increasing societal pressure in some of the areas where the Company operates, to limit greenhouse gas emissions as well as other global initiatives. These agreements and measures, including the Paris Climate Accord, may require, or could result in future legislation, regulatory measures or policy changes that would require, significant equipment modifications, operational changes, taxes, or purchases of emission credits to reduce emission of greenhouse gases and/from the Company’s operations or climate changethose of our customers, which may result in substantial capital expenditures and compliance, operating, maintenance and remediation costs. As a result of heightened public awareness and attention to these issues as well as continued political and regulatory initiatives to reduce the reliance upon oil and natural gas, demand for hydrocarbons may be reduced, which could have a negativean adverse effect on the Company’s business, financial condition, and results of operations. The imposition and enforcement of stringent greenhouse gas emissions reduction requirements could severely and adversely impact onthe oil and natural gas industry and therefore significantly reduce the value of the Company’s business.
Certain scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases,” which include carbon dioxide, methane,financial institutions, institutional investors and other volatile
sources of capital have begun to limit or eliminate their investment in financing of conventional energy-related activities due to concerns about climate change, which could make it more difficult for our customers and for the Company to finance our respective businesses. Increasing attention to climate change, ESG and sustainability has resulted in governmental investigations, and public and private litigation, which could increase the Company’s costs or otherwise adversely affect our business or results of operations.

organic compounds,In addition, some organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings may be contributorylead to increased negative investor sentiment toward the Company and our industry and to the warming effectdiversion of the Earth’s atmosphere andinvestment to other climatic changes. In response to such studies, the issue of climate change and the effect of greenhouse gas emissions, in particular emissions from fossil fuels, is attracting increasing worldwide attention. For example, the Paris Agreement was signed in 2016, which sets forth a global framework to address climate change. However, in June 2017, the Trump Administration announced plans to withdraw from the Paris Agreement. Legislation and regulatory initiatives at the federal, regional, state, and local level have been considered and in some cases adopted in an effort to reduce greenhouse gases. Some states have individuallycompanies or in regional cooperation imposed restrictions on greenhouse gas emissions under various policies and approaches, including establishing a cap on emissions, requiring efficiency measures, or providing incentives for pollution reduction, use of renewable energy sources, or use of replacement fuels with lower carbon content.
Existing or future laws, regulations, treaties, or international agreements related to greenhouse gases, climate change, and indoor air quality, including energy conservation or alternative energy incentives, could have a negative impact on the Company’s operations, if regulations resulted in a reduction in worldwide demand for oil, natural gas, and citrus oils. Other results could be increased compliance costs and additional operating restrictions, each ofindustries, which could have a negative impact on the price of the Company’s operations.securities and our access to and cost of capital.
Changes in regulatory compliance obligations of critical suppliers may adversely impact our operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), signed into law on July 21, 2010, includes Section 1502, which required the Securities and Exchange Commission to adopt additional disclosure requirements related to certain minerals sourced from the Democratic Republic of Congo and surrounding countries,Any or “conflict minerals,” for which such conflict minerals are necessary to the functionality of a product manufactured, or contracted to be manufactured, by an SEC-reporting company. The metals covered by these rules include tin, tantalum, tungsten and gold. The Company and Company suppliers use someall of these materials in their production processes.
In 2014, the Company established management systemsESG and processes and completed due diligence in compliance with the requirements of Section 1502. Future requirements for conducting Conflict Minerals due diligencesustainability initiatives may result in significant increased costs to the Company. Furthermore, failure of key suppliers to provide evidence of conflict free materials could impact the Company’s ability to acquire key raw materials and/or result in higher costsoperational changes and expenditures, reduced demand for those raw materials.
The Company and the Company’s customers are subject to risks associated with doing business outside of the U.S., including political risk, foreign exchange risk, and other uncertainties.
Revenue from the sale of products to customers outside the U.S. has been steadily increasing. The Company and its customers are subject to risks inherent in doing business outside of the U.S., including, but not limited to:
governmental instability;
corruption;
war and other international conflicts;
civil and labor disturbances;
requirements of local ownership;
cartel behavior;
partial or total expropriation or nationalization;
currency devaluation; and
foreign laws and policies, each of which can limit the movement of assets or funds or result in the deprivation of contractual rights or appropriation of property without fair compensation.
Collections from international customers and agents could also prove difficult due to inherent uncertainties in foreign law and judicial procedures. The Company could experience significant difficulty with collections or recovery due to the political or judicial climate in foreign countries where Company operations occur or in which the Company’s products are used.and services, and could materially adversely affect the Company’s business, financial condition, results of operations, stock price or access to capital markets.

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The Company’s internationalpersistence and/or emergence of new pandemic threats can significantly reduce demand for our services and adversely impact our financial condition, results of operations must be compliant with the Foreign Corrupt Practices Act (the “FCPA”) and other applicable U.S. laws. The Company could become liable under these laws for actionscash flows.
Actions taken by employees or agents. Compliance withbusinesses and governments in efforts to mitigate pandemic threats have the potential to negatively impact international laws and regulations could become more complex and expensive thereby creating increased risk as the Company’s international business portfolio grows. Further, the U.S. periodically enacts laws and imposes regulations prohibiting or restricting trade with certain nations. The U.S. government could also change these laws or enact new laws that could restrict or prohibit the Company from doing business in identified foreign countries. The Company conducts, and will continue to conduct, business in currencies other than the U.S. dollar. Historically, the Company has not hedged against foreign currency fluctuations. Accordingly, the Company’s profitability could be affected by fluctuations in foreign exchange rates.
The Company has no control over andeconomic activity for an indeterminable duration. These effects can provide no assurances that future laws and regulations will not materiallydirectly impact the Company’s ability to conduct international business.
The Company’s tax returns are subject to audit by tax authorities. Taxing authorities may make claimsdemand for back taxes, interest,oil and penalties.
The Company is subject to income, property, excise, employment, and other taxes in the U.S. and a variety of other jurisdictions around the world. Tax rules and regulations in the U.S. and around the world are complex and subject to interpretation. From time to time, taxing authorities conduct audits of the Company’s tax filings and may make claims for

increased taxes and, in some cases, assess interest and penalties. The assessments for back taxes, interest, and penalties could be significant. If the Company is unsuccessful in contesting these claims, the resulting payments could result in a drain on the Company’s capital resources and liquidity.
Recently enacted U.S. tax legislation,natural gas, as well as future U.S. tax legislation, may adversely affect our business, results of operations,oil and gas related services and products. Furthermore, pandemic conditions can create disruptions in raw materials, logistics, and access to other critical resources such as human capital and financial condition and cash flow.
Comprehensive tax reform legislation enacted in December 2017, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), makes significant changes to U.S. federal income tax laws. The Tax Act, among other things, reduces the corporate income tax rate to 21%, partially limits the deductibility of business interest expense and net operating losses, imposes a one-time tax on unrepatriated earnings from certain foreign subsidiaries, taxes offshore earnings at reduced rates regardless of whether they are repatriated and allows the immediate deduction of certain new investments instead of deductions for depreciation expense over time. Although we have estimated the impact of the newly enacted tax legislation by incorporating assumptions based upon our current interpretation and analysis to date, the Tax Act is complex and far-reaching, and we have not completed our analysis of the actual impact of its enactment on us. There may be other material adverse effects resulting from the Tax Act that we have not identified and that could have an adverse effect on our business, results of operations, financial condition and cash flow.markets.
Risks Related to the Company’s IndustriesIndustry
General economic declines (recessions),or recessions, limits to credit availability, and industry specific factors could have an adverse effect on energy industry activity demand for flavor and fragrance products, and the Company’s citrus based solvents resulting in lower demand for the Company’s products and services.
Worldwide economic uncertainty can reduce the availability of liquidity and credit markets to fund the continuation and expansion of industrial business operations worldwide. The shortage of liquidity and credit combined with pressure on worldwide equity markets could continue to impact the worldwide economic climate. Geopolitical unrest around the world may also impact demand for the Company’s products and services both domestically and internationally.
Demand for many of the Company’s energy segment’s products and services is dependent on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices. Demand for the Company’s energy products and services is particularly sensitive to levels of exploration, development,activity in the upstream, downstream and production activity of,midstream sectors, and the corresponding capital spending by oil and natural gas companies, including national oil companies. One indication of drilling and completion activity andWhile capital spending is rig count, whichprograms for domestic producers appear stable, uncertainties around the Company monitors to gauge market conditions. In addition, the EIA and other industry data sources report
completion activity which is utilized by the Company. Any prolonged reductionpotential for weakness in oil and natural gas prices or drop in rig and/or completion count could depress current levels of exploration, development, and production activity. Perceptions of longer-term lower oil and natural gas prices by oil and natural gas companies could similarly reduce or defer major expenditures given the long-term nature of many large-scale development projects. Lower levels of activity could result in a corresponding decline in the demand for the Company’s oil and natural gas wellrelated products and services, which could have a material adverse effect on the Company’s revenue and profitability.
The Company’s consumer and industrial customers would be adversely affected if economic activity decreased dramatically. One of the Company’s primary products, d-limonene, is often used to replace less desirable solvents in numerous consumer and industrial applications and is often more expensive than other materials. As economic activity decreases, consumer and industrial companies not only consume less solvent, they also may relax their environmental preferences and purchase cheaper solvents. Demand for the Company’s flavor and fragrance ingredients could be negatively impacted as a result of a decline in demand for consumer based products containing these ingredients. The Company’s revenue and profitability could be negatively impacted if demand for these products softens because of weak economic activity. Furthermore, the segment is a critical supplier of unique flavor and fragrance additives from citrus for use in major retail beverages and fragrances. Reformulations away from natural citrus ingredients by these major retail branded products would adversely affect the segment.
Events in global credit markets can significantly impact the availability of credit and associated financing costs for many of the Company’s customers. Many of the Company’s upstream customers finance a portion of their drilling and completion programs through third-party lenders or public debt offerings. Lack of available credit or increased costs of borrowing couldmay cause customers to reduce spending on drilling programs, thereby reducing demand and potentially resulting in lower prices for the Company’s products and services. Also, the credit and economic environment could significantly impact the financial condition of some customers over a prolonged period, leading to business disruptions and restricted ability to pay for the Company’s products and services. The Company’s forward-looking statements assume that the Company’s lenders, insurers, and other financial institutions will be able to fulfill their obligations under various credit agreements, insurance policies, and contracts. If any of the Company’s significant lenders, insurers and others are unable to perform under such agreements, and if the Company was unable to find suitable replacements at a reasonable cost, the Company’s results of operations, liquidity, and cash flows could be adversely impacted.
A continuingcontinuous period of depressedswings in oil and natural gas prices could result in further reductions in demand for the

Company’s products and services and adversely affect the Company’s business, financial condition, and results of operations.
The markets for the Company’s products, especially oil and natural gas markets, have historically been volatile. Such volatility in oil and natural gas prices, or the perception by the Company’s customers of unpredictability in oil and natural gas prices, could adversely affect spending levels. The oil and natural gas markets may be volatile in the future. The demand for the Company’s products and services is, in large part, driven by general levels of exploration and production spending and drilling activity by its customers. Future declines in oil or natural gas prices could adversely affect the Company’s business, financial condition, and results of operations.
New and existing competitors within the Company’s industries could have an adverse effect on results of operations.
The Company presently does not hedge oil and natural gas industry is highly competitive. The Company’s principal competitors include numerous small companies capable of competing effectively in the Company’s markets on a local basis, as well as a number of large companies that possess substantially greater financial and other resources than does the Company. Larger competitors may be able to devote greater resources to developing, promoting, and selling products and services. The Company may also face increased competition due to the entry of new competitors including current suppliers that decide to sell their products and services directly to the Company’s customers. As a result of this competition, the Company could experience lower sales or greater operating costs, which could have an adverse effect on the Company’s margins and results of operations.prices.
The Company’s industry has a high rate of employee turnover. Difficulty attracting or retaining personnel or agents could adversely affect the Company’s business.
The Company operates in an industry that has historically been highly competitive in securing qualified personnel with the required technical skills and experience. The Company’s services require skilled personnel able to perform physically demanding work. Due to industry volatility, the demanding nature of the work, and the need for industry specific knowledge and technical skills, current employees could choose to pursue employment opportunities outside the Company that offer a more desirable work environment and/or higher compensation than is offered by the Company. As a result of these competitive labor conditions, the Company may not be able to find qualified labor, which could limit the Company’s growth. In addition, the cost of attracting and retaining qualified personnel has increased over the past several years due to competitive pressures. In order to attract and retain qualified personnel, the Company may be required to offer increased wages and benefits. If the Company is unable to increase the prices of products and services to compensate for increases in compensation including inflation, or is unable to attract and retain
qualified personnel, operating results could be adversely affected.
Our DA segment may be materially and negatively affected by government regulations and/or facility disruptions.
The demand for our equipment and services offerings in our DA segment could be materially affected by additional regulations on the upstream, midstream, and downstream portions of the oil and gas sectors. Additional regulation on oil and gas

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production, transportation, or processing of hydrocarbons may result in significantly reduced demand for our offerings, either individually or as a result of a decline in the overall oil and gas markets in the United States and abroad. In addition, our products are subject to export control laws and regulations, and changes to those laws and regulations may negatively impact our ability to pursue international opportunities. Disruptions to pipelines and refineries, whether due to regulation, weather, demand, or other factors, may also have a materially adverse effect on our ability to derive revenue from our DA segment. Adjustments to our DA segment’s commercial strategy, with a shift towards subscription revenue and away from equipment sales, and the market’s response to that strategy, may materially and adversely affect revenues in the near term, even if the strategic shift is successful, due to longer payback periods on subscription models.
Severe weather could have an adverse impact on the Company’s business.
The Company’s business could be materially and adversely affected by severe weather conditions. Hurricanes, tropical storms, flash floods, blizzards, cold weather, and other severe weather conditions could result in curtailment of services, damage to equipment and facilities, interruption in transportation of products and materials, and loss of productivity. If the Company’s customers are unable to operate or are required to reduce operations due to severe weather conditions, and as a result curtail purchases of the Company’s products and services, the Company’s business could be adversely affected.
A terrorist attack or armed conflict could harm the Company’s business.
Terrorist activities, anti-terrorist efforts, and other armed conflicts involving the U.S. could adversely affect the U.S. and global economies and could prevent the Company from meeting financial and other obligations. The Company could experience loss of business, delays or defaults in payments from payors, or disruptions of fuel supplies and markets if pipelines, production facilities, processing plants, or refineries are direct targets or indirect casualties of an act of terror or war. Such activities could reduce the overall demand for oil and natural gas which, in turn, could also reduce the demand for the Company’s products and services. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect the Company’s results of operations, impair the ability to raise capital, or otherwise adversely impact the Company’s ability to realize certain business strategies. The armed conflicts in Ukraine and the Middle East could affect regions in which the Company does business directly or indirectly and could harm the Company’s ability to sell its good and services in those regions.
Risks Related to the Company’s Securities
The market price of the Company’s common stock has been and may continue to be volatile.
The market price of the Company’s common stock has historically beenis subject to significant fluctuations. The following factors, among others, could cause the price of the Company’s common stock to fluctuate significantly due to:fluctuate:
•variations in the Company’s quarterly results of operations;
•changes in market valuations of companies inwithin the Company’s industry;
•fluctuations in stock market prices and volume;
•fluctuations in oil and natural gas prices;
•issuances of common stock or other securities in the future;future, including debt or warrants convertible into the Company’s common stock and earnings per share;
•additions or departures of key personnel;
•inability to execute the ProFrac Agreement
•announcements by the Company or the Company’s competitors of new business, acquisitions, or joint ventures; and

•negative statements made by external parties about the Company’s business in public forums.
The stock market has experienced significant price and volume fluctuations in recent years that have affected the price of common stock of companies within many industries including the oil and natural gas industry. The price of the Company’s common stock could fluctuate based upon factors that have little to do with the Company’s operational performance, and these fluctuations could materially reduce the Company’s stock price. The Company could be a defendant in a legal case related to a significant loss of value for the shareholders. This could be expensive and divert management’s attention and Company resources, as well as have an adverse effect on the Company’s business, operating results, cash flows, financial condition or securities.
The Company’s relationship with ProFrac Services, LLC and resultscertain of operations.its affiliates may create a conflict of interest.
The Company derived 65% and 60% of its revenue for the years ended December 31, 2023 and 2022, respectively, from ProFrac Services LLC. In addition to being the Company’s largest customer, certain affiliates of ProFrac Services LLC, entered into various convertible debt transactions with the Company during 2022, which were subsequently converted into shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock in 2023 (see Note 9, “Debt and Convertible Notes Payable” and Note 17, “Related Party Transactions,” in Part II, Item 8 - “Financial Statements and

17

Supplementary Data” of this Annual Report). As a result, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s common stock as of December 31, 2023 making them the Company’s largest shareholder. In addition, ProFrac Holdings, LLC also has the right to elect four out of seven Board members and currently consolidates Flotek in their financial results. Pursuant to this right, Matt Wilks was nominated and elected to serve on the Board at the Company’s 2022 annual meeting of shareholders and Evan Farber was appointed to the Board on October 11, 2022. As a result of the operational and financial relationship with ProFrac Services LLC and its affiliates, as both the largest customer and a majority shareholder, certain conflicts of interest may occur.
An active market for the Company’s common stock may not continue to exist or may not continue to exist at current trading levels.
Trading volume for the Company’s common stock historically has been very volatile when compared to companies with larger market capitalizations.capitalization. The Company cannot presume that an active trading market for the Company’s common stock will continue or be sustained. Sales of a significant number of shares of the Company’s common stock in the public market could lower the market price of the Company’s stock.
If the Company cannot meet the New York Stock Exchange (“NYSE”) continued listing requirements, the NYSE may delist the Company’s common stock.
The Company’s common stock is currently listed on the NYSE. In the future, if the Company has no plansis not able to pay dividends onmeet the continued listing requirements of the NYSE, the Company’s common stock may be delisted. If the Company is unable to satisfy the NYSE criteria for continued listing, its common stock would be subject to delisting. A delisting of its common stock could negatively impact the Company by, among other things, reducing the liquidity and therefore,market price of its common stock; reducing the number of investors will havewilling to look to stock appreciation for return on investments.
The Company does not anticipate paying any cash dividends onhold or acquire the Company’s common stock, withinwhich could negatively impact its ability to raise equity financing; decreasing the foreseeableamount of news and analyst coverage of the Company; and limiting the Company’s ability to issue additional securities or obtain additional financing in the future. In addition, delisting from the NYSE might negatively impact the Company’s reputation and, as a consequence, its business, operating results, cash flows, financial condition or securities.
Future issuance of additional shares of common stock could cause dilution of ownership interests and adversely affect the Company’s common stock price.
The Company is currently intendsauthorized to retainissue up to 240,000,000 shares of common stock. The Company may, in the future, earningsissue previously authorized and unissued shares of common stock, which would result in the dilution of current stockholders’ ownership interests. Additional shares are subject to fundissuance through unexercised warrants, equity compensation plans or through the development and growthexercise of currently outstanding equity awards. The potential issuance of additional shares of common stock may create downward pressure on the trading price of the Company’s common stock. The Company may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in order to raise capital or effectuate other business and to meet current debt obligations. Any paymentpurposes. Future sales of future dividends will be atsubstantial amounts of common stock, or the discretionperception that sales could occur, could have an adverse effect on the price of the Company’s common stock.
The Company may issue a substantial amount of securities in connection with future acquisitions, and the sale of those securities could adversely affect the trading price of our common stock or other securities.
As part of our growth strategy, we may issue additional securities, or securities that have rights, preferences, and privileges senior to our other securities. We may file future shelf registration statements with the SEC that we may use to sell securities from time to time in connection with acquisitions. To the extent that we are able to grow through acquisitions and are able to pay for such acquisitions with shares of our common stock or other securities, the number of outstanding shares of common stock or other securities that will be eligible for sale in the future is likely to increase substantially. Persons receiving shares of our common stock or other securities in connection with these acquisitions may be more likely to sell large quantities of their common stock or other securities, which may influence the price of our common stock or other securities. In addition, the potential issuance of additional shares of common stock or other securities in connection with anticipated acquisitions could lessen demand for our common stock or other securities and result in a lower price than would otherwise be obtained.
The Company may issue shares of preferred stock or debt securities with greater rights than the Company’s common stock.
Subject to the rules of the NYSE, the Company’s certificate of incorporation authorizes the board of directors to issue one or more additional series of preferred stock and will depend, among other things, onto set the Company’s earnings, financial condition, capital requirements, levelterms of indebtedness, statutory and contractual restrictions applyingthe issuance without seeking approval from holders of common stock. Currently, there are 100,000 preferred shares authorized, with no shares currently outstanding. Any preferred stock that is issued may rank senior to the paymentcommon stock in terms of dividends, priority and other considerations deemed relevant by the board of directors. Additionally, the Company’s current credit facility restricts the payment of dividends without the prior written consent of the lenders. Investors must rely on salesliquidation premiums, and may have greater voting rights than holders of common stock held after price appreciation, which may never occur, in order to realize a return on their investment.stock.

18

Certain anti-takeover provisions of the Company’s charter documentscertificate of incorporation and applicable Delaware law could discourage or prevent others from acquiring the Company, which may adversely affect the market price of the Company’s common stock.
The Company’s certificate of incorporation and bylaws contain provisions that:that, among other things:
•permit the Company to issue, without stockholder approval, up to 100,000 shares of preferred stock, in
one or more series and, with respect to each series, to fix the designation, powers, preferences, and rights of the shares of the series;
•prohibit stockholders from calling special meetings;
•limit the ability of stockholders to act by written consent;
•prohibit cumulative voting; and
•require advance notice for stockholder proposals and nominations for election to the board of directors to be acted upon at meetings of stockholders.
In addition, Section 203 of the Delaware General Corporation Law limits business combinations with owners of more than 15% of the Company’s voting stock without the approval of the board of directors. Aforementioned provisions and other similar provisions make it more difficult for a third party to acquire the Company exclusive of negotiation. The Company’s board of directors could choose not to negotiate with an acquirer deemed not beneficial to or synergistic with the Company’s strategic outlook. If an acquirer were discouraged from offering to acquire the Company or prevented from successfully completing a hostile acquisition by these anti-takeover measures, stockholders could lose the opportunity to sell their shares at a favorable price.
Future issuanceThe Company has no plans to pay dividends on the Company’s common stock, and, therefore, investors will have to look to stock appreciation for return on investments.
The Company does not anticipate paying any cash dividends on the Company’s common stock within the foreseeable future. Any payment of additional sharesfuture dividends will be at the discretion of the Company’s board of directors and will depend, among other things, on the Company’s earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends, and other considerations deemed relevant by the board of directors. Investors must rely on sales of common stock held after price appreciation, which may never occur, in order to realize a return on their investment. The lack of plans for dividends may make the common stock of the Company an unattractive investment for investors who are seeking dividends.
We identified a material weakness in our internal control over financial reporting in 2022, which has been remediated as of December 31, 2023. If we experience material weaknesses or other deficiencies in the future, or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately or timely report our financial results, which could cause dilutionresult in loss of ownership interestsinvestor confidence and adversely impact our stock price.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act and other applicable securities rules and regulations. In particular, we are subject to reporting obligations under Section 404 of the Sarbanes-Oxley Act that require us to include a management report on our internal control over financial reporting in our Annual Report, which contains management’s assessment of the effectiveness of our internal control over financial reporting.
Internal controls must be evaluated continuously and be properly designed and executed by a sufficient level of properly trained staff to maintain adequate internal control over financial reporting.As disclosed in Part II, Item 9A, during the fourth quarter of 2022, management identified a material weakness in the design and operation of internal controls related to accounting for leases, prepaid assets and related-party revenues.During the year ended December 31, 2023, we implemented measures to improve our internal control over financial reporting to remediate this material weakness. Such measures included ensuring sufficient and appropriate resources in our finance and accounting department, enhancing required training specific to internal control over financial reporting and revenue recognition and other measures to enhance our risk control assessment process and communication processes. After testing the design, implementation and operating effectiveness of the enhanced controls, management concluded that the material weakness was remediated as of December 31, 2023.
Our ability to comply with the annual internal control report requirements will depend on the continual effectiveness of our financial reporting controls across our company. We expect these systems and controls to involve significant expenditures and to become more complex as our business grows. To effectively manage this complexity, we will continue to monitor the execution of our controls to ensure their effectiveness and make enhancements when and where necessary. Our inability to successfully avoid or remediate any future material weaknesses or other deficiencies in our internal control over financial reporting or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations or

19

result in material misstatements in our financial statements. These events could limit our liquidity and access to capital markets, adversely affect our business and investor confidence in our financial statements, and adversely impact our stock price.
General Risk Factors
If the Company loses the services of key members of management, the Company may not be able to manage operations and implement growth strategies.
The Company depends on the continued service of its Chief Executive Officer and Chief Financial Officer and other key members of the executive management team, who possess significant expertise and knowledge of the Company’s stock price.business and industry. The Company has entered into employment agreements with certain of these key members. Any loss or interruption of the services of key members of the Company’s management could significantly reduce the Company’s ability to manage operations effectively and implement strategic business initiatives.
The Company’s tax returns are subject to audit by tax authorities. Taxing authorities may make claims for back taxes, interest and penalties. Changes in U.S. tax legislation may adversely affect our business, results of operations, financial condition and cash flows.
The Company is currently authorizedsubject to issue up to 80,000,000 shares of common stock. The Company may,income, property, excise, employment, and other taxes in the future, issue previously authorizedU.S. and unissued sharesa variety of common stock, which would resultother jurisdictions around the world. Tax rules and regulations in the dilution of current stockholders ownership interests. Additional sharesU.S. and around the world are complex and subject to issuance through various equity compensation plans or through the exercise of currently outstanding options. The potential issuance of additional shares of common stock may create downward pressure on the trading priceinterpretation. From time to time, taxing authorities conduct audits of the Company’s common stock.tax filings and may make claims for increased taxes and, in some cases, assess interest and penalties. The assessments for back taxes, interest, and penalties could be significant. If the Company is unsuccessful in contesting these claims, the resulting payments could result in a drain on the Company’s capital resources and liquidity. In addition, there may also issue additional shares of common stockbe material adverse effects resulting from new or other securitiesfuture U.S. tax reforms that are convertible into or exercisable for common stock in order to raise capital or effectuate other business purposes. Future sales of substantial amounts of common stock, or the perceptionhave not been identified and that sales could occur, could have an adverse effect on the priceCompany’s business, results of the Company’s common stock.
The Company filed a “universal” shelf registration on September 21, 2017, to permit the ability to sell securities to the public in a timely manneroperations, financial condition and which it expects to keep active.
The Company may issue shares of preferred stock or debt securities with greater rights than the Company’s common stock.
Subject to the rules of the NYSE, the Company’s certificate of incorporation authorizes the board of directors to issue one or more additional series of preferred stock and to set the terms of the issuance without seeking approval from holders of

common stock. Currently, there are 100,000 preferred shares authorized, with no shares currently outstanding. Any preferred stock that is issued may rank senior to common stock in terms of dividends, priority and liquidation premiums, and may have greater voting rights than holders of common stock.
The Company’s ability to use net operating loss carryforwards and tax attribute carryforwards to offset future taxable income may be limited as a result of transactions involving the Company’s common stock.
Under section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on the Company’s ability to utilize pre-change net operating losses (“NOLs”), and certain other tax attributes to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). An ownership change could limit the Company’s ability to utilize existing NOLs and tax attribute carryforwards for taxable years including or following an identified “ownership change.” Transactions involving the Company’s common stock, even
those outside the Company’s control, such as purchases or sales by investors, within the testing period could result in an “ownership change.” In addition, under the Tax Act, the ability to carry back NOLs to prior taxable years is generally eliminated, and while NOLs arising in tax years beginning after 2017 may be carried forward indefinitely, these post-2017 NOLs may only reduce 80% of the Company’s taxable income in a tax year. Limitations imposed on the ability to use NOLs and tax credits to offset future taxable income could reduce or eliminate the benefit of the NOLs and tax attributes and could require the Company to pay U.S. federal income taxes in excess of that which would otherwise be required if such limitations were not in effect. Similar rules and limitations may apply for state income tax purposes.cash flows.
Disclaimer of Obligation to Update
Except as required by applicable law or regulation, the Company assumes no obligation (and specifically disclaims any such obligation) to update these risk factors or any other forward-looking statement contained in this Annual Report to reflect actual results, changes in assumptions, or other factors affecting such forward-looking statements.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity
The Company faces a variety of cybersecurity threats that could impact its business, financial condition, results of operations, cash flows or reputation. The Company has established a Cybersecurity Incident Response Team (the “CIRT”) to develop and continually enhance a cyber incident response plan, which guides the Company in identification, containment, eradication and recovery from cybersecurity incidents. The CIRT is charged with the evaluation and implementation of incident response tools, and the implementation of training procedures and exercises to mitigate and remediate potential cybersecurity incidents. The CIRT members are comprised of representatives from management, including the Company’s Chief Executive and Financial Officers, information technology, legal and communications teams and reports to the Risk & Sustainability Committee of the Company’s Board of Directors, whichis tasked with oversight of the general risk and sustainability programs of the Company. The Board has an active role in overseeing management of the Company’s risks and regularly reviews information regarding the Company’s operations, liquidity and associated risks. While each committee of the board is responsible for evaluating certain risks and overseeing the management of those risks, the entire board is regularly informed through committee reports.
The Company uses several real-time systems for detecting potential threats to its systems, devices and user accounts. The Company also engages third-party consultants to evaluate its security and disclose any potential weaknesses within the Company’s systems. The CIRT will review the steps required to minimize the effects of any discovered weaknesses and implement changes as deemed necessary. The Company’s information technology team is tasked with the initial assessment of a suspected incident and evaluates the suspected incident based on the Company’s cybersecurity policy.
In the event of an incident, we intend to follow our cyber incident response plan. Any assessment that is deemed an actionable incident would trigger an alert to the CIRT. The CIRT will further assesses the incident according to a predefined scale (e.g., low, medium, high and critical) and initiate the Company’s incident response plan and communication protocols. The CIRT, in conjunction with the Risk and Sustainability Committee, will assess the materiality of the incident with respect to the rules, regulations and disclosure requirements of the SEC and NYSE. See “Risk Factors” in Item 1A of this Annual Report. As of

20

December 31, 2023, we have not identified any risks from known cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition.
Item 2. Properties.
At December 31, 2017, theThe Company operated 18operates two manufacturing, warehouse and research facilities in 9the U.S. states, one research facilityInternationally, the Company has a warehouse and a sales office in Calgary, Alberta, and sales offices in Tokyo, Japan and Dubai, United Arab Emirates. The Company owns 7two of these facilities and the remainder are leased with lease terms that expire from 20182024 through 2031.2030. In addition, the Company’s corporate office at 5775 N. Sam Houston Parkway W., Suite 400, Houston, Texas is a leased facility located in Houston, Texas.facility. The following table sets forth facility locations:

SegmentOwned/LeasedLocation
Chemistry TechnologiesOwnedMarlow, Oklahoma
SegmentChemistry TechnologiesOwned/LeasedOwnedLocationRaceland, Louisiana
Energy Chemistry
Technologies
OwnedLeasedCarthage, Texas
OwnedDalton, Georgia
OwnedMarlow, Oklahoma
OwnedMonahans, Texas
OwnedWaller, Texas
LeasedCalgary, Alberta
LeasedDenver, Colorado
LeasedDubai, United Arab Emirates
Chemistry TechnologiesLeasedHouston, Texas
Data AnalyticsLeasedAustin, Texas
Corporate HeadquartersLeasedHouston, Texas

SegmentOwned/LeasedLocation
Energy Chemistry
Technologies		LeasedHurst, Texas
LeasedMidland, Texas
LeasedNatoma, Kansas
LeasedPittsburgh, Pennsylvania
LeasedPlano, Texas
LeasedRaceland, Louisiana
Consumer and
Industrial
Chemistry
Technologies		OwnedWinter Haven, Florida
LeasedTokyo, Japan
Discontinued
    Operations
OwnedVernal, Utah
LeasedOdessa, Texas
LeasedPittsburgh, Pennsylvania
LeasedWysox, Pennsylvania
The Company considers owned and leased facilities to be in good condition and suitable for the conduct of business.


Item  3. Legal Proceedings.Proceedings
Class Action Litigation
On March 30, 2017, the U.S. District Court for the Southern District of Texas granted the Company’s motion to dismiss the four consolidated putative securities class action lawsuits that were filed in November 2015, against the Company and certain of its officers. The lawsuits were previously consolidated into a single case, and a consolidated amended complaint had been filed. The consolidated amended complaint asserted that the Company made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. The complaint sought an award of damages in an unspecified amount on behalf of a putative class consisting of persons who purchased the Company’s common stock between October 23, 2014 and November 9, 2015, inclusive. The lead plaintiff appealed the District Court’s decision granting the motion to dismiss.
In January 2016, three derivative lawsuits were filed, two in the District Court of Harris County, Texas (which have since been consolidated into one case), and one in the United States District Court for the Southern District of Texas, on behalf of the Company against certain of its officers and its current
directors. The lawsuits allege violations of law, breaches of fiduciary duty, and unjust enrichment against the defendants.
The Company believes the lawsuits are without merit and intends to vigorously defend against all claims asserted. Discovery has not yet commenced. At this time, the Company is unable to reasonably estimate the outcome of this litigation.
In addition, as previously disclosed, the U.S. Securities and Exchange Commission had opened an inquiry related to similar issues to those raised in the above-described litigation. On August 21, 2017, the Company received a letter from the staff of the SEC stating that the inquiry has been concluded and that the staff does not intend to recommend an enforcement action against the Company.
Other Litigation
The Company is subject to routine litigation and other claims that arise in the normal course of business. ManagementExcept as set forth in Note 12, “Commitments and Contingencies” in Part II, Item 8 — “Financial Statements and Supplementary Data” of this Annual Report, 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.
See Note 12, “Commitments and Contingencies” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report for additional information.
Item  4. Mine Safety Disclosures.Disclosures
Not applicable.



21


PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s common stock began tradingtrades on the NYSE on December 27, 2007 under the stock ticker symbol “FTK.” As of the close of business on January 31, 2018,March 6, 2024, there were 56,756,480 sharesapproximately 7,649 holders of record of our common stock. A substantially greater number of holders of our common stock outstandingare “street name” or beneficial holders, whose shares are held by approximately 14,800 holders of record. The Company’s closing sale price of the common stock on the NYSE on January 31, 2018 was $5.50.banks, brokers and other financial institutions. The Company has never declared
or paid cash dividends on common stock. While the Company regularly assesses the dividend policy, theThe Company has no current plans to declare dividends on its common stock and intends to continue to use earnings and other cashstock. As discussed in the maintenance and expansion of its business. Further, the Company’s credit facility contains provisions that limit its ability to pay cash dividends on its common stock.
The following table sets forth, on a per share basis for the periods indicated, the high and low closing sales prices of common stock as reported by the NYSE. These prices do not include retail mark-ups, mark-downs or commissions.
Fiscal quarter ended: 2017 2016
High Low High Low
March 31, $14.12 $9.50 $11.11 $5.52
June 30, $12.85 $7.95 $13.82 $6.73
September 30, $9.34 $4.65 $16.60 $12.88
December 31, $5.31 $4.28 $14.84 $8.96

Stock Performance Graph
The performance graph below illustrates a five year comparison of cumulative total returns based on an initial investment of $100Note 13 - “Stockholders’ Equity” in the Company’s common stock, as compared with the Russell 2000 Index and the Philadelphia Oil Services Index for the period beginning December 31, 2012 through December 31, 2017. The performance graph assumes $100 invested on December 31, 2012 in each of the Company’s common stock, the Russell 2000 Index, and the Philadelphia Oil Service Index and that all dividends were reinvested.

The following graph should not be deemed to be filed as partPart II, Item 8 of this Annual Report, doesthe Company completed a 1-to-6 Reverse Stock Split on September 25, 2023. Unless otherwise noted, references to the number of shares outstanding and issuances under compensation plans have been retroactively adjusted to give effect to the Reverse Stock Split.
Unregistered Sales of Equity Securities
During the year ended December 31, 2023, the Company did not constitute soliciting material, and shouldhave any sales of securities in transactions that were not be deemed filed or incorporated by reference into any other filing of the Companyregistered under the Securities Act of 1933, as amended, that have not been reported on Form 8-K or the Exchange Act, as amended, except to the extent the Company specifically incorporates the graph by reference.
  
 December 31,
  
 2012 2013 2014 2015 2016 2017
Flotek Industries, Inc. $100
 $165
 $154
 $94
 $77
 $38
Russell 2000 Index $100
 $137
 $142
 $134
 $160
 $181
Philadelphia Oil Service Index (OSX) $100
 $128
 $96
 $72
 $83
 $68

Securities Authorized for Issuance Under Equity Compensation Plans
Equity compensation plan information relating to equity securities authorized for issuance under individual compensation agreements at December 31, 2017 is as follows:
Plan Category 
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights(1)
 
Weighted-Average Exercise
Price of Outstanding
Options, Warrants and Rights(2)
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column(a))
  
 (a) (b) (c)
Equity compensation plans approved by security holders 971,589
 $—
 303,248
Equity compensation plans not approved by security holders —
 $—
 —
Total 971,589
 $—
 303,248
(1)Includes shares for outstanding stock options (0 shares), restricted stock awards (246,258 shares), and restricted stock unit share equivalents (725,331 shares).
(2)The weighted-average exercise price is for outstanding stock options only and does not include outstanding restricted stock awards or restricted stock unit share equivalents that have no exercise price.
Form 10-Q.
Issuer Purchases of Equity Securities
In November 2012,The Company’s stock compensation plans allow employees to elect to have shares withheld to satisfy their tax liabilities related to non-qualified stock options exercised or restricted stock vested or to pay the Company’s Board of Directors authorized the repurchase of up to $25 millionexercise price of the Company’s common stock. Repurchases may be made in open market or privately negotiated transactions. Through December 31, 2017,options. When this settlement method is elected by the employee, the Company has repurchased $25 million of its common stock under this repurchase program.
In June 2015,repurchases the Company’s Board of Directors authorized the repurchase of up to an additional $50 millionshares withheld upon vesting of the Company’s commonaward stock. Repurchases may be made in open market or privately negotiated transactions. Through December 31, 2017, the Company has repurchased $0.3 million of its common stock under this authorization and $49.7 million may yet be used to purchase shares.
Repurchases of the Company’s equity securities during the three months ended December 31, 20172023, that the Company made or were made on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act are as follows:
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share
October 1, 2023 to October 31, 2023— $— 
November 1, 2023 to November 30, 2023124 $4.08 
December 1, 2023 to December 31, 20235,627 $3.83 
Total5,751 
(1)     The Company purchases shares of its common stock (a) to satisfy tax withholding requirements and payment remittance obligations related to period vesting of restricted shares and exercise of non-qualified stock options and (b) to satisfy payments required for common stock upon the exercise of stock options.
  
Total Number
of Shares
Purchased (1)
 
Average Price
Paid per Share
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 
Maximum Dollar Value
of Shares that May Yet be
Purchased Under the
Plans or Programs (2)
October 1 to October 31, 2017 5,003
 $5.28
 —
 $50,733,939
November 1 to November 30, 2017 —
 $—
 —
 $50,733,939
December 1 to December 31, 2017 268,212
 $4.59
 225,000
 $49,704,946
Total 273,215
 $4.60
 225,000
 

(1)The Company purchases shares of its common stock (a) to satisfy tax withholding requirements and payment remittance obligations related to period vesting of restricted shares and exercise of non-qualified stock options, (b) to satisfy payments required for common stock upon the exercise of stock options, and (c) as part of a publicly announced repurchase program on the open market.
(2)A covenant under the Company’s Credit Facility limits the amount that may be used to repurchase the Company’s common stock. At December 31, 2017, this covenant limits additional share repurchases to $9.7 million.



Item 6. Selected Financial Data.[Reserved]
The following table sets forth certain selected historical financial data and should be read in conjunction with Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report. The selected operating and financial position data as of and for each of the five years presented has been derived from audited consolidated Company financial statements, some of which appear elsewhere in this Annual Report. Financial data has been adjusted for discontinued operations, as indicated.
During the fourth quarter of 2016, the Company initiated a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry. During 2017, the Company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of each of the Drilling Technologies
and Production Technologies segments. The Company has classified the assets, liabilities, and results of operations for these two segments as “Discontinued Operations” for all periods presented.
During 2016 and 2015, the Company made one small acquisition each year, and in 2014, the Company made two small acquisitions. Insignificant non-recurring charges were incurred related to these acquisitions. The net income and non-recurring charges related to these acquisitions do not materially affect comparability.
Impairments recognized in 2016 and 2015 relate to the Drilling Technologies and Production Technologies segments and, therefore, are included in discontinued operations.
During 2013, the Company acquired Florida Chemical Company, Inc. for purchase consideration of $106.4 million.
 As of and for the year ended December 31,
 2017 2016 2015 2014 2013
 (in thousands, except per share data)
Operating Data         
Revenue (1)
$317,098
 $262,832
 $269,966
 $319,852
 $243,860
(Loss) income from operations (1)
(2,855) (7,304) 12,278
 58,619
 37,360
          
(Loss) income from continuing operations (1)
$(13,053) $1,907
 $7,158
 $39,622
 $22,376
(Loss) income from discontinued operations, net of tax(14,342) (51,037) (20,620) 13,981
 13,802
Net (loss) income$(27,395) $(49,130) $(13,462) $53,603
 $36,178
          
(1) Amounts exclude impact of discontinued operations.
          
Per Share Data         
Basic earnings (loss) per share:         
Continuing operations$(0.23) $0.03
 $0.13
 $0.73
 $0.44
Discontinued operations, net of tax(0.25) (0.91) (0.38) 0.26
 0.27
Basic earnings (loss) per share$(0.48) $(0.88) $(0.25) $0.99
 $0.71
Diluted earnings (loss) per share:         
Continuing operations$(0.23) $0.03
 $0.13
 $0.71
 $0.42
Discontinued operations, net of tax(0.25) (0.91) (0.37) 0.25
 0.26
Diluted earnings (loss) per share$(0.48) $(0.88) $(0.24) $0.96
 $0.68
          
Financial Position Data         
Total assets$329,888
 $383,215
 $403,090
 $423,276
 $375,581
Convertible senior notes, long-term debt, and capital
     lease obligations, less discount and current portion
—
 7,833
 18,255
 25,398
 35,690
Stockholders’ equity264,900
 287,343
 293,651
 306,003
 249,752

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

TheYou should read the following discussion and analysis should be readof our financial condition and results of operations together with our audited consolidated financial statements and related notes thereto, which have been prepared in conjunctionaccordance with the Consolidated Financial Statements and the related Notes to the Consolidated Financial StatementsU.S. GAAP, included elsewhere in this Annual Report. The followingSome of the information containscontained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements which arewithin the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. As a result of many risks and uncertainties. Should one or moreuncertainties, including those factors set forth in Item 1A -Risk Factors of these risks or uncertainties materialize,this Annual Report, our actual results could differ materially from those expressedthe results described in or implied by the forward-looking statements. Seestatements contained in the following discussion and analysis. For more information, see “Forward-Looking Statements” atStatements.” These forward-looking statements are made as of the beginningdate of this Annual Report.report, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by applicable law. All dollar amounts stated herein are in U.S. dollars unless specified otherwise.
Basis
Executive Summary
Flotek creates unique solutions to reduce the environmental impact of Presentationenergy on air, water, land and people. A technology-driven, specialty green chemistry and data technology company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company serves specialty chemistry needs for both domestic and international energy markets.

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During the fourth quarter of 2016,2022 the Company classifiedentered into the Drilling TechnologiesProFrac Agreement, (see Note 9, “Debt and Production Technologies segments as held for sale based on management’s intention to sell these businesses. The Company’s historical financial statements have been revised to present the operating results of the Drilling TechnologiesConvertible Notes Payable” and Production Technologies segments as discontinued operations. The results of operations of Drilling Technologies and Production Technologies are presented as “Loss from discontinued operations”Note 17, “Related Party Transactions”) which has resulted in the statement of operations and the related cash flows of these segments has been reclassified to discontinued operations for all periods presented. The assets and liabilities of the Drilling Technologies and Production Technologies segments have been reclassified to “Assets held for sale” and “Liabilities held for sale”, respectively,a significant increase in the consolidated balance sheet for all periods presented. During 2017, the Company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of these segments.
Results of operations of the Drilling Technologies and Production Technologies segmentsrevenue for the years ended December 31, 20162023 and 2015 are discussed below.2022.
Executive SummaryCompany Overview
Flotek is a global, diversified, technology-driven companyChemistry Technologies
We believe that developsthe Company’s CT segment provides sustainable, optimized chemistry solutions that maximize our customers’ value by improving return on invested capital, lowering operational costs, and supplies chemistries and services to the oil and gas industries, and high value compounds to companies that make food and beverages, cleaning products, cosmetics, and other products that are sold in consumer and industrial markets. Flotek operates in over 20 domestic and international markets.
providing tangible environmental benefits. The Company’s oilfield business includesproprietary green chemistries, specialty chemistries, logistics, and logistics whichtechnology services enable its customers in pursuingto pursue improved efficiencies inand performance throughout the drillinglife cycle of its desired chemical applications program. The Company’s CT segment designs, develops, manufactures, packages, distributes and completionmarkets optimized chemistry solutions that accelerate existing sustainability practices to reduce the environmental impact of their wells. energy on the air, water, land and people.
Customers of the CT segment include majorthose of energy related markets, such as our related party ProFrac Services, LLC, as well as industrial applications. Major integrated oil and gas (“O&G”) companies, oilfield services companies, independent O&G companies, pressure-pumping serviceoil and gas companies, national and state-owned oil companies, geothermal energy companies, solar energy companies and international supply chain management companies. advanced alternative energy companies benefit from our best-in-class technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices.
Data Analytics
The Company also produces non-energy-related citrusDA 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 properties are delivered simultaneously on their refined fuels, natural gas liquids (“NGLs”), natural gas, crude oil, and relatedcondensates using the industry’s only field-deployable, in-line optical near-infra-red spectrometer that generates no emissions. The instrument's response is processed with advanced chemometrics modeling, artificial intelligence, and machine learning algorithms to deliver these valuable insights every 15 seconds.
We believe customers using this technology have obtained significant benefits including additional profits by enhancing operations in crude/condensates stabilization, blending operations, reduction of transmix, increasing efficiencies and optimization of gas plants, allowing for the use of lower cost field gas instead of diesel to generate power and protect equipment, and ensuring product quality while reducing giveaways i.e., providing higher value products including (1) highat the lower value compounds used as additives by companiesproducts prices. More efficient operations have the benefit of reducing their carbon footprint e.g., less flaring and reduction in energy expenditure for compression and re-processing. Our customers in North America include the flavors and fragrances markets
and (2) environmentally friendly chemistries for use in numerous industries around the world, including the O&G industry. The Company sources citrus oil domestically and internationally and is onesupermajors, some of the largest processorsmidstream companies and large gas processing plants. We have developed a line of citrus oilVerax™analyzers for deployment internationally which was certified for compliance in the world. Additionally, the Company also provides automated bulk material handling, loading facilities,hazardous locations and blending capabilities.harsh weather conditions.
Continuing OperationsResearch & Innovation
The operations of the Company are categorized into two reportable segments: Energy Chemistry Technologies and Consumer and Industrial Chemistry Technologies.
Energy Chemistry Technologies designs, develops, manufactures, packages, and markets specialty chemistries used in O&G well drilling, cementing, completion, and stimulation. These technologies developed by Flotek’s Research and Innovation team enable customers to pursue improved efficiencies in the drilling and completion of wells.
Consumer and Industrial Chemistry Technologies designs, develops, and manufactures products that are sold to companies in the flavor and fragrance industries andR&I supports both segments through green chemistry formulation, specialty chemical industry. These technologies are used by beverageformulations, EPA regulatory guidance, technical support, basin and food companies, fragrance companies,reservoir studies, data analytics and companies providing household and industrial cleaning products.
Discontinued Operations
new technology projects. The Drilling Technologies and Production Technologiespurpose of R&I is to supply the Company’s segments were sold during 2017 and are classified as discontinued operations.
Drilling Technologies assembled, rented, sold, inspected, and marketed downhole drilling equipment used in energy, mining, and industrial drilling activities.
Production Technologies assembled and marketed production-related equipment, including pumping system components, electric submersible pumps (“ESP”), gas separators, valves,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 natural gasadvances in chemistry performance, detection, optimization and oil production activities.manufacturing.
Market ConditionsProFrac Supply Agreement
On February 2, 2022, the Company entered into the Initial ProFrac Agreement, which was subsequently amended on May 17, 2022 and February 1, 2023 (collectively, the “ProFrac Agreement”).
The Company’s success is sensitive to a number of factors, which include, butProFrac Agreement contains minimum requirements for chemistry purchases. If the minimum volumes are not limitedachieved within the applicable measurement period, ProFrac Services, LLC is required to drillingpay 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 well completion activity, customer demand(ii) the actual purchased volume during the measurement period (“Contract Shortfall Fees”). The current measurement period for its advanced technology products, market pricesContract 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 raw materials, and governmental actions.the year ended December 31, 2023 reflect Contract Shortfall Fees of $20.1 million, of which $10.0 million was collected through March 11, 2024 with the remainder due on or before April 8, 2024.
Drilling and well completion activity levels are influenced by a number of factors, including the number of rigs in operation and the geographical areas of rig activity. Additional factors that influence the level of drilling and well completion activity include:

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Historical, current, and anticipated future O&G prices,
Federal, state, and local governmental actions that may encourage or discourage drilling activity,
Customers’ strategies relative to capital funds allocations,
Weather conditions, and
Technological changes to drilling and completion methods and economics.
Historical North American drilling activity is reflected in “TABLE A” below.
Customers’ demand for advanced technology products and services provided by the Company are dependent on their recognition of the value of:
Chemistries that improve the economics of their O&G operations,
Chemistries that meet the need of consumer product markets, and
Chemistries that are economically viable, socially responsible, and ecologically sound.
Market prices for commodities, including citrus oils and guar, can be influenced by:
Historical, current, and anticipated future production levels of the global citrus (primarily orange) and guar crops,
Weather related risks,
Health and condition of citrus trees and guar plants (e.g., disease and pests), and
International competition and pricing pressures resulting from natural and artificial pricing influences.
Governmental actions may restrict the future use of hazardous chemicals, including, but not limited to, the following industrial applications:
O&G drilling and completion operations,
O&G production operations, and
Non-O&G industrial solvents.
TABLE A2017 2016 2015 2017 vs. 2016 % Change 2016 vs. 2015 % Change
Average North American Active Drilling Rigs         
United States876
 509
 978
 72.1% (48.0)%
Canada206
 130
 192
 58.5% (32.3)%
Total1,082
 639
 1,170
 69.3% (45.4)%
Average U.S. Active Drilling Rigs by Type         
Vertical70
 60
 139
 16.7% (56.8)%
Horizontal736
 400
 744
 84.0% (46.2)%
Directional70
 49
 95
 42.9% (48.4)%
Total876
 509
 978
 72.1% (48.0)%
Average North American Drilling Rigs by Product         
Oil812
 471
 835
 72.4% (43.6)%
Natural Gas270
 168
 335
 60.7% (49.9)%
Total1,082
 639
 1,170
 69.3% (45.4)%
Source: Rig counts are per Baker Hughes (www.bakerhughes.com); Rig counts are the annual average of the reported weekly rig count activity.

Source: Rig counts are per Baker Hughes (www.bakerhughes.com); Rig counts are the annual average of the reported weekly rig count activity.
Completions are per the U.S. Energy Information Administration (https://www.eia.gov/petroleum/drilling/) as of January 16, 2018.
Average U.S. rig activity increased by 72.1% in 2017 compared to 2016, and decreased 48.0% from 2015 to 2016.
According to data collected by the U.S. Energy Information Administration (“EIA”) as reported on January 16, 2018, completions in the seven most prolific areas in the lower 48 states increased 39.9% in 2017 compared to 2016 and decreased 38.1% from 2015 to 2016.
Outlook for 2018
After a continuous decline in U.S. drilling rig activity beginning in mid-2014, the market began to gradually recover in the second quarter of 2016. Although a continuing recovery appears to be underway, the level of drilling and completion activity remains lower than previous levels experienced before the downturn in 2014. Assuming the price for crude oil remains relatively stable and regulatory impediments are limited, the Company expects U.S. oilfield activity to remain in a state of modest recovery.
During 2017, the Company continued to promote the efficacy of its Complex nano-Fluid® (“CnF®”) chemistries. Although quarter to quarter performance may vary, the Company expects its Energy Chemistry Technologies sales to outperform market activity metrics over time by continuing to demonstrate the efficacy of its CnF® chemistries through comparative analysis of wells with and without CnF® chemistries, field validation results conducted by exploration and production (“E&P”) companies, and the continuation of its direct-to-operator sales program known as the Flotek Store®. Whether operators purchase directly from Flotek or continue to purchase from oilfield distribution and service companies, E&P operators are benefiting from increased price transparency and a more direct
relationship with Flotek’s technical expertise and supply chain.
The Company continues to promote its patented and proprietary chemistries through its industry leading research and innovation staff who provide customer responsive product innovation, as well as development of new products which are expected to expand the Company’s future product lines. During the third quarter of 2016, the Company completed its new Global Research & Innovation Center in Houston. This state-of-the-art facility permits the development of next-generation innovative energy chemistries, as well as expanded collaboration between clients, leaders from academia, and Company scientists. These collaborative opportunities are an important and distinguishing capability within the industry.
The outlook for the Company’s consumer and industrial chemistries will be driven by the availability and demand for citrus oils, industrial solvents, and flavor and fragrance ingredients. Although current inventory and crop expectations are sufficient to meet the Company’s needs to supply its flavor and fragrance business, as well as both internal and external industrial markets, the market supply of citrus oils has declined in recent years due to the reduction in citrus crops caused by the citrus greening disease, and further impacted by recent hurricane events. This reduced supply has resulted in higher citrus oil prices and increased price volatility. However, the Company expects its strong market position to enable it to maintain a stable supply of citrus oils for internal use and external sales. The Company expects to manage the impact of volatile terpene costs through the development of new product formulations and pricing strategies.

During the fourth quarter 2016, the Company implemented a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry and initiated a process to identify potential buyers for its Drilling Technologies and Production Technologies segments. During 2017, the Company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of the Drilling Technologies and Production Technologies segments. The Company continues to focus on maximizing the profitability of its product and business portfolio, which may result in exiting or entering new product lines or businesses.
Capital expenditures for continuing operations totaled $9.0 million in 2017. The Company expects capital spending to be between $12 million and $16 million in 2018. The Company will remain nimble in its core capital expenditure plans, adjusting as market conditions warrant, and will focus its
capital spending program on positive returns on capital and/or pose strategic benefit for the long term.
Changes to geopolitical, global economic, and industry trends could have an impact, either positive or negative, on the Company’s business. In the event of significant adverse changes to the demand for oil and gas production, the market price for oil and gas, weather patterns, and/or the availability of citrus crops, the market conditions affecting the Company could change rapidly and materially. Should such adverse changes to market conditions occur, management believes the Company has access to adequate liquidity to withstand the impact of such changes while continuing to make strategic capital investments and acquisitions, if opportunities arise. In addition, management believes the Company is well-positioned to take advantage of significant increases in demand for its products should market conditions improve dramatically in the near term.
Consolidated Results of Continuing Operations (in thousands):
Years ended December 31,
 20232022
Revenue
   Revenue from external customers$66,518 $54,344 
   Revenue from related party121,540 81,748 
     Total revenues188,058 136,092 
Cost of sales163,795 142,792 
Cost of sales %87.1 %104.9 %
Gross profit (loss)24,263 (6,700)
Gross profit (loss) %12.9 %(4.9)%
Selling, general and administrative27,873 27,124 
Selling, general and administrative %14.8 %19.9 %
Depreciation734 734 
Research and development2,486 4,438 
Severance costs(46)— 
Gain on disposal of property and equipment(38)(2,916)
Gain on lease termination— (584)
Gain in fair value of contract consideration convertible notes payable(29,969)(75)
Impairment of goodwill— — 
Income (loss) from operations23,223 (35,421)
Operating margin %12.3 %(26.0)%
Paycheck protection plan loan forgiveness4,522 — 
Interest expense and other income, net(2,883)(6,906)
Income (loss) before income taxes24,862 (42,327)
Income tax (expense) benefit(149)22 
Net income (loss)$24,713 $(42,305)
Net income (loss) %13.1 %(31.1)%
 Year ended December 31,
 2017 2016 2015
Revenue$317,098
 $262,832
 $269,966
Cost of revenue (excluding depreciation and amortization)215,129
 170,255
 172,033
Cost of revenue (excluding depreciation and amortization) %67.8 % 64.8 % 63.7%
Corporate general and administrative costs41,492
 43,745
 38,623
Corporate general and administrative costs %13.1 % 16.6 % 14.3%
Segment selling and administrative costs37,236
 36,405
 31,653
Segment selling and administrative costs %11.7 % 13.9 % 11.7%
Depreciation and amortization12,159
 10,429
 8,735
Research and development costs13,645
 9,320
 6,657
Loss (gain) on disposal of long-lived assets292
 (18) (13)
(Loss) income from operations(2,855) (7,304) 12,278
Operating margin %(0.9)% (2.8)% 4.5%
Gain on legal settlement—
 12,730
 —
Interest and other expense, net(1,356) (2,282) (1,644)
(Loss) income before income taxes(4,211) 3,144
 10,634
Income tax expense(8,842) (1,237) (3,476)
(Loss) income from continuing operations(13,053) 1,907
 7,158
Loss from discontinued operations, net of tax(14,342) (51,037) (20,620)
Net loss$(27,395) $(49,130) $(13,462)

Results for 2017 compared to 2016—Consolidated
Consolidated revenue for the year ended December 31, 2017,2023 increased $54.3$52.0 million, or 20.6%38%, from 2016.versus the same period of 2022. The significant increase in revenue during the year ended December 31, 2023 was driven primarily by a full year of activity under the ProFrac Agreement which commenced in the second quarter of 2022. In addition, revenues increased due to a 29.2% increasecontinued increased activity with new and existing domestic customers particularly in Energy Chemistry Technologies revenue driven by the upturn in oilfield market activity. This wasCT segment, partially offset by a slight decrease in Consumer and Industrial Chemistry Technologies revenue primarily related to decreased sales volumes.reduced international activity.
Consolidated cost of revenue (excluding depreciation and amortization)sales for the year ended December 31, 2017,2023 increased $44.9$21.0 million, or 26.4%15%, from 2016,versus the same period of 2022. The increase is primarily driven by the activity with ProFrac Services, LLC and higher freight and equipment rental costs due to the increased volume of business. The reduction in cost of sales as a percentage of revenue increasedin 2023 was the result of revenue from Contract Shortfall Fees, which have no associated costs, and numerous initiatives to 67.8% forreduce the year ended December 31, 2017, from 64.8% in 2016. These increases were primarily attributable to increased inventory,cost of freight and other direct costs associated with manufacturing in the Energy Chemistry Technologies segmentlogistics and increased citrus oil
secure better pricing of materials.

prices in the Consumer and Industrial Chemistry Technologies segment.
CorporateSelling general and administrative (“CGSG&A”) expenses are not directly attributable to products sold or services provided. CGSG&A expenses for the year ended December 31, 2023, increased $0.7 million, or 3%, versus the same period of 2022.
Research and development (“R&D”) costs decreased $2.3$2.0 million, or 5.2%44%, for the year ended December 31, 2017,2023, versus the same period of 2022 driven by lower personnel costs resulting from 2016. As a percentage of revenue, CG&A declined from 16.6% to 13.1% for the year ended December 31, 2017, compared to 2016. The decrease in CG&A costs was primarily due to lower legal expenses and stock compensation expense, partially offset by costs associated with executive retirement.headcount optimization.
Segment selling and administrative (“SS&A”) expenses are not directly attributable to products sold or services provided. SS&A costs increased $0.8 million, or 2.3%, for the year ended December 31, 2017, from 2016. As a percentage of revenue, SS&A declined from 13.9% to 11.7% for the year ended December 31, 2017, compared to 2016. The increase in SS&A costs was primarily due to increased head count in the Energy Chemistry Technologies sales and support staff for new business lines.
Depreciation and amortization expense for the year ended December 31, 2017,Operating income increased by $1.7$58.6 million or 16.6%, from 2016. This increase was primarily attributable to the completion and equipping of the Global Research & Innovation Center in August 2016, along with other improvements to manufacturing facilities.
Research and Innovation (“R&I”) expense for the year ended December 31, 2017, increased $4.3 million, or 46.4%, from 2016. The increase in R&I is primarily attributable to increased personnel for new product development and Flotek’s commitment to remaining responsive to customer needs, increased demand, continued growth and refining of existing product lines, and the development of new chemistries which are expected to expand the Company’s intellectual property portfolio.
Interest and other expense decreased $0.9$23 million for the year ended December 31, 2017,2023, versus an operating loss of $35 million during the same period in 2022. The improvement was driven primarily by an increased gross profit of $31.0 million resulting from increased related party and external customer revenue, including accrued Contract Shortfall Fees, the gain in fair value of the Contract Consideration Convertible Notes Payable of $30.0 million compared to 2016, primarily due to the repaymentsame period of 2022, and a $2.0 million decrease in research and development costs. The improvement was partially offset by an increase in

24

SG&A expenses of $0.7 million and a decrease in gains on the term loan in May 2017, as well as decreasing the outstanding balancesale of the revolving credit facility throughout 2017.assets and lease termination of $2.9 million and $0.6 million, respectively.
The Company recorded anInterest expense and other income tax provision of $8.8 million, yielding an effective tax provision rate of 210.0%, for the year ended December 31, 2017,2023 increased $8.5 million, driven primarily by a $4.5 million gain for the forgiveness of the Flotek PPP loan and a $4.2 million decrease in interest expense related to the maturity of the Contract Consideration Convertible Notes Payable in the first half of 2023.
Results by Segment (in thousands):
Chemistry Technologies Results of Operations:
Years ended December 31,
20232022
Revenue from external customers$59,016 $48,960 
Revenue from related party120,903 81,618 
Income (loss) from operations39,043 (14,729)

CT revenue from external customers for the year ended December 31, 2023, increased $10.1 million, or 21%, compared to 2022 due to increased domestic sales with both new and existing customers. Revenue from related parties, including accrued Contract Shortfall Fees, increased $39.3 million, or 48%, driven by the ProFrac Agreement which commenced in the second quarter of 2022.
Income from operations for the CT segment for the year ended December 31, 2023 increased $53.8 million, compared to 2022. The increase was driven by an income tax provisionincrease in gross profit of $1.2$27.7 million yieldingattributable to increased activity and accrued Contract Shortfall Fees along with an effective tax rate of 39.3%,increase in 2016.
As partthe gain in fair value of the Company’s strategic restructuringContract Consideration Convertible Notes Payable of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry, the Company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of the Drilling Technologies and Production Technologies segments during 2017. The Company recorded a net loss from
discontinued operations of $14.3$30.0 million for the year ended December 31, 2017.
Results for 20162023 compared to 2015—Consolidated$0.1 million for the same period in 2022.
ConsolidatedData Analytics Results of Operations:
Years ended December 31,
20232022
Revenue from external customers$7,502 $5,384 
Revenue from related party637 130 
Loss from operations(53)(2,877)

DA external customer revenue for the year ended December 31, 2016, decreased $7.12023, increased $2.1 million, or 2.6%39%, from 2015.compared to revenue for 2022. The decrease in revenueincrease was due to an 11.9% decline in Energy Chemistry Technologies revenue driven by reduced oilfield market activity. This was partially offsetincreased product sales. Related party revenue increased by a 32.3% increase in Consumer and Industrial Chemistry Technologies revenue primarily related$0.6 million compared to increased citrus terpene prices.2022 relating to services provided to ProFrac Services, LLC outside of the ProFrac Agreement.
Consolidated cost of revenue (excluding depreciation and amortization)Loss from operations for the DA segment for the year ended December 31, 2016,2023 decreased $1.8$2.8 million, or 1.0%98%, from 2015, and, as a percentage of revenue, increased to 64.8% for the year ended December 31, 2016, from 63.7% in 2015. The increase as a percentage of revenue was primarily attributable to increased inventory cost and direct costs associated with manufacturing in the Consumer and Industrial Chemistry Technologies segment, partially offset by higher volumes of products sold in Energy Chemistry Technologies.
Corporate general and administrative (“CG&A”) expenses are not directly attributable to products sold or services provided. CG&A costs as a percentage of revenue rose from 14.3% to 16.6% for the year ended December 31, 2016, compared to 2015, as CG&A costs grew while revenues declined. CG&A costs increased $5.1 million, or 13.3%, for the year ended December 31, 2016, from 2015, primarily due to higher professional and legal fees.
Segment selling and administrative (“SS&A”) expenses are not directly attributable to products sold or services provided. SS&A costs as a percentage of revenue rose from 11.7% to 13.9% for the year ended December 31, 2016, compared to 2015, as SS&A costs grew while revenues declined. SS&A costs increased $4.8 million, or 15.0%,2022. The improvement was primarily due to increased head count in the Energy Chemistry Technologies sales and support staff for new business lines.
Depreciation and amortization expense for the year ended December 31, 2016, increased by $1.7 million, or 19.4%, from 2015. This increase was primarily attributable to the completion and equipping of the Global Research & Innovation Center in August 2016, along with other improvements to manufacturing facilities.
Research and Innovation (“R&I”) expense for the year ended December 31, 2016, increased $2.7 million, or 40.0%, from 2015. The increase in R&I is primarily attributable to Flotek’s commitment to remaining responsive to customer needs, increased demand, continued growth of our existing product lines, and the development of new chemistries which are expected to expand the Company’s intellectual property portfolio.
In December 2016, the Company recognized a gain of $12.7 million from a legal settlement related to disgorgement of potential short-swing trading profits from a stockholder.

Interest and other expense increased $0.6 million for the year ended December 31, 2016, compared to 2015, primarily due to the interest rate increases on the term loan and revolving credit facility effective March 31, 2016, and September 30, 2016, associated with the credit facility amendments.
The Company recorded an income tax provision of $1.2 million, yielding an effective tax provision rate of 39.3%, for the year ended December 31, 2016, compared to an income tax provision of $3.5 million, yielding an effective tax provision rate of 32.7%, in 2015.
The Company implemented a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry. The Company initiated a process to market for sale the Drilling Technologies and Production Technologies segments and has identified potential buyers. The Company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of the Drilling Technologies and Production Technologies segments during 2017. The Company recorded a net loss from discontinued operations of $51.0 million in 2016 for the classification of the Drilling Technologies and Production Technologies segments as held for sale.
Results by Segment
Energy Chemistry Technologies (“ECT”)     
(dollars in thousands)Year ended December 31,
 2017 2016 2015
Revenue$243,106
 $188,233
 $213,592
Income from operations$33,611
 $29,014
 $43,902
Operating margin %13.8% 15.4% 20.6%
Results for 2017 compared to 2016—Energy Chemistry Technologies
ECT revenue for the year ended December 31, 2017, increased $54.9 million, or 29.2%, from 2016, compared to a 39.9% increase in completion activity as measured by the EIA. ECT performed along these market indicators by continuing to promote the benefits of its CnF® chemistries. Revenues increased with the increased customer demand resulting from improved oilfield market conditions.
Income from operations for the ECT segment increased $4.6 million, or 15.8%, for the year ended December 31, 2017, compared to 2016. This increase is primarily attributable to an increase in gross profit, increased activity associated with sales and marketing efforts in pursuit of growth opportunities, and cost reductions. The Company continues its commitment to research and innovation efforts within Energy Chemistry Technologies.
Results for 2016 compared to 2015—Energy Chemistry Technologies
ECT revenue for the year ended December 31, 2016, decreased $25.4 million, or 11.9%, from 2015, compared to a 45.4% decline in market activity as measured by average North American rig count. Flotek’s ECT segment outperformed these market indicators by continuing to aggressively promote the benefits of its CnF® chemistries. Revenues declined due to reduced customer demand resulting from oilfield market conditions.
Income from operations for the Energy Chemistry Technologies segment decreased $14.9 million, or 33.9%, for the year ended December 31, 2016, compared to 2015. This decrease is primarily attributable to the decrease in revenue, increased costs associated with sales and marketing efforts in pursuit of growth opportunities, and increased costs associated with the Company’s continued commitment to its research and innovation efforts within Energy Chemistry Technologies.
Consumer and Industrial Chemistry Technologies (“CICT”)    
(dollars in thousands) Year ended December 31,
  2017 2016 2015
Revenue $73,992
 $74,599
 $56,374
Income from operations $7,465
 $9,664
 $8,742
Operating margin % 10.1% 13.0% 15.5%

Results for 2017 compared to 2016—Consumer and Industrial Chemistry Technologies
CICT revenue for the year ended December 31, 2017, decreased $0.6 million, or 0.8%, from 2016, primarily due to a decline in sales volumes. The high price for citrus oils limited market activity and top line revenue. Citrus greeningdecreased R&D expense and adverse weather reduced citrus crops globally, thereby limiting the Company’s performance in comparison to the growth experienced in 2016personnel costs.
Corporate and 2015.Other Results of Operations:
Income from operations for the CICT segment decreased $2.2 million, or 22.8%, for the year ended December 31, 2017, from 2016, primarily due to higher raw material costs and increased headcount to facilitate growth in the food and beverages market through new research activities and the opening of a sales office in Japan.
Years ended December 31,
20232022
Loss from operations$(15,767)$(17,815)
Results for 2016 compared to 2015—Consumer and Industrial Chemistry Technologies
CICT revenue for the year ended December 31, 2016, increased $18.2 million, or 32.3%, from 2015. This increase is due to higher terpene prices associated with limited availability of citrus oils globally and volume increases in the Flavor and Fragrance product line.
Income from operations for the CICT segment increased $0.9 million, or 10.5%, for the year ended December 31, 2016, from 2015, primarily due to increased sales, partially offset by increased raw material cost and higher operating expenses associated with growth in the segment’s Flavor activities.
Discontinued Operations
During the fourth quarter of 2016, the Company classified the Drilling Technologies and Production Technologies segments as held for sale based on management’s intention to sell these businesses. During 2017, the Company completed the sale or disposal of the assets and transfer or liquidation of liabilities
and obligations of the Drilling Technologies and Production Technologies segments. The Company’s historical financial statements have been revised to present the operating results of the Drilling Technologies and Production Technologies segments as discontinued operations.
Drilling Technologies      
(dollars in thousands) Year ended December 31,
  2017 2016 2015
Revenue $11,534
 $27,627
 $52,112
Loss from operations $(2,646) $(44,522) $(27,340)
Loss from operations - excluding impairment $(2,646) $(8,000) $(7,772)
Operating margin % - excluding impairment (22.9)% (29.0)% (14.9)%
Results for 2017 compared to 2016—Drilling Technologies
On May 22, 2017, the Company completed the sale of substantially all of the assets and transfer of certain specified liabilities and obligations of the Company’s Drilling Technologies segment to National Oilwell Varco, L.P. (“NOV”) for $17.0 million in cash consideration.
On August 16, 2017, the Company completed the sale of substantially all of the remaining assets of the Company’s Drilling Technologies segment to Galleon Mining Tools, Inc. for $1.0 million in cash consideration and a note receivable of $1.0 million due in one year.
Upon completion of these sales, the Company ceased all operations for the Drilling Technologies segment.
Results for 2016 compared to 2015—Drilling Technologies
Drilling Technologies revenue for the year ended December 31, 2016, decreased $24.5 million, or 47.0%, from 2015. The revenue decline was primarily related to the decrease in drilling rig activity and significant pricing pressure during the year. Revenue improved 5.6% for the quarter ended December 31, 2016, compared to the quarter ended September 30, 2016, as market conditions continue to improve.
During the first quarter of 2016, as a result of the sequential decline in segment revenue and expectations for future drilling activity, the Company determined the carrying amount of certain long-lived assets exceeded their respective fair values and that some inventory was either not usable in future operations or the carrying amount exceeded its market value.

As a result, an impairment charge of $36.5 million was recorded to reflect the reduced value of inventory and long-lived assets in the Drilling Technologies segment.
Drilling Technologies lossLoss from operations for the year ended December 31, 2016, increased2023 decreased by $17.2$2.0 million, or 11%, compared to the same period of 2022, due to decreased salaries and benefits from 2015, primarily resulting from first quarter 2016 impairment charges. Loss from operations, excludingreduced headcount, including lower stock compensation costs.
Capital Resources and Liquidity
Overview
The Company’s ongoing capital requirements relate to the impairment, foracquisition and maintenance of equipment and funding of working capital. During 2023, the Company funded working capital requirements with cash on hand and borrowings under the ABL (as defined below) entered into in August 2023.

25

As of December 31, 2023, the Company had unrestricted cash and cash equivalents of $5.9 million, as compared to $12.3 million at December 31, 2022. In addition, at March 11, 2024, the Company had approximately $0.5 million in borrowings outstanding under its ABL, as compared to $7.5 million at December 31, 2023. During the year ended December 31, 2016, increased2023, the Company had operating income of $23.2 million, $11.3 million of cash used in operating activities, $1.0 million of cash used in investing activities and $5.9 million of cash provided by $0.2financing activities.
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 provides up to $10 million from 2015, primarily due to reductions in revenue and pricing pressure that resulted in customer price concessions. These volume decreases were offsetof initial credit availability, which is limited by a 27.5% reduction in sales and administrative cost reductions throughoutborrowing 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. On October 5, 2023, the ABL was amended to increase its maximum borrowing base from $10.0 million to a total of $13.8 million.
As of December 31, 2023, the Company had $7.5 million outstanding under the ABL. During the year including employee related expenses and reduced travel costs.
Production Technologies      
(dollars in thousands) Year ended December 31,
  2017 2016 2015
Revenue $4,002
 $8,292
 $12,281
Loss from operations $(1,357) $(8,814) $(4,111)
Loss from operations - excluding impairment $(1,357) $(4,901) $(3,307)
Operating margin % - excluding impairment (33.9)% (59.1)% (26.9)%
Results for 2017 compared to 2016—Production Technologies
On May 23, 2017,ended December 31, 2023, the Company completedincurred $0.5 million in interest and fees related to the saleABL, which included the annual fee of $0.1 million. 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.
Borrowings under the ABL bear interest at the Wall Street Journal Prime Rate (subject to a floor of 5.50%) plus 2.5% per annum. The interest rate under the ABL was 11% as of December 31, 2023. The ABL contains an annual commitment fee equal to 1.0% of the ABL’s borrowing base. Additionally, the Company will be assessed a non-usage fee of 0.25% per quarter based on the difference between the average daily outstanding balance and the borrowing base limit of the ABL. If the ABL is terminated prior to the end of its 24-month term, the Company is required to pay an early termination fee of 2.50% of the borrowing base limit of the ABL (if terminated with more than 12 months remaining until the maturity date) or 1.50% of the borrowing base limit of the ABL (if terminated with less than 12 months remaining until the maturity date).
The ABL contains customary representations, warranties, covenants and events of default, the occurrence of which would permit the lender to accelerate the payment of any amounts borrowed. The ABL requires the Company to maintain a minimum Tangible Net Worth (as defined in the ABL) of not less than $11 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, 2023.
Sources and Uses of Liquidity
The Company currently funds its operations with cash on hand, availability under the ABL (see Note 9, “Debt and Convertible Notes Payable” in Part II, Item 8 of this Annual Report) 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 transfer of certain specified liabilitiesavailability 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 Company’s Production Technologies segmentoil and gas markets could have a negative impact on our liquidity.
As discussed in Note 17, “Related Party Transactions” in Part II, Item 8 of this Annual Report, 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 Raptor Lift Solutions, LLCpay to the Company, as liquidated damages (“Raptor Lift”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 $2.9Contract 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 consideration.
Upon completionflows from operations that includes the collection of this sale,the Contract Shortfall Fees related to 2023 of $20.1 million, combined with cash on hand and availability under the ABL, the Company ceased allbelieves 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 Production Technologies segment.year ending December 31, 2022, that substantial doubt about the Company’s ability to continue as a going concern existed. As described, the Company
Results for 2016 compared to 2015—Production Technologies

Revenue for26

has concluded that those conditions and events raising the Production Technologies segmentsubstantial doubt no longer exist. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
Cash Flows
Consolidated cash flows by type of activity are noted below (in thousands):
 Years ended December 31,
 20232022
Net cash used in operating activities$(11,297)$(44,632)
Net cash (used in) provided by investing activities(1,014)5,331 
Net cash provided by financing activities5,928 38,267 
Effect of changes in exchange rates on cash and cash equivalents(54)100 
Net change in cash, cash equivalents and restricted cash$(6,437)$(934)
Operating Activities
Net cash used in operating activities was $11.3 million and $44.6 million during the years ended December 31, 2023 and 2022, respectively. Consolidated net income for the year ended December 31, 2016, decreased by $4.02023 was $24.7 million or 32.5%, from 2015,compared to a net loss of $42.3 million for the same period of 2022.
During the year ended December 31, 2023, non-cash adjustments to net income totaled $22.8 million as compared to $12.8 million for the same period of December 31, 2022.
•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 expense 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 decreased salesROU Asset amortization for equipment leases which were added in 2022.
•For the year ended December 31, 2022, non-cash adjustments included paid-in-kind interest on the Convertible Notes Payable and Contract Consideration Convertible Notes Payable of rod pump equipment$6.0 million, amortization of contract assets and older technology ESP equipment.
convertible note issuance costs of $3.4 million and $1.0 million, respectively, and stock compensation expense of $3.3 million.
Sequentially, revenue increased by 5.3%During the year ended December 31, 2023, changes in the fourth quarter 2016,working capital used $13.2 million of cash as compared to third quarter 2016.using $15.2 million for the same period of 2022.
As•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 resultdecrease in inventories of $1.9 million due to reduced ProFrac sales 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 introductionyear ended December 31, 2022, changes in working capital resulted primarily from increases in accounts receivable and inventories of newer$28.7 million and proprietary technology, as well as lower demand for older technologies, the Company evaluated its Production Technologies inventory for impairment leading$7.9 million, respectively, due to the recordingsignificant increase in revenues. Contract assets increased $3.6 million related to transaction fees paid associated with Contract Consideration Notes Payable. This was partially offset by an increase of an impairment chargeaccounts payable of $3.9$25.8 million, attributable to the increase in activity.
Investing Activities
Net cash used by investing activities for inventory in the first quarteryear ended December 31, 2023 was $1.0 million primarily due to system enhancements and capital additions. Net cash provided by investing activities for the year ended December 31, 2022 was $5.3 million primarily related to the sale of 2016.assets.
Loss from operations increased

27

Financing Activities
Net cash provided by $4.7financing activities was $5.9 million for the year ended December 31, 2016,2023, primarily from 2015. Lossnet proceeds from operations, excluding the impairment, increasedABL. Net cash provided was partially offset by $1.6severance payments attributed to former CEO’s forfeited vested stock options, loan origination fees, and payments for shares withheld for taxes.
Net cash provided by financing activities was $38.3 million for the year ended December 31, 2016,2022, primarily from 2015. These increased losses are primarily due to lower revenue volume and lower margins due to pricing pressure. SG&A costs have decreased by 8.8% year over year due to reduced employment costs and decreased travel costs, partially offsetting the impactproceeds of the decreased revenue.
Capital Resources and Liquidity
Overview
The Company’s ongoing capital requirements arise from the Company’s need to service debt, acquire and maintain equipment, fund working capital requirements, and when the opportunities arise, to make strategic acquisitions and repurchase Company stock. During 2017, the Company funded capital requirements primarily with cash on hand and debt financing.
The Company’s primary sourceissuance of debt financing is its $75 million Credit Facility with PNC Bank. This Credit Facility contains provisions for a revolving credit facility secured by substantially allconvertible notes of the Company’s domestic real and personal property, including accounts receivable, inventory, land, buildings, equipment, and other intangible assets. As of December 31, 2017, the Company had $28.0 million in
outstanding borrowings under the revolving debt portion of the Credit Facility. At December 31, 2017, the Company was in compliance with all debt covenants. Significant terms of the Credit Facility are discussed in Note 12 – “Long-Term Debt and Credit Facility” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report.
At December 31, 2017, the Company remained compliant with the continued listing standards of the NYSE.
Cash and cash equivalents totaled $4.6 million at December 31, 2017. The Company generated $17.1 million of cash inflows from continuing operations (net of $3.8 million expended in working capital). Offsetting these cash inflows, the Company used $9.0 million for capital expenditures, $20.4 million for repayments of debt, net of borrowings, $5.2 million

for the repurchase of common stock, and $1.7 million for purchases of treasury stock for tax withholding purposes related to the vesting of restricted stock awards and the exercise of non-qualified stock options.
Liquidity
The Company plans to spend between $12$21.2 million and $16 million for committed and planned capital expenditures in 2018. During 2018, the Company plans to use internally
generated funds and, if necessary, borrowings under the revolving lineprefunded warrants of credit to fund operations and capital expenditures. Any excess cash generated may be used to pay down the level of debt or be retained for future use. The Company will continue to invest capital into what it believes to be attractive economic returning opportunities for its shareholders. This includes the potential for share repurchases as approved by the Board of Directors in June 2015.
Net Debt
Net debt represents total debt less cash and cash equivalents and combines the Company’s indebtedness and the cash and cash equivalents that could be used to repay that debt. Components of net debt are as follows (in thousands):
 December 31, 2017 December 31, 2016
Cash and cash equivalents$4,584
 $4,823
Current portion of long-term debt(27,950) (40,566)
Long-term debt, less current portion—
 (7,833)
Net debt$(23,366) $(43,576)
Cash Flows
Cash flow metrics from the consolidated statements of cash flows are as follows (in thousands):
  
Year ended December 31,
  
2017 2016 2015
Net cash provided by operating activities$17,131
 $2,054
 $25,472
Net cash provided by (used in) investing activities9,740
 (22,281) (17,005)
Net cash (used in) provided by financing activities(27,285) 22,851
 (7,349)
Net cash flows provided by (used in) discontinued operations24
 (6) —
Effect of changes in exchange rates on cash and cash equivalents151
 (3) (176)
Net (decrease) increase in cash and cash equivalents$(239) $2,615
 $942
Operating Activities
During 2017, 2016, and 2015, cash from operating activities totaled $17.1 million, $2.1 million, and $25.5 million, respectively. Consolidated net loss for 2017 totaled $13.1 million, compared to consolidated net income of $1.9 million and $7.2 million for 2016 and 2015, respectively.
Net non-cash contributions to net income in 2017, totaled $26.4 million. Contributory non-cash items consisted primarily of $12.6 million for depreciation and amortization expense, $11.2 million for stock compensation expense, $2.0 million for reduction in incremental tax benefit related to share-based awards, $0.2 million for changes to deferred income taxes, and $0.1 million for provisions related to accounts receivables.
Net non-cash contributions to net income in 2016, totaled $6.3 million. Contributory non-cash items consisted primarily of
$10.9 million for depreciation and amortization expense, $12.1 million for stock compensation expense, $2.5 million for reduction in incremental tax benefit related to share-based awards, and $0.6 million for provisions related to accounts receivables, partially offset by $19.7 million for changes to deferred income taxes.
Net non-cash contributions to net income in 2015, totaled $13.3 million. Contributory non-cash items consisted primarily of $9.1 million for depreciation and amortization expense, $13.1 million for stock compensation expense, and $0.4 million for provisions related to accounts receivables, partially offset by $7.9 million for changes to deferred income taxes and $1.3 million for excess tax benefit related to share-based awards.
During 2017, changes in working capital provided $3.8 million in cash, primarily resulting from decreasing accounts receivables, income taxes receivable, and other current assets

by $21.6 million and increasing accrued liabilities and interest payable by $8.2$19.5 million, partially offset by increasing inventories by $17.3 million and decreasing accounts payable by $8.7 million.
During 2016, changes in working capital used $6.1 million in cash, primarily resulting from increasing accounts receivables, inventories, income taxes receivable, and other current assets by $40.8 million and decreasing income taxes payable by $2.0 million, partially offset by increasing accounts payable and accrued liabilities by $36.6 million.
During 2015, changes in working capital provided $5.0 million in cash, primarily resulting from decreasing accounts receivable and other current assets by $13.8 million and increasing accrued liabilities, income taxes payable, and interest payable by $13.4 million, partially offset by increasing inventories and income taxes receivable by $14.6 million and decreasing accounts payable by $7.7 million.
Investing Activities
Net cash provided by investing activities was $9.7 million during 2017. Cash provided by investing activities primarily included $18.5 million of proceeds received from the sale of the Drilling Technologies and Production Technologies segments and $0.7 million of proceeds received from the sale of fixed assets, partially offset by $9.0 million for capital expenditures and $0.5 million for the purchase of various patents and other intangible assets.
Net cash used in investing activities was $22.3 million during 2016. Cash used in investing activities primarily included $14.0 million for capital expenditures, $7.9 million associated with the purchase of 100% of the stock and interests of IPI, and $0.6 million for the purchase of patents and intangible assets.
Net cash used in investing activities was $17.0 million during 2015. Cash used in investing activities primarily included $16.4 million for capital expenditures and $0.6 million for the purchase of patents and intangible assets.
Financing Activities
Net cash used in financing activities was $27.3 million during 2017, primarily due to using $20.4 million for repayments of debt, net of borrowings, $5.2 million for the repurchase of common stock, $1.7 million for purchases of treasury stock for tax withholding purposes related to the vesting of restricted stock awards and the exercise of non-qualified stock options, and $0.6 million for payments of debt issuance costs. Cash used in financing activities was partially offset by receiving $0.7 million in proceeds from the sale of common stock.
During 2016, net cash generated through financing activities was $22.9 million. Cash generated through financing activities
was primarily due to receiving $30.9 million in proceeds from the sale of common stock, inclusive of $30.1 million, net of issuance costs, from the private placement of 2.5 million common shares on July 27, 2016. Cash generated through financing activities was partially offset by using $2.1 million for repayments of debt, net of borrowings, reductions in tax benefit related to stock-based compensation of $2.5 million, purchases of treasury stock for tax withholding purposes related to the vesting of restricted stock awards and the exercise of non-qualified stock options of $2.4 million, and payments of debt issuance costs of $1.2$2.3 million.
During 2015, net cash used
Critical Accounting Estimates
The preparation of financial statements and related disclosures in financing activities was $7.3 million. Cash used in financing activities was primarily due to $6.3 million for purchases of treasury stock for tax withholding purposes related to the vesting of restricted stock awardsconformity with U.S. generally accepted accounting principles and the exerciseCompany’s discussion and analysis of non-qualified stock options, and $9.7 million for the repurchase of common stock. Cash used in financing activities was partially offset by receiving $6.5 million for borrowings of debt, net of repayments, proceeds from the excess tax benefit related to stock-based compensation of $1.3 million, and proceeds from the sale of common stock of $0.9 million.
Off-Balance Sheet Arrangements
There have been no transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purpose entities” (“SPEs”), established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2017, the Company was not involved in any unconsolidated SPEs.
The Company has not made any guarantees to customers or vendors nor does the Company have any off-balance sheet arrangements or commitments that have, or are reasonably likely to have, a current or future effect on the Company’sits financial condition change in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Contractual Obligations
Cash flows from operations are dependent on a variety of factors, including fluctuations inand operating results accounts receivable collections, inventory management, andrequire the timing of payments for goods and services. Correspondingly, the impact of contractual obligations on the Company’s liquidity and capital resources in future periods is analyzed in conjunction with such factors.
Material contractual obligations consist of repayment of amounts borrowed under the Company’s Credit Facility and payment of operating lease obligations.

Contractual obligations at December 31, 2017 are as follows (in thousands):
 Payments Due by Period
 Total Less than 1 year 1 - 3 years 3 -5 years 
More than
5 years
Borrowings under revolving credit facility (1)
$27,950
 $27,950
 $—
 $—
 $—
Operating lease obligations21,806
 2,734
 4,603
 3,961
 10,508
Total$49,756
 $30,684
 $4,603
 $3,961
 $10,508
(1)The borrowing is classified as current debt. The weighted-average interest rate was 4.48% at December 31, 2017.
Critical Accounting Policies and Estimates
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparation of these statements requires management to make judgments, estimatesassumptions, and assumptionsestimates that affect the amounts of assets and liabilities in the financial statements and revenue and expenses during the reporting period. Significantreported. Our most significant accounting policies are described in Note 2, – “Summary of Significant Accounting Policies”Policies,” in Part II, Item 8 –— “Financial Statements and Supplementary Data”Data,” of this Annual Report. The Company believes the following accounting policiesestimates are critical due to the significant subjective and complex judgments and estimates required when preparing the consolidated financial statements. The Company regularly reviews judgments, assumptions and estimates related to the critical accounting policies.estimates.
BasisContract Assets
The Company’s contract assets represent consideration which was issued in the form of Presentation
Duringconvertible 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 fourth quarterProFrac Agreement in 2022. The contract assets are amortized over the term of 2016, the Company classified the Drilling Technologies and Production Technologies reportable segments’ operations as held for saleProFrac Agreement based on management’s intentionforecasted revenues. As goods are transferred to sell these businesses. The operating resultsProFrac Services, LLC, the amortization is presented as a reduction of these segments have been reported as discontinued operationsthe transaction price included in related party revenue in the consolidated financial statements. Amounts previously reported have been reclassifiedstatements of operations. The contract assets are tested for recoverability on a recurring basis and the Company will recognize an impairment loss to conform to this presentation to allow for meaningful comparison of continuing operations.
Revenue Recognition
Revenue for product sales and services is recognized when allthe extent that the carrying amount of the following criteria have been met: (a) persuasive evidencecontract assets exceeds the amount of an arrangement exists, (b) products are shipped or services renderedconsideration the Company expects to the customer and all significant risks and rewards of ownership have passed to the customer, (c) the price to the customer is fixed and determinable, and (d) collectability is reasonably assured. The Company’s products and services are sold based on a purchase order and/or contract and have fixed or determinable prices. There is typically no right of return or any significant post-delivery obligations. Probability of collection is assessed on a customer-by-customer basis.
Revenue and associated accounts receivablereceive in the Energy Chemistry Technologies and Consumer and Industrial Chemistry Technologies segments are recorded at the agreed price when the aforementioned conditions are met. Generally, a signed proof of obligation is obtained from the customer (delivery ticket or field billfuture for usage). Deposits and other funds received in advance of delivery are deferred until the transfer of ownership is complete.
For certain contracts related to the EOGA division and the Logistics division of the Energy Chemistry Technologies segment, the Company recognizes revenuegoods under the percentage-of-completion method of accounting, measured bycontract less the percentage ofdirect costs incurredthat relate to date proportionate to the total estimated costs of completion. This calculated percentage is applied to the total estimated revenue at completion to calculate revenue earned to date. Contract costs include all direct labor and material costs, as well as indirect costs related to manufacturing and construction operations. General and administrative costs are charged to expense as incurred. Changes in job performance metrics and estimated profitability, includingproviding those arising from contract bonus and penalty provisions and final contract settlements, may periodically result in revisions to revenue and expenses and are recognizedgoods in the period in which such revisions become probable. Knownfuture. Significant or anticipated losses on contracts are recognized when such amounts become probable and estimable.
Sales tax collected from customers is not included in revenue but rather is accrued as a liability for future remittanceunanticipated changes to the respective taxing authorities.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of customers and grants credit based upon historical payment history, financial condition, and industry expectations, as available. Determination of the collectability of amounts due from customers requires the Company to use estimates and make judgments regarding future events and trends, including monitoring customers’ payment history and current credit worthiness, in order to determine that collectability is reasonably assured. The Company also considers the overall business climate in which its customers operate.

These uncertainties require the Company to make frequent judgments and estimates regarding a customers’ ability to pay amounts due in order to assess and quantify an appropriate allowance for doubtful accounts. The primary factors used to quantify the allowance are customer delinquency, bankruptcy, and the Company’s estimate of its ability to collect outstanding receivables based on the number of days a receivable has been outstanding.
The majority of the Company’s customers operate in the energy industry. The cyclical nature of the industry may affect customers’ operating performance and cash flows, whichour forecast could impact the Company’s ability to collect on these obligations. Additionally, some customers are located in international areas that are inherently subject to risksrecoverability of economic, political,the contract assets.
Reserve for Excess and civil instability.
The Company continues to monitor the economic climate in which its customers operate and the aging of its accounts receivable. The allowance for doubtful accounts is based on the aging of accounts and an individual assessment of each invoice.At December 31, 2017, the allowance was 1.6% of gross accounts receivable, compared to an allowance of 1.4% a year earlier.While credit losses have historically been within expectations and the provisions established, should actual write-offs differ from estimates, revisions to the allowance would be required.
Obsolete Inventory Reserves
Inventories consist of raw materials work-in-process, and finished goods and are stated at the lower of cost, or market determined using the weighted-average cost method.method, or net realizable value. Finished goods inventories include raw materials, direct labor and production overhead.
The Company’s inventory reserve representsCompany reviews inventories on hand and current market conditions to determine if the excesscost of raw materials and finished goods inventories exceed current market prices and impairs the cost basis of the inventory carrying amount over the amount expectedaccordingly. 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 realized from the ultimate saleless than cost. Write-downs or other disposal of the inventory.
The Company regularly reviews inventory quantities on hand and records provisions or impairments for excess or obsolete inventory based on the Company’s forecast of product demand, historical usagewrite-offs of inventory on hand, market conditions, productionare charged to cost of sales.
At December 31, 2023 and procurement requirements, and technological developments. Significant or unanticipated changes in market conditions or Company forecasts could affect the amount and timing of provisions for excess and obsolete inventory and inventory impairments.
Significant changes have not been made in the methodology used to estimate2022, the reserve for excess and obsolete inventory was $6.1 million and $8.2 million, or impairments during32.3% and 34.3% of inventory, respectively. Significant or unanticipated changes to our estimates and forecasts could impact the past three years. Specific assumptions are updated at the dateamount and timing of each evaluation to consider Company experience and current industry trends. Significant judgment is required to predict the potential impact which the current business climate and evolving market conditions could have on the Company’s assumptions. Changes which may occur in the energy industry are hard to predict, and they may occur rapidly. To the extent that changes in market conditions result in adjustments to management
assumptions, impairment losses could be realized in future periods.
At December 31, 2017 and 2016, the Company recorded an impairmentany additional provisions for all inventory items identified as excess and obsolete inventory.
Business CombinationsFair Value of Contract Consideration Convertible Notes Payable
The Company allocatesaccounted for the Contract Consideration Convertible Notes Payable, which was issued related to obtaining the ProFrac Agreement, as liability classified convertible instruments in accordance with FASB ASC 718, “Stock Compensation” (see Note 9, “Debt and Convertible Notes Payable” in Part II, Item 8 of this Annual Report). Under ASC 718, liability classified convertible instruments are measured at fair value of purchase consideration to the assets acquired, liabilities assumed, and any non-controlling interests in the acquired entity generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed,grant date and any non-controlling interests in the acquired entity is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the acquired company and Flotek and the value of the acquired assembled workforce. Acquisition-related expenses are recognized separately from the business acquisition and are recognized as expenses as incurred.
The purchase price allocation process requires management to make significant estimates and assumptions at the acquisitioneach reporting date with respect to the change in fair value of:
intangible assets acquired from the acquiree;
tax assets and liabilities assumed from the acquiree;
stock awards assumed from the acquiree that are included in the purchase price; and
pre-acquisition obligations and contingencies assumed fromconsolidated statements of operations. At each reporting date preceding the acquiree.
Althoughdate of maturity, the Company believes the assumptions and estimates it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Goodwill
Goodwill is not subject to amortization, but is tested for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate a potential impairment. These circumstances may include, but are not limited to, a significant adverse change in the business climate, unanticipated competition, or a change in projected operations or resultsContract Consideration Convertible Notes Payable were remeasured by means of a reporting unit. Goodwill is tested for impairment at a reporting unit level. At December 31, 2017, two reporting units have a goodwill balance: Energy Chemistry TechnologiesMonte Carlo simulation which utilized key inputs such as the risk-free interest rate, stock price, expected volatility and Consumerterm until liquidation. Significant changes to the key inputs such as the Company’s stock price and Industrial Chemistry Technologies.
During the annual testing, the Company assesses whether a goodwill impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, based on this qualitative assessment, it is

determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company does not perform a quantitative assessment.
If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative impairment test is performed to determine whether goodwill impairment exists at the reporting unit.
Effective during the fourth quarter of 2017, the Company adopted Accounting Standards Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment,” which eliminated the second step of the two-step quantitative impairment test. Now, if quantitative impairment testing is performed, the Company comparesvolatility would impact the estimated fair value of each reporting unit which has goodwill to its carrying amount, including goodwill. To determine fair value estimates, the Company uses the income approach based on discounted cash flow analyses, combined, when appropriate, with a market-based approach.value. The market-based approach considers valuation comparisons of recent public sale transactions of similar businessesContract Consideration Convertible Notes matured and earnings multiples of publicly traded businesses operating in industries consistent with the reporting unit. If the carrying amount of a reporting unit, including goodwill, exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit.
Prior to adoption of ASU 2017-04, if quantitative impairment testing was performed, the Company used a two-step quantitative impairment test to determine whether goodwill impairment exists at the reporting unit. The first step was to compare the estimated fair value of each reporting unit which has goodwill to its carrying amount, including goodwill. To determine fair value estimates, the Company used the income approach based on discounted cash flow analyses, combined, when appropriate, with a market-based approach. The market-based approach considers valuation comparisons of recent public sale transactions of similar businesses and earnings multiples of publicly traded businesses operating in industries consistent with the reporting unit. If the fair value of a reporting unit was less than its carrying amount, the second step of the impairment test was performed to determine the amount of impairment, if any. The second step compares the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit’s goodwill exceeded its implied value, an impairment loss was recognized in an amount equal to that excess.
The Company determines fair value using widely accepted valuation techniques, including discounted cash flows and market multiples analyses, and through use of independent fixed asset valuation firms, as appropriate. These types of analyses contain uncertainties, as they require management to make assumptions and to apply judgments regarding industry economic factors and the profitability of future business strategies. The Company’s policy is to conduct impairment testing based on current business strategies, taking into
consideration current industry and economic conditions as well as the Company’s future expectations. Key assumptions used in the discounted cash flow valuation model include, among others, discount rates, growth rates, cash flow projections, and terminal value rates. Discount rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined using a weighted average cost of capital (“WACC”). The WACC considers market and industry data, as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in a similar business. Management uses industry considerations and Company-specific historical and projected results to develop cash flow projections for each reporting unit. Additionally, if appropriate, as part of the market-based approach, the Company utilizes market data from publicly traded entities whose businesses operate in industries comparable to the Company’s reporting units, adjusted for certain factors that increase comparability.
During annual goodwill impairment testing in 2017, the Company first assessed qualitative factors to determine whether it was necessary to perform the quantitative impairment test. During annual goodwill impairment testing in 2016 and 2015, the Company first assessed qualitative factors to determine whether it was necessary to perform the two-step goodwill impairment test.
As of the fourth quarter of 2017, the Company was not able to conclude that it was not more likely than not that the estimated fair value of the Energy Chemistry Technologies (“ECT”) and Consumer and Industrial Chemistry Technologies (“CICT”) reporting units exceeded the carrying amount of the respective reporting units. Therefore, the Company performed a quantitative impairment test for each of these reporting units. The results of the impairment test indicated that the estimated fair values of the two reporting units exceeded the carrying amount of their respective reporting units by approximately $34.7 million and $20.2 million, respectively, or an excess of 21% and 23%, respectively, over the carrying amount. Therefore, no impairment was deemed necessary for 2017. To evaluate the sensitivity of the fair value calculations of the ECT and CICT reporting units, the company applied a hypothetical 10% unfavorable change in the weighted average cost of capital, which would have reduced the estimated fair value of the ECT and CICT reporting units by approximately $23.7 million and $12.4 million, respectively. These sensitivity analyses were not indicative of an impairment for the ECT and CICT reporting units.
Key assumptions and estimates were based on experience of the Company’s management, experience with past recessions within the oil and gas industry (specifically the 2008/2009 recession), and internal as well as published external perspectives of recovery timing. Key assumptions used in the discounted cash flow analysis included:

Revenue and expenses grow 2% annually;
Margins stay in the lower portion of historical ranges;
Working capital ratios remain consistent with historical levels;
Risk premium related to foreign country security, government stability, and potential future foreign currency.
Based on the Company’s fourth quarter 2017 testing of goodwill for impairment at each reporting unit, no impairments were recorded.
As of the fourth quarter of 2016, the Company concluded it was not more likely than not that there was an impairment of goodwill for the Consumer and Industrial Chemistry Technologies or Energy Chemistry Technologies reporting units based on the assessment of qualitative factors. The Consumer and Industrial Chemistry Technologies reporting unit has outpaced prior years revenues and maintained strong margins. The Energy Chemistry Technologies reporting unit saw revenue improve throughout 2017 and reduced by 12% versus 2015 as market activity fell 43% from 2015 to 2016. However, the segment continued to produce strong margins.
The Company was not able to conclude that it was not more likely than not that the estimated fair value of the Teledrift and Production Technologies reporting units exceeded the carrying amount of the respective reporting units, as of the fourth quarter of 2016. Therefore, the Company performed a Step 1 impairment test for each of these reporting units. The results of the Step 1 test indicated that the estimated fair values of the two reporting units exceeded the carrying amount of their respective reporting units by approximately $13.2 million and $6.7 million respectively, or an excess of 34% and 44%, respectively, over the carrying amount. Therefore, no further testing was required for these two reporting units. To evaluate the sensitivity of the fair value calculations of the Teledrift and Production Technologies reporting units, the Company applied a hypothetical 10% unfavorable change in the weighted average cost of capital, which would have reduced the estimated fair value of the Teledrift and Production Technologies reporting units by approximately $5.3 million and $4.2 million, respectively. These sensitivity analyses were not indicative of an impairment for the Teledrift or Production Technologies reporting units.
As of the third quarter of 2016, the Company concluded it was not more likely than not that there was an impairment of goodwill for the Consumer and Industrial Chemistry Technologies reporting unit, the Energy Chemistry Technologies reporting unit, and the Teledrift reporting unit based on the assessment of qualitative factors. The Consumer and Industrial Chemistry Technologies reporting unit has seen increased revenues in 2016 compared to 2015 and has maintained margins in the range seen from 2014 through 2015. The Energy Chemistry Technologies reporting unit had an 11% decrease in revenue versus the 27% decline in market activity for the first quarter of 2016 compared to the fourth quarter of 2015, a 3% decrease in revenue versus the 35%
decline in market activity for the second quarter of 2016 compared to the first quarter of 2016, and a 4% increase in revenue versus the 28% increase in market activity for the third quarter of 2016 compared to the second quarter of 2016, but continues to maintain gross margins. The Teledrift reporting unit, having passed the Step 1 impairment tests in the previous two quarters, had the highest revenue quarter for 2016 and improved margins. Teledrift revenue for the third quarter of 2016 increased 37% versus the second quarter of 2016 and improved gross margins by 8.4%.
For the first quarter of 2016, the Company was not able to conclude that it was not more likely than not that the estimated fair value of the Production Technologies and Teledrift reporting units exceeded the carrying amount of the respective reporting units. Therefore, the Company performed a Step 1 impairment test for each of these reporting units. The results of the Step 1 test indicated that the estimated fair values of the Production Technologies and the Teledrift reporting units exceeded the carrying amount of their respective reporting units by approximately $34.9 million and $2.1 million, respectively, or an excess of 153% and 5%, respectively, over the carrying amount. Therefore, no further testing was required for these two reporting units.
Again, for the second quarter of 2016, the Company was not able to conclude that it was not more likely than not that the estimated fair value of the Production Technologies and Teledrift reporting units exceeded the carrying amount of the respective reporting units. Therefore, the Company performed a Step 1 impairment test for each of these reporting units. The results of the Step 1 test indicated that the estimated fair values of the Production Technologies and the Teledrift reporting units exceeded the carrying amount of their respective reporting units by approximately $17.1 million and $2.2 million, respectively, or an excess of 77% and 6%, respectively, over the carrying amount. Therefore, no further testing was required for these two reporting units.
Once again, for the third quarter of 2016, the Company was not able to conclude that it was not more likely than not that the estimated fair value of the Production Technologies reporting unit exceeded the carrying amount of the reporting unit. Therefore, the Company performed a Step 1 impairment test for this reporting unit. The results of the Step 1 test indicated that the estimated fair value of the Production Technologies reporting unit exceeded the carrying amount of the reporting unit by approximately $8.1 million, or an excess of 36.9% over the carrying amount. Therefore, no further testing was required for this reporting unit.
Key assumptions and estimates were based on experience of the Company’s management, experience with past recessions within the oil and gas industry (specifically the 2008/2009 recession), and internal as well as published external perspectives of recovery timing. Key assumptions used in the discounted cash flow analysis included:
U.S. rig count bottoms during 2016 and begins to recover to average 532 rigs for the last two quarters of

2016. Average Rig count climbs to 725 in 2017, 880 in 2018, and 920 in 2019, and grows by 50 rigs annually for 2020 through 2023, and then holds flat through 2026;
International revenue grows 3% annually;
Domestic rental revenue per rig and total domestic revenue per rig dip to lows seenconverted during the 2008/2009 downturn through 2017 and then slowly return to the lower end of the ranges seen between 2012 and 2014;
International indirect expenses remain 3.5% of total international revenue;
Domestic indirect expense percentages slowly return to historical levels;
Margins stay in the lower portion of historical ranges;
Working capital ratios remain consistent; and
Risk premium related to foreign country security and government stability.
Some of the factors that affected the change in results of the Step 1 impairment test from the fourth quarter of 2015 to the fourth quarter of 2016 included:
Impairment testing of long-lived assets excluding goodwill resulted in a reduction to the balance sheet of $14.3 million for the Teledrift reporting unit in the first quarter of 2016.
Impairment of inventory resulted in a reduction to the balance sheet of $1.3 million for the Teledrift reporting unit and $3.9 million for the Production Technologies reporting unit in the first quarter of 2016.
Cost reduction initiatives during the first half of 2016 reduced direct and indirect expenses for the Drilling Technologies segment.
Due to the surplus of rental tools and the low levels of drilling rig activity, capital expenditures for new rental tools will be minimal through 2019 in the Teledrift reporting unit.
Based on the Company’s fourth quarter 2016 testing of goodwill for impairment at each reporting unit, no impairments were recorded.
The business of the Drilling Technologies segment is closely aligned with the drilling rig count and the U.S. drilling rig count declined approximately 55% during the first and second quarters of 2015. Revenue of the Drilling Technologies segment declined over 30% compared to the fourth quarter of 2014, although the segment’s gross margin was rising moderately. The drop off in business resulting from declines in oil prices and the active drilling rig count was an event or circumstance that caused the Company to test its recorded goodwill in the Teledrift reporting unit within the Drilling Technologies segment (deterioration in the operating environment and overall financial performance of the reporting unit) during the second quarter of 2015. In addition, the Company took a look at its business to ascertain whether there were operating changes that needed to be made.
Impairment of goodwill was not tested for other reporting units during the second quarter of 2015 as revenue and margins in the Energy Chemistry Technologies and the Consumer and Industrial Chemistry Technologies reporting units had been increasing. Goodwill of $1.7 million in the Production Technologies reporting unit resulted from a 2015 acquisition which provided an avenue for new products and additional revenue.
Goodwill of $15.3 million in the Teledriftreporting unit was tested for impairment during the second quarter of 2015. The primary technique utilized to estimate the fair value of the Teledrift reporting unit was a discounted cash flow analysis. Discounted cash flow analysis requires the Company to make various judgments, estimates and assumptions about future revenue, margins, growth rates, capital expenditures, working capital and discount rates. The first step in the impairment testing process compared the estimated fair value of the reporting unit to its carrying amount, including goodwill. The analysis indicated a fair value in excess of the carrying amount by approximately 97% for the Teledriftreporting unit. Because the fair value of the reporting unit exceeded its carrying amount, the second step of the goodwill impairment test was not necessary.
As of the fourth quarter of 2015, the Company concluded it was not more likely than not that there was an impairment of goodwill for the Consumer and Industrial Chemistry Technologies reporting unit based on the assessment of qualitative factors. The Consumer and Industrial Chemistry Technologies reporting unit has seen increased revenues in 2015 compared to 2014 and has maintained gross margins.
However, the Company was not able to conclude that it was not more likely than not that the estimated fair value of the Energy Chemistry Technologies, Teledrift, and Production Technologies reporting units exceeded the carrying amount of the respective reporting units. Therefore, the Company performed a Step 1 impairment test for each of these reporting units. The results of the Step 1 test indicated that the estimated fair values of the Energy Chemistry Technologies and Production Technologies reporting units exceeded the carrying amount of their respective reporting units by approximately $217.3 million and $35.8 million respectively, or an excess of 156% and 141%, respectively, over the carrying amount. Therefore, no further testing was required for these two reporting units. To evaluate the sensitivity of the fair value calculations of the Energy Chemistry Technologies and Production Technologies reporting units, the Company applied a hypothetical 10% unfavorable change in the weighted average cost of capital, which would have reduced the estimated fair value of the Energy Chemistry Technologies and Production Technologies reporting units by approximately $44.0 million and $8.6 million, respectively. These sensitivity analyses were not indicative of an impairment for the Energy Chemistry Technologies or Production Technologies reporting units.
The Step 1 impairment test for the Teledrift reporting unit indicated that the estimated fair value of the reporting unit was

less than the carrying amount by approximately $1.4 million; therefore, the Company performed a Step 2 impairment test with the assistance of a third party valuation firm. The results of the Step 2 impairment test indicated that the implied fair value of goodwill exceeded the carrying amount of the goodwill for the Teledrift reporting unit by approximately $2.0 million, or an excess of 15% over the carrying amount. To evaluate the sensitivity of the fair value calculation for the Teledrift reporting unit, the Company applied a hypothetical 10% unfavorable change in the weighted average cost of capital, which would have reduced the estimated fair value of goodwill by approximately $0.7 million which was not indicative of an impairment of goodwill.
Key assumptions and estimates were based on experience of the Company’s management, experience with past recessions within the oil and gas industry (specifically the 2008/2009 recession), and internal as well as published external perspectives of recovery timing. Key assumptions used in the discounted cash flow analysis included:
US rig count bottoms at year end around 700 rigs in 2015 to average 983 rigs for 2015. Rig count climbs to 875 in 2016, continues to 1,000 rigs in 2017 and grows 5% annually for 2018 through 2020, and then grows 7% annually through 2025;
International revenue grows 3% annually;
Domestic rental revenue per rig and total domestic revenue per rig dip to lows seen during the 2008/2009 downturn through 2017 and then slowly return to the lower end of the previous three year range;
International indirect expenses remain 3.5% of total international revenue;
Domestic indirect expense percentages slowly return to historical levels;
Margins stay in historical ranges;
Working capital ratios remain consistent; and
Risk premium related to foreign country security and government stability.
Some of the factors that affected the change in results of the Step 1 impairment test from the second quarter of 2015 to the fourth quarter of 2015 included:
Crude oil prices had rallied during the second quarter to average $59.82 per barrel in June 2015 versus the January 2015 average of $47.22 per barrel, but subsequently fell during the third and fourth quarters to average $37.19 per barrel in December 2015,
The dramatic decline in US rig activity had leveled off during June 2015 after having declined 53.3% from the rig activity level as ofended December 31, 2014, only to decrease another 18.7%2023 in the second half of 2015 to end the yearaccordance with an outright drop in rig activity of 62.1%.
The weighted average cost of capital increased from 14.1% in the second quarter of 2015 to 19.1% in the fourth quarter of 2015 as the significance of the
international portion of the reporting unit grew, resulting in a higher risk premium associated with international activity.
There are significant inherent uncertainties and judgments involved in estimating fair value. A further extension or deepening of the industry downturn could have a negative impact on the cash flow analysis.
The Company cannot predict the occurrence of events or circumstances that could adversely affect the fair value of goodwill. Such events may include, but are not limited to, deterioration of the economic environment, increases in the Company’s weighted average cost of capital, material negative changes in relationships with significant customers, reductions in valuations of other public companies in the Company’s industry, or strategic decisions made in response to economic and competitive conditions. If actual results are not consistent with the Company’s current estimates and assumptions, impairment of goodwill could be required.
Based on the Company’s fourth quarter 2015 testing of goodwill for impairment at each reporting unit, no impairments were recorded.
Long-Lived Assets Other than Goodwill
Long-lived assets other than goodwill consist of property and equipment and intangible assets that have determinable and indefinite lives. The Company makes judgments and estimates regarding the carrying amount of these assets, including amounts to be capitalized, depreciation and amortization methods to be applied, estimated useful lives, and possible impairments. Property and equipment and intangible assets with determinable lives are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.
For property and equipment, events or circumstances indicating possible impairment may include a significant decrease in market value or a significant change in the business climate. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss is the excess of the asset’s carrying amount over its fair value. Fair value is generally determined using an appraisal by an independent valuation firm or by using a discounted cash flow analysis.
For intangible assets with definite lives, events or circumstances indicating possible impairment may include an adverse change in the extent or manner in which the asset is being used or a change in the assessment of future operations. The Company assesses the recoverability of the carrying amount by preparing estimates of future revenue, margins, and cash flows. If the sum of expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, an impairment loss is recognized. The impairment loss recognized is the amount by which the

carrying amount exceeds the fair value. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flows.
Intangible assets with indefinite lives are not subject to amortization, but are tested for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate a potential impairment. These circumstances may include, but are not limited to, a significant adverse change in the business climate, unanticipated competition, or a change in projected operations or results of a reporting unit.
The Company assesses whether an indefinite lived intangible impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of the indefinite lived intangible is less than its carrying amount. If, based on this qualitative assessment, it is determined that it is not more likely than not that the fair value of the indefinite lived intangible is less than its carrying amount, the Company does not perform a quantitative assessment.
If the qualitative assessment indicates that it is more likely than not that the indefinite-lived intangible asset is impaired or if the Company elects to not perform a qualitative assessment, the Company then performs the quantitative impairment test. The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flows.
The development of future net undiscounted cash flow projections requires management projections of future sales and profitability trends and the estimation of remaining useful lives of assets. These projections are consistent with those projections the Company uses to internally manage operations. When potential impairment is identified, a discounted cash flow valuation model similar to that used to value goodwill at the reporting unit level, incorporating discount rates commensurate with risks associated with each asset, is used to determine the fair value of the asset in order to measure potential impairment. Discount rates are determined by using a WACC. Estimated revenue and WACC assumptions are the most sensitive and susceptible to change in the long-lived asset analysis as they require significant management judgment. The Company believes the assumptions used are reflective of what a market participant would have used in calculating fair value.
Valuation methodologies utilized to evaluate long-lived assets other than goodwill for impairment were consistent with prior periods. Specific assumptions discussed above are updated at each test date to consider current industry and Company-specific risk factors from the perspective of a market participant. The current business climate is subject to evolving
market conditions and requires significant management judgment to interpret the potential impact to the Company’s assumptions. To the extent that changes in the current business climate result in adjustments to management projections, impairment losses may be recognized in future periods.
The domestic drilling industry has continued to deteriorate since the end of 2015 to levels not seen since April 1999. As the business of the Drilling Technologies segment is closely aligned with the drilling rig count and average U.S. drilling rig count declined 27% during the first quarter of 2016, the drop off in rig count led to a decline in revenue and gross profit of 37% and 69%, respectively, from the fourth quarter of 2015 for the Drilling Technologies segment. As a result of the continued drop in rig count and the significant decline in operations in the first quarter of 2016, the Company concluded these were events or circumstances that caused the Company to test its long-lived assets for impairment within the segment.
During the three months ended March 31, 2016, the Company completed testing for impairment of long-lived assets within the Drilling Technologies segment for four asset groups:
Downhole Tools - primarily used in the vertical drilling market;
International Drill Pipe - primarily used in foreign mining operations;
Teledrift Domestic - primarily associated with the Measurement While Drilling (“MWD”) market in the U.S.; and
Teledrift International - primarily associated with the MWD market in international markets.
Impairment indicators affected both asset groups that are tied directly to the domestic drilling market. While impairment indicators are not present for the International Drill Pipe or Teledrift International asset groups, the Company performed recoverability tests for all four asset groups.
The recoverability test indicated that the undiscounted estimated cash flows of the International Drill Pipe and Teledrift International asset groups exceeded the carrying amount of their respective asset groups by approximately $2.6 million and $64.1 million, respectively, or an excess of 98% and 906%, respectively. However, the undiscounted estimated cash flows of the Downhole Tools and Teledrift Domestic asset groups did not exceed the carrying amount of their respective asset groups, and therefore, the Company performed a discounted cash flow analysis on each asset group to determine the fair values.
Since the assets in the asset groups are not highly specialized, the Company assumed the current use of each asset would be a similar use as if the assets were sold. As such, the cash flow used in the recoverability test is the same cash flow used to create the discounted cash flow for fair value analysis. This testing indicated that the carrying amount of the Downhole Tools and Teledrift Domestic asset groups exceeded the fair value by $9.6 million and $14.3 million, respectively, or an excess of 69% and 56%, respectively. As a result, a combined

impairment loss for these two asset groups of $23.9 million was recognized during the three months ended March 31, 2016.
Additionally, the business of the Production Technologies segment incurred similar declines with revenue and gross profit, falling approximately 30% and 42%, respectively. Therefore, the Company completed testing for impairment of long-lived assets within the Production Technologies segment. The recoverability test indicated that the undiscounted estimated cash flows for the segment exceeded the carrying amount of assets by $3.0 million, or an excess of 23%. As a result, no impairment of long-lived assets was recognized for the Production Technologies segment.
During the second quarter of 2016, the average U.S. drilling rig count fell 23% versus the first quarter of 2016. The Drilling Technologies segment held revenue relatively flat and improved margins when comparing the second and first quarters of 2016. As such, the Company determined that testing for impairment of long-lived assets was not warranted for the segment.
However, the Production Technologies segment results showed a decline in revenue of 8% and continuing negative margins when comparing the second and first quarters of 2016. Therefore, the Company completed testing for impairment of long-lived assets within the Production Technologies segment. The recoverability test indicated that the undiscounted estimated cash flows for the segment exceeded the carrying amount of assets by $4.4 million, or an excess of 34%. As a result, no impairment of long-lived assets was recognized for the Production Technologies segment.
During the third quarter of 2016, the average U.S. drilling rig count rose 14% versus the second quarter of 2016. The Drilling Technologies segment revenue increased 13% and improved margins when comparing the third and second quarters of 2016, while the Production Technologies segment results showed an increase in revenue of 15% and improved margins when comparing the third and second quarters of 2016. As such, the Company determined that testing for impairment of long-lived assets was not warranted for either segment.
During the fourth quarter of 2016, the average U.S. drilling rig count rose 23% versus the third quarter of 2016. The Drilling Technologies segment revenue increased 6% and showed slightly lower margins when compared to the third quarter of 2016 but still exceeded second quarter 2016 margins. The Production Technologies segment results showed an increase in revenue of 5% and improved margins when comparing the fourth and third quarters of 2016. As such, the Company determined that testing for impairment of long-lived assets was not warranted for either segment.
Key assumptions and estimates used in performing these recoverability tests were based on experience of the Company’s management, experience with past oil and gas industry downturns and recoveries, and internal, as well as
published external, perspectives of recovery timing. Key assumptions used in the recoverability test included:
Rental tools are the primary cash generating assets for each group;
Remaining estimated useful life for each group was determined to be 7 years;
Carrying amount of the asset group is the net book value of the assets as of March 31, 2016, for first quarter testing and June 30, 2016, for second quarter testing;
Estimates of future cash flows for the group assumed the sale of the group at the end of the remaining useful life of the primary asset; and
Since the Downhole Tools asset group includes product sales in the cash flow analysis, a portion of the inventory was included in the carrying amount of the asset group. The remaining portion of the inventory is normally utilized to repair and fabricate rental tools and is included in cost of goods sold.
During the second quarter of 2015, as a result of decreased rig activity and its impact on management’s expectations for future market activity, the Company refocused the Drilling Technologies segment to businesses and markets that have the best opportunity for profitable growth in the future.  Additionally, the Company shifted the focus of the Production Technologies segment towards oil production markets and away from the less opportunistic CBM markets. As a result of these changes in focus and projected declines in asset utilization, the Company recorded impairment charges for inventory ($18.0 million) and rental equipment ($2.3 million) in the second quarter of 2015. Additionally, an assessment was made regarding possible impairment of property and equipment for (a) the Drilling Technologies asset group and (b) the Production Technologies asset group.
An analysis of the Drilling Technologies asset group showed that discounted future cash flows exceeded the carrying amount of this asset group. In addition, projected future cash flows considering only rental tools would exceed the carrying amount of this asset group in approximately six years. These preliminary analyses clearly indicated that the carrying amount of property and equipment would be recoverable and therefore, the Company did not perform an undiscounted future cash flow analysis for this asset group.
An analysis of the Production Technologies asset group showed that projected future cash flows from two recently introduced products significantly exceeded the carrying amount of this asset group. This preliminary analysis clearly indicated that the carrying amount of property and equipment would be recoverable and therefore, the Company did not perform a more complete analysis of undiscounted future cash flows for this asset group.
There are significant inherent uncertainties and judgments involved in estimating fair value. A further extension or deepening of the industry downturn could have a negative impact on the cash flow analysis.

The Company cannot predict the occurrence of events or circumstances that could adversely affect the fair value of the asset (asset group). Such events may include, but are not limited to, deterioration of the economic environment, increases in the Company’s weighted average cost of capital, material negative changes in relationships with significant customers, reductions in valuations of other public companies in the Company’s industry, or strategic decisions made in response to economic and competitive conditions. If actual results are not consistent with the Company’s current estimates and assumptions, additional impairment of long-lived assets could be required.
In 2017, 2016, and 2015, while testing annual indefinite lived intangible assets for impairment, the Company first assessed qualitative factors to determine whether it was necessary to perform the impairment test. Based on its qualitative assessment, the Company concluded there was no indication of the need for an impairment of indefinite lived intangibles, and therefore no further testing was required.
No impairment was recorded for property and equipment and intangible assets with determinable or indefinite lives during 2017.
Fair Value Measurements
Fair value is defined as the amount that would be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction between unrelated third party market participants at the measurement date. In determination of fair value measurements for assets and liabilities, the Company considers the principal, or most advantageous, market and assumptions that market participants would use when pricing the asset or liability. The Company categorizes financial assets and liabilities using a three-tiered fair value hierarchy, based upon the nature of the inputs used in the determination of fair value. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability and may be observable or unobservable. Significant judgments and estimates are required, particularly when inputs are based on pricing for similar assets or liabilities, pricing in non-active markets, or when unobservable inputs are required.
Income Taxes
The Company’s tax provision is subject to judgments and estimates necessitated by the complexity of existing regulatory tax statutes and the effect of these upon the Company due to operations in multiple tax jurisdictions. Income tax expense is based on taxable income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which the Company operates. The Company’s income tax expense will fluctuate from year to year as the amount of pretax income fluctuates. Changes in tax laws and the Company’s profitability within and across the jurisdictions may impact the Company’s tax liability. While the annual tax provision is based on the best information available to the Company at the time of preparation, several years may elapse before the ultimate tax liabilities are determined.
The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recognized for temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities and are measured using the tax rates expected to be in effect when the differences reverse. Deferred tax assets are also recognized for operating loss and tax credit carry forwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is used to reduce deferred tax assets when uncertainty exists regarding their realization.
A valuation allowance is recorded to reduce previously recorded tax assets when it becomes more likely than not such assets will not be realized. The Company evaluates, at least annually, net operating loss carry forwards and other net deferred tax assets and considers all available evidence, both positive and negative, to determine whether a valuation allowance is necessary relative to net operating loss carry forwards and other net deferred tax assets. In making this determination, the Company considers cumulative losses in recent years as significant negative evidence. The Company considers recent years to mean the current year plus the two preceding years. The Company considers the recent cumulative income or loss position of its filings groups as objectively verifiable evidence for the projection of future income, which consists primarily of determining the average of the pre-tax income of the current and prior two years after adjusting for certain items not indicative of future performance. Based on this analysis, the Company determines whether a valuation allowance is necessary.
The Company periodically identifies and evaluates uncertain tax positions. This process considers the amounts and probability of various outcomes that could be realized upon final settlement. Liabilities for uncertain tax positions are based on a two-step process. The actual benefits ultimately realized may differ from the Company’s estimates. Changes in facts, circumstances, and new information may require a change in recognition and measurement estimates for certain individual tax positions. Any changes in estimates are recorded in results of operations in the period in which the change occurs. At December 31, 2017, the Company performed an evaluation of its various tax positions and concluded that it did not have significant uncertain tax positions requiring disclosure. The Company’s policy is to record interest and penalties related to income tax matters as income tax expense.
Share-Based Compensation
The Company has stock-based incentive plans which are authorized to issue stock options, restricted stock, and other incentive awards. Stock-based compensation expense for stock options and restricted stock is determined based upon estimated grant-date fair value. This fair value for the stock options is calculated using the Black-Scholes option-pricing model and is recognized as expense over the requisite service period. The option-pricing model requires the input of highly

subjective assumptions, including expected stock price volatility and expected option life. For all stock-based incentive plans, the Company estimates an expected forfeiture rate and recognizes expense only for those shares expected to vest. The estimated forfeiture rate is based on historical experience. To the extent actual forfeiture rates differ from the estimate, stock-based compensation expense is adjusted accordingly.
Loss Contingencies
The Company is subject to a variety of loss contingencies that could arise during the Company’s conduct of business. Management considers the likelihood of a loss or impairment of an asset or the incurrence of a liability, as well as the Company’s ability to reasonably estimate the amount of loss,
in determining potential loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. Accruals for loss contingencies have not been recorded during the past three years. The Company regularly evaluates current information available to determine whether such accruals should be made or adjusted.terms.
Recent Accounting Pronouncements
Recent accounting pronouncements which may impact the Company are described in Note 2, – “Summary of Significant Accounting Policies”Policies - Recent Accounting Pronouncements,” in Part II, Item 8 –— “Financial Statements and Supplementary Data”Statements” of this Annual Report.
Item  7A. Quantitative and Qualitative Disclosures About Market Risk.Risk

28


The Company is primarily exposed to market risk from changes in interest rates,raw material prices, freight costs, and foreign currency exchange rates, and commodity prices.rates. Market risk is measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates, commodity prices or foreign currency exchange rates over the next year. The Company manages exposure to market risks at the corporate level. The portfolio of interest-sensitive assets and liabilities is monitored and adjusted to provide liquidity necessary to satisfy anticipated short-term needs. The Company’s risk management policies allow the use of specified financial instruments for hedging purposes only. Speculation on interest rates or foreign currency rates is not permitted. The Company does not consider any of these risk management activities to be material.
Interest Rate Risk
The Company is exposed to the impact of interest rate changes on any outstanding indebtedness under the revolving credit facility agreement and the term loan agreement both of which have a variable interest rate. The interest rate on advances under the revolving credit facility varies based on the level of borrowing under the revolving credit facility. Rates range (a) between PNC Bank’s base lending rate plus 1.5% to 2.0% or (b) between the London Interbank Offered Rate (LIBOR) plus 2.5% to 3.0%. PNC Bank’s base lending rate was 4.50% at December 31, 2017, and would have permitted borrowing at rates ranging between 6.00% and 6.50%. The Company is required to pay a monthly facility fee of 0.25% on any unused amount under the commitment based on daily averages. At December 31, 2017, $28.0 million was outstanding under the revolving credit facility, with $6.0 million borrowed as base rate loans at an interest rate of 6.00% and $22.0 million borrowed as LIBOR loans at an interest rate of 4.07%.
The amount borrowed under the term loan was reset to $10.0 million as of September 30, 2016. Monthly principal
payments of $0.2 million were required. On May 22, 2017, the Company repaid the outstanding balance of the term loan.
Foreign Currency Exchange Risk
The Company presently has limited exposure to foreign currency risk. As a global company, Flotek operates in over 20 domestic and international markets. Flotek’sCompany’s functional currency is primarily the U.S. dollar. The Company operates principally in the United States and has limited exposure to foreign currency risk in its international operations. During 2017,2023, approximately 2.0% 0.24% of revenue was demarcateddenominated in non-U.S. dollar currencies and virtuallysubstantially all assets and liabilities of the Company are denominated in U.S. dollars. However, as the Company expands its international operations, non-U.S. denominated activity is likely to increase. The Company has not historically performed noused swaps and noor foreign currency hedges. Thehedges, however, the Company may utilize swaps or foreign currency hedges in the future.
Commodity Risk
The Company, is one of the largest processors of citrus oils in the world and, therefore, has a commodity risk inherent in orange harvests. In recent years, citrus greening has disrupted citrus fruit production in Florida and Brazil which caused raw material feedstock cost to increase. Tropical storms and hurricanes, as experienced during 2017, can also impact the future citrus crop yields in growing regions. The Company believes that adequate global supply is available to meet the Company’s needs and the needs of general chemistry markets at this time. The CompanyCT segment in particular, primarily relies upon diverse, long-term strategic supply relationships to meet many of its raw material needs which are expected to remain in place for the foreseeable future.needs. Price increases have beenare passed along to the Company’s customers, where applicable.applicable or possible. The Company presently does not have anyutilize commodity futures contractsderivative instruments but may consider utilizing forms of hedging from time to timemitigate the effects of rising commodity prices on its supplies, in the future.

The Company purchased IPI in July 2016, an importer and processor of guar splits into fast hydrating guar powder at its facility in Dalton, Georgia. Guar powder is used as a gelling agent for fluid systems in the completion of oil and gas wells. Guar seed is largely produced in India and Pakistan and has inherent commodity risk associated with agricultural crops

and geopolitical uncertainty. The Company believes its inventory and supply agreements are well positioned to meet market needs at this time. Although there are international, publicly traded exchanges for guar seed, the Company presently does not have any futures contracts.29



Item 8. Financial Statements and Supplementary Data.Data


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and the Board of Directors of
Flotek Industries, Inc.:
Opinion on Internal Control overthe Consolidated Financial ReportingStatements
We have audited Flotek Industries, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework 2013 issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theaccompanying consolidated balance sheetsheets of Flotek Industries, Inc. and subsidiaries (the Company) as of December 31, 2017,2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows, and stockholders’ equity for each of the year thenyears in the two-year period ended December 31, 2023, and the related notes (collectively, referred to as the “consolidated financial statements”) and our report dated March 8, 2018 expressed an unqualified opinion on those consolidated financial statements.statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control overThese consolidated financial reporting and for its assessmentstatements are the responsibility of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.Company’s management. Our responsibility is to express an opinion on the Company’s internal control overthese consolidated financial reportingstatements based on our audit.audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ MOSS ADAMS LLP

Houston, Texas
March 8, 2018

We have served as the Company’s independent registered public accounting firm since 2017.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of
Flotek Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Flotek Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2017, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017, and the consolidated results of their operations and their cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2018 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditaudits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures tothat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ MOSS ADAMS LLP

Houston, Texas
March 8, 2018

We have served as the Company’s independent registered public accounting firm since 2017.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Flotek Industries, Inc.
We have audited the accompanying consolidated balance sheet of Flotek Industries, Inc. and subsidiaries as of December 31, 2016 and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements referredthat were communicated or required to above present fairly,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. The communication of critical audit matters does not alter in all material respects,any way our opinion on the consolidated financial positionstatements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Recoverability of Flotek Industries, Inc.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 subsidiariesother 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. As described in Note 4, the Company had recorded contract assets, net of $74.7 million as of December 31, 20162023.
We identified the evaluation of the recoverability of contract assets as a critical audit matter. There was subjective auditor judgement in evaluating the key assumptions used in the Company’s contract asset recoverability assessment, specifically the forecasted product revenue and related forecasted costs to provide products over the resultsterm of theirthe ProFrac Agreement.

30

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the Company’s contract assets recoverability assessment, including controls over the development of forecasted revenue and costs over the term of the ProFrac Agreement. To assess the Company’s ability to forecast revenue and costs, we compared revenue and cost forecasts for the current year to actual results. 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 their cash flows for eachlosses, the Company recognized $24.3 million and $24.7 million of gross profit and net income, respectively, during the two years in the periodyear ended December 31, 2016,2023. 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 conformitycontract 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 U.S. generally accepted accounting principles.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.
/s/ HEIN & ASSOCIATESThe 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.


  /s/    KPMG LLP


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

Houston, Texas
February 8, 2017March 15, 2024






FLOTEK INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
20232022
ASSETS
Current assets:
Cash and cash equivalents$5,851 $12,290 
Restricted cash102 100 
Accounts receivable, net of allowance for credit losses of $745 and $623 at December 31, 2023 and December 31, 2022, respectively13,687 19,136 
Accounts receivable, related party, net of allowance for credit losses of $0 at December 31, 2023 and 2022, respectively34,569 22,683 
Inventories, net12,838 15,720 
Other current assets3,564 3,032 
Current contract assets5,836 7,113 
Total current assets76,447 80,074 
Long-term contract assets68,820 72,576 
Property and equipment, net5,129 4,826 
Operating lease right-of-use assets5,030 5,900 
Deferred tax assets, net300 404 
Other long-term assets1,787 1,030 
TOTAL ASSETS$157,513 $164,810 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$31,705 $33,375 
Accrued liabilities5,890 8,984 
Income taxes payable45 97 
Interest payable— 130 
Current portion of operating lease liabilities2,449 3,328 
Current portion of finance lease liabilities22 36 
Asset-based loan7,492 — 
Current portion of long-term debt179 2,052 
Convertible notes payable— 19,799 
Contract consideration convertible notes payable— 83,570 
Total current liabilities47,782 151,371 
Deferred revenue, long-term35 44 
Long-term operating lease liabilities7,676 8,044 
Long-term finance lease liabilities— 19 
Long-term debt60 2,736 
TOTAL LIABILITIES55,553 162,214 
Stockholders’ equity:
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding— — 
Common stock, $0.0001 par value, 240,000,000 shares authorized; 30,772,837 shares issued and 29,664,130 shares outstanding at December 31, 2023; 13,985,986 shares issued and 12,964,732 shares outstanding at December 31, 2022 (As adjusted, see Note 13)3 1 
Additional paid-in capital (As adjusted, see Note 13)463,140 388,184 
Accumulated other comprehensive income127 181 
Accumulated deficit(326,806)(351,519)
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)(34,504)(34,251)
Total stockholders’ equity101,960 2,596 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$157,513 $164,810 
 December 31,
 2017 2016
ASSETS   
Current assets:   
Cash and cash equivalents$4,584
 $4,823
Accounts receivable, net of allowance for doubtful accounts of $733 and
    $664 at December 31, 2017 and 2016, respectively
46,018
 47,152
Inventories75,759
 58,283
Income taxes receivable2,826
 12,752
Assets held for sale—
 43,900
Other current assets9,264
 21,708
Total current assets138,451
 188,618
Property and equipment, net73,833
 74,691
Goodwill56,660
 56,660
Deferred tax assets, net12,713
 12,894
Other intangible assets, net48,231
 50,352
TOTAL ASSETS$329,888
 $383,215
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$22,048
 $29,960
Accrued liabilities14,589
 12,170
Interest payable43
 24
Liabilities held for sale—
 4,961
Current portion of long-term debt27,950
 40,566
Total current liabilities64,630
 87,681
Long-term debt, less current portion—
 7,833
Total liabilities64,630
 95,514
Commitments and contingencies
 
Equity:   
Cumulative convertible preferred stock, $0.0001 par value, 100,000 shares
    authorized; no shares issued and outstanding
—
 —
Common stock, $0.0001 par value, 80,000,000 shares authorized; 60,622,986
    shares issued and 56,755,293 shares outstanding at December 31, 2017;
    59,684,669 shares issued and 56,972,580 shares outstanding at
    December 31, 2016
6
 6
Additional paid-in capital336,067
 318,392
Accumulated other comprehensive income (loss)(884) (956)
Retained earnings (accumulated deficit)(37,225) (9,830)
Treasury stock, at cost; 3,621,435 and 2,028,847 shares at December 31, 2017
    and 2016, respectively
(33,064) (20,269)
Flotek Industries, Inc. stockholders’ equity264,900
 287,343
Noncontrolling interests358
 358
Total equity265,258
 287,701
TOTAL LIABILITIES AND EQUITY$329,888
 $383,215
SeeThe accompanying Notes toare an integral part of these Consolidated Financial Statements.


FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Years ended December 31,
 20232022
Revenue:
Revenue from external customers$66,518 $54,344 
Revenue from related party121,540 81,748 
Total revenues188,058 136,092 
Cost of sales163,795 142,792 
Gross profit (loss)24,263 (6,700)
Operating costs and expenses:
Selling, general, and administrative27,873 27,124 
Depreciation734 734 
Research and development2,486 4,438 
Severance costs(46)— 
Gain on disposal of property and equipment(38)(2,916)
Gain on lease termination— (584)
Gain in fair value of Contract Consideration Convertible Notes Payable(29,969)(75)
Total operating costs and expenses1,040 28,721 
Income (loss) from operations23,223 (35,421)
Other income (expense):
Paycheck protection plan loan forgiveness4,522 — 
Interest expense(2,857)(7,051)
Other income, net(26)145 
Total other income (expense)1,639 (6,906)
Income (loss) before income taxes24,862 (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):
Basic$1.00 $(3.41)
Diluted$(0.10)$(3.41)
Weighted average common shares (As adjusted see Notes 13 and 15):
Weighted average common shares used in computing basic income (loss) per common share24,830 12,404 
Weighted average common shares used in computing diluted income (loss) per common share28,377 12,404 


 Year ended December 31,
 2017 2016 2015
Revenue$317,098
 $262,832
 $269,966
Costs and expenses:     
Cost of revenue (excluding depreciation and amortization)215,129
 170,255
 172,033
Corporate general and administrative41,492
 43,745
 38,623
Segment selling and administrative37,236
 36,405
 31,653
Depreciation and amortization12,159
 10,429
 8,735
Research and development13,645
 9,320
 6,657
Loss (gain) on disposal of long-lived assets292
 (18) (13)
Total costs and expenses319,953
 270,136
 257,688
(Loss) income from operations(2,855) (7,304) 12,278
Other (expense) income:     
Interest expense(2,168) (1,979) (1,521)
Gain on legal settlement—
 12,730
 —
Other (expense) income, net812
 (303) (123)
Total other (expense) income(1,356) 10,448
 (1,644)
(Loss) income before income taxes(4,211) 3,144
 10,634
Income tax expense(8,842) (1,237) (3,476)
(Loss) income from continuing operations(13,053) 1,907
 7,158
Loss from discontinued operations, net of tax(14,342) (51,037) (20,620)
Net loss$(27,395) $(49,130) $(13,462)
      
Basic earnings (loss) per common share:     
Continuing operations$(0.23) $0.03
 $0.13
Discontinued operations, net of tax(0.25) (0.91) (0.38)
Basic earnings (loss) per common share$(0.48) $(0.88) $(0.25)
Diluted earnings (loss) per common share:     
Continuing operations$(0.23) $0.03
 $0.13
Discontinued operations, net of tax(0.25) (0.91) (0.37)
Diluted earnings (loss) per common share$(0.48) $(0.88) $(0.24)
Weighted average common shares:     
Weighted average common shares used in computing basic earnings (loss) per common share57,580
 56,087
 54,459
Weighted average common shares used in computing diluted earnings (loss) per common share57,580
 56,350
 54,992
SeeThe accompanying Notes toare an integral part of these Consolidated Financial Statements.

33



FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

 Years ended December 31,
 20232022
Net income (loss)$24,713 $(42,305)
Other comprehensive income:
Foreign currency translation adjustment(54)100 
Comprehensive income (loss)$24,659 $(42,205)

 Year ended December 31,
 2017 2016 2015
(Loss) income from continuing operations$(13,053) $1,907
 $7,158
Loss from discontinued operations, net of tax(14,342) (51,037) (20,620)
Net loss(27,395) (49,130) (13,462)
Other comprehensive income (loss):     
Foreign currency translation adjustment72
 281
 (735)
Comprehensive loss$(27,323) $(48,849) $(14,197)

SeeThe accompanying Notes toare an integral part of these Consolidated Financial Statements.

34



FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
 Common Stock Treasury Stock 
Additional
Paid-in
Capital
 
Accumulated
Other Comprehensive
Income (Loss)
 
Retained Earnings
(Accumulated
Deficit)
 Non-controlling Interests Total Equity
 Shares Issued Par Value Shares Cost 
Balance, December 31, 201454,634
 $5
 449
 $(495) $254,233
 $(502) $52,762
 $351
 $306,354
Net loss—
 —
 —
 —
 —
 —
 (13,462) —
 (13,462)
Foreign currency translation adjustment—
 —
 —
 —
 —
 (735) —
 —
 (735)
Stock issued under employee stock purchase plan—
 —
 (77) —
 879
 —
 —
 —
 879
Stock options exercised768
 1
 —
 —
 1,371
 —
 —
 —
 1,372
Restricted stock granted758
 —
 —
 —
 —
 —
 —
 —
 —
Restricted stock forfeited—
 —
 33
 —
 —
 —
 —
 —
 —
Treasury stock purchased—
 —
 473
 (6,345) —
 —
 —
 —
 (6,345)
Stock surrendered for exercise of stock options—
 —
 107
 (1,332) —
 —
 —
 —
 (1,332)
Excess tax benefit related to share-based awards—
 —
 —
 —
 1,273
 —
 —
 —
 1,273
Stock compensation expense—
 —
 —
 —
 14,681
 —
 —
 —
 14,681
Investment in Flotek Gulf, LLC and Flotek Gulf
Research, LLC		—
 —
 —
 —
 —
 —
 —
 7
 7
Stock issued in IAL acquisition60
 —
 —
 —
 1,014
 —
 —
 —
 1,014
Repurchase of common stock—
 —
 800
 (9,697) —
 —
 —
 —
 (9,697)
Balance, December 31, 201556,220
 $6
 1,785
 $(17,869) $273,451
 $(1,237) $39,300
 $358
 $294,009
Net loss—
 —
 —
 —
 —
 —
 (49,130) —
 (49,130)
Foreign currency translation adjustment—
 —
 —
 —
 —
 281
 —
 —
 281
Sale of common stock, net of issuance cost2,450
 —
 —
 —
 30,090
 —
 —
 —
 30,090
Stock issued under employee stock purchase plan—
 —
 (93) —
 833
 —
 —
 —
 833
Stock options exercised114
 —
 —
 —
 184
 —
 —
 —
 184
Restricted stock granted653
 —
 —
 —
 —
 —
 —
 —
 —
Restricted stock forfeited—
 —
 96
 —
 —
 —
 —
 —
 —
Treasury stock purchased—
 —
 238
 (2,350) —
 —
 —
 —
 (2,350)
Stock surrendered for exercise of stock options—
 —
 3
 (50) —
 —
 —
 —
 (50)
Reduction in tax benefit related to share-based awards—
 —
 —
 —
 (2,510) —
 —
 —
 (2,510)
Stock compensation expense—
 —
 —
 —
 13,076
 —
 —
 —
 13,076
Stock issued in IPI acquisition248
 —
 —
 —
 3,268
 —
 —
 —
 3,268
Balance, December 31, 201659,685
 $6
 2,029
 $(20,269) $318,392
 $(956) $(9,830) $358
 $287,701
Net loss—
 —
 —
 —
 —
 —
 (27,395) —
 (27,395)
Foreign currency translation adjustment—
 —
 —
 —
 —
 72
 —
 —
 72
Stock issued under employee stock purchase plan—
 —
 (113) —
 654
 —
 —
 —
 654
Common stock issued in payment of accrued liability—
 —
 —
 —
 188
 —
 —
 —
 188
Stock options exercised663
 —
 —
 —
 5,884
 —
 —
 —
 5,884
Restricted stock granted275
 —
 —
 —
 —
 —
 —
 —
 —
Restricted stock forfeited—
 —
 122
 —
 —
 —
 —
 —
 —
Treasury stock purchased—
 —
 200
 (1,729) —
 —
 —
 —
 (1,729)
Stock surrendered for exercise of stock options—
 —
 478
 (5,863) —
 —
 —
 —
 (5,863)
Stock compensation expense—
 —
 —
 —
 10,949
 —
 —
 —
 10,949
Repurchase of common stock—
 —
 905
 (5,203) —
 —
 —
 —
 (5,203)
Balance, December 31, 201760,623
 $6
 3,621
 $(33,064) $336,067
 $(884) $(37,225) $358
 $265,258
See accompanying Notes to Consolidated Financial Statements.


FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Years ended December 31,
 20232022
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:
Change in fair value of contingent consideration(527)(25)
Change in fair value of contract consideration convertible notes payable(29,969)(75)
Amortization of convertible note issuance cost83 1,002 
Paid-in-kind interest expense2,284 5,956 
Amortization of contract assets5,033 3,371 
Depreciation734 734 
Amortization of asset-based loan origination costs121 — 
Provision for credit losses138 203 
Provision for excess and obsolete inventory959 1,734 
Gain on sale of property and equipment(38)(2,916)
Gain on lease termination— (584)
Non-cash lease expense3,014 226 
Stock compensation expense(254)3,325 
Deferred income tax expense (benefit)104 (125)
Paycheck protection plan loan forgiveness(4,522)— 
Changes in current assets and liabilities:
Accounts receivable5,311 (7,342)
Accounts receivable, related party(11,886)(21,383)
Inventories1,938 (7,917)
Income taxes receivable— 14 
Other assets(836)(285)
Contract assets— (3,600)
Accounts payable(1,670)25,760 
Accrued liabilities(2,575)(34)
Operating lease liabilities(3,391)(507)
Income taxes payable(53)93 
Interest payable(8)48 
Net cash used in operating activities(11,297)(44,632)
Cash flows from investing activities:
Capital expenditures(1,081)(421)
Proceeds from sale of assets67 5,752 
Net cash (used in) provided by investing activities(1,014)5,331 
Cash flows from financing activities:
Payment for forfeited stock options(617)— 
Payments on long-term debt(149)— 
Proceeds from asset-based loan68,716 — 
Payments on asset-based loan(61,224)— 
Payment of asset-based loan origination costs(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(268)(224)
Proceeds from issuance of stock77 133 
Payments for finance leases(33)(38)
Net cash provided by financing activities5,928 38,267 
Effect of changes in exchange rates on cash and cash equivalents(54)100 
Net change in cash, cash equivalents and restricted cash(6,437)(934)
Cash and cash equivalents at the beginning of period12,290 11,534 
Restricted cash at the beginning of period100 1,790 
Cash and cash equivalents and restricted cash at beginning of period12,390 13,324 
Cash and cash equivalents at end of period5,851 12,290 
Restricted cash at the end of period102 100 
Cash, cash equivalents and restricted cash at end of period$5,953 $12,390 
 Year ended December 31,
 2017 2016 2015
Cash flows from operating activities:     
Net loss$(27,395) $(49,130) $(13,462)
Loss from discontinued operations, net of tax(14,342) (51,037) (20,620)
(Loss) income from continuing operations(13,053) 1,907
 7,158
Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities:     
Depreciation and amortization12,159
 10,429
 8,735
Amortization of deferred financing costs472
 424
 346
Provision for doubtful accounts113
 558
 367
Loss (gain) on sale of assets292
 (18) (12)
Stock compensation expense11,172
 12,053
 13,083
Deferred income tax provision (benefit)181
 (19,681) (7,929)
Reduction in (excess) tax benefit related to share-based awards1,989
 2,510
 (1,273)
Changes in current assets and liabilities:     
Accounts receivable, net1,456
 (11,544) 13,676
Inventories(17,291) (6,528) (9,905)
Income taxes receivable8,008
 (8,189) (4,700)
Other current assets12,153
 (14,489) 167
Accounts payable(8,719) 12,653
 (7,653)
Accrued liabilities8,180
 23,946
 9,552
Income taxes payable—
 (1,890) 3,842
Interest payable19
 (87) 18
Net cash provided by operating activities17,131
 2,054
 25,472
Cash flows from investing activities:     
Capital expenditures(8,960) (13,960) (16,391)
Proceeds from sale of businesses18,490
 —
 —
Proceeds from sale of assets689
 115
 13
Payments for acquisitions, net of cash acquired—
 (7,863) —
Purchase of patents and other intangible assets(479) (573) (627)
Net cash provided by (used in) investing activities9,740
 (22,281) (17,005)
Cash flows from financing activities:     
Repayments of indebtedness(9,833) (15,564) (10,143)
Borrowings on revolving credit facility383,160
 338,460
 382,666
Repayments on revolving credit facility(393,776) (325,043) (366,018)
Debt issuance costs(579) (1,199) (10)
(Reduction in) excess tax benefit related to share-based awards—
 (2,510) 1,273
Purchase of treasury stock(1,729) (2,350) (6,345)
Proceeds from sale of common stock654
 30,923
 879
Repurchase of common stock(5,203) —
 (9,697)
Proceeds from exercise of stock options21
 134
 39
Proceeds from noncontrolling interest—
 —
 7
Net cash (used in) provided by financing activities(27,285) 22,851
 (7,349)
Discontinued operations:     
Net cash (used in) provided by operating activities(684) 12
 1,199
Net cash provided by (used in) investing activities708
 (18) (1,199)
Net cash flows provided by (used in) discontinued operations24
 (6) —
Effect of changes in exchange rates on cash and cash equivalents151
 (3) (176)
Net (decrease) increase in cash and cash equivalents(239) 2,615
 942
Cash and cash equivalents at beginning of year4,823
 2,208
 1,266
Cash and cash equivalents at end of year$4,584
 $4,823
 $2,208

SeeThe accompanying Notes toare an integral part of these Consolidated Financial Statements.

35


FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2023 and 2022
(In thousands of U.S. dollars and shares)

 Common StockTreasury StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income		Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued		Par
Value		SharesCost
Balance, December 31, 202213,986 $1 1,021 $(34,251)$388,184 $181 $(351,519)$2,596 
Net income— — — — — — 24,713 24,713 
Foreign currency translation adjustment— — — — — (54)— (54)
Stock issued under employee stock purchase plan— — (20)— 77 — — 77 
Restricted stock granted146 — — — — — — — 
Restricted stock forfeited(7)— 66 — — — — — 
Restricted stock units vested82 — — — — — — — 
Forfeited stock options purchased— — — — (617)— — (617)
Stock compensation expense— — — — (254)— — (254)
Shares withheld to cover taxes(3)— 42 (253)(15)— — (268)
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 stock10,583 1 — — 40,637 — — 40,638 
Conversion of convertible notes payable to common stock1,723 1 — — 8,996 — — 8,997 
Other35 — — — — — — — 
Exercise of February 2023 warrants4,228 — — — — — — — 
Balance, December 31, 202330,773 $3 1,109 $(34,504)$463,140 $127 $(326,806)$101,960 


 Common StockTreasury StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued		Par
Value		SharesCost
Balance, December 31, 202113,247 $1 1,004 $(34,100)$363,424 $81 $(309,214)$20,192 
Net loss— — — — — — (42,305)(42,305)
Foreign currency translation adjustment— — — — — 100 — 100 
Stock issued under employee stock purchase plan— — (7)— 140 — — 140 
Restricted stock granted255 — — — — — — — 
Restricted stock forfeited(1)— 5 — — — — — 
Restricted stock units vested24 — — — (31)— — (31)
Stock compensation expense— — — — 3,325 — — 3,325 
Shares withheld to cover taxes(6)— 19 (151)(42)— — (193)
Issuance of stock warrants, net of transaction fee— — — — 9,930 — — 9,930 
Equity contribution— — — — 8,400 — — 8,400 
Conversion of notes to common stock467 — — — 3,038 — — 3,038 
Balance, December 31, 202213,986 $1 1,021 $(34,251)$388,184 $181 $(351,519)$2,596 

The accompanying Notes are an integral part of these Consolidated Financial Statements.
36

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization and Nature of Operations
General
Flotek Industries, Inc. (“Flotek” or the “Company”) iscreates 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. For further discussion of our operations and segments, see Note 18, “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 global, diversified, technology-driven companyhistory 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 developsour cash, liquid assets, and supplies chemistriesavailability under the ABL will provide us with sufficient financial resources to fund operations to meet our capital requirements and services toanticipated obligations as they become due, uncertainty surrounding the long term stability and strength of the oil and gas industries,markets could have a negative impact on our liquidity.
As defined and high value compoundsdiscussed 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 companiespay 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 make foodincludes the collection of the Contract Shortfall Fees related to 2023 of $20.1 million, combined with cash on hand and beverages, cleaning products, cosmetics,availability under the ABL, the Company believes it has sufficient financial resources to fund operations and other products that are sold in consumermeet its capital requirements and industrial markets.
The Company’s oilfield business includes specialty chemistries and logistics which enable its customers in pursuing improved efficienciesanticipated obligations as they become due in the drilling and completionnext twelve months. However, the Company cannot guarantee a sufficient level of their wells.cash flows in the future. The Company also provides automated bulk material handling, loading facilities, and blending capabilities. The Company processes citrus oil to produce (1) high value compounds used as additives by companieshad previously disclosed in the flavorsconsolidated financial statements as of and fragrances marketsfor 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 (2) environmentally friendly chemistries for use in numerous industries aroundevents raising the world, includingsubstantial doubt no longer exist. The consolidated financial statements have been prepared assuming that the oil and gas (“O&G”) industry.
Company will continue as a going concern.

Flotek operates in over 20 domestic and international markets. Customers include major integrated O&G companies, oilfield services companies, independent O&G companies, pressure-pumping service companies, national and state-owned oil companies, and international supply chain management companies. The Company also serves customers who purchase non-energy-related citrus oil and related products, including household and commercial cleaning product companies, fragrance and cosmetic companies, and food manufacturing companies.
Flotek was initially incorporated under the laws of the Province of British Columbia on May 17, 1985. On October 23, 2001, Flotek changed its corporate domicile to the state of Delaware.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).GAAP.
The accompanying consolidated financial statements include the accounts of Flotek Industries, Inc. and all wholly-owned subsidiary corporations. Where Flotek owns less than 100% of the share capital of its subsidiaries but is still considered to have sufficient ownership to control the business, results of the business operations are consolidated within the Company’s financial statements. The ownership interests held by other parties are shown as noncontrolling interests.
During the fourth quarter of 2016, the Company classified the Drilling Technologies and Production Technologies segments as held for sale based on management’s intention to sell these businesses. The Company’s historical financial statements have been revised to present the operating results of the Drilling Technologies and Production Technologies segments as discontinued operations. The results of operations of Drilling Technologies and Production Technologies are presented as “Loss from discontinued operations” in the statement of operations and the related cash flows of these segments has been reclassified to discontinued operations for all periods presented. The assets and liabilities of the Drilling Technologies and Production Technologies segments have been reclassified to “Assets held for sale” and “Liabilities held for sale”, respectively, in the consolidated balance sheet for all periods presented.
During 2017, the Company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of each of the Drilling Technologies and Production Technologies segments.
it controls. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company does not have investments in any unconsolidated subsidiaries.

37

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less at the date of purchase.
Restricted Cash Management
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 usesis contractually obligated to maintain in accordance with the terms of its credit card program with a controlled disbursement account for its main cash account. Under this system, outstanding checks can be in excess of the cash balances at the bank before the disbursement account is funded, creating a book overdraft. Book overdrafts on this account are presented as a current liability in accounts payable in the consolidated balance sheets.financial institution.
Accounts Receivable and Allowance for Doubtful AccountsCredit 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 statedrecorded at estimatedthe invoiced amount, net realizable value.of an allowance for credit losses. This value incorporates an allowance for doubtful accountscredit losses to reflect any loss anticipated on accounts receivable balances. The Company regularly evaluates its accounts receivable to estimate amounts that will not be collectedapplies the current expected credit loss (CECL) model, which requires immediate recognition of expected credit losses over the contractual life of receivables and records the appropriate provisionallowance for doubtful accountscredit losses as a charge to operating expenses.Operating Cost and Expenses. The allowance for doubtful accountscredit losses is based on a combination of the age of the receivables, individual
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

customer circumstances, credit conditions, and historical write-offs and collections. The Company writes off specific accounts receivable when they are determined to be uncollectible. The recovery of accounts receivable previously written off is recorded as a reduction to the allowance for credit losses charged to operating expense.
The majority of the Company’s customers are engaged in the energy industry. The cyclical nature of the energy industry may
affect customers’ operating performance and cash flows, which directly impact the Company’s ability to collect on outstanding obligations. 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.
Changes in the allowance for doubtful accounts for continuing operationscredit losses are as follows (in thousands):
 Years ended December 31,
 20232022
Balance, beginning of year$623 $659 
Charges to provision for credit losses, net of recoveries138 203 
Write-offs(16)(239)
Balance, end of year$745 $623 
 Year ended December 31,
 2017 2016 2015
Balance, beginning of year$664
 $709
 $510
Charged to provision for doubtful accounts113
 558
 367
Write-offs(44) (603) (168)
Balance, end of year$733
 $664
 $709
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”).
Contract Assets
The Company’s contract assets represent consideration issued in the form of convertible notes (Contract Consideration Convertible Notes Payable as discussed in Note 9, “Debt and Convertible Notes Payable”) and other incremental costs related to obtaining the ProFrac Agreement (see Note 17, “Related Party Transactions”) during the year ended December 31, 2022. The contract assets are amortized over the term of the ProFrac Agreement (originally 10 years) based on forecasted revenues as goods are transferred to ProFrac Services, LLC and the amortization is presented as a reduction of the transaction price included in related party revenue in the consolidated statements of operations.
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. Based on our tests of recoverability, we did not identify an impairment of the contract assets during the years ended December 31, 2023 and 2022.

38

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories consist of raw materials work-in-process, 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 regularlyperiodically reviews inventories on hand and current market conditions to determine if the cost of raw materials and finished goods inventories exceedsexceed current market prices and impairs the cost basis of the inventory accordingly. Historically, the Company recorded a provision forObsolete inventory or inventory in excess and obsolete inventory. Impairmentof management’s estimated usage requirement is written down to its net realizable value if those amounts are determined to be less than cost. Write-downs or provisionswrite-offs of inventory are based primarily on forecastscharged to cost of product demand, historical trends, market conditions, production, or procurement requirements and technological developments and advancements.sales.
Property and Equipmentequipment
Property and equipment are stated at cost. Plant and equipment under finance leases are stated at the present value of the lease payments.The Company capitalizes costs associated with the acquisition of major software for internal use.
The cost of ordinary maintenance and repair is charged to operating expense, while replacement of critical components and major improvements are capitalized. Depreciation or amortization of property and equipment, including operating lease right-of-use assets held under capital leases,(“ROU”), is calculated using the straight-line method over the shorter of the lease term or the asset’s estimated useful life as follows:
Buildings and leasehold improvements2-30 years
Machinery equipment, and rental toolsequipment7-10 years
Furniture and fixtures3 years
Land improvements20 years
Transportation equipment2-5 years
Computer equipment and software3-7 years
Property and equipment, including ROU assets, are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. IndicativeIf events or changes in circumstances include, but are not limited to, matters such as a significant decline in market value or a significant change in business climate. An
impairment loss is recognized whenindicate the carrying amount of an asset exceedsor asset group may not be recoverable, the estimatedCompany first compares the carrying amount of an asset or asset group to the sum of the undiscounted future cash flows expected to result from the use and eventual disposal of the asset. If the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposal of the asset, and its eventual disposition.the Company will determine the fair value of the asset or asset group. The amount of impairment loss recognized is the excess of the asset’sasset 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. There were no impairments of property and equipment, including ROU assets, during the years ended December 31, 2023 and 2022.
Assets to be disposed of are reported as assets held for sale at the lower of the carrying amount or the asset’s fair value less cost to sell.sell and depreciation is ceased. Upon sale or other disposition of an asset, the Company recognizes a gain or loss on disposal measured as the difference between the net carrying amount of the asset and the net proceeds received.
Internal Use Computer Software CostsLeases
Direct costs incurredThe Company leases certain facilities, land, vehicles, and equipment. 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.
ROU assets represent the right to purchaseuse an underlying asset for the lease term and develop computer software for internal uselease liabilities represent the obligation to make lease payments arising from the related lease. Finance leases are capitalized duringunder the application developmentcurrent and implementation stages. These software costs have been primarily for enterprise-level businessnon-current liabilities and finance software that is customized to meet the Company’s specific operational needs. Capitalized costsunderlying assets are included in property and equipment on the consolidated balance sheet. For operating and finance leases, the lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date. The lease liability is subsequently measured at amortized cost using the effective-interest method.
As most of the Company’s leases do not provide an implicit rate of return, on a quarterly basis, the Company’s incremental borrowing rate is used, together with the lease term information available at commencement date of the lease, in determining the present value of lease payments. Operating lease liabilities include the noncancellable period of the lease plus related options to extend or terminate lease terms that are amortizedreasonably certain of being exercised. Lease payments included in the measurement of the lease liability comprise fixed payments owed over the lease term.
Leases with an initial term of 12 months or less (“short term leases”) are not recorded on the balance sheet; and the lease expense on short-term leases is recognized on a straight-line basis over the estimated useful life of the software beginning when the software project is substantially complete and placed in service. Costs incurred during the preliminary project stage and costs for training, data conversion, and maintenance are expensed as incurred.lease term.
The Company amortizes software costs using the straight-line method over the expected life of the software, generally 3 to 7 years. The unamortized amount of capitalized software was $4.0 million at December 31, 2017.

Goodwill
Goodwill is the excess of cost of an acquired entity over the amounts assigned to identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not subject to amortization, but is tested for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate a potential impairment. These circumstances may include an adverse39

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. The nature of the sublease did not relieve the Company of its obligations under the original lease. The lease for the prior headquarters was an operating lease and, as such, the Company continues to account for the original lease as it did prior to entering the sublease. 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.
change in the business climate or a change in the assessment of future operations of a reporting unit.Convertible Notes Payable and Liability Classified Contract Consideration Convertible Notes Payable
The Company assesses whether a goodwill impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not thataccounts for the fair value of a reporting unit is less than its carrying amount, including goodwill. If, based on this qualitative assessment, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company does not perform a quantitative assessment.
If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if the Company elects notConvertible Notes Payable at amortized cost pursuant to perform a qualitative assessment, a quantitative impairment test is performed to determine whether goodwill impairment exists at the reporting unit.
The quantitative impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the estimated fair value of each reporting unit with goodwill to its carrying amount, including goodwill. To determine fair value estimates, the Company uses the income approach based on discounted cash flow analyses, combined, when appropriate, with a market-based approach. The market-based approach considers valuation comparisons of recent public sale transactions of similar businesses and earnings multiples of publicly traded businesses operating in industries consistent with the reporting unit. If the carrying amount of a reporting unit, including goodwill, exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit.
Other Intangible Assets
The Company’s other intangible assets have finite and indefinite lives and consist of customer relationships, trademarks, brand names, and purchased patents.
The cost of intangible assets with finite lives is amortized using the straight-line method over the estimated period of economic benefit, ranging from 2 to 20 years. Asset lives are adjusted whenever there is a change in the estimated period of economic benefit. No residual value has been assigned to these intangible assets.
Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. These conditions may include a change in the extent or manner in which the asset is being used or a change in future operations. The Company assesses the recoverability of the carrying amount by preparing estimates of future revenue, margins, and cash flows. If the sum of expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount, an impairment loss is recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flow models.
Intangible assets with indefinite lives are not subject to amortization, but are tested for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate a potential impairment. These circumstances may include, but are not limited to, a significant adverse change in the business climate, unanticipated competition, or a change in projected operations or results of a reporting unit.Financial Accounting Standards Board (“FASB”) ASC Topic 470, Debt (“ASC 470”).
The Company assesses whether an indefinite lived intangible impairment exists using both qualitativeaccounted for the Contract Consideration Convertible Notes Payable issued as consideration related to a related party contract (see Note 9, “Debt and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that theConvertible 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 ofat the indefinite lived intangible is less than its carrying amount. If, based on this qualitative assessment, it is determined that it is not more likely than not thatgrant date and at each reporting date (see Note 10, “Fair Value Measurements”) with the change in fair value of the indefinite lived intangible is less than its carrying amount, the Company does not perform a quantitative assessment.
If the qualitative assessment indicates that it is more likely than not that the indefinite-lived intangible asset is impaired or if the Company elects to not perform a qualitative assessment, the Company then performs the quantitative impairment test. The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flows.
Business Combinations
The Company includes the results of operations of its acquisitions in its consolidated results, prospectively from the date of acquisition. Acquisitions are accounted for by applying the acquisition method. The Company allocates the fair value of purchase consideration to the assets acquired, liabilities assumed, and any noncontrolling interestsincluded in the acquired entity generally based onconsolidated statements of operations. The Contract Consideration Notes Payable matured and were converted during the year ended December 31, 2023 in accordance with their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed,terms (see Note 9, “Debt and any noncontrolling interests in the acquired entity is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the acquired company and Flotek and the value of the acquired assembled workforce. Acquisition-related expenses are recognized separately from the business acquisition and are recognized as expenses as incurred.Convertible Notes Payable”).
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements
The Company categorizes financial assets and liabilities using a three-tier fair value hierarchy, based on the nature of the inputs used to determine fair value. Inputs refer broadly to assumptions that market participants would use to value an asset or liability and may be observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). “Level 1” measurements are measurements using quoted prices in active markets for identical assets and liabilities. “Level 2” measurements are measurements using quoted prices in markets that are not active or that are based on quoted prices for similar assets or liabilities. “Level 3” measurements are measurements that use significant unobservable inputs which require a company to develop its own assumptions. When determining the fair value of assets and liabilities, the Company uses the most reliable measurement available. See Note 10, “Fair Value Measurements.”
Revenue Recognition
RevenueThe 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 product sales and services is recognizedthose goods or services.
The Company recognizes revenue based on a five-step model when all of the following criteria have been met: (i) persuasive evidence of an arrangementa contract with a customer exists, (ii) products are shipped or services are rendered to the customer and significant risks and rewards of ownershipperformance obligations have passed to the customer,been identified, (iii) the price to the customer is fixedhas been determined, (iv) the price to the customer has been allocated to the performance obligations, and determinable, and (iv) collectability is reasonably assured. (v) performance obligations are satisfied.
Products and services are sold with fixed or determinable pricesprices. Variable consideration is estimated for the Contract Shortfall Fees from the ProFrac Agreement (see Note 17, “Related Party Transactions”) using the most likely amount and dothe Company includes an estimated amount of variable consideration in the transaction price only if it is probable that a subsequent change in the estimate of the amount of variable consideration would not result in a significant revenue reversal. A significant revenue reversal would occur if a subsequent change in the estimate of the variable consideration would result in a significant downward adjustment to the amount of cumulative revenue recognized from that contract when the change in estimate occurs. Certain sales include right of return provisions, which are considered when recognizing revenue and deferred accordingly, and discounts offered to customers for prompt payment. The Company does not act as an agent in any of its revenue arrangements.
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 other significant post-delivery obligations. Depositsservices 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.
The majority of the CT segment revenue is chemical products that are sold at a point in time based on when control transfers to the customer determined by agreed upon delivery terms. Contracts with customers for the sale of products generally state the terms of the sale, including the quantity and price of each product purchased. Additionally, the CT segment offers various services associated to products sold which includes field services, installation, maintenance, and other funds receivedfunctions. These services are recognized upon completion of commissioning and installation due to the short-term nature of the performance obligation when the Company has a right to invoice the customer.
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

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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. There may be additional performance obligations related to providing ongoing or reoccurring maintenance. Revenue for these types of arrangements is recognized ratably over time throughout the contract period. Additionally, the Company provides subscription-type arrangements with customers in advancewhich monthly reoccurring revenue is recognized ratably over time in accordance with agreed upon terms and conditions. Customers may be invoiced for such maintenance and subscription-type arrangements and revenue not yet recognizable is reported under accrued liabilities and deferred revenue on the consolidated balance sheets. Subscription-type arrangements were not a material revenue stream in the years ended December 31, 2023 and 2022.
Payment terms for both the CT and DA segments are customarily 30-60 days for domestic and 90-120 days for international from invoice receipt. Under revenue contracts for both products and services, customers are invoiced once the performance obligations have been satisfied, at which point payment is unconditional. Contract assets and liabilities associated with incomplete performance obligations are not material.
The Company applies several practical expedients including:
•Sales commissions are expensed as selling, general and administrative expenses when incurred because the amortization period is generally one year or less.
•The Company’s payment terms are short-term in nature with settlements of deliveryone year or less. As a result, the Company does not adjust the promised amount of consideration for the effects of a significant financing component.
•In most service contracts, the Company has the right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance obligations completed to date and as such the Company recognizes revenue in the amount to which it has a right to invoice.
•The Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are deferredboth imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer. Such taxes are included in accrued liabilities on our consolidated balance sheet until remitted to the transfer of ownership is complete. governmental agency.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are reflectedaccounted for as a fulfillment cost and are included in cost of revenue. Taxes collected are not includedsales in revenue; rather, taxes are accrued for future remittance to governmental authorities.
For certain contracts related to the EOGA division and the Logistics divisionour consolidated statement of the Energy Chemistry Technologies segment, the Company recognizes revenue under the percentage-of-completion method of accounting, measured by the percentage of “costs incurred to date” to the “total estimated costs of completion.” This percentage is applied to the “total estimated revenue at completion” to calculate proportionate revenue earned to date. Contracts for services are inclusive of direct labor and material costs, as well as, indirect costs of operations. General and administrative costs are charged to expense as incurred. Changes in job performance metrics and estimated profitability, including contract bonus or penalty provisions and final contract settlements, are recognized in the period such revisions appear probable. Known or anticipated losses on contracts are recognized in full when amounts are probable and estimable.
The Company generally is not contractually obligated to accept returns, except for defective products. Typically products determined to be defective are replaced or the customer is issued a credit memo. There is typically no right
of return or any significant post-delivery obligations. All costs associated with product returns are expensed as incurred.
Foreign Currency Translation
The Company’s functional currency is primarily the U.S. dollar. The Company operates principally in the United States and substantially all assets and liabilities of the Company are denominated in U.S. dollars. Financial statements of foreign subsidiaries that are not U.S. dollar functional currency are prepared using the currency of the primary economic environment of the foreign subsidiaries as the functional currency. Assets and liabilities of those foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of identified reporting periods. 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 from and distributions to stockholders. The Company’s comprehensive income (loss) includes consolidated net income (loss) and foreign currency translation adjustments.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged to expense as incurred.
Income Taxes
DuringIncome taxes are accounted for under the year ended December 31, 2015, the Company restructured its legal entities such that there is only one U.S. tax filing group filing a single U.S. consolidated federal income tax return beginning in 2016.
The Company uses theasset and liability method in accounting for income taxes.method. Deferred tax assets and liabilities are recognized for temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities and are measured using the tax rates expected to be in effect when the differences reverse. Deferred tax assets and liabilities are recognized related to the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company’s assets and liabilities using statutory tax rates at the applicable year end. Deferred tax assets are also recognized for operating loss and tax credit carry forwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is used to reduce deferred tax assets when uncertainty exists regarding their realization.
A valuation allowance is recorded to reduce previously recorded tax assetsestablished when it becomesis more likely than not that suchsome portion or all of the deferred tax assets will not be realized. The Company evaluates, at least annually, net operating loss carry forwardsestablishment of a valuation allowance requires significant judgment and other net deferred tax assets and considers all available evidence, both positive and negative, to determine whether a valuationis impacted by various estimates.

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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 is necessary relative to net operating loss carry forwards and other neton deferred tax assets. In making this determination, the Company considers cumulative losses in recent years as significant negative evidence. The Company considers recent years to mean the current year plus the two preceding years. The Company considers the recent cumulative income or loss position as objectively verifiable evidence for the projection of future income, which consists primarily of determining the average of the pre-tax income of the current and prior two years after adjusting for certain items not indicative of future performance. Based on this analysis, the Company determines whether a valuation allowance is necessary.
Historically, U.S. Federal income taxes are not provided on unremitted earnings of subsidiaries operating outside the U.S. because it is the Company’s intention to permanently reinvest undistributed earnings in the subsidiary. These earnings would become subject to income tax if they were remitted as dividends or loaned to a U.S. affiliate. Due to the 2017 Tax Cuts and Jobs Act, U.S. federal transition taxes have been recorded at December 31, 2017, for a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. Determination of the amount of unrecognized deferred U.S. income tax liability on these unremitted earnings is not practicable.
The Company has performed an evaluation and concluded that there are no significant uncertainrecognizes the effect of income tax positions requiringonly if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the Company’s financial statements.period in which the change in judgment occurs.
The Company’s policy is to record interest and penalties related to incomeuncertain tax matterspositions as income tax expense.
Earnings (Loss) Per Share
Basic earnings (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders, adjusted for the effect of assumed conversions of convertible notes and preferred stock, by the weighted average number of common shares outstanding, including potentially dilutive common share equivalents, if the effect is dilutive. Potentially dilutive common shares equivalents consist of incremental shares of common stock issuable upon exercise of stock options and warrants, settlement of restricted stock units, and conversion of convertible notes and convertible preferred stock.
Debt Issuance Costs
Costs related to debt issuance are capitalized and amortized as interest expense over the term of the related debt using the straight-line method, which approximates the effective interest method. Upon the repayment of debt, the Company accelerates the recognition of an appropriate amount of the costs as interest expense.
Capitalization of Interest
Interest costs are capitalized for qualifying in-process software development projects. Capitalization of interest commences when activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are capitalized until the assets are ready for their intended use. Capitalized interest is added to the cost of the underlying assets and amortized over the estimated useful lives of the assets.
Stock-Based Compensation
Stock-based compensation expense, for share-based payments, related to stock options, restricted stock awards and restricted stock units, is recognized based on their grant-date fair values. The Company recognizes compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period of the award. Estimated forfeitures are based on historical experience.
Stock Warrants
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
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from these estimates.
Significant items subject to estimates and assumptions include application ofestimated variable consideration included in contract transaction price; the percentage-of-completion method of revenue recognition, the carrying amount and useful lives of property and equipment and intangible assets,equipment; long lived asset impairment assessments, share-basedassessments; stock-based compensation expense, andexpense; valuation allowances for accounts receivable, inventories, and deferred tax assets.assets; 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.
AssetsReclassification
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.
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the FASB. We evaluate the applicability and Liabilities Heldimpact 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 Sale
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 classifies disposal groups as held for sale inis currently evaluating the period in which allimpact of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the disposal group; (2) the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; (3) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group have been initiated; (4) the saleadoption of the disposal group is probable, and transfer ofASU on the disposal group is expected to qualify for recognition as a completed sale, within one year, except if events of circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; (5) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.related disclosures.

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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A disposal group that is classified as held for sale is initially measured at the lower of its carrying amount or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met.
Subsequent changes in the fair value of a disposal group less any costs to sell are reported as an adjustment to the carrying amount of the disposal group, as long as the new carrying amount does not exceed the carrying amount of the asset at the time it was initially classified as held for sale. Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group for all periods presented in the line items assets held for sale and liabilities held for sale, respectively, in the consolidated balance sheets.
Discontinued Operations
The results of operations of a component of the Company that can be clearly distinguished, operationally and for financial reporting purposes, that either has been disposed of or is classified as held for sale is reported in discontinued operations, if the disposal represents a strategic shift that has, or will have, a major effect on the Company’s operations and financial results.
General corporate overhead is not allocated to discontinued operations for all periods presented. Interest expense on debt required to be repaid as a result of disposal transactions is allocated to discontinued operations. Interest allocated to discontinued operations totaled $0.2 million, $0.4 million, and $0.2 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not impact net income.
New Accounting Pronouncements
(a) Application of New Accounting Standards
Effective January 1, 2017, the Company adopted the accounting guidance in Accounting Standards Update (“ASU”) No. 2015-11, “Simplifying the Measurement of Inventory.” This standard requires management to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures.
Effective January 1, 2017, the Company adopted the accounting guidance in ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This standard eliminated the requirement for organizations to present deferred tax assets
and liabilities as current and noncurrent in a classified balance sheet. Instead, organizations are now required to classify all deferred tax assets and liabilities as noncurrent. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures. The Company applied this standard retrospectively and, therefore, prior periods presented were adjusted.
Effective January 1, 2017, the Company adopted the accounting guidance in ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This standard simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance requires excess tax benefits and deficiencies to be recognized in the income statement rather than in additional paid-in capital. As a result of applying this change, the Company recognized a $2.0 million reduction in tax benefit in the provision for incomes taxes during the year ended December 31, 2017. The Company applied this standard prospectively, where applicable, and, therefore, prior periods presented were not adjusted.
Effective October 1, 2017, the Company adopted the accounting guidance in ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” This standard eliminates Step 2 from the goodwill impairment test. The Company will now recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures.
(b) New Accounting Requirements and Disclosures
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
In August 2015, the FASB issued ASU No. 2015-14,2023-09, “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 effective date by one yearexception to recognizing deferred taxes related to subsidiaries and corporate joint ventures. ASU 2023-09 goes into effect for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March 2016, the FASB2024 and early adoption is permitted for annual financial statements not yet issued ASU No. 2016-08, which improves the operability and understandabilityor made available for issuance. Adoption of the implementation guidanceASU is on principal versus agent considerations. In April 2016,a prospective basis, with the FASB issuedoption to apply retrospectively. The Company is currently evaluating the impact of the adoption of the ASU No. 2016-10,on the related disclosures.
Note 3 — Revenue from Contracts with Customers
Disaggregation of Revenue
The Company differentiates revenue based on whether the source of revenue is attributable to product sales or service revenue.
Total revenue disaggregated by revenue source is as follows (in thousands):
 Years ended December 31,
 20232022
Revenue:
Products (1)
$182,695 $132,521 
Services5,363 3,571 
$188,058 $136,092 
(1) Product revenues include sales to related parties as described in Note 17, “Related Party Transactions.”
Disaggregation of Cost of Sales
The Company differentiates cost of sales based on whether the cost is attributable to tangible goods sold, cost of services sold or other costs which clarifies identifying performancecannot be directly attributable to either tangible goods or services.
Total cost of sales disaggregated is as follows (in thousands):
 Years ended December 31,
 20232022
Cost of sales:
Tangible goods sold$144,720 $126,914 
Services528 285 
Other18,547 15,593 
$163,795 $142,792 
Other cost of sales represent costs directly associated with the generation of revenue but which cannot be attributed directly to tangible goods sold or services. Examples of other costs of sales are certain personnel costs and equipment rental and insurance costs.

43

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-11, which rescinds certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, effective upon adoptionCost of ASU 2014-09, and ASU No. 2016-12, which reduces the potential for diversity in practice at initial application and reduces the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. In December 2016, the FASB issued ASU No. 2016-20, which provides technical corrections and improvements to the original guidance issued.
In 2017, the Company formed a project team to evaluate the new revenue recognition standard. The team has identified the relevant revenue streams and documented the procedures and control changes required to address the impacts that ASU 2014-09 may have on its business, as well as trained appropriate personnel on the procedures and controls going into effect January 1, 2018. The evaluation efforts included identifying revenue streams with similar contract structures, performing a detailed review of key contracts by revenue stream, and comparing historical policies and practices to the new standard. From the analysis performed, two main revenue streams were identified from contracts with customers: (1) product sales and (2) services. The Company’s revenue recognition methodology does not materially change by the adoption of the new standard for product sales (point in time revenue recognition) and for service contracts (over time), which principally charge on a day rate basis and are primarily short-term in nature. Therefore, based on the assessment, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements. The Company will adopt the new standard effective January 1, 2018, using the full retrospective method.
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The pronouncement is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and should be applied using a modified retrospective transition approach, with early application permitted. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statementsdisaggregated between external and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The pronouncementparty sales is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The pronouncement is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business.” This standard provides additional guidance on whether an integrated set of assets and activities constitutes a business. The pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted in specific instances. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting.” This standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. The pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
Note 3 — Discontinued Operations
During the fourth quarter 2016, the Company initiated a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry. The Company executed a plan to sell or otherwise dispose of the Drilling Technologies and Production Technologies segments. An investment banking advisory
services firm was engaged and actively marketed these segments.
The Company met all of the criteria to classify the Drilling Technologies and Production Technologies segments’ assets and liabilities as held for sale in the fourth quarter 2016. The Company has classified the assets, liabilities, and results of
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

operations for these two segments as “Discontinued Operations” for all periods presented.
Disposal of the Drilling Technologies and Production Technologies reporting segments represented a strategic shift that would have a major effect on the Company’s operations and financial results.
On December 30, 2016, the Company sold a portion of its Drilling Technologies segment and recorded a loss of $1.2 million which is included in the loss from discontinued operations for the year ended December 31, 2016.
On May 22, 2017, the Company completed the sale of substantially all of the assets and transfer of certain specified liabilities and obligations of the Company’s Drilling Technologies segment to National Oilwell Varco, L.P. (“NOV”) for $17.0 million in cash consideration, subject to normal working capital adjustments, with $1.5 million held back by NOV for up to 18 months to satisfy potential indemnification claims.
On May 23, 2017, the Company completed the sale of substantially all of the assets and transfer of certain specified liabilities and obligations of the Company’s Production Technologies segment to Raptor Lift Solutions, LLC (“Raptor Lift”) for $2.9 million in cash consideration, with $0.4 million held back by Raptor Lift to satisfy potential indemnification claims.
On August 16, 2017, the Company completed the sale of substantially all of the remaining assets of the Company’s Drilling Technologies segment to Galleon Mining Tools, Inc. for $1.0 million in cash consideration and a note receivable of $1.0 million due in one year.
The sale or disposal of the assets and transfer or liquidation of liabilities and obligations of these segments was completed in 2017. The Company has no continuing involvement with the discontinued operations.
The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations for the years ended December 31, 2017, 2016, and 2015follows (in thousands):
 Years ended December 31,
 20232022
Cost of sales:
Cost of sales for external customers$64,498 $56,844 
Cost of sales for related parties99,297 85,948 
$163,795 $142,792 

Note 4 - Contract Assets
 Drilling Technologies Production Technologies
 2017 2016 2015 2017 2016 2015
Discontinued operations:           
Revenue$11,534
 $27,627
 $52,112
 $4,002
 $8,292
 $12,281
Cost of revenue(7,309) (18,667) (35,410) (3,236) (7,881) (10,179)
Selling, general and administrative(6,963) (15,285) (21,049) (1,759) (3,790) (4,158)
Depreciation and amortization—
 (1,714) (3,240) —
 (584) (658)
Research and development(5) (64) (202) (364) (888) (596)
Gain (loss) on disposal of long-lived assets97
 103
 17
 —
 (50) 3
Impairment of inventory and long-lived assets—
 (36,522) (19,568) —
 (3,913) (804)
Loss from operations(2,646) (44,522) (27,340) (1,357) (8,814) (4,111)
Other expense(96) (412) (259) (52) (96) (40)
Loss on sale of businesses(1,600) (1,199) —
 (479) —
 —
Loss on write-down of assets held for sale(6,831) (18,971) —
 (9,718) (6,161) —
Loss before income taxes(11,173) (65,104) (27,599) (11,606) (15,071) (4,151)
Income tax benefit4,138
 23,661
 9,675
 4,299
 5,477
 1,455
Net loss from discontinued operations$(7,035) $(41,443) $(17,924) $(7,307) $(9,594) $(2,696)
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TheContract assets and liabilities held for sale on the Consolidated Balance Sheets as of December 31, 2017 and 2016 are as follows (in thousands):
December 31,
20232022
Contract assets$79,688 $83,060 
Less accumulated amortization(5,032)(3,371)
Contract assets, net74,656 79,689 
Less current contract assets(5,836)(7,113)
Contract assets, long term$68,820 $72,576 
 Drilling Technologies Production Technologies
 December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016
Assets:       
Accounts receivable, net$—
 $5,072
 $—
 $1,784
Inventories—
 9,078
 —
 8,115
Other current assets—
 278
 —
 370
Long-term receivable—
 —
 —
 4,179
Property and equipment, net—
 11,277
 —
 3,978
Goodwill—
 15,333
 —
 1,689
Other intangible assets, net—
 7,395
 —
 484
Assets held for sale—
 48,433
 —
 20,599
Valuation allowance—
 (18,971) —
 (6,161)
Assets held for sale, net$—
 $29,462
 $—
 $14,438
Liabilities:       
Accounts payable$—
 $2,472
 $—
 $914
Accrued liabilities—
 1,190
 —
 385
Liabilities held for sale$—
 $3,662
 $—
 $1,299
AtIn 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, 2017, all remaining assets and liabilities2023, $68.8 million of the discontinued operations were assumed bycontract assets are classified as long term based upon our estimate of the Company’s continuing operations. These balances included $0.3 millionforecasted revenues from the ProFrac Agreement which will not be realized within the next twelve months of net accounts receivable, $1.4 million of sales price hold-back that will be received during 2018, and $1.4 million of accrued liabilities to be settled in 2018.the ProFrac Agreement.
Note 4 — Impairment of Inventory and Long-Lived
Assets for Discontinued Operations
During the three monthsyears ended MarchDecember 31, 2016,2023 and 2022 the Company recognized $5.0 million and $3.4 million, respectively, of contract assets amortization which is recorded as a resultreduction of changesthe transaction price included in the oil and gas industry that occurred sincerelated party revenue in the beginningconsolidated statement of 2016 and the corresponding impactoperations. The below table reflects our estimated amortization per year (in thousands) based on the Company’s business outlook,current forecasted revenues from the Company evaluated the direction of its business activities. Crude oil prices, which appeared to have stabilized during the fourth quarter of 2015, fell further during the first quarter of 2016, decreasing approximately 21% from average prices seen in the fourth quarter of 2015. The U.S. drilling rig count declined from 698 at December 31, 2015 to 450 at April 1, 2016, a decline of 35.5%.ProFrac Agreement.
Due to the decreased rig activity and its impact on management’s expectations for future market activity, the Company further refocused operations of its Drilling Technologies segment. The Company decided to exit the business of building and repairing motors in all domestic markets. In addition, changes in drilling technique, including further escalation of the move to a dominance of pad drilling, reduced the marketability of certain other inventory items. The focus of the Production Technologies segment shifted to its new technologies for electric submersible pumps for the oil and gas industry and for hydraulic pumping units. Inventory
Years ending December 31,Amortization
2024$5,836 
20258,642 
20269,628 
20279,628 
20289,628 
Thereafter through May 203231,294 
Total contract assets$74,656 
associated with older technologies for these items has been evaluated for impairment. As a result of these changes in focus and projected declines in asset utilization, the Company recorded a pre-tax impairment of inventories as noted below.
Changes in the business climate noted above and increasing operating losses experienced within the Drilling Technologies and Production Technologies segments during the three months ended March 31, 2016, caused the Company to test asset groups within these two segments for recoverability. Recoverability of the carrying amount of the asset groups was based upon estimated future cash flows while taking into consideration various assumptions and estimates, including future use of the assets, remaining useful life of the assets, and eventual disposition of the assets. Undiscounted estimated cash flows of two asset groups associated with domestic operations in the Drilling Technologies segment did not exceed the carrying amount of the respective asset groups. Therefore, the Company performed an analysis of discounted future cash flows to determine the fair value of each of these two asset groups. As a result of this testing, the Company recorded a pre-tax impairment of long-lived assets as noted below.
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, during the three months ended June 30, 2015, as a result of decreased rig activity and its impact on management’s expectations for future market activity, the Company refocused the Drilling Technologies segment to businesses and markets that had the best opportunity for profitable growth in the future. In addition, the Company
shifted the focus of the Production Technologies segment to oil production markets and away from coal bed methane markets. As a result of these changes in focus and projected declines in asset utilization, the Company recorded pre-tax impairment charges as noted below.
The Company recorded impairment charges during the three months ended March 31, 2016 and June 30, 2015, as follows (in thousands):
 Three months ended
 March 31, 2016 June 30, 2015
Drilling Technologies:   
Inventories$12,653
 $17,241
Long-lived assets:   
Property and equipment14,642
 2,327
Intangible assets other than goodwill9,227
 —
Production Technologies:   
Inventories3,913
 804
Total impairment$40,435
 $20,372
Based on the changes in the business climate discussed above and continuing operating losses experienced during the three months ended March 31, 2016, June 30, 2016, September 30, 2016, and December 31, 2016, goodwill within the Teledrift and Production Technologies reporting units was tested for impairment. However, no impairments of goodwill were recorded based upon this testing.
Note 5 — Acquisitions
On July 27, 2016, the Company acquired 100% of the stock and interests in International Polymerics, Inc. (“IPI”) and related entities for $7.9 million in cash consideration, net of cash acquired, and 247,764 shares of the Company’s common stock. IPI is a U.S. based manufacturer of high viscosity guar gum and guar slurry for the oil and gas industry with a wide selection of stimulation chemicals.
On January 27, 2015, the Company acquired 100% of the assets of International Artificial Lift, LLC (“IAL”) for $1.3 million in cash consideration and 60,024 shares of the Company’s common stock. IAL, a development-stage company at acquisition, specializes in the design, manufacturing and service of next-generation hydraulic pumping units that serve to increase and maximize production for oil and natural gas wells. The assets, liabilities, and results of operations of IAL are included in discontinued operations.

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
 Year ended December 31,
 2017 2016 2015
Supplemental non-cash investing and financing activities:     
Value of common stock issued in acquisitions$—
 $3,268
 $1,014
Value of common stock issued in payment of accrued liability188
 —
 —
Exercise of stock options by common stock surrender5,863
 50
 1,332
      
Supplemental cash payment information:     
Interest paid$1,851
 $2,024
 $1,398
Income taxes (received, net of payments) paid, net of refunds(10,195) 333
 1,547
Note 7 — Revenue
The Company differentiates revenue and cost of revenue (excluding depreciation and amortization) based on whether the source of revenue is attributable to products or services. Revenue and cost of revenue (excluding depreciation and amortization) by source are as follows (in thousands):
 Year ended December 31,
 2017 2016 2015
Revenue:     
Products$310,716
 $256,263
 $258,968
Services6,382
 6,569
 10,998
 $317,098
 $262,832
 $269,966
Cost of revenue (excluding depreciation and amortization):     
Products$210,281
 $162,488
 $164,837
Services4,848
 7,767
 7,196
 $215,129
 $170,255
 $172,033

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Inventories
Inventories are as follows (in thousands):
December 31,
20232022
Raw materials$5,299 $5,800 
Finished goods13,660 18,130 
Inventories18,959 23,930 
Less reserve for excess and obsolete inventory(6,121)(8,210)
Inventories, net$12,838 $15,720 


44
 December 31,
 2017 2016
Raw materials$42,682
 $28,626
Work-in-process3,284
 2,918
Finished goods29,793
 26,739
Inventories$75,759
 $58,283

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,
 20232022
Balance, beginning of year$8,210 $10,141 
Charged to provisions959 1,734 
Deductions for sales and disposals(3,048)(3,665)
Balance, end of the year$6,121 $8,210 
 2017 2016 2015
Balance, beginning of year$—
 $—
 $—
Charged to costs and expenses724
 1,301
 16
Deductions(724) (1,301) (16)
Balance, end of the year$—
 $—
 $—
DuringThe provisions recorded in the years ended December 31, 2017, 2016, 2023 and 2015, all inventory items identified as excess2022 were $0.8 million and obsolete inventory were charged to costs$1.6 million, respectively, for the CT segment and $0.2 million and expenses.$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 96 — Property and Equipment
Property and equipment are as follows (in thousands):
December 31,
20232022
Land$886 $886 
Land improvements520 520 
Buildings and leasehold improvements5,483 5,356 
Machinery and equipment6,993 6,758 
Furniture and fixtures520 532 
Transportation equipment945 784 
Computer equipment and software1,696 1,425 
Property and equipment17,043 16,261 
Less accumulated depreciation(11,914)(11,435)
Property and equipment, net$5,129 $4,826 
 December 31
 2017 2016
Land$6,724
 $5,837
Buildings and leasehold improvements43,899
 42,986
Machinery and equipment41,548
 36,187
Fixed assets in progress4,298
 3,235
Furniture and fixtures2,002
 1,969
Transportation equipment2,200
 3,059
Computer equipment and software12,181
 11,844
Property and equipment112,852
 105,117
Less accumulated depreciation(39,019) (30,426)
Property and equipment, net$73,833
 $74,691

Depreciation expense totaled $9.5 million, $7.6$0.7 million and $5.8$0.7 million for the years ended December 31, 2017, 2016, 2023 and 2015,2022, respectively.
During 2022, the yearsCompany sold two facilities for aggregate proceeds of $5.8 million resulting in a net gain of $2.9 million.
Note 7 — Leases
Rental income recognized from leasing manufacturing facilities was $0.4 million for the year ended December 31, 2017, 2016,2022 and 2015, no impairmentsis included in other, net in the consolidated statement of operations. As discussed in Note 6, “Property and Equipment” these facilities were recognized related to propertysold in 2022 and equipment.the lease agreements between the tenants and the Company terminated.

45


FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Goodwill
The Company has two reporting units, Energy Chemistry Technologiescomponents of lease expense and Consumer and Industrial Chemistry Technologies, which have existing goodwill balances at December 31, 2017.
Goodwill is tested for impairment annually in the fourth quarter, or more frequently if circumstances indicate a potential impairment. During the fourth quarter of 2017, the Company adopted ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. If the carrying amount exceeds the reporting unit’s fair value, the Company will now recognize an impairment charge for the excess amount. During annual goodwill impairment testing for the year ended December 31, 2017, the Company first assessed the qualitative factors and was unable to conclude that it was not more likely than not that fair value of the Energy Chemistry Technologies and Consumer and Industrial Chemistry Technologies reporting units exceeded the carrying amount of the respective reporting units. Therefore, the Company performed the quantitative impairment test for both reporting units. The result of this testing indicated that the fair value of the Energy Chemistry Technologies and Consumer and Industrial Chemistry Technologies reporting units exceeded the carrying amount, including goodwill, of the respective reporting units.
During annual goodwill impairment testing for the year ended December 31, 2016, the Company first assessed qualitative factors to determine whether it was necessary to perform the two-step goodwill impairment test that the Company has historically used. The Company concluded that it was not more likely than not that goodwill was impaired as of the fourth quarter of 2016, and therefore, further testing was not required.
During annual goodwill impairment testing for the year ended December 31, 2015, the Company assessed the qualitative factors and concluded it was not more likely than not that there was an impairment of goodwill for the Consumer and Industrial Chemistry Technologies reporting unit. However, the Company was not able to conclude that it was not more likely than not that fair value of the Energy Chemistry Technologies reporting unit exceeded its carrying amount. Therefore, the Company performed the Step 1 impairment test for this reporting unit. The result of the Step 1 test indicated that the fair value of the Energy Chemistry Technologies reporting unit exceeded its carrying amount. Therefore, no further testing was required for this reporting unit.
No impairments of goodwill were recognized during the years ended December 31, 2017, 2016, and 2015.
Changes in the carrying amount of goodwill for each reporting unitsupplemental cash flow information are as follows (in thousands):
Years ended December 31,
20232022
Operating lease expense$3,552 $2,393 
Finance lease expense:
Amortization of assets15 15 
Interest on lease liabilities3 12 
Total finance lease expense18 27 
Short-term lease expense300 341 
Total lease expense$3,870 $2,761 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$5,508 $2,934 
Operating cash flows from finance leases34 39 
Financing cash flows from finance leases3 6 
Maturities of lease liabilities as of December 31, 2023 are as follows (in thousands):
Years ending December 31,Operating LeasesFinance Leases
2024$3,215 $22 
20252,046 — 
20261,732 — 
20271,660 — 
20281,518 — 
Thereafter2,815 — 
Total lease payments$12,986 $22 
Less: Interest(2,861)— 
Present value of lease liabilities$10,125 $22 

46
 Energy Chemistry Technologies Consumer and Industrial Chemistry Technologies Total
Balance at December 31, 2015:     
Goodwill$36,318
 $19,480
 $55,798
Accumulated impairment losses—
 —
 —
Goodwill balance, net36,318
 19,480
 55,798
Activity during the year 2016:     
Goodwill impairment recognized—
 —
 —
Acquisition goodwill recognized862
 —
 862
Balance at December 31, 2016:     
Goodwill37,180
 19,480
 56,660
Accumulated impairment losses—
 —
 —
Goodwill balance, net37,180
 19,480
 56,660
Activity during the year 2017:     
Goodwill impairment recognized—
 —
 —
Acquisition goodwill recognized—
 —
 —
Balance at December 31, 2017:     
Goodwill37,180
 19,480
 56,660
Accumulated impairment losses—
 —
 —
Goodwill balance, net$37,180
 $19,480
 $56,660

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 11 —Supplemental balance sheet information related to leases is as follows (in thousands):
December 31, 2023December 31, 2022
Operating Leases
Operating lease right-of-use assets$5,030 $5,900 
Current portion of operating lease liabilities$2,449 $3,328 
Long-term operating lease liabilities7,676 8,044 
Total operating lease liabilities$10,125 $11,372 
Finance Leases
Property and equipment$147 $147 
Accumulated depreciation(70)(55)
Property and equipment, net$77 $92 
Current portion of finance lease liabilities$22 $36 
Long-term finance lease liabilities— 19 
Total finance lease liabilities$22 $55 
Weighted Average Remaining Lease Term
Operating leases4.5 years5.3 years
Finance leases0.5 years1.6 years
Weighted Average Discount Rate
Operating leases7.8 %9.3 %
Finance leases8.5 %8.9 %
Sublease Income
On April 1, 2023, the Company entered into an agreement to sublease its office and lab space in Houston, Texas beginning September 1, 2023 and continuing until October 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 Intangible Assetsincome, net, and offsets the rental expense from the Company’s lease of the facility from the landlord.
Other intangible assetsSublease rental income for future years are as follows (in thousands):
Years ending December 31,Rental Income
2024$767 
2025767 
2026767 
2027767 
2028767 
Thereafter1,406 
Total rental income$5,241 
 December 31,
 2017 2016
 Cost 
Accumulated
Amortization
 Cost 
Accumulated
Amortization
Finite lived intangible assets:       
Patents and technology$17,310
 $5,586
 $16,815
 $4,537
Customer lists30,877
 8,127
 30,877
 6,518
Trademarks and brand names1,549
 1,117
 1,467
 1,069
Total finite lived intangible assets acquired49,736
 14,830
 49,159
 12,124
Deferred financing costs1,791
 96
 1,804
 117
Total amortizable intangible assets51,527
 $14,926
 50,963
 $12,241
Indefinite lived intangible assets:       
Trademarks and brand names11,630
   11,630
  
Total other intangible assets$63,157
   $62,593
  
        
Carrying amount:       
Other intangible assets, net$48,231
   $50,352
  

Intangible assets acquired are amortized on a straight-line basis over two to 20 years. Amortization of intangible assets acquired totaled $2.7 million, $2.8 million, and $3.0 million for the years end ended December 31, 2017, 2016, and 2015, respectively.

Amortization of deferred financing costs totaled $0.5 million, $0.4 million, and $0.3 million for the years ended December 31, 2017, 2016, and 2015, respectively.47
Estimated future amortization expense for other finite lived intangible assets, including deferred financing costs, at December 31, 2017 is as follows (in thousands):

Year ending December 31,  
2018 $3,017
2019 2,956
2020 2,929
2021 2,916
2022 2,664
Thereafter 22,119
Other amortizable intangible assets, net $36,601
During the years ended December 31, 2017, 2016, and 2015, no impairments were recognized related to other intangible assets.
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Accrued Liabilities
Note 12 — Long-Term Debt and Credit Facility
Long-term debt isCurrent accrued liabilities are as follows (in thousands):
December 31,
20232022
Severance costs (see Note 12, “Commitments and Contingencies”)$648 $2,617 
Payroll and benefits2,138 684 
Legal costs37 447 
Contingent liability for earn-out provision56 583 
Deferred revenue, current550 655 
Taxes other than income taxes656 1,884 
Other1,805 2,114 
Total current accrued liabilities$5,890 $8,984 
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
 December 31,
 2017 2016
Long-term debt:   
Borrowings under revolving credit facility$27,950
 $38,566
Term loan—
 9,833
Total long-term debt27,950
 48,399
     Less current portion of long-term debt(27,950) (40,566)
Long-term debt, less current portion$—
 $7,833
Asset Based Loan
Credit Facility
On May 10, 2013,August 14, 2023, the Company entered into a 24-month revolving loan and certainsecurity 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.
Borrowings under the ABL bear interest at the Wall Street Journal Prime Rate (subject to a floor of 5.5%) plus 2.5% per annum. The interest rate under the ABL was 11.0% as of December 31, 2023. The ABL contains an annual commitment fee equal to 1.0% of the ABL’s borrowing base. Additionally, the Company will be assessed a non-usage fee of 0.25% per quarter based on the difference between the average daily outstanding balance and the borrowing base limit of the ABL. If the ABL is terminated prior to the end of its subsidiaries (the “Borrowers”) entered into24-month term, the Company is required to pay an Amended and Restated Revolving Credit, Term Loan and Security Agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC Bank”). The Company may borrow under the Credit Facility for working capital, permitted acquisitions, capital expenditures and other corporate purposes. The Credit Facility, as amended, continues in effect until May 10, 2022. Under termsearly termination fee of 2.5% of the Credit Facility, as amended,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.
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 has total borrowing availabilityto maintain a minimum Tangible Net Worth (as defined in the ABL) of $75 million undernot less than $11.0 million. In addition, the ABL provides the lender a revolving credit facility. A term loan has been repaid in May 2017 and may not be re-borrowed.
The Credit Facility is secured byblanket security interest on all or substantially all of the Company’s domestic real and personal property, including accounts receivable, inventory, land, buildings, equipment and other intangible assets. The Credit Facility contains customary representations, warranties,Company was in compliance with the covenants under the ABL as of December 31, 2023.
Paycheck Protection Program Loans
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 both affirmativeEconomic Security Act (“CARES Act”) and negative covenants.is administered by the U.S. Small Business Administration (“SBA”). In October 2021, the event of default, PNC Bank may accelerate theFlotek PPP loan maturity date of any outstanding amounts borrowed underwas extended from April 15, 2022 to April 15, 2025. On January 5, 2023 the Credit Facility.
The Credit Facility contains financial covenants to maintain a fixed charge coverage ratio and a leverage ratio, as well as establishes an annual limit on capital expenditures. The fixed charge coverage ratio isCompany received notice from the ratio of (a) earnings before interest, taxes, depreciation, and amortization (“EBITDA”), adjusted for non-cash stock-based compensation and the loss from discontinued operations, less cash taxes paid during the period to (b) all debt payments during the period. The fixed charge coverage ratio requirement began for the quarter ended March 31, 2017 at 1.00 to 1.00 and increased to 1.10 to 1.00 for the year ended December 31, 2017, and for each fiscal quarter thereafter. The leverage ratio (funded debt to adjusted EBITDA) requirement began for the six months ended June 30, 2017 at not greater than 5.50 to 1.00 and reduces to not greater than 3.00 to 1.00 for the year ending September 30, 2018, and thereafter. The annual limit on capital expenditures for 2017 was $20 million. The annual limit on capital expenditures for 2018 and each fiscal year thereafter is $26
million. The annual limit on capital expenditures is reduced if the undrawn availability under the revolving credit facility falls below $15SBA that $4.4 million at any month-end.
The Credit Facility restricts the payment of cash dividends on common stock and limits the amount that may be used to repurchase common stock and preferred stock.
Beginning with fiscal year 2017, the Credit Facility includes a provision that 25% of EBITDA minus cash paid for taxes, dividends, debt payments, and unfunded capital expenditures, not to exceed $3.0 million for any year, be paid on the outstanding balance within 75 days of the fiscal year end. For$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 year ended December 31, 2017, there was no additional payment required based on this provision.
Eachremaining term of the Company’s domestic subsidiaries is fully obligatedloan through April 15, 2025 beginning on March 15, 2023. The forgiveness of the Flotek PPP loan was accounted for Credit Facility indebtedness as a borrower or as a guarantor.
(a) Revolving Credit Facility
Underan extinguishment of the revolving credit facility,debt and resulted in the Company may borrow up to $75recording a $4.5 million through May 10, 2022. This includes a sublimitgain in the first quarter of $102023 comprising the principal amount forgiven of $4.4 million that may be used for lettersand accrued interest of credit. The revolving credit facility is secured by substantially all of the Company’s domestic accounts receivable and inventory.$0.1 million.
At December 31, 2017, eligible accounts receivable and inventory securing the revolving credit facility provided total borrowing capacity of $71.9 million under the revolving credit facility. Available borrowing capacity, net of outstanding borrowings, was $43.9 million at December 31, 2017.

The interest rate on advances under the revolving credit facility varies based on the fixed charge coverage ratio. Rates range (a) between PNC Bank’s base lending rate plus 1.5% to 2.0% or (b) between the London Interbank Offered Rate (LIBOR) plus 2.5% to 3.0%. PNC Bank’s base lending rate was 4.5% at December 31, 2017. The Company is required to pay a monthly facility fee of 0.25% per annum on any unused amount under the commitment based on daily averages. At December 31, 2017, $28.0 million was outstanding under the48

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt, including current portion, is as follows (in thousands):
December 31,
20232022
Flotek PPP loan$239 $4,788 
Less current maturities(179)(2,052)
Total long-term debt, net of current portion$60 $2,736 
Loan repayments are scheduled as follows (in thousands):
Years ending December 31,
2024179 
202560 
Total Flotek PPP loan$239 
Convertible Notes Payable
On February 2, 2022, Flotek entered into a Private Investment in Public Equity transaction (the “PIPE transaction”) with a consortium of investors to secure growth capital for the Company. 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).
revolving credit facility,
49

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initial ProFrac Agreement Contract Consideration Convertible Notes Payable
On February 2, 2022, the Company entered into a long-term supply agreement with $6.0ProFrac Services, LLC (the “Initial ProFrac Agreement”), a subsidiary of ProFrac Holdings LLC, in exchange for $10 million borrowedin aggregate principal amount of Contract Consideration Convertible Notes Payable (“Initial ProFrac Agreement Contract Consideration Convertible Notes Payable”), under the same terms as base rate loansthe Convertible Notes Payable issued in the PIPE Transaction described above, including the paid-in-kind interest at an interesta rate of 6.0%10% per annum and $22.0conversion features. Interest expense for the years ended December 31, 2023 and 2022 included $85 thousand and $1.0 million, borrowedrespectively, 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 LIBOR loansliability 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).
Amended ProFrac Agreement Contract Consideration Convertible Notes Payable
On May 17, 2022, the Company entered into an amendment to the Initial ProFrac Agreement (the “Amended ProFrac Agreement” and collectively with the Initial ProFrac Agreement, the “ProFrac Agreement”) upon issuance of $50 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (“Amended ProFrac Agreement Contract Consideration Convertible Notes Payable”) to ProFrac. The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable accrued paid-in-kind interest at a rate of 4.07%.
Borrowing under10% per annum. Interest expense for the revolving credit facility is classified as current debt as a resultyears ended December 31, 2023 and 2022 included $2.0 million and $3.2 million, respectively, of accrued paid-in-kind interest related to the required lockbox arrangement and the subjective acceleration clause.
(b) Term LoanAmended ProFrac Agreement Contract Consideration Convertible Notes Payable.
The amount borrowed underAmended 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 term loan was reset to $10 million effective as of September 30, 2016. Monthly principal
issuance date with a corresponding contract asset.
payments of $0.2 million were required. On May 22, 2017, the Company repaid the outstanding balance of the term loan. The term loan may not be re-borrowed.
Debt Maturities
At December 31, 2017, borrowing under the revolving credit facility, which maturesUpon 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, 2022, is classified“Fair Value Measurements”), were converted on a current debt, and therefore, the entire balance is considered to mature in 2018.
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).
Note 1310 — Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes financial assets and liabilities into the three levels of the fair value hierarchy. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value and bases categorization within the hierarchy on the lowest level of input that is available and significant to the fair value measurement.
•Level 1 — Quoted prices in active markets for identical assets or liabilities;
•Level 2 — Observable inputs other than Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 — Significant unobservable inputs that are supported by little or no market activity or that are based on the reporting entity’s assumptions about the inputs.
Liabilities Measured at Fair Value on a Recurring Basis
At December 31, 2017 and 2016, no liabilities were required to be measured at fair value on a recurring basis.There were no transfers in or out of either Level 1, Level 2, or Level 3 fair value measurements during the years ended December 31, 2017, 2016, and 2015.
Assets Measured at Fair Value on a Nonrecurring Basis
The Company’s non-financial assets, including property and equipment, goodwill, and other intangible assets are measured at fair value on a non-recurring basis and are subject to fair value adjustment in certain circumstances. No impairment of any of these assets was recognized during the years ended December 31, 2017, 2016, and 2015.
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 and accrued expenses, approximate fair value due to the short-term nature of these accounts. The Company had no cash equivalents at December 31, 2017 or 2016.

50
The carrying amount and estimated fair value of the Company’s long-term debt are as follows (in thousands):

 December 31,
 2017 2016
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Borrowings under revolving credit facility$27,950
 $27,950
 $38,566
 $38,566
Term loan—
 —
 9,833
 9,833
The carrying amount of borrowings under the revolving credit facility and the term loan approximate their fair value because the interest rate is variable.


FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Liabilities Measured at Fair Value on a Recurring Basis
Note 14 — Earnings (Loss) Per ShareThe following table presents the Company’s liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy (in thousands):
December 31,December 31,
Level 1Level 2Level 32023Level 1Level 2Level 32022
Contingent earnout consideration$— $— $56 $56 $— $— $583 $583 
Initial ProFrac Agreement contract consideration convertible notes— — — — — — 14,220 14,220 
Amended ProFrac Agreement contract consideration convertible notes— — — — — — 69,350 69,350 
Total$— $— $56 $56 $— $— $84,153 $84,153 
Contingent Earnout Consideration Key Inputs
Basic earnings (loss) per common shareThe estimated fair value of the remaining stock performance earn-out provision, with respect to the JP3 transaction, is calculated by dividing net income (loss) by the weighted average numberincluded in accrued liabilities as of common shares outstanding for the period. Diluted earnings (loss) per common share is calculated by dividing 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 securities were excluded from the calculation of diluted loss per share for the year ended December 31, 2017, since including them would have2023 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.
December 31,
20232022
Risk-free interest rate4.58%4.34%
Expected volatility70.0%100.0%
Term until liquidation (years)1.382.38
Stock price (pre-Reverse Stock Split basis for 2022)$3.92$1.12
Discount rate11.86%9.95%
Initial ProFrac Agreement Contract Consideration Notes Payable Key Inputs
The Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were measured at fair value at issuance and on a recurring basis. The Initial ProFrac Agreement Contract Consideration Convertible Notes Payable had an anti-dilutive effectinitial fair value of $10.0 million on loss per shareFebruary 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 loss from continuing operations incurred duringuse of a quoted price for a similar liability at that date (the PIPE transaction), and subsequently classified as Level 3 due to the period. Securities convertibleuse 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 rate4.12%
Expected volatility100.0%
Term until liquidation (years)0.09
Stock price (pre-Reverse Stock Split basis)
$1.12
Discount rate4.12%
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 that were not considered inof $1.19, on the diluted loss per share calculations were 0.7date of conversion. The fair value adjustment was a $0.8 million stock options, before they were converted into common shares during 2017, and 0.7$3.3 million restricted stock units.increase for the years ended December 31, 2023 and 2022, respectively.

51
Basic and diluted earnings (loss) per common share are as follows (in thousands, except per share data):

 Year ended December 31,
 2017 2016 2015
(Loss) income from continuing operations$(13,053) $1,907
 $7,158
Loss from discontinued operations, net of tax(14,342) (51,037) (20,620)
Net loss - Basic and Diluted$(27,395) $(49,130) $(13,462)
      
Weighted average common shares outstanding - Basic57,580
 56,087
 54,459
Assumed conversions:     
Incremental common shares from stock options—
 197
 527
Incremental common shares from restricted stock units—
 66
 6
Weighted average common shares outstanding - Diluted57,580
 56,350
 54,992
      
Basic earnings (loss) per common share:     
Continuing operations$(0.23) $0.03
 $0.13
Discontinued operations, net of tax(0.25) (0.91) (0.38)
Basic earnings (loss) per common share$(0.48) $(0.88) $(0.25)
Diluted earnings (loss) per common share:     
Continuing operations$(0.23) $0.03
 $0.13
Discontinued operations, net of tax(0.25) (0.91) (0.37)
Diluted earnings (loss) per common share$(0.48) $(0.88) $(0.24)
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 rate4.59%
Expected volatility100.0%
Term until liquidation (years)0.38
Stock price (pre-Reverse Stock Split basis)$1.12
Discount rate4.59%
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.
Assets Measured at Fair Value on a Nonrecurring Basis
The Company’s non-financial assets, including property and equipment and operating lease ROU assets, are measured at fair value on a non-recurring basis and are subject to adjustment to their fair value in certain circumstances.
Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the changes in balances of liabilities for the years ended December 31, 2023 and 2022 classified as Level 3 balances (in thousands):
Years ended December 31,
20232022
Balance - beginning of period$84,153 $608 
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 interest85 954 
Increase in principle of Amended ProFrac Agreement contract consideration convertible notes payable for paid-in-kind interest2,044 3,231 
Change in fair value of contingent earnout consideration(527)(25)
Change in fair value of Initial ProFrac Agreement contract consideration convertible notes payable786 3,266 
Change in fair value of Amended ProFrac Agreement contract consideration convertible notes payable(30,755)(3,341)
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)— 
Balance - end of period$56 $84,153 

52

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1511 — Income Taxes
Components of the income tax expense (benefit) are as follows (in thousands):
Year ended December 31,Years ended December 31,
2017 2016 2015
Current:     
Current:
Current:
Federal
Federal
Federal$(1,314) $442
 $3,944
State675
 (85) 390
State
State
Foreign488
 (526) 1,841
Total current(151) (169) 6,175
Foreign
Foreign
Total current expense
Total current expense
Total current expense
Deferred:
Deferred:
Deferred:     
Federal8,701
 1,564
 (2,628)
Federal
Federal
State
State
State337
 (112) (63)
Foreign(45) (46) (8)
Total deferred8,993
 1,406
 (2,699)
Income tax expense$8,842
 $1,237
 $3,476
Foreign
Foreign
Total deferred expense (benefit)
Total deferred expense (benefit)
Total deferred expense (benefit)
Income tax expense (benefit)
Income tax expense (benefit)
Income tax expense (benefit)
The components of income (loss) income before income taxes are as follows (in thousands):
 Years ended December 31,
 20232022
United States$25,315 $(42,242)
Foreign(453)(85)
Income (loss) before income taxes$24,862 $(42,327)
 Year ended December 31,
 2017 2016 2015
United States$(2,844) $4,502
 $4,760
Foreign(1,367) (1,358) 5,874
(Loss) income before income taxes$(4,211) $3,144
 $10,634
A reconciliation of the U.S. federal statutory tax rate to the effectiveThe income tax rate is as follows:
 Year ended December 31,
 2017 2016 2015
Federal statutory tax rate(35.0)% 35.0 % 35.0 %
State income taxes, net of federal benefit14.2
 (5.3) 2.0
Non-U.S. income taxed at different rates11.6
 1.2
 (4.4)
Impact of 2017 Tax Cuts and Jobs Act173.6
 —
 —
Net operating loss carryback adjustment—
 10.0
 1.4
Reduction in tax benefit related to stock-based awards47.2
 —
 —
Non-deductible expenditures11.0
 13.1
 5.9
Research and development credit(10.8) (12.7) (3.5)
Other(1.8) (2.0) (3.7)
Effective income tax rate210.0 % 39.3 % 32.7 %
Fluctuations in effective tax rates have historically been impactedexpense (benefit) differed from the amounts computed by permanent tax differences with no associated income tax impact, changes in state apportionment factors, includingapplying the effect on state deferred tax assets and liabilities, and non-U.S. income taxed at different rates. Changes in the effective tax rate during 2017 included the Company implementing ASU No. 2016-09, which requires accounting for excess tax benefits and tax deficiencies related to stock-based awards as discrete items in the period in which they occur and the impact of the 2017 Tax Cuts and Jobs Act.
Comprehensive tax reform legislation enacted in December 2017, commonly referred to as the Tax Cuts and Jobs Acts (“2017 Tax Act”), makes significant changes to U.S. federal income tax laws. The 2017 Tax Act, among other things, reduces the corporaterate of 21% respectively, to income (loss) before income tax rate from 35% to 21%, partially limits the deductibility of business interest expense and net operating losses, provides additional limitations on the deductibility of executive compensation, imposes a one-time tax on unrepatriated earnings from certain foreign subsidiaries, taxes offshore earnings at reduced rates regardless of whether they are repatriated, and allows the immediate deduction of certain new investments instead of deductions for depreciation expense over time. The Company has not completed its determination of the 2017 Tax Act and recorded provisional amounts in its financial statements as of December 31,
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2017. The Company recorded a provisional expense for the effects of the 2017 Tax Act of $7.3 million. The effects of the 2017 Tax Act on the Company include three main categories: 1) remeasurement of the net deferred tax assets from 35% to 21%, which resulted in tax expense of $5.5 million; 2) a one-time tax on unrepatriated earnings from certain foreign subsidiaries of $0.2 million; and 3) additional limitations on the deductibility of executive compensation, which resulted in tax expense of $1.6 million. The Company will continue to evaluate the 2017 Tax Act and adjust the provisional amounts as additional information is obtained. The ultimate impact of the 2017 Tax Act may differ from the provisional amounts recorded due to additional information becoming available, changes in interpretation of the 2017 Tax Act, and additional regulatory guidance that may be issued.reasons set forth below:
Years ended December 31,
20232022
U.S. federal statutory tax rate21.0 %21.0 %
State income taxes, net of federal benefit0.5 0.2 
Non-U.S. income taxed at different rates0.3 (0.1)
Tax benefit related to stock-based awards0.7 (0.4)
Change in valuation allowance(20.9)(21.8)
Permanent differences related to CARES Act(3.6)— 
Other2.6 1.2 
Effective income tax rate0.6 %0.1 %
Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the value reported for income tax purposes, at the enacted tax rates expected to be in effect when the differences reverse.

53

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The componentscomponent of deferred tax assets and liabilities are as follows (in thousands):
 December 31,
 20232022
Deferred tax assets:
Net operating loss carryforwards$45,314 $41,453 
Intangible assets3,501 4,066 
Tax credit carryforwards3,923 4,011 
Goodwill4,513 4,920 
Property and equipment3,314 3,644 
Lease liability2,507 2,634 
Inventory valuation reserves1,359 2,033 
Allowance for doubtful accounts1,196 1,180 
Accrued liabilities383 320 
Accrued compensation485 491 
Equity compensation132 536 
Interest limitation137 1,616 
Other24 230 
Total gross deferred tax assets66,788 67,134 
Valuation allowance(59,066)(64,960)
Total deferred tax assets, net7,722 2,174 
Deferred tax liabilities:
ROU asset(1,203)(1,377)
Contract asset(5,813)— 
Prepaid insurance and other(406)(393)
Total gross deferred tax liabilities(7,422)(1,770)
Net deferred tax assets$300 $404 
 December 31,
 2017 2016
Deferred tax assets:   
Net operating loss carryforwards$24,569
 $21,212
Allowance for doubtful accounts981
 1,582
Inventory valuation reserves827
 2,205
Equity compensation685
 3,161
Goodwill—
 10,788
Accrued compensation222
 80
Foreign tax credit carryforward3,955
 2,365
Other—
 76
Total gross deferred tax assets31,239
 41,469
Valuation allowance(1,187) (1,053)
Total deferred tax assets, net30,052
 40,416
Deferred tax liabilities:   
Property and equipment(6,216) (7,264)
Intangible assets(10,084) (13,375)
Goodwill(365) —
Convertible debt(619) (2,010)
Unearned revenue(52) (4,535)
Prepaid insurance and other(3) (338)
Total gross deferred tax liabilities(17,339) (27,522)
Net deferred tax assets$12,713
 $12,894
As of December 31, 2017,2023, theCompany had U.S. net operating loss carryforwards (“NOLs”) of $103.8$192.9 million, including $46.4 million expiring in various amounts infrom 2029 through 2036. The2037 which can offset 100% of taxable income and $146.5 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.NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. The Company’s use of new NOLs arising after the date of the ownership change would not be impacted by the Section 382 limitation. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carryforward periods, then the ability to apply those NOLs as offsets to future taxable income is lost.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. Although the ownership change will significantly limit the ability of the Company to utilize the pre-change net operating losses and other tax attributes could be subject tocredits, the Company does not expect a significant limitation ifimpact to its financial statements given the Company werevaluation allowance that is recorded to undergo an “ownership change” for purposes of Section 382estimate the realizability of the Tax Code.deferred tax assets.
During 2015,The Company’s cumulative losses (before permanent items) of $48.0 million in the Company’s corporate organizational structure required the filing of two separate consolidated U.S. Federal income tax returns. Taxable income of one group (“Group A”) could not be offset by tax attributes, including net operating losses of the other group (“Group B”). During the yearrecent three years ended December 31, 2015,2023 are negative evidence that it will not likely generate sufficient future income to utilize its deferred tax assets. Therefore, the Company restructuredbelieves that it is not more likely than not that it will realize its legal entities such that there is only one U.S.deferred tax filing group filingassets in all taxing jurisdictions with the exception of a single U.S. consolidated federal income tax return beginning in 2016.
Theportion related to the states of Louisiana and Texas. Therefore, the Company considers all available evidence, both positive and negative, to determine whetherrecorded a valuation allowance is necessary for the years ended December 31, 2023 and December 31, 2022 to reflect the estimated amount of deferred tax assets.asset realizability. The Company considers cumulative losseschange in recent years as significant negative evidence. The Company considers recent years to mean the current year plus the two preceding years. No valuation allowance was recorded against$5.2 million and $9.2 million during the net federal deferred tax assets atyears ended December 31, 2017, based on2023 and 2022, respectively.
The Company does not have documented plans to reinvest the Company’s determinationunremitted earnings of its objectively verifiable estimatenon-U.S. subsidiaries. As of future income. In determining this objectively verifiable future income,December 31, 2023 and 2022, the Company considered incomehad approximately $6.3 million and $6.4 million, respectively, in unremitted earnings from the most recent three years adjusted for certain nonrecurring items such as discontinued operations and stock compensation that will be nondeductible underits foreign jurisdictions. As a result of the 2017 Tax Act beginningthese earnings have been previously taxed in 2018. As of December 31, 2017, the Company maintains a valuationU.S. although they have not been repatriated. However, certain withholding taxes may need to be paid upon repatriation depending

54

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

allowanceon the US treaty with the applicable country. Because all of $1.2 million for deferred tax assets in certain state jurisdictions.
The Company has not calculated U.S. taxes on unremitted earnings of certain non-U.S. subsidiaries due to the Company’s intent to reinvest the unremittedforeign earnings of the non-U.S. subsidiaries. At December 31, 2017, the Company had approximately $1.5 million in unremitted earnings outside the U.S. which were not included for U.S. tax purposes. Due to the 2017 Tax Act, U.S. federal transition taxes have been recorded forpreviously taxed, the requirement to record a one-time U.S. tax liability on these earnings which have not previously been repatriated to the U.S. However, certain withholding taxes will need to be paid upon repatriation. It is not practicable to estimate the amount of the deferred tax liability on such unremitted earnings.earnings is not applicable.
The Company has performed an evaluation and concluded there are no significant uncertainanalysis of its tax positions requiring
recognition in the Company’s financial statements. The evaluation was performed for the tax years which remain subject to examination by tax jurisdictions as of December 31, 2017, which are the years ended December 31, 2014 through2023 and 2022, concluding all tax positions taken were highly certain. As of December 31, 2017 for U.S. federal taxes and the years ended December 31, 2013 through December 31, 2017 for state tax jurisdictions.
At December 31, 2017,2023, the Company had no unrecognized tax benefits.
In Januaryis 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 Internal Revenue Service notified the Company that it will examine the Company’s federalTexas Comptroller’s office.The tax returns for the yearyears ended December 31, 2014. No adjustments have been asserted2020 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.
Note 12 — Commitments and Contingencies
Litigation
The Company is subject to routine litigation and other claims that arise in the normal course of business. Except as disclosed below, management believesis not aware of any pending or threatened lawsuits or proceedings that sustained adjustments, if any, would notare 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. Chisholm. 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.
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. financial institutions and balances often exceed insurable amounts.
Note 1613 — Common StockStockholders’ Equity
The Company’s Certificate of Incorporation, as amended November 9, 2009, authorizesReverse stock split
On September 14, 2023, the Company to issue up to 80 millionannounced 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 $0.0001or 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 and 100,000of 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 one or more seriescommon stock and treasury stock on the consolidated balance sheet and in the statement of preferredchanges 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 parwithin 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.


55

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.
A reconciliation 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 changesConvertible 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 issued isof 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.
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, less $1.2 million of transaction costs paid. The remaining cash received of $8.4 million was recognized as an equity contribution. The 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 rate3.21%
Expected volatility90.0%
Term until liquidation (years)2.00
Stock price (pre-Reverse Stock Split)$1.11
Strike price (exercise fee)$4.5 million

56

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31,
 2017 2016
Shares issued at the beginning of the year59,684,669
 56,220,214
Issued in sale of common stock—
 2,450,339
Issued in acquisition—
 247,764
Issued in payment of accrued liability—
 20,000
Issued as restricted stock award grants275,029
 632,240
Issued upon exercise of stock options663,288
 114,112
Shares issued at the end of the year60,622,986
 59,684,669

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. The additional $4.5 million will be accounted for as an equity contribution if received.
Treasury Stock
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.
Note 14 — Stock-Based Compensation and Other Benefit Plans
Stock-Based Incentive Plans
Stockholders approved long terman increase in shares during its 2023 Annual meeting to long-term incentive plans created in 2014, 2010, and 20072018 (the “2014 Plan,” the “2010 Plan,” and the “2007 Plan,” respectively)“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 the 2014long-term incentive plans created in 2020 and 2019 (the “2020 Plan” and “2019 Plan, 2010 Plan,” respectively) and 20072018 Plan are 5.20.5 million, 6.00.2 million, and 2.21.9 million, respectively. At December 31, 2017,2023 and 2022, the Company had a total of 0.3an aggregate of 0.6 million and 0.7 million shares remaining, respectively, to be granted under the 20142020 Plan, 2019 Plan and 20102018 Plan. Shares may no longer be granted under the 2007 Plan.
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. Options expire no later than ten years fromDuring the date of grantyear ended December 31, 2023, 0.1 million market-based stock options and generally vest0.1 million performance-based stock options were granted compared to none during the year ended December 31, 2022. The market-based and performance-based options are restricted until criteria defined in four years or less. the stock option agreements are met.
Proceeds received from stock option exercises are credited to common stock and additional paid-in capital, as appropriate. The Company uses historical data to estimate pre-vesting option forfeitures. Estimates are adjusted when actual forfeitures differ from the estimate. 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. The total fair value of the stock options that vested was $0.3 millionfor the year ended December 31, 2022.

57

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock option activity for the years ended December 31, 2023 and 2022, are as follows:
SharesWeighted-Average
Exercise
Price		Weighted-Average
Fair Value
Outstanding as of December 31, 2021713,650 
Granted— $— $— 
Exercised— — — 
Forfeited— — — 
Expired(20,000)4.32 0.60 
Outstanding as of December 31, 2022693,650 
Granted190,728 3.42 2.57 
Exercised— — — 
Forfeited(457,815)7.10 7.28 
Expired(130,000)$7.97 $5.94 
Outstanding as of December 31, 2023296,563 
Vested or expected to vest at December 31, 2023252,891 
The below table shows the aggregate intrinsic value and weighted average remaining contractual term of share options outstanding, currently exercisable and vested or expected to vest.
Share Options OutstandingShare Options Currently ExercisableShare Options Vested or Expected to Vest
Number296,563 10,000 252,891 
Weighted-average exercise price$4.42 $4.32 $4.56 
Aggregate intrinsic value ($000’s)95 — 78 
Weighted-average remaining contractual term in years8.71.598.55
The following table sets forth significant assumptions used in the Monte Carlo model for performance-based options to determine the fair value of stockthe options awarded in June 2023 at the date of grant is calculated usingfor the year ended December 31, 2023.
June 7, 2023 Awards
Risk-free interest rate3.79 %
Expected volatility of common stock110.00 %
Expected life of options in years10.0
Dividend yield— %



58

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth significant assumptions used in the Black-Scholes option pricing model. The risk free interest rate is based on the implied yield of U.S. Treasury zero-coupon securities that correspondmodel for market-based options to the expected life of the option. Volatility is estimated based on historical and implied volatilities of the Company’s stock and of identified companies considered to be representative peers of the Company. The expected life of awards granted represents the period of time the options are expected to remain outstanding. The Company uses the “simplified” method which is permitted for companies that cannot reasonably estimate the expected life of options based on historical share option exercise experience. The Company does not expect to pay dividends
on common stock. No options were granted to employees during 2017, 2016, and 2015.
The Black-Scholes option valuation model was developed to estimatedetermine the fair value of tradedthe options that have no vesting restrictions and are fully-transferable. Because option valuation models requireawarded in December 2023 at the usedate of subjective assumptions, changes in these assumptions can materially affect the fair value calculation. The Company’s options are not characteristic of traded options; therefore, the option valuation models do not necessarily provide a reliable measure of the fair value of options.
Stock option activitygrant for the year ended December 31, 2017 is as follows:2023.
December 5, 2023 Awards
Risk-free interest rate4.13 %
Expected volatility of common stock90.60 %
Expected life of options in years6.5
Dividend yield— %
Options Shares 
Weighted-Average
Exercise
Price
 
Weighted-Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value
Outstanding as of January 1, 2017 663,288
 $8.87
    
Exercised (663,288) 8.87
    
Forfeited —
 —
    
Expired —
 —
    
Outstanding as of December 31, 2017 —
 $—
 0.00 $—
The total intrinsic value ofAt December 31, 2023 and 2022, the unrecognized compensation cost related to stock options exercisedwas $0.6 million and $2.1 million, respectively.
There were no options granted during the yearsyear ended December 31, 2017, 2016, and 2015 was $2.3 million, $1.0 million, and $8.4 million, respectively. No stock options vested during the years ended December 31, 2017, 2016, and 2015.
At December 31, 2017, the Company had no remaining outstanding stock options.2022.
Restricted Stock
The Company grants employees and directors either time-vesting or performance-basedmarket-based restricted shares in accordance with terms
specified in the Restricted Stock Agreements (“RSAs”). 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 of time has elapsed subsequent toafter the date of grant, generally three years. Certain time-vested shares have also been issued with a portion of the shares granted vesting immediately. Performance-based
•Market-based restricted shares are issued with performance criteria defined over a designated performance period and vest only when, and if, the outlined performance criteria are met. During the year ended December 31, 2017, 100% of the restricted shares granted were time-vesting and none were performance-based. Grantees of restricted shares retain voting rights for the granted shares.
Restricted stock share activity for the year ended December 31, 2017 is as follows:
Restricted Stock Shares Shares 
Weighted-
Average Fair
Value at Date of
Grant
Non-vested at January 1, 2017 683,242
 $15.92
Granted to employees 260,029
 10.62
Granted to service provider 15,000
 9.34
Vested (590,027) 14.63
Forfeited (121,986) 17.48
Non-vested at December 31, 2017 246,258
 $12.24
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted-average grant-date fair value of restricted stock granted during the years ended December 31, 2017, 2016,2023 and 2015 was $10.62, $11.92, and $16.15 per share, respectively. 2022, are as follows:
Restricted Stock SharesSharesWeighted-
Average Fair
Value at Date of
Grant
Non-vested at December 31, 2021294,485 $9.86 
Granted256,746 7.89 
Vested(161,292)10.60 
Forfeited(5,405)10.16 
Non-vested at December 31, 2022384,534 8.23 
Granted146,204 4.52 
Vested(186,058)7.81 
Forfeited(95,667)9.25 
Non-vested at December 31, 2023249,013 $5.97 
The total fair value of restricted stock that vested during the years ended December 31, 2017, 2016,2023 and 20152022 was $8.6 million, $15.4 $0.9 million and $13.7$1.3 million, respectively. The grant-date fair value is the market price of the shares on the date of grant.
At December 31, 2017, there was $1.7 million of2023 and 2022, unrecognized compensation expense related to non-vested restricted stock.stock was $0.9 million and $2.0 million, respectively. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 0.91.3 years.

59

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
DuringThe Company grants time-vesting restricted share units in accordance with terms specified in the yearRestricted Stock Unit Agreements. Restricted stock units activity for the years ended December 31, 2023 and 2022, are as follows:
Restricted Stock UnitsUnitsWeighted-
Average Fair
Value at Date of
Grant
RSUs at December 31, 2021128,348 $11.45 
Vested(19,000)11.58 
Forfeited(6,867)11.52 
RSUs at December 31, 2022102,481 11.42 
Granted230,8163.82 
Vested(82,730)10.64 
Forfeited(38,000)11.58 
RSUs at December 31, 2023212,567 $3.44 
The total fair value of restricted stock that vested during the years ended December 31, 2017,2023 and 2022 was $0.5 million and $0.1 million, respectively. The grant-date fair value is the Company granted performance-based restricted stock units (“RSUs”) for 604,682market price of the shares equivalents. The performance period for these share equivalents continues until on the date of grant.
At December 31, 2018.
During the year ended December 31, 2016, the Company granted performance-based RSUs for 768,393 share equivalents, which had a performance period through December 31, 2017. RSUs earned, which will be converted to 252,405 RSAs in 2018, will vest on December 31, 2018.
Restricted stock unit share activity for the year ended December 31, 2017 is as follows:
Restricted Stock Unit Shares Shares 
Weighted-
Average Fair
Value at Date of
Grant
RSU share equivalents at January 1, 2017 768,393
 $12.02
2016 share equivalents forfeited (263,585) 12.02
2016 share equivalents not earned (252,403) 12.02
2016 share equivalents 252,405
 12.02
2017 share equivalents granted 604,682
 18.70
2017 share equivalents forfeited (131,756) 18.48
RSU share equivalents at December 31, 2017 725,331
 $16.41
At December 31, 2017, there was $8.5 million of2023 and 2022, unrecognized compensation expense related to 2017 and 2016 restricted stock units. units was $0.7 million and $0.4 million.The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.7 2.7 years. RSUs outstanding at December 31, 2023 consist of only time-vesting awards.
Employee StockStock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) was approved by stockholders on May 18,in 2012. The Company registered 500,000 shares of its common stock, currently held as treasury shares, for issuance under the ESPP. The purpose of the ESPP is to provide employees with an opportunity to purchase shares of the Company’s common stock through accumulated payroll deductions. The ESPP allows participants to purchase common stock at a purchase price equal to 85% of the fair market value of the common stock on the last business day of a three-month offering period which coincides with calendar quarters. Payroll deductions may not exceed 10% of an employee’s compensation and participantscompensation. In addition, for each calendar year, an employee may not be granted purchase more than 1,000 shares in any one offering period.rights valued over $25,000, as determined at the time such purchase right is granted. The fair valuevalue of the discount associated with shares purchased under the plan is recognized as share-basedstock-based compensation expense and was $0.1 million, $0.1 million,was $14 thousand and $0.2 million during$10 thousand for the years ended December 31, 2017, 2016,2023 and 2015,2022, respectively. The total fair value of the shares purchased under the plan during each of the years ended December 31, 2017, 2016,2023 and
2015 2022 was $0.8 million, $1.0 $0.1 million and $1.0$0.1 million respectively., respectively. The employee payment associated with participation in the plan was satisfiedoccurs through payroll deductions.
Share-BasedStock-Based Compensation Expense
Non-cash share-basedStock-based compensation expense related to stock options, restricted stock, restricted stock unit grants and stock purchased under the Company’s ESPP was $11.2 million, $12.1$(0.3) million and $13.1$3.3 million during the years ended December 31, 2017, 2016,2023 and 2015,2022, respectively.
Treasury Stock
The Company accounts based compensation expense for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity. During the yearsyear ended December 31, 2017, 2016, and 2015,2023 included an adjustment for actual forfeitures of $1.6 million that reduced the total stock-compensation expense.
During 2023, the Company purchased 199,644 shares, 238,216 shares, and 473,304 shares, respectively,settled vested equity awards of a terminated officer through a cash payment. The cash payment was made to the employee in lieu of the Company’s common stockequity awards, which were previously granted and vested. The settlement amount was determined based on the fair value of the equity awards at marketthe time of termination. The Company used the Black-Scholes Model to value as paymentthe vested equity awards. This transaction resulted in a reduction of income tax withholding owed by employees upon the vestingCompany's equity awards liability and a corresponding outflow of restricted shares and the exercise of stock options. Shares issued as restricted stock awards to employees that were forfeited are accountedcash for as treasury stock. During the years ended December 31, 2017, 2016, and 2015, shares surrendered for the exercise of stock options were 478,287, 3,225, and$617 thousand.


60

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

106,810, respectively. These surrendered shares are also accounted for as treasury stock.
Stock Repurchase Program
In November 2012,The key inputs to the Company’s Board of Directors authorizedBlack-Scholes Model used to estimate the repurchase of up to $25 millionfair value of the Company’s common stock. Repurchases may be made in the open market or through privately negotiated transactions. Through December 31, 2017, the Company has repurchased $25 million of its common stock under this authorization.
In June 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $50 millionvested equity awards, as of the Company’s common stock. Repurchases may be made in the open market or through privately negotiated transactions. Through December 31, 2017, the Company has repurchased $0.3 million of its common stock under this authorization.
During the year ended December 31, 2017, the Company repurchased 905,000 shares of its outstanding common stock on the open market at a cost of $5.2 million, inclusive of transaction costs, or an average price of $5.75 per share. During the year ended December 31, 2016, the Company did not repurchase any shares of its outstanding common stock. During the year ended December 31, 2015, the Company repurchased 799,723 shares of its outstanding common stock on the open market at a cost of $9.7 million, inclusive of transaction costs, or an average price of $12.13 per share.
At December 31, 2017, the Company has $49.7 million remaining under its share repurchase program. A covenant under the Company’s Credit Facility limits the amount that may be used to repurchase the Company’s common stock. At December 31, 2017, this covenant limits additional share repurchases to $9.7 million.
Note 17 — Commitments and Contingencies
Class Action Litigation
On March 30, 2017, the U.S. District Court for the Southern District of Texas granted the Company’s motion to dismiss the four consolidated putative securities class action lawsuits that were filed in November 2015, against the Company and certain of its officers. The lawsuits were previously consolidated into a single case, and a consolidated amended complaint had been filed. The consolidated amended complaint asserted that the Company made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. The complaint sought an award of damages in an unspecified amount on behalf of a putative class consisting of persons who purchased the Company’s common stock between October 23, 2014 and November 9, 2015, inclusive. The lead plaintiff appealed the District Court’s decision granting the motion to dismiss.
In January 2016, three derivative lawsuits were filed, two in the District Court of Harris County, Texas (which have since been consolidated into one case), and one in the United States District Court for the Southern District of Texas, on behalfdate of the Company against certain of its officers and its current directors. The lawsuits allege violations of law, breaches of fiduciary duty, and unjust enrichment against the defendants.termination were as follows:
The Company believes the lawsuits are without merit and intends to vigorously defend against all claims asserted. Discovery has not yet commenced. At this time, the Company is unable to reasonably estimate the outcome of this litigation.
In addition, as previously disclosed, the U.S. Securities and Exchange Commission had opened an inquiry related to similar issues to those raised in the above-described litigation. On August 21, 2017, the Company received a letter from the staff of the SEC stating that the inquiry has been concluded
and that the staff does not intend to recommend an enforcement action against the Company.
Other Litigation
The Company is subject to routine litigation and other claims that arise in the normal course of business. 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.
Legal Settlement
In December 2016, the Company reached a settlement with a stockholder related to disgorgement of potential short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 in connection with purchases and sales of Company securities. As a result of the settlement, the Company recorded a gain of $12.7 million.
Operating Lease Commitments
The Company has operating leases for office space, vehicles, and equipment. Future minimum lease payments under operating leases at December 31, 2017 are as follows (in thousands):
Year ending December 31, 
Minimum
Lease
Payments
2018 $2,734
2019 2,434
2020 2,169
2021 1,973
2022 1,988
Thereafter 10,508
Total $21,806
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rent expense under operating leases totaled $2.9 million, $3.3 million, and $2.6 million during the years ended December 31, 2017, 2016, and 2015, respectively.
January 19, 2023
Risk-free interest rate3.79 %
Expected volatility of common stock90.00 %
Expected life of options in years6.92
Stock price (pre-Reverse Stock Split basis)$1.37 
Strike Price$1.93 
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. On January 1, 2015, theThe Company implemented a new matching program. The Companycurrently matches contributions at 100% of up to 2% of an employee’s compensation and, if greater, the Company matches contributions at 50% from 4% to 8% of an employee’s compensation..
During the years ended December 31, 2017, 2016,2023 and 2015,2022, compensation expense included $1.0 million, $1.0$0.3 million and $1.0$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. 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 calculation of the basic and diluted earnings (loss) per share for the years ended December 31, 2023 and 2022 is as follows (in thousands):
 Year ended December 31,
 20232022
Numerator:
Net income (loss) for basic earnings per share$24,713 $(42,305)
Adjustments to net income (loss) available to shareholders for diluted earnings
Paid-in-Kind interest expense on convertible notes payable and contract consideration convertible notes payable, net of tax2,284 — 
Valuation gain on convertible notes carried at fair value, net of tax(29,969)— 
Net loss for fully dilutive earnings per share$(2,972)$(42,305)
Denominator:
Basic weighted average shares outstanding24,830 12,404 
Dilutive effect of convertible notes payable3,547 — 
Diluted weighted average shares outstanding28,377 12,404 
Basic earnings (loss) per share$1.00 $(3.41)
Diluted loss per share$(0.10)$(3.41)


61

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.
ConcentrationsFor the year ended December 31, 2022, paid-in-kind interest expense, net of tax, on Convertible Notes Payable and Credit Riskthe 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 majoritytable 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,
 20232022
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 
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 warrants1,251 802 
Average number of diluted shares for stock options and restricted stock94 128 
Total incremental shares excluded from denominator for diluted earnings computation1,345 10,038 
Note 16 — Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):                                    
 Years ended December 31,
 20232022
Supplemental cash payment information:
Interest paid$434 $45 
Supplemental non-cash financing and investing activities:
Conversion of convertible notes payable to common stock$8,996 $3,038 
Conversion of convertible notes payable to February 2023 Warrants11,040 — 
Conversion of Initial Contract Consideration Convertible Notes Payable to February 2023 Warrants15,092 — 
Conversion of Amended Contract Consideration Convertible Notes Payable to common stock40,638 — 
Transfer from fixed assets to inventory15 — 
Issuance of convertible notes payable as consideration for ProFrac Agreements— 79,460 


62

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
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”). 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. 2”). 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 years ended December 31, 2023 and 2022, the Company’s revenues from ProFrac Services, LLC were $121.5 million and $80.4 million, respectively. For the years ended December 31, 2023 and 2022, these revenues were net of amortization of contract assets of $5.0 million and $3.4 million, respectively. Cost of sales attributable to these revenues were $99.3 million and $84.5 million, respectively, for the years ended December 31, 2023 and 2022. 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”)
•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)
As a result of the above related party transactions, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s revenuecommon stock as of December 31, 2023.
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.
Mr. Ted D. Brown was a Director of the Company beginning in November of 2013 and is derived from the President and CEO of Confluence Resources LP (“Confluence”), a private oil and gas industry. Customers include major oilfield services companies, major integrated oilexploration and natural gas companies, independent oil and natural gas companies, pressure pumping service companies, and state-owned national oil companies. This concentrationproduction company. As of customers in one industry increases credit and business risks.
The Company is subject to concentrationsApril 15, 2022 Mr. Brown stepped down from being a Director of credit risk within trade accounts receivable, as the Company does not generally require collateraland Confluence is no longer be considered a related party as supportof April 15,

63

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2022. The Company’s revenues and related cost of sales for trade receivables. In addition, the majority of the Company’s cash is maintained at a major financial institutionproduct sales to Confluence were $1.4 million and balances often exceed insurable amounts.
$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-makersdecision-maker in deciding how to allocate resources and assess performance. The operations of the Company are categorized into twothe following reportable segments: Energy Chemistry Technologies and Consumer and Industrial
Chemistry Technologies.
Energy Chemistry Technologies designs, develops, manufactures, packages, and marketsThe CT segment includes green specialty chemistries, used inlogistics 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.Customers of the CT segment include major integrated oil and natural gas well drilling, cementing, completion, and stimulation. In addition, the Company’s chemistries are used in specialized enhanced and improved oil recovery markets. Activities in this segment also include construction and management of automated material handling facilities and management of loading facilities and blending operations forcompanies, oilfield services companies.
Consumercompanies, independent oil and Industrial Chemistry Technologies designs, develops,gas companies, national and manufactures products that are sold to companies in the flavor and fragrance industry and the specialty chemical industry. These technologies are used by beverage and food companies, fragrancestate-owned oil companies, and international supply chain management companies providing household.
Data Analytics. The DA segment includes the design, development, production, sale and industrial cleaning products.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.
The Company evaluates performancePerformance is based upon a variety of criteria. The primary financial measure is segment operating income.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 segments.segment.

64

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
Corporate and OtherTotal
2023
Revenue from external customers
Products$56,721 $5,275 $— $61,996 
Services2,295 2,227 — 4,522 
Total revenue from external customers59,016 7,502 — 66,518 
Revenue from related party
Products120,698 2 — 120,700 
Services205 635 — 840 
Total revenue from related parties120,903 637 — 121,540 
Gross profit20,345 3,918 — 24,263 
Change in fair value of contract consideration convertible notes(29,969)— — (29,969)
Income (loss) from operations39,043 (53)(15,767)23,223 
Paid-in-kind interest on contract consideration convertible notes payable2,129 — — 2,129 
Paid-in-kind interest on convertible notes payable— — 238 238 
Interest on ABL— — 453 453 
Other interest— — 37 37 
Depreciation613 95 26 734 
Additions to long-lived assets180 466 435 1,081 
Income tax expense— — (149)(149)
2022
Revenue from external customers
Product$47,004 $3,903 $— $50,907 
Service1,956 1,481 — 3,437 
Total revenue from external customers48,960 5,384 — 54,344 
Revenue from related party
Product81,614 — — 81,614 
Service4 130 — 134 
Total revenue from related parties81,618 130 — 81,748 
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 payable4,185 — — 4,185 
Paid-in-kind interest on convertible notes payable— — 1,771 1,771 
Accrued issuance costs on convertible notes payable— — 912 912 
Depreciation668 63 3 734 
Additions to long-lived assets56 134 231 421 
Income tax benefit— — 22 22 

65
As of and for the year ended December 31, Energy Chemistry Technologies Consumer and Industrial Chemistry Technologies 
Corporate and
Other
 Total
         
2017        
Net revenue from external customers $243,106
 $73,992
 $—
 $317,098
Income (loss) from operations 33,611
 7,465
 (43,931) (2,855)
Depreciation and amortization 7,323
 2,391
 2,445
 12,159
Capital expenditures 3,279
 4,763
 918
 8,960
         
2016        
Net revenue from external customers $188,233
 $74,599
 $—
 $262,832
Income (loss) from operations 29,014
 9,664
 (45,982) (7,304)
Depreciation and amortization 5,935
 2,257
 2,237
 10,429
Capital expenditures 10,674
 888
 2,398
 13,960
         
2015        
Net revenue from external customers $213,592
 $56,374
 $—
 $269,966
Income (loss) from operations 43,902
 8,742
 (40,366) 12,278
Depreciation and amortization 4,791
 2,202
 1,742
 8,735
Capital expenditures 12,803
 568
 3,020
 16,391

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets of the Company by reportable segments are as follows (in thousands):
 December 31, 2017 December 31, 2016
Energy Chemistry Technologies$177,797
 $184,328
Consumer and Industrial Chemistry Technologies116,600
 98,105
Corporate and Other35,491
 56,882
Total segments329,888
 339,315
Held for sale—
 43,900
Total assets$329,888
 $383,215
December 31,
20232022
Chemistry Technologies$138,559 $146,542 
Data Analytics6,604 5,645 
Corporate and Other12,350 12,623 
Total assets$157,513 $164,810 
Geographic Information
Revenue by country is based on the location where services are provided and products are used. Nosold. For the years ended December 31, 2023 and 2022, no individual countrycountries other than the United States (“U.S.”)U.S accounted for more than 10% of revenue. Revenue by geographic location is as follows (in thousands):
 Years ended December 31,
 20232022
U.S. (1)
$180,300 $124,399 
UAE6,549 9,257 
Other countries1,209 2,436 
Total revenue$188,058 $136,092 
 Year ended December 31,
 2017 2016 2015
U.S.$259,610
 $210,890
 $227,117
Other countries57,488
 51,942
 42,849
Total$317,098
 $262,832
 $269,966
(1) Includes revenue from related parties of $121,540 and $81,748, respectively.
Long-lived assets held in countries other than the U.S. are not considered material to the consolidated financial statements.
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Major Customers
Revenue from major customers, as a percentage of consolidated revenue, is as follows:follows (in thousands):
Revenue% of Total Revenue
Year ended December 31, 2023
Customer A (related party - ProFrac Services, LLC)$121,540 64.6 %
Year ended December 31, 2022  
Customer A (related party - ProFrac Services, LLC)$80,359 59.0 %
Customer B$14,395 10.6 %

The concentration with ProFrac Services, LLC and in the oil and gas industry increases credit, commodity and business risk.
Major Suppliers
Expenditure with major suppliers, as a percentage of consolidated supplier expenditure, is as follows (in thousands):
Expenditure% of Total Expenditure
Year ended December 31, 2023
Supplier A$42,684 30.1 %
Supplier B28,222 19.9 %
Supplier C16,447 11.6 %
Year ended December 31, 2022
Supplier A$25,057 27.7 %
Supplier B15,302 16.9 %
Supplier C15,255 16.8 %

66
 Year ended December 31,
 2017 2016 2015
Customer A12.8% 15.7% 17.2%
Customer B8.9% 13.2% 14.6%
Customer C4.0% 6.9% 10.6%
Approximately 95% of the revenue from major customers noted above was from the Energy Chemistry Technologies segment.
Note 19 — Quarterly Financial Data (Unaudited)

 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 Total
 (in thousands, except per share data)
2017         
Revenue (1)
$79,954
 $85,177
 $79,458
 $72,509
 $317,098
Income (loss) from operations (1)
(623) (1,252) (3,103) 2,123
 (2,855)
          
Loss from continuing operations (1)
$(743) $(1,122) $(3,421) $(7,767) $(13,053)
Income (loss) from discontinued operations, net of tax(11,235) (2,704) 319
 (722) (14,342)
Net loss$(11,978) $(3,826) $(3,102) $(8,489) $(27,395)
          
Basic earnings (loss) per common share (2):
         
Continuing operations$(0.01) $(0.02) $(0.06) $(0.14) $(0.23)
Discontinued operations(0.19) (0.05) 0.01
 (0.01) (0.25)
Basic earnings (loss) per common share$(0.20) $(0.07) $(0.05) $(0.15) $(0.48)
Diluted earnings (loss) per common share (2):
         
Continuing operations$(0.01) $(0.02) $(0.06) $(0.14) $(0.23)
Discontinued operations(0.19) (0.05) 0.01
 (0.01) (0.25)
Diluted earnings (loss) per common share$(0.20) $(0.07) $(0.05) $(0.15) $(0.48)
          
(1) Amounts exclude impact of discontinued operations.
(2) The sum of the quarterly earnings (loss) per share (basic and diluted) may not agree to the earnings (loss) per share for the year due to the timing of common stock issuances.
          
          
          
          
          
          
          
          
          
          
          
          
          
          
          
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.
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 Total
 (in thousands, except per share data)
2016         
Revenue (1)
$63,812
 $64,079
 $64,337
 $70,604
 $262,832
Income (loss) from operations (1)
368
 156
 (2,253) (5,575) (7,304)
          
Income (loss) from continuing operations (1)
$(29) $(111) $(1,870) $3,917
 $1,907
Loss from discontinued operations, net of tax(30,156) (2,169) (876) (17,836) (51,037)
Net loss$(30,185) $(2,280) $(2,746) $(13,919) $(49,130)
          
Basic earnings (loss) per common share (2):
         
Continuing operations$—
 $—
 $(0.03) $0.07
 $0.03
Discontinued operations(0.55) (0.04) (0.02) (0.31) (0.91)
Basic earnings (loss) per common share$(0.55) $(0.04) $(0.05) $(0.24) $(0.88)
Diluted earnings (loss) per common share (2):
         
Continuing operations$—
 $—
 $(0.03) $0.07
 $0.03
Discontinued operations(0.55) (0.04) (0.02) (0.31) (0.91)
Diluted earnings (loss) per common share$(0.55) $(0.04) $(0.05) $(0.24) $(0.88)
          
(1) Amounts exclude impact of discontinued operations.
(2) The sum of the quarterly earnings (loss) per share (basic and diluted) may not agree to the earnings (loss) per share for the year due to the timing of common stock issuances.


67

Item 9. Changes in and Disagreements Withwith Accountants
on Accounting and Financial Disclosure.
As previously reported, effective November 16, 2017, Hein & Associates LLP (“Hein”), the independent registered public accounting firm for Flotek Industries, Inc. (the “Company”), combined with Moss Adams LLP (“Moss Adams”). As a result of this transaction, on November 16, 2017, Hein resigned as the independent registered public accounting firm for the Company. Concurrent with such resignation, the Company’s audit committee approved the engagement of Moss Adams as the new independent registered public accounting firm for the Company.Not Applicable.
The audit reports of Hein on the Company’s financial statements for the years ended December 31, 2016 and 2015 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the two most recent fiscal years ended December 31, 2016 and through the subsequent interim period preceding Hein’s resignation, there were no disagreements between the Company and Hein on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or
procedures which, if not resolved to the satisfaction of Hein, would have caused them to make reference thereto in their reports on the Company’s financial statements for such years. In addition, during the periods identified above, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
During the two most recent fiscal years ended December 31, 2016 and through the subsequent interim period preceding Moss Adams’ engagement, the Company did not consult with Moss Adams on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and Moss Adams did not provide either a written report or oral advice to the Company that Moss Adams concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in item 304(a)(1)(v) of Regulation S-K.


Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure such information is accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls
In accordance with Exchange Act Rules 13a-15(e) and procedures are designed to provide such reasonable assurance.
The Company’s management,15d-15(e), we carried out an evaluation under the supervision and with the participation of our management, including the principal executive officer and principal financial officers, evaluatedofficer, of the effectiveness of the design and operation of the Company’sour disclosure controls and procedures as of December 31, 2017, as required by Rule 13a-15(e) of the Exchange Act.2023. Based upon thatthis evaluation, theour principal executive officer and principal financial officersofficer have concluded that the Company’sour internal control over financial reporting disclosure controls and proceduresprocesses were effective as of December 31, 2017.
2023.
Remediation of the Previously Reported Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As reported in Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequatethe year ended December 31, 2022, as well as in our Quarterly Reports on Form 10-Q for each interim period through the third quarter of the year ended December 31, 2023, we did not maintain effective internal control over financial reporting as defined in Rule 13a-15(f)because of the Exchange Act. The Company’s management, includingmaterial weakness described below:
Specifically, (i) the principal executiveCompany did not have sufficient resources in place throughout the reporting period with the appropriate training and principal financial officers, assessed the effectivenessknowledge of internal control over financial reporting in order to establish the Company’s financial reporting processes to design, implement and operate an effective system of internal control over financial reporting; (ii) the Company did not conduct an adequate continuous risk assessment over financial reporting to identify and analyze risks of financial misstatement due to error and/or fraud and to identify and assess necessary changes in financial reporting processes and internal controls impacted by significant changes in the business and increase in transactions; and (iii) the Company did not have an effective information and communication process that ensured appropriate and accurate information was available to financial reporting personnel on a timely basis in order that they could fulfill their roles and responsibilities.
Accordingly, the Company did not establish appropriate control activities through policies and procedures to mitigate risk to the achievement of the Company’s financial reporting objectives, as follows:
a.The Company did not design effective controls over the identification and subsequent accounting for modifications to lease agreements.
b.The Company did not design effective controls over the accuracy of prepaid asset accounts.
c.The Company did not design effective controls over the completeness and accuracy of the related party revenue accrual at period end to ensure all sales were properly accounted for.
During the year ended December 31, 2017, based on criteria issued by2023, the CommitteeCompany implemented remediation plans to address the design and operating effectiveness of Sponsoring Organizationscontrol deficiencies that led to the material weakness described above. Management’s plan of the Treadway Commission (2013 Framework) (“COSO”)remediation included ensuring sufficient and appropriate resources inInternal Control – Integrated Framework. Upon evaluation, the Company’s management has concluded thatfinance and accounting department, specifically as it relates to the Company’smonth end review of related party revenue accruals and enhancing required training specific to internal control over financial reporting was effectiveand revenue recognition. Management has enhanced its financial control risk assessment process, which continuously considers process changes as well as changes in connection with the preparationbusiness or nature of transactions, to identify and assess risks of financial misstatement due to error and/or fraud and the internal controls impact.
Management has enhanced the information and communication processes to ensure the organization communicates information internally in a timely manner to ensure appropriate and accurate information is available to financial reporting personnel on a

68

timely basis in order that they can fulfill their roles and responsibilities. Changes that enhance the information and communication processes included:
a.Participation by accounting and finance personnel in weekly leadership meetings that include the Company’s Executive Committee and leadership from all functions where updates are provided at the Corporate and divisional level to ensure the accounting and finance group is aware of transactions and other events that my impact the consolidated financial statementsstatements.The weekly leadership meeting includes the identification of any new or modified leases as part of the standing agenda.
b.Enhanced controls related to the month end close whereby all departments responsible for closing revenue including Accounting, Client Fulfillment and Supply Chain participate in daily touchpoints that allow for discussion on any questions or scenarios to ensure that revenue is closed completely and accurately and is properly supported.
c.Enhanced the quarterly internal representation process to ensure new or modifications to existing leases are identified and communicated.
d.Implemented a quarterly review control to validate the accuracy of the balance of prepaid assets at each reporting date.
After testing the design and implementation and operating effectiveness of the enhanced or new controls described above, management concluded that the material weakness described above was remediated as of December 31, 2017.
The2023. We will continue to monitor execution of our controls to ensure the effectiveness of the Company’s internal control over financial reportingthose controls and make enhancements as of December 31, 2017 has been audited by Moss Adams LLP, an independent registered public accounting firm,necessary. Additionally, we will continue to train new and key personnel on our standard processes and systems as stated in their report which is included herein.required.
Changes in Internal Control over Financial Reporting
There have beenExcept as described above under “Remediation of the Previously Reported Material Weaknesses in Internal Control Over Financial Reporting,” there were no changes in the Company’s system ofour internal control over financial reporting during the three monthsfourth quarter of the year ended December 31, 20172023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation to assess the effectiveness of our internal control over financial reporting as of December 31, 2023, based upon criteria set forth in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, the Company’s management has concluded that, as of December 31, 2023, our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Item 9B. Other Information.
Trading Arrangements.
During the quarter ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.


69

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of year end.

Item 11. Executive Compensation.

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of year end.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of year end.


Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of year end.

Item 14. Principal Accountant Fees and Services.

Our independent registered public accounting firm is KPMG LLP, Houston, TX, Auditor Firm ID: 185

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of year end.



70

PART IV


Item  15. Exhibits and Financial Statement Schedules.

EXHIBIT INDEX
Schedules
Exhibit
Number		Description of Exhibit
2.1††
Share Purchase Agreement, dated as of January 10, 2019, by and between the Company and ADM (portions of this exhibit have been omitted pursuant to a confidential treatment request, which has been granted) (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on March 4, 2019).
Exhibit
Number
2.2		††
Membership Interest Purchase Agreement, dated as of May 18, 2020, by and between the Company, JP3 Measurement, LLC, the Sellers party thereto, and John A. Cardwell, as Seller Representative) (incorporated by reference to Exhibit Title2.1 to the Company’s Form 8-K filed on May 19, 2020).
3.1
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended September 30, 2007).
3.2
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended September 30, 2009).
3.3
Certificate of Amendment to the Amended and Restated Bylaws, dated December 9, 2014Certificate of Incorporation of Flotek Industries, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on December 10, 2014)May 7, 2020).
3.4
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Flotek Industries, Inc. (form of which is incorporated by reference to Appendix B to the Company’s Proxy Statement filed on April 5, 2022).
3.5
Second Amended and Restated Bylaws, dated October 11, 2017as amended (incorporated by reference to Exhibit 3.13.6 to the Company’s Form 8-K10-Q filed on October 17, 2017)November 8, 2023).
4.1
Form of Certificate of Common Stock (incorporated by reference to Appendix E to the Company’s Definitive Proxy Statement filed on September 27, 2001).
4.2
4.3
4.4
4.5
10% Convertible PIK Note dated May 17, 2022 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on May 18, 2022).
4.6
10.1†
Registration RightsEmployment Agreement, dated June 6, 2023, between the Company and Ryan Ezell (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 8, 2023).
10.2†
Employment Agreement dated December 19, 2022 between Flotek Industries, Inc. and Bond Clement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 19, 2022)
10.3†
Amendment to Employment Agreement , dated April 13, 2023, between the Company and Harsha V. Agadi (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 17, 2023).
10.4†
Employment Agreement, dated January 19, 2023, between the Company and Harsha Agadi (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 19, 2023).
10.5†
Director and Officer Indemnification Agreement dated May 5, 2023 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on May 11, 2023).
10.6
First Amendment to Revolving Loan and Security Agreement dated as of July 26, 2016,October 5, 2023, among Flotek Industries, Inc., Flotek Chemistry, LLC and JP3 Measurement, LLC, as borrowers, and Amerisource Funding, Inc., as lender (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 6, 2023).
10.7
Revolving Loan and Security Agreement dated as of August 14, 2023, among Flotek Industries, Inc., Flotek Chemistry, LLC and JP3 Measurement, LLC, as borrowers, and Amerisource Funding, Inc., as lender (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 14, 2023).
10.8
Amendment No.2 to the Chemical Supply Agreement dated February 1, 2023 between Flotek Chemistry, LLC and ProFrac Services, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 6, 2023).
10.9††
 Securities Purchase Agreement between Flotek Industries, Inc. and ProFrac Holdings II, LLC dated June 17, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 23, 2022).
10.10***
Amendment No. 1 to Chemical Products Supply Agreement between Flotek Chemistry, LLC and ProFrac Services, LLC dated May 17, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 18, 2022).

71

10.11
Registration Rights Agreement, by and between Flotek Industries, Inc. and ProFrac Holdings II, LLC dated May 17, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 18, 2022).
10.12
Amendment No. 1 to Registration Rights Agreement Flotek Industries, Inc. and ProFrac Holdings II, LLC dated June 21, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 23, 2022).
10.13††
Securities Purchase Agreement dated February 16, 2022 by and between Flotek Industries, Inc. and ProFrac Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 22, 2022)
10.14
10.15***
Chemical Products Supply Agreement between Flotek Chemistry, LLC and ProFrac Services, LLC, dated February 2, 2022 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on February 4, 2022).
10.16
Cooperation Agreement, dated as of March 19, 2019, by and among the Company Donald Bramblett, and Mark KieperBLR Partners LP and its affiliates (incorporated by reference to Exhibit 4.610.1 to the Company’s RegistrationForm 8-K filed on March 20, 2019)
10.17†
Form of Stock Option Award Grant Notice and Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 8, 2023).
10.18†
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 8, 2023).
10.19†
2023 Management Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on December 8, 2023).
10.20†
Flotek Industries, Inc. Amended and Restated 2012 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 30, 2023).
10.21†
Stock Option Agreement, dated June 7, 2023, between the Company and Bond Clement (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 8, 2023).
10.22†
Stand-Alone Restricted Stock Unit Award Agreement, dated January 19, 2023, between the Company and Harsha Agadi (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on January 19, 2023).
10.23†
2018 Long-Term Incentive Plan, as amended (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Form S-3 (File No. 333-212864)Schedule 14A filed on August 3, 2016)April 28, 2023).
10.110.24†
2007Flotek Industries, Inc. Employment Inducement Plan (incorporated by reference to Exhibit 99.1 to the Company’s Form S-8 filed on June 17, 2020)
10.25†
Form of Stock Option Grant Notice and Stock Option Agreement under Flotek Industries, Inc. Employment Inducement Plan (incorporated by reference to Exhibit 99.3 to the Company’s Form S-8 filed on June 17, 2020)
10.26†
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under Flotek Industries, Inc. Employment Inducement Plan (incorporated by reference to Exhibit 99.2 to the Company’s Form S-8 filed on June 17, 2020)
10.27†
Form of Restricted Stock Agreement pursuant to the Company’s 2018 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-K10-Q for the yearquarter ended December 31, 2007).June 30, 2019)
10.210.28†
2010 Long-TermForm of Restricted Stock Agreement pursuant to the Company’s 2019 Non-Employee Director Incentive Plan (incorporated by reference to Appendix AExhibit 10.7 to the Company’s Definitive Proxy StatementForm 10-Q for the quarter ended June 30, 2019)
10.29††
10.3†
Non-Qualified Stock OptionSeparation Agreement and General Release, dated April 8, 2011,13, 2023, between the Company and Steve ReevesJames Silas (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on May 11, 2023).
10.31†
Amendment No. 1 to Employment Agreement, dated October 18, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 24, 2019)
10.32†
Guaranty, dated May 8, 2019, by John W. Chisholm in favor of the Company (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on October 24, 2019)
10.33†
Termination and Release Agreement, dated as of May 20, 2019, by and among the Company, John W. Chisholm, Protechnics II, Inc. and Chisholm Management, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended June 30, 2019)
10.34†
Employment Agreement, dated effective as of April 1, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 24, 2019)

72

10.35†
Stand-Alone Cash-Settled Restricted Stock Unit Agreement, dated as of May 20, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended June 30, 2019)
10.36†
Restricted Stock Agreement, dated as of May 24, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended June 30, 2011).2019)
10.410.37†
Non-Qualified Stock OptionSeparation Agreement and General Release, dated January 19, 2023, between the Company and John Gibson (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K file on January 19, 2023).
10.38†
Purchase Agreement, dated April 8, 2011,January 10, 2020, between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended June 30, 2011).
10.5
Revolving Credit and Security Agreement dated as of September 23, 2011Gibson, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 26, 2011)January 13, 2020).
10.610.39†
Guaranty dated September 23, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on September 26, 2011).
10.7
SecurityEmployment Agreement, dated September 23, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on September 26, 2011).
10.8
Intellectual Property Security Agreement dated September 23, 2011 (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on September 26, 2011).
10.9
Lien Subordination and Intercreditor Agreement dated as of September 23, 2011 (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on September 26, 2011).
10.10
Second Amendment to Revolving Credit and Security Agreement dated as of November 12, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on November 14, 2012).
10.11
Third Amendment to Revolving Credit and Security Agreement datedeffective as of December 14, 201222, 2019, by and between the Company and John W. Gibson, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 17, 2012).27, 2019)
10.1210.40†
Fourth Amendment to Revolving Credit and SecurityStand-Alone Restricted Stock Unit Award Agreement, dated as of December 27, 2012 (incorporated22, 2019, by reference to Exhibit 10.1 toand between the Company’s Form 8-K filed on December 28, 2012).
10.13
AmendedCompany and Restated Revolving Credit, Term Loan and Security Agreement dated May 10, 2013John W. Gibson, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 13, 2013).December 27, 2019)
10.1410.41†
First Amendment to Amended and Restated Revolving Credit, Term Loan and SecurityStand-Alone Time-Based Stock Option Award Agreement, dated as of December 31, 201322, 2019, by and between the Company and John W. Gibson, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 7, 2014).
10.15
2014 Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement filed on April 18, 2014).
10.16
Fifth Amended and Restated Service Agreement, dated as of April 15, 2014, between the Company, Protechnics II, Inc. and Chisholm Management, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 21, 2014).
10.17
Letter Agreement, dated as of April 15, 2014, between the Company and John Chisholm (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on April 21, 2014).

Exhibit
Number
Exhibit Title
10.18
Second Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement dated December 5, 2014 (incorporated by reference to Exhibit 10.110.3 to the Company’s Form 8-K filed on December 10, 2014).27, 2019)
10.1910.42†
EmploymentStand-Alone Performance-Based Stock Option Award Agreement, dated effective May 1, 2015as of December 22, 2019, by and between the Company and Robert M. SchmitzJohn W. Gibson, Jr. (incorporated by reference to Exhibit 10.210.4 to the Company’s Form 8-K filed on June 4, 2015).December 27, 2019)
10.2010.43†
Third Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement dated June 19, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 24, 2015).
10.21
Fourth Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement dated July 21, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 23, 2015).
10.22
Employment Agreement datedbetween Flotek Industries, Inc. and Seham S. Carson effective January 1, 2016 between the Company and Joshua A. Snively, Sr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 7, 2016).
10.23
Fifth Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement dated effective March 31, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 3, 2016).
10.24
Form of Subscription Agreement, dated as of July 26, 2016August 5, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 1, 2016).9, 2022)
10.2510.44†
Sixth AmendmentSeparation and Release Agreement between Michael E. Borton and Flotek Industries, Inc. dated July 4, 2022 (incorporated by reference to Amended and Restated Revolving Credit, Term Loan and SecurityExhibit 10.6 to the Company’s Form 10-Q filed of August 11, 2022)
10.45†
Employment Agreement dated effective September 30, 2016October 15, 2021, between the Company and Michael Borton (incorporated byreference to Exhibit 10.1 to the Company’s Form 8-K filed on November 2, 2016).October 20, 2021.)
10.2610.46†*
Retirement Agreement, dated February 14, 2017, between Robert M. Schmitz and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 17, 2017).
10.27
Retirement Agreement, dated February 16, 2017, between Steve Reeves and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on February 17, 2017).
10.28
Letter Agreement, dated February 13, 2017, among the Company, Protechnics II, Inc. and Chisholm Management, Inc. amending the Fifth Amended and Restated Service Agreement among such parties (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on February 17, 2017).
10.29
Seventh Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement and Sixth Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated effective as of March 31, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 1, 2017).
10.30
Asset Purchase Agreement, dated May 2, 2017, by and among National Oilwell DHT, L.P., Dreco Energy Services ULC, and National Oilwell Varco, L.P., the buyers, Teledrift Company, Turbeco, inc., Flotek Technologies ULC, and Flotek Industries FZE, the sellers, and Flotek Industries, Inc (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2017).
10.31
Eighth Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated effective as of June 7, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2017).
10.32
Ninth Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated effective as of July 1, 2017 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended September 30, 2017).
10.33
Tenth Amendment to Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated effective as of September 29, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 3, 2017).
10.34
Employment Agreement dated effective April 1, 2016,January 30, 2024, between the Company and Robert Bodnar (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended September 30, 2017).Amy Blakeway.
10.3521.1*
Confidential Severance and Release Agreement, dated effective October 12, 2017, between the Company and Robert Bodnar (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended September 30, 2017).List of Subsidiaries
2123.1*
ListConsent of Subsidiaries.KPMG LLP
23.131.1*
Consent of Moss Adams LLP.
23.2*
Consent of Hein & Associates LLP.
31.1*
Rule 13a-14(a) Certification of Principal Executive Officer.
31.2*
Rule 13a-14(a) Certification of Principal Financial Officer.
32.1**
Section 1350 Certification of Principal Executive Officer.
32.2**
Section 1350 Certification of Principal Financial Officer.
101.INS97+*
Flotek Industries, Inc. Clawback Policy
101.INS*Inline XBRL Instance Document.

Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCH*Inline XBRL Schema Document
Exhibit
Number
101.CAL		*Exhibit Title
101.SCH+XBRL Schema Document.
101.CAL+Inline XBRL Calculation Linkbase Document.Document
101.LAB+*Inline XBRL Label Linkbase Document.Document
101.PRE+*Inline XBRL Presentation Linkbase Document.Document
101.DEF+*Inline XBRL Definition Linkbase Document.Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Filed herewith.with this Form 10-K.
**Furnished with this Form 10-K, not filed.
+***Certain identified information has been excluded from this exhibit because it is not material and is the type of information that the Company customarily and actually treats as private and confidential. Redacted information is indicated by [***]
†Filed electronically with this Form 10-K.Management contracts or compensatory plans or agreements.
††Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The Company hereby agrees to furnish a copy of any omitted schedule or attachment to the Securities and Exchange Commission upon request.







73

Item 16. Form 10-K Summary

None.

74

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
FLOTEK INDUSTRIES, INC.
By:  /s/    Ryan Ezell
By:  /s/    JOHN W. CHISHOLMRyan Ezell
John W. Chisholm
President, Chief Executive Officer and Chairman of the Board
Date: March 8, 201815, 2024


POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ryan Ezell and Bond Clement, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURESTITLEDATE
SignatureTitleDate
/s/ JOHN W. CHISHOLMRyan Ezell     
Ryan Ezell
President, Chief Executive OfficerMarch 15, 2024
/s/ Bond Clement     
Bond Clement
Chief Financial Officer
(Principal Financial and Accounting Officer)		March 15, 2024
/s/ Harsha V. Agadi    
Harsha V. Agadi
Chairman of the BoardMarch 8, 2018
John W. Chisholm(Principal Executive Officer)
/s/ H. RICHARD WALTONChief Financial OfficerMarch 8, 2018
H. Richard Walton  (Principal Financial Officer and Principal Accounting Officer)
/s/ KENNETH T. HERNDirectorMarch 8, 2018
Kenneth T. Hern
/s/ JOHN S. REILANDDirectorMarch 8, 2018
John S. Reiland15, 2024
/s/ L.V. “BUD” MCGUIREEvan Farber     
Evan Farber
DirectorDirectorMarch 8, 201815, 2024
L.V. “Bud” McGuire/s/ Michael Fucci     
Michael Fucci
DirectorMarch 15, 2024
/s/ L. MELVIN COOPERLisa Mayr     
Lisa Mayr
DirectorDirectorMarch 8, 201815, 2024
L. Melvin Cooper
/s/ David Nierenberg    
David Nierenberg
DirectorMarch 15, 2024
/s/ CARLA S. HARDYMatt D. Wilks     
Matt D. Wilks
DirectorDirectorMarch 8, 2018
Carla S. Hardy
/s/ TED D. BROWNDirectorMarch 8, 2018
Ted D. Brown
/s/ MICHELLE M. ADAMSDirectorMarch 8, 2018
Michelle M. Adams15, 2024




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