UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20202021
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)
Delaware90-0023731
(State of other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Delaware
90-0023731
(State of other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8846 N. Sam Houston Parkway W.Houston,TX
77064
Houston, TX77064
(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
Indicate by check mark 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  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No  ☐
Indicate by check mark 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☒
Large accelerated filer☐Accelerated Filer☒
Non-accelerated filer☐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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of November 13, 2020,8, 2021, there were 73,094,90179,617,743 outstanding shares of Flotek Industries, Inc. common stock, $0.0001 par value.





TABLE OF CONTENTS
 
Note About Forward-Looking Statements
3
Item 1.
4
Unaudited Condensed Consolidated Balance Sheets atSeptember 30, 20202021 and December 31, 20192020
4
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 20202021 and 20192020
5
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)Loss for the three and nine months ended September 30, 20202021 and 20192020
6
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20202021 and 20192020
7
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 20202021 and 20192020
8
Notes to Unaudited Condensed Consolidated Financial Statements
10
Item 2.
2924
Item 3.
3731
Item 4.
3731
Item 1.
3933
Item 1A.
3933
Item 2.
4133
Item 3.
4133
Item 4.
4133
Item 5.
4134
Item 6.
4235
4336




2




Forward-Looking StatementsFORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”), and in particular, Part I, Item 2 — “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, (“Reform Act”).as amended. Forward-looking statements are not historical facts, but instead represent the 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 Quarterly Report are based on information available as of the date of this Quarterly Report.
The forward-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, financial condition, future operating results and liquidity.liquidity, including but not limited to the impact of the COVID-19 pandemic, pending litigation, commodity prices and other circumstances. These forward-looking statements generally are identified by words including but not limited to, “anticipate,” “believe,” “estimate,” “commit,” “budget,” “aim,” “potential,” “schedule,” “continue,” “intend,” “expect,” “plan,” “forecast,” “project,”“project” and similar expressions, or future-tense or conditional constructions such as “will,” “may,” “should,” “could,” etc.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 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 is includedinclude, but are not limited to, those discussed in Part I, Item 1A — “Risk Factors” of the Annual Report on Form 10-K for the year ended December 31, 2019 (the “20192020 (“Annual Report” or “2020 Annual Report”), as amended by the Amendment No. 1 on Form 10-K/A to the 2019 Annual Report, filed with the SECSecurities and Exchange Commission (“SEC”) on March 16, 2020 (the “Amendment No. 1”) and Amendment No. 2 on Form 10-K/A to the 2019 Annual Report, filed with the SEC on June 11, 2020 (collectively with the 2019 Annual Report and the Amendment No. 1, the “Annual Report”)2021, and periodically in subsequent reports filed with the Securities and Exchange Commission (“SEC”).SEC. The Company has no obligation, and we disclaim 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.



3







PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$20,527 $38,660 
Restricted cash40 664 
Accounts receivable, net of allowance for doubtful accounts of $743 and $1,316 at September 30, 2021 and December 31, 2020, respectively11,560 11,764 
Inventories, net8,818 11,837 
Income taxes receivable55 403 
Other current assets4,811 3,127 
Assets held for sale545 — 
Total current assets46,356 66,455 
Property and equipment, net7,769 9,087 
Operating lease right-of-use assets2,099 2,320 
Goodwill8,092 8,092 
Deferred tax assets, net209 223 
Other long-term assets29 33 
TOTAL ASSETS$64,554 $86,210 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$5,224 $5,787 
Accrued liabilities10,465 18,275 
Income taxes payable38 21 
Interest payable70 34 
Current portion of operating lease liabilities586 636 
Current portion of finance lease liabilities48 60 
Current portion of long-term debt1,336 4,048 
Total current liabilities17,767 28,861 
Deferred revenue, long-term100 117 
Long-term operating lease liabilities7,888 8,348 
Long-term finance lease liabilities64 96 
Long-term debt3,452 1,617 
TOTAL LIABILITIES29,271 39,039 
Commitments and contingencies (See Note 11)00
Stockholders’ equity:
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding— — 
Common stock, $0.0001 par value, 140,000,000 shares authorized; 79,610,243 shares issued and 69,316,933 shares outstanding at September 30, 2021; 78,669,414 shares issued and 73,088,494 shares outstanding at December 31, 20208 8 
Additional paid-in capital362,174 359,721 
Accumulated other comprehensive income (loss)51 (19)
Accumulated deficit(293,025)(278,688)
Treasury stock, at cost; 5,648,721 and 5,580,920 shares at September 30, 2021 and December 31, 2020, respectively(33,925)(33,851)
Total stockholders’ equity35,283 47,171 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$64,554 $86,210 
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
4
 September 30, 2020 December 31, 2019
ASSETS   
Current assets:   
Cash and cash equivalents$49,193
 $100,575
Restricted cash664
 663
Accounts receivable, net of allowance for doubtful accounts of $1,150 and $1,527 at September 30, 2020 and December 31, 2019, respectively10,629
 15,638
Inventories, net14,370
 23,210
Income taxes receivable754
 631
Other current assets3,427
 13,191
Total current assets79,037
 153,908
Property and equipment, net8,694
 39,829
Operating lease right-of-use assets2,368
 16,388
Goodwill8,092
 0
Deferred tax assets, net249
 152
Other intangible assets, net0
 20,323
Other long-term assets33
 0
TOTAL ASSETS$98,473
 $230,600
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$6,201
 $16,231
Accrued liabilities13,084
 24,552
Income taxes payable25
 0
Interest payable22
 0
Current portion of long-term debt3,462
 0
Current portion of operating lease liabilities651
 486
Current portion of finance lease liabilities58
 55
Total current liabilities23,503
 41,324
Long-term debt, less current portion2,201
 0
Deferred revenue, long-term104
 0
Long-term operating lease liabilities8,408
 16,973
Long-term finance lease liabilities114
 158
Deferred tax liabilities, net14
 116
Total liabilities34,344
 58,571
Commitments and contingencies (See Note 19)

 

Stockholders’ equity:   
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding0
 0
Common stock, $0.0001 par value, 140,000,000 shares authorized; 77,972,135 shares issued and 73,323,001 shares outstanding at September 30, 2020; 63,656,897 shares issued and 59,511,416 shares outstanding at December 31, 20197
 6
Additional paid-in capital358,726
 347,564
Accumulated other comprehensive income11
 181
Accumulated deficit(261,008) (142,238)
Treasury stock, at cost; 4,649,134 and 4,145,481 shares at September 30, 2020 and December 31, 2019, respectively(33,607) (33,484)
Total stockholders’ equity64,129
 172,029
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$98,473
 $230,600





FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
Revenue
Revenue from external customers$8,847 $12,739 $29,782 $41,035 
Revenue from related party1,332 — 1,332 — 
Total revenues10,179 12,739 31,114 41,035 
Costs and expenses:
Operating expenses (excluding depreciation and amortization)5,418 29,466 31,330 63,939 
Corporate general and administrative2,696 2,679 9,925 12,568 
Depreciation and amortization233 518 793 3,177 
Research and development1,186 1,480 4,194 5,673 
Loss (Gain) on disposal of long-lived assets14 (37)(55)(92)
Impairment of goodwill— 11,706 — 11,706 
Impairment of fixed, long-lived and intangible assets— 12,521 — 69,975 
Total costs and expenses9,547 58,333 46,187 166,946 
Income (loss) from operations632 (45,594)(15,073)(125,911)
Other (expense) income:
Paycheck protection plan loan forgiveness— — 881 — 
Gain on lease termination— — — 576 
Interest expense(18)(19)(53)(40)
Other (expense) income, net(102)291 (62)322 
Total other (expense) income, net(120)272 766 858 
Income (loss) before income taxes512 (45,322)(14,307)(125,053)
Income tax (expense) benefit(3)81 (30)6,282 
Net income (loss)$509 $(45,241)$(14,337)$(118,771)
Income (loss) per common share:
Basic$0.01 $(0.66)$(0.21)$(1.75)
Diluted$0.01 $(0.66)$(0.21)$(1.75)
Weighted average common shares:
Weighted average common shares used in computing basic income (loss) per common share69,324 68,217 68,665 68,063 
Weighted average common shares used in computing diluted income (loss) per common share70,176 68,217 68,665 68,063 


The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
5
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Revenue$12,739
 $21,879
 $41,035
 $99,827
Costs and expenses:       
Operating expenses (excluding depreciation and amortization)29,466
 23,622
 63,939
 105,711
Corporate general and administrative2,679
 5,685
 12,568
 19,020
Depreciation and amortization518
 2,058
 3,177
 6,437
Research and development1,480
 2,297
 5,673
 6,658
(Gain) loss on disposal of long-lived assets(37) 3
 (92) 1,096
Impairment of goodwill11,706
 0
 11,706
 0
Impairment of fixed and long-lived assets12,521
 0
 69,975
 0
Total costs and expenses58,333
 33,665
 166,946
 138,922
Loss from operations(45,594) (11,786) (125,911) (39,095)
Other (expense) income:       
Gain on lease termination0
 0
 576
 0
Interest expense(19) (1) (40) (2,014)
Other income, net291
 436
 322
 1,238
Total other income (expense), net272
 435
 858
 (776)
Loss before income taxes(45,322) (11,351) (125,053) (39,871)
Income tax benefit81
 191
 6,282
 694
Loss from continuing operations(45,241) (11,160) (118,771) (39,177)
Income from discontinued operations, net of tax0
 117
 0
 44,583
Net (loss) income$(45,241) $(11,043) $(118,771) $5,406
        
Basic earnings (loss) per common share:      
Continuing operations$(0.66) $(0.19) $(1.75) $(0.67)
Discontinued operations, net of tax0
 0
 0
 0.76
Basic earnings (loss) per common share$(0.66) $(0.19) $(1.75) $0.09
        
Diluted earnings (loss) per common share:      
Continuing operations$(0.66) $(0.19) $(1.75) $(0.67)
Discontinued operations, net of tax0
 0
 0
 0.76
Diluted earnings (loss) per common share$(0.66) $(0.19) $(1.75) $0.09
        
Weighted average common shares:       
Weighted average common shares used in computing basic earnings (loss) per common share68,217
 58,608
 68,063
 58,491
Weighted average common shares used in computing diluted earnings (loss) per common share68,217
 58,608
 68,063
 58,491






FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
    
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
Net income (loss)$509 $(45,241)$(14,337)$(118,771)
Other comprehensive income (loss):
Foreign currency translation adjustment38 (40)70 (168)
Comprehensive Income (loss)$547 $(45,281)$(14,267)$(118,939)

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
6
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Loss from continuing operations$(45,241) $(11,160) $(118,771) $(39,177)
Income from discontinued operations, net of tax0
 117
 0
 44,583
Net (loss) income(45,241) (11,043) (118,771) 5,406
Other comprehensive (loss) income:       
Foreign currency translation adjustment(40) 36
 (168) 154
Comprehensive (loss) income$(45,281) $(11,007) $(118,939) $5,560






FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 Nine months ended September 30,
 20212020
Cash flows from operating activities:
Net loss$(14,337)$(118,771)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of contingent consideration(701)3,200 
Depreciation and amortization793 3,177 
Provision for doubtful accounts(42)494 
Inventory purchase commitment settlement(7,633)0
Provision for excess and obsolete inventory687 10,465 
Impairment of goodwill— 11,706 
Impairment of right-of-use assets— 7,434 
Impairment of fixed assets— 30,178 
Impairment of intangible assets— 32,363 
Gain on sale of assets(55)(668)
Non-cash lease expense221 299 
Stock compensation expense2,710 2,208 
Deferred income tax provision (benefit)13 (199)
Paycheck protection plan loan forgiveness(881)— 
Changes in current assets and liabilities:
Accounts receivable, net111 4,714 
Inventories, net2,330 3,186 
Income taxes receivable405 (140)
Other current assets(2,237)823 
Other long-term assets541 (16)
Accounts payable(604)(11,906)
Accrued liabilities414 (17,689)
Income taxes payable(53)25 
Interest payable36 22 
Net cash used in operating activities(18,282)(39,095)
Cash flows from investing activities:
Capital expenditures(31)(836)
Proceeds from sale of business— 9,907 
Proceeds from sale of assets74 86 
Purchase of JP3, net of cash acquired— (26,284)
Abandonment of patents and other intangible assets— (8)
Net cash provided by (used in) investing activities43 (17,135)
Cash flows from financing activities:
Proceeds from paycheck protection plan loan— 4,788 
Payments to tax authorities for shares withheld from employees(161)(123)
(Payments) proceeds from issuance of stock(246)416 
Payments for finance leases(44)(152)
Net cash (used in) provided by financing activities(451)4,929 
Effect of changes in exchange rates on cash and cash equivalents(67)(80)
Net change in cash, cash equivalents and restricted cash(18,757)(51,381)
Cash and cash equivalents at the beginning of period38,660 100,575 
Restricted cash at the beginning of period664 663 
Cash and cash equivalents and restricted cash at beginning of period39,324 101,238 
Cash and cash equivalents at end of period20,527 49,193 
Restricted cash at the end of period40 664 
Cash, cash equivalents and restricted cash at end of period$20,567 $49,857 
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
7
 Nine months ended September 30,
 2020 2019
Cash flows from operating activities:   
Net (loss) income$(118,771) $5,406
Less: Income from discontinued operations, net of tax0
 44,583
Loss from continuing operations(118,771) (39,177)
Adjustments to reconcile loss from continuing operations to net cash (used in) provided by operating activities:   
Change in fair value of contingent consideration3,200
 0
Depreciation and amortization3,177
 6,437
Amortization of deferred financing costs0
 1,428
Provision for doubtful accounts494
 426
Provision for excess and obsolete inventory10,465
 0
Impairment of goodwill11,706
 0
Impairment of right-of-use assets7,434
 0
Impairment of fixed assets30,178
 0
Impairment of intangible assets32,363
 0
(Gain)/loss on disposal of long-lived assets(668) 1,096
Non-cash lease expense299
 813
Stock compensation expense2,208
 2,829
Deferred income tax provision(199) 17,983
Reduction in tax benefit related to share-based awards0
 24
Changes in current assets and liabilities:   
Accounts receivable, net4,714
 21,629
Inventories, net3,186
 3,000
Income taxes receivable(140) 2,853
Other current assets823
 (4,036)
Other long-term assets(16) 3,286
Accounts payable(11,906) (4,434)
Accrued liabilities(17,689) (14,205)
Income taxes payable25
 595
Interest payable22
 (8)
Net cash (used in) provided by operating activities(39,095) 539
Cash flows from investing activities:   
Capital expenditures(836) (1,869)
Proceeds from sale of business9,907
 155,498
Proceeds from sale of assets86
 234
Purchase of JP3, net of cash acquired(26,284) 0
Purchase of patents and other intangible assets(8) (590)
Net cash (used in) provided by investing activities(17,135) 153,273
Cash flows from financing activities:   
Borrowings on revolving credit facility0
 42,984
Repayments on revolving credit facility0
 (92,613)
Proceeds from Paycheck Protection Program loan4,788
 0
Purchase of treasury stock related to share-based awards(123) (207)
Proceeds from sale of common stock416
 7
Payments for finance leases(152) (51)
Net cash provided by (used in) financing activities4,929
 (49,880)
Discontinued operations:   
Net cash used in operating activities0
 (321)
Net cash provided by investing activities0
 337
Net cash flows provided by discontinued operations0
 16
Effect of changes in exchange rates on cash and cash equivalents(80) 2
Net (decrease) increase in cash and cash equivalents and restricted cash(51,381) 103,950
Cash and cash equivalents at the beginning of period100,575
 3,044
Restricted cash at the beginning of period663
 0
Cash and cash equivalents and restricted cash at beginning of period101,238
 3,044
Cash and cash equivalents at end of period49,193
 106,994
Restricted cash at the end of period664
 663
Cash and cash equivalents and restricted cash at the end of period$49,857
 $107,657






FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Three Months Ended September 30, 2021 and 2020
(in thousands)In thousands of U.S. dollars and shares)

 Common StockTreasury StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued		Par
Value		SharesCost
Balance, June 30, 202179,607 $8 5,628 $(34,017)$361,424 $13 $(293,534)$33,894 
Net income— — — — — — 509 509 
Foreign currency translation adjustment— — — — — 38 — 38 
Stock issued under employee stock purchase plan— — (28)20 (89)— — (69)
Restricted stock granted9 — — — — — — — 
Restricted stock forfeited(6)4 8 3 — — 11 
Stock compensation expense— — — — 961 — — 961 
Shares withheld to cover taxes— — 45 64 (125)— — (61)
Balance, September 30, 202179,610 $8 5,649 $(33,925)$362,174 $51 $(293,025)$35,283 
(1) See Note 12, “Stockholders’ Equity” for further discussion.
 Three months ended September 30, 2020
 Common Stock Treasury Stock 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 Accumulated Deficit Total Stockholders’ Equity
 
Shares
Issued
 
Par
Value
 Shares Cost 
Balance, June 30, 202077,626
 $7
 4,459
 $(33,566) $357,981
 $51
 $(215,767) $108,706
Net loss—
 —
 —
 —
 —
 —
 (45,241) (45,241)
Foreign currency translation adjustment—
 —
 —
 —
 —
 (40) —
 (40)
Stock issued under employee stock purchase plan—
 —
 (25) —
 58
 —
 —
 58
Restricted stock granted346
 —
 —
 —
 —
 —
 —
 —
Restricted stock forfeited—
 —
 179
 —
 —
 —
 —
 —
Treasury stock purchased—
 —
 36
 (41) —
 —
 —
 (41)
Stock compensation expense—
 —
 —
 —
 687
 —
 —
 687
Balance, September 30, 202077,972
 $7
 4,649
 $(33,607) $358,726
 $11
 $(261,008) $64,129


 Common StockTreasury StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued		Par
Value		SharesCost
Balance, June 30, 202077,626 $7 4,459 $(33,566)$357,981 $51 $(215,767)$108,706 
Net loss— — — — — — (45,241)(45,241)
Foreign currency translation adjustment— — — — — (40)— (40)
Stock issued under employee stock purchase plan— — (25)— 58 — — 58 
Restricted stock granted346 — — — — — — — 
Restricted stock forfeited— — 179 — — — — — 
Treasury stock purchased— — 36 (41)— — — (41)
Stock compensation expense— — — — 687 — — 687 
Balance, September 30, 202077,972 $7 4,649 $(33,607)$358,726 $11 $(261,008)$64,129 

 Three months ended September 30, 2019
 Common Stock Treasury Stock 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 Accumulated Deficit Total Stockholders’ Equity
 
Shares
Issued
 
Par
Value
 Shares Cost 
Balance, June 30, 201962,956
 $6
 3,948
 $(33,378) $345,217
 $149
 $(91,874) $220,120
Net income—
 —
 —
 —
 —
 —
 (11,043) (11,043)
Foreign currency translation adjustment—
 —
 —
 —
 —
 36
 —
 36
Stock issued under employee stock purchase plan—
 —
 (7) —
 15
 —
 —
 15
Restricted stock granted82
 —
 —
 —
 —
 —
 —
 —
Restricted stock forfeited—
 —
 159
 —
 —
 —
 —
 —
Treasury stock purchased—
 —
 30
 (66) —
 —
 —
 (66)
Stock compensation expense—
 —
 —
 —
 1,160
 —
 —
 1,160
Balance, September 30, 201963,038
 $6
 4,129
 $(33,444) $346,392
 $185
 $(102,917) $210,222






















FLOTEK INDUSTRIES, INC.
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
8


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Nine Months Ended September 30, 2021 and 2020
(in thousands)In thousands of U.S. dollars and shares)

 Common StockTreasury StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued		Par
Value		SharesCost
Balance, December 31, 202078,669 $8 5,581 $(33,851)$359,721 $(19)$(278,688)$47,171 
Net loss— — — — — — (14,337)(14,337)
Foreign currency translation adjustment— — — — — 70 — 70 
Stock issued under employee stock purchase plan— — (112)(110)(136)— — (246)
Restricted stock granted1,694 — — — — — — — 
Restricted stock forfeited(140)34 72 4 — — 76 
Stock compensation expense— — — — 2,710 — — 2,710 
Shares withheld to cover taxes— — 146 (36)(125)— — (161)
Other (1)
(613)— — — — — 
Balance, September 30, 202179,610 $8 5,649 $(33,925)$362,174 $51 $(293,025)$35,283 
(1) See Note 12, “Stockholders’ Equity” for further discussion.

 Common StockTreasury StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued		Par
Value		SharesCost
Balance, December 31, 201963,657 $6 4,145 $(33,484)$347,565 $179 $(142,237)$172,029 
Net loss— — — — — — (118,771)(118,771)
Foreign currency translation adjustment— — — — — (168)— (168)
Stock issued under employee stock purchase plan— — (50)— 78 — — 78 
Restricted stock granted2,815 — — — 338 — — 338 
Restricted stock forfeited— — 457 — — — — — 
Treasury stock purchased— — 97 (123)— — — (123)
Stock compensation expense— — — — 2,208 — — 2,208 
Stock issued in JP3 acquisition11,500 1 — — 8,537 — — 8,538 
Balance, September 30, 202077,972 $7 4,649 $(33,607)$358,726 $11 $(261,008)$64,129 
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
9
 Nine months ended September 30, 2020
 Common Stock Treasury Stock 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity
 
Shares
Issued
 
Par
Value
 Shares Cost 
Balance, December 31, 201963,657
 $6
 4,145
 $(33,484) $347,565
 $179
 $(142,237) $172,029
Net loss—
 —
 —
 —
 —
 —
 (118,771) (118,771)
Foreign currency translation adjustment—
 —
 —
 —
 —
 (168) —
 (168)
Stock issued under employee stock purchase plan—
 —
 (50) —
 78
 —
 —
 78
Restricted stock granted2,815
 —
 —
 —
 338
 —
 —
 338
Restricted stock forfeited—
 —
 457
 —
 —
 —
 —
 —
Treasury stock purchased—
 —
 97
 (123) —
 —
 —
 (123)
Stock compensation expense—
 —
 —
 —
 2,208
 —
 —
 2,208
Stock issued in JP3 acquisition11,500
 1
 —
 —
 8,537
 —
 —
 8,538
Balance, September 30, 202077,972
 $7
 4,649
 $(33,607) $358,726
 $11
 $(261,008) $64,129

 Nine months ended September 30, 2019
 Common Stock Treasury Stock 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity
 
Shares
Issued
 
Par
Value
 Shares Cost 
Balance, December 31, 201862,163
 $6
 3,770
 $(33,237) $343,536
 $31
 $(108,323) $202,013
Net income—
 —
 —
 —
 —
 —
 5,406
 5,406
Foreign currency translation adjustment—
 —
 —
 —
 —
 154
 —
 154
Stock issued under employee stock purchase plan—
 —
 (7) —
 15
 —
 —
 15
Restricted stock granted875
 —
 —
 —
 —
 —
 —
 —
Restricted stock forfeited—
 —
 292
 —
 —
 —
 —
 —
Treasury stock purchased—
 —
 74
 (207) —
 —
 —
 (207)
Stock compensation expense—
 —
 —
 —
 2,841
 —
 —
 2,841
Balance, September 30, 201963,038
 $6
 4,129
 $(33,444) $346,392
 $185
 $(102,917) $210,222


FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1 — Organization and Significant Accounting Policies
Organization and Nature of Operations

Flotek Industries, Inc. (“Flotek” or the “Company”) is acreates solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty green chemistry and data company, that servesFlotek helps customers across industrial, commercial, and consumer markets. Flotek’smarkets improve their Environmental, Social, and Governance (ESG) performance.
The Company’s Chemistry Technologies (“CT”) segment develops, manufactures, packages, distributes, delivers, and markets high-quality sanitizersgreen specialty chemicals that enhance the profitability of hydrocarbon producers and disinfectants forcleans surfaces in both commercial governmental and personal consumer use. Additionally, Flotek empowerssettings to help reduce the energy industryspread of bacteria, viruses and germs.
The Company’s Data Analytics (“DA”) segment enables users to maximize the value of their hydrocarbon associated processes by providing analytics associated with the streams in seconds rather than minutes or days. The real-time access to information prevents waste, reduces reprocessing and improve return on invested capital through its real-time data platformsallows users to pursue automation of their hydrocarbon streams to maximize their profitability, reducing their carbon footprint, energy consumption and chemistry technologies. Flotek serves downstream, midstream and upstream customers, both domestic and international.emissions.
DuringThe Company formed the DA segment during the second quarter of 2020, the Company acquiredafter acquiring JP3 Measurement, LLC (“JP3”). The Company’s 2 operating segments, CT and evaluated segment information. The Company identified two operating segments: Chemistry Technologies and Data Analytics, whichDA, are both supported by its continuing Research & Innovation advanced laboratory capabilities. For further discussion of our operations and segments, refer tosee Note 18,16, “Business Segment, Geographic and Major Customer Information.” For further discussion of the JP3 acquisition, refer tosee Note 3, “JP3“Business Acquisition.”
The Company was initially incorporated under the laws of the Province of British Columbia in 1985. In October 2001, the Company changed its corporate domicile to the stateState of Delaware.
Basis of Presentation
The accompanying unaudited Financial Statementsfinancial statements reflect all adjustments, in the opinion of management, necessary for fair statement of the financial condition and results of operations for the periods presented. All such adjustments are normal and recurring in nature. The Financial Statements,financial statements, including selected notes, have been prepared in accordance with applicable rules and regulations of the SEC regarding interim financial reporting and do not include all information and disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for comprehensive financial statement reporting. These interim Financial Statementsfinancial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report. A copy of the 20192020 Annual Report is available on the SEC’s website, www.sec.gov, under the Company’s ticker symbol (“FTK”) or on Flotek’s website, www.flotekind.com.
The information contained on the Company’s website does not form a part of this Quarterly Report. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company does not have investments in any unconsolidated subsidiaries.
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
Sources and Uses of Liquidity
The Company currently funds its operations and growth primarily from cash on hand. The ability of the Company to grow and be competitive in the marketplace is dependent on the availability of adequate capital. Access to capital is dependent, in large part, on the Company’s operating cash flows, the monetization of non-core assets, and the availability of and access to debt and equity financing. The Company has a history of losses and negative operating cash flows from operations and expects to utilize a significant amount of cash as we wrap up 2021 and begin 2022. While we believe that our cash and liquid assets will provide us with sufficient financial resources to fund operations and meet our capital requirements and anticipated obligations as they become due, a slower than expected recovery of oil and gas markets, or reduced spending by our customers could have a negative impact on our liquidity.
Accordingly, while the Company believes that its existing cash will enable it to fund its operations and growth, the Company cannot guarantee the level of cash flows in the future. In the event that the Company’s existing cash on hand is not sufficient to fund operations, meet the Company’s capital requirements or satisfy the anticipated obligations as they become due, the Company expects to take further action to protect its liquidity position. Such actions may include, but are not limited to:
•Raising equity either in the public markets or via a private placement offering;
•Seeking Paycheck Protection Program (“PPP”) loan (“PPP loan”) forgiveness from the Small Business Administration;

10

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
•Entry into a borrowing facility with one or more lenders;
•Sale of excess inventory and/or raw materials;
•Operating lease transaction of facilities;
•Sale of non-core real estate properties;
•Sale-leaseback transactions of facilities;
•Sub-leasing certain facilities;
•Renegotiating current lease facility terms and conditions;
•Reducing executive salaries and/or board of directors’ fees, or making a portion of those fees or salaries in equity instead of cash; and
•Reducing professional advisory fees and headcount.
However, there can be no assurance that such matters can be implemented on acceptable terms or at all.
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.

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a global pandemic, which continues to exist throughout the United States and around the world. While this outbreak continues to severely impact global economic activity, during the third quarter of 2020 many countries and many states within the United States began to develop a plan to gradually re-open businesses and schools and lift some restrictions related to quarantines and travel with guidance from federal, state and local legislators.

The current resurgence of COVID-19 could have a negative impact upon both our digital and oil field chemical business. The November 2020 announcement by Pfizer of a potential COVID-19 vaccine could reduce the demand for our janitorial and sanitizer products.

The effects of the COVID-19 pandemic, including actions taken by businesses and governments, have resulted in a significant and continued reduction in international and U.S. economic activity. These effects and the volatility in oil prices have materially and adversely affected, and may continue to materially and adversely affect, the demand for oil and natural gas as well as for our services and products. In the second and third quarters of 2020, these conditions and the related financial impact have continued and, in some cases, worsened. The Company’s primary markets in the U.S. are particularly subject to the financial impact of a collapse in oil prices. As a result, the Company recorded an impairment to property, plant and equipment, intangible assets, and


10

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

operating right-of-use assets during the first quarter of 2020 and additional impairment charges to goodwill and intangible assets in the third quarter of 2020. See Note 10, “Impairment of Fixed and Long-lived Assets”. In addition, the Company adopted social distancing and work-from-home procedures, which have had and may continue to have an impact on the ability of employees and management of the Company to communicate and work efficiently.

In response to the deteriorating market conditions and anticipating ongoing volatility, the Company has also reduced its cost structure to meet anticipated market activity and reduce the Company’s break-even levels. Among other cost-cutting and cash preservation initiatives:

• The Company’s CEO, John W. Gibson, Jr., reduced his base salary by 20%, and each of the other executive officers reduced his or her salary by 10%, through December 31, 2020 in exchange for restricted stock, effective as of April 1, 2020.
• The board of directors of Flotek approved a 20% reduction in the fees to be paid to the directors, effective as of April 1, 2020.
• The Company consolidated office space by moving all employees at its corporate headquarters into the Houston Global Resource and Innovation Center, (“GRIC”) facility and buying out the remaining term of the corporate headquarters lease for a significant discount, with the move completed by the end of June 2020.
The Company decreased discretionary spending across all business operations.
The Company reduced overall headcount by 35% on March 30, 2020. Additionally, the Company reduced the headcount of the Data Analytics segment by 35% in October 2020.

While the full impact and duration of the COVID-19 outbreak is not yet known, we are closely monitoring the effects of the pandemic on commodity demands and on our customers, as well as on our operations and employees. Any future development and effects are highly uncertain and cannot be predicted, including the scope and duration of the pandemic; further adverse revenue, accounts receivable aging and collections, and net income effects; disruptions to our operations; third-party providers’ ability to support our operations; customer shutdowns of oil and gas exploration and production; the effectiveness of our work from home arrangements; employee impacts from illness, school closures and other community response measures; any actions taken by governmental authorities and other third parties in response to the pandemic; and temporary closures of our facilities or the facilities of our customers and suppliers.

Restricted Cash
The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its credit card program with a financial institution.
Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassifications did not impact previously reported net loss and stockholders’ equity.


11

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Recent Accounting Pronouncements
Application of New Accounting Standards
Effective January 1, 2019, the Company adopted the accounting guidance in Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” including subsequent amendments. This standard (ASC 842) requires the recognition of Right-Of-Use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases under previousChanges to U.S. GAAP (ASC 840). Upon adoption,are established by the Company recorded operating lease ROU assets and corresponding operating lease liabilities, net of deferred rent, representing the present value of future lease payments under operating leases with terms of greater than twelve months. The adoption of this standard did not have a material impact on the consolidated statements of operations or cash flows. Refer to Note 5 — “Leases” for further information surrounding adoption of this new standard.
Effective January 1, 2019, the Company adopted ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures.
Effective January 1, 2019, the Company adopted ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.” This standard expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures.
New Accounting Requirements and Disclosures
Effective January 1, 2020, the Company adopted ASU No. 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” This standard removes, modifies, and adds additional requirements for disclosures related to fair value measurement in ASC 820. The pronouncement is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted in any interim period. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures.
New Accounting Standards to be Adopted
The Financial Accounting Standards Board (“FASB”). We evaluate the applicability and impact of all authoritative guidance issued by the FASB. Guidance not listed below was assessed and determined to be either not applicable, clarifications of items listed below, immaterial or already adopted by the Company.
New Accounting Standards Issued But Not Adopted as of September 30, 2021
The FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard removes specific exceptions to the general principles in Topic 740. The pronouncement is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted for public companies for periods in which financial statements have not yet been issued. The Company is currently evaluatinghas evaluated the impact of this standard and determined that there is no impact on the consolidated financial statements and related disclosures.
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 estimates of expected credit losses over their contractual life that are recorded at inception based on historical information, current conditions, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.forecasts. The pronouncement is effective for smaller reporting companies for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this standard, including subsequent amendments, on the consolidated financial statements and related disclosures.


12

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — JP3Business Acquisition
During the second quarter of 2020, the Company acquired 100% ownership of JP3, a privately-held data and analytics technology company, in a cash-and-stock transaction. JP3’s real-time data platforms combine the energy industry’s only field-deployable, inline optical analyzer with proprietary cloud visualization and analytics, targeting an increase of processing efficiencies and valuation of natural gas, crude oil and refined fuels. The use of data and analytics is a growing trend in all industries where technology is used to analyze large datasets of operational information to improve performance, as well as predictive maintenance, advanced safety measures and reduced environmental impact of operations. The transaction was valued at approximately $36.6 million as of the transaction closing date, comprised of $25.0 million in cash, subject to certain adjustments and contingent consideration as described below, and 11.5 million shares in Flotek common stock with an estimated fair value of $8.5 million, net of a discount for marketability due to a lock-up period. The payment of $25.0 million was subject to certain purchase price adjustments, and the total non-equity consideration at closing was comprised of $25.0 million plus net working capital in excess of the target net working capital of $1.9 million. Additionally, the Company was

11

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
subject to contingent consideration with an estimated atfair value of $1.2 million at acquisition date for 2 potential earn-out provisions totaling up to $5.0 million based on certain stock performance targets. The first and second earn-out provisions occur if the ten-day volume-weighted average share price equals or exceeds $2 per share and $3 per share, respectively, before May 18, 2025. See Note 9, “Fair Value Measurements,” for additional information on the current estimated fair value of the contingent consideration.

The following table summarizes the fair value of JP3’s assets acquired as of the closing date of May 18, 2020 (in thousands):
Tradenames and trademarks$1,100 
Technology and know-how5,000 
Customer lists6,800 
Inventories7,100 
Cash604 
Net working capital, net of cash and inventories(1,063)
Fixed assets426 
Long-term debt assumed and other assets (liabilities)(893)
Goodwill17,522 
Net assets acquired$36,596 
Tradenames and trademarks $1,100
Technology and know-how 5,000
Customer lists 6,800
Inventory 7,100
Cash 604
Net working capital, net of cash and inventory (1,063)
Fixed assets 426
Long-term debt assumed and other assets (liabilities) (893)
Goodwill 17,522
Net assets acquired $36,596


13

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The Company recorded transaction costs of $0.5 million for professional services including legal, accounting, and other professional or consulting fees in connection with the JP3 acquisition to the Company’s operating expenses (excluding depreciation and amortization) in the consolidated statements of operations during the second quarter of 2020.
During the third quarter of 2020, the Company made certain measurement period adjustments to inventory, resulting in an increase of goodwill of $2.3 million. See Note 8 - “Inventories”.
As discussed in Note 10-“Impairment of Fixed and Long-lived Assets”, during the third quarter of 2020, the Company identified a triggering event under ASC 350, Intangibles — Goodwill and Other, and completed an impairment analysis at the Data Analytics reporting unit level. During the three months ended September 30, 2020, the Company recognized a goodwill impairment charge of $11.7 million and finite-lived intangible assets impairment charge of $12.5 million in the Data Analytics reporting unit, which resulted from the extended impact of COVID-19 and subsequent decline in oil and gas and lower performance than expected by the reporting unit. As a result of these factors, the Company concluded that sufficient indicators existed to require an interim quantitative assessment of goodwill for that reporting unit as of September 30, 2020. The fair value of the reporting unit was estimated based on an analysis of the present value of future discounted cash flows. The significant estimates used in the discounted cash flows model included the Company’s weighted average cost of capital, projected cash flows and the long-term rate of growth.
During the third quarter of 2020, the first stock performance target was achieved, and the Company recorded a liability of $2.5 million for the first earn-out payment, which is included in accrued liabilities in the accompanying balance sheet as of September 30, 2020. The Company also estimated the fair value of the remaining stock performance earn-out provision. At September 30, 2020, the estimated fair value of the remaining contingent liability was $1.9 million, an increase of $0.7 million during the quarter. As the achievement of earn-out provisions and changes in fair value estimates are not acquisition adjustments, the Company recorded $3.2 million of expense for achievement of the first stock performance target and the increase in the fair value of the contingent consideration as a component of operating income for continuing operations for the periods ended September 30, 2020.


14

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Discontinued Operations
On January 10, 2019, the Company entered into a Share Purchase Agreement with Archer-Daniels-Midland Company (“ADM”) for the sale of all of the shares representing membership interests in its wholly owned subsidiary, Florida Chemical Company, LLC (“FCC”), which represented the Consumer and Industrial Chemistry Technologies (“CICT”) segment.
Effective February 28, 2019, the Company completed the sale of FCC to ADM for $175.0 million in cash consideration, with $4.4 million temporarily held in escrow by ADM for post-closing working capital adjustments for up to 90 days and $13.1 million temporarily held in escrow to satisfy potential indemnification claims by ADM with anticipated releases at 6 months, 12 months, and 15 months. Pursuant to the terms of the Share Purchase Agreement, Flotek Chemistry, LLC (“Flotek Chemistry”), a wholly owned subsidiary of the Company, entered into a supply agreement with FCC who will supply terpene at specified prices for specified quantities. The agreement will expire on December 31, 2023.
As of December 31, 2019, the Company concluded that the original long-term supply agreement met the definition of a loss contract. As such, the Company recognized a loss of $19 million as of December 31, 2019, capped by the price paid for the terpene supply agreement amendment, executed in February 2020, which aligned purchase commitments to expected usage for blended products as of December 31, 2019. The Company has classified the assets, liabilities, and results of operations for this segment as “Discontinued Operations” for all periods presented.
Pursuant to the post-closing working capital dispute resolution procedures set forth in the Share Purchase Agreement, the Company and ADM engaged a neutral third party auditor to help reach agreement on the final post-closing working capital adjustment. In February 2020, the third-party auditor ruled in favor of awarding ADM the entire disputed amount. As a result, the working capital adjustment escrow balance was released to ADM and a corresponding reduction was made to the gain on sale of business as of December 31, 2019.
On February 26, 2020, Flotek Chemistry entered into an amendment to the terpene supply agreement between Flotek Chemistry and FCC. Pursuant to the terms and conditions of the amendment, the terpene supply agreement was amended to, among other things, (a) reduce the minimum quantity of terpene that Flotek Chemistry is required to purchase by approximately 3/4ths in 2020 and by approximately half in each of 2021, 2022 and 2023, (b) provide a fixed per pound price for terpene in 2020, (c) reduce the maximum amount of terpene subject to the terpene supply agreement by approximately 1/3rd, and (d) change the payment terms to net 45 days. In order to make the terms and conditions of the amendment to the terpene supply agreement effective, Flotek Chemistry made a one-time payment in February 2020 of $15.8 million to ADM. The expense associated with the terpene supply agreement amendment payment was recorded as a loss on contract purchase commitments, reported in operating expenses in continuing operations in December 2019.
For the nine months ended September 30, 2020, the Company recognized a loss of $0.8 million associated with the amended terpene supply agreement due to adjustments in the Company’s expected usage of terpene in blended products in 2020.
During the first quarter of 2020, as scheduled, $3.3 million of the indemnity escrow was released to the Company. During the second quarter of 2020 the remaining indemnity escrow of $6.6 million was released to the Company.
The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Consumer and Industrial Chemistry Technologies       
Revenue$0
 $0
 $0
 $11,031
Operating expenses0
 0
 0
 (11,572)
Research and development0
 0
 0
 (69)
Loss from operations0
 0
 0
 (610)
Other income0
 0
 0
 35
Gain on sale of business0
 148
 0
 67,842
Income before income taxes0
 148
 0
 67,267
Income tax expense0
 (31) 0
 (22,684)
Net income from discontinued operations$0
 $117
 $0
 $44,583



15

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Leases
During the first quarter of 2020, the Company made the decision to cease use of the corporate headquarters leased offices and move corporate employees to the Global Research and Innovation Center (“GRIC”) during second quarter of 2020. In addition, the lease liability and corresponding ROU assets for the corporate headquarters and GRIC were remeasured to remove the anticipated term extensions as the Company determined it was no longer reasonably certain to utilize the extension at the GRIC. The remeasurement resulted in adjustments to lease liabilities and ROU assets totaling of $6.2 million each as of March 31, 2020.
In addition, during the three months ended March 31, 2020, the Company recorded an impairment of the ROU assets totaling $7.4 million. For further discussion, refer to Note 10, “Impairment of Fixed and Long-lived Assets.”
During the second quarter of 2020, the Company terminated the lease of the corporate headquarters office in exchange for a one-time payment of $1.0 million and moved all employees to the GRIC facility effective as of June 29, 2020. As a result of terminating the corporate headquarters office lease and making the one-time payment, the Company recorded a gain on lease termination of $0.6 million recorded in gain on lease termination.
The components of lease expense and supplemental cash flow information are as follows (in thousands):
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Operating lease expense$258
 $652
 $1,112
 $1,958
Finance lease expense:       
Amortization of right-of-use assets4
 357
 13
 577
Interest on lease liabilities5
 3
 14
 6
Total finance lease expense9
 360
 27
 583
Short-term lease expense57
 22
 145
 97
Total lease expense$324
 $1,034
 $1,284
 $2,638
        
Cash paid for amounts included in the measurement of lease liabilities:       
Operating cash flows from operating leases$317
 $584
 $2,312
 $1,749
Operating cash flows from finance leases5
 3
 13
 6
Financing cash flows from finance leases51
 6
 152
 51

Maturities of lease liabilities are as follows (in thousands):
Years ending December 31, Operating Leases Finance Leases
2020 (excluding the nine months ended September 30, 2020)$311
 $17
2021 1,330
 70
2022 1,283
 47
2023 1,311
 39
2024 1,341
 23
Thereafter 8,185
 0
Total lease payments $13,761
 $196
Less: Interest (4,702) (24)
Present value of lease liabilities $9,059
 $172



16

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Supplemental balance sheet information related to leases is as follows (in thousands):
 September 30, 2020December 31, 2019
Operating Leases  
Operating lease right-of-use assets$2,368
$16,388
   
Current portion of operating lease liabilities$651
$486
Long-term operating lease liabilities8,408
16,973
Total operating lease liabilities$9,059
$17,459
   
Finance Leases  
Property and equipment$147
$293
Accumulated depreciation(18)(28)
Property and equipment, net$129
$265
   
Current portion of finance lease liabilities$58
$55
Long-term finance lease liabilities114
158
Total finance lease liabilities$172
$213
   
Weighted Average Remaining Lease Term  
Operating leases9.9 years
16.6 years
Finance leases3.8 years
4.6 years
   
Weighted Average Discount Rate  
Operating leases8.9%8.9%
Finance leases8.5%9.0%

Note 6 — Revenue from Contracts with Customers
Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In recognizing revenue for products and services, the Company determines the transaction price of purchase orders or contracts with customers, which may consist of fixed and variable consideration. Determining the transaction price may require significant judgment by management, which includes identifying performance obligations, estimating variable consideration to include in the transaction price, and determining whether promised goods or services are distinct withincan be distinguished in the context of the contract. Variable consideration typically consists of product returns and is estimated based on the amount of consideration the Company expects to receive. Revenue accruals are recorded on an ongoing basis to reflect updated variable consideration information.
The majority of the products from the Chemistry TechnologiesCT segment are sold at a point in time and service contracts are short termshort-term in nature. Sales are billed on a monthly basis with payment terms customarily 30-45 days for domestic and 60 days for international from invoice receipt. In addition, sales taxes are excluded from revenues.

The Data AnalyticsDA segment recognizes revenue for sales of equipment at the time of sale. Revenue related to service and support is recognized over time. The Company bills sales on a monthly basis with payment terms customarily 30-60 days for domestic and 90 days for international from invoice receipt. In addition, sales taxes are excluded from revenues.
Disaggregation of Revenue
The Company has disaggregated revenues bydifferentiates revenue based on whether the source of revenue is attributable to product sales (point-in-time revenue recognition) andor service revenue (over-time revenue recognition). Product sales accounted for over 90% of total revenue for the three and nine months ended September 30, 20202021 and 2019.2020.

Revenue disaggregated by revenue source is as follows (in thousands):
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
Revenue:
Products$9,494 $12,076 $29,017 $39,053 
Services685 663 2,097 1,982 
$10,179 $12,739 $31,114 $41,035 
Arrangements with Multiple Performance Obligations
The CT and DA segments primarily sell chemicals and equipment recognized at a point in time based on when control transfers to the customer determined by agreed upon delivery terms. Additionally, both segments offer various services associated to products sold which includes field services, installation, maintenance, and other functions. Service revenue is recognized on an over time basis for CT as services are performed as the customer is simultaneously benefiting as the Company performs. For DA, services are recognized upon completion of commissioning and installation due to the short-term nature of the performance

1712

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

obligation. DA has 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, DA may provide subscription-type arrangements with customers in which monthly reoccurring revenue is recognized ratably over time in accordance with agreed upon terms and conditions. Subscription-type arrangements were not a material revenue stream in the three and nine months September 30, 2021 and 2020.
The Company differentiates revenueDuring the third quarter 2021, we entered into a bill-and-hold contract, where we invoice the customer for products even though we retain possession of the products until a point in time in the future when the products are shipped to the customer. In these contracts, the primary performance obligation is satisfied at a point in time when the product is segregated from our general inventory, it is ready for shipment to customer, and operating expenses (excluding depreciationwe do not have the ability to use the product or direct it to another customer. Additionally, we have a secondary performance obligation related to custodial costs, including storage and amortization) based on whetherfreight, which is satisfied over time once the sourceproduct has been delivered to the customer. During the three and nine months ended September 30, 2021, we recognized $1.3 million of revenue is attributablerelated to products or services. Revenue and operating expenses (excluding depreciation and amortization) disaggregated by revenue source are as follows (in thousands):
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Revenue:       
Products$12,076
 $21,031
 $39,053
 $96,733
Services663
 848
 1,982
 3,094
 $12,739
 $21,879
 $41,035
 $99,827
Operating expenses (excluding depreciation and amortization):      
Products$29,041
 $23,542
 $62,866
 $105,078
Services425
 80
 1,073
 633
 $29,466
 $23,622
 $63,939
 $105,711

Arrangementsa bill-and-hold arrangement with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. Standalone selling prices are generally determined based on the prices charged to customers (“observable standalone price”) or an expected cost plus a margin approach. For combined products and services within a contract, the Company accounts for individual products and services separately if they are distinct (i.e. if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration is allocated between separate products and services within a contract based on the prices at the observable standalone price. For items that are not sold separately, the expected cost plus a margin approach is used to estimate the standalone selling price of each performance obligation.related party.
Contract Balances
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 liabilities associated with incomplete performance obligations are not material.
Note 7 — Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
 Nine months ended September 30,
 2020 2019
Supplemental cash payment information:   
Interest paid$20
 $595
Income taxes paid, net of refunds(5,927) 887
    
Supplemental schedule of non-cash investing and financing activities:   
Equity issued - acquisition of JP3$8,538
 $0
Accrued capital expenditures71

141



18

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 85 — Inventories
Inventories are as follows (in thousands):
September 30, 2021December 31, 2020
Raw materials$6,025 $7,190 
Finished goods13,451 15,705 
Inventories19,476 22,895 
Less reserve for excess and obsolete inventory(10,658)(11,058)
Inventories, net$8,818 $11,837 
 September 30, 2020 December 31, 2019
Raw materials$7,413
 $4,339
Finished goods18,451
 24,569
Inventories25,864
 28,908
Less reserve for excess and obsolete inventory(11,494) (5,698)
Inventories, net$14,370
 $23,210

The provision recorded in the third quarter of 2020 includes charges of $5.7three and nine months ended September 30, 2021 were $0.1 million for the Chemistry TechnologiesCT segment and nil for the DA segment and $0.5 million for the CT segment and $0.2 million of the DA segment, respectively. The provision recorded in the three and nine months ended September 30, 2020 were $5.9 million for the CT segment and $3.9 million for the Data Analytics segment.DA segment and $2.0 million for the CT segment and $3.9 million for the DA segment, respectively. The increasedecrease in excess and obsolescence during the nine months ended September 30, 2020 is attributable to the Company’s product rationalization efforts, which included a reduction in the numbersales of materials carried within the portfolioexcess and identification of those materials for which the Company will no longer actively market or carry quantities in excess of current and estimated future usage requirements.obsolescence inventory.

During the third quarter of 2020, the Company completed its review of inventory purchased in the JP3 acquisition. The Company identified measurement period adjustments reducing inventory by$2.3 million. For further discussion of the JP3 acquisition see Note 3, “JP3 Acquisition,” and for measurement period adjustments, see Note 11, “Goodwill.”
Note 96 — Property and Equipment
Property and equipment are as follows (in thousands):
 September 30, 2020 December 31, 2019
Land$3,282
 $4,440
Buildings and leasehold improvements6,067
 38,741
Machinery and equipment6,928
 27,694
Fixed assets in progress906
 0
Furniture and fixtures645
 1,671
Transportation equipment1,190
 1,440
Computer equipment and software1,296
 3,348
Property and equipment20,314
 77,334
Less accumulated depreciation(11,620) (37,505)
Property and equipment, net$8,694
 $39,829

Fixed assets in progress are costs incurred during the third quarter of 2020 for capitalized sanitizer equipment upgrades.
September 30, 2021December 31, 2020
Land$1,986 $2,415 
Land improvements861 867 
Buildings and leasehold improvements6,364 6,364 
Machinery and equipment7,753 7,760 
Furniture and fixtures649 649 
Transportation equipment1,043 1,190 
Computer equipment and software1,222 1,296 
   Property and equipment19,878 20,541 
Less accumulated depreciation(12,109)(11,454)
Property and equipment, net$7,769 $9,087 
Depreciation expense totaled $0.3$0.2 million and $1.6$0.5 million for the three months ended September 30, 2021 and 2020, and 2019, respectively,$0.8 million and $2.3 million and $5.0 million for the nine months ended September 30, 20202021 and 2019,2020, respectively.
During the three months ended March 31, 2020, an impairment was recognized for $30.2 million. NaN impairment was recognized for the three months ended September 30, 2020.

13
Note 10 — Impairment of Fixed and Long-lived Assets

The Company recorded impairment charges of fixed and intangible assets during the following periods (in thousands):



19

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the first quarter of 2021, the Company classified its warehouse facility in Monahans, Texas, as held for sale based on the criteria outlined inAccounting Standard Codification (“ASC”) 360, Property, Plant and Equipment. During the first quarter, the Company committed to a plan to sell the asset in its present condition. The Company engaged with a commercial real estate agent and is actively looking for a buyer. As such, the Company reclassified the related property, plant and equipment of $0.5 million as held for sale in the current assets of the consolidated balance sheet, as the Company expects to complete the asset sale within one year.
 Three months ended September 30,Nine months ended September 30,
 20202020
Property and equipment, net$0
$30,178
Operating lease right-of-use assets0
7,434
   
Other Intangibles:  
   Patents and technology4,831
14,733
   Customer relationships6,631
15,796
   Intangible assets in progress0
596
   Trademarks and brand names1,059
1,238
Total other intangibles12,521
32,363
   
Total impairment of fixed, long-lived assets and intangibles$12,521
$69,975
Note 7 — Leases

In August 2021, the company entered into a five year triple net operating lease agreement to lease a warehouse facility in Monahans, TX. The tenant occupied the Company’s warehouse facility in Monahans, TX in September 2021. The company will recognize other rental income, including rent, taxes and insurance over the lease period.
In July 2021, the Company entered into a long-term rental agreement with Resolute Oil to leverage capabilities and facilities to drive growth in adjacent green chemistry markets. The agreement includes options to renew until 2036.

Through the agreement, Resolute Oil will fully utilize the Company’s entire 15-acre campus, including the 38,000 square foot chemical blending facility, based in Waller, TX, to manufacture United States Pharmacopeia-National Formulary (USP-NF)-grade white mineral oil distributed globally to customers in the agricultural, energy, food & beverage, cosmetic, and personal care markets.
During the first quarter of 2020, the price of crude oil declined by over 50%, trading below $25 per barrel, causing a significant disruption across the industry, which began to negatively impact the Company’s results of operations. These declines of results of operations were driven by an oversupply of oil, insufficient storage, and demand destruction resulting from the reaction to COVID-19. Based on these factors, the Company concluded that a triggering event occurredceased use of the corporate headquarters leased offices and accordingly, an interim quantitative impairment testmoved corporate employees to the Global Research and Innovation Center (“GRIC”) during the second quarter of 2020. In addition, the lease liability and corresponding right-of-use (“ROU”) assets for the corporate headquarters and GRIC were remeasured to remove the anticipated term extensions as the Company determined it was performedno longer reasonably certain to utilize the extension at the GRIC. The remeasurement resulted in adjustments to lease liabilities and ROU assets totaling of $6.2 million each as of March 31, 2020.

Using the income approach, the fair value of the reporting unit was determined based on the present value of future cash flows. The Company utilized internal forecast trends and potential growth rates to estimate future cash flows of the asset group. Based on the results of the quantitative assessment, the Company concluded the carrying value of the asset group exceeded its fair value as of March 31, 2020 and an impairment loss of $57.5 million was recorded as a result of the adverse effect of the COVID-19 pandemic, estimated effect on the economy, and the related negative impact on oil and natural gas prices on projections of future cash flows.

During the second quarter of 2020, the Company purchased JP3terminated the lease of the corporate headquarters office and formed the Data Analytics segment. The segment finished the third quarter with$0.7 million of revenue, most of which came from existing customers on minor project expansions. During the third quarter, revenue declined comparedmoved all employees to the revenue afterGRIC facility effective June 29, 2020.
In addition, during the date of acquisition inthree months ended March 31, 2020, the second quarter. These declines were driven by reduced demand in the oil and gas sector because of capital spending reductions across our customer base, potential international markets addressed in original forecast were lower than anticipated, delayed startCompany recorded an impairment of the Company’s global sales business executiveROU assets totaling $7.4 million. No impairment was recognized for the three and continued impact of COVID-19. Although the site lockdowns and extreme caution to prevent the spread of COVID-19 that began in the first half of 2020 began to ease during the third quarter, the segment saw very little of the expected repeat business and almost none from new customers due to frozen budgets. Secondly, COVID-19 restrictions adversely impacted the Company’s ability to physically gain on-site access to customers’ operations, including laboratory and testing facilities, which is a critical component to JP3’s multi-phased sales approach.
In consideration of these events, management evaluated forecasted sales activity, expected margins and the long-term expectations of the Data Analytics segment. Based on these factors, the Company concluded a reduction in headcount was warranted and that a triggering event occurred in the Data Analytics segment and, accordingly, an interim quantitative impairment test was performed as ofnine months ended September 30, 2020.2021.
Using the income approach, the fair valueThe components of the reporting unit was determined based on the present value of futurelease expense and supplemental cash flows. The Company utilized internal forecast trends and potential growth rates to estimate future cash flows of the asset group. Based on the results of the quantitative assessment, the Company concluded the carrying value of the asset group exceeded its fair valueflow information are as of September 30, 2020 and an impairment loss of $12.5 million in the Data Analytics reporting unit, which resulted from reduced demand in the oil and gas sector, extended impact of the COVID-19 pandemic, and lower performance than expected by the reporting unit. See Note 3 - “JP3 Acquisition”.follows (in thousands):

Three months ended September 30,Nine months ended September 30,
2021202020212020
Operating lease expense$247 $258 $735 $1,112 
Finance lease expense:
Amortization of right-of-use assets4 4 11 13 
Interest on lease liabilities2 5 9 14 
Total finance lease expense6 9 20 27 
Short-term lease expense15 57 44 145 
Total lease expense$268 $324 $799 $1,284 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$380 $317 $1,107 $2,312 
Operating cash flows from finance leases10 5 62 13 
Financing cash flows from finance leases2 51 8 152 

2014

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Maturities of lease liabilities are as follows (in thousands):
Note 11 - Goodwill
Years ending December 31,Operating LeasesFinance Leases
2021 (excluding the nine months ended September 30, 2021)$285 $14 
20221,254 47 
20231,318 39 
20241,348 23 
20251,375 — 
Thereafter6,870 — 
Total lease payments$12,450 $123 
Less: Interest(3,976)(11)
Present value of lease liabilities$8,474 $112 
Goodwill from the acquisition of JP3
Supplemental balance sheet information related to leases is as follows (in thousands):
September 30, 2021December 31, 2020
Operating Leases
Operating lease right-of-use assets$2,099 $2,320 
Current portion of operating lease liabilities$586 $636 
Long-term operating lease liabilities7,888 8,348 
Total operating lease liabilities$8,474 $8,984 
Finance Leases
   Property and equipment$147 $147 
Accumulated depreciation(33)(26)
Property and equipment, net$114 $121 
Current portion of finance lease liabilities$48 $60 
Long-term finance lease liabilities64 96 
Total finance lease liabilities$112 $156 
Weighted Average Remaining Lease Term
Operating leases9.1 years9.9 years
Finance leases2.9 years3.1 years
Weighted Average Discount Rate
Operating leases8.9 %8.9 %
Finance leases8.5 %9.0 %
Goodwill at December 31, 2019 $0
Goodwill from acquisition of JP3 17,522
Measurement period adjustment 2,276
Impairment of goodwill (11,706)
Goodwill at September 30, 2020 $8,092
Note 8 — Debt

During the third quarter ofIn April 2020, the Company made certain measurement period adjustments to inventory, resultingreceived a $4.8 million loan under the PPP, which was created through the Coronavirus Aid, Relief, and Economic Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). In connection with the acquisition of JP3 in an increase of goodwill of $2.3 million. See Note 8 - Inventories.
During the three months ended September 30,May 2020, the Company recognizedassumed a goodwill impairment chargePPP loan of $11.7 million in the Data Analytics reporting unit. See Note 3 - JP3 Acquisition.
Note 12 — Other Intangible Assets
Other intangible assets are as follows (in thousands):
 September 30, 2020 December 31, 2019
 
Cost (1)
 Accumulated Amortization Cost Accumulated Amortization
Finite-lived intangible assets:       
Patents and technology$0
 $0
 $17,493
 $6,715
Customer relationships0
 0
 15,367
 6,013
Trademarks and brand names0
 0
 1,351
 1,160
Total finite-lived intangible assets$0
 $0
 $34,211
 $13,888
        
Carrying value:       
Other intangible assets, net$0
   $20,323
  

(1) During the three months ended September 30, 2020, the Company recorded impairment charges to patents of $4.8 million, customer lists of $6.6 million, and trademarks and brand names of $1.1 million. See Note 10 - Impairment of Fixed and Long-lived Assets.
Amortization of finite-lived intangible assets acquired totaled $0.3 million and $0.5 million and $0.9 million obtained by JP3 in April 2020. The PPP loans have a fixed interest rate of 1% and $1.5 million forhave a two-year term, maturing in 2022. No payments of principal or interest were required during the year ended December 31, 2020, or the three months and nine months ended September 30, 20202021.

A portion of the loans may be eligible for forgiveness by the SBA depending on the extent of proceeds used for payroll costs and 2019, respectively.


other designated expenses incurred for up to 24 weeks following loan origination, subject to adjustments for headcount

2115

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
reductions and compensation limits and provided that at least 60% of the eligible costs incurred are used for payroll. Receipt of these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support ongoing operations of the Company. This certification further required the Company to take into account current business activity and the ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. During the second quarter of 2021, the Company applied for forgiveness on the PPP loans. The receipt of these funds, and the forgiveness of the loans attendant to these funds, is dependent on the Company having initially qualified for the loans and qualifying for the forgiveness of such loans based on our past and future adherence to the forgiveness criteria. The PPP loans are subject to any new guidance and new requirements released by the Department of the Treasury, which initially indicated that all companies that have received funds in excess of $2.0 million will be subject to audit by the SBA to further ensure PPP loans are limited to eligible borrowers in need.

In June 2021, the Company received notice from the SBA that the JP3 PPP loan and accrued interest was fully forgiven. Accordingly, during the second quarter, the Company recorded $0.9 million in other income on the consolidated statement of operations. The Company has submitted to the SBA for partial forgiveness on the Flotek PPP loan but as of the date of this filing, no conclusion from the SBA have been reached.

In October 2021, the Company received notice that a request to extend the Flotek PPP loan maturity date from April 15, 2022 to April 15, 2025 was confirmed. Prior to the extension approval, the $4.8 million Flotek PPP loan balance was classified as a current liability. The maturity date extension amendment occurred before the third quarter 2021 balance sheet was issued, therefore, $3.5 million was reclassified to long-term debt, reducing the current portion of long-term debt from $4.8 million to $1.3 million as of September 30, 2021.

Long-term debt, including current portion, is as follows (in thousands):
September 30, 2021December 31, 2020
Flotek paycheck protection plan loan$4,788 $4,788 
JP3 paycheck protection plan loan— 877 
   Total4,788 5,665 
Less current maturities(1,336)(4,048)
Total long-term debt, net of current portion$3,452 $1,617 

Note 13 — 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 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 three and nine months ended September 30, 2020 and 2019, since including them would have an anti-dilutive effect on loss per share due to the net loss incurred during the periods. Securities convertible into shares of common stock that were not considered in the diluted loss per share calculations were 0.1 million restricted stock units and 4.3 million stock options for the three and nine months ended September 30, 2020 and 0.5 million restricted stock units for the three and nine months ended September 30, 2019.
Note 149 — 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.
Fair Value of Other Financial Instruments
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these accounts. The Payroll Protection Program (“PPP”) loansPPP loan for Flotek and JP3 also approximateapproximates fair value dueas of September 30, 2021. Subsequent to the third quarter balance sheet date, the Company received notice that a request to extend the Flotek PPP loan maturity in less than two years.date from April 15, 2022 to April 15, 2025 was confirmed. Additionally, upon receipt of the SBA’s final decision on the Company’s reimbursement request to forgive the FTK PPP loan, any remaining balances not forgiven by the SBA will be measured on a recurring basis.

16

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy:hierarchy (in thousands):
      Balance at September 30,       Balance at December 31,
 Level 1 Level 2 Level 32020 Level 1 Level 2 Level 3 2019
Contingent consideration$0
 $0
 $1,900
$1,900
 $0
 $0
 $0
 $0

Balance at September 30,Balance at December 31,
Level 1Level 2Level 32021Level 1Level 2Level 32020
Contingent consideration$— $— $715 $715 $— $— $1,416 $1,416 
During the third quarter ofOn September 30, 2021, and December 31, 2020, the firstestimated fair value of the remaining stock performance targetearn-out provision, with respect to the JP3 transaction, was recorded as a contingent liability. The estimated fair value of the contingent considerationearn-out provision at the end of each period was achievedvalued using the Monte Carlo model analyzing 20,000 simulations performed using Geometric Brownian Motion with inputs such as risk-neutral expected growth and the Company accrued a liability of $2.5 million, which was transferred out of Level 3 to a current liability. No other transfers occurred during three and nine month periods ending September 30, 2020. volatility. There were no transfers in or out of either Level 1, Level 2, or Level 3 fair value measurements during the periodperiods ending September 30, 2021 and December 31, 2019.2020.
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. During the three months ended March 31, 2020, the Company recorded an impairment of $57.5 million for impairment onof long-lived assets. Management inputs used in fair value measurements were classified as Level 3.
As noted in Note 3, the Company acquired JP3 in May 2020. The fair values of JP3’s long-lived assets, and intangibles were determined using the income approach. The fair value of the the Company’s inventory was determined using the comparative sales method. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus


22

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

represent a Level 3 measurement, other than cash and working capital accounts, which carrying amounts were determined to approximate fair value due to their short-term nature.
During the three months ended September 30, 2020, the Company recorded anadditional impairment charge on finite-lived assetsexpenses of $12.5 million. Total impairment expenses recorded during the nine months ended September 30, 2020 was $70.0 million of long-lived and an impairment charge on goodwill of $11.7 million. The fair value of the reporting unit was estimated based on an analysis of the present value of future discounted cash flows. The significant estimatesintangible assets.
Management inputs used in the discounted cash flows model included the Company’s weighted average cost of capital, projected cash flows and the long-term rate of growth. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent aclassified as Level 3 measurement.

3.
Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis
In conjunction with the May 2020 acquisition of JP3, the Company recorded contingent consideration of $1.2 million. Management inputs used in the fair value measurement were classified as Level 3. During the third quarter of 2020, the first stock performance target for the contingent consideration was achieved resulting in an accrued liability of $2.5 million.and settled. The Company also estimated the fair value of the remaining stock performance earn-out provision at September 30, 2020,2021, and increaseddecreased the estimated fair value of the contingent liability to $1.9$0.7 million. The expense for achievement of the first stock performance target and the increaseCompany records changes in the fair value of the contingent consideration are recordedand achievement of performance targets in operating expenses in continuing operations for the periods ended September 30, 2020.expenses.
The following table presents the changes in contingent consideration balances classified as Level 3 balances for the three and nine months ended September 30, 2021 and 2020 and 2019:(in thousands):
Three months ended September 30,Nine months ended September 30,
2021202020212020
Balance - beginning of period$1,115 $1,200 $1,416 $— 
Additions / issuances— — — 1,200 
Change in fair value(400)3,200 (701)3,200 
Transfer out of Level 3— (2,500)— (2,500)
Balance - end of period$715 $1,900 $715 $1,900 
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Balance - beginning of period$1,200
 $0
 $0
 $0
Additions / issuances0
 0
 1,200
 0
Change in fair value3,200
 0
 3,200
 0
Transfer out of Level 3(2,500) 0
 (2,500) 0
Balance - end of period$1,900
 $0
 $1,900
 $0

17
Note 15 — Debt

In April 2020, the Company received a $4.8 million loan under the PPP, which was created through the Coronavirus Aid, Relief, and Economic Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). In connection with the acquisition of JP3 in May 2020, the Company assumed a PPP loan of $0.9 million obtained by JP3 in April 2020. The PPP loans have a fixed interest rate of 1%, mature in two years and no payments of principal or interest were due during the ten-month period beginning on the date of the PPP loans.

A portion of the loans are eligible for forgiveness by the SBA depending on the extent of proceeds used for payroll costs and other designated expenses incurred for up to 24 weeks following loan origination, subject to adjustments for headcount reductions and compensation limits and provided that at least 60% of the eligible costs incurred are used for payroll. Receipt of these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support ongoing operations of the Company. This certification further requires the Company to take into account current business activity and the ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. As of September 30, 2020, the Company has not applied for or estimated the potential forgiveness on the PPP loans. The receipt of these funds, and the forgiveness of the loans attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. The term of each PPP loan is two years. The PPP loans are subject to any new guidance and new requirements released by the Department of the Treasury, which initially indicated that all companies that have received funds in excess of $2.0 million will be subject to a government (Small Business Administration) audit to further ensure PPP loans are limited to eligible borrowers in need.





23

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 September 30, 2020
Current portion of long-term debt 
    Flotek PPP loan$2,926
    JP3 PPP loan536
Total current portion of long-term debt$3,462
 
Long-term debt: 
    Flotek PPP loan$1,862
    JP3 PPP loan339
Total long-term debt, net of current portion$2,201

Note 1610 — Income Taxes
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
Three months ended September 30,Nine months ended September 30,
2021202020212020
U.S. federal statutory tax rate21.0 %21.0 %21.0 %21.0 %
State income taxes, net of federal benefit— 0.2 (0.2)0.1 
Non-U.S. income taxed at different rates0.8 (0.2)0.3 — 
Increase (reduction) in tax benefit related to stock-based awards(0.3)0.1 1.2 — 
Non-deductible expenses5.8 (0.1)1.1 — 
Research and development credit— — — 0.1 
Increase in valuation allowance(27.3)(20.8)(23.6)(17.9)
Effect of tax rate differences of NOL carryback— — — 1.7 
Effective income tax rate— %0.2 %(0.2)%5.0 %
 Three months ended September 30,
Nine months ended September 30,
 2020 2019 2020 2019
U.S. federal statutory tax rate21.0 % 21.0 % 21.0 % 21.0 %
State income taxes, net of federal benefit0.2
 1.7
 0.1
 1.0
Non-U.S. income taxed at different rates(0.2) 0.7
 0
 1.0
Increase (reduction) in tax benefit related to stock-based awards0.1
 (1.1) 0
 (1.8)
Non-deductible expenses(0.1) 0
 0
 (0.3)
Research and development credit0
 0.4
 0.1
 0.6
Increase in valuation allowance(20.8) (20.7) (17.9) (17.9)
Effect of tax rate differences of NOL carryback0
 0
 1.7
 0
Other0
 (0.4) 0
 (0.3)
Effective income tax rate0.2 % 1.6 % 5.0 % 3.3 %


On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. Among other things, the CARES Act provided the ability for taxpayers to carryback a net operating loss (“NOL”) arising in a taxable year beginning after December 31, 2017 and before January 1, 2021 to each of the five years preceding the year of the loss. Based on the Company’s analysis of the extended NOL carryback provision, it recorded a tax receivable of $6.1 million as of March 31, 2020, which was received in July 2020.
Fluctuations in effective tax rates have historically been impacted by permanent tax differences with no associated income tax impact, changes in the valuation allowance, changes in state apportionment factors, including the effect on state deferred tax assets and liabilities, and non-U.S. income taxed at different rates, except for the NOL carryback claim discussed above.claim.
Deferred income taxes reflect the tax assets and liabilities are determined based oneffect of temporary differences between financial reporting and tax basesthe carrying amount of assets and liabilities for financial reporting purposes and are measured usingthe value reported for income tax purposes, at the enacted tax rates and laws that willexpected to be in effect when the differences are expected to reverse. ASC 740, Income Taxes,GAAP provides for the recognition of deferred tax assets if realization of such assets is more-likely-than-not.more likely than not. In assessing the need for a valuation allowance, the Company considers all available objective and verifiable evidence, both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, and expectations and risks associated with estimates of future pre-tax income.
As of
Note 11 — Commitments and Contingencies
Litigation
Terpene Supply Agreement
At December 31, 2019,2020, the Company’s balance sheet included an accrued liability of $9.4 million associated with the terpene supply agreement with FCC and the Company’s expected usage of terpene in blended products being less than the minimum quantities of terpene required to be purchased and expected selling prices of the excess terpene as such loss was not considered recoverable. The Company calculated the liability based on the Company’s expected usage of terpene in blended products being less than the minimum quantities of terpene required to be purchased and expected selling prices of the excess terpene as such loss was not considered recoverable.
On March 26, 2021, the Company determined that it was more-likely-than-not that it would not realizeand Flotek Chemistry, LLC (“Flotek Chemistry”), a wholly-owned subsidiary of the benefitsCompany, filed a lawsuit against Archer-Daniels-Midland Company (“ADM”), Florida Chemical Company, LLC (“FCC”) and other parties in state court in Harris County, Texas. The lawsuit claims damages relating to the terpene supply agreement between Flotek Chemistry and FCC and related breaches of certain deferred tax assetsfiduciary duty. Contemporaneously with the filing of the suit, Flotek Chemistry delivered a notice of termination of the terpene supply agreement.
Subsequent to the lawsuit described above, on April 5, 2021, ADM and therefore, it recordedFCC filed a $19.9lawsuit in the Delaware Court of Chancery seeking to enjoin the lawsuit filed in Texas and claiming damages under the terpene supply agreement and other matters. On October 29, 2021, the Company and Flotek Chemistry reached agreement with all parties resolving all claims between the parties.(“the ADM Settlement”) On or before January 3, 2022, Flotek will pay to ADM a one-time payment of $1.75 million valuation allowance againstand the carrying valueterpene supply agreement is confirmed terminated, eliminating the prior obligation to purchase 10.5 million pounds of net deferred tax assets, except for deferred tax liabilities related to certain state jurisdictions. terpene through 2023.
As a result of the NOL carryback allowedthird quarter 2021 recognition of the ADM Settlement, operating expenses (excluding depreciation and amortization) for the three and nine months ended September 31, 2021 benefited by the

$7.6 million, excluding legal fees.

2418

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CARES Act, the Company released a valuation allowance of $4.0 million related to its deferred tax assets attributable to its U.S. federal NOLs. The Company continues to have a full valuation allowance against net deferred tax assets as it is not more-likely-than-not they will be utilized.
Note 17 — Common Stock

On May 5, 2020, the shareholders of the Company approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, as previously amended, to increase the authorized shares of common stock from 80,000,000 to 140,000,000, par value $0.0001 per share, and 100,000 of preferred stock, par value $0.0001 per share.  The additional authorized shares are available for corporate purposes, including acquisitions. 

A reconciliation of changes in common shares issued during the nine months ended September 30, 2020 is as follows:
Shares issued at December 31, 201963,656,897
Issued to purchase JP311,500,000
Issued as restricted stock award grants2,815,238
Shares issued at September 30, 202077,972,135

Note 18 — Business Segment, Geographic and Major Customer Information
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by chief operating decision-maker in deciding how to allocate resources and assess performance. The operations of the Company are categorized into 2 reportable segments: Chemistry Technologies and Data Analytics.

Chemistry Technologies. The Chemistry Technologies segment includes specialty chemistries, logistics and technology services, which enable its customers to pursue improved efficiencies in the drilling and completion of their wells. The Company designs, develops, manufactures, packages, distributes, delivers and markets reservoir-centric fluid systems, including specialty and conventional chemistries, for use in oil and gas well drilling, cementing, completion, remediation, and stimulation activities designed to maximize recovery in both new and mature fields. Customers of the Chemistry Technologies business segment include major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, pressure-pumping service companies, national and state-owned oil companies, and international supply chain management companies.

In the second quarter of 2020, the Chemistry Technologies segment launched a line of sanitizers and disinfectants for commercial and personal consumer use. These products build on the Company’s historical expertise in chemistry and leverage its infrastructure, personnel, competencies, supply chain, research, and historic consumer market experiences yielding a competitive product offering in this rapidly growing segment. The newly launched products, which include the Food and Drug Administration (“FDA”) compliant hand and surface sanitizers, target growth opportunities across diverse sectors including hospitals, travel and hospitality, food services, e-commerce and retail, sports and entertainment and other industrial and commercial markets.
Data Analytics. The Data Analytics segment, created in the second quarter of 2020 in conjunction with the acquisition of JP3 on May 18, 2020, includes the design, development, production, sale and support of equipment and services that create and provide valuable information about the composition of its energy customers’ hydrocarbon fluids. The customers of the Data Analytics segment span across the entire market, from production upstream to midstream facilities to refineries and distribution networks. To date, the Data Analytics segment has focused solely on North American markets. The Data Analytics segment provides real-time hydrocarbon composition data that helps its customers generate additional profit by enhancing blending, optimizing transmix, increasing efficiencies of towers, enabling automation and robotization of fluid handling, and reducing losses due to give-away (i.e. that portion of a product of higher value than what is specified) using real-time process information.
The Company evaluates performance based upon a variety of criteria. The primary financial measure is segment operating income. Various functions, including certain sales and marketing activities and general and administrative activities, are provided centrally by the corporate office. Costs associated with corporate office functions, other corporate income and expense items, and income taxes are not allocated to the reportable segment.


25

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information of the reportable segments is as follows (in thousands):
For the three months ended September 30,Chemistry Technologies Data Analytics Corporate and Other Total
2020       
Net revenue from external customers$12,083
 $656
 $0
 $12,739
Loss from operations, including impairment(8,880) (34,035) (2,679) (45,594)
Depreciation and amortization244
 274
 0
 518
Additions to long-lived assets906
 0
 0
 906
        
2019       
Net revenue from external customers$21,879
 $0
 $0
 $21,879
Loss from operations(5,917) 0
 (5,869) (11,786)
Depreciation and amortization1,870
 0
 188
 2,058
Additions to long-lived assets1,102
 0
 0
 1,102
For the nine months ended September 30,Chemistry Technologies 
Data Analytics (1)
 Corporate and Other Total
2020       
Net revenue from external customers$39,462
 $1,573
 $0
 $41,035
Loss from operations, including impairment(75,137) (35,185) (15,589) (125,911)
Depreciation and amortization2,300
 405
 472
 3,177
Additions to long-lived assets906
 0
 0
 906
        
2019       
Net revenue from external customers$99,827
 $0
 $0
 $99,827
Loss from operations(18,407) 0
 (20,688) (39,095)
Depreciation and amortization5,588
 0
 849
 6,437
Additions to long-lived assets1,869
 0
 0
 1,869

(1) The financial information disclosed above for Data Analytics is for the period May 18, 2020 to September 30, 2020.
Assets of the Company by reportable segments are as follows (in thousands):
 September 30, 2020 December 31, 2019
Chemistry Technologies$44,764
 $116,110
Data Analytics11,427
 0
Corporate and Other42,282
 114,490
Total assets$98,473
 $230,600



26

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Geographic Information
Revenue by country is based on the location where services are provided and products are used. No individual country other than the United States (“U.S.”) and the United Arab Emirates (“U.A.E.”) accounted for more than 10% of revenue. Revenue by geographic location is as follows (in thousands):
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
U.S.$9,928
 $19,663
 $32,639
 $89,653
U.A.E1,473
 865
 3,781
 2,662
Other countries1,338
 1,351
 4,615
 7,512
Total$12,739
 $21,879
 $41,035
 $99,827

Long-lived assets held in countries other than the U.S. are not considered material to the consolidated financial statements.
Major Customers
Revenue from major customers, as a percentage of consolidated revenue, is as follows:
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Customer A34.9% 11.1% 19.3% *
Customer B14.1% 35.9% 24.7% 16.7%
Customer C*
 *
 *
 12.3%

* This customer did not account for more than 10% of revenue during this period.
Note 19 — Commitments and Contingencies
Litigation
The Company is subject to other routine litigation and other claims that arise in the normal course of business. ManagementExcept as disclosed above, 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.

Other Commitments and Contingencies
The Company agreed to provide indemnification to National Oilwell DHT, L.P. for certain intellectual property-related claims in connection with sale of its Teledrift business unit in 2017. The expenses incurred by the Company were minimal and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.4 million and $0.2 million for the nine months ended September 30, 2020 and 2019, respectively. The Company expects to incur additional costs in the next six months, which are estimated to range between $0.3 million and $0.5 million, but could be higher.
Concentrations and Credit Risk

The majority of the Company’s revenue is derived from its Chemistry Technologies segment, which consists predominantly of customers within the oil and gas industry and the sanitizer industry to a lesser extent.  Customers within the oil and gas industry include oilfield services companies, integrated oil and natural gas companies, independent oil and natural gas companies, and state-owned national oil companies. Customers within the sanitizer industry typically include industrial and consumer markets, including hospitals, travel and hospitality, food services, e-commerce and retail, sports and entertainment. Given the increase in global demand for sanitizer products due to COVID-19, the Company's concentration of customers is shifting and diversifying, which helps to reduce credit and business risk. Customers within the sanitizer industry are not significantly impacted by commodity prices and typically are financially stable or public institutions.

The Company is subject to concentrations of credit risk within trade 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 accounts in twothree major U.S. financial institutions and balances often exceed insurable amounts.


27

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2012 — Stockholders’ Equity
During the first quarter 2021, the Company identified 0.6 million shares that were improperly included in the December 31, 2020 issued share count, and the Company adjusted the issued share count presented on the statement of stockholders’ equity. This adjustment was not material to the December 31, 2020 consolidated financial statements or basic and diluted earnings per share.
Note 13 — 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 net income (loss) by the weighted average number of common shares outstanding combined with dilutive common share equivalents outstanding, if the effect is dilutive. The three months ended September 30, 2021 diluted earnings per common share included 851,702 common share equivalents.
Potentially dilutive securities were excluded from the calculation of diluted loss per share for the nine months ended September 30, 2021 and for the three and nine months ended September 30, 2020, since including them would have an anti-dilutive effect on loss per share due to the net loss incurred during the periods.
Note 14 — Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
 Nine months ended September 30,
 20212020
Supplemental cash payment information:
Interest paid$17 $20 
Income taxes (received) paid(351)5,927 
Supplemental non-cash activities:
Employee retention credit$2,851 $— 
Supplemental non-cash investing and financing activities:
Equity issued - acquisition of JP3$— $8,538 
Under the provisions of the CARES Act, the Company is eligible for a refundable employee retention credit subject to certain criteria. In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when earned and to offset the credit against the related payroll tax liability. Accordingly, the Company recorded a $1.9 million employee retention credit during the three months ended June 30, 2021 in other current assets with the offset recorded in accrued liabilities. In the second quarter of 2021, the Company used $0.8 million of the total employee retention credit leaving a $1.1 million credit to be applied against payroll tax liabilities. In the third quarter of 2021, the Company used $0.9 million of the total employee retention credit leaving a $1.9 million credit to be applied against payroll tax liabilities.
Note 15 — Related Party Transaction
In January 2017, the Internal Revenue Service (“IRS”) notified the Company that it was examining the Company’s federal tax returns for the year ended December 31, 2014. As a result of this examination, the IRS informed the Company on May 1, 2019, that certain employment taxes related to the compensation of our former CEO, Mr. Chisholm, were not properly withheld in

19

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2014 and proposed an adjustment. Mr. Chisholm’s affiliated companies through which he provided his services have agreed to indemnify the Company for any such taxes, and Mr. Chisholm has executed a personal guaranty in favor of the Company, supporting this indemnification.
At June 30, 2019, the Company recorded a liability of $2.4 million related to the estimated employment tax under-withholding for the years 2014 through 2018. At September 30, 2019, the liability totaled $1.8 million, after the Company paid $0.6 million to the IRS for these taxes and made an additional accrual covering the estimated under-withholding tax liability through 2019. In addition, at September 30, 2019 the Company recorded a receivable from the affiliated companies of Mr. Chisholm totaling $2.4 million. In October 2019, an amendment to the employment agreement of Mr. Chisholm was executed, giving the Company the contractual right of offset for any amounts owed to the Company, and giving the Company the right to withhold payments equal to amounts reasonably estimated to potentially become due to the Company by the affiliated companies from any amounts owed under the employment agreement. At December 31, 2019, the Company netted the related party receivable against the severance payable and recorded $1.8 million for potential liability to the IRS. On January 5, 2020, Mr. Chisholm ceased to be an employee of the Company. In September 2020, the Company informed Mr. Chisholm it would cease payment of future severance.
During the three months ended March 31,first quarter of 2020, an additional accrual was recorded for $0.2 million related to potential penalties and interest on the IRS obligation. As of September 30, 2021 and December 31, 2020, the receivable from Mr. Chisholm was $1.4 million, which is equal toequaled the payable to the IRS and was netted with Mr. Chisholm’s severance liability. Both the IRS and severance liabilities are recorded in accrued liabilities on the consolidated balance sheet.
On January 5, 2020, Mr. Chisholm ceased to be an employeeTed D. Brown has been a Director of the Company since November of 2013 and has been the President and CEO of Confluence Resources LP (“Customer”), a private oil and gas exploration and production company formed in 2016. The Company entered into a $1.3 million bill-and-hold agreement with the Customer during the third quarter of 2021. The agreement between the Company and Customer is a related party transaction. The Company’s board was informed prior to the transaction and subsequently ratified the transaction as being in the best interests of the Company. For the three and nine months ended September 30, 2021, the Company’s revenues for chemical sales to Confluence Resources LP was $1.3 million. As of September 30, 2021, the customer owes $1.3 million to the Company and transaction is recorded in account receivables on the consolidated balance sheet.
Note 16 — Business Segment, Geographic and Major Customer Information
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision-maker in deciding how to allocate resources and assess performance. The operations of the Company are categorized into the following reportable segments: CT and DA.

Chemistry Technologies. The CT segment includes green specialty chemistries, logistics and technology services, which enable its customers to pursue improved efficiencies and performance throughout the life cycle of their wells, helping customers improve their ESG and operational goals.The Company designs, develops, manufactures, packages, distributes, delivers and markets optimized fluid systems, including specialty and conventional chemistries, for use in oil and gas well drilling, cementing, completion, remediation and stimulation activities designed to maximize recovery in both new and mature fields, as well as to reduce health and environmental risk by utilization of greener chemicals. Customers of the CT segment include major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil companies, and international supply chain management companies.

In 2020, the Company leveraged historical expertise, existing infrastructure, personnel, supply chain, research and resident consumer market experience to address the emerging demand for disinfectants, surface cleaners, degreasers and solvents for industrial, commercial and consumer use. The Company produces Food and Drug Administration and Environmental Protection Agency compliant products its ISO 9001:2015 certified facility in Marlow, Oklahoma. Today the Company has a portfolio of specialty chemical products to address the long-term challenges in the janitorial and sanitization (JanSan), food service and adjacent markets.

Data Analytics. The DA segment, created in the second quarter of 2020 in conjunction with the acquisition of JP3 on May 18, 2020, includes the design, development, production, sale and support of equipment and services that create and provide valuable information on the composition and properties of energy customers’ hydrocarbon fluids. The real-time information on hydrocarbon composition and properties helps customers generate additional profits by enhancing their operations including crude/condensates stabilization, blending, optimization of transmix, increasing efficiencies of gas processing plants, ensuring product quality while enabling automation of fluid handling and reducing losses through giveaways (i.e., that portion of a product of higher value than what is specified). The customers of the DA segment span across the entire oil and gas market, from upstream production to midstream facilities to refineries and distribution networks.

20

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company evaluates performance based upon a variety of criteria. The primary financial measure is segment operating income. Various functions, including certain sales and marketing activities and general and administrative activities, are provided centrally by the corporate office. Costs associated with corporate office functions, other corporate income and expense items, and income taxes are not allocated to the reportable segment.
Summarized financial information of the reportable segments is as follows (in thousands):
For the three months ended September 30,Chemistry Technologies
Data Analytics (1)
Corporate and OtherTotal
2021
Revenue from external customers$8,044 $803 $— $8,847 
Revenue from related party1,332 — — 1,332 
Income (loss) from operations, including impairment4,399 (1,071)(2,696)632 
Depreciation and amortization215 17 1 233 
Additions to long-lived assets— — — — 
2020
Revenue from external customers$12,083 $656 $— $12,739 
Revenue from related party— — — — 
Loss from operations, including impairment(8,880)(34,035)(2,679)(45,594)
Depreciation and amortization244 274 — 518 
Additions to long-lived assets906 — — 906 
(1) The Company formed the Data Analytics segment in the second quarter of 2020 upon acquiring JP3.
For the nine months ended September 30,Chemistry Technologies
Data Analytics (1)
Corporate and OtherTotal
2021
Revenue from external customers$26,033 $3,749 $— $29,782 
Revenue from related party1,332 — — 1,332 
Loss from operations, including impairment(3,009)(2,138)(9,926)$(15,073)
Depreciation and amortization739 52 2 793 
Additions to long-lived assets31 — — 31 
2020
Revenue from external customers$39,462 $1,573 $— $41,035 
Revenue from related party— — — — 
Loss from operations, including impairment(75,137)(35,185)(15,589)(125,911)
Depreciation and amortization2,300 405 472 3,177 
Additions to long-lived assets906 — — 906 
(1) The Company formed the DA segment in the second quarter of 2020 upon acquiring JP3.

Assets of the Company by reportable segments are as follows (in thousands):
September 30, 2021December 31, 2020
Chemistry Technologies$47,625 $43,346 
Data Analytics15,960 13,201 
Corporate and Other969 29,663 
Total assets$64,554 $86,210 

21

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Geographic Information
Revenue by country is based on the location where services are provided and products are used. No individual countries other than the U.S. and the United Arab Emirates (“UAE”) accounted for more than 10% of revenue. Revenue by geographic location is as follows (in thousands):
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
U.S.$8,094 $9,928 $24,624 $32,639 
UAE1,319 1,473 3,741 3,781 
Other countries766 1,338 2,749 4,615 
Total revenue$10,179 $12,739 $31,114 $41,035 
Long-lived assets held in countries other than the U.S. are not considered material to the consolidated financial statements.
Major Customers*
Revenue from major customers, as a percentage of consolidated revenue, is as follows (in thousands):
For the three months ended September 30,Chemistry Technologies% of Total Revenue
2021
Customer D$3,041 29.9 %
Customer E - Related party1,332 13.1 %
2020  
Customer D$4,632 36.2 %
Customer C2,088 16.4 %
For the nine months ended September 30,Chemistry Technologies% of Total Revenue
2021
Customer D$7,701 24.8 %
Customer C4,067 13.1 %
 2020  
Customer C$10,412 25.4 %
Customer D8,117 19.8 %
Customer A3,631 8.9 %
* DA customer did not account for more than 10% of revenue during this period.
The majority of the Company’s revenue is derived from its CT segment, which consists predominantly of customers within the oil and gas industry and the surface cleaner and disinfectant industry. Customers within the oil and gas industry include oilfield services companies, integrated oil and natural gas companies, independent oil and natural gas companies, and state-owned national oil companies. Customers within the surface cleaner and disinfectant industry typically include industrial and consumer markets, including hospitals, travel and hospitality, food services, e-commerce and retail, sports and entertainment. The concentration in the oil and gas industry increases credit and business risk. See Note 16, “Business Segment, Geographic and Major Customer Information,” for concentration of segment revenue from major customers.
Note 17 — Subsequent Events

InWe have evaluated the effects of events that have occurred subsequent to September 30, 2021, and there have been no material events that would require recognition in our third quarter 2021 consolidated financial statements or disclosure in the Notes to the consolidated financial statements, except that on October 2020,28, 2021, the Company executedalso received a reduction in headcountconfirmation approving a request to extend the maturity date of 35% in the Data Analytics segment.Flotek’s PPP loan maturity date from April 15, 2022 to April 15, 2025. Additionally on

In 22

FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 2020,29, 2021, the Company paid $2.5 million into escrow in accordanceand Flotek Chemistry reached an agreement with all parties resolving all claims between the terms ofparties.
The ADM settlement agreement and the JP3 Membership Interests Purchase AgreementFlotek PPP loan maturity date extension approval were considered to settle the earn-out payment recorded as a liability accrued at September 30, 2020,be recognizable subsequent events under U.S. GAAP and required adjustment to our third quarter 2021 consolidated financial statements. See Note 11 - Commitments and Contingencies and Note 8 - Debt for the achievement of the first stock performance target as disclosed in Note 3, “JP3 Acquisition.”

In October 2020, the Company received two Canadian income tax refunds totaling $0.3 million.

On November 13, 2020, Matthew Thomas, JP3 President/ Flotek Executive Vice President of Data Analytics, departed the Company.








additional information.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary

Flotek Industries, Inc. (“Flotek” or the “Company”) is a technology-driven, specialty chemistry and data company that serves customers across industrial, commercial and consumer markets. Flotek’s Chemistry Technologies segment develops, manufactures, packages, distributes, delivers, and markets high-quality sanitizers and disinfectants for commercial, governmental and personal consumer use. Additionally, Flotek empowers the energy industry to maximize the value of their hydrocarbon streams and improve return on invested capital through its real-time data platforms and chemistry technologies. Flotek serves downstream, midstream and upstream customers, both domestic and international.
During the second quarter of 2020, the Company acquired JP3 Measurement, LLC (“JP3”) and evaluated segment information. The Company identified two operating segments: Chemistry Technologies and Data Analytics, which are both supported by its continuing Research & Innovation advanced laboratory capabilities.
This Management’s Discussion and Analysis of Financial Condition, and Results of Operations (“MD&A”) and risks associated with the outbreak of COVID-19 should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto of this Quarterly Report, as well as the Annual Report. Phrases such as “Company,” “we,” “our,” and “us” refer to Flotek Industries, Inc. and its subsidiaries.
Continuing Operations
Flotek Industries, Inc. (“Flotek” or the “Company”) creates solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty green chemistry and data technology company, Flotek helps customers across industrial, commercial, and consumer markets improve their ESG performance. The Company serves specialty chemistry needs that span from downstream, midstream and upstream, both domestic and international, energy markets to applications of U.S. manufactured surface cleaners, disinfectants for industrial, commercial and consumer use.
The Company’s CT segment develops, manufactures, packages, distributes, delivers, and markets green, specialty chemicals that help their customers meet their ESG and operational goals, enhancing the profitability of hydrocarbon producers and supplying professional chemistries that clean surfaces in both commercial and personal settings to help reduce the spread of bacteria, viruses and germs.

The Company’s DA segment enables users to maximize the value of their hydrocarbon associated processes by providing real-time data and analytics associated with the streams in seconds rather than minutes or days. These real-time data and analytics prevents waste, reduces reprocessing, and allows users to pursue automation of their hydrocarbon streams to maximize their profitability, thereby improving ESG performance. During the second quarter of 2020, the Company acquired 100% ownership of JP3 in a cash-and-stock transaction. JP3’s real-time data platforms combine the energy industry’s only field-deployable, inline optical analyzer with proprietary cloud visualization and analytics, delivers increased profitability for its customers. In conjunction with the acquisition of JP3, the Company created the DA segment.
Company Overview
The Company has two operating segments: Chemistry Technologiessegments, CT and Data Analytics,DA, which are both supported by itsthe Company’s continuing Research and& Innovation (“R&I”) advanced laboratory capabilities.
Chemistry Technologies
The Company’s Chemistry TechnologiesCT segment includes an energy-focused product lineprovides sustainable, optimized chemistry solutions that is comprised ofmaximize our customer’s value by elevating their ESG performance, lowering operational costs, and delivering improved return on invested capital. The Company’s proprietary green chemistries, specialty chemistries, logistics, and technology services.services enable its customers to pursue improved efficiencies and performance throughout the life cycle of its desired chemical applications program. The Company designs, develops, manufactures, packages, distributes delivers, and markets reservoir-centric fluid systems, including specialtyoptimized chemistry solutions that accelerate existing sustainability practices to reduce the environmental impact of energy on the air, water, land and conventional chemistries, for use in oil and gas well drilling, cementing, completion, remediation, and stimulation activities designed to maximize recovery in both new and mature fields. people.

Customers of this product line of the Chemistry Technologies businessCT segment include majorthose of energy related markets as well as consumer and industrial applications. Major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, pressure-pumping service 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 best-in-class technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices.

In addition to its energy-focused product line,2020, the Company continued its growth of a diversified line of FDA-compliant sanitizers, disinfectants, and surface cleaners for commercial and personal consumer use. These products build on the Company’sleveraged historical expertise, in chemistry and leverage itsexisting infrastructure, personnel, competencies, supply chain, research and historicresident consumer market experience. The continued impact of COVID-19 and subsequent modification of social behavior in regardexperience to address the heightened attention to hygiene and sanitation provide a sustainable yet challenging market to expand the Company’s portfolio.Given the increase in globalemerging demand for various forms of sanitizingdisinfectants, surface cleaners, degreasers and disinfectingsolvents for both commercial and personal use. The Company produces FDA and EPA compliant products dueby completing all necessary upgrades to COVID-19 and its resultant long-term customer behavioral changes,already ISO 9001:2015 certified facility in Marlow, Oklahoma. Today, the Company is diversifyinghas a portfolio of specialty green chemical products designed to address the revenue stream from upstream only to encompass both midlong-term challenges in the janitorial and downstreamsanitization (JanSan), food service and adjacent markets. The Company has made a commitment of being in this market for the long-term.

Data Analytics
The Company’s Data AnalyticsDA segment createdprovides game-changing technology that delivers real-time information and insights to our customers on their refined fuels, NGLs, natural gas, crude oil, and condensates. This valuable information includes compositions and physical properties, delivered simultaneously and in conjunction with the acquisition of JP3, includes the design, development, production, sale and support of equipment and services that create and provide valuable real time, information abouttransforming customers’ business and helping them optimize their operations while reducing their carbon footprint and emissions. Real-time data is acquired using the compositionindustry’s only field-deployable, in-line optical near-infra-red spectrometer that generates no emissions. The instrument's response is processed with

24


advanced chemometrics modeling, artificial intelligence, and propertiesmachine learning algorithms to deliver these valuable insights every 15 seconds.
Customers who utilize this highly differentiated technology have obtained significant benefits including generating additional profits by enhancing their operations in crude/condensates stabilization, blending operations, reduction of transmix, increasing efficiencies and optimization of gas plants, and ensuring product quality while reducing giveaways i.e., providing higher value products at the lower value products prices. Many customers have enjoyed the added benefits of reducing their carbon footprint e.g., less flaring and reduction in energy expenditure for customers' oil, naturalcompression and re-processing. Our customers in North America include the supermajors, some of the largest midstream companies and large gas and refined products. The segment is continuing its transition toprocessing plants. We began business development activities in the international markets in late third quarter 2020. We have developed a recurring revenue subscription model of selling real-time data generated by itsnew line of Verax analyzers deployedfor deployment internationally which was recently certified for compliance in the field across the oilhazardous locations and gas sector, support contracts and software services via its cloud-based Viper software platform.
The customers of the Data Analytics segment span across the entire market, including upstream, midstream, refineries, and distribution networks. The segment helps its customers generate additional profit by enhancing blending, optimizing transmix, ensuring product quality while enabling automation and robotization of fluid handling. To date, the segment has focused sales solely on North American markets; however, the segment began preparing for international deployments, including export control investigations, certifications and product design modifications to meet the demands of overseas installations. The Company hired a business development executive to develop a pipeline of opportunity for 2021 for the international market.


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harsh weather conditions.
Research & Innovation
Flotek Research and InnovationR&I supports the acceleration of ESG solutions for both segments through green chemistry formulation, specialty chemical formulations, the FDA and Environmental Protection AgencyEPA regulatory guidance, technical support, basin and reservoir studies, data analytics and new technology projects. The purpose of the organizationR&I is to supply the Company’s segments with enhanced products and services that generate current and future revenues, while advising Company management on opportunities concerning technology, environmental and industry trends. The Research and InnovationR&I facilities support advances in chemistry performance, detection, optimization and manufacturing.
Discontinued OperationsOutlook

Our business is subject to numerous variables which impact our outlook and expectations given the shifting conditions of the industry and weather volatility. We have based our outlook on the market and weather conditions we perceive today. Changes often occur.
The Company sold Florida Chemical Company, LLC (“FCC”) effective as of February 28, 2019. As a result, the Company’s CICT segment was classified as discontinued operations. Financial resultsEnergy
We expect North American and International onshore activity to continue to improve from third quarter 2021 levels for the three and ninenext twelve months of 2019 include results from the Company’s CICT segment duringprovided that time period.
Outlook on Economic Conditions

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a global pandemic, which continues to exist throughout the United States and around the world. While this outbreak has severely impacted global economic activity, during the third quarter of 2020 many countries and many states within the United States began to gradually re-open businesses and schools, lift some restrictions related to quarantines and lift some travel bans with guidance from federal, state and local legislators. As of early November, the United States has experienced a material increase in COVID-19 infections.
commodity prices remain at or above current levels. The effects of the COVID-19 pandemic, including actions taken by businesses and governments, resulted in significant reductions in international and U.S. economic activity that continued through the third quarter of 2020. These effects and the volatility in oil prices have materially and adversely affected, and may continue to materially and adversely affect the demand for oil and natural gas. The Company’s primary marketsstrongest potential growth in the fourth quarter and throughout 2022 likely comes from private, rather than publicly traded exploration and production companies. Private exploration and production companies operate the majority of U.S. are particularly subjectland rigs and react quickly to the financial impact of a collapse in oilchanging commodity prices. In the secondcurrent commodity price environment, we expect the private companies to increase activity and third quarters ofpublicly traded companies to have modest spending increases in the year ahead. Additionally, we have reestablished our ability to sell product through other service companies and believe sales through indirect channels should accelerate in the fourth quarter.
Industrial
In 2020, these conditions and the related financial impact have continued and, in some cases, worsened. In addition, the Company launched a diversified line of EPA and most of itsFDA compliant products that target industrial, agricultural and consumer markets with particular focus on customers continued the practice of social distancingthat are seeking to accelerate their focus on sustainability and work-from-home procedures, which have had and may continue to have anminimized impact on the abilityenvironment. The company’s product line includes adjuvants, disinfectants, surface cleaners, degreasers, solvents and a multitude of employeesproprietary chemistries for industrial, commercial and managementconsumer use. The Company believes these adjacent markets provide an opportunity to diversify and expand the Company’s portfolio of chemistry solutions to meet the growing demand. We have signed four manufacturing sales representation groups with 150+ sales personnel covering 48 states. We will be training and educating their representatives during the next two quarters. The leverage sales effort is anticipated to accelerate sales in the second half of 2022.
Digital Analytics
The use of data and digital analytics is a growing trend in all industries where technology is used 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. The DA segment has historically focused sales solely on North American markets. Our recent press release dated October 27, announced the release of a new generation of international certified online analyzers. The new analyzers are specifically designed to withstand routine exposure to extreme outdoor environments, ambient temperatures up to 55°C/131°F and sandstorm pollution common to important international environments. The technology delivers real-time insight on valuable composition and physical properties data like vapor pressure, boiling point, flash point, octane level, API gravity, viscosity, BTU and more, simultaneously. We anticipate international sales to increase over the next twelve months because of the Companynewly certified equipment. To further enhance the value of the sensors, we announced the release of a new patent pending application to communicate and work efficiently.enhance the value of our line of near infrared real-time analyzers. AIDA (Automated Interface Detection
During the first half

25


Algorithm) provides real-time detection of 2020, the oil and gas markets experienced significant impacts from both the supply and the demand side. On the demand side, the COVID-19 pandemic resultedinterfaces in a drop in economic activityliquids pipeline. AIDA can be utilized immediately on our installed analyzers without the need for additional sampling or chemometric modeling. The application can identify products such as refined fuels, crude and a corresponding destructionNGLs with its advanced machine learning algorithms and detect interfaces within 60 seconds. This allows operators to cut batches quickly and accurately, reduce the inadvertent mixing of global demandtwo separate products (known as “transmix”) and minimize off-spec product that requires downgrades. We anticipate additional sales resulting from the detection capabilities of our new patent pending application.
ESG
ESG focused solutions continue to be an emphasis for oil, gasthe Company as the energy, industrial and associated products. The third quarter of 2020 saw demand for oil increase each month, driven by easing of some restrictionsconsumer markets are seeking to accelerate their focus on sustainability and minimized impact on the coronavirus and summer holidays in the northern hemisphere. On the supply side, the North American rig count continued fall through the majority of third-quarter of 2020 with slight increases in rig count occurring in late August.environment. The total rig count fell to a record low of 244 rigs during the week ended August 14, while oil rigs alone fell to a 15-year low at 172 rigs in the same week, according to Baker Hughes data going back to 1940. Subsequently, global oil demand exceeded supply in the third quarter of 2020 according to the U.S. Energy Information Administration.
The oil and gas midstream market that represents the largest customer base of the Data Analytics segment has seen its gathering and infrastructure capital spending reduced by 60%, according to a mid-September report from market analyst Alerian.  Similarly, downstream spending for Data AnalyticsCompany’s products and services has similarly been hampered by drastically lower consumer demand for refined fuels products dueoffer a significant benefit to the COVID-19 response.  As just one example, Evercore reported in late September 2020 that U.S. driving miles remain down by 34%, causing significantly reduced demand for gasolinebusinesses seeking to improve their ESG performance, including improving safety, reliability and diesel and thus slowing spending across the refining and distribution segments.efficiency of their operations. The Company expects negative impactsoffers sustainable chemistry solutions, tailoring product selection to all facetsenable operational efficiencies, improve water management and reduce greenhouse gas emissions for its customers in the exploration and production sector of the oil and gas marketsindustry. Further, the Company’s patented line of Complex nano-Fluid® (also known as CnF®) products are formulated with highly effective, plant-based solvents offering safer, renewable and sustainable alternatives to continue for an extended period before returningtoxic BTEX-based (benzene, toluene, ethylbenzene and xylene) chemicals. Benzene is a carcinogenic chemical that can cause acute physical damage, chronic blood disorders, reproductive disorders, leukemia and when exposed to pre-pandemic levels.  Any further material COVID-19 disruption or significant setback in oil demand arising from a slower economic recovery could present downside risksthe atmosphere, benzene creates smog, which can be carried to this outlook.

the ground through rain and contaminates water bodies and soil. Additionally, the Company’s real-time sensor technology helps to enable process and operational efficiencies, minimize waste and processing and reduce emissions.
Outside
The Company believes the oilindustry focus on maintaining a “social license to operate” provides the platform to accelerate the adoption of our greener practices and gas sector,chemistries. We believe the COVID-19 pandemic has continuedperformance driven ESG focus of the Company assists in reducing environmental liabilities and improving returns for our customers.
Supply Chain
During 2020 and 2021 challenging supply chain issues emerged that “will continue into 2022” according to drive increased demandSecretary of Transportation Peter Buttigieg. The anticipated activity increases will strain supply chains generally. The principal supply issues facing our industry for certain specialty chemicals, particularly disinfectantsthe next twelve months will include:
▪Rising Freight Costs
▪Delays due to Port Congestion
▪Labor Shortages
▪Demand Forecasting
All bidding will require the risk of shipping costs and sanitizers. With the outbreak of COVID-19,delays be factored into proposals. Trucking availability and pricing will impact North American opportunities while sea-freight costs will impact sales of sanitizers and disinfectants swelled across every region inNorth American manufactured goods being delivered internationally for the world, which led to a global shortage during second quarter 2020. Relief on the shortagesforeseeable future. The import of key raw materials used to make these products, including USP-grade alcohol, woven cellulosics for wipes,from China will also incur price increases. Accelerating tensions between China and various active ingredients has been slow to catch up to the growing demand. This persistent growth is accompanied by a need for sustained higher volumes of janitorial and sanitizing products as COVID-19 is expected to have a long-term impact on social awareness, personal hygiene habits and consumer and commercial cleaning protocols. In March 2020, as cases of the pandemic escalated in the U.S., the FDA issued a temporary policy, relaxing requirements for certain alcohol-based hand sanitizers. During that time, the market surged with new producers of hand sanitizer as the world faced a global shortage of sanitizing products. During could also result in supply disruption.
Weather
While Hurricane Ida occurred during the third quarter, on October 31, 2021, there were no tropical cyclones in the Atlantic. Water temperatures need to exceed 79 degrees Fahrenheit or either hurricanes will not form or will weaken rapidly. Water temperature two meters below the surface at Station 42002, 207 nautical miles east of 2020, as hand


Brownsville, Texas was 81.3 degrees Fahrenheit on October 30,



sanitizer supplies stabilized, many 2021, and temperatures decreased moving to the north. Consequently, disruption of business due to a severe cyclone in fourth quarter is unlikely. The National Weather Service temperature outlook for November-December-January 2021-2022 indicates “elevated odds for above-normal seasonal mean temperatures along the southern half of the new producers held excess quantities of product and began dumping supply in anticipation of a return to the FDA’s original, tightened standards. Throughout the pandemic, the Company’s products have been compliant with the more stringent FDA specifications.U.S.”
Company Outlook
While the full impact of the COVID-19 pandemic continues to evolve and the full extent of the impact isWe currently do not yet known, the Company continues to closely monitor the effects of the pandemic on commodity demands and on its customers, operations and employees. Any future development and effects are highly uncertain and cannot be predicted, including the scope and duration of the pandemic; further adverse revenue and net income effects; disruptions to the Company’s operations; third-party providers’ ability to support our operations; customer shutdowns of oil and gas exploration and production; the effectiveness of work from home arrangements; employee impacts from illness, school closures and other community response measures; any actions taken by governmental authorities and other third parties in response to the pandemic; and temporary closures of the Company’s facilities or the facilities of its customers and suppliers. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.
The Company has also focused on ongoing needs of customers and the market to diversify its business and accelerate growth through deployment of capital, with an emphasis on digital transformation in the oil and gas markets. On May 18, 2020, the Company closed the acquisition of all the ownership interests of JP3, which gives the Company access to the midstream and downstream markets and diversifies exposure to volatility in the upstream sector. In addition to increasing market share, the Data Analytics segment is pursuing product enhancements that enable growth opportunities with current and prospective customers.
The Company’s Chemistry Technologies segment focused on development of competitively-priced product lines that are responsive to the current market including wellbore protection and damage mitigation products as the domestic market has shifted to shutting in wells. In response to a forecasted reduction in capital available to customers for drilling with a shift to optimizing existing infrastructure, the Company initiated several efforts to use specialty chemicals to improve enhanced oil recovery. The Company has also leveraged its international footprintanticipate inclement weather in the Middle East or the Onshore U.S. to include unconventional, conventional, and enhanced oil recovery programs.impact fourth quarter results.
COVID-19
The Chemistry Technologies segment used its expertiseimpacts of COVID-19 continue to affect the U.S. and global economy. The protocols and processes established to maintain business continuity with COVID-19 have proven robust enough to diminish concern about business disruption unless new variants emerge. The resumption of travel while often onerous has begun to accelerate and in specialty chemistry, existing chemistry infrastructure and facilities, and historical consumer market experienceperson customer visits that began in earnest during the third quarter will continue to launch a product line of sanitizers and disinfectants, as discussed above. The Company believes the new sanitizer and disinfectant products slot into the premium market and will be competitive over the long term. The Company has also made changes to its executive team to align with its growth focus.
In response to market conditions and anticipating ongoing volatility, the Company reduced its cost structure to meet anticipated market activity and reduce the Company’s break-even levels. Among other cost-cutting and cash preservation initiatives:
The Company’s CEO, John W. Gibson, Jr., reduced his base salary by 20%, and each of the other executive officers reduced his or her salary by 10%, through December 31, 2020, in exchange for restricted stock, effective as of April 1, 2020.
The board of directors of the Company approved a 20% reduction in the fees to be paid to the directors, effective as of April 1, 2020.
The Company consolidated office space by moving all employees at its corporate headquarters into its GRIC facility and buying out the remaining term of the corporate headquarters lease for a significant discount, with the move completed by the end of June 2020.
The Company reduced overall headcount by 35% on March 30, 2020. Additionally, the Company reduced the headcount of the Data Analytics segment by 35% in October 2020.
The Company decreased discretionary spending across all business operations.


accelerate.

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Consolidated Results of Operations (in thousands):
ConsolidatedResults of Operations: Three and Nine Months Ended September 30, 2020,2021, Compared to the Three and Nine Months Ended September 30, 20192020
Three months ended September 30,Nine months ended September 30,
2021202020212020
RevenueRevenue
Revenue from external customers Revenue from external customers$8,847 $12,739 $29,782 $41,035 
Revenue from related party Revenue from related party1,332 — 1,332 — 
Total revenues Total revenues10,179 12,739 31,114 41,035 
Operating expenses (excluding depreciation and amortization)Operating expenses (excluding depreciation and amortization)5,418 29,466 31,330 63,939 
Operating expenses %Operating expenses %53.2 %231.3 %100.7 %155.8 %
Corporate general and administrative costsCorporate general and administrative costs2,696 2,679 9,925 12,568 
Corporate general and administrative %Corporate general and administrative %26.5 %21.0 %31.9 %30.6 %
Depreciation and amortizationDepreciation and amortization233 518 793 3,177 
Research and developmentResearch and development1,186 1,480 4,194 5,673 
Loss (Gain) on disposal of long-lived assetsLoss (Gain) on disposal of long-lived assets14 (37)(55)(92)
Impairment of goodwillImpairment of goodwill— 11,706 — 11,706 
Impairment of fixed assets and long-lived assetsImpairment of fixed assets and long-lived assets— 12,521 — 69,975 
Income (loss) from operationsIncome (loss) from operations632 (45,594)(15,073)(125,911)
Operating margin %Operating margin %6.2 %(357.9)%(48.4)%(306.8)%
PPP loan forgivenessPPP loan forgiveness— — 881 — 
Gain on lease terminationGain on lease termination— — — 576 
Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Revenue$12,739
 $21,879
 $41,035
 $99,827
Operating expenses (excluding depreciation and amortization)29,466
 23,622
 63,939
 105,711
Operating expenses %231.3 % 108.0 % 155.8 % 105.9 %
Corporate general and administrative2,679
 5,685
 12,568
 19,020
Corporate general and administrative %21.0 % 26.0 % 30.6 % 19.1 %
Depreciation and amortization518
 2,058
 3,177
 6,437
Research and development costs1,480
 2,297
 5,673
 6,658
(Gain) loss on disposal of long-lived assets(37) 3
 (92) 1,096
Impairment of goodwill11,706
 —
 11,706
 —
Impairment of fixed assets and long-lived assets12,521
 —
 69,975
 —
Loss from operations(45,594) (11,786) (125,911) (39,095)
Operating margin %(357.9)% (53.9)% (306.8)% (39.2)%
Gain on lease termination—
 —
 576
 —
Interest and other income (expense), net272
 435
 282
 (776)
Loss before income taxes(45,322) (11,351) (125,053) (39,871)
Income tax benefit81
 191
 6,282
 694
Loss from continuing operations(45,241) (11,160) (118,771) (39,177)
Income from discontinued operations, net of tax—
 117
 —
 44,583
Net (loss) income$(45,241) $(11,043) $(118,771) $5,406
Interest and other (expense) income, netInterest and other (expense) income, net(120)272 (115)282 
Income (loss) before income taxesIncome (loss) before income taxes512 (45,322)(14,307)(125,053)
Income tax (expense) benefitIncome tax (expense) benefit(3)81 (30)6,282 
Net income (loss)Net income (loss)$509 $(45,241)$(14,337)$(118,771)
Net loss % for continuing operations(355.1)% (51.0)% (289.4)% (39.2)%Net loss % for continuing operations5.0 %(355.1)%(46.1)%(289.4)%

Consolidated revenue for the three months ended September 30, 2021, decreased $2.6 million, or 20.1%, versus the same period of 2020. The decrease was primarily due to the loss of two major energy customers that were purchased by non-customers during the second quarter of 2021, and nominal decreases in international sales, offset by certain CT customer revenue increases during the current quarter that did not have prior year comparable activities. Consolidated revenue for the nine months ended, September 30, 2020,2021, decreased $9.1$9.9 million, or 41.8%24.2%, and $58.8 million or 58.9%, respectively, and versus the same periodsperiod of 2019. The decrease2020. Revenue during the nine months ended September 31, 2021 reflected a loss of revenue in revenue was largely a result of reduced demand duethe CT segment associated with two major customers changing ownership during 2021, losses related to the continued volatile macro-environmentnormalization and decline of market demand for U.S. onshore drillingsanitizers and completion activity impactednon-recurring citrus terpenes sales. Current year revenue decreases were partially offset by politicalthe incremental post acquisition JP3 revenues generated in the second and economic events in foreign markets, and the continued COVID-19 impact on productivity and customers.third quarter of 2021.

Consolidated operating expenses (excluding depreciation and amortization) for the three months ended September 30, 2020, increased $5.82021, decreased $24.0 million, or 24.7%81.6%, versus the same period of 2019, and as a percentage of revenue, increased by 123.3%.2020. The increasedecrease was primarily due to an unfavorable product mix in operating expenses for the third quarter of 2020 compared to 2019 resulted from operating expenses for the recently acquired Data Analytics segment and introduction of the sanitizer business in the second2021 versus third quarter of 2020 combined with third quarter increases inand the excess and obsolescence reserve for inventorynet reduction of $7.6 million of operating expense accruals related to recognizing the Company’s product rationalization effort and achieving the first earnout provision related to the JP3 acquisition. These increases were partially offset by lower cost of sales due to reduced sales during 2020 combined with actions in the first quarter of 2020 that lowered personnel costs and overall cost-cutting efforts within supply chain. In 2020, the Company lowered occupancy costs due to our reduced facility footprint, and reduction in equipment primarily associated with tank rentals.
ADM settlement subsequent event. Consolidated operating expenses (excluding depreciation and amortization) for the nine months ended September 30, 2020,2021 decreased $41.8$32.6 million, or 39.5%,51.0% versus the same period of 2019, and as a percentage of revenue, increased by 49.9%. Company actions in the first quarter of 2020 lowered personnel costs along with a significant2020. The year to date decrease in logistical cost as part of our overall cost-cutting efforts within supply chain. In 2020, the Company lowered occupancy costsoperating expenses was primarily due to our reduced cost of sales due to lower sales during 2021 and the net reduction of $7.6 million of operating expense accruals related to recognizing the ADM settlement subsequent event. The Company’s 2021 operating expenses benefited from the decision to reduce operating expenses, including reducing the Company’s facility footprint reduction in equipment primarily associated with tank rentals.and improving operational efficiencies. These savingsreduced costs were partially offset by new operating expenses for the DA segment acquired in May of 2020.


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recently acquired Data Analytics segment and introduction of the sanitizer business in the second quarter of 2020 combined with an increased excess and obsolescence inventory reserve related to the Company’s product rationalization effort of $3.9 million and achievement of the first earn-out provision related to the JP3 acquisition during the third quarter of 2020 of $2.5 million.
Corporate general and administrative (“CG&A”) expenses are expenses not directly attributable to products sold or services provided. CG&A costs for the three andmonths ended September 30, 2021 was consistent with the same comparable period last

27


year. CG&A for the nine months ended September 30, 2020, decreased $3.02021, CG&A $2.6 million, or 52.9%, and $6.5 million or 33.9%, respectively,21.0% versus the same period of 2019. As2020.CG&A costs declined as a percentageresult of revenue, CG&Alower compensation costs following a reduction in force, a one-time employee retention credit related to the CARES Act and a reduction in professional fees.
Depreciation and amortization expense decreased 5.0%$0.3 million, or 55.0% and increased 11.5%$2.4 million, or 75.0% for the three and nine months ended September 30, 2020. The decrease in CG&A costs for2021, versus the three months weresame period of 2020, primarily due to lower personnel costs including a reduction in associated stock compensation and incentives partially offset by severance charges.  Occupancy expense decreased due to the Company moving out of its Corporate office and consolidating into our existing lab facility at the end of the second quarter of 2020.  Bank charges, IT licenses and subscriptions expenses have all declined as part of our efforts to streamline our IT capabilities and rationalize controllable spend.  Travel and entertainment has also decreased drastically primarily due to the ongoing COVID-19 travel restrictions and concerns along with our efforts around controllable costs.  Professional fees have also continued to decline which is primarily a function of legal savings related to hiring an in-house General Counsel in February 2020 and non-recurring costs associated to recruitment and other projects/fees.  Savings in professional fees were partially offset by one-time charges related to our acquisition of JP3 during the second quarter 2020.
Depreciation and amortization expense decreased $1.5 million, or 74.8%, and $3.3 million, or 50.6%, for the three and nine months ended September 30, 2020, respectively, and versus the same periods of 2019, primarily due to impairmentimpairments of fixed and long-lived assets recorded in the first quarter of 2020 coupled with limiting capital expenditure spend in 2020 and continued consolidation of our physical facility footprint.2020.
Research and development costs decreased $0.8$0.3 million, or 35.6%,19.9% and $1.0$1.5 million, or 14.8%,26.1% for the three and nine months ended September 30, 2020, respectively, and2021, versus the same periodsperiod of 20192020 due to lower personnel costs as a result of our reduction in workforce induring the first quarter 2020.
Gain on disposal of long-lived assets remained flat andIncome from operations increased $1.2$46.2 million, or 108.4%101.4%, for the three months ended September 30, 2021, while the year to date loss from operations improved by $110.8 million, or 88.0% for the nine months ended September 30, 2021, versus the same periods in 2020. The income from operations improvement is primarily a result of no impairment during 2021 compared to the $24.2 million and $81.7 million in the three and nine months ended September 30, 2020, respectively,2020. Additionally, the decrease in loss from operations is attributable to the net reduction of $7.6 million of operating expense accruals related to recognizing the ADM settlement subsequent event, the forgiveness of the JP3 PPP loan for $0.8 million and versus the same periods of 2019. The increase resulted from a one-time loss on disposalemployee retention credit to the CARES Act of certain corporate software in 2019.$2.9 million recorded during 2021.
Impairment of goodwill was $11.7 millionThe Company’s income tax expense for the threesecond and nine months ended September 30, 2020, due to a third quarter 2020 write-down to estimated fair market value of the goodwill in our Data Analytics segment. See Note 3 - “JP3 Acquisition” and Note 10 -“Impairment of Fixed and Long-lived Assets”.
Impairment of fixed and long-lived assets was $12.5 million for the three months ended September 30, 2020, due to a write-down of intangible assets to estimated fair market value recorded in our Data Analytics segment. Impairment of fixed and long-lived assets for the nine months ended September 30, 2020, was $70.0 million due to the Data Analytics segment write-down in the third quarter combined with the Chemistry Technologies segment write-down of $57.5 million recorded in the first quarter of 2020. No impairments of fixed and long-lived assets occurred in 2019. See Note 10 - “Impairment of Fixed and Long-lived Assets”.
Loss from operations increased $33.8 million, or 286.8%, and increased $86.8 million, or 222.1% and for the three and nine months ended September 30, 2020, respectively, and versus the same period in 2019. Loss from operations increased primarily as a result of the impairments in the first and third quarters of 2020, increased reserve and expenses to write-off excess and obsolete inventory related to the Company’s product rationalization effort, and the earn-out payment liability for the achievement of the first stock performance target during the third quarter of 2021 and 2020 in connection with the JP3 acquisition.  Additionally, the Company has been impacted by lower sales volumes, an unfavorable product mix and pricing pressures driving down overall margin.
Interest and other income (expense), net decreased $0.2 million, or 37.5%, and decreased $1.1 million, or 136.3% for the three and nine months ended September 30, 2020, respectively, and versus the same period of 2019, primarily due to the termination of the Amended and Restated Revolving Credit, Term Loan and Security Agreement (as amended, the “Credit Facility”) with PNC Bank in the first quarter 2019. The Company experienced a decrease in interest income associated with the depressed interest rate environment in 2020.
was minimal. The Company recorded an income tax benefit of $6.3$6.2 million for the nine months ended September 30,first quarter of 2020, primarily as a result of the extended net operating loss carryback provisions included in the CARES Act initially recorded in the first quarter 2020, yielding an effective tax benefit rate of 5.0% for the nine months ended September 30, 2020.


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Results by Segment (in thousands):
Chemistry TechnologiesResults of Operations: Three and Nine Months Ended September 30, 2020,2021, Compared to the Three and Nine Months Ended September 30, 20192020
Three months ended September 30,Nine months ended September 30,
2021202020212020
Revenue$9,376 $12,083 $27,365 $39,462 
Income (loss) from operations4,399 (8,880)(3,009)(75,137)
 Three months ended September 30, Nine months ended September 30,
 2020 2019 2020 2019
Revenue$12,083
 $21,879
 $39,462
 $99,827
Gross margin(4,036) 2,404
 (1,498) 8,507
Gross margin %(33.4)% 11.0 % (3.8)% 8.5 %
Loss from operations(8,880) (5,917) (75,137) (18,407)
Loss from operations %(73.5)% (27.0)% (190.4)% (18.4)%
Chemistry TechnologiesCT revenue for the three and nine months ended September 30, 20202021, decreased $9.8$2.7 million, or 44.8%,22.4% and $60.4$12.1 million, or 60.5%30.7%, respectively, versus the same periodperiods of 2019.2020. The decrease in revenue during the third quarter of 2020 and2021 compared to the majority of the first nine monthsthird quarter of 2020 was significantly driven by impacts from both the supply and the demand side. The COVID-19 pandemic continues to negatively impactimpacted economic activity and reducereduced global demand for oil and gas during 2020, a key sector of our customer base.The Company’s domestic and international revenue for the nine months ended September 30, 2021 decreased as demand from the company’s major customers and smaller operators has not returned to the pre-pandemic levels. In addition, revenue from two major customers was lost temporarily as a result of market consolidation in the Permian basin. CT also granted price concessions in our effort to maintain and obtain market share.
Chemistry Technologies gross margin (excluding depreciation and amortization)Income (loss) from operations for the CT segment for the three and nine months ended September 30, 2020,2021, decreased $6.4$13.3 million, or 267.9%149.5%, and $10.0decreased $72.1 million, or 117.6%96.0%, respectively versus the same period of 2019, and as a percentage of revenue, decreased 44.4%, and 12.3% for the three and nine months ended September 30, 2020. Gross margins were influenced by shiftsThe decrease in completion technologies to more cost efficient and simplified chemistry and engineering packages, as well as continued pressure on market pricing to maintain key accounts and available market share. Subsequently, the Company executed a number of activities to reduce cost of sales, freight, personnel, and its operational cost structure to minimize the impacts of revenue declines and modified product mix.
Chemistry Technologies loss from operations (excluding depreciationis due to lower revenue and amortization) for the three and nine months ended September 30, 2020, increased $3.0 million, or 50.1%, and increased $56.7 million or 308.2%, respectively versus the same period of 2019, and as a percentage of revenue, increased 46.5%, and 172.0% for the three and nine months ended September 30, 2020. The increase in loss during the nine months ended September 30, 2020 issignificantly lower expenses, primarily the result of theno impairments in 2021 versus impairment charges of fixed and long-lived assets of $70.0 million in the same period of 2020. Secondly, expenses decreased versus the first quarter of 2020 including a $2.3 million terpene purchase commitment loss with no comparable activity in 2021. Certain cost reduction initiatives to right size our cost structure contributed to the current decrease in operating losses by reducing personnel, office costs, equipment and provision for excessfacilities costs as the Company continues to consolidate its physical facilities and obsolescence inventory reserve of $5.7 million.equipment rentals to align with activity.

Data AnalyticsResults of Operations: Three and Nine Months ended September 30, 2020 and the Period May 18 to September 30, 20202021

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 Three months ended September 30,Period May 18 to September 30,
 20202020
Revenue$656
$1,573
Gross margin(3,814)(3,450)
Gross margin %(581.4)%(219.3)%
Loss from operations(34,035)(35,185)
Loss from operations %(5,188.3)%(2,236.8)%
Three months ended September 30,Nine months ended September 30,Period May 18- September 30,
2021202020212020
Revenue (1)
$803 $656 $3,749 $1,573 
Loss from operations (1)
(1,071)(34,035)(2,138)(35,190)

(1)On May 18, 2020, the Company purchased JP3 and formed the Data AnalyticsDA segment. The segment finishedyear to date JP3 revenues represents the third quarter with$0.7 million of revenue, most of which came from existing customers on minor project expansions. During the third quarter, revenue declined compared to the revenue after the date of acquisition in the second quarter. The decline was due to reduced demand in the oil and gas sector because of capital spending reductions across our customer base. Although the site lockdowns and extreme caution to prevent the spread of COVID-19 that began in the first half of 2020 began to ease during the third quarter, the segment saw very little of the expected repeat business and almost none from new customers due to frozen budgets. Data Analytics’ largest customer sector, the oil and gas midstream market, has seen its gathering and infrastructure capital spending reduced by 60%, according to a mid-September 2020 report from Alerian (https://insights.alerian.com/midstream-mlp-capex-and-projects-wheres-the-growth).


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Data Analytics loss from operations (excluding depreciation and amortization) for the three months ended September 30, 2020, and thepost-acquisition partial period revenues between May 18, 2020 to September 30, 2020, includes write-downs to estimated fair market value2021. Segment revenue for goodwill of $11.7 million and $12.5 million for finite-lived intangible assets. In addition, the third quarter of 2020 included charges for excess and obsolete inventory of $3.9 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 September 30, 20202021 was $0.8 million, which remained flat from the Company was not involvedsame quarter in any unconsolidated SPEs.2020. Also note that the DA segment losses include the impact related to the estimated fair value of the remaining stock performance earn-out provision, with respect to the JP3 transaction.
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’s financial condition, change in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures, or capital resources that would be material to investors other than the long-term terpene agreement disclosed in Note 4, “Discontinued Operations,” in Part I, Item 1 — Financial Statements of this Quarterly Report.
Critical Accounting Policies and Estimates
The Company’s Financial Statementsfinancial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).America. Preparation of these statements requires management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Part II, Item 8 — Financial Statements and Supplementary Data, Note 2 of “Notes to Consolidated Financial Statements” and Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Critical Accounting Policies and Estimates” of the Company’s Annual Report, and the “Notes to Unaudited Condensed Consolidated Financial Statements” of this Quarterly Report describe the significant accounting policies and critical accounting estimates used to prepare the consolidated financial statements. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of the Company’s financial condition and results of operations and require management’s most subjective judgments. The Company regularly reviews and challenges judgments, assumptions and estimates related to critical accounting policies. The Company’s estimatespolicies, including goodwill, other intangibles and assumptions are based on historical experience and expected changes in the business environment; however, actual results may materially differ from the estimates.valuation of fixed long-lived assets. There have been no significant changes in the Company’s critical accounting policies and estimates during the nine months ended September 30, 2020. However, during the first quarter of 2020, the Company evaluated and recorded remeasurement and impairment charges on right-of-use assets and fixed assets, respectively. Secondly, during the second quarter of 2020, the Company acquired JP3 and recorded the fair value of net assets acquired as of the closing date of May 18, 2020. During the third quarter of 2020, the Company recorded impairment write-downs to estimated fair market value of $11.7 million for goodwill and $12.5 million for intangible assets of the JP3 acquisition. Also, during the third quarter of 2020, the Company recorded additional provision for excess and obsolete inventory of $10.0 million.2021.
Recent Accounting Pronouncements
Recent accounting pronouncements which may impact the Company are described in Note 2, — “Recent Accounting Pronouncements”Pronouncements,” in Part I, Item 1 — “Financial Statements” of this Quarterly Report.
Capital Resources and Liquidity
Overview
The Company’s ongoing capital requirements relate to the need to acquireacquisition and maintainmaintenance of equipment and fund working capital requirements, and when the opportunities arise, to make strategic acquisitions.requirements. During the first nine months of 2020,2021, the Company funded capital requirements primarily with cash from operations and cash on hand, including a tax refund received of $6.1 million, proceeds of $9.9 million received from escrow in 2020 from the 2019 sale of the CICT segment, and proceeds from a $4.8 million Payroll Protection Program loan.hand.
As of September 30, 2020,2021, the Company had available cash and cash equivalents of $49.2 million. For$20.5 million, as compared to $38.7 million at December 31, 2020. The Company recorded an operating loss for the remaindernine months ended September 30, 2021 and recorded $18.3 million of 2020,net cash used for operating activities and $0.5 million of net cash used for financing activities. Cash used in investing activities was minimal.
Liquidity
The Company currently funds its operations and growth primarily from cash on hand. The ability of the Company expectsto grow and be competitive in the marketplace is dependent on the availability of adequate capital. Access to capital spending of approximately $1.0 million to $2.0 million foris dependent, in large part, on the Company’s Chemistry Technologiescash flows and Data Analytics segments.
Wethe availability of and access to debt and equity financing. The Company has a history of losses and negative cash flows from operations and expects to utilize a significant amount of cash in operations in the following year. While we believe that our current liquidity availabilitycash and liquid assets will provide us with sufficient financial resources to meet fund operations and meet ourthe Company’s capital requirements and anticipated obligations as they become due. Any excessdue, uncertainty surrounding the long term stability, strength and duration of the recovery of oil and gas markets, or reduced spending by our customers could, have a negative impact on our liquidity.
Accordingly, while the Company believes that its existing cash generatedwill enable it to fund its operations and growth, the Company cannot guarantee the level of cash flows in the future. In the event that the Company’s existing cash on hand is not sufficient to fund operations, meet our capital requirements or satisfy the anticipated obligations as they become due, the Company expects to take further action to protect its liquidity position. Such actions may be used for outside growth opportunities or retained for future use.

include, but are not limited to:

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•Raising equity either in the public markets or via a private placement offering;
•Seeking PPP loan forgiveness from the Small Business Administration;
•Entry into a borrowing facility with one or more lenders;
•Sale of excess inventory and/or raw materials;
•Operating lease transaction of facilities;
•Sale of non-core real estate properties;
•Sale-leaseback transactions of facilities;
•Sub-leasing certain facilities;
•Renegotiating current lease facility terms and conditions;
•Reducing executive salaries and/or board of directors’ fees, or making a portion of those fees or salaries in equity instead of cash; and
•Reducing professional advisory fees and headcount.
However, with respect to anticipated transactions, there can be no assurance that such matters can be implemented on acceptable terms. For a further discussion of the risks surrounding the Company’s access to capital, please see Item 1A, “Risk Factors” in the Company’s Annual Report.
The Company expects capital spending to be less than $1.0 million in 2021.
Cash Flows
Consolidated cash flows by type of activity are noted below (in thousands):
 Nine months ended September 30,
 2020 2019
Net cash (used in) provided by operating activities$(39,095) $539
Net cash (used in) provided by investing activities(17,135) 153,273
Net cash provided by (used in) financing activities4,929
 (49,880)
Net cash provided by discontinued operations—
 16
Effect of changes in exchange rates on cash and cash equivalents(80) 2
Net (decrease) increase in cash and cash equivalents and restricted cash$(51,381) $103,950
 Nine months ended September 30,
 20212020
Net cash used in operating activities$(18,282)$(39,095)
Net cash provided by (used in) investing activities43 (17,135)
Net cash (used in) provided by financing activities(451)4,929 
Effect of changes in exchange rates on cash and cash equivalents(67)(80)
Net change in cash, cash equivalents and restricted cash$(18,757)$(51,381)
Operating Activities
Net cash used in operating activities was $39.1$18.3 million and net cash provided by operating activities was $0.5$39.1 million during the nine months ended September 30, 20202021 and 2019,2020, respectively. Consolidated net loss from continuing operations for the nine months ended September 30, 2021 and 2020, and 2019, totaled $118.8$14.3 million and $39.2$118.8 million, respectively.
During the nine months ended September 30, 2020,2021, non-cash adjustments to net income totaled $4.9 million as compared to $100.7 million. Contributorymillion for the same period of 2020.
•For the nine months ended September 30,2021, non-cash adjustments included $7.6 million benefit related to the ADM settlement, $0.8 million for depreciation, which was lower than the nine months ended September 30, 2020 due to asset impairments taken in 2020, stock based compensation of $2.7 million, JP3 PPP loan forgiveness of $0.9 million and a $0.7 million charge related to the fair value of contingent consideration.
•For the nine months ended September 30, 2020, contributory non-cash adjustments consisted primarily of $81.7$70.0 million of impairment charges which include a $30.2 million impairment of fixed assets, $32.4 million impairment of intangibles, $11.7 million impairment of goodwill and $7.4 million impairment on ROU assets. The non-cash adjustment for the provision for excess and obsolete inventory was $10.5 million. In addition, non-cash charges included $3.2 million for depreciation and amortization and $2.2 million for stock compensation expense. Other non-cash adjustments included a $3.2 million change in fair value of contingent consideration.amortization.
During the nine months ended September 30, 2019, non-cash adjustments2021, changes in working capital provided $0.9 million of cash as compared to net income totaled $31.0 million. Contributory non-cash items consisted primarily of $18.0using $21.0 million for changes to deferred income taxes driven by the valuation allowance recorded against deferred tax assets, $6.4 million for depreciation and amortization, $1.4 million amortizationsame period of deferred financing costs, $1.1 million on loss of disposal of assets, $0.8 million non-cash lease expense, and $2.8 million for stock compensation expense.2020.
During•For the nine months ended September 30, 2021, the cash provided by working capital primarily resulted from routine operations, including a reduction in accounts receivable and inventory of $2.4 million, offset by an increase of current assets of $2.8 million.
•For the nine months ended September 30, 2020, changes in working capital used $21.0 million in cash, primarily resulting from a decrease in accrued liabilities and accounts payable of $29.6 million, which included two one-time payments made in 2020: one payment of $4.1$15.8 million to amend a long-term supply agreement and one to pay $15.8$4.1 million for the final

30


post-closing working capital adjustment related to the 2019 sale of the CICT segment. Accounts receivable, inventories and other current assets decreased $8.7 million.
DuringInvesting Activities
Net cash provided by investing activities for the nine months ended September 30, 2019, changes in working capital provided $8.7 million in cash, primarily from a decrease in accrued liabilities and accounts payable of $18.6 million and an increase in other current assets of $4.0 million; partially offset by a decrease in accounts receivable, income taxes receivable and inventories of $27.5 million; and an increase in other long-term assets of $3.3 million.
Investing Activities
2021 was not material. Net cash used in investing activities was $17.1 million for the nine months ended September 30, 2020. The cashCash used in investing activities is primarily due toincluded $26.3 million paid for thefrom purchase of JP3 during the second quarter of 2020, and $0.8 million paid for capitalized sanitizer equipment upgrades in progress at September 30, 2020. The cash outflows were partially offset by proceedscash provided of $9.9$9.8 million received fromdue to the release of escrow in 2020amounts from the 2019 salesales of the CICT segment.Florida Chemical Company.
Financing Activities
Net cash provided by investingused in financing activities was $153.3$0.5 million for the nine months ended September 30, 2019. Cash provided by investing activities2021, primarily included $155.5 millionfor purchases of proceeds from sale of the CICT segment, partially offset by $1.9 million for capital expenditures and $0.6 million for the purchase of various patents.
Financing Activities
common stock related to tax withholding requirements. Net cash provided by financing activities was $4.9 million for the nine months ended September 30, 2020. Cash provided by financing activities included $4.8 million of proceeds from borrowings under the PPP and $0.4 million of proceeds2020, primarily from the sale of common stock.proceeds received from the PPP.

Off-Balance Sheet Arrangements

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Net cash used in financing activities was $49.9 millionThere 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 nine months endedpurpose of facilitating off balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2019, primarily due2021, the Company was not involved in any unconsolidated SPEs.

The Company has not made any guarantees to using $92.6 million for repayments ofcustomers or vendors nor does the revolving credit facility, partially offset by borrowings on the revolving credit facility of $43.0 million.
Contractual Obligations
Cash flows from operationsCompany have any off-balance sheet arrangements or commitments that have, or are dependent onreasonably likely to have, a variety of factors, including fluctuations in operating results, accounts receivable collections, inventory management, and the timing of payments for goods and services. Correspondingly, the impact of contractual obligationscurrent or future effect on the Company’s financial condition, change in financial condition, revenue, expenses, results of operations, liquidity, andcapital expenditures, or capital resources that would be material to investors other than the long term terpene agreement discussed in future periods is analyzedNote 13 in conjunction with such factors.Part I, Item I – Financial Statements of this Quarterly Report.
Contractual obligations at September 30, 2020, are as follows (in thousands):
 Payments Due by Period
 Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years
Finance lease obligations$202
 $70
 $96
 $36
 $—
Operating lease obligations12,492
 1,350
 2,229
 2,217
 6,696
Supply commitments for raw materials16,834
 1,974
 14,860
 —
 —
Total$29,528
 $3,394
 $17,185
 $2,253
 $6,696
Item  3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates, commodity prices and foreign currency exchange rates. There have been no material changes to the quantitative or qualitative disclosures about market risk set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of the Company’s Annual Report.
Item  4. 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 previously identified material weaknessesdeficiencies in its internal control over financial reporting relating tothat represented material weaknesses as of December 31, 2020. Specifically, the ineffectiveCompany’s management determined that the Company did not, as of December 31, 2020, design and operating effectiveness ofmaintain effective internal controls over the elimination of intercompany profits in inventory, the recording of certain intangible assets and the operating effectiveness of controls relating to impairment analyses of fixed and long-lived assets.

In addition to thefinancial reporting. The material weaknesses mentioned above, during the preparation of the financial statements for the quarter ended June 30, 2020, the Company identified an error relating to the classification of cash flows from the Florida Chemical Company sale in 2019. Specifically, errors were identified relating to the classification of proceeds from the sale and treatment of funds released from escrow subsequent to the sale. Based on these evaluations, the Company identified the material weaknesses in internal control of financial reporting relating torelate to: (1) ineffective design and operation of controls over nonrecurring transactions, including derecognitionrecognition of items and cash flow presentation relating to disposal transactions, ineffective design and operation of controls over the elimination of intercompany profits in inventory, and operating ineffectiveness of controls relating to impairment evaluations.

evaluations; (2) ineffective design and operating effectiveness over forecasts used in business combinations and impairment evaluations; and (3) the ineffective design and operating effectiveness of the assessment of going concern.
The Company believes that, notwithstanding the material weaknesses mentioned above, the consolidated financial statements contained in this Form 10-Q and its previously issued consolidated financial statements,Quarterly Report present fairly, in all material respects, the consolidated financial positions,position, results of operations, comprehensive loss, stockholders’ equity, and cash flows of the Company and its subsidiaries in conformity with generally accepted accounting principles in the United States as of the dates and for the periods stated therein.

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The Company’s management, including its principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures, as requireddefined by Rule 13a-15(e) and 15d-15(c)15d-15(e) of the Exchange


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Act as of September 30, 2020,2021, and has concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2020,2021, due to the material weaknesses in internal control over financial reporting described above.

above
Remediation Plan and Status
As of September 30, 2020,The Company has implemented remediations plan to address the material weaknesses discussed above have not been fully remediated. The Company implemented certain remediation actions during 2020 and continues to test and evaluate theidentified at December 31, 2020. Key elements of the remediation plan.
These elementsthis ongoing plan include:
Implementing•Implemented monitoring controls over the review and validation of both tangible and intangible assets.assets;
Expanding monthly close•Expanded controls over impairments of goodwill and consolidation procedures.long-lived assets;
Modifying•Enhanced specificity in the chartdesign and implementation of accounts.controls around nonrecurring, complex accounting activities, with the assistance of technical subject-matter experts;
•Implemented controls for forecasting and budgeting, to include additional process documentation and precision;
•Expanded monthly management review controls.controls; and
Expanding•Enhanced existing control procedures around the quarterly going concern analysis process.
In 2021, the Company made a strategic decision to bring internal audit in-house and hired a director of internal audit to manage internal controls over impairmentsand the remediation plan. Through a structured process of long-lived assets.
Establishing a committee that reviews material non-routine transactions.

The Company believes the actions listed above will provide appropriate remediation of the material weaknesses; however, the testing of the effectiveness of the controls has not been completed by the Company. Due to the natureand monitoring elements of the remediation process andplan, we expect the need for sufficient time after implementation to evaluate and test the effectiveness of the controls, no assurance can be given as to the timing for completion of remediation. Theidentified material weaknesses willto be fully remediated whenby the Company concludes that the controls have been operating for sufficient time and independently validated by management.end of 2021.
Changes in Internal Control Over Financial Reporting
During the second quarter of 2020, the Company acquired JP3 Measurement, LLC, a privately-held data and analytics technology company. Due to the timing of the acquisition, management does not expect that it will include the internal control processes for JP3 in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2020. The acquisition is excluded from the certifications required under the Sarbanes-Oxley Act. We will include all aspects of internal control over financial reporting for this acquisition in our 2021 assessment.
Except for the items described above, thereThere have been no changes in the Company’s system of internal control over financial reporting (identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) under the Exchange Act) during the three months ended September 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II - OTHER INFORMATION
Item  1. Legal Proceedings
Litigation
On March 26, 2021, the Company and Flotek Chemistry, LLC (“Flotek Chemistry”), a wholly-owned subsidiary of the
Company, filed a lawsuit against Archer-Daniels-Midland Company (“ADM”), Florida Chemical Company, LLC (“FCC”) and other parties in state court in Harris County, Texas. The lawsuit claims damages relating to the terpene supply agreement between Flotek Chemistry and FCC and related breaches of fiduciary duty. Contemporaneously with the filing of the suit, Flotek Chemistry delivered a notice of termination of the terpene supply agreement.

Subsequent to the lawsuit described above, on April 5, 2021, ADM and FCC filed a lawsuit in the Delaware Court of Chancery seeking to enjoin the lawsuit filed in Texas and claiming damages under the terpene supply agreement and other matters On October 29, 2021, the Company and Flotek Chemistry reached agreement with all parties resolving all claims between the parties. On or before January 3, 2022, Flotek will pay to ADM a one-time payment of $1.75 million and the terpene supply agreement is confirmed terminated, eliminating the prior obligation to purchase 10.5 million pounds of terpene through 2023. See Note 17 subsequent events for additional information.
The Company is subject to other routine litigation and other claims that arise in the normal course of business. ManagementExcept as disclosed above, 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.
Item  1A. Risk Factors

The followingThere have been no material changes to the risk factors supplement the “Risk Factors” sectionset forth in Part 1,I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on March 16, 2020:Report.

The COVID-19 pandemic has significantly reduced demand for our services and may continue to have a prolonged material adverse impact on our financial condition, results of operations and cash flows.

The effects of the COVID-19 (coronavirus) pandemic, including actions taken by businesses and governments, have resulted in a significant and continued reduction in international and U.S. economic activity. These effects have materially and adversely affected, and may continue to materially and adversely affect, the demand for oil and natural gas, as well as for our services and products. The decline in our customers’ demand for our services and products is likely to have a material adverse impact on our financial condition, results of operations and cash flows. In addition, we have adopted social distancing and work-from-home procedures, which have had and may continue to have an impact on the ability of employees and management of the Company to communicate and work efficiently. We expect such impact will continue to have certain negative effects on the Company’s business.

While the full impact and duration of the COVID-19 outbreak is not yet known, we are closely monitoring the effects of the pandemic on commodity demands and on our customers, as well as on our operations and employees. Any future development and effects are highly uncertain and cannot be predicted, including the scope and duration of the pandemic; further adverse revenue, accounts receivable aging and collections, and net income effects; disruptions to our operations; third-party providers’ ability to support our operations; customer shutdowns of oil and gas exploration and production; the effectiveness of our work from home arrangements; employee impacts from illness, school closures and other community response measures; any actions taken by governmental authorities and other third parties in response to the pandemic; and temporary closures of our facilities or the facilities of our customers and suppliers. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity and/or capital levels.

The Company’s sanitizer-related business may be negatively affected by uncertain market conditions and COVID-19 related impacts.
The demand for the Company’s sanitizer products is dependent on many factors, including the heightened hygiene awareness, customer’s behavior changes in response to COVID-19 and market participants in the premium sanitizer space. A change in health care and hygiene behavior in response to widespread vaccine availability, relaxed attitudes towards sanitization, unproven consumer reception of the Company’s new products, or new entrants into the premium sanitizer market, may adversely affect the demand for the Company’s sanitizer products and may have a material adverse impact on our financial condition, results of operations and cash flows.
The Company’s Data Analytics segment may be negatively affected by government regulations and/or facility disruptions.
The demand for the Company’s equipment and services offerings in its Data Analytics segment could be affected by additional regulations on the upstream, midstream and downstream portions of the oil and gas sectors. Additional regulation on oil and gas production, transportation or processing of hydrocarbons may result in reduced demand for the Company’s 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, the Company’s products are subject to export control laws and regulations, and changes to those laws and regulations may negatively impact the Company’s ability to pursue international opportunities. Disruptions to pipelines and refineries, whether due to regulation, weather, demand or other factors may also have an adverse effect on the Company’s ability to derive revenue from its Data Analytics segment. Adjustments to the segment’s commercial strategy, with a shift towards subscription revenue and away from equipment sales, and the market’s response to that strategy may adversely affect revenues in the near term, even if the strategic shift is successful, due to longer payback periods on subscription models.


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Loss of key suppliers, the inability to secure raw materials on a timely basis, or the Company’s inability to pass commodity price increases on to customers could have an adverse effect on the Company’s ability to service customers’ needs and could result in a 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 Company facilities have historically been impacted by extreme weather conditions. Certain raw materials used by the Chemistry Technologies segment are available only from limited sources; accordingly, any disruptions to critical suppliers’ operations could adversely impact the Company’s operations. Prices paid for raw materials could be affected by energy products and other commodity prices; weather and disease associated with the Company’s crop dependent raw materials, specifically citrus greening; tariffs and duties on imported materials; foreign currency exchange rates; and phases of the general business cycle and global demand. The Chemistry Technologies segment secures short- and long-term supply agreements for most of its critical raw materials from both domestic and international vendors.
The prices of key raw materials 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 its raw materials may impact prices. The Company may be unable to pass along price increases to its customers, which could result in an adverse impact on margins and operating profits. The Company currently uses purchasing strategies designed, where possible, to align the timing of customer demand with our supply commitments. However, the Company currently does not hedge commodity prices, but may consider such strategies in the future, and there is no guarantee that the Company’s purchasing strategies will prevent cost increases from resulting in adverse impacts on margins and operating profits.
The Company’s Data Analytics 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. The inability to source appropriate components in the future could result in difficulty supplying equipment or services to customers.









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Item  2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities

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 exercise price of the options. When this settlement method is elected by the employee, the Company repurchases the shares withheld upon vesting of the award stock.

On June 9, 2020, the board of directors of the Company rescinded the authorization to repurchase the Company’s stock that had been previously approved in June 2015.

Repurchases of the Company’s equity securities during the three months ended September 30, 20202021, 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
July 1, 2021 to July 31, 2021— —
August 1, 2021 to August 31, 202140,385 $1.63
September 1, 2021 to September 30, 202124,279 $1.30
Total64,664 
(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.

Period
Total Number of Shares Purchased (1)
 Average Price Paid per Share
July 1, 2020 to July 31, 20203,621
 $1.24
August 1, 2020 to August 31, 202016,381
 $1.50
September 1, 2020 to September 30, 2020—
 $—
Total20,002
 
(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.

Item  3. Defaults Upon Senior Securities
None.

Item  4. Mine Safety Disclosures

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Not applicable.

Item  5. Other Information
None.


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Item  6. Exhibits
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).1
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 2.1 to the Company’s Form 8-K filed on May 19, 2020).1

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 Certificate of Incorporation of Flotek Industries, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 7, 2020).
3.4
Second Amended and Restated Bylaws, dated October 11, 2017as amended (incorporated by reference to Exhibit 3.13.4 to the Company’s Form 8-K10-K filed on October 17, 2017)March 16, 2021).
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).
10.1
Employment Agreement dated July 29, 2020,October 15, 2021, between the Company and Michael E. Borton (incorporated (incorporatedbyreference to Exhibit 10.1 to the Company’s Form 8-K filed on July 30, 2020).October 20, 2021.)


31.110.2*
Employment Agreement dated October 15, 2021, between the Company and TengBeng Koid (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K on October 20, 2021.)
31.1*
Rule 13a-14(a) Certification of Principal Executive Officer.
31.2*
Rule 13a-14(a) Certification of Principal Financial Officer.
32.1
32.1**
Section 1350 Certification of Principal Executive Officer.
32.2**
Section 1350 Certification of Principal Financial Officer.
101.INS*XBRL Instance Document.
101.SCH101**XBRL Schema Document. The following financial information from Flotek Industries, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Unaudited Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020, (ii) the Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021 and 2020, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2021 and 2020, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, (v) the Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2021 and 2020, and (vi) Notes to Condensed Consolidated Financial Statements.
101.CAL104*XBRL Calculation Linkbase Document.
101.LAB*XBRL Label Linkbase Document.
101.PRE*XBRL Presentation Linkbase Document.
101.DEF*XBRL Definition Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Filed herewith.
**
This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

1Schedules have been omitted pursuant to Item 601(b)(2)601(a)(5) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.



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SIGNATURES
Pursuant to the requirements 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/    JOHN W. GIBSON, JR.
John W. Gibson, Jr.
President, Chief Executive Officer and
Chairman of the Board
FLOTEK INDUSTRIES, INC.
Date:
By:/s/    JOHN W. GIBSON, JR.
John W. Gibson, Jr.
President, Chief Executive Officer and
Chairman of the Board
Date:November 16, 20209, 2021
 
FLOTEK INDUSTRIES, INC.
By:/s/ MICHAEL E. BORTON
Michael E. Borton
Chief Financial Officer
FLOTEK INDUSTRIES, INC.
Date:
By:/s/ MICHAEL E. BORTON
Michael E. Borton
Chief Financial Officer
Date:November 16, 20209, 2021


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