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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM | 10-K/A
Amendment No. 2
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the fiscal year ended | December 31, 2019 |
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)

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
(Address of principal executive offices) | (Zip Code)

(713) 849-9911
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $0.0001 par value | FTK | New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark:
• if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
• if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
• 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 ☐
• 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 ☐
• 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 Act.
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. ☐
• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 28, 2019 (based on the closing market price on the NYSE Composite Tape on June 28, 2019) was approximately $150,815,000. At March 3, 2020, there were 58,951,784 outstanding shares of the registrant’s common stock, $0.0001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
None.

EXPLANATORY NOTE
This Amendment No. 2 on Form 10-K/A (this “Amendment No 2”) amends Flotek Industries, Inc.’s (the “Company”)’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 6, 2020 (the “Original 2019 Form 10-K”), and amended by the Amendment No. 1 to the Original 2019 Form 10-K, filed with the SEC on March 16, 2020 (the”Original 2019 Form 10-K, as amended”). However, this amendment does not change our consolidated financial statements as set forth in the Original 2019 Form 10-K, as amended.
The purpose of this Amendment No. 2 is to (i) revise the “Report of Independent Registered Public Accounting Firm” of Moss Adams LLP appearing in “Part II, Item 8, Financial Statements and Supplementary Data” regarding the effectiveness of our internal control over financial reporting and (ii) revise the disclosure in Part II, Item 9A, Controls and Procedures, to reflect management’s conclusion that our disclosure controls and procedures and our internal control over financial reporting were not effective at December 31, 2019 due to certain material weaknesses in our internal control over financial reporting identified subsequent to the filing of our Original 2019 Form 10-K, as amended. Notwithstanding the material weaknesses mentioned above, we believe that our consolidated financial statements as set forth in the Original 2019 Form 10-K, as amended, present fairly, in all material respects, the consolidated financial position, results of operations 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. Part IV, Item 15, “Exhibits and Financial Statement Schedules,” has been amended to include a revised auditor consent and currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002. The certifications are attached to this Amendment No. 2 as Exhibits 31.1, 31.2, 32.1 and 32.2.
Other than the inclusion within this Amendment No. 2 of new certifications by management and a new consent of our independent registered public accounting firm (and related amendment to the exhibit index that is incorporated by reference into Part IV, Item 15 of the Original 2019 Form 10-K, as amended, to reflect the addition of such certifications and consent and related changes to the footnotes to that exhibit index), this Amendment No. 2 speaks only as of the date of the Original 2019 Form 10-K and does not modify or update any other disclosures contained in our Original 2019 Form 10-K, as amended. This Amendment No. 2 should be read in conjunction with the Original 2019 Form 10-K, as amended, and reports filed with the SEC subsequent to the Original 2019 Form 10-K.
TABLE OF CONTENTS

PART II | 3
Item 8. | Financial Statements and Supplementary Data | 3
Item 9A. | Controls and Procedures | 38
PART IV | 40
Item 15. | Exhibits and Financial Statement Schedules | 40
SIGNATURES | 42

FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) contains “forward-looking statements” within the meaning of the safe harbor provisions, 15 U.S.C. § 78u-5, of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent the Company’s current assumptions and beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside the Company’s control. The forward-looking statements contained in this Annual Report are based on information available as of the date of this Annual 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, future operating results and liquidity. These forward-looking statements generally are identified by
words such as “anticipate,” “believe,” “estimate,” “continue,” “intend,” “expect,” “plan,” “forecast,” “project” and similar expressions, or future-tense or conditional constructions such as “will,” “may,” “should,” “could” and “would,” or the negative thereof or other variations thereon or comparable terminology. The Company cautions that these statements are merely predictions and are not to be considered guarantees of future performance. Forward-looking statements 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.
The Company has no 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.
2

PART II
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Flotek Industries, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Flotek Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 6 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification Topic No. 842.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment in Item 9A:

• | The Company did not design and maintain effective internal controls to detect or prevent errors in the elimination

3

of intercompany profits in inventory.

• | The Company did not design and maintain effective internal controls to ensure that it has the legal right to the intangible assets included in its financial statements.

We considered the material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the Company’s consolidated financial statements as of and for the year ended December 31, 2019, and our opinion on such consolidated financial statements was not affected.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Moss Adams LLP
Houston, Texas
March 6, 2020, except with respect to our opinion on internal control over financial reporting insofar as it relates to the effects of the matters described in Management’s Report on Internal Control over Financial Reporting, as to which the date is June 10, 2020
We served as the Company’s auditor from 2017 to 2020.
4

FLOTEK INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

| December 31,
| 2019 |  | 2018
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 100,575 |  |  | $ | 3,044 |
Restricted cash | 663 |  |  | — |
Accounts receivable, net of allowance for doubtful accounts of $1,527 and $1,190 at December 31, 2019 and 2018, respectively | 15,638 |  |  | 37,047 |
Inventories, net | 21,697 |  |  | 27,289 |
Income taxes receivable | 631 |  |  | 3,161 |
Assets held for sale | — |  |  | 118,470 |
Other current assets | 13,191 |  |  | 5,771 |
Total current assets | 152,395 |  |  | 194,782 |
Property and equipment, net | 39,829 |  |  | 45,485 |
Operating lease right-of-use assets | 16,388 |  |  | — |
Deferred tax assets, net | 152 |  |  | 18,663 |
Other intangible assets, net | 23,083 |  |  | 26,827 |
Other long-term assets | — |  |  | 126 |
TOTAL ASSETS | $ | 231,847 |  |  | $ | 285,883 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 16,231 |  |  | $ | 15,011 |
Accrued liabilities | 24,552 |  |  | 10,335 |
Interest payable | — |  |  | 8 |
Liabilities held for sale | — |  |  | 9,174 |
Current portion of lease liabilities | 541 |  |  | — |
Long-term debt, classified as current | — |  |  | 49,731 |
Total current liabilities and total liabilities | 41,324 |  |  | 84,259 |
Long-term operating lease liabilities | 16,973 |  |  |
Long-term finance lease liabilities | 158 |  |  | — |
Deferred tax liabilities, net | 116 |  |  | — |
TOTAL LIABILITIES | 58,571 |  |  | 84,259 |
Commitments and contingencies (Note16) |  |  |
Stockholders’ Equity: |  |  |
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding | — |  |  | — |
Common stock, $0.0001 par value, 80,000,000 shares authorized; 63,656,897 shares issued and 57,882,396 shares outstanding at December 31, 2019; 62,162,875 shares issued and 57,342,279 shares outstanding at December 31, 2018 | 6 |  |  | 6 |
Additional paid-in capital | 347,564 |  |  | 343,536 |
Accumulated other comprehensive income (loss) | (966 | ) |  | (1,116 | )
Retained earnings (accumulated deficit) | (139,844 | ) |  | (107,565 | )
Treasury stock, at cost; 4,145,481 and 3,770,224 shares at December 31, 2019 and 2018, respectively | (33,484 | ) |  | (33,237 | )
Total stockholders’ equity | 173,276 |  |  | 201,624 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 231,847 |  |  | $ | 285,883 |

See accompanying Notes to Consolidated Financial Statements.
5

FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

| Year ended December 31,
| 2019 |  | 2018 |  | 2017
Revenue | $ | 119,353 |  |  | $ | 177,773 |  |  | $ | 243,106 |
Costs and expenses: |  |  |  |  |
Operating expenses (excluding depreciation and amortization) | 149,225 |  |  | 159,808 |  |  | 188,744 |
Corporate general and administrative | 27,975 |  |  | 31,467 |  |  | 41,492 |
Depreciation and amortization | 8,465 |  |  | 9,216 |  |  | 9,768 |
Research and development | 8,863 |  |  | 10,356 |  |  | 13,130 |
(Gain) loss on disposal of long-lived assets | 1,450 |  |  | (443 | ) |  | 292 |
Impairment of goodwill | — |  |  | 37,180 |  |  | — |
Total costs and expenses | 195,978 |  |  | 247,584 |  |  | 253,426 |
Loss from operations | (76,625 | ) |  | (69,811 | ) |  | (10,320 | )
Other (expense) income: |  |  |  |  |
Interest expense | (2,019 | ) |  | (2,866 | ) |  | (2,168 | )
Loss on sale of business | — |  |  | (360 | ) |  | — |
Loss on write-down of assets held for sale | — |  |  | (2,580 | ) |  | — |
Other (expense) income, net | 1,708 |  |  | (5,040 | ) |  | 1,096 |
Total other expense | (311 | ) |  | (10,846 | ) |  | (1,072 | )
Loss before income taxes | (76,936 | ) |  | (80,657 | ) |  | (11,392 | )
Income tax benefit (expense) | 201 |  |  | 7,216 |  |  | (6,112 | )
Loss from continuing operations | (76,735 | ) |  | (73,441 | ) |  | (17,504 | )
Income (loss) from discontinued operations, net of tax | 44,456 |  |  | 2,743 |  |  | (9,891 | )
Net loss | (32,279 | ) |  | (70,698 | ) |  | (27,395 | )
Net loss attributable to noncontrolling interests | — |  |  | 358 |  |  | — |
Net loss attributable to Flotek Industries, Inc. (Flotek) | $ | (32,279 | ) |  | $ | (70,340 | ) |  | $ | (27,395 | )
Amounts attributable to Flotek shareholders: |  |  |  |  |
Loss from continuing operations | $ | (76,735 | ) |  | $ | (73,083 | ) |  | $ | (17,504 | )
Income (loss) from discontinued operations, net of tax | 44,456 |  |  | 2,743 |  |  | (9,891 | )
Net loss attributable to Flotek | $ | (32,279 | ) |  | $ | (70,340 | ) |  | $ | (27,395 | )
Basic earnings (loss) per common share: |  |  |  |  |
Continuing operations | $ | (1.31 | ) |  | $ | (1.26 | ) |  | $ | (0.30 | )
Discontinued operations, net of tax | 0.76 |  |  | 0.05 |  |  | (0.17 | )
Basic earnings (loss) per common share | $ | (0.55 | ) |  | $ | (1.21 | ) |  | $ | (0.47 | )
Diluted earnings (loss) per common share: |  |  |  |  |
Continuing operations | $ | (1.31 | ) |  | $ | (1.26 | ) |  | $ | (0.30 | )
Discontinued operations, net of tax | 0.76 |  |  | 0.05 |  |  | (0.17 | )
Diluted earnings (loss) per common share | $ | (0.55 | ) |  | $ | (1.21 | ) |  | $ | (0.47 | )
Weighted average common shares: |  |  |  |  |
Weighted average common shares used in computing basic earnings (loss) per common share | 58,750 |  |  | 57,995 |  |  | 57,580 |
Weighted average common shares used in computing diluted earnings (loss) per common share | 58,750 |  |  | 57,995 |  |  | 57,580 |

See accompanying Notes to Consolidated Financial Statements.
6

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

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Loss from continuing operations | $ | (76,735 | ) |  | $ | (73,441 | ) |  | $ | (17,504 | )
Income (loss) from discontinued operations, net of tax | 44,456 |  |  | 2,743 |  |  | (9,891 | )
Net loss | (32,279 | ) |  | (70,698 | ) |  | (27,395 | )
Other comprehensive income (loss): |  |  |  |  |
Foreign currency translation adjustment | 150 |  |  | (232 | ) |  | 72 |
Comprehensive loss | (32,129 | ) |  | (70,930 | ) |  | (27,323 | )
Net loss attributable to noncontrolling interests | — |  |  | 358 |  |  | — |
Comprehensive loss attributable to Flotek | $ | (32,129 | ) |  | $ | (70,572 | ) |  | $ | (27,323 | )

See accompanying Notes to Consolidated Financial Statements.
7

FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED
DECEMBER 31, 2019, 2018 AND 2017
(in thousands)

| Common Stock |  | Treasury Stock |  | Additional Paid-in Capital |  | Accumulated Other Comprehensive Income (Loss) |  | Retained Earnings (Accumulated Deficit) |  | Non-controlling Interests |  | Total Stockholders’ Equity
| Shares Issued |  | Par Value |  | Shares |  | Cost |
Balance, December 31, 2016 | 59,685 |  |  | $ | 6 |  |  | 2,029 |  |  | $ | (20,269 | ) |  | $ | 318,392 |  |  | $ | (956 | ) |  | $ | (9,830 | ) |  | $ | 358 |  |  | $ | 287,701 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (27,395 | ) |  | — |  |  | (27,395 | )
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 72 |  |  | — |  |  | — |  |  | 72 |
Stock issued under employee stock purchase plan | — |  |  | — |  |  | (113 | ) |  | — |  |  | 654 |  |  | — |  |  | — |  |  | — |  |  | 654 |
Common stock issued in payment of accrued liability | — |  |  | — |  |  | — |  |  | — |  |  | 188 |  |  | — |  |  | — |  |  | — |  |  | 188 |
Stock options exercised | 663 |  |  | — |  |  | — |  |  | — |  |  | 5,884 |  |  | — |  |  | — |  |  | — |  |  | 5,884 |
Restricted stock awards granted | 275 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Restricted stock forfeited | — |  |  | — |  |  | 122 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Treasury stock purchased | — |  |  | — |  |  | 200 |  |  | (1,729 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,729 | )
Stock surrendered for exercise of stock options | — |  |  | — |  |  | 478 |  |  | (5,863 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,863 | )
Stock compensation expense | — |  |  | — |  |  | — |  |  | — |  |  | 10,949 |  |  | — |  |  | — |  |  | — |  |  | 10,949 |
Repurchase of common stock | — |  |  | — |  |  | 905 |  |  | (5,203 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,203 | )
Balance, December 31, 2017 | 60,623 |  |  | $ | 6 |  |  | 3,621 |  |  | $ | (33,064 | ) |  | $ | 336,067 |  |  | $ | (884 | ) |  | $ | (37,225 | ) |  | $ | 358 |  |  | $ | 265,258 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (70,340 | ) |  | (358 | ) |  | (70,698 | )
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (232 | ) |  | — |  |  | — |  |  | (232 | )
Stock issued under employee stock purchase plan | — |  |  | — |  |  | (111 | ) |  | — |  |  | 341 |  |  | — |  |  | — |  |  | — |  |  | 341 |
Restricted stock awards granted | 1,540 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Restricted stock forfeited | — |  |  | — |  |  | 158 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Treasury stock purchased | — |  |  | — |  |  | 102 |  |  | (173 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | (173 | )
Stock compensation expense | — |  |  | — |  |  | — |  |  | — |  |  | 7,128 |  |  | — |  |  | — |  |  | — |  |  | 7,128 |
Balance, December 31, 2018 | 62,163 |  |  | $ | 6 |  |  | 3,770 |  |  | $ | (33,237 | ) |  | $ | 343,536 |  |  | $ | (1,116 | ) |  | $ | (107,565 | ) |  | $ | — |  |  | $ | 201,624 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (32,279 | ) |  |  |  |  | (32,279 | )
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 150 |  |  | — |  |  | — |  |  | 150 |
Stock issued under employee stock purchase plan | — |  |  | — |  |  | (18 | ) |  | — |  |  | 35 |  |  | — |  |  | — |  |  | — |  |  | 35 |
Restricted stock awards granted | 924 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Restricted stock forfeited | — |  |  | — |  |  | 299 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Restricted stock units granted | 570 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Treasury stock purchased | — |  |  | — |  |  | 94 |  |  | (247 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | (247 | )
Stock compensation expense | — |  |  | — |  |  | — |  |  | — |  |  | 3,993 |  |  | — |  |  | — |  |  | — |  |  | 3,993 |
Balance, December 31, 2019 | 63,657 |  |  | $ | 6 |  |  | 4,145 |  |  | $ | (33,484 | ) |  | $ | 347,564 |  |  | $ | (966 | ) |  | $ | (139,844 | ) |  | $ | — |  |  | $ | 173,276 |

See accompanying Notes to Consolidated Financial Statements.
8

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

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Cash flows from operating activities: |  |  |  |  |
Net loss attributable to Flotek Industries, Inc. (Flotek) | $ | (32,279 | ) |  | $ | (70,340 | ) |  | $ | (27,395 | )
Income (loss) from discontinued operations, net of tax | 44,456 |  |  | 2,743 |  |  | (9,891 | )
Loss from continuing operations | (76,735 | ) |  | (73,083 | ) |  | (17,504 | )
Adjustments to reconcile loss from continuing operations to net cash (used in) provided by operating activities: |  |  |  |  |
Depreciation and amortization | 8,465 |  |  | 9,216 |  |  | 9,768 |
Amortization of deferred financing costs | 1,428 |  |  | 400 |  |  | 472 |
Provision for doubtful accounts | 512 |  |  | 839 |  |  | 157 |
Provision for excess and obsolete inventory | 5,659 |  |  | 2,418 |  |  | 388 |
Loss on sale of business | — |  |  | 360 |  |  | — |
Loss on write-down of assets held for sale | — |  |  | 2,580 |  |  | — |
(Gain) loss on sale of assets | 1,450 |  |  | (443 | ) |  | 292 |
Impairment of goodwill | — |  |  | 37,180 |  |  | — |
Stock compensation expense | 4,235 |  |  | 7,050 |  |  | 10,643 |
Deferred income tax (benefit) provision | 18,307 |  |  | (5,950 | ) |  | 181 |
Reduction in tax benefit related to share-based awards | 24 |  |  | 709 |  |  | 1,989 |
Non-cash lease expense | 740 |  |  | — |  |  | — |
Changes in current assets and liabilities: |  |  |  |  |
Accounts receivable, net | 20,993 |  |  | (2,606 | ) |  | 4,076 |
Inventories | (65 | ) |  | 2,597 |  |  | (3,442 | )
Income taxes receivable | 2,546 |  |  | (1,116 | ) |  | 8,008 |
Other current assets | (8,359 | ) |  | 3,177 |  |  | 12,001 |
Accounts payable | 1,131 |  |  | 4,631 |  |  | (8,528 | )
Accrued liabilities | 908 |  |  | (8,740 | ) |  | (6,175 | )
Interest payable | (8 | ) |  | (35 | ) |  | 19 |
Net cash (used in) provided by operating activities | (18,769 | ) |  | (20,816 | ) |  | 12,345 |
Cash flows from investing activities: |  |  |  |  |
Capital expenditures | (2,411 | ) |  | (3,559 | ) |  | (4,197 | )
Proceeds from sale of businesses | 169,722 |  |  | 1,665 |  |  | 18,490 |
Proceeds from sale of assets | 240 |  |  | 1,387 |  |  | 689 |
Purchase of patents and other intangible assets | (614 | ) |  | (1,602 | ) |  | (456 | )
Net cash provided (used in) by investing activities | 166,937 |  |  | (2,109 | ) |  | 14,526 |
Cash flows from financing activities: |  |  |  |  |
Repayments of indebtedness | — |  |  | — |  |  | (9,833 | )
Borrowings on revolving credit facility | 42,984 |  |  | 277,599 |  |  | 383,160 |
Repayments on revolving credit facility | (92,715 | ) |  | (255,818 | ) |  | (393,776 | )
Debt issuance costs | — |  |  | (111 | ) |  | (579 | )
Payments for finance leases | (51 | ) |  | — |  |  | — |
Purchase of treasury stock | (247 | ) |  | (173 | ) |  | (1,729 | )
Proceeds from sale of common stock | 35 |  |  | 341 |  |  | 654 |
Repurchase of common stock | — |  |  | — |  |  | (5,203 | )
Proceeds from exercise of stock options | — |  |  | — |  |  | 21 |
Loss from noncontrolling interest | — |  |  | (358 | ) |  | — |
Net cash (used in) provided financing activities | (49,994 | ) |  | 21,480 |  |  | (27,285 | )
Discontinued operations: |  |  |  |  |
Net cash provided by (used in) operating activities | (322 | ) |  | 1,296 |  |  | 4,102 |
Net cash provided by (used in) investing activities | 337 |  |  | (1,303 | ) |  | (4,078 | )
Net cash flows provided by (used in) provided by discontinued operations | 15 |  |  | (7 | ) |  | 24 |
Effect of changes in exchange rates on cash and cash equivalents | 5 |  |  | (88 | ) |  | 151 |
Net change in cash, cash equivalents and restricted cash | 98,194 |  |  | (1,540 | ) |  | (239 | )
Cash, cash equivalents and restricted cash at beginning of year | 3,044 |  |  | 4,584 |  |  | 4,823 |
Cash, cash equivalents and restricted cash at end of year | $ | 101,238 |  |  | $ | 3,044 |  |  | $ | 4,584 |

See accompanying Notes to Consolidated Financial Statements.
9

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Nature of Operations
Flotek Industries, Inc. (“Flotek” or the “Company”) is a global, diversified, technology-driven company that develops and supplies chemistries and services to the oil and gas industries. Flotek also supplied high value compounds to companies that make food and beverages, cleaning products, cosmetics, and other products that are sold in consumer and industrial markets, classified as discontinued operations at December 31, 2018.
The Company’s oilfield business 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. Activities in this segment also include construction and management of automated material handling facilities as well as management of loading facilities and blending operations for oilfield services companies. In the segment reported as discontinued operations at December 31, 2018, the Company processed citrus oil to produce (1) high
value compounds used as additives by companies in the flavors and fragrances markets and (2) environmentally friendly chemistries for use in numerous industries around the world, including the oil and gas industry.
Flotek operates in seven domestic and international markets. Customers 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. The Company also served customers who purchase non-energy-related citrus oil and related products, including household and commercial cleaning product companies, fragrance and cosmetic companies, and food manufacturing companies, in the segment reported as discontinued operations at December 31, 2018.
Flotek was initially incorporated under the laws of the Province of British Columbia on May 17, 1985. On October 23, 2001, Flotek changed its corporate domicile to the state of Delaware.

Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements include the accounts of Flotek Industries, Inc. and all wholly-owned subsidiary corporations. Where Flotek owns less than 100% of the share capital of its subsidiaries, but is still considered to have sufficient ownership to control the business, results of the business operations are consolidated within the Company’s financial statements. The ownership interests held by other parties are shown as noncontrolling interests.
During the fourth quarter of 2018, the Company classified the Consumer and Industrial Chemistry Technologies segment as held for sale based on management’s intention to sell this business, which occurred in January 2019. The Company’s historical financial statements have been revised to present the operating results of the Consumer and Industrial Chemistry Technologies segment as discontinued operations. The results of operations of this segment are presented as “Income (loss) from discontinued operations” in the statement of operations and the related cash flows of this segment have been reclassified to discontinued operations for all periods presented. The assets and liabilities of the Consumer and Industrial Chemistry Technologies segment have been reclassified to “Assets held for sale” and “Liabilities held for
sale”, respectively, in the consolidated balance sheet for all periods presented.
During 2017, the Company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of each of the Drilling Technologies and Production Technologies segments.
All significant intercompany accounts and transactions have been eliminated in consolidation. The Company does not have investments in any unconsolidated subsidiaries.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less at the date of purchase.
Cash Management
The Company uses a controlled disbursement account for its main cash account. Under this system, outstanding checks can be in excess of the cash balances at the bank before the disbursement account is funded, creating a book overdraft. Book overdrafts on this account are presented as a current liability in accounts payable in the consolidated balance sheets.
10

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable arise from product sales and services and are stated at estimated net realizable value. This value incorporates an allowance for doubtful accounts to reflect any loss anticipated on accounts receivable balances. The Company regularly evaluates its accounts receivable to estimate amounts that will not be collected and records the appropriate provision for doubtful accounts as a charge to operating expenses. The allowance for doubtful accounts is based on a combination of the age of the receivables, individual customer circumstances, credit conditions, and historical
write-offs and collections. The Company writes off specific accounts receivable when they are determined to be uncollectible.
The majority of the Company’s customers are engaged in the energy industry. The cyclical nature of the energy industry may affect customers’ operating performance and cash flows, which directly impact the Company’s ability to collect on outstanding obligations. Additionally, certain customers are located in international areas that are inherently subject to risks of economic, political, and civil instability, which can impact the collectability of receivables.

Changes in the allowance for doubtful accounts for continuing operations are as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Balance, beginning of year | $ | 1,190 |  |  | $ | 673 |  |  | $ | 579 |
Charged to provision for doubtful accounts, net of recoveries | 512 |  |  | 839 |  |  | 157 |
Write-offs | (175 | ) |  | (322 | ) |  | (63 | )
Balance, end of year | $ | 1,527 |  |  | $ | 1,190 |  |  | $ | 673 |

Inventories
Inventories consist of raw materials, work-in-process, and finished goods and are stated at the lower of cost, determined using the weighted-average cost method, or net realizable value. Finished goods inventories include raw materials, direct labor, and production overhead. The Company quarterly reviews inventories on hand and current market conditions to determine if the cost of finished goods inventories exceeds current market prices and impairs the cost basis of the inventory accordingly. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated market value if those amounts are determined to be less than cost.
Property and Equipment
Property and equipment are stated at cost. The cost of ordinary maintenance and repair is charged to operating expense, while replacement of critical components and major improvements are capitalized. Depreciation or amortization of property and equipment, including assets held under capital leases, is calculated using the straight-line method over the asset’s estimated useful life as follows:

Buildings and leasehold improvements | 2-30 years
Machinery and equipment | 7-10 years
Furniture and fixtures | 3 years
Transportation equipment | 2-5 years
Computer equipment and software | 3-7 years

Property and equipment are reviewed for impairment on an quarterly basis or whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. Indicative events or circumstances include, but are not limited to, matters such as a significant decline in market value or a significant change in business climate. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows from the use of the asset and its eventual disposition. The amount of impairment loss recognized is the excess of the asset’s carrying amount over its fair value. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less cost to sell. Upon sale or other disposition of an asset, the Company recognizes a gain or loss on disposal measured as the difference between the net carrying amount of the asset and the net proceeds received.
Internal Use Computer Software Costs
Direct costs incurred to purchase and develop computer software for internal use are capitalized during the application development and implementation stages. These software costs have been primarily for enterprise-level business and finance software that is customized to meet the Company’s specific operational needs. Capitalized costs are included in property and equipment and are amortized on a straight-line basis over the estimated useful life of the software beginning when the software project is substantially complete and placed in service. Costs incurred during the preliminary project stage and costs for training, data conversion, and maintenance are expensed as incurred.
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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company amortizes software costs using the straight-line method over the expected life of the software, generally three to seven years. The unamortized amount of capitalized software was $1.0 million at December 31, 2019.
Goodwill
Goodwill is the excess of cost of an acquired entity over the amounts assigned to identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not subject to amortization, but is tested for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate a potential impairment. These circumstances may include an adverse change in the business climate or a change in the assessment of future operations of a reporting unit.
The Company assesses whether a goodwill impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, based on this qualitative assessment, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company does not perform a quantitative assessment.
If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative impairment test is performed to determine whether goodwill impairment exists at the reporting unit.
The quantitative impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the estimated fair value of each reporting unit with goodwill to its carrying amount, including goodwill. To determine fair value estimates, the Company uses the income approach based on discounted cash flow analyses, combined, when appropriate, with a market-based approach. The market-based approach considers valuation comparisons of recent public sale transactions of similar businesses and earnings multiples of publicly traded businesses operating in industries consistent with the reporting unit. If the carrying amount of a reporting unit, including goodwill, exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit.
Other Intangible Assets
The Company’s other intangible assets have finite and indefinite lives and consist of customer relationships, trademarks, brand names, and purchased patents.
The cost of intangible assets with finite lives is amortized using the straight-line method over the estimated period of economic
benefit, ranging from two to 95 years. Asset lives are adjusted whenever there is a change in the estimated period of economic benefit. No residual value has been assigned to these intangible assets.
Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. These conditions may include a change in the extent or manner in which the asset is being used or a change in future operations. The Company assesses the recoverability of the carrying amount by preparing estimates of future revenue, margins, and cash flows. If the sum of expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, an impairment loss is recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flow models.
Intangible assets with indefinite lives are not subject to amortization, but are tested for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate a potential impairment. These circumstances may include, but are not limited to, a significant adverse change in the business climate, unanticipated competition, or a change in projected operations or results of a reporting unit.
The Company assesses whether an indefinite lived intangible impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of the indefinite lived intangible is less than its carrying amount. If, based on this qualitative assessment, it is determined that it is not more likely than not that the fair value of the indefinite lived intangible is less than its carrying amount, the Company does not perform a quantitative assessment.
If the qualitative assessment indicates that it is more likely than not that the indefinite-lived intangible asset is impaired or if the Company elects to not perform a qualitative assessment, the Company then performs the quantitative impairment test. The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Fair value of these assets may be determined by a variety of methodologies, including discounted cash flows.
Business Combinations
The Company includes the results of operations of its acquisitions in its consolidated results, prospectively from the date of acquisition. Acquisitions are accounted for by applying the acquisition method. The Company allocates the fair value of purchase consideration to the assets acquired, liabilities
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assumed, and any noncontrolling interests in the acquired entity generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed, and any noncontrolling interests in the acquired entity is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the acquired company and Flotek and the value of the acquired assembled workforce. Acquisition-related expenses are recognized separately from the business acquisition and are recognized as expenses as incurred.
Fair Value Measurements
The Company categorizes financial assets and liabilities using a three-tier fair value hierarchy, based on the nature of the inputs used to determine fair value. Inputs refer broadly to assumptions market participants would use to value an asset or liability and may be observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). “Level 1” measurements are measurements using quoted prices in active markets for identical assets and liabilities. “Level 2” measurements are measurements using quoted prices in markets that are not active or that are based on quoted prices for similar assets or liabilities. “Level 3” measurements are measurements that use significant unobservable inputs which require a company to develop its own assumptions. When determining the fair value of assets and liabilities, the Company uses the most reliable measurement available.
Revenue Recognition
The Company recognizes revenues to depict the transfer of control of promised goods or services to its customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Refer to Note 4 – “Revenue from Contracts with Customers” for further discussion on Revenue.
The Company recognizes revenue based on the Accounting Standards Codification (“ASC”) 606 five-step model when all of the following criteria have been met: (i) a contract with a customer exists, (ii) performance obligations have been identified, (iii) the price to the customer has been determined, (iv) the price to the customer has been allocated to the performance obligations, and (v) performance obligations are satisfied.
Products and services are sold with fixed or determinable prices. Certain sales include right of return provisions, which are considered when recognizing revenue and deferred accordingly. Deposits and other funds received in advance of delivery are deferred until the transfer of control is complete.
For certain contracts, the Company recognizes revenue under the percentage-of-completion method of accounting, measured by the percentage of “costs incurred to date” to the
“total estimated costs of completion.” This percentage is applied to the “total estimated revenue at completion” to calculate proportionate revenue earned to date. For the years ended December 31, 2019, 2018, and 2017, the percentage-of-completion revenue accounted for less than 0.1% of total revenue during the respective time periods.
As an accounting policy election, the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenues.
Foreign Currency Translation
Financial statements of foreign subsidiaries are prepared using the currency of the primary economic environment of the foreign subsidiaries as the functional currency. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the end of identified reporting periods. Revenue and expense transactions are translated using the average monthly exchange rate for the reporting period. Resultant translation adjustments are recognized as other comprehensive income (loss) within stockholders’ equity.
Comprehensive Income (Loss)
Comprehensive income (loss) encompasses all changes in stockholders’ equity, except those arising from investments from and distributions to stockholders. The Company’s comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged to expense as incurred.
Income Taxes
The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recognized for temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities and are measured using the tax rates expected to be in effect when the differences reverse. Deferred tax assets and liabilities are recognized related to the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company’s assets and liabilities using statutory tax rates at the applicable year end. Deferred tax assets are also recognized for operating loss and tax credit carry forwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in the period that includes the enactment date. A valuation allowance is used to reduce deferred tax assets when uncertainty exists regarding their realization.
A valuation allowance is recorded to reduce previously recorded tax assets when it becomes more likely than not that such assets will not be realized. The Company evaluates, at least annually, net operating loss carry forwards and other net deferred tax assets and considers all available evidence, both positive and negative, to determine whether a valuation allowance is necessary relative to net operating loss carry forwards and other net deferred tax assets. In making this determination, the Company considers cumulative losses in recent years as significant negative evidence. The Company considers recent years to mean the current year plus the two preceding years. The Company considers the recent cumulative income or loss position as objectively verifiable evidence for the projection of future income, which consists primarily of determining the average of the pre-tax income of the current and prior two years after adjusting for certain items not indicative of future performance. Based on this analysis, the Company determines whether a valuation allowance is necessary.
Historically, U.S. Federal income taxes are not provided on unremitted earnings of subsidiaries operating outside the U.S. because it is the Company’s intention to permanently reinvest undistributed earnings in the subsidiary. These earnings would become subject to income tax if they were remitted as dividends or loaned to a U.S. affiliate. Due to the 2017 Tax Act, U.S. federal transition taxes have been recorded at December 31, 2017, for a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. Determination of the amount of unrecognized deferred U.S. income tax liability on these unremitted earnings is not practicable.
The Company has performed an evaluation and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.
The Company’s policy is to record interest and penalties related to income tax matters as income tax expense.
Earnings (Loss) Per Share
Basic earnings (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders, adjusted for the effect of assumed conversions of convertible notes and preferred stock, by the weighted average number of common shares outstanding, including potentially dilutive common share equivalents, if the effect is dilutive. Potentially dilutive common shares equivalents consist of incremental shares of common stock issuable upon exercise of stock options and warrants,
settlement of restricted stock units, and conversion of convertible notes and convertible preferred stock.
Debt Issuance Costs
Costs related to debt issuance are capitalized and amortized as interest expense over the term of the related debt using the straight-line method, which approximates the effective interest method. Upon the repayment of debt, the Company accelerates the recognition of an appropriate amount of the costs as interest expense.
Capitalization of Interest
Interest costs are capitalized for qualifying in-process software development projects. Capitalization of interest commences when activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are capitalized until the assets are ready for their intended use. Capitalized interest is added to the cost of the underlying assets and amortized over the estimated useful lives of the assets.
Stock-Based Compensation
Stock-based compensation expense for share-based payments, related to stock options, restricted stock awards, and restricted stock units, is recognized based on their grant-date fair values. The Company recognizes compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period of the award. Estimated forfeitures are based on historical experience.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from these estimates.
Significant items subject to estimates and assumptions include application of the carrying amount and useful lives of property and equipment and intangible assets, impairment assessments, share-based compensation expense, and valuation allowances for accounts receivable, inventories, and deferred tax assets.
Assets and Liabilities Held for Sale
The Company classifies disposal groups as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the disposal group; (2) the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; (3) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group have been initiated; (4) the sale of the disposal group is probable, and transfer of the disposal group
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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
is expected to qualify for recognition as a completed sale, within one year, except if events of circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; (5) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
A disposal group that is classified as held for sale is initially measured at the lower of its carrying amount or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met.
Subsequent changes in the fair value of a disposal group less any costs to sell are reported as an adjustment to the carrying amount of the disposal group, as long as the new carrying amount does not exceed the carrying amount of the asset at the time it was initially classified as held for sale. Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group for all periods presented in the line items assets held for sale and liabilities held for sale, respectively, in the consolidated balance sheets.
Discontinued Operations
The results of operations of a component of the Company that can be clearly distinguished, operationally and for financial reporting purposes, that either has been disposed of or is classified as held for sale is reported in discontinued operations, if the disposal represents a strategic shift that has, or will have, a major effect on the Company’s operations and financial results.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not impact net loss.
New Accounting Pronouncements
(a) Application of New Accounting Standards
Effective January 1, 2019, the Company adopted the accounting guidance in Accounting Standards Update (“ASU”) No. 2016-02, “Leases” 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 previous U.S. GAAP (ASC 840). The Company adopted ASC 842 using the optional transition method. Consequently, the Company’s reporting for the comparative periods presented prior to 2019 in the financial statements will continue to be in accordance with ASC 840. Upon adoption, the Company recorded operating lease ROU assets and corresponding operating lease liabilities, net of
deferred rent, of approximately $18.4 million, representing the present value of future lease payments under operating leases with terms of greater than twelve months. Refer to Note 6 - “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.
Effective January 1, 2018, the Company adopted the accounting guidance in Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This standard supersedes most of the existing revenue recognition requirements in U.S. GAAP under Accounting Standards Codification (“ASC”) 605 and establishes a new revenue standard, ASC 606. This new standard requires entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASC 606 using the full retrospective method. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. Refer to Note 4 — “Revenue from Contracts with Customers” for further information surrounding adoption of this new standard.
Effective January 1, 2018, the Company adopted the accounting guidance in ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This standard addressed eight specific cash flow issues with the objective of reducing the existing diversity in practice. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures. The Company applied this standard prospectively, where applicable, as there were no historical transactions affected by this implementation.
Effective January 1, 2018, the Company adopted the accounting guidance in ASU No. 2017-01, “Clarifying the
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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Definition of a Business.” This standard provided additional guidance on whether an integrated set of assets and activities constitutes a business. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures. The Company applied this standard prospectively and, therefore, prior periods were not adjusted. In addition, the Company had no activity during the year ended December 31, 2019 that was required to be treated differently under this ASU than previously issued guidance.
Effective January 1, 2018, the Company adopted the accounting guidance in ASU No. 2017-09, “Scope of Modification Accounting.” This standard provided guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. Implementation of this standard did not have a material effect on the consolidated financial statements and related disclosures. The Company applied this standard prospectively and, therefore, prior periods presented were not adjusted. There were no changes to the terms or conditions of current share-based payment awards during the year ended December 31, 2019.
(b) New Accounting Requirements and Disclosures
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.”
This standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The pronouncement is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
In August 2018, the FASB issued 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. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.

Note 3 — Discontinued Operations
During the fourth quarter of 2018, the Company initiated and began executing a strategic plan to sell its Consumer and Industrial Chemistry Technologies (“CICT”) segment. An investment banking advisory services firm was engaged and actively marketed this segment.
The Company met all of the criteria to classify the CICT segment’s assets and liabilities as held for sale in the fourth quarter 2018. The Company has classified the assets, liabilities, and results of operations for this segment as “Discontinued Operations” for all periods presented.
Disposal of the CICT reporting segment represented a strategic shift that will have a major effect on the Company’s operations and financial results.
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, which represented the CICT segment.
Effective February 28, 2019, the Company completed the sale of the CICT segment 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. As of December 31, 2019, the escrow balance including interest was $9.9 million reflected in other current assets.
Concurrent with the closing of the sale of the CICT segment, the Company retained $11.1 million of historical inventory previously held by the CICT segment. In addition, the Company executed a long-term supply agreement for terpene. The term of the agreement runs through December 2023, with an option to extend for an additional year. The remaining minimum commitment of the agreement at December 31, 2019 is $72 million. 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 arbitrator to help reach agreement on the final post-closing working capital adjustment. In February 2020, the third party arbitrator ruled in favor of awarding ADM for the entire $4.1 million disputed amount resulting in a reduction to the gain on the sale of the business as of December 31, 2019.

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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations for the years ended December 31, 2019, 2018, and 2017 (in thousands):

| Consumer and Industrial Chemistry Technologies
| 2019 |  | 2018 |  | 2017
Discontinued operations: |  |  |  |  |
Revenue | $ | 11,031 |  |  | $ | 72,344 |  |  | $ | 73,992 |
Operating expenses | (11,572 | ) |  | (65,940 | ) |  | (63,621 | )
Depreciation and amortization | — |  |  | (2,760 | ) |  | (2,391 | )
Research and development | (69 | ) |  | (590 | ) |  | (515 | )
Income from operations | (610 | ) |  | 3,054 |  |  | 7,465 |
Other income (expense) | 35 |  |  | 341 |  |  | (284 | )
Gain on sale of businesses | 64,160 |  |  | — |  |  | — |
Income before income taxes | 63,585 |  |  | 3,395 |  |  | 7,181 |
Income tax expense | (19,129 | ) |  | (652 | ) |  | (2,730 | )
Net income (loss) from discontinued operations | $ | 44,456 |  |  | $ | 2,743 |  |  | $ | 4,451 |

The assets and liabilities held for sale on the Consolidated Balance Sheets as of December 31, 2019 and 2018 are as follows (in thousands):

| Consumer and Industrial Chemistry Technologies
| 2019 |  | 2018
Assets: |  |  |
Accounts receivable, net | $ | — |  |  | $ | 10,547 |
Inventories, net | — |  |  | 52,069 |
Other current assets | — |  |  | 446 |
Property and equipment, net | — |  |  | 15,899 |
Goodwill | — |  |  | 19,480 |
Other intangible assets, net | — |  |  | 20,029 |
Assets held for sale | — |  |  | 118,470 |
Liabilities: |  |  |
Accounts payable | $ | — |  |  | $ | 8,883 |
Accrued liabilities | — |  |  | 291 |
Liabilities held for sale | $ | — |  |  | $ | 9,174 |

During the fourth quarter of 2016, the Company initiated a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry. The Company executed a plan to sell or otherwise dispose of the Drilling Technologies and Production Technologies segments. An investment banking advisory services firm was engaged and actively marketed these segments.
The Company met all of the criteria to classify the Drilling Technologies and Production Technologies segments’ assets and liabilities as held for sale in the fourth quarter 2016. The Company has classified the assets, liabilities, and results of operations for these two segments as “Discontinued Operations” for all periods presented.
Disposal of the Drilling Technologies and Production Technologies reporting segments represented a strategic shift that would have a major effect on the Company’s operations and financial results.
On May 22, 2017, the Company completed the sale of substantially all of the assets and transfer of certain specified liabilities and obligations of the Company’s Drilling Technologies segment to National Oilwell Varco, L.P. (“NOV”) for $17.0 million in cash consideration, subject to normal working capital adjustments, with $1.5 million held back by NOV for up to 18 months to satisfy potential indemnification claims.
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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 23, 2017, the Company completed the sale of substantially all of the assets and transfer of certain specified liabilities and obligations of the Company’s Production Technologies segment to Raptor Lift Solutions, LLC (“Raptor Lift”) for $2.9 million in cash consideration, with $0.4 million held back by Raptor Lift to satisfy potential indemnification claims.
On August 16, 2017, the Company completed the sale of substantially all of the remaining assets of the Company’s
Drilling Technologies segment to Galleon Mining Tools, Inc. for $1.0 million in cash consideration and a note receivable of $1.0 million due in one year.
The sale or disposal of the assets and transfer or liquidation of liabilities and obligations of these segments was completed in 2017. The Company has no continuing involvement with the discontinued operations.

The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations for the years ended December 31, 2018 and 2017 (in thousands):

| Drilling Technologies |  | Production Technologies
| 2018 |  | 2017 |  |  | 2018 |  | 2017 |
Discontinued operations: |  |  |  |  |  |  |  |  |
Revenue | $ | — |  |  | $ | 11,534 |  |  |  | $ | — |  |  | $ | 4,002 |  |
Cost of revenue | — |  |  | (7,309 | ) |  |  | — |  |  | (3,236 | ) |
Selling, general and administrative | — |  |  | (6,963 | ) |  |  | — |  |  | (1,759 | ) |
Research and development | — |  |  | (5 | ) |  |  | — |  |  | (364 | ) |
Gain (loss) on disposal of long-lived assets | — |  |  | 97 |  |  |  | — |  |  | — |  |
Loss from operations | — |  |  | (2,646 | ) |  |  | — |  |  | (1,357 | ) |
Other expense | — |  |  | (96 | ) |  |  | — |  |  | (52 | ) |
Loss on sale of businesses | — |  |  | (1,600 | ) |  |  | — |  |  | (479 | ) |
Loss on write-down of assets held for sale | — |  |  | (6,831 | ) |  |  | — |  |  | (9,718 | ) |
Loss before income taxes | — |  |  | (11,173 | ) |  |  | — |  |  | (11,606 | ) |
Income tax benefit | — |  |  | 4,138 |  |  |  | — |  |  | 4,299 |  |
Net loss from discontinued operations | $ | — |  |  | $ | (7,035 | ) |  |  | $ | — |  |  | $ | (7,307 | ) |

At December 31, 2017, all remaining assets and liabilities of the discontinued operations were assumed by the Company’s continuing operations. These balances included $0.3 million of net accounts receivable, $1.4 million of sales price hold-back that was received during 2018, and $1.4 million of accrued liabilities partially settled in 2018, with the remainder to be settled in 2019.

Note 4 — Revenue from Contracts with Customers
Effective January 1, 2018, the Company adopted ASC 606 using the full retrospective method applied to those contracts which were not completed as of December 31, 2015. As a result of electing the full retrospective adoption approach, results for reporting periods beginning after December 31, 2015 are presented under ASC 606.
There was no material impact upon the adoption of ASC 606. As revenue is primarily related to product sales accounted for at a point in time and service contracts that are primarily short-term in nature (typically less than 30 days), the Company did not record any adjustments to retained earnings at December 31, 2015 or for any periods previously presented.
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 can 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.
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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For certain contracts, the Company recognizes revenue under the percentage-of-completion method of accounting, measured by the percentage of “costs incurred to date” to the “total estimated costs of completion.” This percentage is applied to the “total estimated revenue at completion” to calculate proportionate revenue earned to date. For the years ended December 31, 2019, 2018, and 2017, the percentage-of-completion revenue accounted for less than 0.1% of total revenue during the respective time periods. This resulted in immaterial unfulfilled performance obligations and immaterial contract assets and/or liabilities for which the Company did not record adjustments to opening retained earnings as of December 31, 2015 or for any periods previously presented.
The vast majority of the Company’s products are sold at a point in time and service contracts are short-term in nature. Sales are billed on a monthly basis with payment terms customarily 30-45 days from invoice receipt. In addition, sales taxes are excluded from revenues.
Disaggregation of Revenue
The Company has disaggregated revenues by product sales (point-in-time revenue recognition) and service revenue (over-time revenue recognition), where product sales accounted for over 95% of total revenue for the years ended December 31, 2019, 2018, and 2017.

The Company differentiates revenue and operating expenses (excluding depreciation and amortization) based on whether the source of revenue is attributable to products or services. Revenue and operating expenses (excluding depreciation and amortization) disaggregated by revenue source are as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Revenue: |  |  |  |  |
Products | $ | 115,471 |  |  | $ | 172,412 |  |  | $ | 237,211 |
Services | 3,882 |  |  | 5,361 |  |  | 5,895 |
| $ | 119,353 |  |  | $ | 177,773 |  |  | $ | 243,106 |
Operating expenses (excluding depreciation and amortization): |  |  |  |  |
Products | $ | 147,709 |  |  | $ | 152,846 |  |  | $ | 182,330 |
Services | 1,516 |  |  | 6,962 |  |  | 6,414 |
| $ | 149,225 |  |  | $ | 159,808 |  |  | $ | 188,744 |

Arrangements 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.
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. Accordingly, no revenue contracts give rise to contract assets or liabilities under ASC 606.
Practical Expedients and Exemptions
The Company has elected to apply several practical expedients as discussed below:

• | Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded within segment selling and administrative expenses.

• | The majority of the Company’s services are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC 606-10-50-14, exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the

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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
performance obligation is part of a contract that has an original expected duration of one year or less.

• | The Company’s payment terms are short-term in nature with settlements of one year or less. The Company has utilized the practical expedient in ASC 606-10-32-18, exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

• | In most service contracts, the Company has the right to consideration from a customer in an amount that

corresponds directly with the value to the customer of the Company’s performance completed to date. For these contracts, the Company has utilized the practical expedient in ASC 606-10-55-18, allowing the Company to recognize revenue in the amount to which it has a right to invoice.
Accordingly, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

Note 5 — Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Supplemental non-cash investing and financing activities: |  |  |  |  |
Value of common stock issued in payment of accrued liability | $ | — |  |  | $ | — |  |  | $ | 188 |
Exercise of stock options by common stock surrender | — |  |  | — |  |  | 5,863 |
Supplemental cash payment information: |  |  |  |  |
Interest paid | $ | 599 |  |  | $ | 2,502 |  |  | $ | 1,851 |
Income taxes (received, net of payments) paid, net of refunds | (699 | ) |  | (139 | ) |  | (10,195 | )

Note 6— Leases
Effective January 1, 2019, the Company adopted ASC 842 using the prospective method applied to those leases which were not completed as of December 31, 2018. The Company has leases for corporate offices, research and development facilities, warehouses, sales offices and equipment. The leases have remaining lease terms of 1 year to 19 years, some of which include options to extend the leases for up to 10 years.
Upon adoption, the Company recorded operating lease ROU assets and corresponding operating lease liabilities, net of deferred rent, of approximately $18.4 million, representing the present value of future lease payments under operating leases with terms of greater than twelve months. Leases with an initial expected term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the expected lease term.
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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of lease expense and supplemental cash flow information are as follows (in thousands):

| For the years ending
| December 31,
| 2019 |  | 2018
Operating lease expense | $ | 2,609 |  |  | $ | — |
Finance lease expense: |  |  |
Amortization of right-of-use assets | 1,237 |  |  | — |
Interest on lease liabilities | 10 |  |  | — |
Total finance lease expense | 1,247 |  |  | — |
Short-term lease expense | 123 |  |  | — |
Total lease expense | $ | 3,979 |  |  | $ | — |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating cash flows from operating leases | 2,336 |  |  | — |
Operating cash flows from finance leases | 10 |  |  | — |
Financing cash flows from finance leases | 51 |  |  | — |

Maturities of lease liabilities are as follows (in thousands):

Years ending December 31, |  | Operating Leases |  | Finance Leases
2020 |  | 2,012 |  |  | 70 |
2021 |  | 1,962 |  |  | 70 |
2022 |  | 1,916 |  |  | 47 |
2023 |  | 1,976 |  |  | 40 |
2024 |  | 2,017 |  |  | 23 |
Thereafter |  | 23,692 |  |  | — |
Total lease payments |  | $ | 33,575 |  |  | $ | 250 |
Less: Interest |  | (16,116 | ) |  | (37 | )
Present value of lease liabilities |  | $ | 17,459 |  |  | $ | 213 |

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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental balance sheet information related to leases is as follows (in thousands):

| December 31, 2019
Operating Leases |
Operating lease right-of-use assets | $ | 16,388 |
Current portion of lease liabilities | $ | 486 |
Long-term operating lease liabilities | 16,973 |
Total operating lease liabilities | $ | 17,459 |
Finance Leases |
Property and equipment | $ | 293 |
Accumulated depreciation | (28 | )
Property and equipment, net | $ | 265 |
Current portion of lease liabilities | $ | 55 |
Long-term finance lease liabilities | 158 |
Total finance lease liabilities | $ | 213 |
Weighted Average Remaining Lease Term |
Operating leases | 16.6 years |
Finance leases | 4.6 years |
Weighted Average Discount Rate |
Operating leases | 8.9 | %
Finance leases | 9.0 | %

Note 7 — Inventories
Inventories are as follows (in thousands):

| December 31,
| 2019 |  | 2018
Raw materials | $ | 4,339 |  |  | $ | 10,608 |
Work-in-process | — |  |  | — |
Finished goods | 23,056 |  |  | 18,798 |
Inventories | 27,395 |  |  | 29,406 |
Less reserve for excess and obsolete inventory | (5,698 | ) |  | (2,117 | )
Inventories, net | $ | 21,697 |  |  | $ | 27,289 |

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

| 2019 |  | 2018 |  | 2017
Balance, beginning of year | $ | 2,117 |  |  | $ | 368 |  |  | $ | 50 |
Charged to provisions | 5,659 |  |  | 2,418 |  |  | 388 |
Deductions for disposals | (2,078 | ) |  | (669 | ) |  | (70 | )
Balance, end of the year | $ | 5,698 |  |  | $ | 2,117 |  |  | $ | 368 |

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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on an assessment of market values. Write-downs or write-offs of inventory are charged to cost of goods sold. At December 31, 2019, the Company recorded a reserve for excess terpene of $4.4 million.

Note 8 — Property and Equipment
Property and equipment are as follows (in thousands):

| December 31
| 2019 |  | 2018
Land | $ | 4,440 |  |  | $ | 4,372 |
Buildings and leasehold improvements | 38,741 |  |  | 37,719 |
Machinery and equipment | 27,694 |  |  | 26,995 |
Fixed assets in progress | — |  |  | 581 |
Furniture and fixtures | 1,671 |  |  | 1,573 |
Transportation equipment | 1,440 |  |  | 1,852 |
Computer equipment and software | 3,348 |  |  | 9,370 |
Property and equipment | 77,334 |  |  | 82,462 |
Less accumulated depreciation | (37,505 | ) |  | (36,977 | )
Property and equipment, net | $ | 39,829 |  |  | $ | 45,485 |

Depreciation expense totaled $6.5 million, $7.8 million, and $8.4 million for the years ended December 31, 2019, 2018, and 2017, respectively.
During the years ended December 31, 2019, 2018, and 2017, no impairments were recognized related to property and equipment.

Note 9— Goodwill
The Company has no reporting units which have a goodwill balance at December 31, 2019.
Goodwill is tested for impairment annually in the fourth quarter, or more frequently if circumstances indicate a potential impairment. During the fourth quarter of 2017, the Company adopted ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. If the carrying amount exceeds the reporting unit’s fair value, the Company will recognize an impairment charge for the excess amount.
During the second quarter of 2018, the Company recognized a goodwill impairment charge of $37.2 million in the Energy Chemistry Technologies (“ECT”) reporting unit, which resulted from sustained under-performance and lower expectations related to the reporting unit. As a result of these factors, a qualitative analysis, and additional risks associated with the business, the Company concluded that sufficient indicators existed to require an interim quantitative assessment
of goodwill for that reporting unit as of June 30, 2018. 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. The assumptions were based on the actual historical performance of the reporting unit and took into account a recent weakening of operating results in an improving market environment. The excess of the reporting unit’s carrying value over the estimated fair value was recorded as the goodwill impairment charge during the three months ended June 30, 2018 and represented all of the ECT reporting unit’s goodwill.

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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the carrying amount of goodwill for the ECT reporting unit are as follows (in thousands):

Balance at December 31, 2017: |
Goodwill | $ | 37,180 |
Accumulated impairment losses | — |
Goodwill balance, net | 37,180 |
Activity during the year 2018: |
Goodwill impairment recognized | (37,180 | )
Acquisition goodwill recognized | — |
Balance at December 31, 2018: |
Goodwill | 37,180 |
Accumulated impairment losses | (37,180 | )
Goodwill balance, net | — |
Activity during the year 2019: |
Goodwill impairment recognized | — |
Acquisition goodwill recognized | — |
Balance at December 31, 2019: |
Goodwill | — |
Accumulated impairment losses | — |
Goodwill balance, net | $ | — |

Note 10 — Other Intangible Assets
Other intangible assets are as follows (in thousands):

| December 31,
| 2019 |  | 2018
| Cost |  | Accumulated Amortization |  | Cost |  | Accumulated Amortization
Finite lived intangible assets: |  |  |  |  |  |  |
Patents and technology | $ | 17,493 |  |  | $ | 6,715 |  |  | $ | 18,884 |  |  | $ | 6,689 |
Customer lists | 15,367 |  |  | 6,013 |  |  | 15,367 |  |  | 5,259 |
Trademarks and brand names | 1,351 |  |  | 1,160 |  |  | 1,485 |  |  | 1,149 |
Total finite lived intangible assets acquired | 34,211 |  |  | 13,888 |  |  | 35,736 |  |  | 13,097 |
Deferred financing costs | — |  |  | — |  |  | 1,924 |  |  | 496 |
Total amortizable intangible assets | 34,211 |  |  | $ | 13,888 |  |  | 37,660 |  |  | $ | 13,593 |
Indefinite lived intangible assets: |  |  |  |  |  |  |
Trademarks and brand names | 2,760 |  |  |  |  | 2,760 |  |  |
Total other intangible assets | $ | 36,971 |  |  |  |  | $ | 40,420 |  |  |
Carrying amount: |  |  |  |  |  |  |
Other intangible assets, net | $ | 23,083 |  |  |  |  | $ | 26,827 |  |  |

Intangible assets acquired are amortized on a straight-line basis over two to 95 years. Amortization of intangible assets acquired totaled $2.0 million, $1.4 million, and $1.5 million for the years end ended December 31, 2019, 2018, and 2017, respectively.
Amortization of deferred financing costs totaled $1.4 million, $0.4 million, and $0.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.

24

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated future amortization expense for other finite lived intangible assets, including deferred financing costs, at December 31, 2019 is as follows (in thousands):

Year ending December 31, |  |
2020 |  | $ | 1,941 |
2021 |  | 1,935 |
2022 |  | 1,915 |
2023 |  | 1,858 |
2024 |  | 1,854 |
Thereafter |  | 10,109 |
Other amortizable intangible assets, net |  | $ | 19,612 |

During the years ended December 31, 2019, 2018, and 2017, no impairments were recognized related to other intangible assets.

Note 11 — Long-Term Debt and Credit Facility
Long-term debt is as follows (in thousands):

| December 31,
| 2019 |  | 2018
Long-term debt, classified as current: |  |  |
Borrowings under revolving credit facility | $ | — |  |  | $ | 49,731 |

On March 1, 2019, the Company repaid the outstanding balance of the Credit Facility.

Note 12 — Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes financial assets and liabilities into the three levels of the fair value hierarchy. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value and bases categorization within the hierarchy on the lowest level of input that is available and significant to the fair value measurement.

• | Level 1 — Quoted prices in active markets for identical assets or liabilities;

• | Level 2 — Observable inputs other than Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

• | Level 3 — Significant unobservable inputs that are supported by little or no market activity or that are based on the reporting entity’s assumptions about the inputs.

Liabilities Measured at Fair Value on a Recurring Basis
At December 31, 2019 and 2018, no liabilities were required to be measured at fair value on a recurring basis. There were no transfers in or out of either Level 1, Level 2, or Level 3 fair value measurements during the years ended December 31, 2019, 2018, and 2017.
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 June 30, 2018, the Company recorded an impairment of $37.2 million for goodwill in the ECT reporting unit (see Note 9). No impairments of goodwill were recognized during the years ended December 31, 2019,and 2017. No impairment of property and equipment or other intangible assets were recognized during the years ended December 31, 2019, 2018, and 2017.
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FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Other Financial Instruments
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair
value due to the short-term nature of these accounts. The Company had no cash equivalents at December 31, 2019 or 2018.

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

| December 31,
| 2019 |  | 2018
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Borrowings under revolving credit facility | $ | — |  |  | $ | — |  |  | $ | 49,731 |  |  | $ | 49,731 |

The carrying amount of borrowings under the revolving credit facility approximates its fair value because the interest rate is variable.

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 years ended December 31, 2019, 2018, and 2017, since including them
would have an anti-dilutive effect on loss per share due to the loss from continuing operations incurred during the period. 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 3.0 million stock options for the year ended December 31, 2019, and 0.7 million restricted stock units for the year ended December 31, 2018, and 0.7 million stock options and 0.8 million restricted stock units for the year ended December 31, 2017.

A reconciliation of the number of shares used for the basic and diluted earnings (loss) per common share computations is as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Weighted average common shares outstanding - Basic | 58,750 |  |  | 57,995 |  |  | 57,580 |
Assumed conversions: |  |  |  |  |
Incremental common shares from stock options | — |  |  | — |  |  | — |
Incremental common shares from restricted stock units | — |  |  | — |  |  | — |
Weighted average common shares outstanding - Diluted | 58,750 |  |  | 57,995 |  |  | 57,580 |

26

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 — Income Taxes
Components of the income tax (benefit) expense are as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | (22,923 | ) |  | $ | — |  |  | $ | (1,126 | )
State | (2,295 | ) |  | 97 |  |  | 587 |
Foreign | (238 | ) |  | (740 | ) |  | 488 |
Total current | (25,456 | ) |  | (643 | ) |  | (51 | )
Deferred: |  |  |  |  |
Federal | 23,910 |  |  | (6,585 | ) |  | 5,994 |
State | 1,345 |  |  | (89 | ) |  | 214 |
Foreign | — |  |  | 101 |  |  | (45 | )
Total deferred | 25,255 |  |  | (6,573 | ) |  | 6,163 |
Income tax (benefit) expense | $ | (201 | ) |  | $ | (7,216 | ) |  | $ | 6,112 |

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

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
United States | $ | (76,758 | ) |  | $ | (80,034 | ) |  | $ | (10,025 | )
Foreign | (178 | ) |  | (623 | ) |  | (1,367 | )
Loss before income taxes | $ | (76,936 | ) |  | $ | (80,657 | ) |  | $ | (11,392 | )

A reconciliation of the U.S. federal statutory tax rate to the effective income tax rate is as follows:

| Year ended December 31,
| 2019 |  | 2018 |  | 2017
Federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
State income taxes, net of federal benefit | 0.6 |  |  | 0.8 |  |  | (3.2 | )
Non-U.S. income taxed at different rates | 0.5 |  |  | 0.8 |  |  | (4.3 | )
(Increase) decrease in valuation allowance | (19.9 | ) |  | (3.6 | ) |  | 0.1 |
Impact of 2017 Tax Cuts and Jobs Act | — |  |  | — |  |  | (64.2 | )
Net operating loss carryback adjustment | — |  |  | — |  |  | — |
Reduction in tax benefit related to stock-based awards | (0.1 | ) |  | (1.0 | ) |  | (16.9 | )
Non-deductible expenditures and goodwill | — |  |  | (9.0 | ) |  | (3.9 | )
Research and development credit | 0.2 |  |  | 0.3 |  |  | 3.6 |
Other | (2.0 | ) |  | (0.4 | ) |  | 0.1 |
Effective income tax rate | 0.3 | % |  | 8.9 | % |  | (53.7 | )%

Fluctuations in effective tax rates have historically been impacted by permanent tax differences with no associated income tax impact, changes in state apportionment factors, including the effect on state deferred tax assets and liabilities, and non-U.S. income taxed at different rates.
Comprehensive tax reform legislation enacted in December 2017, commonly referred to as the Tax Cuts and Jobs Acts (“2017 Tax Act”), makes significant changes to U.S. federal income tax laws. The 2017 Tax Act, among other things, reduces the corporate income tax rate from 35% to 21%, partially limits the deductibility of business interest expense and net operating losses, provides additional limitations on the deductibility of executive compensation, imposes a one-time tax on unrepatriated earnings from certain foreign subsidiaries, taxes offshore earnings at reduced rates regardless of whether they are repatriated, and allows the immediate deduction of certain new investments instead of deductions for depreciation expense over time. The Company had not completed its determination of the 2017 Tax Act and recorded provisional amounts in its financial statements as of December 31, 2017. The Company recorded a provisional expense for the effects of the 2017 Tax Act of $7.3 million. The effects of the 2017
27

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax Act on the Company include three main categories: 1) remeasurement of the net deferred tax assets from 35% to 21%, which resulted in tax expense of $5.5 million; 2) a one-time tax on unrepatriated earnings from certain foreign subsidiaries of $0.2 million; and 3) additional limitations on the deductibility of executive compensation, which resulted in tax expense of $1.6 million. The Company completed its review of the 2017 Tax Act in 2018, and there were no material changes in the measurement period.

Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the value reported for income tax purposes, at the enacted tax rates expected to be in effect when the differences reverse. The components of deferred tax assets and liabilities are as follows (in thousands):

| December 31,
| 2019 |  | 2018
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 17,248 |  |  | $ | 30,241 |
Allowance for doubtful accounts | 1,037 |  |  | 1,073 |
Inventory valuation reserves | 629 |  |  | 1,057 |
Equity compensation | 353 |  |  | 548 |
Goodwill | 965 |  |  | 1,089 |
Accrued compensation | 587 |  |  | 342 |
Foreign tax credit carryforward | 3,894 |  |  | 4,041 |
Settlement liability | 3,530 |  |  | — |
Lease liability | 3,992 |  |  | — |
Interest expense limitation | — |  |  | 534 |
Other | 96 |  |  | 50 |
Total gross deferred tax assets | 32,331 |  |  | 38,975 |
Valuation allowance | (19,878 | ) |  | (4,042 | )
Total deferred tax assets, net | 12,453 |  |  | 34,933 |
Deferred tax liabilities: |  |  |
Property and equipment | (3,696 | ) |  | (6,613 | )
Intangible assets | (4,597 | ) |  | (9,657 | )
ROU asset | (3,793 | ) |  | — |
Prepaid insurance and other | (331 | ) |  | — |
Total gross deferred tax liabilities | (12,417 | ) |  | (16,270 | )
Net deferred tax assets | $ | 36 |  |  | $ | 18,663 |

As of December 31, 2019, the Company had U.S. net operating loss carryforwards of $68.9 million, including $49.6 million expiring in various amounts in 2035 through 2037 which can offset 100% of taxable income and $19.3 million that has an indefinite carryforward period which can offset 80% of taxable income per year. The ability to utilize net operating losses and other tax attributes could be subject to a significant limitation if the Company were to undergo an “ownership change” for purposes of Section 382 of the Tax Code.
Net deferred tax assets arise due to the recognition of income and expense items for tax purposes, which differ from those used for financial statement purposes. ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for a valuation allowance in the second quarter of 2018, the Company considered 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 a result of this analysis, the Company determined that it is more likely than not that it will not realize the benefits of certain deferred tax assets and, therefore, recorded a $15.5 million valuation allowance against the carrying value of net deferred tax assets, except for deferred tax liabilities related to non-amortizable intangible assets and certain state jurisdictions. As all available evidence should be taken into consideration when assessing the need for a valuation allowance, the subsequent events that occurred in the first quarter of 2019 provided a source of income to support the release of $11.5 million of the valuation allowance which resulted in a deferred tax asset of $18.7 million. As such, the Company reversed this portion of the valuation allowance during the fourth quarter of 2018. At December 31, 2019, the
28

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
valuation allowance against the net federal and state deferred tax assets was $19.9 million.
The Company has not calculated U.S. taxes on unremitted earnings of certain non-U.S. subsidiaries due to the Company’s intent to reinvest the unremitted earnings of the non-U.S. subsidiaries. At December 31, 2019, the Company had approximately $2.3 million in unremitted earnings for one of its foreign jurisdictions, which were not included for U.S. tax purposes. Due to the 2017 Tax Act, U.S. federal transition taxes have been recorded for a one-time U.S. tax liability on these earnings which have not previously been repatriated to the U.S. However, certain withholding taxes will need to be paid upon repatriation. It is not practicable to estimate the amount of the deferred tax liability on such unremitted earnings.
The Company has performed an evaluation and concluded there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The
evaluation was performed for the tax years which remain subject to examination by tax jurisdictions as of December 31, 2019, which are the years ended December 31, 2015 through December 31, 2019 for U.S. federal taxes and the years ended December 31, 2014 through December 31, 2019 for state tax jurisdictions.
At December 31, 2019, the Company had no unrecognized tax benefits.
In January 2017, the Internal Revenue Service notified the Company that it would examine the Company’s “IRS” federal tax returns for the year ended December 31, 2014. The examination included (1) the corporate returns and (2) employment tax matters. The IRS fieldwork has been completed in relation to the corporate returns with no adverse findings. Further discussion of the employment tax matter can be found in Note 19 ---“Related Party Transaction.”

Note 15 — Common Stock
The Company’s Certificate of Incorporation, as amended November 9, 2009, authorizes the Company to issue up to 80 million shares of common stock, par value $0.0001 per share, and 100,000 shares of one or more series of preferred stock, par value $0.0001 per share.
A reconciliation of the changes in common shares issued is as follows:

| Year ended December 31,
| 2019 |  | 2018
Shares issued at the beginning of the year | 62,162,875 |  |  | 60,622,986 |
Issued as restricted stock award grants | 924,022 |  |  | 1,539,889 |
Issued as restricted stock unit grants | 570,000 |  |  | — |
Shares issued at the end of the year | 63,656,897 |  |  | 62,162,875 |

Stock-Based Incentive Plans
Stockholders approved long term incentive plans in 2019, 2018, 2014, 2010, and 2007 (the “2019 Plan”, the “2018 Plan,” the “2014 Plan,” the “2010 Plan,” and the “2007 Plan,” respectively) under which the Company may grant equity awards to officers, key employees, non-employee directors, and service providers in the form of stock options, restricted stock, and certain other incentive awards. The maximum
number of shares that may be issued under the 2019 Plan, 2018 Plan, 2014 Plan, 2010 Plan, and 2007 Plan are 1.0 million 3.0 million, 5.2 million, 6.0 million, and 2.2 million, respectively. At December 31, 2019, the Company had a total of 3.9 million shares remaining to be granted under the 2019 Plan, 2018 Plan, 2014 Plan, and 2010 Plan. Shares may no longer be granted under the 2007 Plan.
29

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
All stock options are granted with an exercise price equal to the market value of the Company’s common stock on the date of grant. During the fourth quarter 2019, 3.0 million stock options were granted, 1.0 million time-vested and 2.0 million performance-based. The time-vested stock options will vest equally over the next five years. The performance-based options are restricted until performance criteria defined in the agreement are met. Proceeds received from stock option exercises are credited to common stock and additional paid-in capital, as appropriate. The Company uses historical data to estimate pre-vesting option forfeitures. Estimates are adjusted when actual forfeitures differ from the estimate. Stock-based compensation expense is recorded for all equity awards expected to vest.
No stock options vested during the years ended December 31, 2019, 2018, and 2017.

Stock Options | Shares |  | Weighted-Average Exercise Price
Outstanding as of January 1, 2019 | — |  |  | $ | — |
Granted | 3,000,000 |  |  | 1.22 |
Exercised | — |  |  | — |
Forfeited | — |  |  | — |
Expired | — |  |  | — |
Outstanding as of |  |  |
December 31, 2019 | 3,000,000 |  |  | $ | 1.22 |
Vested or expected to vest at |  |  |
December 31, 2019 | — |  |  | $ | — |
Options exercisable as of |  |  |
December 31, 2019 | — |  |  | $ | — |

The following table sets forth significant assumptions used in the Black-Scholes model for time-vested options and the Monte Carlo model for performance-based options to determine the fair value of the options at December 31, 2019.

| Time-Vested Options |  | Performance-Based Options
Risk-free interest rate | 1.81 | % |  | 1.84 | %
Expected volatility of common stock | 73.59 | % |  | 71.57 | %
Expected life of options in years | 5.0 |  |  | 7.0 |
Dividend yield | — | % |  | — | %
Vesting period in years | 5.0 |  |  | 7.0 |

Restricted Stock
The Company grants employees either time-vesting or performance-based restricted shares in accordance with terms specified in the Restricted Stock Agreements (“RSAs”). Time-
vesting restricted shares vest after a stipulated period of time has elapsed subsequent to the date of grant, generally three
30

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
years. Certain time-vested shares have also been issued with a portion of the shares granted vesting immediately.
Performance-based restricted shares are issued with performance criteria defined over a designated performance period and vest only when, and if, the outlined performance
criteria are met. During the year ended December 31, 2019, 63% of the restricted shares granted were time-vesting and 37% were performance-based. Grantees of restricted shares retain voting rights for the granted shares.

Restricted stock share activity for the year ended December 31, 2019 is as follows:

Restricted Stock Shares |  | Shares |  | Weighted- Average Fair Value at Date of Grant
Non-vested at January 1, 2019 |  | 1,050,372 |  |  | $ | 3.47 |
Granted to employees |  | 1,494,022 |  |  | 2.62 |
Vested |  | (615,941 | ) |  | 3.72 |
Forfeited |  | (299,433 | ) |  | 3.16 |
Non-vested at December 31, 2019 |  | 1,629,020 |  |  | $ | 2.66 |

The weighted-average grant-date fair value of restricted stock granted during the years ended December 31, 2019, 2018, and 2017 was $2.62, $10.62, and $11.92 per share, respectively. The total fair value of restricted stock that vested during the years ended December 31, 2019, 2018, and 2017 was $6.3 million, $8.6 million, and $15.4 million, respectively.
At December 31, 2019, there was $1.8 million of unrecognized compensation expense related to non-vested restricted stock. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.0 years.
Restricted Stock Units
During the year ended December 31, 2019, the Company granted performance-based restricted stock units (“RSUs”) for 1,071,530 shares equivalents. The performance period for these share equivalents continues until December 31, 2024.
During the year ended December 31, 2018, the Company granted performance-based RSUs for 604,682 share equivalents, which had a performance period through December 31, 2019. No RSUs were earned during this performance period.

Restricted stock units activity for the year ended December 31, 2019 is as follows:

Restricted Stock Units |  | Units |  | Weighted- Average Fair Value at Date of Grant
RSU equivalents at January 1, 2019 |  | 301,766 |  |  | $ | 3.94 |
2018 equivalents forfeited |  | (272,046 | ) |  | 6.39 |
Total equivalents |  | 29,720 |  |  | — |
2019 equivalents granted |  | 1,071,530 |  |  | 3.75 |
2019 equivalents forfeited |  | (62,776 | ) |  | 1.66 |
RSU equivalents at December 31, 2019 |  | 1,038,474 |  |  | $ | 3.24 |

At December 31, 2019, there was $2.1 million of unrecognized compensation expense related to 2019 and 2018 restricted stock units. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.3 years.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) was approved by stockholders on May 18, 2012. The Company registered 500,000 shares of its common stock, currently held as treasury shares, for issuance under the ESPP. The purpose of the ESPP is to provide employees with an opportunity to purchase shares of the Company’s common stock through accumulated payroll deductions. The ESPP allows participants
31

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to purchase common stock at a purchase price equal to 85% of the fair market value of the common stock on the last business day of a three-month offering period which coincides with calendar quarters. Payroll deductions may not exceed 10% of an employee’s compensation and participants may not purchase more than 1,000 shares in any one offering period. In addition, for each calendar year, an employee may not be granted purchase rights for Flotek Stock valued over $25,000, as determined at the time such purchase right is granted. The fair value of the discount associated with shares purchased under the plan is recognized as share-based compensation expense and was $0.1 million, $0.1 million, and $0.1 million during the years ended December 31, 2019, 2018, and 2017, respectively. The total fair value of the shares purchased under the plan during the years ended December 31, 2019, 2018, and 2017 was $0.1 million, $0.8 million, and $1.0 million, respectively. The employee payment associated with participation in the plan was satisfied through payroll deductions. Effective after the third quarter 2018 purchase, the Company temporarily suspended the ESPP due to lack of shares. Following shareholder approval for additional shares, the Company initiated the ESPP during the second quarter 2019.
Share-Based Compensation Expense
Non-cash share-based compensation expense related to restricted stock, restricted stock unit grants, and stock purchased under the Company’s ESPP was $7.1 million, $10.6 million, and $11.4 million during the years ended December 31, 2019, 2018, and 2017, respectively.
Treasury Stock
The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity. During the years ended December 31, 2019, 2018, and 2017, the Company purchased 93,977 shares, 199,644 shares, and 238,216 shares, respectively, of the Company’s common stock at market value as payment of income tax withholding owed by employees upon the vesting of restricted shares and the exercise of stock options. Shares issued as restricted stock awards to employees that were forfeited are accounted for as treasury stock. During the year ended December 31, 2019, there were no shares surrendered
for the exercise of stock options. During the years ended December 31, 2018 and 2017, shares surrendered for the exercise of stock options were 478,287 and 3,225, respectively. These surrendered shares are also accounted for as treasury stock.
Stock Repurchase Program
In November 2012, the Company’s Board of Directors authorized the repurchase of up to $25 million of the Company’s common stock. Repurchases may be made in the open market or through privately negotiated transactions. Through December 31, 2019, the Company has repurchased $25 million of its common stock under this authorization.
In June 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $50 million of the Company’s common stock. Repurchases may be made in the open market or through privately negotiated transactions. Through December 31, 2019, the Company repurchased $0.3 million of its common stock under this authorization.
During the year ended December 31, 2018, the Company did no t repurchase any shares of its outstanding common stock. During the year ended December 31, 2017, the Company repurchased 905,000 shares of its outstanding common stock on the open market at a cost of $5.2 million, inclusive of transaction costs, or an average price of $5.75 per share. During the year ended December 31, 2016, the Company did no t repurchase any shares of its outstanding common stock.
At December 31, 2019, the Company had $49.7 million remaining under its share repurchase program. A covenant under the Company’s Credit Facility limited the amount that may be used to repurchase the Company’s common stock. At December 31, 2019, this covenant did not permit additional share repurchases.

32

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 — Commitments and Contingencies
Class Action Litigation
On March 30, 2017, the U.S. District Court for the Southern District of Texas granted the Company’s motion to dismiss the four consolidated putative securities class action lawsuits that were filed in November 2015, against the Company and certain of its officers. The lawsuits were previously consolidated into a single case, and a consolidated amended complaint had been filed. The consolidated amended complaint asserted that the Company made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. The complaint sought an award of damages in an unspecified amount on behalf of a putative class consisting of persons who purchased the Company’s common stock between October 23, 2014 and November 9, 2015, inclusive. The lead plaintiff appealed the District Court’s decision granting the motion to dismiss. On February 7, 2019, a three-judge panel of the United States Court of Appeals for the Fifth Circuit issued a unanimous opinion affirming the District Court’s judgment of dismissal in its entirety.
Other Litigation
The Company is subject to routine litigation and other claims that arise in the normal course of business. Management is not
aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on the Company’s financial position, results of operations or liquidity.
Other Commitments
Rent expense under operating leases totaled $2.9 million, $2.9 million, and $3.3 million during the years ended December 31, 2019, 2018, and 2017, respectively.
401(k) Retirement Plan
The Company maintains a 401(k) retirement plan for the benefit of eligible employees in the U.S. All employees are eligible to participate in the plan upon employment. On January 1, 2015, the Company implemented a new matching program. The Company matches contributions at 100% of up to 2% of an employee’s compensation and, if greater, the Company matches contributions at 50% from 5% to 8% of an employee’s compensation.
During the years ended December 31, 2019, 2018, and 2017, compensation expense included $0.7 million, $1.0 million and $1.0 million, respectively, related to the Company’s 401(k) match.
Concentrations and Credit Risk
The majority of the Company’s revenue is derived from the oil and gas industry. Customers include major oilfield services companies, major integrated oil and natural gas companies, independent oil and natural gas companies, pressure pumping service companies, and state-owned national oil companies. This concentration of customers in one industry increases credit and business risks.
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 maintained at a major financial institution and balances often exceed insurable amounts.

Note 17 — 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-makers in deciding how to allocate resources and assess performance. The operations of the Company are categorized into one reportable segment: Energy Chemistry Technologies.
Energy Chemistry Technologies designs, develops, manufactures, packages, and markets specialty chemistries used in oil and natural gas well drilling, cementing, completion, and stimulation. In addition, the Company’s chemistries are used in specialized enhanced and improved oil recovery markets. Activities in this segment also include
construction and management of automated material handling facilities and management of loading facilities and blending operations for oilfield services companies.
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 reportable segments.

33

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information of the reportable segments is as follows (in thousands):

As of and for the years ended December 31, |  | Energy Chemistry Technologies |  | Corporate and Other |  | Total
2019 |  |  |  |  |  |
Net revenue from external customers |  | $ | 119,353 |  |  | $ | — |  |  | $ | 119,353 |
Loss from operations |  | (46,485 | ) |  | (30,140 | ) |  | (76,625 | )
Depreciation and amortization |  | 7,439 |  |  | 1,026 |  |  | 8,465 |
Capital expenditures |  | 2,411 |  |  | — |  |  | 2,411 |
2018 |  |  |  |  |  |
Net revenue from external customers |  | $ | 177,773 |  |  | $ | — |  |  | $ | 177,773 |
Income (loss) from operations |  | (36,817 | ) |  | (32,994 | ) |  | (69,811 | )
Depreciation and amortization |  | 7,107 |  |  | 2,109 |  |  | 9,216 |
Capital expenditures |  | 2,733 |  |  | 826 |  |  | 3,559 |
2017 |  |  |  |  |  |
Net revenue from external customers |  | $ | 243,106 |  |  | $ | — |  |  | $ | 243,106 |
Income (loss) from operations |  | 33,611 |  |  | (43,931 | ) |  | (10,320 | )
Depreciation and amortization |  | 7,323 |  |  | 2,445 |  |  | 9,768 |
Capital expenditures |  | 3,279 |  |  | 918 |  |  | 4,197 |

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

| December 31, 2019 |  | December 31, 2018
Energy Chemistry Technologies | $ | 117,357 |  |  | $ | 139,205 |
Corporate and Other | 114,490 |  |  | 28,208 |
Total segments | 231,847 |  |  | 167,413 |
Held for sale | — |  |  | 118,470 |
Total assets | $ | 231,847 |  |  | $ | 285,883 |

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.”) accounted for more than 10% of revenue. Revenue by geographic location is as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
U.S. | $ | 104,786 |  |  | $ | 146,421 |  |  | $ | 219,517 |
Other countries | 14,567 |  |  | 31,352 |  |  | 23,589 |
Total | $ | 119,353 |  |  | $ | 177,773 |  |  | $ | 243,106 |

Long-lived assets held in countries other than the U.S. are not considered material to the consolidated financial statements.
34

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Major Customers
Revenue from major customers, as a percentage of consolidated revenue, is as follows:

| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Customer A | 20.4% |  | * |  | *
Customer B | 10.3% |  | 12.23% |  | *
Customer C | * |  | 10.1% |  | *
Customer D | * |  | * |  | 16.7%

35

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Quarterly Financial Data (Unaudited)

| First Quarter |  | Second Quarter |  | Third Quarter |  | Fourth Quarter |  | Total
| (in thousands, except per share data)
2019 |  |  |  |  |  |  |  |  |
Revenue (1) | $ | 43,256 |  |  | $ | 34,692 |  |  | $ | 21,879 |  |  | $ | 19,526 |  |  | $ | 119,353 |
Loss from operations (1) | (14,266 | ) |  | (13,859 | ) |  | (11,853 | ) |  | (36,647 | ) |  | (76,625 | )
(Loss) income from continuing operations (1) | $ | (15,380 | ) |  | $ | (12,990 | ) |  | $ | (11,227 | ) |  | $ | (37,138 | ) |  | $ | (76,735 | )
Income (loss) from discontinued operations, net of tax | 48,372 |  |  | (1,608 | ) |  | 117 |  |  | (2,425 | ) |  | 44,456 |
Net (loss) income | 32,992 |  |  | (14,598 | ) |  | (11,110 | ) |  | (39,563 | ) |  | (32,279 | )
Net loss attributable to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net loss attributable to Flotek Industries, Inc. (Flotek) | $ | 32,992 |  |  | $ | (14,598 | ) |  | $ | (11,110 | ) |  | $ | (39,563 | ) |  | $ | (32,279 | )
Amounts attributable to Flotek shareholders: |  |  |  |  |  |  |  |  |
Loss from continuing operations (1) | $ | (15,380 | ) |  | $ | (12,990 | ) |  | $ | (11,227 | ) |  | $ | (37,138 | ) |  | $ | (76,735 | )
Income (loss) from discontinued operations, net of tax | 48,372 |  |  | (1,608 | ) |  | 117 |  |  | (2,425 | ) |  | 44,456 |
Net income (loss) attributable to Flotek | $ | 32,992 |  |  | $ | (14,598 | ) |  | $ | (11,110 | ) |  | $ | (39,563 | ) |  | $ | (32,279 | )
Basic earnings (loss) per common share (2): |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.26 | ) |  | $ | (0.22 | ) |  | $ | (0.19 | ) |  | $ | (0.64 | ) |  | $ | (1.31 | )
Discontinued operations | 0.83 |  |  | (0.03 | ) |  | — |  |  | (0.04 | ) |  | 0.76 |
Basic earnings (loss) per common share | $ | 0.57 |  |  | $ | (0.25 | ) |  | $ | (0.19 | ) |  | $ | (0.68 | ) |  | $ | (0.55 | )
Diluted earnings (loss) per common share (2): |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.26 | ) |  | $ | (0.22 | ) |  | $ | (0.19 | ) |  | $ | (0.64 | ) |  | $ | (1.31 | )
Discontinued operations | 0.83 |  |  | (0.03 | ) |  | — |  |  | (0.04 | ) |  | 0.76 |
Diluted earnings (loss) per common share | $ | 0.57 |  |  | $ | (0.25 | ) |  | $ | (0.19 | ) |  | $ | (0.68 | ) |  | $ | (0.55 | )
2018 |  |  |  |  |  |  |  |  |
Revenue (1) | $ | 41,069 |  |  | $ | 39,546 |  |  | $ | 53,709 |  |  | $ | 43,449 |  |  | $ | 177,773 |
(Loss) income from operations (1) | (9,223 | ) |  | (47,140 | ) |  | (4,080 | ) |  | (9,368 | ) |  | (69,811 | )
Loss from continuing operations (1) | $ | (9,528 | ) |  | $ | (68,987 | ) |  | $ | (4,869 | ) |  | $ | 9,943 |  |  | $ | (73,441 | )
(Loss) income from discontinued operations, net of tax | 9,595 |  |  | (6,404 | ) |  | 937 |  |  | (1,385 | ) |  | 2,743 |
Net loss (income) | $ | 67 |  |  | $ | (75,391 | ) |  | $ | (3,932 | ) |  | $ | 8,558 |  |  | $ | (70,698 | )
Basic earnings (loss) per common share (2): |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.17 | ) |  | $ | (1.19 | ) |  | $ | (0.08 | ) |  | $ | 0.18 |  |  | $ | (1.26 | )
Discontinued operations | 0.17 |  |  | (0.11 | ) |  | 0.02 |  |  | (0.02 | ) |  | 0.05 |
Basic earnings (loss) per common share | $ | — |  |  | $ | (1.30 | ) |  | $ | (0.06 | ) |  | $ | 0.16 |  |  | $ | (1.21 | )
Diluted earnings (loss) per common share (2): |  |  |  |  |  |  |  |  |
Continuing operations | $ | (0.17 | ) |  | $ | (1.19 | ) |  | $ | (0.08 | ) |  | $ | 0.18 |  |  | $ | (1.26 | )
Discontinued operations | 0.17 |  |  | (0.11 | ) |  | 0.02 |  |  | (0.02 | ) |  | 0.05 |
Diluted earnings (loss) per common share | $ | — |  |  | $ | (1.30 | ) |  | $ | (0.06 | ) |  | $ | 0.16 |  |  | $ | (1.21 | )
(1) Amounts exclude impact of discontinued operations.
(2) The sum of the quarterly earnings (loss) per share (basic and diluted) may not agree to the earnings (loss) per share for the year due to the timing of common stock issuances.

36

FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 — Related Party Transaction
In January 2017, the 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 CEO, Mr. Chisholm, were not properly withheld in 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. By 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 June 30, 2019 the Company recorded a receivable from the affiliated companies totaling $2.4 million. In October 2019, an amendment to the employment agreement was executed, giving the Company the contractual right of offset for any amounts owed to the Company against, 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. The Company netted the related party receivable against the severance payable as of December 31, 2019. At December 31, 2019, the Company recorded $1.8 million for potential liability to the IRS.

Note 20 — Subsequent Events
On February 26, 2020, Flotek Chemistry, LLC, a wholly-owned subsidiary of the Company, entered into an amendment to the terpene supply agreement between Flotek Chemistry and Florida Chemical Company, LLC. Pursuant to the terms and conditions of the amendment, the terpene supply agreement is 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 effective, Flotek Chemistry made a one-time payment of $15.8 million to Florida Chemical Company, LLC, which is included in accrued liabilities at December 31, 2019.
As of December 31, 2019, the Company concluded that the amended long-term supply agreement met the definition of a
loss contract. As such, the Company recognized a loss as of December 31, 2019 equal to the price paid for terpene supply agreement amendment which aligns purchase commitments to expected usage for blended products.
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 for the entire $4.1 million disputed amount resulting in a reduction to the gain on the sale of the business as of December 31, 2019.

37

Item 9A. Controls and Procedures.
Restated Evaluation of Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure such information is accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained. The Company’s disclosure controls and procedures are designed to provide such reasonable assurance.
Subsequent to the filing of its Annual Report on 10-K for the fiscal year ended December 31, 2019, the Company identified two deficiencies in its internal control over financial reporting. Specifically, the Company’s management determined that the Company did not, as of December 31, 2019, design and maintain effective internal controls over the elimination of intercompany profits in inventory reported between September 1, 2018 and December 31, 2019, or the recording of legal rights to certain intangible assets related to the sale of Florida Chemical Company on February 28, 2019.
The Company does not believe that the control deficiencies resulted in a material misstatement of the Company’s consolidated financial statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The Company subsequently adjusted prior periods in 2019 to reflect appropriate revisions, as previously disclosed in the Company’s press release dated May 18, 2020, and its Current Report on Form 8-K furnished on May 19, 2020.
After further review, the Company has determined that the control deficiencies constitute material weaknesses in its internal control over financial reporting as of December 31, 2019. In addition, 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 required by Rule 13a-15(e) of the Exchange Act as of December 31, 2019 and has concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2019 due to the material weaknesses in internal control over financial reporting described above.
The Company believes that, notwithstanding the material weaknesses mentioned above, the consolidated financial statements contained in this Form 10-K present fairly, in all material respects, the consolidated financial positions, results of operations 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.
Restated Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. The Company’s management, including the principal executive and principal financial officers, assessed the effectiveness of internal control over financial reporting as of December 31, 2019, based on criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (“COSO”) in Internal Control – Integrated Framework. Upon evaluation, the Company’s management has concluded that the Company’s internal control over financial reporting was not effective in connection with the preparation of the consolidated financial statements as of December 31, 2019.
Subsequent to the filing of its Annual Report on 10-K for the fiscal year ended December 31, 2019, the Company identified two deficiencies in its internal control over financial reporting. Specifically, the Company’s management determined that the Company did not, as of December 31, 2019, design and maintain effective internal controls over the elimination of intercompany profits in inventory reported between September 1, 2018 and December 31, 2019, or the recording of legal rights to certain intangible assets related to the sale of Florida Chemical Company on February 28, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Restated Changes in Internal Control over Financial Reporting
Subsequent to the filing of its Annual Report on 10-K for the fiscal year ended December 31, 2019, the Company identified two control deficiencies that constitute material weaknesses related to the elimination of intercompany profits in inventory and recording legal rights to certain intangible assets described above. The Company believes that it has taken appropriate action in its design and implementation of internal controls to remediate the two control deficiencies described above. In addition, the Company will continue to evaluate its internal controls and monitor the effectiveness of the actions taken to remediate the control deficiencies.
38

There have been no changes in the Company’s system of internal control over financial reporting during the three months ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

39

PART IV
Item 15. Exhibits and Financial Statement Schedules.
EXHIBIT INDEX

Exhibit Number |  | Exhibit Title
2.1 |  | Share Purchase Agreement, dated as of January 10, 2019, by and between the Company and Archer-Daniels-Midland Company (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).
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 |  | Second Amended and Restated Bylaws, dated October 11, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on October 17, 2017).
4.1 |  | Form of Certificate of Common Stock (incorporated by reference to Appendix E to the Company’s Definitive Proxy Statement filed on September 27, 2001).
4.2 |  | Description of Capital Stock of the Company.
10.1 | † | Fifth Amended and Restated Service Agreement, dated as of April 15, 2014, between the Company, Protechnics II, Inc. and Chisholm Management, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 21, 2014).
10.2 | † | Letter Agreement, dated February 13, 2017, among the Company, Protechnics II, Inc. and Chisholm Management, Inc. amending the Fifth Amended and Restated Service Agreement among such parties (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on February 17, 2017).
10.3 | † | Employment Agreement, dated effective March 16, 2018, between the Company and Joshua A. Snively, Sr. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 22, 2018).
10.4 | † | Form of Restricted Stock Agreement, dated March 16, 2018, between the Company and Joshua A. Snively, Sr. and Matthew B. Marietta (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on March 22, 2018).
10.5 | † | 2018 Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed on March 30, 2018).
10.6 | † | Employment Agreement, dated effective December 20, 2018, between the Company and Elizabeth T. Wilkinson (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 27, 2018).
10.7 | † | Form of Restricted Stock Agreement, dated December 27, 2018, between the Company and Elizabeth T. Wilkinson (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 27, 2018).
10.8 | † | 2019 Non-Employee Director Incentive Plan (incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed on April 24, 2019).
10.9 | † | Amendment to 2012 Employee Stock Purchase Plan (incorporated by reference to Exhibit B to the Company’s definitive proxy statement on Schedule 14A filed on April 24, 2019).
10.10 | † | Amendment to 2018 Long-Term Incentive Plan (incorporated by reference to Exhibit C to the Company’s definitive proxy statement on Schedule 14A filed on April 24, 2019).
10.11 | *** | Supply Agreement (Terpene), dated as of February 28, 2019, by and among the Company, Florida Chemical Company, LLC and Archer-Daniels-Midland Company (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2019).
10.12 | *** | Supply Agreement (Citrus Burst), dated as of February 28, 2019, by and between Florida Chemical Company, LLC and Flotek Chemistry, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2019).
10.13 |  | Cooperation Agreement, dated as of March 19, 2019, by and among the Company and BLR Partners LP and its affiliates (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 20, 2019).
10.14 | † | Employment Agreement, dated effective as of April 1, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 24, 2019).
10.15 | † | First Amended and Restated Employment Agreement, dated effective as of April 1, 2019, by and between the Company and Elizabeth T. Wilkinson (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 24, 2019).
10.16 | † | Termination and Release Agreement, dated as of May 20, 2019, by and among the Company, John W. Chisholm, Protechnics II, Inc. and Chisholm Management, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended June 30, 2019).

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Exhibit Number |  | Exhibit Title
10.17 | † | Stand-Alone Cash-Settled Restricted Stock Unit Agreement, dated as of May 20, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended June 30, 2019).
10.18 | † | Restricted Stock Agreement, dated as of May 24, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended June 30, 2019).
10.19 | † | Form of Restricted Stock Agreement pursuant to the Company’s 2018 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended June 30, 2019).
10.20 | † | Form of Restricted Stock Agreement pursuant to the Company’s 2019 Non-Employee Director Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended June 30, 2019).
10.21 | † | Amendment No. 1 to Employment Agreement, dated October 18, 2019, by and between the Company and John W. Chisholm (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 24, 2019).
10.22 | † | Guaranty, dated May 8, 2019, by John W. Chisholm in favor of the Company (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on October 24, 2019).
10.23 | † | Employment Agreement, dated effective as of December 22, 2019, by and between the Company and John W. Gibson, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 27, 2019).
10.24 | † | Stand-Alone Restricted Stock Unit Award Agreement, dated as of December 22, 2019, by and between the Company and John W. Gibson, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 27, 2019).
10.25 | † | Stand-Alone Time-Based Stock Option Award Agreement, dated as of December 22, 2019, by and between the Company and John W. Gibson, Jr. (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on December 27, 2019).
10.26 | † | Stand-Alone Performance-Based Stock Option Award Agreement, dated as of December 22, 2019, by and between the Company and John W. Gibson, Jr. (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on December 27, 2019).
21.1 |  | List of Subsidiaries.
23.1 | * | Consent of Moss Adams, LLP.
31.1 | * | Rule 13a-14(a) Certification of Principal Executive Officer.
31.2 | * | Rule 13a-14(a) Certification of Principal Financial Officer.
32.1 | ** | Section 1350 Certification of Principal Executive Officer.
32.2 | ** | Section 1350 Certification of Principal Financial Officer.
101.INS | * | Inline XBRL Instance Document.
101.SCH | * | Inline XBRL Schema Document.
101.CAL | * | Inline XBRL Calculation Linkbase Document.
101.LAB | * | Inline XBRL Label Linkbase Document.
101.PRE | * | Inline XBRL Presentation Linkbase Document.
101.DEF | * | Inline XBRL Definition Linkbase Document.
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* |  | Filed with this Form 10-K/A.
** |  | Furnished with this Form 10-K/A, not filed.
*** |  | Portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K in order for them to remain confidential.
† |  | Management contracts or compensatory plans or agreements.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FLOTEK INDUSTRIES, INC.
By: |  | /s/ John W. Gibson, Jr.
|  | John W. Gibson, Jr.
|  | President, Chief Executive Officer and Chairman of the Board

Date: June 10, 2020
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