Business Context and Reporting Period
Flotek Industries, Inc. (FTK) filed this Form 8-K on May 27, 2020, to disclose significant deficiencies in its internal controls over financial reporting identified during the preparation of its Quarterly Report on Form 10-Q for the period ended March 31, 2020.
Key Financial Metrics
This filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures. The document focuses exclusively on the identification of material weaknesses in internal controls rather than reporting new financial performance data.
Material Changes and Control Deficiencies
Management identified two specific control deficiencies that constitute material weaknesses as of December 31, 2019:
- Failure to design and maintain effective controls over the elimination of intercompany profits in inventory reported between September 1, 2018, and December 31, 2019.
- Failure to maintain effective controls over the recording of legal rights to certain intangible assets related to the sale of Florida Chemical Company on February 28, 2019.
Consequently, the Company's prior Management's Report on Internal Control over Financial Reporting and the audit report by Moss Adams LLP regarding the effectiveness of internal controls as of December 31, 2019, should no longer be relied upon. Disclosure controls and procedures were also deemed ineffective as of that date.
Outlook, Remediation, and Risks
The Company has adjusted prior periods in 2019 to reflect appropriate revisions, as previously disclosed in a press release dated May 18, 2020. Management believes the consolidated financial statements in the original Form 10-K still present fairly the Company's financial position in conformity with GAAP, despite the control weaknesses.
Remediation actions have been initiated, and the Company expects to file an amended Form 10-K and the Form 10-Q as soon as practicable, but prior to June 24, 2020. The filing includes standard forward-looking statement disclaimers regarding the timing of these future filings.
Investor Verification Checklist
- Verify the specific financial adjustments made to prior periods as detailed in the May 18, 2020 press release and the upcoming amended Form 10-K.
- Monitor the filing of the amended Form 10-K and Form 10-Q before the June 24, 2020 deadline.
- Review the updated audit report and management's assessment of internal controls once the amended filings are released.
- Assess the impact of the material weaknesses on the reliability of historical financial data regarding intercompany inventory profits and intangible asset legal rights.