Business Context and Reporting Period
Company: Flotek Industries, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 21, 2010
Subject: Non-reliance on previously issued financial statements due to accounting reclassification.
Key Financial Metrics
The filing does not provide specific numerical values for revenue, profit, cash flow, margins, debt, or liquidity. It explicitly states that the restatement does not result in a change to previously reported revenues, cash flows, or total cash and cash equivalents. The primary financial impact is a reclassification of warrants from stockholders' equity to a warrant liability and the recognition of non-cash charges related to changes in the fair value of that liability.
Material Changes Versus Prior Period
- Accounting Reclassification: Warrants issued in August 2009 with anti-dilution price protection features are being reclassified from equity to a liability under FASB ASC 815-40.
- Net Loss Revision: Reported net losses for the periods ended September 30, 2009, and December 31, 2009, are being revised to include non-cash charges associated with the warrant liability.
- Statement of Operations: Changes in the fair value of the warrant liability will now be reflected in the statement of operations.
Guidance, Outlook, and Risks
Management Commentary: Management and the Audit Committee concluded that the financial statements in the Form 10-Q (Q3 2009) and Form 10-K (FY 2009) should no longer be relied upon. Amendments to these reports containing restated financial statements were filed contemporaneously with this 8-K.
Risks and Contingencies: The filing highlights the risk of non-reliance on prior financial data. The company has discussed the matter with its independent registered public accounting firm, UHY LLP.
Unusual Items: The adoption of ASC 815-40 (formerly EITF 07-5) effective January 1, 2009, triggered the requirement to account for the warrants as a liability rather than equity.
Investor Verification Checklist
- Verify the amended Form 10-Q for the quarter ended September 30, 2009.
- Verify the amended Form 10-K for the year ended December 31, 2009.
- Confirm the specific dollar amount of the non-cash charges added to the net loss in the restated periods.
- Review the new warrant liability balance on the restated balance sheets.