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Filed
Pursuant to Rule 424(b)(3)
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Registration
No. 333-137712
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PROSPECTUS
1,765,496
Shares
FLOTEK
INDUSTRIES, INC.
Common
Stock
This
prospectus relates to an aggregate of 1,765,496 shares of our common stock
that
may be sold by the selling shareholders named in this prospectus under the
heading “Selling Shareholders”. Of that number, 1,745,496 shares to be sold by
the selling shareholders were acquired from us in two private placements and
20,000 shares will be issued by us to the selling shareholders upon the exercise
of outstanding warrants held by them. This prospectus covers the resale by
the
selling shareholders of all of those shares.
The
selling shareholders may offer and sell the shares of our common stock in their
discretion from time to time at prevailing market prices, at negotiated prices
or at fixed prices. We will not receive any of the proceeds from the sale of
those shares, but we will receive gross proceeds of $107,000 if all of the
warrants are exercised for cash by the selling shareholders.
We
have
agreed with the selling shareholders to bear all of the expenses incurred in
connection with the registration of these shares, and the selling shareholders
will pay any brokerage commissions or similar charges incurred for the sale
of
their shares of our common stock. The shares of common stock may be sold through
broker-dealers or in privately negotiated transactions in which commissions
and
other fees may be charged.
Our
common stock is traded on the American Stock Exchange under the symbol “FTK.” On
September 28, 2006 the last sale price for the common stock, as reported on
the
American Stock Exchange, was $15.00 per share.
See
“Risk Factors” beginning on page 2 for factors you should consider before buying
shares of our common stock.
Neither
the Securities and Exchange Commission (the “SEC”) nor any state securities
commission has approved or disapproved of these securities or determined if
this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The
date of this prospectus is October 5, 2006
SUMMARY
INFORMATION
The
following is only a summary. We urge you to read this entire prospectus,
including the more detailed consolidated financial statements, notes to the
consolidated financial statements and other information incorporated by
reference from our other filings with the SEC. Investing in our common stock
involves risks. Therefore, please carefully consider the information provided
under the heading "Risk Factors" beginning on this page.
Flotek
is
a Delaware corporation engaged in the manufacturing and marketing of innovative
specialty chemicals and downhole drilling and production equipment, and in
the
management of automated bulk material handling, loading and blending facilities.
Flotek serves major and independent companies in the domestic and international
oilfield service industry.
Company
headquarters are located in Houston, Texas, and we have manufacturing operations
in Texas, Oklahoma, Louisiana and Wyoming. We market our products domestically
and internationally in over 20 countries. As used in this prospectus, the terms
“Flotek”, "company", "we", "our", "ours", and "us" may, depending upon the
context, refer to Flotek Industries, Inc. together with its consolidated
subsidiaries taken as a whole.
Our
principal executive offices are located at 7030 Empire Central Drive, Houston,
Texas, 77040 and our telephone number at that address is (713) 849-9911. Our
website is located at www.flotekind.com.
The
information on our website is not part of this prospectus.
RISK
FACTORS
Our
business is subject to a number of risks, some of which are discussed below.
Before deciding to invest in our company or to maintain or increase your
investment, you should carefully consider the risk factors described below.
The
risks and uncertainties described below are not the only ones that we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business and results of
operations. If any of these risks actually occurs, our business, financial
condition or results of operations could be seriously harmed. In that event,
the
market price for our common stock could decline and you may lose all or part
of
your investment.
Risks
Related to Our Business
We
may pursue strategic acquisitions, which could have an adverse impact on our
business.
Our
business strategy includes growing our business through strategic acquisitions
of complementary businesses. In the first six months of 2006 we made three
acquisitions and were in negotiations for a fourth acquisition of a company
approximately our size when those negotiations terminated in August.
Acquisitions that we may make in the future may entail a number of risks that
could adversely affect our business and results of operations. The process
of
negotiating potential acquisitions or integrating newly acquired businesses
into
our business could divert our management’s attention from other business
concerns and could be expensive and time consuming. Acquisitions could expose
our business to unforeseen liabilities or risks associated with entering new
markets or businesses. Consequently, we might not be successful in integrating
our acquisitions into our existing operations, which may result in unforeseen
operational difficulties or diminished financial performance or require a
disproportionate amount of our management’s attention and resources. Even if we
are successful in integrating our acquisitions into our existing operations,
we
may not derive the benefits, such as operational or administrative synergies,
that we expect from such acquisitions, which may result in the commitment of
capital resources without the anticipated returns on such capital. In addition,
we may not be able to continue to identify attractive acquisition opportunities
or successfully acquire identified targets. Competition for acquisition
opportunities may escalate, increasing our cost of making further acquisitions
or causing us to refrain from making additional acquisitions. We also must
meet
certain financial covenants in order to borrow money under our senior credit
facility to fund future acquisitions and to borrow for other purposes which,
if
not met, could prevent us from making future acquisitions.
If
we do not manage the potential difficulties associated with expansion
successfully, our operating results could be adversely
affected.
We
have
grown over the last several years through internal growth and strategic
acquisitions of other businesses and assets. We believe our future success
depends in part on our ability to manage the growth we have experienced. The
following factors could present difficulties to our business going
forward:
· lack
of
sufficient experienced management personnel;
· increased
administrative burdens; and
· increased
logistical problems common to large, expansive operations.
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If
we do
not manage these potential difficulties successfully, our operating results
could be adversely affected. In addition, we may have difficulties managing
the
increased costs associated with our growth, which could adversely affect our
operating margins. The historical financial information incorporated by
reference herein is not necessarily indicative of the results that we would
have
achieved had we operated the companies we recently acquired under a fully
integrated corporate structure or the results that we may realize in the
future.
Our
business depends primarily on domestic spending by the oil and gas industry,
and
this spending and our business may be adversely affected by industry conditions
that are beyond our control.
We
depend
primarily on our customers’ willingness to make operating and capital
expenditures to explore for, develop and produce oil and gas in the United
States. Customers’ expectations for lower market prices for oil and gas may
curtail spending thereby reducing demand for our products and services. Industry
conditions in the United States are influenced by numerous factors over which
we
have no control, such as the supply of and demand for oil and gas, domestic
and
international economic conditions, political instability in oil and gas
producing countries and merger and divestiture activity among oil and gas
producers. The volatility of the oil and gas industry and the consequent effect
on exploration and production activity could adversely affect the level of
drilling and production activity by some of our customers. This reduction may
cause a decline in the demand for, or adversely affect the price of, our
products and services. Reduced discovery rates of new oil and gas reserves
in
our market areas could also have a negative long-term impact on our business,
even in an environment of stronger oil and gas prices, to the extent existing
production is not replaced or the number of drilling and producing wells
declines because of substantial depletion of existing domestic reserves or
the
availability of cheaper reserves outside the United States.
In
addition, domestic demand for oil and gas may be uniquely affected by public
attitudes in the United States regarding drilling in environmentally sensitive
areas, vehicle emissions and other environmental standards, alternative fuels
and taxation of oil and gas and “excess profits” of oil and gas companies, and
the potential changes in federal and state regulation and policy that may result
from such public attitudes.
Our
future success and profitability may be adversely affected if we or our
suppliers fail to develop and introduce new and innovative products and services
that appeal to our customers.
The
oil
and gas drilling industry is characterized by continual technological
developments that have resulted in, and likely will continue to result in,
substantial improvements in the scope and quality of oilfield chemicals,
drilling and production products and services and product function and
performance. As a result, our future success depends, in part, upon our and
our
suppliers’ continued ability to develop and introduce new and innovative
products and services in order to address the increasingly sophisticated needs
of our customers and anticipate and respond to technological and industry
advances in the oil and gas drilling industry in a timely manner. If we or
our
suppliers fail to successfully develop and introduce new and innovative products
and services that appeal to our customers, or if new market entrants or our
competitors offer such products and services, our revenues and profitability
may
suffer.
Our
ability to grow and compete in the future will be adversely affected if adequate
capital is not available.
The
ability of our business to grow and compete depends on the availability of
adequate capital, which in turn depends in large part on our cash flow from
operations and the availability of equity and debt financing. We cannot assure
you that our cash flow from operations will be sufficient or that we will be
able to obtain equity or debt financing on acceptable terms or at all to
implement our growth strategy. For example, our senior credit facility restricts
our ability to incur additional indebtedness and require us to meet certain
financial covenants in order to borrow money, including borrowings to fund
future acquisitions, a key component of our growth strategy. As a result, we
cannot assure you that adequate capital will be available to finance our current
growth plans, take advantage of business opportunities or respond to competitive
pressures, any of which could harm our business.
If
we lose the services of key members of our management, we may not be able to
manage our operations and implement our growth strategy
effectively.
We
will
depend on the continued service of Jerry D. Dumas, age 71, our Chairman and
Chief Executive Officer, who possesses significant expertise and knowledge
of
our business and industry. We do not have an employment agreement with Mr.
Dumas, nor do we carry key man life insurance on him. Any loss or interruption
of the services of Mr. Dumas could significantly reduce our ability to manage
effectively our operations and implement our growth strategy, and we cannot
assure you that we would be able to find appropriate replacements should the
need arise.
3
Our
current insurance policies may not be adequate to protect our business from
all
potential risks.
Our
operations are subject to hazards inherent in the oil and gas industry, such
as,
but not limited to, accidents, blowouts, explosions, fires, oil and chemical
spills and other hazards. These conditions can cause personal injury or loss
of
life, damage to property, equipment and the environment, and suspension of
oil
and gas operations of our customers. Litigation arising from a catastrophic
occurrence at a location where our equipment, products or services are being
used may result in us being named as a defendant in lawsuits asserting large
claims. We maintain insurance coverage that we believe to be customary in the
industry against these hazards. However, we do not have insurance against all
foreseeable risks, either because insurance is not available or because of
the
high premium costs. In addition, we may not be able to maintain adequate
insurance in the future at rates we consider reasonable. As a result, losses
and
liabilities arising from uninsured or underinsured events could have a material
adverse effect on our business, financial condition and results of operations.
We
are subject to complex federal, state and local laws and regulations that could
adversely affect our operations.
Our
operations are subject to federal, state and local laws and regulations relating
to protection of natural resources and the environment, health and safety,
waste
management and transportation of waste and other materials. In order to conduct
our operations in compliance with these laws and regulations, we must obtain
and
maintain permits, approvals and certificates from various federal, state and
local governmental authorities. We may incur substantial costs in order to
maintain compliance with these existing laws and regulations. In addition,
our
costs of compliance may increase if existing laws and regulations are amended
or
reinterpreted, or if new laws and regulations become applicable to our
operations. Such amendments or reinterpretations of existing laws or regulations
and the adoption of new laws or regulations could curtail exploratory or
developmental drilling for and production of oil and gas which, in turn, could
limit demand for our products and services. In addition, under these laws and
regulations, we may become liable for penalties, damages or costs of remediation
which could increase our costs of doing business.
We
are subject to environmental laws and regulations which expose us to costs
and
liabilities that could have a material adverse effect on our business, financial
condition and results of operation.
Our
Chemical and Logistics segment includes chemical manufacturing, packaging,
handling and delivery operations that pose risks of environmental liability
that
could result in fines and penalties, expenditures for remediation, and liability
for property damage and personal injuries. Sanctions for noncompliance with
applicable environmental laws and regulations also may include assessment of
administrative, civil and criminal penalties, revocation of permits and issuance
of corrective action orders.
Laws
protecting the environment generally have become more stringent over time and
are expected to continue to do so, which could lead to material increases in
costs for future environmental compliance and remediation. The modification
or
interpretation of existing laws or regulations, or the adoption of new laws
or
regulations, could curtail exploratory or developmental drilling for oil and
gas
and could severely limit opportunities to sell the Company’s products and
services. Some environmental laws and regulations may impose strict liability,
which means that in some situations we could be exposed to liability as a result
of our conduct that was lawful at the time it occurred or conduct of, or
conditions caused by, prior operators or other third parties. Clean-up costs
and
other damages arising as a result of environmental laws, and costs associated
with changes in environmental laws and regulations, could be substantial and
could have a material adverse effect on our financial condition.
If
we are unable to adequately protect our intellectual property rights our
business is likely to be adversely affected.
We
rely
on a combination of patents, trademarks, non-disclosure agreements and other
security measures to establish and protect our proprietary rights. Although
we
believe that those measures, together with our trade secrets and proprietary
design, manufacturing and operational expertise, are reasonably adequate to
protect our intellectual property and provide for the continued operation of
our
business, it is uncertain that the measures we have taken or may take in the
future will prevent misappropriation of our proprietary information or that
others will not independently develop similar products or services, design
around our proprietary or patented technology or duplicate our products or
services.
We
and our customers are subject to risks associated with doing business outside
of
the United States which may expose us to political, foreign exchange and other
uncertainties.
During
the year ended December 31, 2005 and the six months ended June 30, 2006,
approximately 13% and
8%,
respectively, of our consolidated revenues was derived from the rental and
sale
of products for use outside of the United States. Accordingly, we and our
customers are subject to certain risks inherent in doing business outside of
the
United States, including governmental instability, war and other international
conflicts, civil and labor disturbances, requirements of local ownership,
partial or total expropriation or nationalization, currency devaluation, foreign
exchange control and foreign laws and policies, each of which may limit the
movement of assets or funds or result in the deprivation of contract rights
or
the taking of property without fair compensation. Collections and recovery
of
rental tools from international customers and agents may also prove more
difficult due to the uncertainties of foreign law and judicial procedure. We
may
therefore experience significant difficulty resulting from the political or
judicial climate in countries in which we operate or in which our products
are
used. In addition, from time to time the United States has passed laws and
imposed regulations prohibiting or restricting trade with certain
nations.
4
Although
most of our international revenues are derived from transactions denominated
in
United States dollars, we have and likely will continue to conduct some business
in currencies other than the United States dollar. We currently do not hedge
against foreign currency fluctuations. Accordingly, our profitability could
be
affected by fluctuations in foreign exchange rates. We have no assurance that
future laws and regulations will not materially adversely affect our
international business.
Failure
to maintain effective disclosure controls and procedures and internal controls
over financial reporting could have an adverse effect on our operations and
the
trading price of our common stock.
Effective
internal controls are necessary for us to provide reliable financial reports,
effectively prevent fraud and operate successfully as a public company. If
we
cannot provide reliable financial reports or prevent fraud, our reputation
and
operating results could be harmed. Our efforts to maintain our internal controls
may not be successful, and we may be unable to maintain adequate controls over
our financial processes and reporting in the future, including compliance with
the obligations under Section 404 of the Sarbanes-Oxley Act of 2002. Any failure
to maintain effective controls, or difficulties encountered in their
implementation or other effective improvement of our internal controls could
harm our operating results or cause us to fail to meet our reporting
obligations. Ineffective internal controls could also cause investors to lose
confidence in our reported financial information, which would likely have a
negative effect on the trading price of our common stock.
Risks
Related to Our Industry
Volatility
or decline in oil and natural gas prices may result in reduced demand for our
products and services which may adversely affect our business, financial
condition and results of operation.
The
markets for oil and natural gas have historically been extremely volatile.
We
anticipate that these markets will continue to be volatile in the future.
Although oil and gas prices have increased significantly in recent years, there
can be no guarantees that these prices will remain at current levels. Such
volatility in oil and gas prices, or the perception by our customers of
unpredictability in oil and natural gas prices, affects the spending patterns
in
our industry. The demand for our products and services is, in large part, driven
by current and anticipated oil and gas prices and the related general levels
of
production spending and drilling activity. In particular, volatility or a
decline in oil and gas prices may cause a decline in exploration and drilling
activities. This, in turn, could result in lower demand for our products and
services and may cause lower prices for our products and services. As a result,
volatility or a prolonged decline in oil or natural gas prices may adversely
affect our business, financial condition and results of operations.
Competition
from new and existing competitors within our industry could have an adverse
effect on our results of operations.
The
oil
and gas industry is highly competitive and fragmented. Our principal competitors
include numerous small companies capable of competing effectively in our markets
on a local basis as well as a number of large companies that possess
substantially greater financial and other resources than we do. Our larger
competitors may be able to devote greater resources to developing, promoting
and
selling their products and services. We may also face increased competition
due
to the entry of new competitors including current suppliers that decide to
sell
their products and services directly. As a result of this competition, we may
experience lower sales or greater operating costs, such as marketing costs,
which may have an adverse effect on our margins and results of
operations.
Our
industry has experienced a high rate of employee turnover. Any difficulty we
experience attracting or retaining personnel could adversely affect our
business.
We
operate in a highly competitive industry for securing qualified personnel with
the required technical skills and experience. Our services require skilled
personnel who can perform physically demanding work. Due to industry volatility
and the demanding nature of the work, workers may choose to pursue employment
in
fields that offer a more desirable work environment at wages that are
competitive with ours. As a result, we may not be able to find enough labor
to
meet our needs, which could limit our growth. In addition, the cost of
attracting and retaining qualified personnel has increased over the past several
years due to competition, and we expect it will continue to increase in the
future. In order to attract and retain qualified personnel we may be required
to
offer increased wages and benefits. If we are not able to increase the prices
of
our products and services to compensate for increases in compensation, or if
we
are unable to attract and retain qualified personnel, our operating results
could be adversely affected.
5
Severe
weather could have a material adverse impact on our
business.
Our
business could be materially and adversely affected by severe weather.
Hurricanes, tropical storms, blizzards and cold weather and other weather
hazards may cause the curtailment of services, damages to our equipment and
facilities, interruptions in the transportation of our products and materials
in
accordance with contract schedules and loss of productivity. If our customers
are unable to operate or are required to reduce their operations due to severe
weather, and as a result curtail the purchases of our products and services,
our
business could be materially adversely affected.
A
terrorist attack or armed conflict could harm our
business.
Terrorist
activities, anti-terrorist efforts and other armed conflict involving the United
States may adversely affect the United States and global economies and could
prevent us from meeting our financial and other obligations. We may experience
loss of business or delays or defaults in payments from payers that have been
affected by actual or potential terrorist activities. In addition, such
activities could reduce the overall demand for oil and natural gas which, in
turn, could reduce the demand for our products and services. We have implemented
certain security measures in response to the threat of terrorist activities.
Terrorist activities and the threat of potential terrorist activities and any
resulting economic downturn could adversely affect our results of operations,
impair our ability to raise capital or otherwise adversely impact our ability
to
execute our business strategy.
Risks
Related to Our Indebtedness
Our
senior credit facility contains certain covenants that may limit our flexibility
and prevent us from taking certain actions, which could adversely affect our
ability to execute our business strategy.
Our
senior credit facility includes a number of significant restrictive covenants.
These covenants could adversely affect us by limiting our ability to plan for
or
react to market conditions, meet our capital needs and execute our business
strategy. These covenants, among other things, limit our ability, without the
consent of the lender, to:
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incur
certain types and amounts of additional
debt;
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consolidate,
merge or sell our assets or materially change the nature of our business;
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pay
dividends on capital stock and make restricted
payments;
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make
voluntary prepayments, or materially amend the terms, of subordinated
debt;
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enter
into certain types of transactions with
affiliates;
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make
certain investments;
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make
certain capital expenditures; and
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incur
certain liens.
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These
covenants may restrict our operating and financial flexibility and limit our
ability to respond to changes in our business or competitive activities. Our
senior credit facility also requires us to maintain certain financial ratios
and
satisfy certain financial conditions, several of which may require us to reduce
our debt or take some other action in order to comply with the covenants. If
we
fail to comply with these covenants, we could be in default. In the event of
a
default, our lender could elect to declare all the amounts borrowed, together
with accrued and unpaid interest, to be due and payable. In addition, the lender
could elect to terminate its commitment to us, and we or one or more of our
subsidiaries could be forced into liquidation or bankruptcy. Any of the
foregoing consequences could restrict our ability to execute our business
strategy.
We
may not be able to generate sufficient cash flow to meet our debt service
obligations.
We
have
been unable to maintain the fixed charge coverage ratio and limit on capital
expenditures set forth in our senior credit facility in each of the last two
quarters, and have obtained waivers from our principal lender of those
covenants. We have recently amended the revolving line of credit portion of
our
senior credit facility to extend the maturity date and increase the maximum
amount that may be outstanding, and are currently renegotiating the term portion
of that facility. Our ability to generate sufficient cash flow from operations
to make scheduled payments on these debt obligations will depend on our future
financial performance, which will be affected by a range of economic,
competitive, regulatory and industry factors, many of which are beyond our
control. If we are unable to generate sufficient cash flow or otherwise obtain
the funds required to make principal and interest payments on our indebtedness,
we may have to undertake alternative financing plans, such as refinancing or
restructuring our debt, selling assets, reducing or delaying capital investments
or seeking to raise additional capital. We cannot assure you that any
refinancing would be possible or that any assets could be sold on acceptable
terms or otherwise to meet our debt obligations. Our inability to generate
sufficient cash flow to satisfy such obligations, or to refinance our
obligations on commercially reasonable terms, would have an adverse effect
on
our business, financial condition and results of operations.
6
Risks
Related to the Common Stock
The
market price of our common stock could drop significantly following sales of
substantial amounts of our common stock in the public
markets.
The 1,765,496
shares covered by this prospectus represent approximately 19% of our weighted
average outstanding shares of common stock, on a fully diluted basis. We are
unable to predict the amount or timing of sales by the selling shareholders
of
our common stock, but sales of substantial amounts in the public market could
lower the market price of our stock.
The
market price of our common stock has been and may continue to be
volatile.
The
market price of our common stock has historically been subject to significant
fluctuations. For example, during the twelve months ended September 28, 2006,
the closing price of our common stock ranged from $13.75 to $29.77 per share.
The following factors, among others, could cause the price of our common stock
in the public market to fluctuate significantly:
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variations
in our quarterly results of
operation;
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changes
in market valuations of companies in our
industry;
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fluctuation
in stock market prices and volume;
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fluctuation
in oil and natural gas prices;
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issuance
of common stock or other securities in the future;
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the
addition or departure of key personnel;
and
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announcements
by us or our competitors of new business, acquisitions or joint
ventures.
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The
stock
market has experienced extreme price and volume fluctuations in recent years
that have significantly affected the prices of the common stock of many
companies, including companies in our industry. The changes often occur without
regard to specific operating performance. The price of our common stock could
continue to fluctuate based upon factors that have little to do with our
company, and these fluctuations could materially reduce our stock price. Class
action lawsuits have frequently been brought against companies following periods
of volatility in the market price of their common stock. If we become involved
in this type of litigation it could be expensive and divert management’s
attention and company resources, which could have a material adverse effect
on
our business, financial condition and results of operation.
An
active market for our common stock may not continue to exist or may not continue
to exist at current trading levels.
Our
common stock is quoted on the American Stock Exchange. While there is currently
one specialist in our common stock, this specialist is not obligated to continue
to make a market in our common stock. In the event it does not continue to
make
a market in our common stock, the liquidity of our common stock could be
adversely impacted and a stockholder could have difficulty obtaining accurate
stock quotes. Trading volume for our common stock has historically been low.
Despite the increase in the number of shares of common stock to be publicly
held
as a result of the private placement to the selling shareholders and the
exercise of warrants, we cannot assure you that an active trading market for
our
common stock will develop or be sustained.
We
have no plans to pay dividends on our common stock, and therefore, investors
will have to look to stock appreciation for return on their
investments.
We
do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. We currently intend to retain all future earnings to fund the
development and growth of our business. Any payment of future dividends will
be
at the discretion of our board of directors and will depend on, among other
things, our earnings, financial condition, capital requirements, level of
indebtedness, statutory and contractual restrictions applying to the payment
of
dividends and other considerations that the board of directors deems relevant.
Certain covenants of our senior credit facility restrict the payment of
dividends without the prior written consent of the lenders. Investors must
rely
on sales of their common stock after price appreciation, which may never occur,
in order to realize a return on their investment.
7
Certain
anti-takeover provisions of our charter documents and under Delaware law could
discourage or prevent others from acquiring our company, which may adversely
affect the market price of our common stock.
Our
certificate of incorporation and bylaws contain provisions that:
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permit
us to issue, without stockholder approval, up to 100,000 shares of
preferred stock, in one or more series and, with respect to each
series,
to fix the designation, powers, preferences and rights of the shares
of
the series;
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limit
the ability of stockholders to act by written consent or to call
special
meetings;
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prohibit
cumulative voting;
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prohibit
stockholders from amending or repealing the
bylaws;
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require
advance notice for stockholder proposals and nominations for election
to
the board of directors to be acted upon at meetings of
stockholders.
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In
addition, Section 203 of the Delaware General Corporation Law limits business
combinations with owners of more than 15% of our stock that have not been
approved by the board of directors. These provisions and other similar
provisions make it more difficult for a third party to acquire us without
negotiation. Our board of directors could choose not to negotiate with an
acquirer that it did not feel was in our strategic interest. If the acquirer
were discouraged from offering to acquire us or prevented from successfully
completing a hostile acquisition by the anti-takeover measures, you could lose
the opportunity to sell your shares at a favorable price.
Future
issuance of additional shares of our common stock could cause dilution of
ownership interests and adversely affect our stock
price.
The
company may in the future issue its previously authorized and unissued
securities, resulting in the dilution of the ownership interests of its current
stockholders and purchasers of common stock offered hereby. We are currently
authorized to issue 20,000,000 shares of common stock with such rights as
determined by our board of directors. The potential issuance of such additional
shares of common stock may create downward pressure on the trading price of
our
common stock. We may also issue additional shares of our common stock or other
securities that are convertible into or exercisable for common stock for capital
raising or other business purposes. Future sales of substantial amounts of
common stock, or the perception that sales could occur, could have a material
adverse effect on the price of our common stock.
We
may issue shares of preferred stock with greater rights than our common
stock.
Subject
to the rules of the American Stock Exchange, our articles of incorporation
authorize our board of directors to issue one or more series of preferred stock
and set the terms of the preferred stock without seeking any further approval
from holders of our common stock. Currently, there are 100,000 preferred shares
authorized but none issued. Any preferred stock that is issued may rank ahead
of
our common stock in terms of dividends, priority and liquidation premiums and
may have greater voting rights than holders of our common stock.
PRIVATE
SECURITIES LITIGATION
REFORM
ACT SAFE HARBOR STATEMENT
This
prospectus contains forward-looking statements within the meaning of Section
27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”), based on our current expectations, assumptions,
estimates and projections about our business and our industry. The words
“anticipate”, “believe”, “expect”, “plan”, “intend”, “project”, “forecast”,
“could” and similar expressions are intended to identify forward-looking
statements. All statements other than statements of historical facts regarding
the company’s financial position, business strategy, budgets and plans and
objectives of management for future operations are forward-looking statements.
Although the company believes that the expectations reflected in such
forward-looking statements are reasonable, actual results may differ materially
from those in the forward-looking statements. Examples of forward-looking
statements in this prospectus include, but are not limited to, statements
regarding the following:
8
| · |
the
demand for our products and
services;
|
| · |
the
competitive environment in our
industry;
|
| · |
the
volatility of oil and gas prices;
|
| · |
the
regulatory framework in which we operate our
business;
|
| · |
our
ability to successfully integrate the operations of our strategic
acquisitions into our existing operations and achieve anticipated
synergies; and
|
| · |
implementation
of our business strategy.
|
Although
we believe that the forward-looking statements contained in this prospectus
are
based upon reasonable assumptions, the forward-looking events and circumstances
discussed in this prospectus may not occur, and actual results could differ
materially from those anticipated or implied in the forward-looking
statements.
Important
factors that may affect our expectations, estimates or projections include:
| · |
the
effects of our acquisitions on our
business;
|
| · |
a
decline in or substantial volatility of oil and gas prices, and any
related changes in expenditures by our
customers;
|
| · |
changes
in customer requirements in markets or industries we serve;
|
| · |
competition
within our industry;
|
| · |
general
economic and market conditions;
|
| · |
our
access to current or future financing arrangements and the higher
cost of
our senior credit facility if interest rates rise;
|
| · |
our
ability to replace or add workers at economic rates; and
|
| · |
environmental
and other governmental regulations.
|
New
risk
factors emerge from time to time, and it is not possible for us to predict
all
risk factors, nor can we assess the impact of all factors on our business or
the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
We
undertake no obligation to update publicly or revise any forward-looking
statements. You should not rely upon forward-looking statements as predictions
of future events or performance. We cannot assure you that the events and
circumstances reflected in the forward-looking statements will be achieved
or
occur.
USE
OF PROCEEDS
The
shares of common stock offered by this prospectus will be sold by the selling
shareholders, and the selling shareholders will receive all of the proceeds
from
the sales of such shares. The company will not receive any proceeds from the
sale or distribution of the common stock by the selling
shareholders.
SELLING
SHAREHOLDERS
The
following table sets forth certain information regarding the selling
shareholders’ ownership of our common stock as of September 28, 2006, and as
adjusted to reflect the assumed sale by the selling shareholders of all of
the
common stock owned, or to be owned upon the exercise of outstanding warrants,
by
them in this offering. The term “selling shareholder” includes the shareholders
listed below and their transferees, assignees, pledges, donees or other
successors.
Each
of
the selling shareholders has represented to us that it is not a broker-dealer.
One of the selling shareholders, Oberweis Micro-Cap Fund, has represented to
us
that it is an affiliate of a broker-dealer, that it purchased the shares in
the
ordinary course of business and that at the time of purchase of the
shares it had no agreements or understandings, directly or indirectly, with
any person to distribute the shares.
We
are
unable to determine the exact number of shares that will actually be sold,
because the selling shareholders may sell all or some of the shares and reserve
the right to accept or reject, in whole or in part, any proposed sale of shares.
The selling shareholders may offer and sell less than the number of shares
indicated, and are not making any representations that any shares covered by
this prospectus will or will not be offered for sale. We are not aware of any
agreements, arrangements or understandings with respect to the sale of any
of
the shares. The following table assumes that the selling shareholders will
sell
all of the shares being offered for their account by this
prospectus.
Beneficial
ownership is determined in accordance with Rule 13d-3 under the Securities
Act
and generally includes voting or investment power with respect to securities.
Except as indicated in the footnotes to the table, we believe that each
shareholder possesses sole voting and investment power with respect to all
of
the shares of common stock owned by that holder, subject to community property
laws where applicable. In computing the number of shares beneficially owned
by a
holder and the percentage ownership of that holder, shares of common stock
underlying warrants that are currently exercisable within 60 days are deemed
outstanding. Percentages are based on 8,842,339 shares of common stock issued
and outstanding as of September 28, 2006 and, solely in the case of selling
shareholders who hold warrants to purchase common stock, the number of shares
of
common stock issuable upon the exercise of the warrant held by that selling
shareholder.
9
|
Shares
Beneficially Owned
after the Offering |
|||||||||||||
|
Selling
Shareholders
|
Shares
Beneficially
Owned before the Offering |
Shares
Offered in this Offering |
No.
of
Shares |
%
of
Outstanding |
|||||||||
|
Bonanza
Master Fund Ltd. (1)
|
68,500
|
68,500
|
-
|
-
|
|||||||||
|
Calm
Waters Partnership (2)
|
304,900
|
150,000
|
154,900
|
1.8%
|
|
||||||||
|
Green
Bay Packing Master Trust Fund (3)
|
5,000
|
4,000
|
1,000
|
*
|
|||||||||
|
Harbour
Holdings Ltd. (4)
|
55,000
|
27,500
|
27,500
|
*
|
|||||||||
|
HedgeEnergy
Master Fund (5)
|
202,900
|
130,000
|
72,900
|
*
|
|||||||||
|
Los
Angeles City Employees’ Retirement
System
(6)
|
60,000
|
48,500
|
11,500
|
*
|
|||||||||
|
UMB
Trust & Co. FBO Oberweis Micro-Cap
Fund
(7)
|
42,800
|
25,000
|
17,800
|
*
|
|||||||||
|
SIT
Small Cap Growth Fund, Series D (8)
|
28,900
|
19,400
|
9,500
|
*
|
|||||||||
|
Skylands
Quest LLC (9)
|
10,000
|
4,500
|
5,500
|
*
|
|||||||||
|
Skylands
Special Investment LLC (10)
|
3,500
|
500
|
3,000
|
*
|
|||||||||
|
Skylands
Special Investment II LLC (11)
|
27,000
|
17,500
|
9,500
|
*
|
|||||||||
|
Wells
Fargo National Association (12)
|
20,000
|
20,000
|
-
|
-
|
|||||||||
|
John
Chisholm (13)
|
180,684
|
123,185
|
57,499
|
*
|
|||||||||
|
Arvind
Sanger
|
7,657
|
7,657
|
-
|
-
|
|||||||||
|
Glenn
Penny (14)
|
827,915
|
6,991
|
820,924
|
9.3%
|
|
||||||||
|
William
Ziegler (15)
|
300,748
|
290,418
|
10,330
|
*
|
|||||||||
|
Saxton
River Corporation (16)
|
69,498
|
69,498
|
-
|
-
|
|||||||||
|
TOSI,
LLP (17)
|
752,347
|
752,347
|
-
|
-
|
|||||||||
|
TOTAL
|
2,967,349
|
1,765,496
|
1,201,853
|
13.6%
|
|
||||||||
____________
|
*
|
Represents
less than 1%.
|
|
(1)
|
Bernay
Box, President of the General Partner of Bonanza Master Fund Ltd.,
exercises voting and investment power over the shares held by Bonanza
Master Fund Ltd.
|
|
(2)
|
Richard
S. Strong, Managing Partner of Calm Waters Partnership, exercises
voting
and investment power over the shares held by Calm Waters
Partnership.
|
|
(3)
|
Eugene
Sit, Chairman, CEO and CIO of SIT Investment Associates, Inc., exercises
voting and investment power over the shares held by Green Bay Packing
Master Trust Fund.
|
|
(4)
|
Charles
A. Paquelet, President of Skylands Capital, LLC, exercises voting and
investment power over the shares held by Harbour Holdings
Ltd.
|
|
(5)
|
B.J.
Willingham, Chief Investment Officer of HedgEnergy Master Fund, exercises
voting and investment power over the shares held by HedgEnergy Master
Fund.
|
|
(6)
|
Eugene
Sit, Chairman, CEO and CIO of SIT Investment Associates, Inc.,
exercises voting and investment power over the shares held by Los
Angeles
City Employees’ Retirement System.
|
|
(7)
|
James
W. Oberweis, President of the Oberweis Micro-Cap Funds, exercises
voting
and investment power over the shares held by UMB Trust & Co. FBO
Oberweis Micro-Cap Fund.
|
|
(8)
|
Eugene
Sit, Chairman, CEO and CIO of SIT Investment Associates, Inc.,
exercises voting and investment power over the shares held by SIT
Small
Cap Growth Fund, Series D.
|
|
(9)
|
Charles
A. Paquelet, President of Skylands Capital, LLC, exercises voting and
investment power over the shares held by Skylands Quest
LLC.
|
|
(10)
|
Charles
A. Paquelet, President of Skylands Capital, LLC, exercises voting and
investment power over the shares held by Skylands Special Investment
LLC.
|
|
(11)
|
Charles
A. Paquelet, President of Skylands Capital, LLC, exercises voting and
investment power over the shares held by Skylands Special Investment
II
LLC.
|
|
(12)
|
Common
stock issuable upon the exercise of warrants at $5.35 per share issued
in
connection with a credit agreement between the Company and Wells
Fargo
Bank dated February 14, 2005.
|
|
(13)
|
Member
of our Board of Directors since 1999. Shares are held of record by
Chisholm Energy Partners.
|
|
(14)
|
Member
of our Board of Directors and Chief Technical Officer since
2001.
|
|
(15)
|
Member
of our Board of Directors since 1997.
|
|
(16)
|
Jerry
D. Dumas, Sr., Chairman and CEO of the Company, exercises voting
and
investment power over the shares held by Saxton River
Corporation.
|
|
(17)
|
J.W.
Beavers, President of Pitman Property Corp, general partner of TOSI,
L.P.,
exercises voting and investment power over the shares held by TOSI,
L.P.
|
10
PLAN
OF DISTRIBUTION
As
of the
date of this prospectus, we have not been advised by the selling shareholders
as
to any plan of distribution. Distributions of the shares by the selling
shareholders, or by their partners, pledgees, donees (including charitable
organizations), transferees or other successors in interest, may from time
to
time be offered for sale either directly by such individual, or through
underwriters, dealers or agents or on any exchange on which the shares may
from
time to time be traded, in the over-the-counter market, or in independently
negotiated transactions or otherwise. In the event of the transfer by any
of the selling stockholders of its shares to any pledgee, donee, transferee
or
other successor, we will file a prospectus supplement to this prospectus and
the
registration statement of which it is a part, identifying such successors as
selling shareholders. The methods by which the shares may be sold
include:
| · |
a
block trade (which may involve crosses) in which the broker or dealer
so
engaged will attempt to sell the securities as agent but may position
and
resell a portion of the block as principal to facilitate the
transaction;
|
| · |
purchases
by a broker or dealer as principal and resale by such broker or dealer
for
its own account pursuant to this
prospectus;
|
| · |
exchange
distributions and/or secondary
distributions;
|
| · |
sales
in the over-the-counter market;
|
| · |
underwritten
transactions;
|
| · |
ordinary
brokerage transactions and transactions in which the broker solicits
purchasers; and
|
| · |
privately
negotiated transactions.
|
Such
transactions may be effected by the selling shareholders at market prices
prevailing at the time of sale or at negotiated prices. The selling shareholders
may effect such transactions by selling the common stock to underwriters or
to
or through broker-dealers, and such underwriters or broker-dealers may receive
compensations in the form of discounts or commissions from the selling
shareholders and may receive commissions from the purchasers of the common
stock
for whom they may act as agent. The selling shareholders may agree to indemnify
any underwriter, broker-dealer or agent that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act. We have agreed to register the shares for
sale
under the Securities Act and to indemnify the selling shareholders and each
person who participates as an underwriter in the offering of the shares against
certain civil liabilities, including certain liabilities under the Securities
Act.
In
connection with sales of the common stock under this prospectus, the selling
shareholders may enter into hedging transactions with broker-dealers, who may
in
turn engage in short sales of the common stock in the course of hedging the
positions they assume. The selling shareholders also may sell shares of common
stock short and deliver them to close out the short positions, or loan or pledge
the shares of common stock to broker-dealers that in turn may sell
them.
The
selling shareholders and any broker-dealers or agents that participate with
the
selling shareholders in the sale of the shares may be deemed to be
“underwriters” within the meaning of the Securities Act in connection with these
sales. In that event, any commissions received by the broker-dealers or agents
and any profit on the resale of the shares of common stock purchased by them
may
be deemed to be underwriting commissions or discounts under the Securities
Act.
LEGALITY
OF SECURITIES
Certain
legal matters in connection with the common stock to be sold by the selling
shareholders have been passed on for us by Doherty & Doherty LLP, Houston,
Texas.
11
EXPERTS
The
financial statements as of December 31, 2004 and 2005 and for the years
then ended incorporated by reference in this prospectus have been audited by
UHY
Mann Frankfort Stein & Lipp CPA LLP, independent auditors, as indicated in
their reports with respect thereto and are incorporated by reference herein
in
reliance upon the authority of said firm as experts in giving said
reports..
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC
allows us to "incorporate by reference" the information we file with them,
which
means that we can disclose important information to you by referring you to
documents we file with the SEC. The information incorporated by reference is
considered to be part of this registration statement. Information that we file
later with the SEC will automatically update and supersede this information.
We
incorporate by reference the documents listed below until all of the shares
covered by this registration statement have been sold or
deregistered:
| · |
Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2005;
|
| · |
Quarterly
Reports on Form 10-QSB for the fiscal quarters ended March 31,
2006 and June 30, 2006;
|
| · |
Current
Reports on Form 8-K filed May 18, 2006, June 9, 2006 and July 24,
2006; and
|
| · |
Description
of Common Stock on Form 8A filed on July 25, 2005, as the same may
be
amended from time to time.
|
We
also
incorporate all documents we subsequently file with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of this offering (except for information furnished
rather than filed on Form 8-K). The information in these documents will update
and supersede the information in this prospectus.
We
will
provide, without charge, to each person to whom this prospectus is delivered,
upon written or oral request of any such person, a copy of any or all of the
foregoing documents. Please direct written requests to Flotek Industries, Inc.
Attention: Glenn Neslony, Director of Financial Reporting, 7030 Empire Central
Drive, Houston, Texas 77040. Please direct telephone requests to
Mr. Neslony at (713) 849-9911.
AVAILABLE
INFORMATION
We
are
subject to the information requirements of the Exchange Act. Accordingly, we
file reports, proxy statements and other information with the SEC. You may
read
and copy materials we file with the SEC at the SEC's Public Reference Room
at
100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC
at
1-800-732-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC at http://www.sec.gov.
We
have
filed with the SEC a registration statement on Form S-3 under the
Securities Act. This prospectus does not contain all of the information,
exhibits and undertakings set forth in the registration statement, certain
parts
of which are omitted as permitted by the rules and regulations of the SEC.
For
further information, please refer to the registration statement which may be
read and copied in the manner and at the sources described above. You may obtain
information about our company from our website at www.flotekind.com.
Information on our website is not incorporated by reference into this
prospectus. You may also request a copy of our filings, which we will provide
at
no cost, by writing to Flotek Industries, Inc. Attention: Glenn Neslony,
Director of Financial Reporting, 7030 Empire Central Drive, Houston,
Texas 77040, or by telephone at (713) 849-9911.
You
should rely only on information contained in this document or to which we have
referred you. Neither we nor the selling shareholders have authorized anyone
to
provide you with different or additional information. This document may only
be
used where it is legal to sell these securities. The information in this
document may only be accurate on the date of this document. You should not
assume that the information in the prospectus, or incorporated herein by
reference, or in any prospectus supplement is accurate as of any date other
than
the date on the front of those documents.
12
TABLE
OF CONTENTS
| Page | ||
| Summary Information | 2 | |
| Risk Factors | 2 | |
| Private Securities Litigation Reform Act Safe Harbor Statement | 8 | |
| Use of Proceeds | 9 | |
| Selling Shareholders | 9 | |
| Plan of Distribution | 11 | |
| Legality of Securities | 11 | |
| Experts | 12 | |
| Incorporation of Certain Information by Reference | 12 | |
| Available Information | 12 |
FLOTEK
INDUSTRIES, INC.
1,765,496
shares of common stock
PROSPECTUS
October
5, 2006
13