Drilling Tools International Corp

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures in effect as of December 31, 2024, the end of the period covered by this Report, using the Internal Control Integrated Framework (“ICIF”) by the Committee of Sponsoring Organizations (COSO). As a result of management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of December 31, 2024.

Our disclosure controls and procedures were not effective as of December 31, 2024because all findings in connection with our preparation and the audit of our consolidated financial statements as of and for the year ended December 31, 2022 and December 31, 2023, have not been fully remediated despite ongoing projects and improvements made in the current year. As a result, we were not able to rely upon the disclosure controls and procedures that were in place as of December 31, 2024 and we continue to have a material weakness in our internal control over financial reporting. This material weakness is described in more detail below.

Remediation of Previously Reported Material Weaknesses

Our management previously determined that material weaknesses in our internal control over financial reporting existed related to the design and maintenance of internal controls commensurate with our financial reporting requirements. In connection with our preparation and the audit of our consolidated financial statements as of and for the year ended December 31, 2022 , we identified the following deficiencies in the design or operation of our internal controls to be a material weakness:

•

Failure to promote effective internal control over financial reporting throughout the Company’s management structure;

•

Failure to develop effective risk assessment controls to identify financial reporting risks and reacting to changes in the operating environment that could have a material effect on financial reporting;

•

Inadequate documentation and monitoring of information technology (“IT”) general controls and cyber-security processes within the Company’s IT environment, including access controls and segregation of duties between key IT functions; and

•

Ineffective monitoring activities to assess the operation of internal control over financial reporting;

During 2023 and 2024, management made significant progress on remediation initiatives in response to the previously identified material weakness. Specific remedial actions included:

•

Hiring additional personnel in our finance department with experience commensurate with our financial accounting and reporting requirements;

•

Implementing a policy requiring SOX training, and performing a full-day SOX training, for all process and control owners;

•

Implementing a risk assessment process to identify key accounts and systems and their related risks; and

•

Performing a segregation of duties assessment over the IT systems to cover both IT and business process related conflicts by highlighting mitigating controls for high and medium risk areas..

As a result, we have concluded that our remediation efforts have been successful and that the first three previously identified material weaknesses were remediated as of December 31, 2024.

Management is continuing it's effort to remediate the fourth material weakness.

Ongoing Remediation Efforts

As noted above, management believes that the following material is not yet remediated;

•

Ineffective monitoring activities to assess the operation of internal control over financial reporting;

We have made progress towards remediation of the remaining material weakness with the following steps:

•

Developing a plan to monitor and assess the established control environment;

•

Developing and implementing a periodic testing plan to assess the design of implemented controls covering all material business processes and systems;

•

Executing the testing plan as designed; and

•

Reporting results of testing to management and the Board of Directors.

Through the work performed in 2024, management has identified the below areas for improvement to fully remediate the fourth material weakness:

•

Employees should be trained on Information Produced by Entity (IPE) and IPE procedures should be built into internal controls and tested;

•

Provide greater precision of evidence related to the performance of both the business process and IT controls;

•

Continue to implement, refine and assess controls over gaps identified from previous years and during our remediation efforts; and

•

Monitor the execution of IT and business process controls throughout the year.

The process of maintaining effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

Changes in Internal Control over Financial Reporting

During 2024, we made three acquisitions that impacted the control environment. On March 18, 2024, we completed the acquisition of Deep Casing Tools (“DCT”). On August 1, 2024, we completed the acquisition of Superior Drilling Products. As part of the acquisition, the Superior was renamed to Diamond Products Drilling (“DPD”). On October 3, 2024, we completed the acquisition of European Drilling Projects (“EDP”). We are permitted to omit an assessment of an acquired business' internal control over financial reporting from our assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, we have excluded the internal control over financial reporting of DPD, DCT, and EDP from management's assessment of internal control over financial reporting as of December 31, 2024.

The total assets of DCT, DPD, EDP represent approximately 10%, 23% and 7%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2024.

The total revenues of DCT, DPD, EDP represent approximately 5%, 2% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2024.

There were no other changes in our internal control environment during the most recently completed fiscal quarter ended December 31, 2024, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.