NOTE 10 – STOCK-BASED COMPENSATION

On June 20, 2023, the Company adopted the Drilling Tools International Corporation 2023 Omnibus Incentive Plan (the "2023 Plan"). The 2023 Plan became effective on the closing of the Merger. The 2023 Plan provides for the issuance of shares of Common Stock up to ten percent (10%) of the shares of outstanding Common Stock as of the closing of the Merger and automatically increases on the first trading day of each calendar year by the number of shares of Common Stock equal to three percent (3%) of the total number of outstanding Common Stock on the last day of the prior calendar year. The 2023 Plan allows for awards to be issued to employees, non-employee directors, and consultants in the form of options, stock appreciation rights, restricted shares, restricted stock units, performance based awards, other share-based awards, other cash-based awards, or a combination of the foregoing. As of September 30, 2025, there were 1,075,226 shares of Common Stock available for issuance under the 2023 Plan.

Stock Options

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes model. Expected volatilities are based on comparable public company data. The Company uses future estimated employee termination and forfeiture rates of the options within the valuation model. The expected term of options granted is derived using the “plain vanilla” method due to the lack

of history and volume of option activity at the Company. The risk-free rate is based on the approximate U.S. Treasury yield rate in effect at the time of grant. The Company’s calculation of share price involves the use of different valuation techniques, including a combination of an income and market approach. For any grants of stock options subsequent to the Company being publicly traded, the Company will use the quoted market price as of the grant date as an input into the Black-Scholes model.

The following table summarizes our stock option activity for the nine months ended September 30, 2025:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
OUTSTANDING, December 31, 2024		4,963,626	$	3.50		6.46	$	—
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited		—		—		—		—
OUTSTANDING, September 30, 2025		4,963,626	$	3.50		5.23	$	—
UNVESTED, September 30, 2025		1,656,666	$	3.02		8.38	$	—
EXERCISABLE, September 30, 2025		3,306,960	$	2.93		3.65	$	—

During the three months ended September 30, 2025 and 2024, the Company recognized $0.4 million and $0.4 million, respectively, of stock-based compensation expense related to stock options within selling, general, and administrative expenses on the unaudited condensed consolidated statements of comprehensive income (loss). During the nine months ended September 30, 2025 and 2024, the Company recognized $1.1 million and $1.0 million, respectively, of stock-based compensation expense within selling, general, and administrative expenses on the unaudited condensed consolidated statements of comprehensive income (loss). As of September 30, 2025, total unrecognized compensation expense related to the stock options totaled $2.0 million. The unrecognized compensation expense will be recognized over the weighted average remaining vesting term of 1.4 years.

Restricted Stock Units

Restricted stock units ("RSUs") are granted to the members of the Board of Directors annually. Additionally, in February 2025, 909,321 RSUs were granted to key employees and officers. RSUs vest over a one to four year period with service and continued employment as the only vesting criteria. The recipient of the restricted stock award is entitled to all of the rights of a shareholder, except that the award is nontransferable during the vesting period. The fair value of the restricted stock award is established on the grant date and then expensed over the vesting period resulting in an increase in additional paid-in-capital.

The following table summarizes our restricted stock unit activity for the nine months ended September 30, 2025:


	Shares			Weighted Average Exercise Price
UNVESTED, December 31, 2024		68,560		$	3.23
Granted		1,052,451			3.16
Vested		(68,560	)		3.23
Forfeited		(30,000	)		3.23
UNVESTED, September 30, 2025		1,022,451		$	3.16

During the three months ended September 30, 2025 and 2024, the Company recognized $0.3 million and $0.1 million, respectively, of stock-based compensation related to RSUs within selling, general, and administrative expenses on the unaudited condensed consolidated statements of comprehensive income (loss). During the nine months ended September 30, 2025 and 2024, the Company recognized $0.7 million and $0.5 million, respectively, of stock-based compensation related to RSUs within selling, general, and administrative expenses on the unaudited condensed consolidated statements of comprehensive income (loss). As of September 30, 2025, unrecognized compensation expense related to the RSUs totaled $2.7 million. The unrecognized compensation expense will be recognized over the weighted average remaining vesting term of 3.0 years.

Drilling Tools International Corp 10-Q