On the CTG Acquisition Date, the Company’s wholly owned subsidiary, Drilling Tools International, Inc., entered into and consummated the Share Purchase Agreement with CTG, the shareholders of CTG, and a representative of CTG, to acquire 100% of the shares of CTG for a gross cash purchase consideration of £16.2 million, or approximately $20.9 million, based on the British pound sterling to United States dollar exchange rate on the CTG Acquisition Date. CTG is incorporated in the United Kingdom and is the holding company of its wholly owned subsidiary, Deep Casing. Deep Casing specializes in the design, engineering, and manufacturing of a range of patented and innovative products for well construction, well completion, and casing installation processes for the global oil and gas sector. The CTG Acquisition allows the Company to further expand its geographical presence globally, especially in the Middle East, provides accretive earnings to consolidated results of operations, and expands the Company’s portfolio of intellectual property rights, through the acquisition of over 60 patents.

The £16.2 million, or approximately $20.9 million, gross cash purchase consideration was used on the CTG Acquisition Date to (i) settle Deep Casing’s outstanding debt of £15.3 million, or approximately $19.8 million; (ii) pay Deep Casing’s legacy shareholders £0.3 million, or approximately $0.3 million, in accordance with the Share Purchase Agreement; and (iii) pay Deep Casing’s acquisition-related costs of £0.6 million, or approximately $0.8 million.

The CTG Acquisition has been accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). Drilling Tools International, Inc. has been treated as the accounting acquirer. Accordingly, CTG’s tangible and identifiable intangible assets acquired and its liabilities assumed were recorded at their estimated fair values on the CTG Acquisition Date.

The preliminary allocation of the purchase is as follows:


Assets	Preliminary March 15, 2024			Measurement Period Adjustments		As adjusted March 15, 2024
Cash	$	2,674			—	$	2,674
Accounts receivable, net		3,781			—		3,781
Inventories, net		4,282			—		4,282
Prepaid expenses and other current assets		189			—		189
Property, plant and equipment , net		1,647			—		1,647
Operating lease ROU asset		315			—		315
Intangible assets, net		8,065			—		8,065
Goodwill		2,618		526			3,144
Total assets acquired	$	23,571		$	526	$	24,097

Liabilities
Accounts payable		2,656			—		2,656
Accrued expenses and other current liabilities		(295	)		526		231
Current portion of operating lease liabilities		95			—		95
Operating lease liabilities, less current portion		180			—		180
Total liabilities assumed	$	2,636		$	526	$	3,162
Total consideration transferred	$	20,935		$	—	$	20,935

The excess of the purchase price over the fair values of the net identifiable tangible and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the Company’s competitive position. Goodwill will be evaluated for impairment at least annually. Goodwill attributable to the CTG Acquisition is not deductible for tax purposes. During the three months ended June 30, 2024, a measurement period adjustment was identified as it relates to assumed accrued liabilities. The total measurement period adjustment was $0.5 million. The measurement period adjustment impacted the goodwill recognized on March 15, 2024. As of June 30, 2024, the Company is substantially complete with the process of allocating the purchase price and valuing the acquired assets and liabilities assumed.

The following table sets forth the amounts allocated to the identified intangible assets, the estimated useful lives of those intangible assets as of the CTG Acquisition Date, and the methodologies used to determine the fair values of those intangible assets ($ in thousands):


	Fair value		Useful life (in years)	Fair value methodology
Intangible assets
Trade names	$	819	15	Relief from royalty method
Developed Technology		3,269	20	Relief from royalty method
Customer relationships		3,977	20	Multi-period excess earnings method of the income approach
Total intangible assets	$	8,065

The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

The Company incurred acquisition-related costs of $0.3 million during the six months ended June 30, 2024, which are included in other income (expense), net in the condensed consolidated statement of income and comprehensive income.

The Company’s condensed consolidated statement of income and comprehensive income for the six months ended June 30, 2024 includes CTG’s revenues of $4.8 million and net income of $0.7 million from the CTG Acquisition Date through June 30, 2024.

The unaudited supplemental pro forma financial results below for the three and six months ended June 30, 2024 and 2023, combine the consolidated results of the Company and CTG, giving effect to the CTG Acquisition as if it had been completed on January 1, 2023. This unaudited supplemental pro forma financial information is presented for informational purposes only and is not indicative of future operations or results had the acquisition been completed as of January 1, 2023, or any other date.


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2024		2023		2024		2023
Pro forma revenue	$	37,533	$	47,524	$	77,879	$	92,831
Pro forma net income	$	299	$	2,276	$	2,928	$	8,468

The unaudited supplemental pro forma financial information in the table above contains material nonrecurring pro forma adjustments to remove interest expense on CTG's debt as it is assumed that the business combination occurred and the debt was paid off on January 1, 2023.