These financial statements for DIRTT Environmental Solutions Ltd. are also included in the Form 10-K for the year ended December 31, 2024 filed on SEDAR+ on February 26, 2025 in its entirety.

Item 8. Financial Statements and Supplementary Data.

pwc

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of DIRTT Environmental Solutions Ltd.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of DIRTT Environmental Solutions Ltd. and its subsidiaries (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income (loss), of changes in shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission (SEC) and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue from Contracts with Customers – Product Sales

As described in Notes 2 and 20 to the consolidated financial statements, the Company's revenue recognized from product sales was $153 million for the year ended December 31, 2024. The Company recognizes revenue upon transfer of control of promised goods to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods. The Company's main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. The Company's standard sales terms are Free On Board shipping point.

The principal consideration for our determination that performing procedures relating to revenue from contracts with customers is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company's revenue recognition.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, bills of lading and subsequent cash receipts; and (ii) confirming a sample of outstanding customer invoice balances as of December 31, 2024 and, for confirmations not returned, obtaining and inspecting source documents, such as invoices, bills of lading and subsequent cash receipts.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants

Calgary, Alberta, Canada

February 26, 2025

We have served as the Company's auditor since 2017, which includes periods before the Company became subject to SEC reporting requirements.

DIRTT Environmental Solutions Ltd.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)

	As at December 31, 2024	As at December 31, 2023
ASSETS
Current Assets
Cash and cash equivalents	29,288	24,744
Restricted cash	243	355
Trade and accrued receivables, net of expected credit losses of $0.1 million at December 31, 2024 and at December 31, 2023	19,494	15,787
Other receivables	416	484
Inventory	15,109	16,577
Prepaids and other current assets	2,609	4,023
Assets held for sale	-	1,555
Total Current Assets	67,159	63,525
Property, plant and equipment, net	20,199	25,077
Capitalized software, net	2,548	2,450
Operating lease right-of-use assets, net	25,369	29,813
Other assets	2,945	3,452
Total Assets	118,220	124,317
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	16,352	19,880
Other liabilities	3,217	2,482
Customer deposits and deferred revenue	4,028	5,290
Current portion of long-term debt and accrued interest	359	841
Current portion of lease liabilities	5,619	5,255
Total Current Liabilities	29,575	33,748
Long-term debt	21,993	55,267
Long-term lease liabilities	24,062	28,201
Total Liabilities	75,630	117,216
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 193,605,237 issued and outstanding at December 31, 2024 and 105,377,667 issued and outstanding at December 31, 2023	219,023	196,128
Additional paid-in capital	8,206	7,954
Accumulated other comprehensive loss	(18,541)	(16,125)
Accumulated deficit	(166,098)	(180,856)
Total Shareholders’ Equity	42,590	7,101
Total Liabilities and Shareholders’ Equity	118,220	124,317

Refer to Note 2 for policy on Common Shares.
Refer to Note 22 for Commitments.
Refer to Note 25 for Subsequent Events.

The accompanying notes are an integral part of these consolidated financial statements.

DIRTT Environmental Solutions Ltd.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Stated in thousands of U.S. dollars, except per share data)

	For the Year Ended December 31,
	2024	2023	2022
Product revenue	169,660	176,919	166,256
Service revenue	4,653	5,012	5,905
Total revenue	174,313	181,931	172,161
Product cost of sales	107,468	119,728	140,058
Service cost of sales	2,470	2,661	3,943
Total cost of sales	109,938	122,389	144,001
Gross profit	64,375	59,542	28,160
Expenses
Sales and marketing	22,938	25,235	26,950
General and administrative	19,903	21,655	25,462
Operations support	7,438	7,832	9,498
Technology and development	5,262	5,820	7,555
Stock-based compensation	2,965	2,306	4,277
Reorganization	1,113	3,009	13,461
Impairment charge on Rock Hill Facility	530	8,716	-
Related party expense	-	1,524	-
Total operating expenses	60,149	76,097	87,203
Operating income (loss)	4,226	(16,555)	(59,043)
Gain on extinguishment of convertible debt	10,426	-	-
Foreign exchange gain (loss)	2,974	(626)	1,445
Interest income	1,587	490	51
Interest expense	(3,995)	(4,927)	(5,160)
Government subsidies	-	236	7,765
Gain on sale of software and patents	-	7,130	-
	10,992	2,303	4,101
Net income (loss) before tax	15,218	(14,252)	(54,942)
Income taxes
Current and deferred income tax expense	448	332	21
	448	332	21
Net income (loss) after tax	14,770	(14,584)	(54,963)
Net income (loss) per share
Net income (loss) per share - basic	0.08	(0.13)	(0.55)
Net income (loss) per share - diluted	0.07	(0.13)	(0.55)
Weighted average number of shares outstanding (in thousands)
Basic	190,542	116,135	99,826
Diluted	240,239	116,135	99,826

Refer to Note 24 for Related Party Transactions included in this statement.

The prior year comparatives have been revised in line with current year presentation - refer to Earnings per share in Note 19.

The accompanying notes are an integral part of these consolidated financial statements.

DIRTT Environmental Solutions Ltd.
Consolidated Statement of Comprehensive Income (Loss)
(Stated in thousands of U.S. dollars)

	For the Year Ended December 31,
	2024	2023	2022
Net income (loss) after tax for the period	14,770	(14,584)	(54,963)
Exchange differences on translation of foreign operations	(2,416)	(19)	(190)
Comprehensive income (loss) for the period	12,354	(14,603)	(55,153)

The accompanying notes are an integral part of these consolidated financial statements.

DIRTT Environmental Solutions Ltd.
Consolidated Statements of Changes in Shareholders' Equity
(Stated in thousands of U.S. dollars, except for share data)

	Number of Common shares	Common shares	Additional paid-in capital	Accumulated other comprehensive loss	Accumulated deficit	Total shareholders' equity
As at December 31, 2021	85,345,433	181,782	13,200	(15,916)	(111,300)	67,766
Stock-based compensation	-	-	3,943	-	-	3,943
Issued on vesting of RSUs and Share Awards	3,149,061	7,088	(7,088)	-	-	-
RSUs and Share Awards withheld to settle employee tax obligations	-	-	(1,032)	-	(9)	(1,041)
Issued for employee share purchase plan	720,901	296	-	-	-	296
Issued on private placement	8,667,449	2,181	-	-	-	2,181
Foreign currency translation adjustment	-	-	-	(190)	-	(190)
Net loss for the year	-	-	-	-	(54,963)	(54,963)
As at December 31, 2022	97,882,844	191,347	9,023	(16,106)	(166,272)	17,992
Stock-based compensation	-	-	1,713	-	-	1,713
Issued on vesting of RSUs and Share Awards	1,886,868	2,756	(2,756)	-	-	-
Issued for employee share purchase plan	1,708,210	502	-	-	-	502
Issued to settle related party debt	3,899,745	1,523	-	-	-	1,523
RSUs and Share Awards withheld to settle employee tax obligations	-	-	(26)	-	-	(26)
Foreign currency translation adjustment	-	-	-	(19)	-	(19)
Net loss for the year	-	-	-	-	(14,584)	(14,584)
As at December 31, 2023	105,377,667	196,128	7,954	(16,125)	(180,856)	7,101
Stock-based compensation	-	-	1,532	-	-	1,532
Issued on vesting of RSUs	1,363,328	1,124	(1,124)	-	-	-
Issued on Rights Offering	85,714,285	21,272	-	-	-	21,272
RSUs withheld to settle employee tax obligations	-	-	(162)	-	(12)	(174)
Issued for employee share purchase plan	1,208,435	544	-	-	-	544
Cancelled from Normal Course Issuer Bid	(58,478)	(45)	6	-	-	(39)
Foreign currency translation adjustment	-	-	-	(2,416)	-	(2,416)
Net income for the year	-	-	-	-	14,770	14,770
As at December 31, 2024	193,605,237	219,023	8,206	(18,541)	(166,098)	42,590

The accompanying notes are an integral part of these consolidated financial statements.

DIRTT Environmental Solutions Ltd.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)

For the Year Ended December 31,

	2024	2023	2022
Cash flows from operating activities:
Net income (loss) for the period	14,770	(14,584)	(54,963)
Adjustments:
Depreciation and amortization	6,575	8,934	15,119
Impairment charge on Rock Hill Facility	530	8,716	-
Stock-based compensation	2,965	2,306	3,342
Foreign exchange loss (gain)	(3,152)	1,099	(1,813)
Gain on extinguishment of convertible debt	(10,426)	-	-
Gain on sale of software and patents	-	(7,130)	-
Accretion of convertible debentures	1,491	698	676
Loss (gain) on disposal	422	153	(133)
Changes in operating assets and liabilities:
Trade and accrued receivables	(4,005)	(1,833)	(179)
Other receivables	113	7,406	(4,432)
Inventory	447	5,961	(4,716)
Prepaid and other assets, current and long term	1,215	474	129
Accounts payable and accrued liabilities	(2,742)	2,137	260
Other liabilities	(12)	(421)	(109)
Customer deposits and deferred revenue	(1,240)	243	2,477
Current portion of long-term debt and accrued interest	(437)	(40)	(149)
Lease liabilities	830	702	231
Net cash flows (used in) provided by operating activities	7,344	14,821	(44,260)
Cash flows from investing activities:
Purchase of property, plant and equipment, net of accounts payable changes	(1,400)	(1,242)	(2,394)
Capitalized software development expenditures	(1,636)	(1,794)	(1,677)
Other asset expenditures	(153)	(398)	(443)
Recovery of software development expenditures	249	127	263
Proceeds on sale of property, plant, and equipment	15	14	227
Proceeds on sale of assets held for sale	1,025	-	-
Proceeds on sale of software and patents	-	10,950	-
Net cash flows (used in) provided by investing activities	(1,900)	7,657	(4,024)
Cash flows from financing activities:
Repayment of long-term debt	(21,486)	(11,579)	(2,470)
Net proceeds received from Rights Offering	21,272	-	-
Employee tax payments on vesting of RSUs	(162)	(26)	(1,041)
Common share repurchase	(39)	-	-
Proceeds issued on private placement	-	-	1,990
Proceeds received on long-term debt	-	-	647
Net cash flows used in financing activities	(415)	(11,605)	(874)
Effect of foreign exchange on cash, cash equivalents and restricted cash	(597)	(13)	(11)
Net increase (decrease) in cash, cash equivalents and restricted cash	4,432	10,860	(49,169)
Cash, cash equivalents and restricted cash, beginning of period	25,099	14,239	63,408
Cash, cash equivalents and restricted cash, end of period	29,531	25,099	14,239
Supplemental disclosure of cash flow information:
Interest paid	(2,874)	(3,977)	(4,423)
Income taxes received (paid)	(754)	4	3,212

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets.

For the year ended December 31,

	2024	2023	2022
Cash and cash equivalents	29,288	24,744	10,821
Restricted cash	243	355	3,418
Total cash, cash equivalents and restricted cash	29,531	25,099	14,239

The accompanying notes are an integral part of these consolidated financial statements.

DIRTT Environmental Solutions Ltd.
Notes to the Consolidated Financial Statements
(Amounts stated in thousands of U.S. dollars unless otherwise stated)

1. GENERAL INFORMATION

DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized construction. DIRTT’s system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule, and outcomes.

DIRTT’s proprietary design integration software, ICE® (“ICE” or “ICE software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE is also licensed to unrelated companies and Construction Partners of the Company. As of May 9, 2023, Armstrong World Industries, Inc. (“AWI”) owns a 50% interest in the rights, titles and interest in certain intellectual property rights in a portion of the ICE Software that is used by AWI.

DIRTT is incorporated under the laws of the province of Alberta, Canada, its headquarters is located at 7303 – 30th Street S.E., Calgary, AB, Canada T2C 1N6 and its registered office is located at 4500, 855 – 2nd Street S.W., Calgary, AB, Canada T2P 4K7. DIRTT’s common shares trade on the Toronto Stock Exchange under the symbol “DRT”. Effective October 12, 2023, DIRTT’s common shares ceased to trade on The Nasdaq Capital Markets. DIRTT’s common shares are quoted on the OTC Markets on the “OTC Pink Tier” under the symbol “DRTTF”.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These consolidated financial statements (“Financial Statements”), including comparative figures, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In these Financial Statements, unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars. DIRTT’s financial results are consolidated in Canadian dollars, the Company’s functional currency, and the Company has adopted the U.S. dollar as its reporting currency. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.

Principles of consolidation

The Financial Statements include the accounts of DIRTT and its subsidiary. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated upon consolidation.

Basis of measurement

These Financial Statements have been prepared on the historical cost convention except for certain financial instruments, assets held for sale and stock-based compensation that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Use of estimates

The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the Financial Statements. Estimates are based on historical data and experience, as well as various other factors that management considers reasonable under the circumstances. Actual outcomes can differ from these estimates.

Significant estimates and assumptions made by management include:

Estimates of ability and timeliness of customer payments of trade receivables;
Estimates of useful lives of depreciable assets as well as the fair value of long-term assets and future cash flows used for impairment calculations;
Determining the fair value less costs to sell of the assets held for sale;

Estimates of future taxable earnings used to assess the realizable value of deferred tax assets and the ability to recognize a deferred tax asset;
Estimates of inventory obsolescence based on slow moving inventory items;
Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiary operate;
Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount; and
Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies.

Segments

Management has determined that DIRTT has one operating segment. The Company’s chief executive officer, president and chief operating officer, and chief financial officer, who are DIRTT’s chief operating decision makers, review financial information on a consolidated and aggregate basis, together with certain operating metrics principally, to make decisions about how to allocate resources and to measure the Company’s performance.

Foreign currency translation

DIRTT Environmental Solutions Ltd. is a Canadian company and its functional currency is the Canadian dollar. DIRTT’s wholly owned subsidiary, DIRTT Environmental Solutions Inc., is domiciled in the United States and its functional currency is the U.S. dollar.

Assets and liabilities denominated in foreign currencies, other than those held through foreign subsidiaries, are translated into the transacting company’s functional currency at the year-end exchange rate for monetary items, and at the historical exchange rates for non-monetary items. Foreign currency revenues and expenses are translated at the exchange rates in effect on the dates of the related transactions. Foreign exchange gains and losses, other than those arising from the translation of the Company’s net investments in its foreign subsidiary, are included in income.

The accounts of the Company’s U.S. dollar subsidiary is translated into Canadian dollars, and the Financial Statements are translated into U.S. dollars for financial statement presentation. Assets and liabilities are translated using year-end exchange rates, and revenues, expenses, gains and losses are translated using average monthly exchange rates. Foreign exchange gains and losses arising from the translation of the Company’s assets and liabilities are included in “comprehensive income (loss) for the year”.

Cash and cash equivalents and restricted cash

Cash and cash equivalents include cash on hand held at banks and cash equivalents, which are defined as highly liquid investments with original maturities of three months or less. Restricted cash is a reserve account not available for immediate or general business use and is required as collateral to commercial credit cards or when certain requirements are not met under the terms of the Company’s senior secured credit facility (as defined in Note 14).

Trade and other receivables, net of expected credit losses

Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates its allowance for doubtful accounts using the current expected credit loss methodology, which is designed to capture the Company’s current estimate of all expected credit losses.

Inventory

Inventory is comprised of raw materials and work in progress. The Company does not typically carry a significant amount of finished goods inventory. Inventory is valued at the lower of weighted average cost and net realizable value. Net realizable value is based on an item’s usability in the manufacturing of the Company’s products. The Company records an allowance for obsolescence when the net realizable value of inventory items declines below weighted average cost. Net realizable value is determined based on current market prices for inventory less the estimated cost to sell. Work in progress is valued at an estimate of cost, including attributable overheads, based on stage of completion.

Fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods where production levels are abnormally low, unallocated overheads are separately recognized as an expense in the period in which they are incurred.

Assets held for sale

The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale criteria are met. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset.

The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.

Leases

The Company categorizes leases at their inception as either operating or finance leases. Leases where the Company assumes substantially all of the rewards or ownership and leases where ownership is transferred at the end of the lease term, or by way of a bargain purchase option, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability, so as to achieve a constant rate of interest on the balance of the liability. Finance charges are recognized in the statement of operations.

The Company’s Leasing Facilities (as defined in Note 14) are accounted for as finance leases as ownership of the equipment is expected to return to the Company at the end of the lease term. These transactions are not accounted for as a sale of the underlying equipment as the Company continues to control the equipment.

For leases categorized as operating, the Company determines if an arrangement is a lease or contains a lease element at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Operating leases are separately disclosed as operating lease right-of-use (“ROU”) assets, with a corresponding lease liability split between current and long-term components on the balance sheet. Operating leases with an initial term of 12 months or less are not included on the balance sheet.

The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Property, plant and equipment

Property, plant and equipment are recorded at cost, including direct costs, attributable indirect costs and carrying costs, less accumulated depreciation and any accumulated impairment losses. Expenditures for repairs and maintenance are expensed as incurred, while renewals and betterments are capitalized.

Depreciation is charged to the consolidated statement of operations on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the Company's property, plant and equipment are as follows:

Building	25 years
Manufacturing equipment	10 years
Leasehold improvements	Over term of lease (1 to 13 years)
Office equipment	5 years
Tooling and prototypes	4 years
Computer equipment	3 years
Vehicles	3 years

When assets are disposed of or retired, the cost and accumulated depreciation and impairment losses are removed from the respective accounts and any resulting gain or loss is reflected in operating expenses.

Capitalized software costs

The Company capitalizes costs related to internally developed software during the application development stage when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project, and (iii) it is probable that the project will be completed and performed as intended. Capitalized costs include costs of personnel and related expenses for employees and third parties directly attributable to the projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements are also capitalized. Costs related to preliminary project activities and post implementation activities, including training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the developed asset, which is five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets.

Software development is considered internal-use as it is used to design and sell the DIRTT products and is not included in the end client's product. Revenues received from Construction Partners for ICE Software are recognized as revenues as they are considered an element of the product sale. Any incidental third-party revenues received for the ICE Software are credited against capitalized software costs. The Company follows this accounting policy for cloud computing arrangements that are considered a service contract, however, these projects are capitalized to prepaids and other assets on the balance sheet and are expensed as an operating cost, as opposed to amortization, over the expected term of the software service contract.

Impairment of long-lived assets

Management evaluates the recoverability of the Company's property, plant and equipment, capitalized software costs and ROU assets when events or changes in circumstances indicate a potential impairment exists. Events and changes in circumstances considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, and changes in the Company's business strategy. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (an "asset group"). In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group. If impairment is indicated based on a comparison of the assets' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Convertible Debentures

The Company accounts for convertible debentures as liabilities. Embedded features included in the convertible debentures that require bifurcation are accounted for separately. Costs incurred directly related to the issuance of convertible debentures are presented as a direct deduction against the carrying amount of the convertible debentures and are amortized to interest expense using the effective interest method.

Income taxes

Income tax expense is comprised of current and deferred tax. Income tax is recognized in the consolidated statement of operations and comprehensive income (loss) except to the extent it relates to items recognized directly in equity.

Current tax

Current tax expense is based on the results for the year, adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax

Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income in the period during which the change occurs.

When appropriate, the Company records a valuation allowance against deferred tax assets to reflect that these tax assets may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of the Company's deferred tax assets will not be realized, based on management's judgment using available evidence about future events.

At times, tax benefits claims may be challenged by a tax authority. Tax benefits are recognized only for tax positions that are more likely than not sustainable upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for "unrecognized tax benefits" is recorded for any tax benefits claimed in the Company's tax returns that do not meet these recognition and measurement standards.

Revenue recognition

The Company accounts for revenue in accordance with topic 606, Revenue from Contracts with Customers, ("ASC 606") and Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers. Under ASC 606, an entity recognizes revenue in a manner that reflects the transfer of promised goods or services to customers in an amount which the entity expects to be entitled in exchange for those goods or services.

The Company recognizes revenue upon transfer of control of promised goods or services to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is calculated as selling price net of variable consideration which may include estimates for sales incentives related to current period product revenue. Revenue is measured at the fair value of the consideration received or receivable, after discounts, rebates and sales taxes or income taxes and duties.

Product sales

The Company recognizes revenue upon transfer of control of products to the customer, which typically occurs upon shipment. The Company's main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. Construction Partners typically sell DIRTT product to end clients and issue purchase orders to the Company to manufacture the product. Construction Partners utilize ICE licenses to sell DIRTT products. The ICE licenses sold to Construction Partners are not considered a separate performance obligation as they are not distinct, and ICE license revenue is recognized in conjunction with product sales. The Construction Partner ICE Software revenue is recognized over the license period.

The Company’s standard sales terms are Free On Board shipping point, which comprise the majority of sales. The Company usually requires a 50% progress payment on receipt of certain orders, excluding certain government orders or in some special contractual situations. Customer deposits received are recognized as a liability on the balance sheet until revenue recognition criteria is met. At the point of shipment, the customer is generally required to pay the balance of the sales price within 30 days. The Company’s sales arrangements do not have any material financing components. In addition, the Company’s customer arrangements do not produce contract assets that are material to its consolidated financial statements.

The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized.

The Company accounts for product transportation revenue and costs as fulfillment activities and presents the associated costs in costs of goods sold in the period in which the Company sells its product.

Contracts containing multiple performance obligations

The Company offers certain arrangements whereby a customer can purchase products and installation together, which are generally capable of being distinct and accounted for as separate performance obligations. Where multiple performance obligations exist, the Company determines revenue recognition by (1) identifying the contract with the customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations based on the relative standalone selling prices, typically based on cost plus a reasonable margin, and (5) recognizing revenue as the performance obligations are satisfied.

Installation and other services

The Company provides installation and other services for certain customers as a distinct performance obligation. Revenue from installation services is recognized over time as the service is performed.

Principal vs Agent Considerations

The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling the product or service sales to customers. In certain instances, the Company facilitates contracting of certain sales on behalf of Construction Partners. The Company records these revenues on a gross basis when the Company is obligated to fulfill the service and has the risk associated with service delivery. The Company records these revenues on a net basis when the Construction Partner has the obligation to fulfill the services and has the risk associated with service delivery.

Construction Partner rebates

Rebates to Construction Partners (“Partner Rebates”) are accrued for and recognized as a reduction of revenue at the date of the sale to the customer. Partner Rebates include amounts collected directly by the Company owed to Construction Partners in accordance with their Construction Partner agreements, being the difference between the price to the end customer and the Construction Partners’ price. Other sales discounts are deducted immediately from sales invoices.

Contract balances

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing. As the Company’s contracts are less than one year in duration, the Company has elected to apply the practical expedients to expense costs related to costs to obtain contracts and not disclose unfulfilled performance obligations. As deferred revenue and customer deposits are typically recognized during the year, the Company does not account for financing elements.

Warranties

The Company provides a warranty on all products sold to its clients and Construction Partner’s clients. Warranties are not sold separately to customers. Provisions for the expected cost of warranty obligations are recognized based on an analysis of historical costs for warranty claims relative to current activity levels and adjusted for factors based on management’s assessment that increase or decrease the provision. Warranty provision is recognized in cost of goods sold. Warranty claims have historically not been material and do not constitute a separate performance obligation.

Stock-based compensation

The Company follows the fair value-based approach to account for options, share awards and restricted share units (“RSUs”). Compensation expense and an increase in “Additional paid-in capital” are recognized for options and RSUs over their vesting period based on their estimated fair values on the grant date, as determined using the Black-Scholes option pricing model for the majority of options and the market value of the Company’s common shares on the grant date for share awards and RSUs. Certain executive RSUs have performance conditions and are valued using a Monte Carlo model.

On exercise of stock options and RSUs, the recorded fair value of the option or RSU is removed from “Additional paid-in capital” and credited to “Share capital”. For options, any consideration paid by employees is credited to “Share capital” when the option is exercised. The Company’s stock options and RSUs are not shares of the Company and have no rights to vote, receive dividends, or any other rights as a shareholder of the Company.

Stock-based compensation expense is also recognized for performance share units (“PSUs”) and deferred share units (“DSUs”) using the fair value method. Compensation expense is recognized over the vesting period and the corresponding amount is recorded as a liability on the balance sheet.

The Company measures the DSUs granted under the 2023 and 2024 LTIP (the “New DSUs”) using the closing price of the Company’s common shares on the grant date as the present intention is to settle the New DSUs in equity. This is recognized as an increase to stock-based compensation and the corresponding liability on the balance sheet.

Technology and development expenditures

Technology and development expenses are comprised primarily of salaries and benefits associated with the Company’s product and software development personnel which do not qualify for capitalization. These costs are expensed as incurred and exclude certain information technology costs used in operations which are classified as general and administrative costs.

Government subsidies

The Company accounts for government subsidies on an accrual basis when the conditions for eligibility are met. The Company has adopted an accounting policy to present government subsidies as other income. The nature, significant terms and conditions of government subsidies are disclosed in the Financial Statements.

Common shares

In lieu of a par value for common shares, the Company has elected to calculate any cancellation of common shares using the stated value of shares. The excess of purchase cost over stated value of shares cancelled upon repurchase will be recorded as additional paid-in capital.

Earnings per share

Basic earnings per share is calculated using the weighted average number of common shares outstanding during the year and adjusted for any change in capital structure events triggering retroactive changes to weighted average number of common shares outstanding. Diluted earnings per share is calculated using the treasury stock method for determining the dilutive impact of stock options, RSUs, PSUs, PRSUs and New DSUs. The Company follows the “if converted” method for accounting for the impact of convertible debentures on net income (loss) per share, whereby interest charges applicable to the convertible debentures are added to the numerator and the convertible debentures are assumed to have been converted at the beginning of the period (or time of issuance, if later), and the resulting common shares are added to the denominator.

Fair value of financial instruments

ASC 820, “Fair Value Measurements,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the consolidated balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company’s fair value analysis is based on the degree to which the fair value is observable and grouped into categories accordingly:

Level 1 financial instruments are those which can be derived from quoted market prices (unadjusted) in active markets for similar financial assets or liabilities.
Level 2 financial instruments are those which can be derived from inputs that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 2 financial instruments include current and long-term debt. The carrying amounts of these instruments approximates fair value due to limited changes to interest rates and the Company’s credit rating since issuance.
Level 3 financial instruments are those derived from valuation techniques that include inputs for the financial asset or liability which are not based on observable market data (unobservable inputs). The Company does not have any Level 3 financial instruments.

The carrying amounts of cash and cash equivalents and restricted cash; trade and accrued receivables, other receivables; accounts payable and accrued liabilities; other liabilities; and customer deposits approximate fair value due to their short-term nature.

3. ADOPTION OF NEW ACCOUNTING STANDARDS AND RECENT PRONOUNCEMENTS ISSUED

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance was effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025.

On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, “Improvements to Income Tax Disclosures” (the “ASU-2023-09”) further disaggregated information on an entity’s tax rate reconciliation and income taxes paid. The amendments in ASU-2023-09 are effective for fiscal years beginning after December 15, 2024, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be limited to disclosures.

On November 5, 2024, the FASB issued Accounting Standards Update No. 2024-03, “Disaggregation of Income Statement Expenses” (the “ASU-2024-03”) which requires further disaggregated information on an entity’s types of expenses presented to better understand the components of an entity’s expense captions. The amendments within ASU-2024-03 are effective for annual reporting periods starting December 15, 2026, and interim periods beginning after December 15, 2027, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects the impact to be limited to disclosures.

On November 27, 2024, the FASB issued Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible Debt Instruments” (the “ASU-2024-04”) which requires discussing an entity’s assessment of induced conversion and debt extinguishment of convertible debt instruments. The amendments in ASU-2024-04 are effective for fiscal years beginning after December 15, 2025, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard.

Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its Financial Statements.

4. GOVERNMENT SUBSIDIES

In the United States, the Employee Retention Credit (“ERC”) was established by Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act to provide an incentive for employers to keep their employees on their payroll during COVID-19 closures. The ERC is a refundable payroll tax credit based on qualified wages paid by an eligible employer between March 12, 2020, and October 1, 2021, for companies experiencing a significant decline in gross receipts during a calendar quarter or having operations fully or partially suspended during the quarter due to COVID-19. During the third quarter of 2022, the Company determined it was eligible for the ERC for the first three quarters of 2021 and filed a claim for $7.3 million in payroll tax credits ($7.1 million net of expenses). As at December 31, 2023, the $7.3 million of these claimed credits (plus an additional $0.2 million of interest) were received.

For the twelve months ended December 31, 2024, no government subsidies were claimed or received.

5. REORGANIZATION AND ASSETS HELD FOR SALE

The Company had undertaken a number of reorganization initiatives beginning in 2022. In the year ended December 31, 2024, there were no new initiatives.

Closure of Phoenix Aluminum Manufacturing Facility (the “Phoenix Facility”)

On February 22, 2022, we commenced the process of closing our Phoenix Facility, shifting related manufacturing to both our Savannah and Calgary aluminum manufacturing facilities. The closure of the Phoenix Facility was substantially completed in the second quarter of 2022. The Company entered into a sublease arrangement during the second quarter of 2022, commencing July 1, 2022, which exceeds the contractual lease commitments under the Right of Use assets. During the year ended December 31, 2024, the Company entered into a sublease agreement for the Phoenix Facility that commenced on October 1, 2024 and terminates on March 24, 2027.

Workforce Reductions, Board and Management Changes

In February and July of 2022, we announced our intention to eliminate a portion of our salaried workforce, including manufacturing and office positions, along with other cost reduction initiatives. The Company’s Board of Directors was reconstituted following a proxy contest in April 2022, which was deemed a change of control under the Company’s insurance policy resulting in additional insurance expenditures. Further, the Company made changes to several executive officer roles during the year ended December 31, 2022. During the year ended December 31, 2023, we continued to review costs, resulting in the elimination of additional salaried positions in the second and third quarters of 2023. These actions resulted in the Company incurring certain one-time termination costs. During the year ended December 31, 2024, no termination costs related to restructuring were incurred.

Temporary Suspension of Operations and Subsequent Closure at the Rock Hill Facility

On August 23, 2022, we announced the temporary suspension of operations at our Rock Hill Facility, shifting related manufacturing to our Calgary manufacturing facility. Costs associated with this idle facility, included in costs of sales, were $1.7 million for the year ended December 31, 2024 (2023 - $2.0 million).

On September 27, 2023, we announced our intention to permanently close the Rock Hill Facility. We have moved certain assets to our other facilities and disposed of the remaining assets. The assets disposed of were reclassified and measured as assets held for sale (see table below) as at December 31, 2023. As a result of this decision, we incurred $8.7 million of impairment charges associated with the transfer of assets from held for use to held for sale. During the year ended December 31, 2024, all assets have been moved out of the facility and are in the process of being set up at our other facilities. The Company will continue to maintain the Rock Hill Facility building lease and is pursuing a sublease arrangement. Based on prevailing market prices in the area, no impairment indicators exist as at December 31, 2024 for the Right of Use asset of $6.2 million and the related leasehold improvements of $2.5 million.

Reorganization costs incurred related to the above-mentioned initiatives:

	For the year ended December 31,
	2024	2023	2022
Termination benefits	-	2,162	7,042
Insurance costs on change of control	-	-	3,691
Phoenix facility closure	-	99	756
Professional Services	-	-	1,021
Rock Hill Facility temporary suspension and closure of operations	1,101	295	129
Other costs	12	453	822
Total reorganization costs	1,113	3,009	13,461

Reorganization costs in accounts payable and accrued liabilities at January 1, 2024	596
Reorganization expense	1,113
Reorganization costs paid	(1,592)
Reorganization costs in accounts payable and accrued liabilities at December 31, 2024	117

Of the $0.1 million reorganization costs in accounts payable and accrued liabilities as at December 31, 2024 (December 31, 2023 - $0.6 million), $0.07 million relates to termination benefits (December 31, 2023 - $0.5 million) and $0.03 million relates to Rock Hill Facility reorganization costs (December 31, 2023 - $0.1 million). The Company has moved the remaining assets at the Rock Hill Facility to other operating locations.

Assets held for sale

Assets classified as held for sale as at December 31, 2023, of $1.6 million consisted of manufacturing equipment previously used in the Rock Hill Facility (refer to Note 11). As part of the decision to permanently close the Rock Hill Facility, $10.3 million of assets were assessed against the assets held for sale criteria and reclassified from property, plant and equipment to assets held for sale in the third quarter of 2023. The assets were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $8.7 million. During the three months ended March 31, 2024, $1.0 million of the assets held for sale were sold. At March 31, 2024, the assets held for sale balance was reduced from $0.5 million to $nil, resulting in a $0.5 million impairment charge for the first quarter as we were not able to determine the likelihood of a sale based on the market interest at that time. These assets were subsequently disposed.

	As at December 31,
	2024	2023
Assets held for sale, opening	1,555	-
Proceeds from sale of assets held for sale	(1,025)	-
Impairment charge on reassessment	(530)	(8,716)
Net book value transferred from property, plant and equipment	-	10,271
Assets held for sale, ending	-	1,555

To move the assets or dispose of the assets at the Rock Hill Facility, the Company fully settled the principal balance of the U.S. leasing facility in the fourth quarter of 2023. Principal payments of $7.8 million and interest penalties of $0.4 million were incurred (refer to Note 14). As a result of this settlement, $2.6 million of restricted cash was released to the Company in the fourth quarter of 2023.

Discontinuation of Reflect Product Line and Other Charges Incurred

In August 2022, the Company discontinued the Reflect and other product lines, resulting in a one-time inventory write-down of $1.0 million, and an acceleration of amortization expense associated with ICE development for Reflect.

Additionally, the Company accelerated the depreciation of certain items of property, plant and equipment associated with the closure of the Phoenix Facility resulting in additional depreciation incurred in the first quarter of 2022.

These costs were included in cost of sales:

	For the Year Ended December 31,
	2024	2023	2022
Provision for inventory of discontinued product lines	-	-	1,035
Accelerated amortization associated with product line discontinuation	-	-	1,019
Accelerated depreciation and amortization associated with closure of the Phoenix Facility	-	-	1,054
Incremental cost of sales	-	-	3,108

GAIN ON SALE OF SOFTWARE AND PATENTS

There were no sales of software and patents during the year ended December 31, 2024.

On May 9, 2023, the Company entered into a Co-Ownership Agreement (the “Co-Ownership Agreement”) and a partial patent assignment agreement with AWI. The agreements provided for a cash payment from AWI to the Company of $10.0 million, subject to certain routine closing conditions, in exchange for the partial assignment to AWI and resulting co-ownership of a 50% interest in the rights, title and interests in certain intellectual property rights in a portion of the ICE software that is used by AWI (the “Applicable ICE Code”), including a 50% interest in the patent rights that relate to the Applicable ICE Code. Under the Co-Ownership Agreement, the Company also agreed to provide AWI a transfer of knowledge concerning the source code of the Applicable ICE Code. In exchange for completing the knowledge transfer, the Company received an additional cash payment of $1.0 million in the fourth quarter of 2023. The Co-Ownership Agreement provides that the Company and AWI have separate exclusive fields of use and restrictive covenants with respect to the Applicable ICE Code and related intellectual property, which survive until either party elects to separate from its relationship with the other and for five years thereafter. The Company concurrently entered into an Amended and Restated Master Services Agreement (the “ARMSA”) with AWI, under which AWI had also prepaid certain development services to be provided by DIRTT. The ARMSA will automatically terminate if the Co-Ownership Agreement is terminated or expires, and may also be terminated if either party breaches the exclusive fields of use or restrictive covenants in the Co-Ownership Agreement.

The $11.0 million of proceeds on the sale of the 50% interest in the Applicable ICE code, pursuant to the Co-Ownership Agreement, during 2023. In accordance with GAAP, the proceeds were first applied to the net book value of the related costs of software of $2.9 million and patents (other assets) of $0.9 million. The residual amount of $7.1 million was recognized as a gain in the consolidated statement of operations. Further, $1.8 million was received during 2023 as a prepayment under the ARMSA, which was recognized into revenue during 2023 and the first quarter of 2024. Part of the proceeds of this transaction were used to settle one of our equipment leases of $1.6 million and resulted in the release of $0.4 million of restricted cash during 2023 (refer to Note 14).

GAIN ON EXTINGUISHMENT OF CONVERTIBLE DEBENTURES

On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”) pursuant to which the Company offered to repurchase for cancellation: (i) up to C$6.0 million principal amount of its issued and outstanding January Debentures (as defined in Note 14) at a purchase price of C$720 per C$1,000 principal amount of January Debentures, and (ii) up to C$9.0 million principal amount of its issued and outstanding December Debentures (as defined in Note 14), at a purchase price of C$600 per C$1,000 principal amount of December Debentures.

C$4.7 million ($3.5 million) aggregate principal amount of the January Debentures and C$5.8 million ($4.3 million) aggregate principal amount of December Debentures were validly deposited and not withdrawn at the expiration of the Issuer Bid on March 22, 2024, representing approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at that time. The Company took up all the Debentures (as defined in Note 14) tendered pursuant to the Issuer Bid for aggregate consideration of C$7.0 million ($5.2 million) (comprised of C$6.9 million ($5.1 million) repayment on principal and interest of C$0.1 million ($0.1 million)).

On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Fund, LP (“22NW”), pursuant to which the Company purchased for cancellation an aggregate of C$18,915,000 principal amount of the January Debentures at a purchase price of C$684.58 per C$1,000 principal amount of January Debentures and C$13,638,000 principal amount of the December Debentures at a purchase price of C$665.64 per C$1,000 principal amount of December Debentures, for an aggregate purchase price of C$22,104,591.45, inclusive of a cash payment for all accrued and unpaid interest up to, but excluding, the date on which such Debentures were purchased by the Company (the “Debenture Repurchase”). The Debenture Repurchase closed on August 2, 2024. The purchase price of each series of Debentures (excluding the cash payment for accrued and unpaid interest) represented a discount of approximately 4% to the average trading price of the applicable series of Debentures on the Toronto Stock Exchange (the “TSX”) for the 20 trading days preceding August 2, 2024. Following the Debenture Repurchase, C$16.6 million ($12.0 million) principal amount of the January Debentures and C$15.6 million ($11.2 million) principal amount of the December Debentures remained outstanding and 22NW no longer holds any Debentures.

On August 28, 2024, the Company commenced the Debentures NCIB, which will terminate no later than August 27, 2025. Under the Debentures NCIB, DIRTT is permitted to acquire up to C$1,664,200 principal amount of the January Debentures and C$1,558,700 principal amount of the December Debentures. As at December 31, 2024, C$0.3 million ($0.2 million) and C$0.01 million ($0.01 million) principal amounts of the December Debentures and January Debentures, respectively, were acquired through the Debentures NCIB.

In accordance with GAAP, it was determined that the C$29.2 million ($21.4 million) repayment on convertible debt through the Issuer Bid, the Debenture Repurchase, and the Debentures NCIB, triggered an extinguishment of C$43.4 million ($31.8 million) of principal amount of debt. The gain on extinguishment of $10.4 million for the year ended December 31, 2024, was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs of C$1.2 million ($0.9 million) (refer to Note 14).

8. LEASES

The Company leases office and factory space under various operating leases. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to instruments with similar characteristics when calculating its incremental borrowing rate. The Company's operating leases have remaining lease terms of 1 year to 13 years. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The weighted average remaining lease term and weighted average discount rate at December 31, 2024, was eight years (2023 - nine years) and 7.1% (2023 - 6.3%), respectively.

The Company entered into a sublease arrangement for part of the Phoenix Facility during the second quarter of 2022, commencing July 1, 2022. The Company entered in to an additional sublease arrangement for the remaining part of the Phoenix Facility during the third quarter of 2024, commencing October 1, 2024. Additionally, the Company entered into a sublease agreement for the Plano DXC to one of our Construction Partners in that region, in which the subtenant has assumed responsibility for all monthly rent, utilities, maintenance, taxes and other costs as of April 1, 2023, through December 31, 2024. The Plano sublease agreement was extended for an additional four years, through October 31, 2028.

The following table includes ROU assets included on the balance sheet at December 31, 2024 and 2023:

	ROU Assets
	Cost	Accumulated depreciation	Net book value
At January 1, 2023	48,061	(17,571)	30,490
Disposals	(2,667)	2,308	(359)
Modifications	3,866	(196)	3,670
Depreciation expense	-	(4,312)	(4,312)
Exchange differences	596	(272)	324
At December 31, 2023	49,856	(20,043)	29,813
Disposals	(958)	958	-
Modifications	572	-	572
Depreciation expense	-	(3,945)	(3,945)
Exchange differences	(2,113)	1,042	(1,071)
At December 31, 2024	47,357	(21,988)	25,369

As at December 31, 2024 and 2023 the Company determined that there were no impairment indicators.

The components of the lease cost for the years ended December 31, 2024 and 2023 were as follows:

	For the year ended December 31,
	2024	2023	2022
Operating lease cost (1)
Fixed lease cost	6,069	6,688	6,719
Sublease income	(1,908)	(1,393)	(344)
Total operating lease cost	4,161	5,295	6,375

(1) The lease costs, net of sublease income, are reflected in the Consolidated Statements of Operations and Comprehensive Income (Loss) as follows:

	For the year ended December 31,
	2024	2023	2022
Cost of goods sold	4,183	4,427	4,647
Selling and marketing	269	793	1,356
General and administrative	(304)	(113)	107
Technology and development	13	188	265
Total operating lease cost	4,161	5,295	6,375

The following table includes lease liabilities included on the balance sheet at December 31, 2024 and 2023:

	Lease Liability
	2024	2023
At January 1,	33,456	33,423
Disposals	-	(406)
Modifications	572	3,866
Accretion	2,129	2,272
Repayment of lease liabilities	(5,339)	(5,942)
Exchange differences	(1,137)	243
At December 31,	29,681	33,456
Current lease liabilities	5,619	5,255
Long-term lease liabilities	24,062	28,201

In February 2024, the New York DXC lease reached the end of the lease term.

In April 2024, the Company modified an existing agreement for a Calgary manufacturing facility to extend the leasing term for an additional three years. Undiscounted cash flows associated with this modification are $1.3 million. The rent obligations have been discounted at a rate of 11.57% to determine the lease liability.

The following table includes maturities of operating lease liabilities at December 31, 2024:

2025	5,812
2026	5,303
2027	4,324
2028	4,135
2029	3,771
Thereafter	16,196
Total	39,541
Total lease liability	29,681
Difference between undiscounted cash flows and lease liability	9,860

9. TRADE AND ACCRUED RECEIVABLES

Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates an allowance for credit losses using the lifetime expected credit loss at each measurement date, taking into account historical credit loss experience as well as forward-looking information in order to establish rates for each class of financial receivable with similar risk characteristics. Adjustments to this estimate are recognized in the statement of operations.

In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial wellbeing of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2024, approximately 83% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities. In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.

Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the year ended December 31, 2024, no single Construction Partner accounted for greater than 10% of revenue, compared to 2023 in which one Construction Partner accounted for greater than 10% of revenue.

	As at December 31,
	2024	2023
Current	16,677	12,070
Overdue	2,916	3,818
	19,593	15,888
Less: expected credit losses	(99)	(101)
	19,494	15,787

No change to our expected credit loss was required during the year ended December 31, 2024, or December 31, 2023. Receivables are generally considered to be past due when over 60 days old, unless there is a separate payment arrangement in place for the collection of the receivable.

10. INVENTORY

	As at December 31,
	2024	2023
Raw material	14,198	16,787
Allowance for obsolescence	(863)	(1,666)
Work in progress	1,774	1,456
	15,109	16,577

As of December 31, 2024, the Company had $0.9 million (2023 - $1.7 million) provided for inventory that is not expected to be used in future production and the associated expense has been recorded to cost of goods sold. During 2024, the Company wrote off $1.7 million of inventory against the provision (2023 - $1.0 million) and made an additional provision of $1.0 million (2023 - $0.9 million). In addition, the Company recorded direct write offs against inventory of $0.1 million (2023 - $0.5 million). Production overheads capitalized in work in progress were $0.4 million at December 31, 2024 (2023 - $0.2 million).

11. PROPERTY, PLANT AND EQUIPMENT, NET

	Office and computer equipment	Factory equipment	Leasehold improvements	Total
Cost
At December 31, 2022	27,456	66,109	39,763	133,328
Additions	790	320	132	1,242
Disposals	(127)	(375)	(2,186)	(2,688)
Transferred to assets held for sale	-	(13,260)	-	(13,260)
Exchange differences	6	870	619	1,495
At December 31, 2023	28,125	53,664	38,328	120,117
Additions	866	375	159	1,400
Disposals	(1,003)	(4,709)	(2)	(5,714)
Exchange differences	(580)	(3,146)	(1,677)	(5,403)
At December 31, 2024	27,408	46,184	36,808	110,400
Accumulated depreciation and impairment
At December 31, 2022	20,524	38,821	32,461	91,806
Depreciation expense	2,041	3,661	1,824	7,526
Disposals	(127)	(272)	(2,098)	(2,497)
Transferred to assets held for sale	-	(2,989)	-	(2,989)
Exchange differences	124	687	383	1,194
At December 31, 2023	22,562	39,908	32,570	95,040
Depreciation expense	1,778	2,491	1,190	5,459
Disposals	(877)	(4,780)	(2)	(5,659)
Exchange differences	(592)	(2,403)	(1,644)	(4,639)
At December 31, 2024	22,871	35,216	32,114	90,201
Net book value
At December 31, 2023	5,563	13,756	5,758	25,077
At December 31, 2024	4,537	10,968	4,694	20,199

As at December 31, 2024, the Company had $0.4 million of assets in progress of completion which were excluded from assets subject to depreciation (2023 – $0.2 million).

On September 27, 2023, the Company announced its intention to permanently close the Rock Hill Facility in South Carolina. $10.3 million of manufacturing equipment at Rock Hill was transferred to assets held for sale during the year ended December 31, 2023 (refer to Note 5).

As at December 31, 2024 and 2023 the Company determined that there were no impairment indicators warranting an impairment test.

12. CAPITALIZED SOFTWARE, NET

	For the Year Ended December 31,
	2024	2023
Cost
As at January 1	30,252	34,546
Additions	1,636	1,794
Recovery of software development expenditures	(249)	(127)
Disposals	(316)	(6,641)
Exchange differences	(2,481)	680
As at December 31	28,842	30,252
Accumulated amortization
As at January 1	27,802	30,140
Amortization expense	680	840
Disposals	-	(3,766)
Exchange differences	(2,188)	588
As at December 31	26,294	27,802
Net book value	2,548	2,450

The disposal of capitalized software in 2023 with a net book value of $2.9 million, relates to the AWI transaction (refer to Note 6).

Estimated amortization expense on capitalized software is $0.9 million in 2025, $0.8 million in 2026, $0.7 million in 2027, $0.5 million in 2028, and $0.2 million in 2029.

13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER LIABILITIES

	As at December 31
	2024	2023
Trade accounts payable	11,243	12,378
Accrued liabilities	2,895	5,500
Wages and commissions payable	1,540	1,688
Rebates accrued(1)	674	314
	16,352	19,880

(1) In 2024, $1.9 million of rebates were earned (2023 - $2.6 million) and $1.6 million were paid (2023 - $4.4 million).

Other liabilities

	As at December 31
	2024	2023
Warranty and other provisions(1)	849	873
Deferred share unit liability	2,028	1,086
Sublease deposits	206	184
Income taxes payable	-	289
Other equipment lease liability	84	-
Other provisions	50	50
Other liabilities	3,217	2,482

(1) The following table presents a reconciliation of the warranty provisions balance:

	As at December 31,
	2024	2023
As at January 1,	873	1,278
Additions to warranty provision	640	1,208
Payments related to warranties	(664)	(1,613)
	849	873

14. LONG-TERM DEBT

	Revolving Credit Facility	Leasing Facilities	Convertible Debentures	Total Debt
Balance at December 31, 2022	-	11,812	53,623	65,435
Accretion of issue costs	-	-	698	698
Accrued interest	-	526	3,411	3,937
Interest payments	-	(526)	(3,451)	(3,977)
Principal repayments	-	(11,579)	-	(11,579)
Exchange differences	-	251	1,343	1,594
Balance at December 31, 2023	-	484	55,624	56,108
Current portion of long-term debt and accrued interest	-	79	762	841
Long-term debt	-	405	54,862	55,267
Balance at December 31, 2023	-	484	55,624	56,108
Accretion of issue costs	-	-	1,491	1,491
Accrued interest	-	35	2,402	2,437
Interest payments	-	(35)	(2,839)	(2,874)
Principal repayments	-	(78)	(21,408)	(21,486)
Gain on extinguishment	-	-	(10,426)	(10,426)
Exchange differences	-	(33)	(2,865)	(2,898)
Balance at December 31, 2024	-	373	21,979	22,352
Current portion of long-term debt and accrued interest	-	78	281	359
Long-term debt	-	295	21,698	21,993

Revolving Credit Facility

On February 12, 2021, the Company entered into a loan agreement governing a C$25.0 million senior secured revolving credit facility with the Royal Bank of Canada ("RBC"), as lender (the "RBC Facility"). Under the RBC Facility, the Company is able to borrow up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of (i) 75% of the book value of eligible inventory and (ii) 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims (the "Borrowing Base"). Interest was calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the "Aggregate Excess Availability", (defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash), is less than C$5.0 million, the Company was subject to a fixed charge coverage ratio ("FCCR") covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR has been below 1.10:1 for the three immediately preceding months, the Company is required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Leasing Facilities (defined below). Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for five consecutive business days, the Company would enter a cash dominion period whereby the Company's bank accounts would be blocked by RBC and daily balances will offset any borrowings and any remaining amounts made available to the Company.

On February 9, 2023, the Company extended the RBC Facility (the "Extended RBC Facility"). The Extended RBC Facility has a maximum borrowing base of C$15 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or the Canadian Dollar Offered Rate or Term Secured Overnight Financing Rate ("Term SOFR") plus 200 basis points plus the Term SOFR Adjustment (as defined in the amended loan agreement governing the Extended RBC Facility). Under the Extended RBC Facility, if the trailing twelve-month FCCR is not above 1.25 for three consecutive months, a cash balance equivalent to one year's worth of Leasing Facilities payments must be maintained. Effective October 2023, inventory was scoped out of the Borrowing Base.

On February 9, 2024, the Company extended the Extended RBC Facility (the "Second Extended RBC Facility"). The Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15 million and a one-year term. Interest is calculated at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case plus 200 basis points. At December 31, 2024, available borrowings are C$14.4 million ($10.0 million) (December 31, 2023 – C$13.6 million ($10.3 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn. The Second Extended RBC Facility removed the three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during 2024 (the Company had $0.4 million restricted cash as at December 31, 2023). On February 11, 2025, the Company extended the Second Extended RBC Facility for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.

On February 20, 2025, the Company entered into the Fourth Extended RBC Facility. The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million and matures on November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points. The Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$5 million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is part of or added to Skyward, which allows access to a $15 million bonding facility subject to an individual maximum of $5 million. Under the terms of the facility with Skyward, any bonds issued will be secured through Letters of Credit issued pursuant to the Fourth Extended RBC Facility.

Leasing Facilities

The Company has a C$5.0 million equipment leasing facility in Canada (the "Canada Leasing Facility") of which C$4.4 million ($3.1 million) has been drawn and C$3.9 million ($2.7 million) has been repaid, and a $14.0 million equipment leasing facility in the United States of which $13.3 million has been drawn and repaid (the "U.S. Leasing Facility" and, together with the Canada Leasing Facility, the "Leasing Facilities") with RBC. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. Refer to Note 5 on the decision to permanently close the Rock Hill Facility. As part of this decision, the Company fully settled the $7.8 million principal balance of the U.S. Leasing Facility in the fourth quarter of 2023. The U.S. Leasing Facility is no longer available to be drawn on. With the settlement of this liability, $2.6 million was released from restricted cash.

The Company did not make any draws on the Leasing Facilities during 2024 or 2023. The associated financial liabilities are shown on the consolidated balance sheet in the current portion of long-term debt and accrued interest and long-term debt.

Convertible Debentures

On January 25, 2021, the Company completed a C$35.0 million ($27.5 million) bought-deal financing of convertible unsecured subordinated debentures (the "January Debentures") with a syndicate of underwriters. On January 29, 2021, the Company issued a further C$5.25 million ($4.1 million) of the January Debentures under the terms of an overallotment option granted to the underwriters. The January Debentures will mature and be repayable on January 31, 2026 (the "January Debentures Maturity Date") and accrue interest at the rate of 6.00% per annum payable semi-annually in arrears on the last day of January and July of each year commencing on July 31, 2021 until the January Debentures Maturity Date. Interest and principal are payable in cash or shares at the option of the Company. The January Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the January Debentures Maturity Date and the date specified by the Company for redemption of the January Debentures. Costs of the transaction were approximately C$2.7 million, including the underwriters' commission. As a result of the Rights Offering (as defined herein) (refer to Note 16), the conversion price of the January Debentures was adjusted to C$4.03 per common share representing a conversion rate of 248.1390 common shares per C$1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for cancellation C$4.7 million ($3.5 million) of the principal balance of the January Debentures, and paid C$0.04 million ($0.03 million) of the interest payable on such January Debentures (refer to Note 7). On August 2, 2024, the Company completed the Debenture Repurchase and repurchased for cancellation C$18.9 million ($14.0 million) principal amount of the January Debentures held by 22NW. On August 26, 2024, the Company announced the Debentures NCIB, which commenced on August 28, 2024. During the fourth quarter of 2024, the Company repurchased for cancellation C$0.01 million ($0.01 million) principal amount of January Debentures as part of the Debentures NCIB. As at December 31, 2024, C$16.6 million ($11.6 million) principal amount of the January Debentures was outstanding.

On December 1, 2021, the Company completed a C$35.0 million ($27.4 million) bought-deal financing of convertible unsecured subordinated debentures (the “December Debentures” and, collectively with the January Debentures, the “Debentures”) with a syndicate of underwriters. The December Debentures will mature and be repayable on December 31, 2026 (the “December Debentures Maturity Date”) and accrue interest at the rate of 6.25% per annum payable semi-annually in arrears on the last day of June and December of each year commencing on June 30, 2022 until the December Debentures Maturity Date. Interest and principal are payable in cash or shares at the option of the Company. The December Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the December Debentures Maturity Date and the date specified by the Company for redemption of the December Debentures. Costs of the transaction were approximately C$2.3 million, including the underwriters’ commission. As a result of the Rights Offering (refer to Note 16), the conversion price of the December Debentures was adjusted to C$3.64 per common share representing a conversion rate of 274.7253 common shares per C$1,000 principal amount. On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for cancellation C$5.8 million ($4.3 million) of the principal balance of the December Debentures and paid C$0.08 million ($0.06 million) of the interest payable on such December Debentures (refer to Note 7). On August 2, 2024, the Company repurchased for cancellation C$13.6 million ($10.1 million) principal amount of December Debentures held by 22NW. On August 26, 2024, the Company announced the Debentures NCIB which commenced on August 28, 2024. During the fourth quarter of 2024, the Company repurchased for cancellation C$0.3 million ($0.2 million) principal amount of December Debentures as part of the Debentures NCIB. As at December 31, 2024, C$15.3 million ($10.6 million) principal amount of the December Debentures was outstanding.

15. INCOME TAXES

Reconciliation of income taxes

The following reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense. The Canadian statutory rate includes federal and provincial income taxes. This rate was used because Canada is the domicile of the parent entity of the Company.

	For the Year Ended December 31,
	2024	2023	2022
Net income (loss) before tax	15,218	(14,252)	(54,942)
Canadian federal statutory income tax rate	15.0%	15.0%	15.0%
Expected income tax	2,283	(2,138)	(8,241)
Effect on taxes resulting from:
Provincial and state income taxes	1,024	(1,368)	(5,165)
Valuation allowance	(3,809)	4,224	13,590
Non-deductible expenses	176	189	422
Non-deductible stock-based compensation	-	-	23
Tax rate impacts	618	(243)	(665)
Adjustments related to prior year tax filings	156	(332)	57
Income tax expense	448	332	21
Current tax expense	448	332	21
Deferred tax recovery	-	-	-
Income tax expense	448	332	21
Effective income tax rate	2.9%	(2.3)%	0.0%

The provision for income taxes is comprised of federal, state, provincial and foreign taxes based on pre-tax income. In the United States, the CARES Act of 2020 allows, among other provisions, for the recovery of taxes paid over the preceding five years from current year losses.

The Company’s U.S. subsidiary’s result was taxable income for the year ended December 31, 2024. The Company utilized prior year operating losses against this income; however, U.S. tax law does not allow for the full offset of losses against current year taxable income to reduce tax payable to zero. This resulted in current tax payable of $0.4 million in 2024 (2023 - $0.3 million).

Deferred tax assets and liabilities

Significant components of the Company’s deferred tax assets and liabilities as at December 31, 2024 and 2023 were as follows:

	As at December 31, 2024
	Assets	Liabilities	Net
Operating losses	29,134	-	29,134
Research and development expenditures	354	-	354
Property and equipment	-	(2,576)	(2,576)
Capitalized software and other assets	-	(1,187)	(1,187)
Valuation allowance	-	(30,049)	(30,049)
Other	4,324	-	4,324
Net deferred taxes	33,812	(33,812)	-
	As at December 31, 2023
---	---	---	---
	Assets	Liabilities	Net
Operating losses	35,690	-	35,690
Research and development expenditures	367	-	367
Property and equipment	-	(3,883)	(3,883)
Capitalized software and other assets	-	(1,033)	(1,033)
Valuation allowance	-	(34,529)	(34,529)
Other	3,388	-	3,388
Net deferred taxes	39,445	(39,445)	-

Summary of temporary difference movements during the year:

	Balance January 1, 2024	Recognized in Income	Foreign Exchange	Balance December 31, 2024
Operating losses	35,690	(5,771)	(785)	29,134
Research and development expenditures	367	(4)	(9)	354
Property and equipment	(3,883)	1,216	91	(2,576)
Capitalized software and other assets	(1,033)	(168)	14	(1,187)
Valuation allowance	(34,529)	3,809	671	(30,049)
Other	3,388	918	18	4,324
Net deferred taxes	-	-	-	-
	Balance January 1, 2023	Recognized in Income	Foreign Exchange	Balance December 31, 2023
---	---	---	---	---
Operating losses	33,740	1,431	519	35,690
Research and development expenditures	336	22	9	367
Property and equipment	(6,017)	2,182	(48)	(3,883)
Capitalized software and other assets	(1,599)	583	(17)	(1,033)
Valuation allowance	(29,812)	(4,224)	(493)	(34,529)
Other	3,352	6	30	3,388
Net deferred taxes	-	-	-	-

For the year ended December 31, 2024, the Company recorded valuation allowances of $3.8 million against deferred tax assets incurred during the year. A valuation allowance is recognized to the extent that it is more likely than not that the deferred tax assets will not be realized (2023 – $4.2 million).

On an annual basis, the Company and its subsidiary file tax returns in Canada and various foreign jurisdictions. In Canada, the Company’s federal and provincial tax returns for the years 2020 to 2023 remain subject to examination by taxation authorities. In the United States, both the federal and state tax returns filed for the years 2019 to 2023 remain subject to examination by the taxation authorities.

Tax loss carryforwards and other tax pools

The significant components of the Company’s net future income tax deductions in these consolidated financial statements are summarized as follows:

| | 2024
C$ | 2023
C$ | 2024
$ | 2023
$ |
| --- | --- | --- | --- | --- |
| Non-capital loss carry-forwards | 86,108 | 114,119 | 51,312 | 55,469 |
| Undepreciated capital costs | 5,637 | 3,903 | 2,815 | 5,626 |
| Share issuance costs | 2,444 | 2,454 | - | - |
| Scientific research and experimental development tax incentives | 1,971 | 1,971 | - | - |
| Total future tax deductions | 96,160 | 122,447 | 54,127 | 61,095 |

16. RIGHTS OFFERING

On November 21, 2023, the Company announced that the Board of Directors had approved a rights offering (the “Rights Offering”) to its common shareholders for aggregate gross proceeds of C$30.0 million ($22.4 million).

In connection with the Rights Offering, the Company entered into a standby purchase agreement, dated November 20, 2023 (the “Standby Purchase Agreement”) with 22NW and 726 BC LLC and 726 BF LLC (together, “726”), or their permitted assigns (collectively and including WWT Opportunity #1 LLC (“WWT”), to which 726 transferred all of their common shares to on December 1, 2023, the “Standby Purchasers”). Subject to the terms and conditions of the Standby Purchase Agreement, each Standby Purchaser agreed to exercise its Basic Subscription Privilege (as defined below) in full and to collectively purchase from the Company, at the subscription price, all common shares not subscribed for by holders of Rights (as defined below) under the Basic Subscription Privilege or Additional Subscription Privilege (as defined below), up to a maximum of C$15.0 million each, so that the maximum number of common shares that could be issued in connection with the Rights Offering would be issued and the Company would receive aggregate gross proceeds of C$30.0 million ($22.4 million). As described below, no standby fee was paid to the Standby Purchasers in connection with the Rights Offering; however, DIRTT reimbursed the Standby Purchasers for their reasonable expenses in the amount of $0.03 million each.

On January 9, 2024, the Company announced the completion of the Rights Offering to its common shareholders and the issuance of 85,714,285 common shares at a price of C$0.35 ($0.26) per whole common share for aggregate gross proceeds of C$30.0 million ($22.4 million) and aggregate net proceeds of $21.3 million ($1.1 million of costs associated with the Rights Offering). Each right distributed under the Rights Offering (each, a “Right”) entitled eligible holders to subscribe for 0.81790023 common shares, exercisable for whole common shares only, meaning 1.22264301 Rights were required to purchase one common share (the “Basic Subscription Privilege”). In accordance with applicable law, the Rights Offering included an additional subscription privilege (the “Additional Subscription Privilege”) under which eligible holders of Rights who fully exercised the Rights issued to them under their Basic Subscription Privilege, were entitled to subscribe for additional common shares, on a pro rata basis, that were not otherwise subscribed for under the Basic Subscription Privilege.

DIRTT issued an aggregate of 67,379,471 common shares pursuant to the Basic Subscription Privilege and 18,334,814 common shares pursuant to the Additional Subscription Privilege. As a result of the common shares issued under the Basic Subscription Privilege and Additional Subscription Privilege, no common shares were available for issuance pursuant to the Standby Purchase Agreement.

17. STOCK-BASED COMPENSATION

In May 2020, shareholders approved the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (the “2020 LTIP”). The 2020 LTIP replaced the predecessor incentive plans, being the Performance Share Unit Plan (“PSU Plan”) and the Amended and Restated Stock Option Plan (“Stock Option Plan”). Following the approval of the 2020 LTIP, no further awards will be made under either the Stock Option Plan or the PSU Plan, but both remain in place to govern the terms of any awards that were granted pursuant to such plans and remain outstanding.

In May 2023, shareholders approved the DIRTT Environmental Solutions Ltd. Amended and Restated Long-Term Incentive Plan (the "2023 LTIP") at the annual and special meeting of shareholders. The 2023 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In accordance with the 2023 LTIP, the sum of (i) 12,350,000 common shares plus (ii) the number of common shares subject to stock options previously granted under the Stock Option Plan that, following May 30, 2023, expire or are cancelled or terminated without having been exercised in full, were reserved for issuance under the 2023 LTIP. Upon vesting of certain LTIP awards, the Company may withhold and sell shares as a means of meeting DIRTT's tax withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained earnings or deficit.

In May 2024, shareholders approved the DIRTT Environmental Solutions Ltd. Second Amended and Restated Long-Term Incentive Plan (the "2024 LTIP") at the annual and special meeting of shareholders. The effective date of the 2024 LTIP is May 9, 2024. The 2024 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In accordance with the 2024 LTIP, the sum of (i) 27,350,000 common shares plus (ii) the number of common shares subject to stock options previously granted under the Stock Option Plan that, following May 22, 2020, expire or are cancelled or terminated without having been exercised in full, have been reserved for issuance under the 2024 LTIP. Upon vesting of certain LTIP awards, the Company may withhold and sell shares as a means of meeting DIRTT's tax withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained earnings or deficit.

Deferred share units ("DSUs") have historically been granted to non-employee directors under the Deferred Share Unit Plan for Non-Employee Directors (as amended and restated, the "DSU Plan") and settleable only in cash. The 2024 LTIP gives the Company the ability to settle DSUs in either cash or common shares, while consolidating future share-based awards under a single plan. The terms of the DSU Plan are otherwise materially unchanged as incorporated into the 2024 LTIP. Effective May 30, 2023, no new awards will be made under the DSU Plan, but awards previously granted under the DSU Plan will continue to be governed by the DSU Plan. DSUs are settled following cessation of services with the Company.

Stock-based compensation expense

	For the Year Ended December 31,
	2024	2023	2022
Equity-settled awards	2,466	2,331	3,943
Cash-settled awards	499	(25)	334
	2,965	2,306	4,277

The following summarizes RSUs, PRSUs (as defined herein), share awards, PSUs and DSUs activity during the periods:

	RSU Time-Based	RSU Performance-Based	Share Awards	PSU	DSU
	Number of units	Number of units	Number of units	Number of units	Number of units
Outstanding at December 31, 2022	1,885,337	343,919	-	-	1,165,319
Granted	3,599,500	-	522,883	2,584,161	2,276,731
Vested or settled	(1,105,225)	(258,760)	(522,883)	-	(355,878)
Withheld to settle employee tax obligations	(64,230)	-	-	-	-
Forfeited or expired	(784,818)	(21,130)	-	(738,553)	-
Outstanding at December 31, 2023	3,530,564	64,029	-	1,845,608	3,086,172
Granted	8,612,553	-	-	-	1,689,028
Vested or settled	(1,350,754)	(12,574)	-	-	(741,306)
Withheld to settle employee tax obligations	(351,672)	-	-	-	-
Forfeited or expired	(179,900)	(6,278)	-	-	-
Outstanding at December 31, 2024	10,260,791	45,177	-	1,845,608	4,033,894

Restricted share units (time-based vesting)

Except as noted below, outstanding restricted share units (“RSUs”) that vest based on time have an aggregate time-based vesting period of three years and generally one-third of the RSUs vest every year over a three-year period from the date of grant. At the end of a three-year term, the associated RSUs will be settled by way of the provision of cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted in 2024 and 2023 was C$0.68 and C$0.46, respectively, which was determined using the closing price of the Company’s common shares on their respective grant dates. During 2023, 150,000 RSUs were granted to each of the chief executive officer, president and chief operating officer and chief financial officer which vested in the first and third quarters of 2024.

During the third quarter of 2024, certain of the Company’s executives were issued (i) 5 million RSUs which will cliff vest on August 14, 2026 and (ii) 975,000 RSUs, one-third of which will vest every year over a three-year period from the date of grant, in each case such vesting is generally subject to continued employment. Once vested, the RSUs will be settled by way of the provision of cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted was C$0.75, which was determined using the closing price of the Company’s common shares on the grant date.

Restricted share units (performance-based vesting)

During 2022 and 2021, restricted share units were granted to executives with service and performance-based conditions for vesting (the “PRSUs”). If the Company’s share price increases to certain values for 20 consecutive trading days, as outlined below, a percentage of the PRSUs will vest at the end of the three-year service period or on their departure, based on terms agreed.

The grant date fair value of the 2022 and 2021 PRSUs were valued using the Monte Carlo valuation method and determined to have a weighted average grant date fair value of C$1.87 and C$3.27, respectively.

Based on share price performance since the date of grant, 66.7% of the 2021 PRSUs vested on March 1, 2024, but none of the 2022 PRSUs will vest upon completion of the three-year service period.

	% of PRSUs Vesting
	33.3%		66.7%	100.0%	150.0%
2021 and 2022 PRSUs	$	3.00	$ 4.00	$ 5.00	$ 7.00

Share awards

During the first quarter of 2022, certain executives were issued share awards in lieu of cash paid variable incentive compensation (“Share Awards”). These Share Awards vested upon grant. The fair value of the Share Awards granted was C$2.40 ($1.88), which was determined using the closing price of the Company’s common shares on the grant date. In the fourth quarter of 2022, 59,488 Share Awards were issued to employees as a component of their compensation.

In the first quarter of 2023, 36,254 Share Awards were issued to a consultant as compensation for services rendered. During the second quarter of 2023, certain executives were issued Share Awards in lieu of cash paid variable incentive compensation. These Share Awards vested upon grant. The fair value of the Share Awards granted was C$0.49 ($0.34), which was determined using the closing price of the Company’s common shares on the grant date. There were no Share Awards granted or vested during 2024.

Performance share units

During the second quarter of 2023, certain executives were issued a strategic equity grant through performance share units (“PSUs”). The performance period of the PSUs is from January 1, 2023, to December 31, 2026, with a cliff vesting term for December 31, 2026. 2,584,161 PSUs were granted and depending on the level of performance, the PSUs will vest 100%, 160% or 190% up to a maximum of 4,909,907 PSUs. Settlement will be made in the form of shares issued from treasury. The performance measures are a combination of Revenue and Earnings Before Interest, Taxes, Depreciation and Amortization and both targets have to be achieved. As of December 31, 2024, the fair value of these PSUs have been deemed to be nil based on the likelihood of achieving the targets compared to current results. During the third quarter of 2023, 738,553 PSUs with a $nil value were forfeited as a result of an executive departure and 1,845,608 PSUs with a $nil value are outstanding as at December 31, 2024.

Deferred share units

Granted under the DSU Plan

The fair value of the DSU liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently, at each reporting date between the grant date and settlement date, the fair value of the liability is remeasured with any changes in fair value recognized in the statement of operations and comprehensive income (loss) for the period. The weighted average fair value of the DSUs granted in 2023 was C$0.63 ($0.47), which was determined using the closing price of the Company’s common shares on the grant date. DSUs outstanding at December 31, 2024, had a fair value of $0.7 million which is included in other liabilities on the balance sheet (2023 – $0.5 million).

Granted under the 2023 and 2024 LTIP

DSUs granted after May 30, 2023, (the “New DSUs”) will be settled by way of the provision of cash or shares (or a combination thereof) to the Directors, at the discretion of the Company. The Company intends to settle these DSUs through issuances of common shares. The weighted average fair value of the New DSUs granted in 2024 and 2023 was C$0.69 ($0.50) and C$0.46 ($0.34), respectively, which was determined using the closing price of the Company’s common shares on the grant date. New DSUs outstanding at December 31, 2024, had a fair value of $1.3 million which is included in other liabilities on the balance sheet (2023 – $0.6 million).

Options

The following summarizes options granted, forfeited and expired during the periods:

	Number of options	Weighted average exercise price C$
Outstanding at December 31, 2022	1,480,069	7.03
Forfeited	(1,006,935)	7.00
Expired	(263,725)	$ 6.46
Outstanding and exercisable at December 31, 2023	209,409	7.71
Forfeited	(2,000)	7.84
Expired	(207,409)	7.70
Outstanding and exercisable at December 31, 2024	-	-

Range of exercise prices outstanding at December 31, 2023:

Range of exercise prices	Options outstanding			Options exercisable
	Number outstanding	Weighted average remaining life	Weighted average exercise price C$	Number exercisable	Weighted average remaining life	Weighted average exercise price C$
C$6.01 – C$7.00	16,350	0.71	$ 6.12	16,350	0.71	$ 6.12
C$7.01 – C$8.00	193,059	0.38	$ 7.84	193,059	0.38	$ 7.84
Total	209,409			209,409

As at December 31, 2024, the Company had no outstanding options.

Dilutive instruments

For the year ended December 31, 2024, 2.3 million RSUs and PRSUs, 2.0 million New DSUs and 45.1 million shares which would have been issued if the principal amount of the Debentures were settled in common shares at the year-end price were included in the diluted earnings per share calculation. 1.8 million PSUs and 0.2 million RSUs and PRSUs were excluded from the diluted weighted average number of common shares, as their effect would have been anti-dilutive to the net income per share.

For the years ended December 31, 2023 and 2022, 1.8 million and nil PSUs, 3.6 million and 2.2 million RSUs and PRSUs, 0.2 million and 1.5 million options, 1.8 million and nil New DSUs and 156.8 million and 109.1 million shares would be issued if the principal amount of the Debentures were settled in our common shares at the year-end share price were excluded from the diluted weighted average number of common shares, as their effect would have been anti-dilutive to the net loss per share.

18. SHARE REPURCHASES

On December 18, 2024, the Company announced a normal course issuer bid for common shares (the "Shares NCIB"), which commenced on December 20, 2024, terminates on December 19, 2025 and permits DIRTT to acquire up to 7,515,233 common shares. All purchases will be made on the open market through the facilities of the TSX at the market price of common shares at the time of acquisition. Any common shares acquired through the Shares NCIB will be immediately cancelled. Under this program, DIRTT acquired and cancelled 58,478 common shares during the year ended December 31, 2024.

The following table summarizes the common shares repurchased and cancelled during the period:

Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced programs	Maximum number of share that may yet be purchased under the program
December 20, 2024 - December 31, 2024	58,478	$ 0.96	58,478	7,456,755
Total	58,478		58,478	7,456,755

19. EARNINGS PER SHARE

On November 21, 2023, the Company announced a Rights Offering which allowed holders of common shares, as of the close of business on December 12, 2023, transferable subscription rights to purchase up to an aggregate of 85,714,285 common shares at a subscription price of C$0.35 per common share (refer to Note 16). An adjustment is required on the calculation of net loss per share for the year ended December 31, 2023, as well as retrospectively for the year ended December 31, 2022, to account for the bonus factor that resulted from this event.

For the Year Ended December 31,
	2024	2023	2022
Net income (loss) per share – basic
Net income (loss) (thousands of U.S. dollars)	$ 14,770	$ (14,584)	$ (54,963)
Weighted average number of shares outstanding (thousands of shares as previously calculated)	NA	101,984	87,662
Weighted average number of shares outstanding (thousands of shares restated)	190,542	116,135	99,826
Net income (loss) per share (U.S. dollars) – basic (as previously calculated, prior to Rights Offering)	NA	$ (0.14)	$ (0.63)
Net income (loss) per share (U.S. dollars) – basic (as on the Consolidated Statement of Operations)	$ 0.08	$ (0.13)	$ (0.55)
Net income (loss) per share – diluted
Net income (loss) (thousands of U.S. dollars)	$ 14,770	$ (14,584)	$ (54,963)
Interest on convertible debentures	$ 2,400	NA	NA
	$ 17,170	$ (14,584)	$ (54,963)
Weighted average number of shares outstanding (thousands of shares as previously calculated)	NA	101,984	87,662
Weighted average number of shares outstanding (thousands of shares restated)	190,542	116,135	99,826
Dilutive debentures on convertible debt (thousands of shares) (1)	45,140	-	-
Dilutive RSUs and PRSUs (thousands of shares) (2)	2,556	-	-
Dilutive New DSUs (thousands of shares) (2)	2,019	-	-
Weighted average number of shares outstanding (thousands of shares as previously calculated)	NA	116,135	99,826
Weighted average number of shares outstanding (thousands of shares restated)	240,239	116,135	99,826
Net income (loss) per share (U.S. dollars) – diluted (as previously calculated, prior to Rights Offering)	NA	$ (0.14)	$ (0.63)
Net income (loss) per share (U.S. dollars) – diluted (as on the Consolidated Statement of Operations)	$ 0.07	$ (0.13)	$ (0.55)

(1) For years ended December 31, 2023 and 2022, the Net loss per share - diluted excludes the effect of 156.8 million and 109.1 million shares that would be issued if the principal amount of the Debentures were settled in our common shares at the year-end price and are excluded as they would be anti-dilutive. For the year ended December 31, 2024, the Net income per share - diluted includes the effect of 45.1 million shares related to the Debentures as they would have the potential to dilute basic earnings per share.
(2) For the years ended December 31, 2023 and 2022, the Net loss per share - diluted excludes the effect of 3.6 million and 2.2 million RSUs (including PRSUs) and 1.8 million and nil PSUs and 1.8 million and nil New DSUs, as these would be anti-dilutive. For the year ended December 31, 2024, the Net income per share - diluted includes the effect of 2.3 million RSUs (including PRSUs) and 2.0 million New DSUs would have the potential to dilute basic earnings per share.

20. REVENUE

In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. Refer to Note 21 for the disaggregation of revenue by geographic region.

For the Year Ended December 31,
	2024	2023	2022
Product	152,856	158,405	147,448
Transportation	16,066	17,674	18,030
License fees from Construction Partners	738	840	778
Total product revenue	169,660	176,919	166,256
Installation and other services	4,653	5,012	5,905
	174,313	181,931	172,161

DIRTT sells its products and services pursuant to fixed-price contracts which generally have a term of one year or less. The transaction price used in determining the amount of revenue to recognize from fixed-price contracts is based upon agreed contractual terms with each customer and is not subject to variability.

	For the Year Ended December 31,
	2024	2023	2022
At a point in time	168,922	176,079	165,478
Over time	5,391	5,852	6,683
	174,313	181,931	172,161

Revenue recognized at a point in time represents the majority of the Company's sales. Revenue is recognized when a customer obtains legal title to the product, which is when ownership of the product is transferred to, or services are delivered to, the customer. Revenue recognized over time is limited to installation and ongoing maintenance contracts with customers and is recorded as performance obligations are satisfied over the term of the contract.

Contract Liabilities

	As at December 31,
	2024	2023	2022
Customer deposits	4,028	5,290	4,458
Deferred revenue	-	-	408
Contract liabilities	4,028	5,290	4,866

Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions. The balance of contract liabilities was lower as at December 31, 2024, compared to the prior year period mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2023 and 2022, respectively, totaling $5.3 million and $4.9 million were recognized as revenue during 2024 and 2023, respectively.

Sales by Industry

The Company periodically reviews product revenue by industry vertical market to evaluate trends and the success of industry specific sales initiatives. The nature of products sold to the various industries is consistent and therefore the periodic review is focused on sales performance.

	For the Year Ended December 31,
	2024	2023	2022
Commercial	121,518	116,693	115,102
Healthcare	21,230	33,970	19,739
Government	17,114	13,446	16,564
Education	9,060	11,970	14,073
License fees from Construction Partners	738	840	778
Total product and transportation revenue	169,660	176,919	166,256
Installation and other services	4,653	5,012	5,905
	174,313	181,931	172,161

21. SEGMENT REPORTING

The Company has one reportable and operating segment, and operates in two principal geographic locations, Canada and the United States. Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The Company's revenue from operations from external customers, based on location of operations, and information about its non-current assets, is detailed below.

Revenue from external customers

	For the Year Ended December 31,
	2024	2023	2022
Canada	23,921	19,934	25,477
U.S.	150,392	161,997	146,684
	174,313	181,931	172,161

Non-current assets

	As at December 31,
	2024	2023
Canada	25,924	30,033
U.S.	25,137	30,759
	51,061	60,792

DIRTT has one reportable segment: solutions. The DIRTT solutions segment derives revenues from customers by providing physical products and digital tools through our ICE software to create interior spaces for our customers across the commercial, healthcare, education and government industries. The solutions segment provides digital tools (access to ICE software) and physical products to create modular interior construction spaces for our customers. The accounting policies of the solutions segment are the same as those described in Note 2 – significant accounting policies.

DIRTT's chief operating decision maker is the executive leadership team that includes the president and chief operating officer, chief financial officer, and the chief executive officer. The chief operating decision maker assesses performance for the solution segment and decides how to allocate resources based on gross profit and net loss that also is reported on the consolidated statement of operations and comprehensive income (loss) as consolidated gross profit and net income (loss). The measure of segment assets is reported on the balance sheet as total consolidated assets. The chief operating decision maker uses net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the solution segment or into other parts of the entity, such as to repay long term debt.

Gross profit and net income (loss) are used to monitor budget versus actual results. The chief operating decision maker also uses net income in competitive analysis by benchmarking to DIRTT's competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management's compensation.

DIRTT derives revenue primarily in North America and manages the business activities on a consolidated basis. The technology used in the customer arrangements is based on a single software platform that is deployed to, and implemented by, customers in a similar manner.

Segment profit and loss reconciliation to net income (loss) after tax

	For the Year Ended December 31,
	2024	2023	2022
	($ in thousands)
Revenue	174,313	181,931	172,161
Operating expenses(1)	60,149	76,097	87,203
Operating income (loss)	4,226	(16,555)	(59,043)
Other income/(expenses) and gains/(losses)(2)	10,544	1,971	4,080
Net income (loss) after tax	14,770	(14,584)	(54,963)
Reconciliation of profit or loss
Adjustments and reconciling items	-	-	-
Net income (loss) after tax	14,770	(14,584)	(54,963)

(1) Includes Sales and marketing, General and administrative, Operations support, Technology and development, Stock-based compensation, Reorganization costs, Related party expenses, and Impairment charges
(2) Includes Tax expenses, non-recurring gains and losses, government subsidies, foreign exchange gains(losses), interest income, and interest expenses

22. COMMITMENTS

As at December 31, 2024, the Company had outstanding purchase obligations of approximately $4.2 million related to inventory and property, plant and equipment purchases (2023 – $2.8 million). Refer to Note 8 for lease commitments.

23. LEGAL PROCEEDINGS

The Company is pursuing multiple lawsuits against its former founders, Mogens Smed and Barrie Loberg, their new company Falkbuilt Ltd. ("Falkbuilt"), and other related individual and corporate defendants for violations of fiduciary duties and non-competition and non-solicitation covenants contained in their executive employment agreements, and the misappropriation of DIRTT's confidential and proprietary information in violation of numerous Canadian and U.S. state, and federal laws pertaining to the protection of DIRTT's trade secrets and proprietary information and the prevention of false advertising and deceptive trade practices.

As of December 31, 2024, the Company's litigation against Falkbuilt, Messrs. Smed and Loberg, and their associates was comprised of two main lawsuits: (i) an action in the Alberta Court of King's Bench instituted on May 9, 2019, against Falkbuilt, Messrs. Smed and Loberg, and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, and duties of loyalty, fidelity and confidentiality, and the misappropriation of DIRTT's confidential information (the "Canadian Non-Compete Case"); and (ii) an action in the U.S. District Court for the Northern District of Utah instituted on December 11, 2019, against Falkbuilt, Smed, and other individual and corporate defendants alleging misappropriation of DIRTT's confidential information, trade secrets, business intelligence and customer information (the "Utah Misappropriation Case"). Claims previously pending before in the U.S. District Court for the Northern District of Texas have been included in the Utah Misappropriation Case.

Falkbuilt also filed a lawsuit against the Company on November 5, 2019, in the Court of King's Bench of Alberta, alleging that DIRTT has misappropriated and misused their alleged proprietary information in furtherance of DIRTT's product development. Falkbuilt seeks monetary relief and an interim, interlocutory and permanent injunction of DIRTT's alleged use of the alleged proprietary information. The Company believes that the suit is without merit and filed an application for summary judgment to dismiss Falkbuilt's claim.

On the first matter, on October 25, 2024, the Honourable Mr. Justice Poelman of the Court of King's Bench of Alberta granted a Court Order directing the Clerk of the Court to schedule an 8-week trial on the first available dates after December 8, 2025, to determine all the issues (including damages and liability). The trial is scheduled to commence February 2, 2026.

In the Utah Misappropriation Case, on April 11, 2023, the United States Court of Appeals for the Tenth Circuit reversed the U.S. District Court for the Northern District of Utah's decision that Utah was an inconvenient forum for DIRTT's claims against Falkbuilt and others for the misappropriation of confidential information, trade secrets, business intelligence and customer information. The Texas Unfair Competition Case was dismissed in March 2022, without prejudice, in reliance upon the now-reversed decision in the Utah Misappropriation Case, described above. On March 4, 2024, Defendants jointly moved to move the case to Canada again. Notwithstanding all the prior litigation, on March 28, 2024, Falkbuilt moved to stay the Utah case until the Court ruled on the renewed motion to dismiss (the "Second Motion to Dismiss"). On February 5, 2025, the Utah District Court granted the Second Motion to Dismiss for forum non conveniens, without prejudice. The Utah Court, in essence, redirected the determination of those damages from Utah to Canada, being the appropriate forum for the legal dispute. With the Canadian trial commencing less than a year away, DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King's Bench of Alberta.

No amounts are accrued for the above legal proceedings.

24. RELATED PARTY TRANSACTIONS

On March 15, 2023, the Company entered into a Debt Settlement Agreement (the "Debt Settlement Agreement") with 22NW and Aron English, 22NW's principal and a director of DIRTT, (together, the "22NW Group") who, collectively, beneficially owned approximately $19.5\%$ of the Company's issued and outstanding common shares at such time. Pursuant to the Debt Settlement Agreement, the Company agreed to reimburse the 22NW Group for the costs incurred by the 22NW Group in connection with the contested director election at the annual and special meeting of shareholders of the Company held on April 26, 2022, being approximately $1.6 million (the "Debt").

Pursuant to the Debt Settlement Agreement, the Company agreed to repay the Debt by either, or a combination of (i) a payment in cash by the Company to the 22NW Group, and/or (ii) the issuance of equity securities of the Company to the 22NW Group. The liability as at March 31, 2023 was revalued using the closing common share price at March 31, 2023, and a $2.1 million liability and expense was recorded in the financial statements.

In connection with the Debt Settlement Agreement, on March 15, 2023, the Company entered into a share issuance agreement with the 22NW Group, pursuant to which the Company agreed to repay the Debt with the issuance to the 22NW Group of 3,899,745 common shares at a deemed price of $0.40 per common share, subject to approval by the Company's shareholders which was obtained at the Company's annual and special meeting of shareholders held on May 30, 2023.

Other related party transactions for the year ended December 31, 2023, relate to the sale of DIRTT products and services to the 22NW Group for $0.3 million. The sale to the 22NW Group was based on price lists in force and terms that are available to all employees. There were no sales to the 22NW Group for the year ended December 31, 2024.

On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Group to purchase for cancellation of C$18.9 million ($14.0 million) principal amount of the January Debentures and C$13.6 million ($10.1 million) principal amount of the December Debentures for an aggregate purchase price of C$22.1 million ($16.2 million). Interest earned on such Debentures to, but not including, the date of repurchase for the year ended December 31, 2024 was $1.0 million, and $0.9 million for the year ended December 31, 2023. Interest is earned on terms applicable to all Debenture holders. As at December 31, 2024, 22NW no longer held any Debentures.

Also on August 2, 2024, DIRTT entered into a support and standstill agreement (the "Support Agreement") with 22NW and WWT, DIRTT's second largest shareholder, which replaced the support and standstill agreement entered into with 22NW on March 22, 2024. Under the Support Agreement, both 22NW and WWT agreed to certain voting and standstill obligations, including voting in favor of the management director nominees at each of DIRTT's next two annual general meetings and voting in favor of the ratification of the Amended and Restated SRP. Additionally, each of 22NW and WWT has the right to designate a director nominee at each of DIRTT's next two annual general meetings, and is subject to certain restrictions with respect to commencing a take-over bid for the Company. The Support Agreement also permits WWT to acquire up to 4,067,235 additional shares through market purchases (representing approximately 2% of the then issued and outstanding shares), which provides WWT with an opportunity to own the same number of shares as 22NW (being 57,447,988 shares, or approximately 29.8% of the issued and outstanding shares as of the date of the Support Agreement). The Support Agreement otherwise prohibits each of 22NW and WWT from acquiring any additional shares. Since the commencement of the Support Agreement, WWT acquired 156,250 shares in the year ended December 31, 2024.

To give effect to the terms of the Support Agreement, the Board adopted the Amended and Restated SRP, effective August 2, 2024, which amended and restated the Company's shareholder rights plan agreement originally adopted by the Board on March 22, 2024 (the "Original SRP"). The Amended and Restated SRP was ratified by shareholders at the special meeting held on September 20, 2024 (the "SRP Meeting"). The Amended and Restated SRP revised the definition of "Exempt Acquisition" in order to permit WWT to acquire additional common shares without triggering the provisions of the Amended and Restated SRP. The Amended and Restated SRP is otherwise consistent with the Original SRP and is substantially similar to the rights plan adopted by the Company in 2021. Like the Original SRP, the Amended and Restated SRP is intended to help ensure that all shareholders of the Company are treated fairly and equally in connection with any unsolicited take-over bid or other acquisition of control of the Company (including by way of a "creeping" take-over bid). The Amended and Restated SRP was not adopted in response to any specific proposal to acquire control of the Company, and the Board was not aware of any pending or potential take-over bid for the Company at the time of the adoption.

25. SUBSEQUENT EVENTS

On February 1, 2025, the President of the United States of America issued executive orders to impose new tariffs on goods being imported into the United States of America from Canada, Mexico and China. If implemented, these new tariffs could adversely impact the Canadian economy, consumer spending, inflation, Canadian dollar valuation and the Company's financial results. Further, on February 10, 2025 the President of the United States of America issued another executive order imposing additional 25% tariffs on steel and aluminum imports from various countries including Canada.

The actual impact of the new tariffs or any retaliatory tariffs is subject to several factors including the effective date, duration of such tariffs, changes in the applied rates, scope and nature of the tariffs in the future, any countermeasures that the target countries may take and any mitigating actions that may become available. These developments also introduce a degree of uncertainty regarding the potential impact on supply chains, cost structures and market dynamics. The imposition of trade barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost or reduce the supply of materials and products available to us, increase shipping times, affect our customers' construction needs or budgets, affect the demand for our products or our product mix, or require us to modify our supply chain organization, manufacturing facilities, or other current business practices, any of which could impact our business, financial condition, and results of operations. The Company will continue to monitor the evolving trade landscape and its implications on operations and financial performance.

On February 13, 2025, the Company entered into a share repurchase agreement (the "Repurchase Agreement") with NGEN III, LP ("NGEN"), pursuant to which the Company purchased for cancellation 3,920,844 common shares currently held by NGEN at a purchase price of $0.80 per share (the "Share Repurchase"). Pursuant to the terms of the Repurchase Agreement, the purchase price of $0.80 per share was a 1% discount to the closing price of the common shares on the TSX on January 27, 2025 (converted into U.S. Dollars using the February 13, 2025 closing exchange rate published by the Bank of Canada). Upon completion of the Share Repurchase on February 14, 2025, there were 189,643,903 common shares outstanding, and NGEN no longer held any common shares of the Company. The common shares repurchased under the Share Repurchase counts against DIRTT's annual normal course issuer bid share limit (the "NCIB Annual Limit"). Following completion of the Share Repurchase, the Company's outstanding NCIB Annual Limit is 3,422,494.

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DIRTT Environmental Solutions Ltd. — Audit Report / Information 2024

47167_rns_2025-02-26_2c82fda4-2c1c-41c4-9a4f-dd614778eefb.pdf

Report of Independent Registered Public Accounting Firm

Opinion on the Financial Statements

Basis for Opinion

Critical Audit Matters

1. GENERAL INFORMATION

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

Principles of consolidation

Basis of measurement

Use of estimates

Segments

Foreign currency translation

Cash and cash equivalents and restricted cash

Trade and other receivables, net of expected credit losses

Inventory

Assets held for sale

Leases

Property, plant and equipment

Capitalized software costs

Impairment of long-lived assets

Convertible Debentures

Income taxes

Current tax

Deferred tax

Revenue recognition

Product sales

Contracts containing multiple performance obligations

Installation and other services

Principal vs Agent Considerations

Construction Partner rebates

Contract balances

Warranties

Stock-based compensation

Technology and development expenditures

Government subsidies

Common shares

Earnings per share

Fair value of financial instruments

3. ADOPTION OF NEW ACCOUNTING STANDARDS AND RECENT PRONOUNCEMENTS ISSUED

4. GOVERNMENT SUBSIDIES

5. REORGANIZATION AND ASSETS HELD FOR SALE

Closure of Phoenix Aluminum Manufacturing Facility (the “Phoenix Facility”)

Workforce Reductions, Board and Management Changes

Temporary Suspension of Operations and Subsequent Closure at the Rock Hill Facility

Assets held for sale

Discontinuation of Reflect Product Line and Other Charges Incurred

8. LEASES

9. TRADE AND ACCRUED RECEIVABLES

10. INVENTORY

11. PROPERTY, PLANT AND EQUIPMENT, NET

12. CAPITALIZED SOFTWARE, NET

13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER LIABILITIES

14. LONG-TERM DEBT

Revolving Credit Facility

Leasing Facilities

Convertible Debentures

15. INCOME TAXES

Reconciliation of income taxes

16. RIGHTS OFFERING

17. STOCK-BASED COMPENSATION

Restricted share units (performance-based vesting)

Share awards

Performance share units

18. SHARE REPURCHASES

19. EARNINGS PER SHARE

20. REVENUE

Contract Liabilities

Sales by Industry

21. SEGMENT REPORTING

22. COMMITMENTS

23. LEGAL PROCEEDINGS

24. RELATED PARTY TRANSACTIONS

25. SUBSEQUENT EVENTS

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DIRTT Environmental Solutions Ltd. Audit Report / Information 2024