DIRTT Environmental Solutions Ltd. — Interim / Quarterly Report 2024

May 8, 2024

These financial statements for DIRTT Environmental Solutions Ltd. are also included in the Form 10-Q for the quarterly period ended March 31, 2024 filed on SEDAR+ on May 8, 2024 in its entirety.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

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

(Unaudited – Stated in thousands of U.S.	dollars)
	As at March 31,	As at December 31,
	2024	2023
ASSETS
Current Assets
Cash and cash equivalents	38,989	24,744
Restricted cash	241	355
Trade and accrued receivables, net of expected credit losses of	15,782	15,787
$0.1 million at March 31, 2024 and at December 31, 2023
Other receivables	476	484
Inventory	15,669	16,577
Prepaids and other current assets	2,426	4,023
Assets held for sale	-	1,555
Total Current Assets	73,583	63,525
Property, plant and equipment, net	23,801	25,077
Capitalized software, net	2,700	2,450
Operating lease right-of-use assets, net	28,442	29,813
Other assets	3,442	3,452
Total Assets	131,968	124,317
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities	15,360	19,880
Other liabilities	2,906	2,482
Customer deposits and deferred revenue	3,080	5,290
Current portion of long-term debt and accrued interest	675	841
Current portion of lease liabilities	5,449	5,255
Total Current Liabilities	27,470	33,748
Long-term debt	46,125	55,267
Long-term lease liabilities	26,957	28,201
Total Liabilities	100,552	117,216
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 191,880,226	218,294	196,128
issued and outstanding at March 31, 2024 and 105,377,667 issued and
outstanding at December 31, 2023
Additional paid-in capital	7,355	7,954
Accumulated other comprehensive loss	(16,422 )	(16,125 )
Accumulated deficit	(177,811 )	(180,856 )
Total Shareholders’ Equity	31,416	7,101
Total Liabilities and Shareholders’ Equity	131,968	124,317

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

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DIRTT Environmental Solutions Ltd. Interim Condensed Consolidated Statement of Operations (Unaudited - Stated in thousands of U.S. dollars)

	For the Three Months Ended	For the Three Months Ended
	March 31,
	2024	2023
Product revenue	39,039	35,476
Service revenue	1,808	1,232
Total revenue	40,847	36,708
Product cost of sales	24,992	27,423
Service cost of sales	1,207	603
Total cost of sales	26,199	28,026
Gross profit	14,648	8,682
Expenses
Sales and marketing	5,920	5,515
General and administrative	4,566	5,833
Operations support	1,775	1,990
Technology and development	1,251	1,539
Stock-based compensation	675	796
Reorganization	138	1,071
Impairment charge on Rock Hill Facility	530	-
Related party expense	-	2,056
Total operating expenses	14,855	18,800
Operating loss	(207 )	(10,118 )
Government subsidies	-	148
Gain on extinguishment of convertible debt	2,931	-
Foreign exchange gain (loss)	919	(261 )
Interest income	489	4
Interest expense	(1,054 )	(1,207 )
	3,285	(1,316 )
Net income (loss) before tax	3,078	(11,434 )
Income taxes
Current and deferred income tax expense	33	-
	33	-
Net income (loss) after tax	3,045	(11,434 )
Net income (loss) per share
Net income (loss) per share - basic	0.02	(0.10 )
Net income (loss) per share - diluted	0.01	(0.10 )
Weighted average number of shares outstanding(in thousands)
Basic	183,668	111,702
Diluted	288,479	111,702

Interim Condensed Consolidated Statement of Comprehensive Income (Loss)

	For the Three Months Ended March 31,	For the Three Months Ended March 31,
	2024	2023
Net income (loss) for the period	3,045	(11,434 )
Exchange differences on translation of foreign operations	(297 )	273
Comprehensive income (loss) for the period	2,748	(11,161 )

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Total revenue for the three months ended March 31, 2024 includes $nil revenue earned from related parties and $nil related party expenses ($0.3 million and $2.1 million for the three months ended March 31, 2023, respectively). Refer to Note 16.

Interest expense for the three months ended March 31, 2024 includes $0.4 million earned by a related party ($nil for the three months ended March 31, 2023). Refer to Note 16.

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

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DIRTT Environmental Solutions Ltd. Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited – Stated in thousands of U.S. dollars, except for share data)

					Accumulated
	Number of			Additional	other		Total
	Common	Common		paid-in	comprehensive	Accumulated	shareholders’
	shares	shares		capital	loss	deficit	equity
As at December 31, 2022	97,882,844	191,347		9,023	(16,106 )	(166,272 )	17,992
Stock-based compensation	-	-		452	-	-	452
Issued on vesting of RSUs and Share Awards	659,473	1,256		(1,256 )	-	-	-
RSUs and Share Awards withheld to settle	-
employee tax obligations			-	(26 )	-	-	(26 )
Issued for employee share purchase plan	322,408	12	8	-	-	-	128
Foreign currency translation adjustment	-		-	-	273	-	273
Net loss for the period	-		-	-	-	(11,434 )	(11,434 )
As at March 31, 2023	98,864,725	192,73	1	8,193	(15,833 )	(177,706 )	7,385
As at December 31, 2023	105,377,667	196,128		7,954	(16,125 )	(180,856 )	7,101
Stock-based compensation	-	-		248	-	-	248
Issued on vesting of RSUs and Share Awards	521,253	771		(771 )	-	-	-
Issued on Rights Offering	85,714,285	21,273		-	-	-	21,273
Issued for employee share purchase plan	267,021	122		-	-	-	122
RSUs and Share Awards withheld to settle	-	-
employee tax obligations				(76 )	-	-	(76 )
Foreign currency translation adjustment	-	-		-	(297 )	-	(297 )
Net income for the period	-	-		-		3,045	3,045
As at March 31, 2024	191,880,226	218,294		7,355	(16,422 )	(177,811 )	31,416

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

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DIRTT Environmental Solutions Ltd. Interim Condensed Consolidated Statement of Cash Flows

(Unaudited – Stated in thousands of U.S. dollars)

	For the Three Months Ended March 31,	For the Three Months Ended March 31,
	2024	2023
Cash flows from operating activities:
Net income (loss) for the period	3,045	(11,434 )
Adjustments:
Depreciation and amortization	1,534	2,675
Impairment charge on Rock Hill Facility	530	-
Stock-based compensation	675	796
Foreign exchange loss (gain)	(978 )	346
Gain on extinguishment of convertible debt	(2,931 )	-
Accretion of convertible debentures	180	164
Changes in operating assets and liabilities:
Trade and accrued receivables	(34 )	2,111
Other receivables	(3 )	4,732
Inventory	597	1,299
Prepaid and other assets, current and long term	1,437	391
Accounts payable and accrued liabilities	(4,072 )	(3,299 )
Other liabilities	-	2,056
Customer deposits and deferred revenue	(2,202 )	(1,020 )
Current portion of long-term debt and accrued interest	(152 )	(56 )
Lease liabilities	331	251
Net cash flows used in operating activities	(2,043 )	(988 )
Cash flows from investing activities:
Purchase of property, plant and equipment, net of accounts payable changes	(344 )	(371 )
Capitalized software development expenditures	(442 )	(532 )
Other asset expenditures	(79 )	(106 )
Recovery of software development expenditures	121	26
Proceeds on sale of assets held for sale	1,025	-
Net cash flows provided by (used in) investing activities	281	(983 )
Cash flows from financing activities:
Repayment of long-term debt	(5,074 )	(642 )
Net proceeds received from rights offering	21,273	-
Employee tax payments on vesting of RSUs	(76 )	(26 )
Net cash flows provided by (used in) financing activities	16,123	(668 )
Effect of foreign exchange on cash, cash equivalents and restricted cash	(230 )	(36 )
Net increase (decrease) in cash, cash equivalents and restricted cash	14,131	(2,675 )
Cash, cash equivalents and restricted cash, beginning of year	25,099	14,239
Cash, cash equivalents and restricted cash, end of period	39,230	11,564
Supplemental disclosure of cash flow information:
Interest paid	(1,005 )	(1,072 )
Income taxes received	-	5

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

the consolidated balance sheets.
	As At March 31,
	2024	2023
Cash and cash equivalents	38,989	8,146
Restricted cash	241	3,418
Total cash, cash equivalents and restricted cash	39,230	11,564

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

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DIRTT Environmental Solutions Ltd.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements (Amounts 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 (“Construction Partners”), including Armstrong World Industries, Inc. (“AWI”), which owns 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.

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 Market. DIRTT’s common shares are quoted on the OTC Markets on the “OTC Pink Tier” under the symbol “DRTTF.”

2. BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements (the “Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, the Financial Statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the Company, the Financial Statements contain all adjustments necessary, consisting of only normal recurring adjustments, for a fair statement of its financial position as of March 31, 2024, and its results of operations and cash flows for the three months ended March 31, 2024 and 2023. The condensed balance sheet at December 31, 2023, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. These Financial Statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023 included in the Annual Report on Form 10-K of the Company as filed with the SEC and applicable securities commission or similar regulatory authorities in Canada.

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 Environmental Solutions Ltd. and its subsidiary. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated on consolidation.

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Basis of measurement

These Financial Statements have been prepared on the historical cost convention except for certain financial instruments, assets held for sale and certain components of stock-based compensation that are measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The Company’s quarterly tax provision is based upon an estimated annual effective tax rate.

Seasonality

Sales of the Company’s products are driven by consumer and industrial demand for interior construction solutions. The timing of customers’ construction projects can be influenced by a number of factors including the prevailing economic climate and weather.

3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS

On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, “Improvements to Income Tax Disclosures” (“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.

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. REORGANIZATION AND ASSETS HELD FOR SALE

Workforce Reductions

During the three months ended March 31, 2023, a review of our costs resulted in the decision to eliminate a number of salaried positions. These actions resulted in the Company incurring certain one-time termination costs. There were no restructuring costs associated with workforce reductions in the three months ended March 31, 2024.

Temporary Suspension of Operations and Subsequent Closure at Rock Hill, South Carolina (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 cost of sales, were $0.5 million for the three month period ended March 31, 2024 (2023 – $0.4 million).

On September 27, 2023, the Company decided to permanently close the Rock Hill Facility. Certain assets, including manufacturing equipment, which met held-for-sale criteria at that time were reclassified from property, plant and equipment. During the three months ended March 31, 2024, $1.0 million of the assets held for sale were sold. At March 31, 2024, we determined to reduce the assets held for sale balance from $0.5 million to $nil, resulting in a $0.5 million impairment charge for the quarter. While we will continue to pursue a sale of the assets, we were not able to determine the likelihood of recoverability based on the current market interest in the equipment.

	As at March 31,	As at March 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 )	-
Assets held for sale, ending	-	-

For the three months ended March 31, 2024, reorganization costs incurred relate to the above mentioned initiatives:

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	**For the Three **	Months Ended March 31,	Months Ended March 31,
	2024		2023
Termination benefits		-	700
Phoenix facility closure		-	43
Rock Hill Facility temporary suspension and closure of operations		126	-
Other costs		12	328
Total reorganization costs		138	1,071
Reorganization costs in accounts payable and accrued liabilities at January 1, 2023			2,277
Reorganization expense			3,009
Reorganization costs paid			(4,690 )
Reorganization costs in accounts payable and accrued liabilities at December 31, 2023			596
Reorganization expense			138
Reorganization costs paid			(438 )
Reorganization costs in accounts payable and accrued liabilities at March 31, 2024			296

Of the $0.3 million reorganization costs in accounts payable and accrued liabilities (December 31, 2023 – $0.6 million), $0.2 million relates to termination benefits (December 31, 2023 – $0.5 million) and $0.1 million relates to other reorganization costs (December 31, 2023 – $0.1 million).

5. 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 8) 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 8), 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 8) 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)).

In accordance with GAAP, it was determined that the C$6.9 million ($5.1 million) repayment on principal triggered an extinguishment of debt. The gain on extinguishment of C$3.9 million ($2.9 million) was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs of C$0.4 million ($0.2 million) (refer to Note 8).

6. TRADE AND ACCRUED RECEIVABLES

Accounts receivable are recorded at the invoiced amount, do not require collateral and typically 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 consolidated 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 March 31, 2024, approximately 97% of our trade accounts receivable are insured, relating to accounts receivable from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities.

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Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the three months ended March 31, 2024, one Construction Partner accounted for greater than 10% of revenue (one Construction Partner for the three months ended March 31, 2023). In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.

The Company’s aged receivables were as follows :

The Company’s aged receivables were as follows:
	As at
	March 31, 2024	December 31, 2023
Current	13,297	12,070
Overdue	2,585	3,818
	15,882	15,888
Less: expected credit losses	(100 )	(101 )
	15,782	15,787

No adjustment to our expected credit losses of $0.1 million was required for the three months ended March 31, 2024. 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.

On February 4, 2024, the Company entered into a Litigation Funding Agreement with a third party for the funding of up to $4.0 million of litigation costs in respect of specific claims against Falkbuilt, Inc., Falkbuilt Ltd. and Henderson. In return, the Company has agreed to pay from any proceeds received from the settlement of such claims, a reimbursement of funded amounts plus diligence and underwriting costs, plus a multiple of such funded amount based on certain milestones. As part of this agreement, the Company is subject to a general security arrangement over its assets.

7. OTHER LIABILITIES

	As at,	As at,
	March 31, 2024	December 31, 2023
Warranty provisions(1)	866	873
DSU liability	1,486	1,086
Income taxes payable	321	289
Sublease deposits	183	184
Other provisions	50	50
Other liabilities	2,906	2,482

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

(1) The following table presents a reconciliation of the warranty prov	ision balance:	ision balance:
	As at,
	March 31, 2024	December 31, 2023
As at January 1	873	1,278
Additions to warranty provision	205	1,208
Payments related to warranties	(212 )	(1,613 )
	866	873

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8. LONG-TERM DEBT

	Revolving Credit Facility	Leasing	Convertible
		Facilities	Debentures	Total Debt
Balance on January 1, 2023	-	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 on January 1, 2024	-	484	55,624	56,108
Accretion of issue costs	-	-	180	180
Accrued interest	-	9	843	852
Interest payments	-	(9 )	(996 )	(1,005 )
Principal repayments	-	(19 )	(5,055 )	(5,074 )
Gain on extinguishment	-	-	(2,931 )	(2,931 )
Exchange differences	-	(11 )	(1,319 )	(1,330 )
Balance at March 31, 2024	-	454	46,346	46,800
Current portion of long-term debt and accrued interest	-	78	597	675
Long-term debt	-	376	45,749	46,125

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 was 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), was less than C$5.0 million, the Company is subject to a fixed charge coverage ratio (“FCCR”) covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR had been below 1.10:1 for the three immediately preceding months, the Company was 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 have occurred or the Aggregate Excess Availability been less than C$6.25 million for five consecutive business days, the Company would have entered a cash dominion period whereby the Company’s bank accounts would have been blocked by RBC and daily balances would have 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 had a borrowing base of C$15 million and a one-year term. Interest was 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 was not above 1.25 for three consecutive months, a cash balance equivalent to one-year’s worth of Leasing Facilities payments was required to 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 March 31, 2024, available borrowings are C$10.1 million ($8.5 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

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covenant, which resulted in the release of $0.1 million of restricted cash during the first quarter of 2024 (the Company had $0.4 million restricted cash as at December 31, 2023).

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 ($3.4 million) has been drawn and C$3.8 million ($2.9 million) has been repaid, and a $14.0 million equipment leasing facility in the United States (the “U.S. Leasing Facility” and, together with the Canada Leasing Facility, the “Leasing Facilities”) with RBC, of which $13.3 million has been drawn and repaid. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. Refer to Note 4 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.

The Company did not make any draws on the Canadian Leasing Facilities during the first quarter of 2024 (2023 – $nil). The associated financial liabilities are shown on the consolidated balance sheet in the current portion of longterm 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 with a syndicate of underwriters (the “January Debentures”). 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 14), 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 5). As at March 31, 2024, C$35.6 million ($26.3 million) principal amount of the January Debentures was outstanding of which C$18.9 million ($13.9 million) was held by a related party (refer to Note 16).

On December 1, 2021, the Company completed a C$35.0 million ($27.4 million) bought-deal financing of convertible unsecured subordinated debentures with a syndicate of underwriters (the “December Debentures” and, together with the January Debentures, the “Debentures”). These 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 14), 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 5). As at March 31, 2024, C$29.2 million ($21.5 million) principal amount of the December Debentures was outstanding of which C$13.6 million ($10.0 million) was held by a related party (refer to Note 16).

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9. STOCK-BASED COMPENSATION

In May 2020, shareholders approved the DIRTT Environmental Solutions 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 LongTerm 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 Company’s Amended and Restated Incentive Stock Option Plan (the “Stock Option Plan”) that, following May 30, 2023, expire or are cancelled or terminated without having been exercised in full, have been 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.

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 2023 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 2023 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

Stock-based compensation expense
	For the Three Months Ended March 31,
	2024	2023
Equity-settled awards	493	644
Cash-settled awards	182	152
	675	796

The following summarizes RSUs, Share Awards, PSUs, and DSUs activity during the periods:

	RSU Time-	RSU Performance-	Share
	Based	Based	Awards	PSU	DSU
	Number of	Number of	Number of	Number of	Number of
	units	units	units	units	units
Outstanding at December 31, 2022	1,885,337	343,919	-	-	1,165,319
Granted	-	-	36,253	-	434,032
Vested or settled	(590,258 )	(32,962 )	(36,253 )	-	-
Withheld to settle employee tax obligations	(64,230 )	-	-	-	-
Forfeited	(44,081 )	-	-	-	-
Outstanding at March 31, 2023	1,186,768	310,957	-	-	1,599,351
Outstanding at December 31, 2023	3,530,564	64,029	-	1,845,608	3,086,172
Granted	350,000	-	-	-	496,095
Vested or settled	(508,679 )	(12,574 )	-	-	-
Withheld to settle employee tax obligations	(146,343 )	-	-	-	-
Forfeited	(29,214 )	(6,278 )	-	-	-
Outstanding at March 31, 2024	3,196,328	45,177	-	1,845,608	3,582,267

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Restricted share units (time-based vesting)

Restricted share units 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 (“RSUs”). At the end of a three-year term, 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 in 2024 was C$0.50, which was determined using the closing price of the Company’s common shares on their respective grant dates.

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.

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	% of PRSUs Vesting	% of PRSUs Vesting	% 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

There were no share awards granted or vested during the first quarter of 2024.

In the first quarter of 2023, 36,254 Share Awards were issued to a consultant as compensation for services rendered. 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.

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 March 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 at March 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 profit or loss for the period. DSUs outstanding at March 31, 2024 had a fair value of $0.6 million which is included in other liabilities on the balance sheet (December 31, 2023 – $0.5 million).

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Granted under the 2023 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 DSUs granted in 2024 was C$0.67 ($0.49), which was determined using the closing price of the Company’s common shares on the grant date. New DSUs outstanding at March 31, 2024 had a fair value of $0.8 million which is included in other liabilities on the balance sheet (December 31, 2023 – $0.6 million).

Options

The following summarizes options forfeited and expired during the periods:

	Number of	Weighted average
	options	exercise price C$
Outstanding at December 31, 2022	1,480,069	7.03
Forfeited or expired	(398,964 )	7.14
Outstanding at March 31, 2023	1,081,105	6.99
Outstanding at December 31, 2023	209,409	7.71
Forfeited	(1,000 )	7.84
Exercisable at March 31, 2024	208,409	7.71

Range of exercise prices outstanding and exercisable at March 31, 2024:

	Options outstanding	Options exercisable
	Weighted Weighted	Weighted Weighted
	Number of average average	average average
	options remaining exercise	Number remaining exercise
Range of exercise prices	life price C$	exercisable life price C$
C$6.01 – C$7.00	16,350 0.47 $ 6.12	16,350 0.47 $ 6.12
C$7.01–C$8.00	192,059 0.13 $ 7.84	192,059 0.13 $ 7.84
Total	208,409	208,409

Dilutive Instruments

For the three months ended March 31, 2024, 0.2 million options, 3.8 million RSUs and PRSUs, 2.3 million New DSUs, 1.8 million PSUs and 96.7 million shares which would be issued if the principal amount of the Debentures were settled in our common shares at the quarter-end price and were included in the diluted EPS calculation. See Note 10 for the dilutive impact on net income (loss) per share.

For the three months ended March 31, 2023, 1.1 million options, 1.5 million RSUs and PRSUs and 119.4 million shares which would have been issued if the principal amount of the Debentures were settled in our common shares at the quarter-end price were excluded in the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive to the net loss per share.

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10. EARNINGS PER SHARE

On November 21, 2023, the Company announced a Rights Offering (refer to Note 14) which distributed to 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 14). On January 9, 2024, the Company announced the completion of the Rights Offering, pursuant to which the Company issued an aggregate of 85,714,285 common shares. A retrospective adjustment is required on the calculation of net income (loss) per share for the three months ended March 31, 2023 to account for the bonus factor that resulted from this event.

factor that resulted from this event.
	For the Three Months Ended March 31,
	2024	2023
Net income (loss) per share– basic
Net income (loss)(thousands of U.S. dollars)	$ 3,045	$ (11,434 )
Weighted average number of shares outstanding(thousands of shares as previously	NA	98,091
calculated)
Weighted average number of shares outstanding(thousands of shares restated)	183,668	111,702
Net income (loss) per share (U.S. dollars) − basic(as previously calculated, prior to	NA $ 0.02	$ (0.12 ) $ (0.10 )
Rights Offering)
Net income (loss) per share (U.S. dollars) − basic(as on the Consolidated Statement of
Comprehensive Income)
Net income (loss) per share− diluted
Net income (loss)(thousands of U.S. dollars)	$ 3,045	$ (11,434 )
Interest on convertible debentures	$ 843	NA
	$ 3,888	$ (11,434 )
Weighted average number of shares outstanding(thousands of shares as previously	NA	98,091
calculated)
Weighted average number of shares outstanding(thousands of shares restated)	183,668	111,702
Dilutive debentures on convertible debt(thousands of shares) (1)	96,690	-
Dilutive RSUs and PRSUs(thousands of shares) (2)	3,775	-
Dilutive options(thousands of shares) (2)	208	-
Dilutive New DSUs(thousands of shares) (3)	2,292	-
Dilutive PSUs(thousands of shares) (3)	1,846	-
Weighted average number of shares outstanding(thousands of shares as previously	NA	98,091
calculated)
Weighted average number of shares outstanding(thousands of shares restated)	288,479	111,702
Net income (loss) per share (U.S. dollars) − diluted(as previously calculated, prior to	NA $ 0.01	$ (0.12 ) $ (0.10 )
Rights Offering)
Net income (loss) per share (U.S .dollars) − diluted(as on the Consolidated Statement
of Comprehensive Income)

(1) For the three months ended March 31, 2023, the Net loss per share − diluted excludes the effect of 119.4 million shares that would be issued if the principal amount of the Debentures were settled in our common shares at the quarter end price and are excluded as they would be antidilutive. For the three months ended March 31, 2024, the Net income per share − diluted includes the effect of 96.7 million shares related to the Debentures as they would have the potential to dilute basic earnings per share.

(2) For the three months ended March 31, 2023, the Net loss per share − diluted excludes the effect of 1.5 million RSUs and PRSUs and 1.1 million options as these would be anti-dilutive. For the three months ended March 31, 2024, the Net income per share − diluted considers the effect of 3.8 million RSUs and PRSUs and 0.2 million options as they would have the potential to dilute basic earnings per share.

(3) For the three months ended March 31, 2024, the Net income per share − diluted excludes the effect of 2.3 million New DSUs and 1.8 million PSUs. These would have the potential to dilute basic earnings per share.

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11. REVENUE

In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. See Note 12 for the disaggregation of revenue by geographic region.

	For the Three Months Ended March 31,	For the Three Months Ended March 31,
	2024	2023
Product	34,876	31,481
Transportation	3,955	3,788
License fees from Construction Partners	208	207
Total product revenue	39,039	35,476
Installation and other services	1,808	1,232
	40,847	36,708

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 Three Months Ended March 31,	For the Three Months Ended March 31,
	2024	2023
At a point in time	38,831	35,269
Over time	2,016	1,439
	40,847	36,708

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 which are satisfied over the term of the contract.

Contract Liabilities

		As at
	March 31, 2024	December 31, 2023	December 31, 2022
Customer deposits	2,533	5,290	4,458
Deferred revenue	547	-	408
Contract liabilities	3,080	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 March 31, 2024 compared to December 31, 2023 mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2023 and 2022 totaling $5.3 million and $4.5 million, respectively, were recognized as revenue during the three months ended March 31, 2024 and 2023, respectively.

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Sales by Industry

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

	For the Three Months Ended March 31,	For the Three Months Ended March 31,
	2024	2023
Commercial	30,179	24,504
Healthcare	3,049	6,171
Government	3,475	2,707
Education	2,128	1,887
License fees from Construction Partners	208	207
Total product and transportation revenue	39,039	35,476
Installation and other services	1,808	1,232
	40,847	36,708

12. 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 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

Revenue from external customers
	For the Three Months Ended March 31,
	2024	2023
Canada	3,069	4,912
U.S.	37,778	31,796
	40,847	36,708
Non-current assets

Non-current assets
	As at March 31,	As at December 31,
	2024	2023
Canada	28,837	30,033
U.S.	29,548	30,759
	58,385	60,792

The DIRTT solution 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 chief operating decision maker assesses performance for the solution segment and decides how to allocate resources based on gross profit and net income (loss) that also is reported on the Consolidated Statement of Operations and Comprehensive 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 (loss) 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 has one reportable segment: Solutions. The solutions segment provides digital tools (access to ICE software) and physical products to create modular interior construction spaces for our customers.

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DIRTT derives revenue 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. DIRTT’s chief operating decision maker is the executive leadership team that includes the chief operating officer, chief financial officer, and the chief executive officer.

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

	For the Three Months Ended March 31,	For the Three Months Ended March 31,
	2024 2023
	($ in thousands)
Revenue	40,847	36,708
Gross Profit	14,648	8,682
Gross Profit Margin	35.9 %	23.7 %
Operating expenses(1)	14,855	18,800
Operating income (loss)	(207 )	(10,118 )
Other income/(expenses) and gains/(losses)(2)	3,252	(1,316 )
**Net income (loss) after tax **	3,045	(11,434 )
Reconciliation of profit or loss
Adjustments and reconciling items	-	-
Net income (loss) after tax	3,045	(11,434 )

(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

13. INCOME TAXES

As at March 31, 2024, the Company had a valuation allowance of $33.9 million against deferred tax assets as the Company has experienced cumulative losses in recent years (December 31, 2023 – $34.5 million).

14. 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 Fund, LP (“22NW”) and 726 BC LLC and 726 BF LLC (together, “726”), or their permitted assigns (collectively and including WWT Opportunity #1 LLC, 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 will 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.

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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.

15. COMMITMENTS

As at March 31, 2024, the Company had outstanding purchase obligations of approximately $1.1 million related to inventory and property, plant and equipment purchases (December 31, 2023 – $2.8 million). As at March 31, 2024, the Company had undiscounted operating lease liabilities of $43.4 million (December 31, 2023 – $45.1 million).

Subsequent to March 31, 2024, the Company extended the term of the lease agreement for the Calgary headquarters by 3 years, effective April 2024. Undiscounted rent obligations associated with this lease are $1.4 million.

16. 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 shareholder meeting held on May 30, 2023.

Other related party transactions for the three months ended March 31, 2024 and March 31, 2023, relate to the sale of DIRTT products and services to the 22NW Group for $nil and $0.3 million, respectively. $Nil and $0.2 million was included in the Trade and accrued receivable balance as at March 31, 2024 and March 31, 2023, respectively. The sale to 22NW Group was based on price lists in force and terms that are available to all employees.

As at March 31, 2024, C$18.9 million and C$13.6 million of the January Debentures and December Debentures, respectively, are held by 22NW Group (December 31, 2023 – C$18.9 million and C$13.6 million, respectively). Interest earned on such Debentures for the three months ended March 31, 2024 and March 31, 2023 is $0.4 million and $nil, respectively. Interest is earned on terms applicable to all Debenture holders.

19