Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The registrant had ~~98,889,837~~191,880,226 common shares outstanding as of ~~May 8, 2023.~~April 30, 2024.

Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2023~~2024 (this “Quarterly Report”) are “forward-looking statements” within the meaning of “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and “forward-looking information” within the meaning of applicable Canadian securities laws. All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,” “outlook,” “may,” “will,” “should,” “would,” “could,” “can,” “continue,” the negatives thereof, variations thereon and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Forward-looking statements are based on certain estimates, beliefs, expectations and assumptions made in light of management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may be appropriate.

Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those contained in, or expressed or implied inby such statements. Due to the risks, uncertainties and assumptions inherent in forward-looking information, you should not place undue reliance on forward-looking statements. Factors that could have a material adverse effect on our business, financial condition, results of operations and growth prospects ~~include, but are not limited to, the severity and duration of the coronavirus (“COVID-19”) pandemic and related economic repercussions and other risks described under~~can be found in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2022,~~2023, filed with the U.S. Securities and Exchange Commission (the “SEC”) and applicable securities commissions or similar regulatory authorities in Canada on February ~~22, 2023~~21, 2024 (the “Annual Report on Form 10-K”), and in this Quarterly Report under “Part II, Item 1A. Risk Factors.” These factors include, but are not limited to, the following:

These risks are not exhaustive. Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the forward-looking statements in this Quarterly Report. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the effects of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or expressed or implied by, any forward-looking statements. Our past results of operations are not necessarily indicative of our future results. You should not place undue reliance on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under applicable securities laws. We qualify all of our forward-looking statements by these cautionary statements.

~~Included in Trade and accrued receivables is $0.2~~ ~~million of balances due from related parties and included under Other liabilities is $2.1~~ ~~million due to related parties (Refer to Note 15).~~

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

Total revenue for the ~~quarter~~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 $~~0.3~~0.4 million earned ~~from related parties. Total operating expenses includes $2.1~~ ~~million of~~by a related party ~~expenses (Refer~~($nil for the three months ended March 31, 2023). Refer to Note ~~15).~~16.

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


								Accumulated																Accumulated
	Number of				Additional			other						Total			Number of				Additional			other						Total
	Common		Common		paid-in			comprehensive			Accumulated			shareholders’			Common		Common		paid-in			comprehensive			Accumulated			shareholders’
	shares		shares		capital			loss			deficit			equity			shares		shares		capital			loss			deficit			equity
As at December 31, 2021		85,345,433		181,782		13,200			(15,916	)		(111,300	)		67,766
As at December 31, 2022																		97,882,844		191,347		9,023			(16,106	)		(166,272	)		17,992
Stock-based compensation		-		-		1,339			-			-			1,339			-		-		452			-			-			452
Issued on vesting of RSUs and Share Awards		487,544		1,203		(1,203	)		-			-			-			659,473		1,256		(1,256	)		-			-			-
RSUs and Share Awards withheld to settle employee tax obligations		-		-		(189	)		-			(9	)		(198	)		-		-		(26	)		-			-			(26	)
Foreign currency translation adjustment		-		-		-			433			-			433
Net loss for the period		-		-		-			-			(23,042	)		(23,042	)
As at March 31, 2022		85,832,977		182,985		13,147			(15,483	)		(134,351	)		46,298
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 withheld to settle employee tax obligations		-		-		(26	)		-			-			(26	)
Issued for employee share purchase plan		322,408		128		-			-			-			128			322,408		128		-			-			-			128
Foreign currency translation adjustment		-		-		-			273			-			273			-		-		-			273			-			273
Net loss for the period		-		-		-			-			(11,434	)		(11,434	)		-		-		-			-			(11,434	)		(11,434	)
As at March 31, 2023		98,864,725		192,731		8,193			(15,833	)		(177,706	)		7,385			98,864,725		192,731		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.

No adjustment to our expected credit losses of $0.1 million was required for the ~~quarter~~three months ended March 31, ~~2023.~~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.

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 iswas 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 iswas 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”,~~Availability,” (defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash), iswas 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 ~~has~~had been below 1.10:1 for the three immediately preceding months, the Company iswas 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~~have occurred or the Aggregate Excess Availability bebeen less than C$6.25 million for five consecutive business days, the Company would ~~enter~~have entered a cash dominion period whereby the Company’s bank accounts would behave been blocked by RBC and daily balances ~~will~~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 ~~has~~had a borrowing base of C$15 million and a ~~one year~~one-year term. Interest iswas 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 ~~("SOFR"~~(“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 iswas not above 1.25 for three consecutive months, a cash balance equivalent to ~~one-year's~~one-year’s worth of Leasing Facilities payments ~~must~~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$15 million and a one-year term. Interest is calculated at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case plus 200 basis points. At March 31, ~~2023,~~2024, available borrowings are C$~~7.0~~10.1 million ($~~5.2~~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~~Facility described above, of which no amounts have been drawn. The ~~Company did not meet~~Second Extended RBC Facility removed the three-month FCCR ~~requirement~~

covenant, which resulted in the release of $0.1 million of restricted cash during the first quarter of ~~2023 which resulted in requiring the restriction of~~2024 (the Company had $~~3.4~~0.4 million ~~of cash.~~restricted cash as at December 31, 2023).

The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which C$4.4 million ($~~3.3~~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 ~~each with RBC,~~ and ~~one of its affiliates, which are available for equipment expenditures~~repaid. The Canada Leasing Facility has a seven-year term and

~~certain equipment expenditures already incurred. The Leasing Facilities, respectively, have seven and five-year terms and bear~~ bears interest at 4.25% ~~and~~ . Refer to Note 4 on the decision to permanently close the Rock Hill Facility. As part of this decision, the Company fully settled the $~~5.59~~7.8%. million principal balance of the U.S. Leasing Facility in the fourth quarter of 2023. The U.S. Leasing Facility is ~~amortized over a six-year term and extendible at the Company’s option for an additional year.~~no longer available to be drawn on.

The Company did not make any draws on the Canadian Leasing Facilities during the ~~three months ended March 31, 2023 and the three months ended March 31, 2022.~~first quarter of 2024 (2023 – $nil). 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.

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 ~~will~~ 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 at a conversion price of C$4.65~~ ~~per common share, being a ratio of approximately~~ ~~215.0538~~ ~~common shares per C$1,000~~ ~~principal amount 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 ~~will~~ 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 at a conversion price of C$4.20~~ ~~per common share, being a ratio of approximately~~ ~~238.0952~~ ~~common shares per C$1,000~~ ~~principal amount 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).

~~10.~~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 Long-Term Incentive Plan (the ~~“2020~~“2023 LTIP”) at the annual and special meeting of shareholders. The ~~2020~~2023 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, ~~granted in connection with restricted share units, vested share awards,~~ 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 ~~2020~~2023 LTIP, the sum of (i) ~~5,850,000~~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 ~~22, 2020,~~30, 2023, expire or are cancelled or terminated without having been exercised in full, have been reserved for issuance under the ~~2020~~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.

The change of 100% of the Board of Directors combined with the prior Board declining to endorse the incoming board constituted a "Change of a Control", under the terms of the 2020 LTIP, as of April 26, 2022. As a result, all outstanding and unvested LTIP awards granted under the 2020 LTIP for any holder terminated without Cause (as defined therein) within twelve months following the Change of Control vested immediately upon such termination.

~~The Company also maintains~~Deferred share units (“DSUs”) have historically been granted to non-employee directors under the ~~DIRTT Environmental Solutions Ltd.~~ Deferred Share Unit Plan for Non-Employee Directors ~~pursuant~~(as amended and restated, the “DSU Plan”) and settleable only in cash. The 2023 LTIP gives the Company the ability to ~~which deferred share units (“DSUs”) are granted to the Company’s non-employee directors.~~settle DSUs ~~are settled solely~~ in ~~cash.~~

~~Prior to the approval~~either cash or common shares, while consolidating future share-based awards under a single plan. The terms of the ~~2020 LTIP,~~DSU Plan are otherwise materially unchanged as incorporated into the Company granted awards of options under the Stock Option Plan and awards of performance share units (“PSUs”) under the DIRTT Environmental Solutions Ltd. Performance Share Unit Plan (the “PSU Plan”). Following the approval of the 2020 LTIP,2023 LTIP. Effective May 30, 2023, no ~~further~~new awards will be made under ~~either~~ the ~~Stock Option Plan or the PSU~~DSU Plan, but ~~both remain in place~~awards previously granted under the DSU Plan will continue to ~~govern~~be governed by the ~~terms~~DSU Plan. DSUs are settled following cessation of ~~any awards that were granted pursuant to such plans and remain outstanding.~~services with the Company.

Stock-based compensation expense

For the Three Months Ended March 31,

2023

2022

Equity-settled awards

644

1,339

Cash-settled awards

152

(37
)

796

1,302


	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, ~~(as defined below),~~ 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, 2021

3,216,536

1,021,739

-

157,200

361,577

Granted

2,109,205

863,279

162,682

-

180,314

Vested

(393,016
)

-

(94,528
)

-

-

Withheld to settle employee tax obligations

(60,039
)

-

(68,154
)

-

-

Forfeited

(614,151
)

(502,628
)

-

-

-

Outstanding at March 31, 2022

4,258,535

1,382,390

-

157,200

541,891

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


	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

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 ~~2022~~2024 was C$~~2.37~~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. ~~PRSUs awarded in 2020 were forfeited in January 2022 upon the departure of an executive from the Company.~~

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, ~~none~~ ~~of the 2022 PRSUs and~~ 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
%
2022 and 2021 PRSUs

$
3.00

$
4.00

$
5.00

$
7.00


	% 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~~There were no share awards granted or vested 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$2024.~~2.40~~

($~~1.88), which was determined using the closing price of the Company’s common shares on the grant date.~~ 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 ~~year.~~period. DSUs outstanding at March 31, ~~2023~~2024 had a fair value of $~~0.7~~0.6 million which is included in other liabilities on the balance sheet (December 31, ~~2022~~2023 –$0.5 million).

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, 2021

4,064,489

6.64

Forfeited

(1,740,915
)

6.40

Outstanding at March 31, 2022

2,323,574

6.82

Outstanding at December 31, 2022

1,480,069

7.03

Forfeited

(398,964
)

7.14

Outstanding and Exercisable at March 31, 2023

1,081,105

6.99

No ~~options were granted during the three months ended March 31, 2023.~~


	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

For the three months ended March 31, ~~2023,~~2024, ~~1.1~~0.2 million options, ~~(2022 –~~ ~~2.3~~ ~~million),~~ ~~1.5~~3.8 million RSUs and PRSUs, ~~(2022 –~~ ~~5.6~~2.3 ~~million)~~million New DSUs, 1.8 million PSUs and ~~119.4~~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 share~~quarter-end price ~~(2022 –~~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, ~~43.0~~1.1 ~~million)~~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 ~~from~~in the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive to the net loss per share. If

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.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited interim condensed consolidated financial statements and related notes and other financial information appearing in this Quarterly Report. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Quarterly Report.

DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a ~~global~~ leader in industrialized construction. ~~DIRTT's~~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.~~

•

~~On May 9, 2023, we entered into~~Company, including AWI which owns a Co-Ownership Agreement (the “Co-Ownership Agreement”) and Partial Patent Assignment Agreement with Armstrong World Industries, Inc. (“AWI”). The agreements provide a cash payment to us for $10 million, subject to certain routine closing conditions, in exchange for the partial assignment to AWI and co-ownership of an undivided 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~~AWI.

Key First Quarter Highlights

•

On January 9, 2024, the Company announced the completion of the Rights Offering (as defined below) 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) (the ~~“Applicable ICE Code”~~“Rights Offering”)~~, including~~. DIRTT issued an ~~undivided 50% interest in the patent rights that relate~~aggregate of 67,379,471 common shares pursuant to the ~~Applicable ICE Code. We also agreed~~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 ~~Co-Ownership Agreement to provide AWI a transfer of knowledge concerning the source code of the Applicable ICE Code. In exchange~~Basic Subscription Privilege and Additional Subscription Privilege, no common shares were available for completing the knowledge transfer, we will receive an additional cash payment of $1 million, which is expected by early 2024. The Co-Ownership Agreement provides that we and AWI have separate exclusive fields of use and restrictive covenants with respectissuance pursuant to the Applicable ICE Code and related IP which survive until either party elects to separate from its relationship with the other and for five years thereafter. We concurrently entered into an Amended and Restated Master Services Agreement (the “ARMSA”) with AWI, under which AWI has 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-OwnershipStandby Purchase Agreement.

•

~~Revenues~~On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”), through which we offered to purchase the Debentures from holders for subsequent cancellation. On March 22, 2024, the Issuer Bid expired and DIRTT purchased C$4.7 million aggregate principal amount of its then issued and outstanding 6.00% convertible unsecured subordinated debentures due January 31, 2026 (the “January Debentures”) and C$5.8 million aggregate principal amount of its then issued and outstanding 6.25% convertible unsecured subordinated debentures due December 31, 2026 (the “December Debentures”, and collectively with the January Debentures, the “Debentures”), representing approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at the time. The Company took up all the Debentures tendered pursuant to the Issuer Bid for aggregate consideration of C$7.0 million (including interest of C$0.1 million) resulting in a $2.9 million gain on extinguishment of debt.

•

Revenue for the quarter ended March 31, ~~2023 were $36.7~~2024 was $40.8 million, ~~a decrease~~an increase of ~~$1.6~~$4.1 million or 4%11.3% from ~~$38.3~~$36.7 million for the same period of 2023. The increase in ~~2022, and a $5.7 million or 13% decrease from the fourth quarter of 2022. Compared~~revenue, as compared to the same period ~~in 2022, the decrease in revenue is~~of 2023, was primarily driven ~~by a decrease in total orders, offset~~ by an increase in ~~pricing. Further, we had one large project within~~volume in the tech industry, expected to deliver within the first quarter of 2023 that was indefinitely put on hold. Compared to the fourth quarter, first quarter activity is lower, in line with seasonal demand patterns.commercial and government sectors.

•

Gross profit and gross profit margin for the quarter ended March 31, ~~2023~~2024 was $14.6 million or 35.9% of revenue, an increase from $8.7 million or 23.7% ~~of revenue, an increase of $5.4 million or 164% from $3.3 million or 8.6%~~ of revenue for the quarter ended March 31, 2022. The increase in gross profit reflects price increases enacted and reductions made to our fixed cost structure during 2022. Gross profit for the quarter ended March 31, 2022 included $1.1 million of accelerated depreciation and amortization arising from change in useful lives.

•

2023. Adjusted Gross Profit (see “– Non-GAAP Financial Measures”) for the ~~first quarter of 2023~~three months ended March 31, 2024 was ~~$10.5~~$15.5 million. This represents ~~a $3.7~~an increase of $5.0 million ~~or 54.8% increase over~~from the comparative period in ~~2022, but a decrease of $3.1 million or 23% from the fourth quarter of 2022.~~2023. Adjusted Gross Profit Margin (see “–

Non-GAAP Financial Measures”) for the first quarter of ~~2023 was~~2024 increased to 37.9% from 28.5%~~, a 1,086 bps improvement over~~ in the comparative ~~period and a decrease of 351 bps from the fourth quarter of 2022.~~period. The ~~decrease~~increase in Adjusted Gross Profit and Adjusted Gross Profit Margin compared to the ~~quarter ended December 31, 2022~~previous year period is ~~due to the impact~~a result of improved product mix, improved labor efficiency, and better fixed ~~costs on lower volumes. General inflation in services and labor costs have been offset by the favorable impact from the weakening Canadian dollar.~~cost leverage.

•23

During the quarter ended March 31, 2023, the Board of Directors agreed to reimburse the 22NW Group for $1.6 million of legal fees and other expenses incurred by the 22NW Group during the contested director election in 2022, anticipated to be settled by way of issuance of 3,899,745 common shares, in the second quarter of 2023, subject to shareholder approval.

•

Net ~~loss~~income after tax for the first quarter of ~~2023~~2024 was ~~$11.4~~$3.0 million compared to ~~$23.0~~an $11.4 million net loss after tax for the same period of ~~2022.~~2023. The ~~lower~~increase in net ~~loss~~income is primarily the result of ~~the~~a $6.0 million higher gross profit margin ~~of $5.4 million~~ (as explained above), a ~~$5.5~~$3.9 million ~~reduction~~decrease in operating expenses, a ~~$2.6~~$2.9 million ~~reduction~~increase in ~~reorganization costs,~~gain on extinguishment of debt, a $1.2 million increase in foreign exchange gain, a $0.5 million increase in interest income, and a $0.1 million decrease in ~~foreign exchange loss~~interest expense, offset by a ~~one-time related party reimbursement of $2.1 million. During the first quarter we benefited from the weakening Canadian dollar on Canadian dollar denominated costs.~~$0.1 million decrease in government subsidies.

•

Adjusted EBITDA (see “– Non-GAAP Financial Measures”) for the first quarter of ~~2023~~2024 was $2.7 million, or 6.5% of revenue, an improvement of $6.2 million from a $3.5 million loss, or (9.6)%~~, an improvement~~ of ~~$8.4 million from a $12.0 million loss or (31.2)%~~revenue, for the first quarter of ~~2022.~~2023. Higher Adjusted EBITDA was driven by improved gross margin and cost reduction measures taken by the Company over the past two years.

•

~~The Company used approximately $2.7~~Cash on hand increased by $14.1 million ~~of cash~~ in the first quarter of ~~2023~~2024 compared to ~~$3.8~~$2.7 million of cash ~~generated~~used in the ~~fourth~~first quarter of ~~2022, and compared to~~2023. Our cash ~~used~~flow in the first quarter of 2024 benefited from net proceeds of $21.3 million ~~$19.1~~from the Rights Offering and improved operational results, offset by a decrease in working capital of $10.6 million ~~and $12.5 million in the first, second and third quarters of 2022. Our cashflow was reduced compared to the fourth quarter of 2022~~(mainly due to ~~lower sales. However, compared to~~timing of payables and $5.2 million of debt payment under the earlier quarters of 2022, our cash usage has decreased significantly due to the impact of increased pricing and cost reduction initiatives. Our working capital benefited from the receipt of $5.0 million from the ERC government subsidy during the quarter.

•

~~Management is continuing to evaluate and align our manufacturing footprint and salaried workforce in light of the continued economic uncertainty.~~Issuer Bid).

In the first quarter of 2023, we changed our methodology for calculating and disclosing our forward twelve month pipeline as the macroeconomic environment has been impacting our ability to close and convert qualified leads on a timely basis. Accordingly, we are now disclosing qualifiedPipeline

Qualified leads, defined as quantity of projects being pursued, and our pipeline, defined as working with an engaged client on assessment of DIRTT as a prefabricated interior solution ~~provider.~~provider are disclosed below. We ~~have begun using~~use these ~~new measures as they better~~to measure expected near term performance given that our operating environment has been prone to change due to macroeconomic factors such as worksite labor availability, interest rate changes, and potential recessionary impacts on construction projects.

As at(1)

April 1, 2023

January 1, 2023

% Change

April 1, 2022

% Change

Pipeline ($ 000s)

Commercial

160,636

141,293

14
%

146,986

9
%

Healthcare

45,900

55,719

(18
%)

43,570

5
%

Government

30,676

32,313

(5
%)

32,328

(5
%)

Education

14,987

17,201

(13
%)

19,727

(24
%)

252,199

246,525

2
%

242,612

4
%

Leads (#)

969

721

34
%

417

132
%

(1) Adjusted for previously presented period pursuant to new methodology

~~Our forward twelve-month pipeline as~~As of April 1, ~~2023 was $252 million, a 2% increase~~2024, our twelve-month forward pipeline grew by 7% year-over-year and marginally from ~~$247 million at~~ January 1, ~~2023, and a 4% increase from $243 million at April 1, 2022.~~2024, illustrated in the table below.


	As at
	April 1, 2024		January 1, 2024		% Change			April 1, 2023		% Change
Twelve Month Forward Pipeline ($ 000s)
Commercial		175,203		176,789		(1	)		160,636		9
Healthcare		45,658		41,221		11			45,900		(1	)
Government		33,017		34,813		(5	)		30,676		8
Education		16,505		17,117		(4	)		14,987		10
		270,383		269,940		1			252,199		7
Leads (#)		1,184		861		38			969		22

~~Our qualified leads being pursued with expected projects~~DIRTT continues to experience pipeline growth as the U.S. economy saw above-trend quarterly GDP growth in the ~~next twelve months was 969 as~~third and fourth quarters of ~~April 1, 2023, as compared~~2023. Our internal and external economic indicators imply continued growth for the twelve-month forward pipeline and the U.S. economy. Our healthcare segment has returned to ~~721 at January 1, 2023 and 395 as of January 1, 2022. The Company has increased its qualified leads as a result~~growth due to several 2025 projects entering our twelve-month view of the ~~implementation of our customer relationship management system, as well as improved communication and collaboration to our commercial organization.~~

~~Outlook~~

~~Through the first three months of 2023 we have seen continued weakening in economic conditions, especially in regions with concentrated sales~~pipeline. Due to the technology and banking sectors. While our win rate has increased modestly year over year on a project basis, the average project dollar value has decreased 14.8% from $49,860 to $42,473 (whole dollars). We believe this is a result of tightening credit policies in response to rising inflation resulting in smaller order size. Further, these macroeconomic conditions, including layoffs in the technology sector, reduction in short-term needs for office space, and increasing interest rates impacting borrowings, certain larger projects that were planned for the first two quarters of 2023 have been deferred or canceled, resulting in muted growthinherently long sales cycle in our healthcare segment, this pipeline ~~as of April 1, 2023.~~

~~In response~~tends to ~~the economic uncertainty and pipeline risk discussed above, we have taken a thoughtful look at~~experience more volatility than our cost structure over the past three months. As discussed in our 2022 Form 10-K, we previously identified and took action to reduce annualized overhead costs by $5 million during 2023. Further, on May 8, 2023, the Company reduced its salaried workforce, resulting in annualized savings of $3.1 million. One-time costs associated with these reductions, to be incurred in the second quarter of 2023, are expected to be approximately $0.7 million.

It should be noted that we have experienced an increase in both our order pace and pipeline beginning in April, being awarded several large projects with Bechtel, Apache and Visa that are expected to deliver $10 to $15 million in aggregated revenue this year. In addition to the pipeline, we use the trailing 28 day order pace to gauge near term revenue and overall demand. As of May 5, 2023, the trailing 28 day order pace reached $16 million, the highest level it has been since mid fourth quarter of 2022. This is not a guarantee of future revenue run rate, but it is a positive indicator for us as it implies improved revenue performance in Q2 and Q3.other segments.

We ~~have also~~are highly cognizant of two risks facing our business in the year ahead; continued uncertainty in the commercial real estate markets and the possibility of re-inflation in U.S. headline CPI. We are closely monitoring economic data tied to ~~execute upon various non-dilutive initiatives designed~~their performance. To mitigate these risks, we are growing the pipeline and implementing strict cost controls to ~~improve cash and liquidity. During March 2023, we entered into an arrangement with one of~~preserve our Construction Partners to sublease our Dallas DXC. Under the sublease agreement, the subtenant will assume responsibility for the monthly rent, utilities, maintenance, taxes and other costs from April 1, 2023, through December 31, 2024 and provide annualized cash savings of approximately $1 million. The quarter also benefited from the receipt of $4.8 million of the $7.3 million previously accrued government subsidy receivable associated with the ERC program. We anticipate receiving the remainder of during the the second quarter of 2023.margins.

Outlook

As we ~~move~~continue into 2024, internal indicators and external economic indicators show a positive trajectory for the ~~second~~U.S. economy. Real GDP Growth in the third and fourth quarters of 2023 was above trend. Consumer spending, employment, and construction activity continue to improve from the post-COVID period.

However, we are highly cognizant of two risks facing our business in the year ahead. Firstly, the commercial office market has yet to bottom or return to expansionary activity. As a business with a small overall market penetration, we are focused on cost control and process efficiencies to position ourselves to gain market share. Secondly, we are closely monitoring our input costs amid the likelihood that the U.S. Federal Reserve will not return headline CPI to a 2% annualized rate. Additionally, a recent proposal by President Biden to triple tariffs on Chinese aluminum to 22.5% as well as to sanction Russian aluminum on the London Metal Exchange have created price inflation in our primary material input. If the increase in aluminum prices persists, we will have to consider the effect on our business, including consideration of increasing prices in response.

Even as we face these risks, we have positioned DIRTT over the past year to better withstand adverse economic conditions. Our gross profit margin in the first quarter of 2024 compared to the first quarter of 2023 improved from 23.7% to 35.9%. Our Adjusted Gross Profit Margins have improved from 28.5% to 37.9% year-over-year. Furthermore, our operating expenses decreased by 21% compared to the first quarter of 2023. All these efforts yielded Adjusted EBITDA Margin of 6.5% in the first quarter of 2024 compared to (9.6)% in the first quarter of 2023.

With the Rights Offering completed in the first quarter of 2024, we have improved our cash balance from $8.1 million at March 31, 2023 to $39.0 million as of March 31, 2024. We have also deleveraged our balance sheet through the Issuer Bid, pursuant to which we repurchased C$10.5 million ($7.8 million) principal amount of our Debentures in March 2024.

As we continue to ramp up into our seasonally stronger quarters, we are ~~evaluating certain properties that are currently owned for sale~~preparing to preserve our Adjusted Gross Profit Margins and ~~lease back. While we do not currently intend~~delivering on-time and in-full to ~~vacate these premises as they still serve a valuable aspect of~~ our ~~value proposition, if we were to execute sale and lease back transactions, we would expect to receive a one-time cash payment, in exchange for future rent payments.~~

valued customers. We have meaningfully reduced our cost footprint and lowered our estimated revenue breakeven point. In tandem with the improved gross profit percentages and the cash initiatives discussed above, we believe we are positioned to weather the current macroeconomic conditions, while continuingwill continue to invest in our ~~technology~~commercial business and ~~commercial organizations.~~pursue opportunities and partnerships to support our revenue growth.

Non-GAAP Financial Measures

Note Regarding Use of Non-GAAP Financial Measures

Our condensed consolidated interim financial statements are prepared in accordance with GAAP. These GAAP financial statements include non-cash charges and other charges and benefits that we believe are unusual or infrequent in nature or that we believe may make comparisons to our prior or future performance difficult.

As a result, we also provide financial information in this Quarterly Report that is not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. Management uses these non-GAAP financial measures in its review and evaluation of the financial performance of the Company. We believe that these non-GAAP financial measures also provide additional insight to investors and securities analysts as supplemental information to our GAAP results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt and debt facilities, or foreign exchange movements), asset base (depreciation and amortization), ~~the impact of under-utilized capacity on gross profit,~~ tax consequences, reorganization expense,

one-time non-recurring charges or gains (such as gain on extinguishment of debt), and stock-based compensation. We remove the impact of ~~all~~ foreign exchange gain (loss) from Adjusted EBITDA. Foreign exchange gains and losses can vary significantly period-to-period due to the impact of changes in the U.S. and Canadian dollar exchange rates on foreign currency denominated monetary items on the balance sheet and are not reflective of the underlying operations of the Company. ~~We remove the impact of under-utilized capacity from gross profit, and 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 recognized as an expense in the period in which they are incurred. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA.

Government subsidies, depreciation and amortization, stock-based compensation expense, reorganization expense, foreign exchange gains and losses and impairment ~~expenses~~charges are excluded from our non-GAAP financial measures because management considers them to be outside of the Company’s core operating results, even though some of those receipts and expenses may recur, and because management believes that each of these items can distort the trends associated with the Company’s ongoing performance. We believe that excluding these receipts and expenses provides investors and management with greater visibility to the underlying performance of the business operations, enhances consistency and comparativeness with results in prior periods that do not, or future periods that may not, include such items, and facilitates comparison with the results of other companies in our industry.

The following non-GAAP financial measures are presented in this Quarterly Report, and a description of the calculation for each measure is included.


Adjusted Gross Profit	Gross profit before deductions for costs of ~~under-utilized capacity,~~ depreciation and amortization

Adjusted Gross Profit Margin	Adjusted Gross Profit divided by revenue

EBITDA	Net income before interest, taxes, depreciation and amortization

Adjusted EBITDA	EBITDA adjusted to remove foreign exchange gains or losses; impairment ~~expenses;~~charges; reorganization expenses; stock-based compensation expense; government ~~subsidies~~subsidies; one-time, non-recurring ~~charges;~~charges and gains; and any other non-core gains or losses

Adjusted EBITDA Margin	Adjusted EBITDA divided by revenue

You should carefully evaluate these non-GAAP financial measures, the adjustments included in them, and the reasons we consider them appropriate for analysis supplemental to our GAAP information. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider any of these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. You should also be aware that we may recognize income or incur expenses in the future that are the same as, or similar to, some of the adjustments in these non-GAAP financial measures. Because these non-GAAP financial measures may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Results of Operations

Three Months Ended March 31, ~~2023,~~2024, Compared to the Three Months Ended March 31, ~~2022~~2023

For the Three Months Ended March 31,

2023

2022

% Change

($ in thousands)

Revenue

36,708

38,286

(4
)
Gross Profit(1)

8,682

3,287

164

Gross Profit Margin

23.7
%

8.6
%

Operating Expenses

Sales and Marketing

5,515

7,228

(24
)
General and Administrative

5,833

7,993

(27
)
Operations Support

1,990

2,498

(20
)
Technology and Development

1,539

2,140

(28
)
Stock-Based Compensation

796

1,302

(39
)
Reorganization

1,071

3,692

(71
)
Related party expense

2,056

-

NA

Total Operating Expenses

18,800

24,853

(24
)
Operating Loss

(10,118
)

(21,566
)

53

Operating Margin

(27.6
)%

(56.3
)%

(1) Gross Profit for the three months ended March 31, 2022 includes $1.1 million of accelerated depreciation associated with the closure of the Phoenix Facility


	For the Three Months Ended March 31,
	2024			2023			% Change
	($ in thousands)
Revenue		40,847			36,708			11
Gross Profit		14,648			8,682			69
Gross Profit Margin		35.9	%		23.7	%
Operating expenses
Sales and marketing		5,920			5,515			7
General and administrative		4,566			5,833			(22	)
Operations support		1,775			1,990			(11	)
Technology and development		1,251			1,539			(19	)
Stock-based compensation		675			796			(15	)
Reorganization		138			1,071			(87	)
Impairment charge on Rock Hill Facility		530			-			100
Related party expense		-			2,056			(100	)
Total operating expenses		14,855			18,800			(21	)
Operating income (loss)		(207	)		(10,118	)		98
Operating margin		(0.5	)%		(27.6	)%
Government subsidies		-			148			(100	)
Gain on extinguishment of convertible debt		2,931			-			100
Foreign exchange gain (loss)		919			(261	)		452
Interest income		489			4			12,125
Interest expense		(1,054	)		(1,207	)		13
		3,285			(1,316	)		350
Net profit (loss) before tax		3,078			(11,434	)		127
Current and deferred income tax expense		33			-			100
		33			-			100
Net income (loss) after tax		3,045			(11,434	)		127

Revenue

Revenue reflects sales to our Construction Partners for resale to their clients and, in limited circumstances, our direct sales to clients. Our revenue is generally affected by the timing of when orders are executed, particularly large orders, which can add variability to our financial results and shift revenue between quarters.

The following table sets forth the contribution to revenue of our DIRTT product and service offerings:


	For the Three Months Ended March 31,							For the Three Months Ended March 31,
	2023		2022		% Change			2024		2023		% Change
	($ in thousands)							($ in thousands)
Product		31,481		33,193		(5	)		34,876		31,481		11
Transportation		3,788		4,061		(7	)		3,955		3,788		4
License fees from Construction Partners		207		197		5			208		207		0
Total product revenue		35,476		37,451		(5	)		39,039		35,476		10
Installation and other services		1,232		835		48			1,808		1,232		47
		36,708		38,286		(4	)		40,847		36,708		11

~~In response~~Revenue for the three months ended March 31, 2024, was $40.8 million, an increase of $4.1 million compared to ~~significant increases~~$36.7 million in the ~~costs~~comparative period of raw materials, shipping materials, labor, and freight, effective November 16, 2021, DIRTT increased product and transportation prices on new projects by approximately 6.5%. On February 17, 2022, we implemented a further price increase of 5% that came into effect June 1, 2022. On June 21, 2022 an additional price increase of 10% was announced effective July 21, 2022. As of2023 as the ~~fourth quarter of 2022, product sales reflect virtually all of these price increases. The~~ first quarter of ~~2022 marked the transition~~2024 included a higher volume of the COVID-19 pandemic to an endemic with the broad easing of health restrictions, including work-from-home mandates, across North America. While the resurgence in COVID-19 infections due to the Omicron variant at the beginning of 2022 temporarily sent many employees back to their home offices and delayed return dates, the Company and our Construction Partners experienced an uptick in planning activity and opportunity growth in our commercial vertical which began to translate into an increase in orders beginning in March 2022.

The first quarter of the year is seasonally a lower demand quarter. Macroeconomic conditions, including layoffs in the tech sector and rising interest rates have had an impact on our pipeline, including one large project with a tech customer that originally scheduled forlarger projects than the first quarter of 2023 ~~that was deferred indefinitely. During~~in the ~~quarter ended~~commercial sector, particularly in the retail and finance industries, as well as the government sector.

~~March 31, 2023, revenue was $36.7 million, a decrease of $1.6 million compared to the comparative period of $38.3 million.~~

Installation and other services revenue was ~~$1.2~~$1.8 million for the quarter ended March 31, ~~2023~~2024 compared to ~~$0.8~~$1.2 million in the quarter ended March 31, ~~2022.~~2023. This revenue primarily reflects services performed by our ICE and design teams for third parties. Except in limited circumstances, our Construction Partners, rather than the Company, perform installation ~~services, and~~services; accordingly, we are not anticipating significant growth in this revenue stream.

Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At March 31, ~~2023,~~2024, we had ~~67 (December 31, 2022: 67)~~74 Construction Partners (March 31, 2023: 67; December 31, 2023: 72) servicing multiple locations. ~~In March 2023, we announced the expansion of six of our DIRTT Construction Partners into new markets as we expand the reach of DIRTT products in North America.~~

We periodically analyze our revenue growth by vertical markets in the defined markets of commercial, healthcare, government and education. While all sectors have been challenged by the macroeconomic factors discussed previously, we are seeing increased growth in our commercial sector. We believe that an increase in new construction starts and the heightened need for adaptability and flexibility in the years after the COVID-19 pandemic have increased the demand for our products. We continue to see growth opportunities in the healthcare and education sectors and have restructured our sales leadership function, prioritizing oversight of these verticals.

The following table presents our product and transportation revenue by vertical market:


	For the Three Months Ended March 31,							For the Three Months Ended March 31,
	2023		2022		% Change			2024		2023		% Change
	($ in thousands)							($ in thousands)
Commercial		24,504		24,044		2			30,179		24,504		23
Healthcare		6,171		6,964		(11	)		3,049		6,171		(51	)
Government		2,707		3,281		(17	)		3,475		2,707		28
Education		1,887		2,965		(36	)		2,128		1,887		13
License fees from Construction Partners		207		197		5			208		207		0
Total product revenue		35,476		37,451		(5	)		39,039		35,476		10
Service revenue		1,232		835		48			1,808		1,232		47
		36,708		38,286		(4	)		40,847		36,708		11

For the Three Months Ended March 31,

2023

2022

(in %)

Commercial

70

64

Healthcare

17

19

Government

8

9

Education

5

8

Total Product Revenue(1)

100

100


	For the Three Months Ended March 31,
	2024		2023
	(in %)
Commercial		78		70
Healthcare		8		17
Government		9		8
Education		5		5
Total Product Revenue(1)		100		100

(1) Excludes license fees from Construction Partners.

Commercial revenues increased by 2%23% from the prior year period. ~~Commercial~~Healthcare revenues ~~include two large customers making up approximately $4.0 million, similar to the first quarter of 2022 which included one large customer in the technology sector of over $3.0 million. Healthcare~~ decreased by ~~11%~~51% in the first quarter of ~~2023~~2024 from the same period of ~~2022.~~2023. The quarter ended March 31, 2023 included a higher volume of large healthcare projects compared to the quarter ended March 31, 2024. Such sales tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels. ~~Healthcare~~Government revenues in the first quarter of ~~2022 included two large projects of approximately $3.0 million while first quarter 2023~~2024 increased by 28% from the prior year period. Similar to healthcare, government revenues ~~included several smaller~~tend to be larger individual projects. Education sales in the first quarter of ~~2023 decreased by 36%~~2024 increased 13% from the ~~prior period. Government revenues in the first quarter~~same period of ~~2023 decreased by 17% from the prior period. Both Healthcare and Education segments~~2023. The education sector included a higher magnitude of smaller projects in the first quarter of ~~2023~~2024 than in the first quarter of ~~2022. During 2023, we have experienced an increase in quotes for Healthcare and Education related projects, but these tend to have longer project lifecycles than Commercial projects.~~2023.

Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The following table presents our revenue dispersion by geography:


	For the Three Months Ended March 31,							For the Three Months Ended March 31,
	2023		2022		% Change			2024		2023		% Change
	($ in thousands)							($ in thousands)
Canada		4,912		5,251		(6	)		3,069		4,912		(38	)
U.S.		31,796		33,035		(4	)		37,778		31,796		19
		36,708		38,286		(4	)		40,847		36,708		11

The first quarter of 2024 included a higher proportion of sales to customers in the United States than to those in Canada, 8% of sales for the period were in Canada, with the rest occurring in the United States, compared to 13% of sales to Canada in the first quarter of 2023. Historically, approximately ~~15-25%~~11-15% and ~~75-85%~~85-89% of DIRTT’s revenues ~~are~~have been derived from sales to Canada and the United States, respectively.

Sales and Marketing Expenses

Sales and marketing expenses ~~decreased~~increased by ~~$1.7~~$0.4 million to $5.9 million for the three months ended March 31, 2024 from $5.5 million for the three months ended March 31, ~~2023, from $7.2~~2023. The increase was driven by a $0.5 million ~~for the three months ended March 31, 2022. The~~increase in salaries and benefits, a $0.2 million increase in commissions costs and a $0.1 million increase in professional services costs associated with recruiting efforts, offset by a $0.4 million decrease ~~was largely related to a realignment of back~~in building and office ~~support and territory coverage and cost structure with current demand levels. We expect to increase the investment in this function during 2023 in order to support organic revenue growth.~~expenses.

General and Administrative Expenses

General and administrative expenses decreased by ~~$2.2~~$1.3 million to $4.6 million for the three months ended March 31, 2024 from $5.8 million for the three months ended March 31, ~~2023, from $8.0 million for the three months ended March 31, 2022.~~2023. The decrease was primarily related to a $0.4 million decrease in professional services ascosts (which included a $0.8 million insurance recovery and $0.5 million costs associated with the ~~first quarter of 2022 included $1.5 million of costs related to the contested director elections with an additional~~Issuer Bid), a $0.4 ~~million decrease in other professional services, a $0.2~~ million decrease in salaries and benefits costs, ~~associated with the planned headcount reductions as part of our cost savings initiatives,~~a $0.3 million decrease in office costs and communications costs, a $0.2 million decrease in ~~depreciation expense. The~~public company costs and Board of Directors fees, and a $0.1 million decrease in travel and entertainment costs. These decreases were ~~partially~~ offset by ~~increased travel costs.~~$0.2 million higher operating costs in our leased office space.

Operations Support Expenses

Operations support is comprised primarily of project managers, order entry and other professionals that facilitate the integration of our Construction Partner project execution and our manufacturing operations. Operations support expenses decreased by ~~$0.5~~$0.2 million from ~~$2.5 million for the three months ended March 31, 2022 to~~ $2.0 million for the three months ended March 31, ~~2023.~~2023 to $1.8 million for the three months ended March 31, 2024. The decrease was primarily ~~due~~related to a ~~$0.6~~$0.1 million decrease in salaries and benefits costs ~~associated with the planned headcount reductions as part of our cost savings initiatives.~~and a $0.1 million decrease in professional service costs.

Technology and Development Expenses

Technology and development expenses relate to non-capitalizable costs associated with our product and software development teams and are primarily comprised of salaries and benefits of technical staff.

Technology and development expenses decreased by ~~$0.6~~$0.2 million to $1.3 million for the three months ended March 31, 2024, compared to $1.5 million for the three months ended March 31, 2023, ~~compared to $2.1 million for the three months ended March 31, 2022,~~ primarily related to ~~decreased~~a $0.2 million decrease in salaries and benefits ~~costs and professional fees associated with our cost savings initiatives and an increase in capitalized software development~~ costs.

Stock-Based Compensation

Stock-based compensation expense for the three months ended March 31, ~~2023~~2024 was ~~$0.8~~$0.7 million compared to ~~$1.3~~$0.8 million in ~~2022.~~the same period of 2023. The decrease in this expense was largely due to ~~grants~~a higher number of RSUs ~~and~~compared to the prior year’s period. The decrease in RSU expense was offset by a higher DSU expense as a result of a higher share ~~awards which occurred in 2022 but were not repeated in~~price during the first quarter of 2023, including those in lieu of cash compensation to the Company’s interim Chief Executive Officer in 2022. DSUs were granted to the Board of Directors, lowered by the impact of fair value adjustments on cash settled awards as a result of our share price decreasing during the quarter ended March 31, 2023.2024.

Reorganization

Reorganization expenses for the quarter of ~~$1.1~~$0.1 million decreased from ~~$3.7~~$1.1 million in the prior period. Current quarter costs relate primarily to movement of inventory from the Rock Hill Facility, while the reorganization costs in the first quarter of 2023 were largely made up of termination costs associated with actions taken to streamline our back office and operational support ~~functions, as discussed~~functions. No new reorganization initiatives were undertaken in ~~our last filing, which are expected to reduce annualized overheads by $5 million in 2023. First~~the first quarter ~~2022 costs relate to expenditures in closing the Phoenix Facility and costs associated with workforce reductions and changes in management.~~of 2024.

26Impairment Charge on Rock Hill Facility

On September 27, 2023, the Company decided to permanently close the Rock Hill Facility in South Carolina. Certain assets, including manufacturing equipment, which met held-for-sale criteria at that time were reclassified from property, plant and equipment. At March 31, 2024, we determined that the assets held for sale balance of $0.5 million was to be reduced 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.

Gain on Extinguishment of Debt

The Company recognized a gain on extinguishment of debt of C$3.9 million ($2.9 million) following the Issuer Bid. At the expiration of the Issuer Bid, 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, 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 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) of debt 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).

Related Party Expense

On March 15, 2023, the Company entered into a Debt Settlement Agreement (the "Debt Settlement Agreement") with 22NW Fund, LP ("22NW") and Aron English, 22NW's principal and a director of DIRTT, (together, the "22NW Group") who, collectively, beneficially ~~own~~owned approximately 19.5% of the Company’s issued and outstanding common ~~shares.~~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 $1.6 million (the ~~"2022 Meeting"), being $1,559,898 (the "Debt"~~“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. ~~Under the Debt Settlement Agreement, a cash payment shall not be made to settle the Debt unless permitted under the terms of the Extended RBC Facility.~~

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 ~~shareholders at~~shareholders.

At the ~~Company’s~~ annual general and special meeting ~~to be~~of shareholders held on May 30, ~~2023.~~

~~The liability has been~~2023 shareholders voted to approve the issuance of common shares, and on June 2, 2023, the Company issued 3,899,745 common shares to 22NW Group as repayment for the Debt. Upon settlement, the debt was revalued ~~using~~at the ~~closing~~higher of the deemed price of $0.40 per common share and the May 30, 2023 market price of $0.38 per common share resulting in a recovery from the balance recorded at March 31, 2023 ~~and~~which had been valued at a ~~$2.1 million liability and expense has been recorded in the financial statements.~~
price of $0.53 per common share.

Government Subsidies

The Company was not eligible for, and did not receive, any new government subsidies in the quarter ended March 31, ~~2023. The~~2024. Comparatively, the Company received ~~$0.2~~$0.1 million of interest with the collection of the ~~ERC~~Emergency Retention Credit during the ~~quarter.~~

Pursuant to amendments enacted as part of the 2021 Canadian federal budget, the Company was required to repay a portion of the Canadian Emergency Wage Subsidy ("CEWS") amounts received for any qualifying period commencing after June 5, 2021 where the aggregate compensation for “specified executives” (within the meaning of the CEWS) during the 2021 calendar year exceeds the aggregate compensation for “specified executives” during the 2019 calendar year. Upon finalization of 2021 compensation to specified executives, approximately C$0.5 million ($0.4 million) of subsidies was expected to be returned to the Canadian authorities in the second quarter of 2022. The amount was fully provided for in the third quarter of 2021 and in the first quarter of 2022 and the Company reversed a $0.6 million incremental provision related to this that was no longer necessary.three months ended March 31, 2023.

Interest ~~expense~~Expense

Interest expense decreased by $0.1 million from ~~$1.3 million in the quarter ended March 31, 2022 to~~ $1.2 million in the quarter ended March 31, 2023, to $1.1 million in the quarter ended March 31, 2024, due to foreign exchange impacts of a weakening Canadian dollar and the decrease in equipment lease balances ~~due to principal repayments.~~caused by early settlement of the U.S. Leasing Facility (as defined herein) in the fourth quarter of 2023.

Income Tax

The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. As at March 31, ~~2023~~2024, the Company had a valuation allowance of ~~$32.4~~$33.9 million (December 31, ~~2022: $29.8~~2023: $34.5 million) against deferred tax assets due to ongoing near term uncertainties on the business caused by the COVID-19 pandemic and the related decline in business activity which impacted our ability to generate sufficient taxable income in Canada and the United States to fully deduct historical losses. The Company will continue to evaluate indicators on whether a valuation allowance continues to be needed. For the quarter ended March 31, 2024, the Company utilized a balance of its non-capital loss carry-forwards in Canada and the United States. As at March 31, ~~2023,~~2024, we had C$~~110.9~~107.6 million of non-capital loss carry-forwards in Canada and ~~$61.3~~$55.0 million in the United States. These loss carry-forwards will begin to expire in ~~2032.~~

2035.

Net ~~Loss~~Income After Tax

Net ~~loss decreased~~income after tax increased to ~~$11.4~~$3.0 million or ~~$0.12~~$0.02 basic and $0.01 diluted net ~~loss~~income per share, respectively, in the three months ended March 31, ~~2023~~2024, from a net loss after tax of ~~$23.0~~$11.4 million or ~~$0.27~~a $0.10 basic and diluted net loss per share for the three months ended March 31, ~~2022.~~2023. The ~~decreased loss~~increase in net income is primarily the result of a ~~$5.4~~$6.0 million ~~increase in~~higher gross profit, a ~~$6.1~~$3.9 million decrease in operating expenses, ~~including $2.6~~which includes a $0.9 million decrease in reorganization expenses ~~and~~offset by a ~~decrease~~$0.5 million impairment charge related to the Rock Hill Facility closure, a $2.9 million gain on extinguishment of ~~$1.5~~debt, a $1.2 million ~~of incremental professional fees as described previously,~~increase in foreign exchange gain, a $0.5 million increase in interest income, and a $0.1 million decrease in interest ~~expense, and a $0.5 million decrease in foreign exchange loss~~expense. These were offset by a ~~$0.4~~$0.1 million decrease in government subsidies.

EBITDA and Adjusted EBITDA for the Three Months Ended March 31, ~~2023~~2024 and ~~2022~~2023

The following table presents a reconciliation for the ~~first quarter~~ results of ~~2023~~the three months ended March 31, 2024 and ~~2022~~2023 of EBITDA and Adjusted EBITDA to our net ~~loss,~~income (loss), which is the most directly comparable GAAP measure for the periods presented:

For the Three Months Ended March 31,

2023

2022

($ in thousands)

Net loss for the period

(11,434
)

(23,042
)
Add back (deduct):

Interest Expense

1,207

1,330

Interest Income

(4
)

(11
)
Depreciation and Amortization

2,675

4,622

EBITDA

(7,556
)

(17,101
)
Foreign Exchange Losses

261

732

Stock-Based Compensation

796

1,302

Government Subsidies

(148
)

(575
)
Related party expense(2)

2,056

-

Reorganization Expense

1,071

3,692

Adjusted EBITDA

(3,520
)

(11,950
)
Net Loss Margin(1)

(31.1
)%

(60.2
)%
Adjusted EBITDA Margin

(9.6
)%

(31.2
)%


	For the Three Months Ended March 31,
	2024			2023
	($ in thousands)
Net income (loss) after tax for the period		3,045			(11,434	)
Add back (deduct):
Interest expense		1,054			1,207
Interest income		(489	)		(4	)
Income tax expense		33			-
Depreciation and amortization		1,534			2,675
EBITDA		5,177			(7,556	)
Foreign exchange (gain) loss		(919	)		261
Stock-based compensation		675			796
Government subsidies		-			(148	)
Related party expense(2)		-			2,056
Reorganization expense(3)		138			1,071
Gain on extinguishment of convertible debt(3)		(2,931	)		-
Impairment charge on Rock Hill Facility (3)		530			-
Adjusted EBITDA		2,670			(3,520	)
Net Income (Loss) Margin(1)		7.5	%		(31.1	)%
Adjusted EBITDA Margin		6.5	%		(9.6	)%

(1) Net ~~loss~~income (loss) after tax divided by revenue.

(2) The related party transaction is a non-recurring transaction that is not core to our business and is excluded from the Adjusted EBITDA calculation (Refer to Note 1516 of the consolidated interim financial statements).

(3) Reorganization expenses, the gain on extinguishment of convertible debt and the impairment charge on the Rock Hill Facility are not core to our business and are therefore excluded from the Adjusted EBITDA calculation (Refer to Note 4 and Note 5 of the consolidated interim financial statements).

For the three months ended March 31, ~~2023,~~2024, Adjusted EBITDA and Adjusted EBITDA Margin increased by ~~$8.4~~$6.2 million to $2.7 million and 6.5%, respectively, from a $3.5 million loss orand (9.6)~~% from $12.0 million loss or (31.2)~~% in the same period of ~~2022.~~2023. This primarily reflects a ~~$3.7~~$5.0 million increase in Adjusted Gross Profit, a ~~decrease of $1.5 million of incremental professional fees as described previously, a $2.4~~$0.4 million decrease in ~~salaries and benefits~~professional services costs, a ~~$0.3~~$0.6 million decrease in ~~marketing~~office, building and communication costs and a ~~$0.1~~$0.2 million decrease in ~~travel and entertainment costs in the quarter.~~other discretionary operating expenses.

Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three Months Ended March 31, ~~2023~~2024 and ~~2022~~2023

The following table presents a reconciliation for the three months ended March 31, ~~2023~~2024 and ~~2022~~2023 of Adjusted Gross Profit to our gross profit, which is the most directly comparable GAAP measure for the periods presented:


	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2023			2022			2024			2023
	($ in thousands)						($ in thousands)
Gross profit		8,682			3,287			14,648			8,682
Gross profit margin		23.7	%		8.6	%		35.9	%		23.7	%
Add: Depreciation and amortization expense		1,783			3,472			844			1,783
Adjusted Gross Profit		10,465			6,759			15,492			10,465
Adjusted Gross Profit Margin		28.5	%		17.7	%		37.9	%		28.5	%

For the quarter ended March 31, ~~2023,~~2024, gross profit and gross profit margin increased to $14.6 million and 35.9%, respectively, from $8.7 million orand 23.7% ~~from $3.3 million or 8.6%~~ for the ~~prior period.~~same period of 2023. Adjusted Gross Profit and Adjusted Gross Profit Margin increased

~~10.8%~~ to $15.5 million and 37.9% for the three months ended March 31, 2024, from $10.5 million orand 28.5% for the three months ended March 31, 2023, from $6.8 million or 17.7% for the three months ended March 31, 2022. Gross profit for the quarter ended March 31, 2022 included $1.1 million of accelerated depreciation and amortization arising from change in useful lives of the Phoenix Facility's equipment.2023.

The improvement in Adjusted Gross Profit was a result of improved product mix, a reduction onin fixed costs, and management of labor hours throughout the period ~~and the impact of the price increases~~ to offset the inflationary impacts on material costs. ~~Labor and fixed~~Fixed costs decreased ~~$1.3~~$0.6 million ~~and $0.9 million, respectively,~~ for the quarter ended March 31, 2024 as we ~~closed our Phoenix Facility during~~aligned overhead costs and support with current operations after having finalized the ~~second quarter of 2022 and temporarily suspended operations in our~~decision to close the Rock Hill Facility in the third quarter of ~~2022, as well as cost reduction initiatives taken impacting our overheads.~~2023. Idle facility costs ~~related to~~incurred at the Rock Hill Facility ~~incurred since suspension~~were $0.5 million for the three months ended March 31, 2024 (2023 – $0.4 million). We continue to evaluate options to sublease the Rock Hill Facility to recover the costs of ~~operations of $0.4 million are included in cost of sales.~~the facility.

Liquidity and Capital Resources

~~Cash and cash equivalents~~As at March 31, ~~2023 totaled $8.1~~2024, the Company had $39.0 million ~~a decrease~~ of $2.7 million from December 31, 2022. The decrease in cash primarily reflects the impact of $1.0 million cash used in operations, capital expenditures of $1.0 million and scheduled Leasing Facilities repayments of $0.6 million.

The impact of COVID-19 on the Company’s sales and operations has been severe, including a contraction of demand since the beginning of the pandemic and more recently, significant inflation on raw material costs. This has resulted in a significant usage of cash which we have financed through existing cash on hand and ~~external financings,~~C$10.1 million ($8.5 million) of available borrowings, compared to $24.7 million of cash on hand and C$13.6 million ($10.3 million) of available borrowings as ~~described further below. In response, we implemented multiple initiatives in 2022 as well as~~at December 31, 2023. Through the first ~~quarter~~three months of ~~2023~~fiscal 2024, the Company generated $14.1 million of cash flow compared to ~~reduce our overall fixed cost base and pricing actions to better recover the inflationary impacts to material, labor and transportation input costs. During the second half~~a cash usage of ~~2022, we began to realize the benefits of these actions. In~~$2.7 million in the first ~~quarter~~three months of ~~2023, despite a 4% reduction in sales~~fiscal 2023. Cash generated included cash flows from the ~~comparative quarter, cash utilized was $2.7 million compared to~~Rights Offering of $21.3 million ~~utilized in the quarter ended March 31, 2022. The~~and improved ~~cash flow was driven~~operational results, offset by a ~~combination of improved Adjusted EBITDA from the pricing initiatives and cost reduction initiatives as well as careful~~decrease in working capital ~~management.~~of $10.6 million (mainly due to timing of payables and $5.2 million repayment of debt under the Issuer Bid).

We ~~expect~~have implemented multiple price increases to mitigate the ~~benefit~~impact of inflation on raw materials and improve liquidity during the ~~2022 and 2023~~past two years. These actions ~~discussed above to continue to be realized~~have resulted in ~~2023 and beyond. While these actions, combined with our project pipeline are promising, we continue to see unpredictability~~a meaningful improvement in our ~~pace of orders.~~

~~Accordingly, we are taking several actions~~gross profit margins and higher net profit and have served to ~~improve~~stabilize our ~~balance sheet in~~cash usage to operate the ~~short term.~~

~~First, in the latter half of 2022, we determined our eligibility~~business. Gross profit for ~~the ERC claim 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). During~~ the three months ended March 31, 2024 was $14.6 million, or 35.9%. The same period of 2023 generated gross profit of $8.7 million, or 23.7%.

Over the same period, we have executed upon several initiatives to improve liquidity. First, in May 2023, we ~~received $5.0~~entered into an agreement with AWI resulting in the receipt of $12.8 million of ~~the ERC claim comprising $4.8 million related to the claim and $0.2 million of interest. We expect to receive the remaining balance~~cash throughout 2023. Second, in ~~the remainder of 2023.~~

Second, we have certain properties that are currently owned or leased that we are evaluating for sale and lease back, or sublease arrangements. We do not intend to vacate these premises as they still serve a valuable aspect of our value proposition, but these types of arrangements would provide us with either a one-time cash payment, or offset rent expense in the near term. During March 2023, we entered into an agreement to sublease our Dallas ~~DIRTT Experience Center ("DXC")~~“DXC” to one of our Construction Partners in that region. Under the sublease agreement, the subtenant ~~will assume~~has assumed responsibility offor the monthly rent, utilities, maintenance, taxes and other ~~monthly expenses from~~costs as of April 1, 2023, through December 31, 2024, providing us annualized savings of approximately $1 million. We are continuing to evaluate other properties for sale and leaseback or sublease opportunities, including our Rock Hill Facility, and expect these ~~strategic~~ initiatives to result in positive cash inflows in ~~2023~~

2024. Third, we ~~are evaluating initiatives related to the use~~completed a private placement of ~~ICE software by third parties to supplement the relatively small revenues we have previously recognized from our licensing~~8,667,449 common shares in November 2022 for aggregate gross proceeds of ~~ICE software to~~$2.8 million (the “Private Placement”), with certain ~~strategic partners for use in their businesses~~significant shareholders and ~~our related licensing~~directors and developer software support for these counterparties. On May 9, 2023, as a result of this evaluation and in exchange for a cash payment we entered into the Co-Ownership Agreement and Partial Patent Assignment Agreement with AWI for the partial assignment and co-ownership of a 50% interest in the rights, title and interest in certain intellectual property rights (including related patent rights) in a portionofficers of the ~~ICE Software.~~

~~To finance the Company's short-term~~Company to bridge cash requirements before the completion and closing of the noted strategic transactions. The Company entered into irrevocable subscription agreements with its two largest shareholders, 22NW and 726 BC LLC and 726 BF LLC (together “726” (which subsequently transferred its holdings to WWT Opportunity #1) and all the directors and officers of the Company on November 14, 2022, to issue 8.7 million shares for gross consideration of $2.8 ~~million (the "Private Placement").~~million. The Private Placement closed on November 30, 2022. ~~In addition, in connection with the Private Placement, 22NW and 726, or their principals, have irrevocably committed to backstopping any rights offering occurring by~~

On November 21, 2023, the Company ~~within twelve months~~announced the Rights Offering, which closed on January 9, 2024, for aggregate gross proceeds of ~~closing the Private Placement in the aggregate amount~~C$30.0 million and net proceeds of ~~$2.0~~$21.3 million.

~~We have assessed~~On February 4, 2024, the ~~Company’s liquidity as at March 31, 2023 using multiple downside and upside scenarios, our sales outlook~~Company entered into a Litigation Funding Agreement with a third party for the ~~next twelve months~~funding of up to $4.0 million of litigation costs in ~~combination with existing cash balances, available credit facilities, the strategic transactions being evaluated~~respect of specific claims against Falkbuilt, Inc., Falkbuilt Ltd. and ~~the Private Placement discussed previously, and potential equity or debt financing. Based upon this analysis, we believe~~Henderson. In return, the Company has ~~sufficient liquidity~~agreed to ~~remain~~pay from any proceeds received from the settlement of such claims, a ~~going concern for at least~~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 ~~next 12 months. However,~~Company is subject to a ~~number of factors, including the macroeconomic factors discussed above, could adversely impact our liquidity~~general security arrangement over ~~such period.~~its assets.

ToOn February 15, 2024, the ~~extent that existing~~Company announced a substantial issuer bid and tender offer (the "Issuer Bid"), under which the Company offered to repurchase for cancellation: (i) up to C$6,000,000 principal amount of the January Debentures at a purchase price of C$720 per C$1,000 principal amount of January Debentures; and (ii) up to C$9,000,000 principal amount of the December Debentures at a purchase price of C$600 per C$1,000 principal amount of December Debentures. Holders of Debentures who validly tendered and did not withdraw their Debentures received the applicable purchase price, plus a cash payment for all accrued and ~~cash equivalents, available facilities~~unpaid interest up to, but excluding, the date on which such Debentures were taken up by the Company. The applicable purchase price was denominated in Canadian dollars and any increased liquidity from the aforementioned strategic actions are not sufficient to fund future activities, we may seek to raise additional funds through equity or debt financings. If additional funds are raised through the incurrencepayments of ~~indebtedness, such indebtedness may have rights that are senior~~amounts owed to holders of ~~our~~deposited Debentures, including for interest, were

made in Canadian dollars. The Issuer Bid expired on March 22, 2024 and DIRTT purchased C$4.7 million ($3.5 million) aggregate principal amount of the January Debentures and ~~our equity securities or contain instruments~~C$5.8 million ($4.3 million) aggregate principal amount of the December Debentures, representing approximately 11.66% of the January Debentures and 16.50% of the December Debentures issued and outstanding at that ~~may be dilutive~~time. The Company took up all the Debentures tendered pursuant to ~~our existing shareholders. Any additional equity or debt financing may be dilutive to our existing shareholders.~~ the Offer 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)).

While we ~~believe~~are encouraged by the improved profitability and cash flow, we ~~can access capital markets when needed or under acceptable terms, there can be no assurance we will be able~~have continued to ~~do so.~~

~~During 2021, we completed financings to increase~~evaluate our ~~liquidity~~fixed cost structure and overhead in light of recent macroeconomic uncertainty. We have implemented multiple restructuring initiatives designed to align our cost structure with current expected levels of demand. In addition, the ~~highly uncertain economic conditions caused~~Company has reduced headcount by ~~the pandemic.~~ approximately 16% from January 2022 through March 2024.

In January 2021, we issued C$40.3 million of the January Debentures for net proceeds after costs of C$37.6 million ($29.5 million). The January Debentures accrue interest at a rate of 6.00% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.65 per common share, or if not converted will mature and be repayable on ~~the~~ January ~~Debenture Maturity Date.~~31, 2026. Interest and principal are payable in cash or shares at the option of the Company.

~~In February 2021, we entered into the RBC Facility,~~ As a C$25.0 million senior secured revolving credit facility with RBC. Under the RBC Facility, the “Borrowing Base” is a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75%result of the ~~book value of eligible inventory and 85%~~Rights Offering, the conversion price of the ~~net orderly liquidation value~~January Debentures was adjusted to C$4.03 per common share, representing a conversion rate of ~~eligible inventory less any reserves for potential prior ranking claims.~~248.1390 common shares per C$1,000 principal amount. On ~~February 9, 2023,~~March 22, 2024, the Company ~~extended~~completed the ~~RBC Facility. The Extended RBC Facility has a borrowing base~~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$150.04 million ~~and a one year term. Available borrowings under~~($0.03 million) of the ~~Extended RBC Facility~~interest payable on such January Debentures. As at March 31, ~~2023 were~~2024, C$~~7.0~~18.9 million ($~~5.2~~13.9 million). principal amount of the January Debentures are held by a related party, 22NW. Aron English, manager of 22NW Fund GP, LLC, the general partner of 22NW, is a director of the Company.

On December 1, 2021, we issued C$35.0 million of the December Debentures for net proceeds after costs of C$32.7 million ($25.6 million). The December Debentures accrue interest at a rate of 6.25% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.20 per common share, or if not converted will mature and be repayable on ~~the~~ December ~~Debenture Maturity Date.~~31, 2026. Interest and principal are payable in cash or shares at the option of the Company. As a result of the Rights Offering, 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. As at March 31, 2024, C$13.6 million ($10.0 million) principal amount of the December Debentures are held by a related party, 22NW.

In February 2021, we 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”). On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility has a borrowing base of C$15 million and a one-year term. 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. Refer to discussion in “Credit Facility” herein for additional information.

The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing ~~Facility~~Facility”) with RBC of which C$4.4 million ($~~3.3~~3.4 million) has been drawn and C$3.8 million ($2.9 million) has been repaid. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. During 2023, the Company had a $14.0 million ~~U.S. Leasing Facility of which $13.3 million has been drawn~~equipment leasing facility, with RBC and one of its ~~affiliates.~~affiliates, in the United States, of which $13.3 million was drawn and repaid (the “U.S. Leasing Facility” and, together with the Canada Leasing Facility, the “Leasing Facilities”). In connection with the Company’s decision to close the Rock Hill Facility, we settled the liability related to the U.S. Leasing Facility ($7.8 million). The U.S. Leasing ~~Facilities are~~Facility is no longer available ~~for equipment expenditures and certain equipment expenditures already incurred.~~to be drawn on. With the settlement of this liability, we released $2.6 million of restricted cash during 2023.

3033

The following table summarizes our consolidated cash flows for the periods indicated:

For the Three Months Ended March 31,

2023

2022

($ in thousands)

Net cash flows used in by operating activities

(988
)

(19,042
)
Net cash flows used in investing activities

(983
)

(1,620
)
Net cash flows used in financing activities

(668
)

(827
)
Effect of foreign exchange on cash, cash equivalents and restricted cash

(36
)

166

Net decrease in cash, cash equivalents and restricted cash

(2,675
)

(21,323
)
Cash, cash equivalents and restricted cash, beginning of period

14,239

63,408

Cash, cash equivalents and restricted cash, end of period

11,564

42,085


	For The Three Months Ended March 31,
	2024			2023
	($ in thousands)
Net cash flows used in operating activities		(2,043	)		(988	)
Net cash flows provided by (used in) investing activities		281			(983	)
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

Operating Activities

Net cash flows used in operating activities ~~was $1.0~~were $2.0 million for the ~~first~~ three months ~~of 2023~~ended March 31, 2024 compared to ~~$19.0~~$1.0 million in the ~~first three months~~same period of ~~2022.~~2023. The ~~significant decrease~~increase in cash ~~flow~~flows used in operations is largely due to a $10.6 million decrease in working capital compared to the ~~$8.4~~first quarter of 2023, offset by the $6.2 million increase in Adjusted EBITDA and a ~~$6.5 million net decrease in working capital comprising $0.4 million increase in routine working capital, $4.8~~$0.9 million decrease in ~~other receivables relating to the ERC claim and an increase of $2.1 million~~reorganization expenses. Working capital in ~~liabilities relating to the related party transaction described in the financial statements. In~~ the first quarter of 2023 ~~we have continued~~benefited from the receipt of $4.8 million related to ~~draw down on~~the Employee Retention Credit and the elimination of the quick pay discount for our ~~inventory supply built up in~~customers during the ~~first half~~third quarter of ~~2022.~~2023. First quarter 2024 working capital was impacted by the timing of payables relative to period end.

Investing Activities

We invested ~~$0.4~~$0.3 million in property, plant and equipment during the three months ended March 31, ~~2023,~~2024, compared to ~~$1.0~~$0.4 million ~~during~~in the three months ended March 31, ~~2022.~~2023. This expenditure consisted of $0.1 million of information technology ~~$0.1 million of DXC refreshes~~ and ~~$0.1~~$0.2 million of manufacturing ~~upgrades.~~upgrades in the first quarter of 2024. We invested ~~$0.5~~$0.4 million on capitalized software during the three months ended March 31, ~~2023, consistent with~~2024, compared to $0.5 million for the three months ended March 31, ~~2022.~~2023. During the first quarter of 2024, we sold $1.0 million of assets classified as held for sale as a result of the closure of the Rock Hill Facility, for proceeds of $1.0 million.

Financing Activities

For the three months ended March 31, ~~2023,~~2024, $16.1 million of cash was provided by financing activities compared to $0.7 million of cash ~~was~~ used ~~in financing activities compared to $0.8 million in~~for the same period of ~~2022.~~the prior year. The cash ~~used~~provided comprised mainly of ~~$0.6~~$21.3 million of net proceeds received from the Rights Offering offset by $5.1 million repayment of Debentures as a result of the Issuer Bid and scheduled payments under the Leasing ~~Facilities for both periods. In~~Facilities. During the ~~first quarter of 2022,~~three months ended March 31, 2024, we incurred ~~$0.2~~$0.1 million of spend on employee tax payments on vesting of RSUs, compared to $0.03 million in the ~~first quarter~~same period of 2023.

We currently expect to fund anticipated future investments with available cash, our strategic actions described in this report, and drawings on the Extended RBC Facility. To date, our strategic actions have generated cash through proceeds from the Private Placement in November 2022 and the receipt of $5.0 million of government subsidy through the ERC application which was received in the quarter ended March 31, 2023. We continue to evaluate properties we own for sale and lease back and are evaluating multiple initiatives related to the use of our ICE software. On May 9, 2023, we entered into an agreement with AWI for the partial assignment to AWI and co-ownership of a 50% interest in the rights, title and interest in certain intellectual property rights (including related patent rights) in a portion of the ICE Software for proceeds of $10 million. AWI will pay us an additional $1 million upon completion of a knowledge transfer to AWI relating to certain source code of the ICE software, which is expected by early 2024. Refer to “–Liquidity and Capital Resources" for further details. Apart from cash flow from operations, issuing equity and debt has been our primary source of capital to date. Additional debt or equity financing may be pursued in the future as we deem appropriate. We may also use debt or pursue equity financing depending on the price of our common shares at the time, interest rates, and nature of the investment opportunity and economic climate. No assurance can be given that any of these actions will be successful, will be sufficient for our needs.

Credit Facility

On February 12, 2021, the Company entered into the RBC Facility. Under the RBC Facility, the Borrowing Base is up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims. Interest iswas 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~~“Aggregate Excess ~~Availability~~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 iswas subject to a ~~FCCR~~fixed charge coverage ratio (“FCCR”) covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR ~~has been~~was below 1.10:1 for the three

immediately preceding months, the Company iswas required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Leasing Facilities. ~~Should~~Had an event of default ~~occur,~~occurred or the Aggregate Excess Availability bebeen less than C$6.25 million for five consecutive business days, the Company would ~~enter~~have entered a cash dominion period whereby the Company’s bank accounts would be blocked by RBC and daily balances ~~will~~would set-off any borrowings and any remaining amounts made available to the Company.

On February 9, 2023, the Company extended the RBC ~~Facility.~~Facility (the “Extended RBC Facility”). The Extended RBC Facility ~~has~~had a maximum borrowing base of C$15 million and a ~~one year~~one-year term. Interest iswas calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or ~~Term Secured Overnight Financing Rate ("SOFR")~~LIBOR plus 200 basis ~~points plus the Term SOFR Adjustment.~~points. Under the Extended RBC Facility, ifuntil such time that the trailing ~~twelve month~~twelve-month FCCR iswas above 1.25 for three consecutive months, a cash balance equivalent to ~~one-year's~~one-year’s worth of Leasing Facilities payments ~~must~~would 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 maximum availability under the Second Extended RBC Facility is subject to the borrowing base calculation to a maximum of C$15 million and a one-year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case, plus 200 basis points. At March 31, ~~2023,~~2024, available borrowings are C$~~7.0~~10.1 million ($~~5.2~~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 ~~Company did not meet~~Second Extended RBC Facility removed the three-month FCCR ~~requirement~~covenant, which resulted in the release of $0.1 million of restricted cash during the first quarter of ~~2023, which resulted in requiring the restriction of $3.4~~2024 (the Company had $0.4 million ~~of cash.~~

During 2020, the Company entered into the Leasing Facilities, consisting of the C$5.0 million Canada Leasing Facility and the $14.0 million U.S. Leasing Facility with RBC, which are available for equipment expenditures and certain equipment expenditures already incurred. The Leasing Facilities, respectively, have seven and five-year terms and bear interestrestricted cash as at ~~4.25% and 5.59%~~December 31, 2023). ~~The U.S. Leasing Facility is amortized over a six-year term and is extendible at the Company’s option for an additional year.~~

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 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%.

As part of ~~cash consideration under~~the decision to close the Rock Hill Facility, the Company fully settled the liability related to the U.S. Leasing Facility ~~and commenced~~of $7.8 million in the ~~lease term in 2020 for~~fourth quarter of 2023. The U.S. Leasing Facility is no longer available to be drawn on. With the ~~equipment at the South Carolina Facility.~~ settlement of this liability, $2.6 million was released from restricted cash during 2023.

The Company ~~has drawn C$4.4 million ($3.3 million)~~did not make any draws on the Canadian Leasing Facilities during the first quarter of ~~cash consideration~~2024 and the year ended December 31, 2023 under the Canada Leasing ~~Facility and commenced the lease term for the Canadian equipment expenditures during 2020.~~Facility.

We are restricted from paying dividends unless Payment Conditions (as defined in the Second Extended RBC Facility) are met, including having a net borrowing availability of at least C$10 million over the proceeding 30-day period, and having a trailing twelve-month fixed charge coverage ratio above 1.10:1 and certain other conditions. The Second Extended RBC Facility is currently secured by substantially all of our real property located in Canada and the United States.

Contractual Obligations

~~There have been no material changes in~~Since our ~~contractual obligations during the three months ended March 31, 2023, as compared to those disclosed~~disclosure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations” in our Annual Report on Form 10-K, ~~other than~~ the following material contractual changes have occurred:

•

additional commitments related to the extension of ~~one~~our Calgary headquarters for an additional three years beyond the original term;

•

the repurchase and cancellation of C$10.5 million of principal of our ~~factory leases in Calgary and our entry into~~convertible debt under the ~~Debt Settlement Agreement with the 22NW Group.~~ Issuer Bid

See Note ~~14,~~15, “Commitments” to our interim condensed consolidated financial statements in this Quarterly Report for additional information.

Significant Accounting Policies and Estimates

There have been no material changes in our significant accounting policies during the three months ended March 31, ~~2023,~~2024, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K. For information regarding significant accounting policies and estimates, please refer to Item 7 and Item 8 in our Annual Report on Form 10-K. As disclosed in Note 6,3, “Adoption of New and Revised Accounting Standards” to our condensed consolidated interim financial statements appearing in this Quarterly ~~Report, there were no new accounting standards adopted during the three months ended March 31, 2023.~~Report.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, please refer to Note 6,3, “Adoption of New and Revised Accounting ~~Standards”~~Standards,” to our condensed consolidated interim financial statements ~~appearing~~ and “–Significant Accounting Policies and Estimates” appearing in this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risk exposures since our disclosures in our Annual Report on Form 10-K. For information regarding our exposure to certain market risks, please refer to Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K. The ~~Company's~~Company’s cash and cash equivalents are predominantly all with one AA rated financial institution.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

As required by Rule 13a-15 under the Exchange Act, our principal executive officers and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, ~~2023.~~2024. Based upon their evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, ~~2023,~~2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3336

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

DIRTT is pursuing multiple lawsuits against its ~~former~~ founders, Mogens Smed and Barrie Loberg, as well as Falkbuilt Ltd. ~~("Falkbuilt"~~and Falkbuilt, Inc. (collectively, “Falkbuilt”) and related individuals and corporations. DIRTT alleges breaches of fiduciary duties and non-competition and non-solicitation covenants, and the misappropriation of its confidential and proprietary information (in violation of numerous ~~Canadian and~~ U.S. state and federal laws pertaining to the protection of trade secrets and proprietary information and the prevention of false advertising and deceptive trade practices). Except as described below, there have been no material developments in the legal proceedings previously disclosed in our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2023.

DIRTT’s litigation against Falkbuilt, Messrs. Smed and Loberg, and their associates is comprised of three main lawsuits: (i) an action in the Alberta Court of ~~Queen’s~~King’s Bench ~~instituted~~commenced 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”); (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”); and (iii) an action in the U.S. District Court for the Northern District of Texas instituted on June 24, 2021 alleging that Falkbuilt has unlawfully used DIRTT’s confidential information in the United States and intentionally caused confusion in the United States in an attempt to steal customers, opportunities, and business intelligence, with the aim of establishing a competing business in the United States market (the “Texas Unfair Competition Case”). DIRTT intends to pursue the cases vigorously.

We recently requested the Court of King’s Bench of Alberta to schedule the summary judgment application for our Canadian litigation. The court has proposed three potential dates in September 2025 and we expect to have the date finalized in the next several weeks. In the Canadian Non-Compete Case, on February 14, 2023, the Court of ~~King's~~King’s Bench of Alberta granted ~~DIRTT's~~DIRTT’s application to schedule the hearing of its summary judgment application and dismissed ~~Falkbuilt's~~Falkbuilt’s cross-application to strike the summary judgment application. On April 5, 2023, the parties appeared before the Associate Chief Justice of the Court of King's Bench of Alberta for a Case Management Conference. In the Conference, the Associate Chief Justice offered the parties an expedited six-week trial on both liability and damage issues, as an alternative to DIRTT proceeding withDIRTT’s. The is aggressively pursuing its summary judgment ~~application. The parties are now endeavoring to establish the terms and conditions~~application has been scheduled for ~~the full trial process and developing a litigation plan for all remaining pre-trial steps. DIRTT anticipates that the full trial will proceed in early fall 2024.~~September 22-26, 2025.

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~~DIRTT’s claims against Falkbuilt and others for the misappropriation of confidential information, trade secrets, business intelligence and customer information. The Utah Court had previously, and erroneously, found that ~~DIRTT's~~DIRTT’s United States-based claims should be litigated in Canada. The Court of Appeals remanded the matter back to the Utah District Court. Falkbuilt filed motions to stay the Tenth Circuit decision pending its petition for a Writ of Certiorari to the Supreme Court of the United States. The Court of Appeals promptly denied the motion to stay. A similar motion subsequently filed with the Supreme Court of the United States on the same basis ~~and~~was also promptly denied. ~~DIRTT intends~~Fallkbuilt also petitioned the Supreme Court to ~~seek an immediate status conference~~accept review, even after losing the stay motion, that petition was also denied in ~~Utah now that the case has been returned to the Utah District Court.~~early October.

The Texas Unfair Competition Case was dismissed, without prejudice, in reliance upon the now-reversed decision in the Utah Misappropriation Case, described above. DIRTT appealed that decision, and the United States Court of Appeals for the Fifth Circuit stayed the appeal pending the Tenth Circuit ruling at Falkbuilt's request. After prevailing in the Tenth Circuit, DIRTT asked Falkbuilt if it would, consistent with its prior representations, agree to remand the appeal to the Texas Court for disposition to Utah. Falkbuilt refused and DIRTT filed a Motion to Remand. The Court denied the Motion for Remand without prejudice and asked for full briefing. Prior to the argument, DIRTT sought leave to amend the Utah claims to include the Texas claims and notified the Fifth Circuit Court of Appeals of the proposed amendment in Utah. Falkbuilt did not object to the amendment, but answered the Complaint and reserved the right to dismiss the Amended Complaint on grounds of inconvenient forum or international comity. The Amended Complaint not only presents the Texas claims in Utah but also updates DIRTT’s allegations as to events and damages incurred during the time the parties were participating in the appellate process. Argument proceeded on December 7, 2023 in New Orleans. The Tenth Circuit ultimately denied Falkbuilt’s appeal to have the Texas claims joined in Canada and those claims are in Utah. Notwithstanding all the prior litigation, Falkbuilt has again moved to stay the Utah case and move it, including the Texas claims, to Canada. DIRTT has vigorously opposed these motions and commenced discovery. Falkbuilt’s response to pending discovery are due shortly. Briefing on Falkbuilt’s motion to stay the case and renewed motion to move it to Canada will be fully briefed shortly. DIRTT is proceeding as though the Motions will be denied.

On April 25, 2024, DIRTT filed a Statement of Claim at the Court of the King’s Bench of Alberta against McMillan LLP, one of their partners and several former Directors of DIRTT for negligence and breach of fiduciary duties. The Claim explains that as a result DIRTT has suffered loss and damages and seeks compensation for damages of approximately C$30 million.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K, which could materially affect our businesses, financial condition, or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

3538

Item 6. Exhibits

EXHIBIT INDEX


Exhibit No.		Description

3.1		Restated Articles of Amalgamation of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).
3.2		Amended and Restated Bylaw No. 1 of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020).
4.1		Base Indenture, dated January 25, 2021, by and among DIRTT Environmental Solutions Ltd., Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).
4.2		Supplemental Indenture, dated January 25, 2021, by and among the Company, Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).
4.3		Second Supplemental Indenture, dated December 1, 2021, by and among the Company, Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on December 1, 2021).
~~10.1~~4.4		Shareholder Rights Plan Agreement, dated as of March 22, 2024, by and between DIRTT Environmental Solutions Ltd. ~~2022 Employee Share Purchase Plan~~and Computershare Trust Company of Canada, as rights agent (incorporated by reference to Exhibit ~~10.2~~4.1 to the Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K, File No. 001-39061, filed ~~on May~~March 25, 2024).
10.1*†		Indemnity Agreement, dated March 4, ~~2022)~~2024, between DIRTT Environmental Solutions Ltd and Shalima Pannikode.
10.2		~~Second~~Third Amendment to Loan Agreement, dated February 9, ~~2023,~~2024, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit ~~10.45~~10.39 to the Registrant's Form 10-K, File No. 001-39061, filed on February ~~22, 2023)~~21, 2024).
10.3		~~Debt Settlement Agreement,~~Term Sheet, dated as of March ~~15, 2023,~~17, 2024, by and between DIRTT Environmental Solutions Ltd., and 22NW Fund, LP ~~and Aron English~~ (incorporated by reference to Exhibit 10.1 to the ~~Registrant's~~Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on March ~~21, 2023)~~25, 2024).
10.4		~~Share Issuance~~Support and Standstill Agreement, dated as of March ~~15, 2023,~~22, 2024, by and between DIRTT Environmental Solutions Ltd., and 22NW Fund, LP ~~and Aron English~~ (incorporated by reference to Exhibit 10.2 to the Registrant's ~~Current Report on~~ Form 8-K, File No. 001-39061, filed on March ~~21, 2023)~~25, 2024).
31.1*		Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of the Principal Executive Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of the Principal Financial Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*		Filed herewith
**		Furnished herewith

3639

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DIRTT ENVIRONMENTAL SOLUTIONS LTD.

	By:	/s/ ~~Bradley S. Little~~Fareeha Khan
		~~Bradley S. Little~~Fareeha Khan
		Chief Financial Officer ~~(Duly~~ (Duly Authorized Officer, Principal Financial Officer and Principal ~~Financial~~Accounting Officer)

Date: May ~~9, 2023~~8, 2024

3740


Alberta, Canada (State or other jurisdiction of incorporation or organization)		N/A (IRS Employer Identification No.)

7303 30th Street S.E. Calgary, Alberta, Canada (Address of principal executive offices)		T2C 1N6 (Zip code)


~~Title of Each Class~~	~~Trading Symbol(s)~~	~~Name of Each Exchange on Which Registered~~
~~Common Shares, without par value~~	~~DRTT~~	~~The Nasdaq Stock Market LLC~~


Large accelerated filer	☐	Accelerated filer	☒☐

Non-accelerated filer	☐☒	Smaller reporting company	☒

		Emerging growth company	☒


	As at March 31,			As at December 31,
	2023			2022
ASSETS
Current Assets
Cash and cash equivalents		8,146			10,821
Restricted cash		3,418			3,418
Trade and accrued receivables, net of expected credit losses of $0.1 million at March 31, 2023 and at December 31, 2022		11,773			13,930
Other receivables		3,149			7,880
Inventory		20,972			22,251
Prepaids and other current assets		3,487			3,825
Total Current Assets		50,945			62,125
Property, plant and equipment, net		39,775			41,522
Capitalized software, net		4,523			4,406
Operating lease right-of-use assets, net		39,046			30,490
Other assets		5,005			5,110
Total Assets		139,294			143,653
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		16,640			19,881
Other liabilities		4,240			2,056
Customer deposits and deferred revenue		3,845			4,866
Current portion of long-term debt and accrued interest		3,293			3,306
Current portion of lease liabilities		5,635			5,889
Total Current Liabilities		33,653			35,998
Long-term debt		61,661			62,129
Long-term lease liabilities		36,595			27,534
Total Liabilities		131,909			125,661
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 98,864,725 issued and outstanding at March 31, 2023 and 97,882,844 at December 31, 2022		192,731			191,347
Additional paid-in capital		8,193			9,023
Accumulated other comprehensive loss		(15,833	)		(16,106	)
Accumulated deficit		(177,706	)		(166,272	)
Total Shareholders’ Equity		7,385			17,992
Total Liabilities and Shareholders’ Equity		139,294			143,653


	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 $0.1 million at March 31, 2024 and at December 31, 2023		15,782			15,787
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 issued and outstanding at March 31, 2024 and 105,377,667 issued and outstanding at December 31, 2023		218,294			196,128
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


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		Page
Cautionary Statement Regarding Forward-Looking Statements		ii
PART I – FINANCIAL INFORMATION		4
Item 1. Financial Statements (Unaudited)		4
Interim Condensed Consolidated Balance Sheets		4
Interim Condensed Consolidated Statement of Operations and Comprehensive Loss		5
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity		67
Interim Condensed Consolidated Statement of Cash Flows		78
Notes to the Unaudited Interim Condensed Consolidated Financial Statements		89
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2023
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3336
Item 4. Controls and Procedures		3336

PART II – OTHER INFORMATION		3437

Item 1. Legal Proceedings		3437
Item 1A. Risk Factors		3438
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3538
Item 3. Defaults Upon Senior Securities		3538
Item 4. Mine Safety Disclosures		3538
Item 5. Other Information		3538
Item 6. Exhibits		3639


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


	As at
	March 31,			December 31,
	2023			2022
Current		11,087			12,381
Overdue		812			1,675
		11,899			14,056
Less: expected credit losses		(126	)		(126	)
		11,773			13,930


	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


	As at,				As at,
	March 31, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Warranty provisions (1)		1,279		1,278		866		873
DSU liability		745		594		1,486		1,086
Income taxes payable						321		289
Sublease deposits		137		139		183		184
Due to related parties(2)		2,079		-
Other provisions		-		45		50		50
Other liabilities		4,240		2,056		2,906		2,482


	March 31, 2023			December 31, 2022
As at January 1		1,278			1,451
Additions to warranty provision		382			1,134
Payments related to warranties		(381	)		(1,307	)
		1,279			1,278


	Revolving Credit Facility		Leasing Facilities			Convertible Debentures			Total Debt
Balance on January 1, 2022		-		13,909			56,733			70,642
Issuances		-		647			-			647
Accretion of issue costs		-		-			676			676
Accrued interest		-		735			3,539			4,274
Interest payments		-		(735	)		(3,688	)		(4,423	)
Principal repayments		-		(2,470	)		-			(2,470	)
Exchange differences		-		(274	)		(3,637	)		(3,911	)
Balance at December 31, 2022		-		11,812			53,623			65,435
Current portion of long-term debt and accrued interest		-		2,561			745			3,306
Long-term debt		-		9,251			52,878			62,129
												Revolving Credit Facility		Leasing Facilities			Convertible Debentures			Total Debt
Balance on January 1, 2023		-		11,812			53,623			65,435			-		11,812			53,623			65,435
Accretion of issue costs		-		-			164			164			-		-			698			698
Accrued interest		-		165			851			1,016			-		526			3,411			3,937
Interest payments		-		(165	)		(907	)		(1,072	)		-		(526	)		(3,451	)		(3,977	)
Principal repayments		-		(642	)		-			(642	)		-		(11,579	)		-			(11,579	)
Exchange differences		-		3			50			53			-		251			1,343			1,594
Balance at March 31, 2023		-		11,173			53,781			64,954
Balance at December 31, 2023													-		484			55,624			56,108
Current portion of long-term debt and accrued interest		-		2,597			696			3,293			-		79			762			841
Long-term debt		-		8,576			53,085			61,661			-		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


	As at(1)
	April 1, 2023		January 1, 2023		% Change			April 1, 2022		% Change
Pipeline ($ 000s)
Commercial		160,636		141,293		14	%		146,986		9	%
Healthcare		45,900		55,719		(18	%)		43,570		5	%
Government		30,676		32,313		(5	%)		32,328		(5	%)
Education		14,987		17,201		(13	%)		19,727		(24	%)
		252,199		246,525		2	%		242,612		4	%
Leads (#)		969		721		34	%		417		132	%
(1) Adjusted for previously presented period pursuant to new methodology