DIRTT Environmental (DRTTF) details 2025 losses, tariffs and transformation push in 10-K
DIRTT Environmental Solutions Ltd. filed its Annual Report for the year ended December 31, 2025, outlining a business built around industrialized interior construction powered by its proprietary ICE software platform and a broad product portfolio of walls, headwalls, casework, electrical, networks and access floors.
The company sells mainly in the U.S. and Canada through 66 independent Construction Partners and an internal Construction Services team launched in 2024 to reach new sectors and under-served markets. DIRTT highlights a strong sustainability focus, including low‑emitting, reconfigurable systems, ESG reporting, and multiple industry awards.
Management describes a strategic transformation plan led by a Transformation Office to streamline commercial, operational and manufacturing processes, while acknowledging risks from intense competition, tariffs and inflation on key inputs like aluminum, concentration in a few suppliers, co‑founder competition, ESG‑related scrutiny, cybersecurity, and joint ownership of key ICE software code. The company notes 2025 negative operating cash flow, a history of losses in most years, and dependence on future execution to achieve sustainable profitability.
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Insights
DIRTT outlines a complex transformation amid tariff, competition and execution risks.
DIRTT positions itself as a technology‑enabled interior construction company with ICE software and modular products, distributing mainly through 66 Construction Partners plus a newer Construction Services channel. Management is pushing a company‑wide transformation plan via a dedicated Transformation Office to improve processes and profitability.
The filing also stresses substantial risk: heavy dependence on aluminum and other inputs facing inflation and tariffs, concentration in a few key suppliers, and exposure to cyclical construction demand in North America. Strategic execution risk is underscored by a history of losses, negative operating cash flow in
Additional complexity comes from litigation and competition involving co‑founders, ESG‑related legal and reputational exposure, cybersecurity and data‑protection requirements, and joint ownership of core ICE software code with Armstrong World Industries. Overall, the narrative is strategically ambitious but financially and operationally constrained, leaving the investment thesis sensitive to future execution and macro conditions.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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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. ☐
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The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the common shares on The OTC Market on June 30, 2025, was $45,586,118.
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DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
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PART I |
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Item 1. |
Business |
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Item 1A. |
Risk Factors |
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Item 1B. |
Unresolved Staff Comments |
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Item 1C. |
Cybersecurity |
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Item 2. |
Properties |
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Item 3. |
Legal Proceedings |
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Item 4. |
Mine Safety Disclosures |
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PART II |
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Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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Item 6. |
[Reserved] |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
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Item 8. |
Financial Statements and Supplementary Data |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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Item 9A. |
Controls and Procedures |
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Item 9B. |
Other Information |
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Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
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Item 11. |
Executive Compensation |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
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Principal Accounting Fees and Services |
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PART IV |
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Exhibits, Financial Statement Schedules |
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Item 16. |
Form 10-K Summary |
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EXPLANATORY NOTE
Currency and Exchange Rate Information
Unless otherwise indicated, references in this Annual Report on Form 10-K (the “Annual Report”) to “$” or “dollars” are expressed in U.S. dollars (US$). References in this Annual Report to Canadian dollars are noted as “C$.”
Our consolidated financial statements that are included in this Annual Report are presented in U.S. dollars. Unless otherwise stated, all figures presented in Canadian dollars and translated into U.S. dollars were calculated using the daily average exchange rate as reported by the H.10 statistical release of the Board of Governors of the Federal Reserve System on December 31, 2025 of C$1.3712 = US$1.00.
Market and Industry Data
Certain market and industry data contained in this Annual Report, including Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are based upon information from government or other third-party publications, reports and websites or based on estimates derived from such publications, reports and websites. Government and other third-party publications, reports and websites do not guarantee the accuracy or completeness of their information. While management believes this data to be reliable, market and industry data are subject to variations and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, and other limitations and uncertainties inherent in any statistical survey.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual 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 (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 Annual 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 Annual 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. In particular and without limitation, this Annual Report contains forward-looking information pertaining to the effect of our strategic priorities on increasing value creation; the application of our processes and technology and the benefits therefrom, forecast operating and financial results, including 2026 revenue, and the impact of certain cost-saving measures, including the development, timing and success of strategic accounts, the outcome of non-dilutive strategy initiatives, the competitiveness of the Company’s solutions, the liquidity and capital resources of the Company, the effects that current claims against the Company and expiring patents will have on the Company’s business, financial condition, results of operations and growth prospects; the adaptability and lifespan of our products; the effect of tariffs on our business, and our ability to mitigate any such effects; potential cost savings as a result of using artificial intelligence technology; our goals relating to defects, deliveries and workplace injuries; capital expenditures and allocation; our executive leadership team; and the effect that sustainability-related building standards established by organizations, such as the U.S. Green Building Council, International Living Future Institute, and the International WELL Building Institute, among others, will have on demand for our products, systems and services in the U.S. market. 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 by 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 can be found in Item 1A. “Risk Factors,” Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report and our other filings with the U.S. Securities and Exchange Commission (the “SEC”). These factors include, but are not limited to, the following:
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These above-mentioned risks are not exhaustive. Because of these risks and other risks and 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 Annual 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.
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PART I
Item 1. Business.
Overview
DIRTT designs and manufactures adaptable, sustainable spaces where people work, learn, and heal. Since 2004, DIRTT has grown to become a leader in industrialized construction, providing a compelling alternative to conventional construction methods.
DIRTT’s construction system offers unrivaled speed, accuracy, and quality. Our proprietary product design and software platform, ICE® (“ICE” or “ICE Software”), simplifies preconstruction, production, and installation. These advantages provide our end users greater cost certainty and up to 30% shorter construction schedules compared to conventional construction methods.
DIRTT spaces are built for change and ready to adapt as needs evolve. Our design ensures components are interchangeable and can be repurposed for small updates or full reconfigurations without major renovation, cost, or waste.
Our approach to industrialized construction combines a portfolio of interior construction products with advanced digital tools. ICE Software serves as the engine for our system, enabling projects to be designed, visualized, organized, configured, priced, and manufactured off-site, with final assembly and installation completed at the job site. ICE Software empowers faster decision-making during design with real-time changes, visualization, and pricing information. ICE Software connects directly to DIRTT manufacturing facilities for end-to-end integration, precise manufacturing, production management, and coordination of the DIRTT scope. ICE Software is licensed to our Construction Partners (as defined herein), as well as other third-parties, including Armstrong World Industries, Inc. (“AWI”). In addition to the core ICE Software platform, our cloud-based virtual reality tool and app, called ICEreality, connects teams from anywhere in the world to walk through their virtual space together, while design changes can be made with real-time feedback on pricing.
We work with some of the most innovative clients, design teams, and construction professionals. We reach our clients through a multi-channel approach. One channel is our internal sales team and international network of independent DIRTT Construction Partners (“Construction Partners” or “Partners”). Their DIRTT expertise makes them trusted professionals in their regions for preconstruction considerations, order, installation, and adaptation of interior spaces. DIRTT Construction Partners work with clients and construction teams, ensuring effective management and execution of the DIRTT scope on every project. Long term, they support reconfigurations, adaptations, and adjustments, continuously protecting our clients’ investments in DIRTT while ensuring their spaces stay relevant. The other is our internal Construction Services, a team of experts that unites design, manufacture, and construct seamlessly for greater coordination, reduced risk, and operational certainty. These channels work both independently and together to deliver DIRTT to end clients.
DIRTT was incorporated in Alberta, Canada, under the Business Corporations Act (Alberta) (“ABCA”) on March 4, 2003 and mostly recently amended and restated its articles on May 5, 2019. Our headquarters are located at 7303 30 Street SE, Calgary, Alberta, T2C 1N6, Canada, and our telephone number at that address is 403-723-5000. Our manufacturing facilities are in Calgary, Alberta and Savannah, Georgia.
Our common shares trade on the Toronto Stock Exchange (“TSX”) under the symbol “DRT”. On June 12, 2025, the Company began trading on the OTCQX® Best Market (“OTCQX”) under the symbol “DRTTF.” The Company previously traded on, and upgraded to OTCQX from, the OTC Pink® Market.
Unless otherwise specified or the context otherwise requires, references to “we,” “us,” “our,” “its,” “the Company” or “DIRTT” mean DIRTT Environmental Solutions Ltd. and, where the context so requires, includes our subsidiaries.
Available Information
We file or furnish annual, quarterly and current reports, proxy statements and other documents with the SEC under the Exchange Act. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers, including DIRTT, that file electronically with the SEC. We are also subject to requirements of applicable securities laws in Canada, and documents that we file with the securities commissions or similar regulatory authorities in Canada may be found at www.sedarplus.ca.
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We make available free of charge through our website (www.dirtt.com) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC and the applicable securities commissions in Canada. In addition to the reports filed or furnished with the SEC and the applicable securities commissions in Canada, we publicly disclose information from time to time in our press releases, investor presentations posted on our website and at publicly accessible conferences. References to such information, including references to our Environmental, Social, and Governance (ESG) Report, and references to our website in this Annual Report, are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Annual Report.
We will provide without charge to you, upon your request, a copy of our annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC and the applicable securities commissions or similar regulatory authorities in Canada. Requests for copies should be addressed to 7303 30 Street SE, Calgary, Alberta, T2C 1N6, Canada, Attention: Investor Relations.
Our Solutions
Our array of products and integrations give our clients the tools to create high-performing interiors that stay relevant as consumer needs and preferences change. Unlike conventional prefabricated products, most of our solutions do not have predetermined shapes, sizes, or configurations, empowering clients with design freedom to meet their needs. The core of our product philosophy is a construction system that uses a universal interface. By allowing interchangeable parts, DIRTT can maximize the life cycle for most of our products as well as the spaces they occupy. Committed to sustainability, we subscribe to non-obsolescence, where new DIRTT components work with DIRTT products that came before. Our solutions can be disassembled and reconfigured with minimal waste. With both design freedom and adaptability benefits, client spaces are tailored to their unique needs on day one and can be more easily reconfigured or adapted to stay relevant on day two and beyond.Our solutions (“DIRTT Solutions”) are typically able to address over 90% of an interior space. Components are manufactured in DIRTT facilities and shipped to site for installation. The following table provides a brief description of our primary solutions:
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DIRTT Solution |
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Solid Walls |
DIRTT’s solid walls offer extensive options with 4”, 6”, and 2” furring wall offerings. Solid walls connect seamlessly to other products in the DIRTT construction system and enable unique finishes, colors, and configurations. Wall cavities support electric, network, and technology integrations. |
Glass Walls |
DIRTT’s glass walls are available as double pane, classic center-mount, or the slimmer Inspire™ profiles. DIRTT glass walls can accommodate base building variance and acoustic requirements while remaining aesthetically pleasing. |
Combination Walls |
Solid and glass walls can be combined for a mix of privacy and transparency. Combination walls can be customized and configured to fit any design with the benefits of the DIRTT system. |
Leaf Folding Walls® |
The retractable modular wall system adds functionality with an effortless solution to quickly adapt space. Like other walls in the DIRTT portfolio, dimensions and finishes of Leaf™ can be customized. |
Headwalls |
This modular, multi-trade healthcare headwall system is an efficient, adaptable approach to healthcare construction. With extensive customization options and integrations, DIRTT Headwalls are an efficient way to meet unique healthcare compliance requirements. |
Doors |
DIRTT doors integrate seamlessly with DIRTT solid and glass wall assemblies. A wide range of types and styles are available, including swing doors, sliding doors, and pivot doors. Door options can meet smoke-rating and acoustic requirements. |
COVE™ |
COVE™ is a prefabricated module designed to address the challenges emergency departments face today. A fraction of the size of a typical exam room, COVE™’s innovative design enables facilities to optimize existing spaces without compromising function or patient experience. |
Casework |
DIRTT offers custom cabinets, closets, and storage solutions with consistent quality and efficient installation. Precision-manufactured casework is delivered with predictable lead times. |
Timber |
Traditional craftsmanship meets advanced, custom manufacturing to create striking designs and structural elements. Engineered to meet local requirements, DIRTT Timber integrates with broader DIRTT scopes to bring natural elements to spaces with rapid assembly on-site. |
Electrical |
DIRTT’s modular electrical system supports connected infrastructure needs. The pre-wired, modular distribution system includes pre-mounted and terminated device boxes installed at the factory to reduce project time and cost on-site. Plug-in connections allow for quick installations and easy modifications. |
Networks |
DIRTT’s Fiber to the Edge networks deliver unlimited bandwidth capability and longer-reaching signal strength while reducing supporting infrastructure needs and material costs. Industry-leading technology and future-ready infrastructure empowers smart building benefits. Copper-based network options reduce install time and increase flexibility. |
Access Floors |
Low-profile, fixed-height access floor provides an adaptable foundation for connected infrastructure with long-term accessibility for easy moves, additions, and changes. |
In addition to our core product offering, DIRTT enables integrations with technology, custom graphics, writable surfaces, and Breathe® Living Walls. Further product information can be found on dirtt.com.
Sustainability and Environmental Matters
DIRTT aims to minimize the environmental impact of interior construction through careful material selection, efficient operations, a system designed for future adaptability, and long product lifecycles. We work with clients to understand their unique sustainability goals and identify how building with DIRTT can support LEED, WELL, Living Building Challenge, and other green building standards they may be targeting. Our sustainability team helps to calculate various elements of the DIRTT scope that support certification.
DIRTT’s agile construction system makes it quick, easy, and cost effective to evolve interior spaces through future reconfigurations and relocations, while reducing waste compared to conventional construction and demolition. Our agile system is designed for disassembly to reduce the carbon footprint of new construction and future changes. We further reduce waste through efficient manufacturing and pre-assembled solutions.
We regularly evaluate the environmental impact of our materials, considering impact on the wellness of the occupants using the spaces we build and life cycles of the products we make. DIRTT endeavors to use materials with high recycled content, bio-based content, and low or no volatile organic compounds (VOCs). Most DIRTT assemblies are certified through Science Certification Systems (SCS) Indoor Advantage Gold, recognizing their low-emitting properties. DIRTT wall panel and casework facilities are certified to handle materials with FSC® certification (FSC-C006900), ensuring FSC certified products may be specified.
We recognize the vital importance of reducing embodied carbon within DIRTT products. Our environmentally conscious production facilities are regularly evaluated by cross-functional teams who assess and implement energy efficiency strategies. We further reduce the impact of our operations with recycling and waste diversion programs.
DIRTT releases an annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability and the environment. It also provides disclosure of our current environmental and sustainability impacts.
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We consistently receive strong industry recognition for our sustainability leadership, including the Seal Sustainable Product Award and the ECO Canada Top Employer Impact Award. These achievements reinforce our commitment to delivering environmentally responsible products for our clients and embedding sustainable practices throughout our manufacturing process.
Further information about DIRTT’s sustainability practices can be found at dirtt.com/sustainability.
Construction Partners and Sales Network
We primarily sell DIRTT Solutions through a network of Construction Partners working in conjunction with local DIRTT sales representatives, as well as internal DIRTT industry specialists, business development professionals and a dedicated Construction Partner support team. Construction Partners and local sales representatives are located in cities throughout the United States and Canada, with additional locations in Saudi Arabia, Mexico, and the United Kingdom. The use of a dispersed network of Construction Partners greatly enhances our ability to drive awareness of the DIRTT brand and understanding of our approach to construction throughout our markets.
As part of our distribution agreements, our Construction Partners are typically required to invest in their own DIRTT Experience Center (“DXC”) so that they are able to effectively showcase DIRTT Solutions. These DXCs are showrooms that provide mock-ups of DIRTT Solutions and related product offerings. DIRTT maintains DXCs in Calgary, Plano (Texas), and Chicago.
Our Construction Partners operate under agreements that outline sales goals and marketing territories which are generally non-exclusive. We expect our Construction Partners to build regional DIRTT-dedicated teams and to use our ICE Software in the sales process. In addition to sales and marketing, our Construction Partners provide value throughout the construction process. At the preconstruction stage, Construction Partners provide design assistance services to the architect and designer; throughout the construction process, Construction Partners act as a specialty subcontractor to the general contractor and provide installation and other construction services. Post-move in, Construction Partners provide warranty work, ongoing maintenance and reconfiguring support. Local DIRTT sales representatives work closely with the Construction Partners throughout the process to ensure successful project implementation and the highest client satisfaction. Construction Partners generally place orders for DIRTT Solutions directly with us and pay us directly for such orders.
At December 31, 2025, we had a total of 66 Construction Partners and 29 sales representatives across North America. We are not dependent on any one Construction Partner or sales representative.
Strategic accounts are a cornerstone in our strategy to drive long-term sustainable and predictable growth. These types of clients manage large real estate footprints in numerous locations. For these clients, it is advantageous and important to establish consistency in design and execution, repeatability, and speed to market. While these relationships can take time to develop, once they are established, the time and resources required to execute additional projects is reduced, which we believe will create profitable, predictable revenue streams. In return, clients benefit from a single point of accountability at DIRTT, a strong network of partners, full lifecycle support from established design standards and preconstruction expert support for their architects, designers and general contractors from field work to post installation support.
In 2024, we launched an additional go-to-market channel called Construction Services (previously referred to as Integrated Solutions). This team provides sales, design, estimating, and project delivery services together or independently with our DIRTT Construction Partners and DIRTT sales representatives. Construction Services increases our sales network’s capacity and targets revenues in channels without existing coverage. There are three key opportunity areas Construction Services is focusing on: (1) diversifying our customer profile, (2) increasing volumes in smaller markets, and (3) expanding into new sectors. Through these efforts, Construction Services aims to simplify our go-to-market strategy and increase access to DIRTT’s portfolio of products.
Manufacturing and Properties
Our DIRTT Solutions are currently manufactured at our facilities in Calgary, Alberta and Savannah, Georgia. Currently our wall surfaces (which we call panels), casework and timber solutions are manufactured in Calgary, while aluminum, glass and power components are manufactured in Calgary and Savannah. Through distributed manufacturing, we can shift production of some components among our manufacturing sites, reduce transportation times and costs, and meet targeted lead times.
Suppliers and Raw Materials
Our inventory balances consist primarily of raw materials, which are kept on hand as components of our custom manufacturing process. Managing our raw material inventory is essential to our business, given our short lead times from order to shipment and our high level of order customization. Our key manufacturing materials are aluminum, hardware, wood and glass. For the twelve months ended December 31, 2025, aluminum accounted for approximately 35% of our purchased materials, while wood, hardware and finishing powder & paint accounted for approximately 12%, 11%, and 10%, respectively. While we maintain multiple suppliers for key materials,
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for the twelve months ended December 31, 2025, (i) one supplier accounted for approximately 78% of our aluminum supply and two additional suppliers provided 9% each, (ii) two suppliers accounted for approximately 64% and 26% of our wood supply, respectively, (iii) one supplier accounted for 100% of our paint and (iv) two suppliers accounted for approximately 45% and 20% of our hardware supply.
Materials are sourced domestically and, to a much lesser extent, overseas. Approximately 89% of our materials are manufactured and purchased in North America. Purchase decisions are made on the basis of quality, cost, and ability to meet delivery requirements. We do not typically enter into long-term agreements with suppliers. In general, adequate supplies of raw materials are available to all our operations, but we continue to be impacted by inflationary price pressures across substantially all of our raw material requirements, and aluminum purchases may be subject to market capacity constraints. Additionally, the imposition of tariffs or other trade barriers has affected the pricing of our raw materials, including aluminum.
Technology and Development
We continue to focus on developing client-centric innovations and enhancements of both ICE Software and DIRTT Solutions with a primary focus on improving client experience, increasing market penetration and expanding into key markets. At December 31, 2025, we employed 43 employees within our technology and development groups and, including capitalized amounts, invested $6.9 million, $7.6 million and $8.3 million in 2025, 2024 and 2023, respectively, in innovation activities.
In 2023, the Company entered into a Partial Patent Assignment Agreement and a Co-Ownership Agreement (collectively, the “AWI Agreements”) with AWI. The AWI Agreements provide for the partial assignment to AWI and co-ownership of an undivided 50% interest in certain intellectual property rights (including related patents) in a portion of the Company’s ICE Software that is used by AWI (the “Applicable ICE Software Code”), in exchange for a cash payment of $10.0 million. As part of the AWI Agreements, the Company provided AWI a transfer of knowledge concerning the Applicable ICE Software Code in exchange for an additional $1 million which was received in the fourth quarter of 2023. Under the AWI Agreements, the Company and AWI will have separate exclusive fields of use and certain restrictive covenants with respect to the Applicable ICE Software Code and related intellectual property rights, each of which survive until either party elects to separate its relationship from the other and for a period of five years thereafter.
Clients
DIRTT’s principal geographic markets are the United States and Canada. Our revenue is derived almost entirely from projects in North America sold through our two primary revenue channels.
Our revenue opportunities primarily come from commercial projects, including both new construction projects and renovations of existing buildings. Clients range from small owner-managed businesses to multinational Fortune 500 companies across a variety of industries, including healthcare, education, financial services, government and military, manufacturing, non-profit, energy, professional services, retail, technology, and hospitality. We view DIRTT Solutions as generally industry agnostic, with applications in many different industries with minimal adjustments. We are not dependent on any one client or industry segment. In 2025 and 2024, no single Construction Partner represented more than 10% of our revenue, while one client represented more than 10% of our revenue for the year ended December 31, 2023.
Competition
The overall market for interior construction is fragmented and highly competitive. The principal competitive factors in the interior construction industry include price (including cost certainty), speed, quality, customization, and service. Our main competitors are comprised primarily of conventional construction firms, individual tradespeople (including framers, drywall installers, and interior product designers), and modular systems manufacturers. Additionally, conventional construction firms are beginning to develop customizable wall paneling and other interior construction solutions and may directly compete with our DIRTT Solutions. We also compete with commercial furniture manufacturers, such as Teknion Corporation, Haworth Inc., Allsteel Inc., and Steelcase Canada Ltd., who offer a variety of prefabricated interior wall solutions. We expect competition to increase as new entrants or solutions enter the interior construction market. See Item 1A. “Risk Factors”.
Seasonality
The construction industry has historically experienced seasonal slowdowns related to winter weather conditions and holiday schedules, which affect shipping and on-site installation dates, in the first quarter of each calendar year. Our business has generally, but not always, followed this trend with a slight time lag, leading to stronger sales in the second half of the year versus the first half. Weather factors can also influence third-party exterior construction schedules and site conditions, which may in turn affect timing of interior builds.
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Due to the fixed nature of certain manufacturing costs, such as our facilities leases and related indirect operating costs, periods of higher revenue volume tend to generate higher gross profit and operating income margins, while periods of lower volume tend to result in lower gross profit and operating income margins. Quarters that contain consistent monthly manufacturing volumes tend to generate higher gross profit than those where manufacturing levels vary significantly from month to month.
Patent and Intellectual Property Rights
Our success depends, in part, upon our intellectual property rights relating to our products, production processes, our technology, including our ICE Software, and other operations. We rely on a combination of trade secret, nondisclosure and other contractual arrangements, as well as patent, copyright and trademark laws, to protect our proprietary rights and competitive advantage. We register our patents and trademarks as we deem appropriate and take measures to defend patents where we deem others are infringing on our patents. The following table presents the status as of December 31, 2025, of our issued and pending patent and design applications relating to various aspects of DIRTT Solutions and ICE Software:
|
|
Granted |
|
|
Applications |
|
||
Jurisdiction |
|
Patents |
|
|
Pending |
|
||
Canada |
|
|
79 |
|
|
|
32 |
|
United States |
|
|
124 |
|
|
|
19 |
|
Europe (EU Designs and European Patent Office) |
|
|
13 |
|
|
|
7 |
|
France |
|
|
5 |
|
|
|
- |
|
Germany |
|
|
5 |
|
|
|
- |
|
Great Britain (UK) |
|
|
22 |
|
|
|
4 |
|
Singapore |
|
|
8 |
|
|
|
- |
|
Saudi Arabia |
|
|
- |
|
|
|
4 |
|
United Arab Emirates |
|
|
- |
|
|
|
4 |
|
Total |
|
|
256 |
|
|
|
70 |
|
Our issued patents expire between 2025 and 2040. We do not believe that the expiration of any individual patent will have a material adverse effect on our business, financial condition or results of operations. As we develop innovations and new technology, we expect to file additional and supplemental patents to protect our rights in those innovations and new technology. As described in more detail above, AWI owns a 50% interest in the rights, title and interests in the Applicable ICE Software Code, including a 50% interest in a portion of the patent rights that relate to the Applicable ICE Software Code.
Government Regulations
The operation of our business is subject to stringent and complex laws and regulations pertaining to health, safety, and the environment. As an owner or operator of various manufacturing facilities, we must comply with these laws and regulations at the federal, state, provincial and local levels in both the United States and Canada. Failure to comply with environmental laws and regulations may trigger a variety of administrative, civil, or criminal enforcement actions, including the assessment of monetary penalties, the imposition of investigative or remedial requirements, or the issuance of orders limiting current or future operations. Certain environmental statutes impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances or industrial wastes have been mismanaged or otherwise released.
While we do not believe that compliance with federal, state, provincial, or local environmental laws and regulations will have a material adverse effect on our business, financial position or results of operations, we cannot provide any assurances that future events, such as changes in existing laws or regulations, the promulgation of new laws or regulations, or the development or discovery of new facts or conditions related to our operations, will not cause us to incur significant costs.
Legal and Regulatory Proceedings
We may be involved from time to time in various lawsuits, claims, investigations, and other legal matters that arise in the ordinary course of business, including matters involving our products, intellectual property, relationships with suppliers, relationships with Construction Partners, relationships with competitors, employees, and other matters. We may, for example, be a party to various litigation matters that involve product liability, tort liability, and claims under other allegations, including claims from our employees either individually or collectively. We do not believe that any current claims, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations. For additional information regarding our current legal proceedings, see Item 3. “Legal Proceedings.”
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Human Capital Resources
As at December 31, 2025, DIRTT employed 760 employees, 99.5% full time, 0.5% part time. We had 756 full-time employees consisting of 515 employees in production, 73 employees in sales and marketing, 43 employees in technology and development, 69 employees in operations support, and 56 general and administrative employees. At year-end, approximately 43% of our workforce were salaried employees and approximately 57% were compensated on an hourly basis. As at December 31, 2025, approximately 26% of our workforce was based in the United States, and approximately 74% was based in Canada.
Workplace Values and Equal Employment Opportunity
DIRTT is committed to attracting, developing, and retaining a skilled and diverse workforce, and to fostering an inclusive environment where employees feel a sense of belonging. We value the unique perspectives and experiences our employees bring and strive to maintain a workplace where individuals are respected, supported, and empowered to contribute fully. To advance these objectives, we provide voluntary learning opportunities and mentoring programs that support employee growth and engagement. We adhere to principles of equal employment opportunity, and our hiring and employment decisions are based on merit, qualifications, business needs, and organizational fit.
Culture & Engagement
DIRTT continues to put measures in place to assess and enhance the level of engagement and satisfaction of our employees. In 2024, we deployed a performance management tool catered to drive discussions around team goals, performance and development opportunities, robust succession plans and greater transparency around policy and procedures tied to cost and risk mitigation to support a performance-driven culture.
In 2024, DIRTT conducted an employee engagement survey through the Employee Voice platform, focusing on workplace civility, work life balance, retention, and job satisfaction. The survey achieved an 84% participation rate. Targeted initiatives were introduced to monitor progress on these themes and their impact on overall employee engagement and experience. Engagement surveys are now conducted every other year to allow time for actions to be implemented and completed. The next survey is scheduled for the second quarter of 2026.
Additional development initiatives and active employee engagement include learning and development programs to support a performance-driven culture, enhanced communication platforms, employee recognition initiatives, and a company‑wide philanthropic program.
Our core commitment to organizational safety resulted in a Total Recordable Incident Frequency (TRIF) of 1.10 in 2025, more than 73% below the industry average. DIRTT was recognized in 2025 as Canada's Safest Manufacturing Employer in the industrial sector by Canadian Occupational Safety.
We use a range of compensation incentives which vary by role, including annual variable compensation determined based on a combination of achieving team objectives and financial targets for the Company; quarterly bonuses for our manufacturing personnel paid on adherence to targets related to safety, quality, delivery, inventory and productivity; and commissions based on sales. We also use various forms of stock-based compensation as a retention tool and to further align employee interests with the interests of our shareholders. We continue to monitor our retention by way of voluntary turnover, which was 9.9% by the end of 2025.
None of our employees are covered by collective bargaining agreements. We have never experienced labor-related work stoppages or strikes, and we believe we currently have a positive relationship with our employees.
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Item 1A. Risk Factors.
Investing in our common shares involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Annual Report, including our consolidated financial statements and the related notes and Part II, Item 7. entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in any documents incorporated in this Annual Report by reference, before deciding whether to invest in our common shares. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our common shares could decline, and you may lose all or part of your investment. Although we have discussed all known material risks, the risks described below are not the only ones that we may face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Certain statements below are forward-looking statements. See also “Special Note Regarding Forward-Looking Statements” in this Annual Report.
Risks Related to Our Business and Industry
Our industry is highly competitive, and potential clients may not recognize the benefits of our innovative and unique approach to interior construction as compared to conventional interior construction methods.
We operate in the highly competitive interior construction industry that is constantly developing and changing. We compete against conventional construction firms, individual tradespeople, modular systems, and commercial furniture manufacturers. Competitive factors include price, speed, quality, customization, and service. New market entrants and conventional construction firms are also beginning to develop customizable wall paneling and other modular interior construction solutions, and we expect this trend to continue. In addition, we may face pricing pressure from competitors or new market entrants who take on projects at reduced prices or employ other competitive strategies. While we believe our innovative design, quality, schedule and cost certainty, and network of Construction Partners makes us well-positioned in the market, increasing competition could make it difficult to secure new projects at acceptable operating margins.
Our products are unique and offer an alternative to conventional construction techniques. Although offsite construction methods are gaining market acceptance, this still represents only a fraction of all construction methods and the overall construction market. Our ability to grow and increase market share depends, in part, on our success in continuing to increase demand for modular construction methods and products as an alternative to more traditional construction methods. While we intend to follow a strategy of innovative product development and strategic marketing efforts to enhance our position, there is no assurance that our solutions will attain a degree of market acceptance sufficient for sustained profitable operations. Failure to compete effectively by, among other things, meeting consumer preferences, developing and marketing innovative solutions, maintaining strong client service and distribution relationships, growing market share, and expanding our solutions capabilities could have a material adverse effect on our liquidity, financial condition, or results of operations.
Our co-founders’ and former executives’ competitive behavior against us could have an adverse effect on our business, financial condition and results of operations.
Our co-founders and former executives, Mogens Smed and Barrie Loberg, have started an interior construction and manufacturing company that we believe competes with us. They, along with a number of our former employees and Construction Partners who have joined their company, have in-depth knowledge about our business, including our customers, employees, products and prospects, and we may be adversely affected by increased competition arising out of this business venture. We are engaged in litigation with Messrs. Smed and Loberg, entities with which they are involved, and other individuals relating to, among other things, enforcement of non-competition and non-solicitation obligations, and alleged misappropriation of proprietary information by them or by us. If Messrs. Smed and Loberg further engage in a competitive business against us or if we are not successful in litigation, our business, financial condition and results of operations may be adversely affected. See Item 3. “Legal Proceedings.”
We depend heavily on our network of Construction Partners, and the loss or inattention of our Construction Partners, or the failure of our Construction Partners to meet their obligations to us, could materially and adversely affect our business, financial condition and results of operations.
We remain reliant on our network of Construction Partners to sell and market DIRTT Solutions and provide design, installation, distribution and other services to clients on each project. While we are not dependent on any single Construction Partner, sales generated by approximately 10% of our Construction Partners comprised approximately 47% of our total revenues for 2025 (2024 – 34%) with one Construction Partner making up approximately 9% of total revenues (2024 - 9%). The loss of any top performing Construction Partners, particularly to our competitors, may negatively affect our sales, financial condition or results of operations. It may further impair our ability to maintain a market presence in a particular geographic region until a new Construction Partner relationship is established, which would require significant time and resources, given DIRTT is typically a standalone line of business in their portfolio.
Although we provide our Construction Partners with training, education, and support, they may be unable to successfully sell our DIRTT Solutions, execute projects or manage client experiences and relationships. In addition, our Construction Partners and their clients may face financial difficulties or may become insolvent, which could result in the delay or cancellation of their plans to purchase
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DIRTT Solutions or lead to our inability to obtain payment of accounts receivable that they may owe. If we are unable to maintain a successful Construction Partner network, our business, financial condition, and results of operations could be materially and adversely affected.
The Company is undergoing a strategic transformation process, across the Commercial, Operational and Manufacturing departments. We may not be able to achieve some or all of the anticipated benefits of this transformation plan.
In response to performance challenges we have faced in recent years, the Board of Directors and management team is working on a transformation plan to advance the business and grow revenue and manage profitability.
In early 2025, we established a transformation office to accelerate the strategic transformation of our business by streamlining the Company’s processes and procedures, supporting Construction Services and improving productivity across the Company (the “Transformation Office”).
Implementation of this transformation plan will require robust and reliable systems and processes across the organization. There is also no assurance that successful implementation will lead to sustainable, profitable growth, and may itself be disruptive to the Company. Failure to implement our transformation plan could materially and adversely affect our near-term sales, commercial activities, and ability to develop and sustain profitable growth. In addition, the success and timing of our implementation may be dependent upon external factors outside of our control.
Our transformation plan also depends in part on our ability to maintain and manage growth effectively. Growth in our headcount and operations may place significant demands on our management and operational and financial resources. Additionally, managing growth of our operations and personnel requires continuous improvement of our internal controls and reporting systems and procedures. Failure to effectively manage growth could result in difficulty providing current DIRTT Solutions and introducing future solutions, difficulty in securing clients and Construction Partners, declines in quality or client satisfaction, increases in costs or other operational difficulties. Any of these difficulties could lead to a loss of investor confidence and adversely affect our business performance, financial condition and results of operations.
We may be unable to expand our market share through our Construction Services (previously referred to as Integrated Solutions) team and other strategic initiatives.
DIRTT has been evolving how we pursue and deliver projects. In 2024, we launched an additional go-to-market channel called Construction Services (previously referred to as Integrated Solutions). This team provides preconstruction, design-build assistance, targeted estimating and project delivery services elevating DIRTT from manufacturing to a multi-trade, prefabricated interior construction company. DIRTT Construction Services is designed to complement our existing Construction Partner network. We can provide more technical capabilities to help select partners bid on and win larger projects, or help fill gaps a partner may have in their team and allow DIRTT to pursue projects in markets without partner coverage, in sectors that require specific expertise, or for our existing national accounts strategy – large clients with a national footprint executing projects in multiple regions. There is no assurance that this pursuit will achieve desired outcomes and we may be unsuccessful in generating revenue through these initiatives.
If we do not effectively communicate the value of our products or services to potential customers and to our Construction Partners, our brand and name recognition and reputation could suffer.
We believe that establishing and maintaining good brand and name recognition and a good reputation is critical to our business. In certain parts of the market, promotion and enhancement of our name and brands will depend on the effectiveness of our communication with our Construction Partners, our marketing and advertising efforts, and our ability to maintain and expand our reputation for providing design-driven, innovative, and high-quality products and superior services. If our Construction Partners or customers do not perceive our products and services to be design-driven, innovative and of high quality, our reputation, brand, and name recognition could suffer, which could have a material adverse effect on our business.
Certain elements of DIRTT’s administrative systems may not be effective.
DIRTT has identified the need to upgrade its inventory management and cost accounting systems at some point in the future to enable scalable growth, and other information technology investments may be required in the future. The Company is currently unable to estimate the costs and timeline related to such upgrades. However, the success, in whole or in part, of such investments cannot be guaranteed. If the Company does not successfully or timely upgrade its inventory management and cost accounting systems, it may experience unforeseen challenges to its inventory and pricing strategies.
Environmental, social and governance (ESG) matters and conservation measures may adversely impact our or our customers’ business.
Societal expectations on companies to address, environmental and social impacts and investor, regulatory and societal expectations regarding voluntary and mandatory ESG-related disclosures may result in increased costs, reduced demand for our customers’ products, reduced profits, increased investigations and litigation, negative impacts on our stock price and reduced access to capital markets.
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Moreover, while we may publish voluntary disclosures from time to time, certain statements in those voluntary disclosures may be based on expectations, assumptions and hypothetical scenarios that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Mandatory ESG-related disclosure is also emerging as an area where we may be, or may become, subject to required disclosures in certain jurisdictions, and any such mandatory disclosures may similarly necessitate the use of hypothetical, projected or estimated data, some of which is not controlled by us and is inherently subject to imprecision. Disclosures reliant upon such expectations, assumptions and hypothetical scenarios are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters. Further, we have announced various voluntary ESG targets in our annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability, the environment, health and safety, and social initiatives, which are often aspirational. However, we cannot guarantee that we will be able to meet such voluntary targets in the manner or on such a timeline as initially contemplated, including, but not limited to, any unforeseen costs, changes to relevant accounting methodologies or technical difficulties associated with achieving such results. Any actual or perceived failure to meet our ESG targets could adversely impact our reputation and our customers’ image of our products and result in the loss of business or impede our growth initiatives. Adverse publicity regarding ESG issues and similar matters, whether or not justified, could have a negative impact on our reputation and may result in the loss of customers and our inability to secure new customer relationships. Further, our customers may be more selective for products that meet their ESG goals or standards, such as increasing demand for goods that result in lower emissions, and our products could be less competitive if we are unable to meet these standards. Despite our efforts to adapt to and address these concerns, our efforts may be insufficient. Additionally, the implementation of these initiatives may increase our costs. It is difficult to predict how our efforts with respect to social and sustainability matters will be evaluated by current and prospective investors or by our customers or business partners. Despite our voluntary actions, we may receive pressure from certain investors, lenders, or other groups to adopt more aggressive ESG-related goals or policies, but we cannot guarantee that we will be able to pursue or implement such goals because of potential costs or technical or operational obstacles.
Furthermore, our reputation, as well as our stakeholder relationships, could be adversely impacted as a result of stakeholder perceptions of statements made by us, our employees and executives, agents, or other third parties or public pressures from investors or policy groups to change our policies. Certain statements with respect to ESG matters are becoming increasingly subject to heightened scrutiny from public and governmental authorities related to the risk of potential “greenwashing,” i.e., misleading information or false claims overstating potential ESG benefits. For example, the SEC has recently taken enforcement actions against companies for ESG-related misconduct, including greenwashing. The SEC, various state agencies, non-governmental organizations and other private actors have also filed lawsuits under various securities and consumer protection laws alleging that certain ESG-statements, goals or standards were misleading, false or otherwise deceptive. Additionally, certain employment practices and social initiatives are the subject of scrutiny by both proponents and detractors of such policies, including by government actors, and the complex regulatory and legal frameworks applicable to such initiatives continue to evolve. We cannot be certain of the impact of such regulatory, legal and other developments on our business. Recent political developments in the U.S. may result in increased criticism or litigation risks, including from U.S. governmental agencies. These sentiments may focus on the Company’s environmental commitments (such as reducing GHG emissions), its pursuit of certain employment practices or its social initiatives that are alleged to be political or polarizing in nature or are alleged to violate laws based, in part, on changing priorities of, or interpretations by, federal agencies or state governments. Consideration of ESG-related factors in the Company’s decision-making could be subject to increased scrutiny and objection from such anti-ESG parties. As a result, we may face increased litigation risks from private parties and governmental authorities related to our ESG efforts. Moreover, any alleged claims of greenwashing against us or others in our industry may lead to negative sentiment. To the extent that we are unable to respond timely and appropriately to any negative publicity, our reputation could be harmed. Damage to our overall reputation could have a negative impact on our financial results and require additional resources to rebuild our reputation. Additionally, to the extent ESG matters negatively impact our reputation, we may not be able to compete as effectively to recruit or retain employees, which may adversely affect our operations. Such ESG matters may also impact our customers, which may result in reduced demand for certain of our products and services.
As a result of amendments to the Competition Act (Canada), certain public representations by a business regarding the benefits of the work it is doing to protect or restore the environment or mitigate the environmental and ecological causes or effects of climate change may violate the Competition Act (Canada)'s deceptive marketing practices provisions. These amendments include substantial financial penalties. Uncertainty surrounding the interpretation and enforcement of this legislation may expose the Company to increased litigation and financial penalties, the outcome and impacts of which can be difficult to assess or quantify and may have a material adverse effect on DIRTT’s business, reputation, financial condition, and results.
Risks Relating to Our Products and Software
We are subject to fluctuations in the prices of raw materials and commodities, which could adversely affect our liquidity, operating margins and financial condition.
We purchase raw materials, including aluminum, glass, and wood, from a number of local and global suppliers. The costs of these commodities can fluctuate due to changes in global supply and demand, inflation, speculation in commodities futures, and the imposition
15
of any new, or changes in existing, tariffs, embargoes or other trade barriers, which can also interrupt supply. In addition, we have not historically entered into long-term agreements with vendors and may be exposed to short-term and long-term price fluctuations as a result.
Aluminum represents the largest component of our raw materials consumption. We have experienced fluctuations in the price of aluminum and anticipate that these fluctuations will continue in the future. In particular, during 2021 through 2023, we experienced significant price inflation across substantially all of our materials, largely due to pandemic-induced supply chain constraints. Starting in 2025, the U.S. government has imposed 50% tariffs on steel and aluminum and limited the amounts of steel and aluminum coming into the United States based on the countries of origin of those imports and Canada reacted by implementing a series of counter-tariff measures (ranging from 25% to 50% ad valorem) to protect Canadian steel and aluminum producers impacted by the U.S. actions. In 2024, we sourced the majority of our aluminum from North America and sourced under 10% of our raw materials from outside North America. Nonetheless, substantial, prolonged upward trends in aluminum and other commodity prices, along with tariffs and import limitations, could significantly increase our costs and adversely affect our liquidity, operating margins, and financial condition. In particular, additional tariffs imposed by the U.S. government, and any potential retaliatory measures, may affect us and our suppliers, including on the costs of raw materials and pricing of our solutions. See also “—New and existing trade policies, tariffs or import/export regulations imposed by the U.S., Canada or other foreign governments may adversely affect our ability to source and sell our products profitably, or at all.”
We rely on a limited number of outside suppliers for certain key components and materials, and failure or delay in obtaining the necessary components or materials could delay or prevent the manufacturing or distribution of our DIRTT Solutions.
We rely on certain key suppliers for raw materials and components, including aluminum, glass, wood, paint, and hardware. We maintain multiple suppliers for key materials, although for the year ended December 31, 2025, (i) one supplier accounted for approximately 78% of our aluminum supply and two additional suppliers provided approximately 9% each, (ii) two suppliers accounted for approximately 64% and 26% of our wood supply, (iii) one supplier accounted for 100% of our paint, and (iv) one supplier accounted for approximately 45% of our hardware supply and one additional supplier provided 20%.
While we believe there are other vendors for most of our key requirements, certain materials and components meeting our quality standards are available only through a limited number of vendors. If we are required to obtain another source for these materials or components, we may not be able to obtain pricing on as favorable terms or on terms comparable to our competitors. Any failure or delay in obtaining the necessary raw materials or components in the quantities and quality required may result in increased costs and delays in manufacturing or distributing our products, which could have a material adverse effect on our liquidity, financial condition, or results of operations. A vendor may also choose, subject to existing contracts, to modify its relationship with us due to general economic concerns or specific concerns relating to that vendor or us, at any time. These modifications might include additional requirements from our suppliers that we provide them additional security in the form of prepayments or with letters of credit. Any significant change in the terms that we have with our key suppliers could materially and adversely affect our liquidity, financial condition, or results of operations.
We may be unsuccessful in designing, introducing, or selling new solutions, solution features, or software, which also may cause us to become less competitive.
As our competitors and others develop new technologies in the future, we may be placed at a competitive disadvantage if we fail to keep pace with technological advancements within our industry. Our future success depends in part on our continuing ability to promote and demonstrate the value of DIRTT Solutions, as well as our ability to develop and sell new solutions, solution features, or software that differentiate our solutions and achieve market acceptance in a timely and cost-effective manner. We incur significant costs associated with our research and development that may not result in increased revenue or demand for DIRTT Solutions and that could negatively affect our results of operations. Rapidly changing technology, evolving regulatory and industry standards, and changing consumer trends, demands, and requirements require us to continuously innovate and develop new, high-quality solutions, solutions features and software. Additionally, such rapid technological changes, standards and preferences could render the complex and proprietary technology of our software and solutions obsolete. We may not be able to implement new technologies on a timely basis or at an acceptable cost. New solutions, solution features, or software may also be less successful than we anticipated, and such offerings may fail to achieve market acceptance. If we fail to respond quickly and cost-effectively to a changing market and changing consumer preferences, our competitive position, financial condition, and results of operations could be adversely affected. Outside of the ongoing evaluation of new construction market sectors, we are considering various partnerships that aide into the advancement and development of the construction industry. This includes diversifying our current prefabricated offerings, aligning with sourcing companies, and establishing initiatives with other companies embracing the mindset of change. While these actions strengthen our stakes in the prefabrication market, we may be unsuccessful in generating revenue through these initiatives.
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Our software and products may have design defects, deficiencies, or other unknown risks, and we may incur additional costs to fix any such defects, deficiencies, or other risks, or be subject to warranty or product liability claims.
Our software and solutions are complex and must meet both the technical requirements of our clients and applicable building codes and regulations. Our solutions may contain undetected errors or design and manufacturing defects, and our software may experience quality or reliability problems, or contain bugs or other defects. Software defects may also cause errors in our manufacturing or miscalculations in ordering and pricing, which could lead us to incur losses and perhaps lose market share to competitors. Product or software defects could cause us to incur warranty costs, product liability costs, and repair and remediation costs. Although we maintain warranty reserves based on production, historical claims, and estimates, future warranty claims may exceed our reserves. Similarly, while we maintain insurance of the types and amounts we consider commercially prudent in view of industry practice, such insurance coverage may not be sufficient to protect us against substantial claims. Such claims could be expensive to defend, could divert resources, including the attention of management and other personnel for significant periods, and regardless of the ultimate outcome could result in negative publicity. Increased costs to address product warranty claims or to defend against product liability claims, may result in increased expenses and adversely affect our financial condition or results of operations.
Risks Relating to Market Conditions
New and existing trade policies, tariffs or import/export regulations imposed by the U.S., Canada or other foreign governments may adversely affect our ability to source and sell our products profitability, or at all. The Canada-United States-Mexico Agreement is due for review in 2026.
On February 1, 2025, the U.S. government announced a 25% tariff on product imports from certain countries, including Mexico and Canada, and 10% tariffs on product imports from certain other countries, including China. These actions have resulted in, and may result in additional retaliatory measures on U.S. goods. Specifically, the Canadian federal government imposed similar tariffs on U.S. goods imported into Canada in response to the U.S.’s imposition of tariffs. The Canadian government has put a six month pause on these tariffs, effective April 15, 2025, which was extended to June 30, 2026. The impact of these tariffs have been limited as the Company’s products fall under The Canada-United States-Mexico Agreement (“CUSMA”). A review of CUSMA is required to be performed by June 30, 2026.
On February 10, 2025, President Trump issued an Executive Order imposing 25% tariffs on steel and aluminum imported into the U.S. effective March 12, 2025 and would be in addition to any other tariffs on such imported goods. This tariff was increased to 50%, effective June 3, 2025. DIRTT imports raw materials from, and has manufacturing facilities in, both Canada and the U.S. Accordingly, while the extent and duration of any tariffs imposed by the U.S. or Canada, and the resulting impact on our business, are difficult to predict at this time, such tariffs may affect our ability to import raw materials and sell our products profitably. The imposition of trade barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost or reduce the supply of materials and products available to us, increase shipping times, affect our customers’ construction needs or budgets, affect the demand for our products or our product mix or require us to modify our supply chain organization, manufacturing facilities, or other current business practices, any of which could harm our business, financial condition, and results of operations.
Global economic, political and social conditions and financial markets, such as geopolitical conflict or the imposition of tariffs by the U.S., may impact our ability to do business and adversely affect our liquidity, financial condition, and results of operations.
Our industry is cyclical and highly sensitive to macroeconomic conditions including inflation, deflation, interest rates, recession, availability of capital, and the effects of governmental initiatives to manage economic conditions. Overall declines or reductions in construction and renovation due to economic downturns, unemployment and office vacancies, changing return-to-office trends, difficulties in the financial services sector and credit markets, and imposition of tariffs, embargoes or other trade barriers can impact the demand for our products. Financial difficulties experienced by our suppliers, Construction Partners or clients could also result in, among other things, inadequate project financing, project delays, inability to pay accounts receivable or disruptions in our supply chain. The current conflicts in Ukraine and the Middle East, and other conflicts involving Canada and the United States, resulting sanctions and related countermeasures other countries, could lead to market disruptions, including significant volatility in the credit and capital markets and the economy in general, which could weaken our operations and financial performance. Any development or escalation of these conflicts, or any new conflicts, including those resulting from the policies of the U.S. Presidential Administration, could significantly affect worldwide political stability and cause turmoil in the capital markets and generally in the global financial system. Additionally, geopolitical and macroeconomic consequences of these events cannot be predicted but could severely impact the world economy. Political uncertainty surrounding trade or other international disputes could also have a negative impact on customer confidence, inflation, interest rates and the economy in general. Any general economic, political, or social conditions that may contribute to financial difficulties experienced by us, our suppliers, Construction Partners, or clients may adversely affect our liquidity, financial condition and results of operations.
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We are exposed to currency exchange rates, interest rates, tax rates, and other fluctuations, including those resulting from changes in laws.
Our revenues and expenses are collected and paid in different currencies, including the U.S. dollar and Canadian dollar. Fluctuations in the relative values of any such currency expose us to foreign exchange risk and could have a material and adverse effect on our cash flows, revenues and results of operations. We also have currency exchange exposure to the extent of a mismatch between foreign-currency denominated revenues and expenditures – in particular, where U.S. dollar revenues do not equal U.S. dollar expenditures. We are not currently using exchange rate derivatives to manage currency exchange rate risks. There are currently no significant restrictions on the repatriation of capital and distribution of earnings to foreign entities from any of the jurisdictions in which we operate. There can be no assurance that such restrictions will not be imposed in the future.
Most of DIRTT’s debt is on fixed interest rates. The Fifth Extended RBC Facility (as defined below) is subject to market interest rates. We are not currently using interest rate derivatives to manage interest rate risks. If interest rates rise, this could have a material and adverse effect on our cash flows, revenues and results of operations and may adversely affect our ability to access financing. We are currently undrawn on our Fifth Extended RBC Facility.
Compliance with new or amended tax laws and regulations could have a material adverse effect on our business. We base our tax positions upon our understanding of the tax laws (including, applicable tax treaties) of the countries in which we have assets or conduct business activities. However, our tax positions are subject to review and possible challenges by taxing authorities, including as to the computation and allocation of income, transfer pricing and other complex issues. This includes adverse changes to the manner in which Canada, the United States and other countries tax local and foreign corporations and interpret or change their tax laws and applicable tax treaties, including in light of the increased focus by the U.S. Congress, the Canadian government, the Organization for Economic Co-operation and Development and other government agencies in jurisdictions where we do business on issues related to the taxation of multinational corporations. We cannot determine in advance the extent to which such jurisdictions may amend their tax laws, review our tax positions, or assess additional taxes or interest and penalties on such taxes. In addition, our effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities, our cash management strategies, local tax rates, or interpretations of tax laws.
Risks Relating to Intellectual Property and Information Security
We may be unable to maintain, protect or enforce our intellectual property rights, and we may be accused of infringing intellectual property rights of others.
We rely on a combination of contract, copyright, patent, trademark and trade secret laws, confidentiality procedures and other measures to protect our intellectual property. There is no guarantee that our various contractual rights, patents, copyrights, trademarks and trade secrets will offer sufficient protection of our products and services or prevent misappropriation of our proprietary rights in our products, software or processes. We also may not be granted patents, copyrights registrations or trademark registrations on our pending or proposed applications, and granted applications may be challenged, invalidated or circumvented in the future. Despite our best efforts to maintain and enforce our intellectual property, monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken may not be sufficient to effectively prevent third parties from infringing, misappropriating, diluting or otherwise violating our intellectual property rights. Despite our precautions, it may be possible for unauthorized third parties to use information that we regard as proprietary to create products or services that compete with ours. We enforce our intellectual property rights where appropriate, but the cost of doing so may be substantial and could outweigh the potential benefits, and we may be unsuccessful in our enforcement efforts. Failure to protect or maintain the proprietary nature of our intellectual property could adversely affect our ability to sell original products and adversely affect our business, financial condition and results of operations.
Additionally, our competitors or other third parties may own, or claim to own, intellectual property in technology areas relating to our technology, including ICE Software, manufacturing processes, and DIRTT Solutions. Although we do not believe that our software or DIRTT Solutions infringe or misappropriate the proprietary rights of any third parties, litigation related to such claims, whether or not meritorious, may subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from assembling certain of our products or licensing certain of our intellectual property, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or the marketplaces in which we compete, or require us to satisfy indemnification commitments with our clients, including contractual provisions under various license arrangements. A damages award against us could include an award of royalties or lost profits and, if a court finds willful infringement, treble damages and attorneys’ fees. This may cause us to expend significant costs and resources, and could adversely affect our business, financial condition or results of operations.
If we are unable to protect our information technology systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted and our reputation and profitability could be negatively affected.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions around the world have increased. In the ordinary course of our business, we generate, collect and store confidential and
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proprietary information, including intellectual property, business information, and other proprietary information. The secure storage, maintenance, and transmission of, and access to, this information is important to our operations and reputation. We use automated software and hardware solutions to protect our on-premise and cloud infrastructure; conduct routine third-party evaluations and vulnerability testing to identify and mitigate risks; and deploy employee training programs throughout the company. Although we have experienced cyber-based attacks, to our knowledge, we have not experienced any material disruptions or breaches of our information technology systems or platforms. However, despite every measure we take to address cybersecurity matters, there is no guarantee that our security systems, or processes or procedures designed to protect our information technology systems are adequate to safeguard against all cybersecurity risks or human error. Even the most well-protected information, networks, systems, and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target. In some cases, these breaches are designed to be undetected and, in fact, may not be detected. Any security breach involving the misuse, loss or other unauthorized disclosure of confidential information of a client, Construction Partner, employee, supplier or Company information could result in financial losses, exposure to litigation and liability (including regulatory liability), damage to our reputation, and disruption to our operations, all of which could have a material adverse effect on our business, financial condition or results of operations.
While we maintain commercially prudent cybersecurity insurance consistent with industry practice, such insurance may not be sufficient to cover all losses relating to data loss or an information security breach. The costs of mitigating cybersecurity risks are significant and are likely to increase in the future. These costs include, but are not limited to, retaining services of cybersecurity experts, maintaining insurance, compliance costs arising out of existing and future cybersecurity, data protection, privacy laws, regulations, and related reporting obligations, and costs related to maintaining data backups and other damage-mitigation services.
The regulatory environment related to information security, data collection and use, and privacy is complex and continuously evolving and compliance with laws, rules, regulations or other requirements could result in additional costs. The costs associated with information security, such as increased investment in technology, the costs of compliance with privacy laws, and costs incurred to prevent or remediate information security breaches, could be substantial and adversely affect our business. A significant compromise of sensitive employee, Construction Partner, client or supplier data in our possession could result in legal damages and regulatory penalties. In addition, the costs of defending actions, responding to complaints, or remediating breaches could be material.
Damage to our information technology and software systems could impair our ability to effectively provide DIRTT Solutions and adversely affect our reputation, relationships with clients, financial condition or results of operations.
Our information technology and software networks and systems, which include the processing, transmission and storage of information, are integrated with our manufacturing processes are essential to our business operations. These systems are vulnerable to, among other things, damage or interruption from power outages, network failures or natural disasters, loss or corruption of data, human error, employee misconduct and difficulties associated with upgrades, installations of major software or hardware, and integration with new systems. While we maintain retention backups to geo-diverse digital and physical locations and have a recovery data center, the data center and other protective measures we take could prove to be inadequate. Any disruption in our systems or unauthorized disclosure of information could result in delayed manufacturing and delivery of our DIRTT Solutions, legal claims, a loss of intellectual property and a disruption in operations, all of which could adversely affect our reputation, relationships with clients, financial condition or results of operations.
Our core intellectual property in the ICE Software Code is jointly owned with a third party, who may fail to comply with its contractual obligations to protect and enforce our intellectual property rights.
AWI owns a 50% interest in the rights, title and interests in certain intellectual property rights in the Applicable ICE Software Code, including a 50% interest in the patent rights that relate to the Applicable ICE Software Code. As part of AWI’s purchase of the Applicable ICE Software Code, AWI must comply with contractual obligations designed to protect the Applicable ICE Software Code from infringement, misappropriation, misuse or exposure to unauthorized third parties. However, despite our efforts to monitor AWI’s actions, we may not become aware of AWI’s failure to comply with its obligations or we may not have adequate time to address such failure before there are adverse impacts to our business. Additionally, even if we attempt to require AWI to comply with its obligations to enforce our intellectual property rights, AWI may refuse or may not take adequate steps to do so. AWI’s failure to protect or maintain the proprietary nature of the Applicable ICE Software Code could adversely affect our ability to sell original products or adversely affect our business, financial condition or results of operations.
AWI may fail to meet certain security and non-disclosure obligations designed to prevent our competitors or other unauthorized third parties from accessing the Applicable ICE Software Code. Despite our efforts to enforce our rights and monitor any inadequacies, we may not have access to AWI’s internal security or business practices. Additionally, we may not be successful in preventing AWI from exposing the source code of the Applicable ICE Software Code to third parties or in protecting our intellectual property rights in the Applicable ICE Software Code. Any unauthorized access to the Applicable ICE Software Code in AWI’s possession could substantially and adversely affect our business or competitive advantage and management may have to expend significant time and
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resources to address unauthorized access and disclosure, all of which could have a material adverse effect on our business, financial condition or results of operations.
Risks Relating to Government Regulations and Enforcement
We may incur significant costs complying with environmental, health and safety laws and related claims, and failure to comply with these laws and regulations could expose us to significant liabilities, which could materially adversely affect our business and results of operations.
We are, and may become, subject to laws, regulations, and other requirements with respect to workers’ health and safety and environmental matters in the United States, Canada and other countries in which we may operate. Environmental laws and regulations impose, among other things, restrictions, liabilities and obligations in connection with the production, processing, preparation, handling, storage, transportation, disposal and management of wastes and other substances, and the prevention and remediation of environmental effects. Health and safety laws and regulations impose, among other things, requirements designed to ensure the protection of workers. New or more stringent laws and regulations, including those relating to climate change and greenhouse gas emissions, may be adopted in the future and could impact our facilities, raw material suppliers, the transportation and distribution of our solutions, and our clients, which could reduce demand for our solutions or cause us to incur additional operating costs. In addition, certain foreign laws and regulations may affect our ability to export products outside of, or import products into, the United States or Canada. Failure to comply with these requirements may result in civil or criminal liability, damages and fines, and our operations could be curtailed, suspended or shutdown and our reputation, ability to attract employees, and results of operations could be adversely affected. Private lawsuits, including claims for remediation of contamination, personal injury or property damage, or actions by regional, national, state and local regulatory agencies, including enforcement or cost-recovery actions, may materially increase our costs.
These factors may materially increase the amount we must invest to bring our processes into compliance with legal requirements and impose additional expenses on our operations. In addition, any changes in these laws or regulations or changes in our manufacturing processes may require us to request changes to our existing permits or obtain new permits. We may also be unable to obtain or maintain, from time to time, all required environmental regulatory approvals. A delay in obtaining any required environmental regulatory approvals or the failure to obtain and comply with such approvals could materially adversely affect our business and results of operations.
Risks Relating to Financial Results
We have had negative cash flow from operating activities.
We had negative cash flow from operating activities for prior years, including the year ended December 31, 2025. We had $7.3 million and $14.8 million in cash provided from operating activities for the years ended December 31, 2024 and 2023, respectively but incurred a negative cash flow from operating activities for the year ended December 31, 2025 of $0.2 million. Continued negative operating cash flow may compromise our ability to make interest and principal payments on the issued and outstanding 6.25% convertible unsecured subordinated debentures due December 31, 2026 (the “December Debentures”, and the BDC (defined herein) debt) on a timely basis, or at all, and to execute our transformation plan. Until we are able to generate positive cash flow from operating activities over a sustained period, our ability to finance our operations will be dependent on our cash reserves and available credit facilities and, if required, our ability to obtain additional external financing. Although we anticipate we will have positive cash flow from operating activities over at least the next twelve months, we cannot guarantee that such future cash flow will be sufficient, or other changes to our circumstances will not necessitate additional financial resources to fund our operating activities.
We have undertaken various actions to improve our cash flow and balance sheet in the short term, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources”. Although we anticipate these actions will strengthen our balance sheet and liquidity position, we cannot guarantee that such future cash flow will be sufficient or other changes to our circumstances will not necessitate additional financial resources to fund our operating activities.
We have experienced a history of losses, and despite certain periods of profitability in recent years, we may not be able to generate sufficient revenue to achieve and sustain profitability.
We have incurred significant losses since commencing business. We incurred net losses after tax of $14.4 million and $14.6 million for the years ended December 31, 2025 and 2023, respectively, and had net income of $14.8 million in the year ended December 31, 2024. The earlier losses and accumulated deficits were due in part to the substantial investments made to grow our business and acquire clients, to further develop our service offerings through product and software development, to ensure that we have sufficient production capacity and capability to deliver on our commitment of rapid delivery times and to preserve our production, innovation and commercial capabilities through the economic disruption caused by the global COVID-19 pandemic in anticipation of an increase in construction activity as the pandemic impacts abated. 2025 was impacted by the tariffs on the economy. Past results may not be indicative of our future performance, and there can be no assurance that we will continue to generate net income in the future.
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We have experienced, and may experience in the future, quarterly and yearly fluctuations in results of operations and financial condition.
Our results of operations and financial condition may continue to fluctuate from one quarter or year to another due to a number of factors, some of which are outside of our control. For example, we usually experience seasonal slowdowns in the first quarter of each calendar year, leading to stronger sales in the second half of the year versus the first half, and weather conditions may also delay delivery and installation on some projects. Furthermore, sales that we anticipate in one quarter may be pushed into another quarter, affecting both quarters’ results, and our actual or projected results of operations may fail to match our past performance. These events could in turn cause the market price of our common shares to fluctuate. In particular, if our results of operations do not meet the expectations of securities analysts or investors, who may derive their expectations by extrapolating data from recent historical results of operations, the market price of our common shares will likely decline. Due to our high fixed manufacturing costs and operating expenses, quarterly volatility in sales volumes could result in periods of low operating cash flow and negatively affect our liquidity. Due to these risk factors, quarter-to-quarter or year-to-year comparisons of our results of operations may not be an indicator of future performance.
We have recognized, and may recognize in the future, impairment charges for our goodwill and certain other non-current assets.
Significant negative industry or economic trends, disruptions to our business, planned or unexpected significant changes in the use of the assets, and sustained market capitalization declines may result in the impairment of non-current assets. In 2022, we had an indicator of impairment for our non-current assets. In 2023, we announced our intention to close our facility at Rock Hill, South Carolina (the “Rock Hill Facility”), which resulted in an impairment charge on the reclassification of assets held for use to assets held for sale. As at December 31, 2025, we impaired leasehold improvements related to the Rock Hill Facility upon termination of the lease and impairment on a portion of our Phoenix Facility (as defined herein) right-of-use assets. Apart from this impairment, we did not have any impairment indicators for our remaining non-current assets. Any further charges relating to impairments could have a material adverse impact on our consolidated statement of operations in the period in which the impairment is recognized.
Risks Related to Our Common Shares and Corporate Structure
Our share price has been and may continue to be volatile, which could cause the value of your investment to decline.
Our common shares are listed on the TSX under the symbol “DRT” and are quoted on the OTCQX® under the symbol “DRTTF.” The price of our common shares has in the past fluctuated significantly, and may fluctuate significantly in the future, depending upon a number of factors, many of which are beyond our control and may adversely affect the market price of our common shares. These factors include: (i) variations in quarterly results of operations; (ii) deviations in our earnings from publicly disclosed forward-looking guidance; (iii) changes in earnings estimates by analysts; (iv) our announcements or our competitors’ announcements of significant contracts, acquisitions, strategic partnerships or joint ventures; (v) general conditions in the offsite construction and manufacturing industries; (vi) sales of our common shares by our significant shareholders; (vii) fluctuations in stock market price and volume; and (viii) other general economic conditions. Additionally, the Shares NCIB and the Share Repurchase from NGEN (each as defined herein) and any other common share repurchase we may complete in the future, may further decrease the number of outstanding common shares, which could decrease liquidity in the market of the common shares and increase the volatility of its trading price.
In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has been brought against that company. If our share price is volatile, we may become the target of securities litigation in both the United States and Canada. Securities litigation could result in substantial costs and divert management’s attention and resources from our business and could have an adverse effect on our business, financial condition and results of operations.
Our common shares are quoted on the OTCQX®, and there may be a limited trading market in the Company’s common shares in the United States. As a result of the limited trading market, investors may experience limited liquidity, and may experience limited ability to sell shares in the open market.
Our common shares are quoted on the OTCQX® under the symbol “DRTTF.” There may be a limited trading market in the Company’s common shares in the United States. As a result of the limited trading market of our common shares, investors in our common shares may experience limited demand for their common shares, which may limit their ability to sell their shares in the open market.
We are governed by the corporate laws of Alberta, Canada, which in some cases have a different effect on shareholders than the corporate laws of the United States.
We are governed by the ABCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying, deterring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the ABCA and Delaware General Corporation Law (“DGCL”), that may have the greatest such effect include, but are not limited to, the following: (i)
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for certain extraordinary corporate transactions (such as amalgamations or amendments to our articles), the ABCA generally requires the voting threshold to be a special resolution passed by not less than two-thirds of the votes cast by the shareholders who voted in respect of the resolution, whereas DGCL generally only requires a majority vote; and (ii) under the ABCA, registered holders or beneficial owners (as defined in the ABCA) of not less than 5% of our common shares in aggregate can requisition our directors to call a special meeting of shareholders, whereas such right does not exist under the DGCL. We cannot predict whether investors will find our company and our common shares less attractive because we are governed by the corporate laws of Alberta, Canada.
Our three largest shareholders, 22NW, WWT, and the 726 Entities, are able to exercise voting influence over matters which may require shareholder approval due to their ownership of our common shares, and their interests may conflict with or differ from the interests of our other shareholders. In addition, the Amended and Restated SRP limits the concentration of ownership of our common shares by shareholders other than 22NW, which may make it more difficult for a shareholder to acquire the Company.
As of February 13, 2026, 22NW Fund, L.P. (“22NW”) and Aron English (collectively, the “22NW Group”), WWT Opportunity #1 LLC (“WWT”) and Shaun Noll (collectively, the “WWT Group”) and 726 BF LLC and 726 BC LLC (collectively, the “726 Entities”) owned 30%, 13% and 15% of our outstanding common shares, respectively, together beneficially owning approximately 58% of our outstanding common shares. So long as such shareholders and their respective affiliates continue to directly or indirectly own a significant amount of our common shares, they will, in certain circumstances, have voting influence over matters requiring shareholder approval, including amendments to our amended and restated articles of amalgamation, and approval of significant corporate transactions (barring any requirement for such shareholder to recuse itself from any such vote pursuant to applicable securities law, corporate law or the rules and regulations of any applicable stock exchanges). This could have the effect of delaying or preventing a change of control of the Company, and would make the approval of certain transactions difficult or impossible without the support of these shareholders.
In addition, the Amended and Restated Shareholder Rights Plan, effective August 2, 2024 (the “Amended and Restated SRP”), which was ratified by shareholders at a special meeting held on September 20, 2024, was adopted by the Board in order to help ensure that all shareholders of the Company are treated fairly and equally in connection with any unsolicited take-over bid or other acquisition of control of the Company. The Amended and Restated SRP may discourage, delay, or prevent a change of control or acquisition of the Company, even if such action may be considered beneficial by some shareholders, and could limit the price that investors would be willing to pay in the future for the Company’s common shares.
Because we are a corporation incorporated in Alberta and some of our directors and officers are residents of Canada, it may be difficult for investors in the United States to enforce civil liabilities against us or our directors and officers based solely upon the federal securities laws of the United States. Similarly, it may be difficult for Canadian investors to enforce civil liabilities against our directors and officers residing outside of Canada.
We are a corporation amalgamated and existing under the laws of Alberta with our principal place of business in Calgary, Alberta, Canada. Some of our officers are residents of Canada and a substantial portion of our assets and those of such persons are located outside the United States. Consequently, it may be difficult for U.S. investors to effect service of process within the United States upon us or our officers who are not residents of the United States, or to realize in the United States upon judgments of courts of the United States predicated upon civil liabilities under the Securities Act of 1933. Investors should not assume that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or blue sky laws of any state within the United States or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws.
Similarly, some of our directors and officers are residents of countries other than Canada and all or a substantial portion of the assets of such persons are located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within Canada against these non-Canadian residents. In addition, it may not be possible for Canadian investors to collect from these non-Canadian residents judgments obtained in courts in Canada predicated on the civil liability provisions of securities legislation of certain of the provinces and territories of Canada. It may also be difficult for Canadian investors to succeed in a lawsuit in the United States, based solely on violations of federal, provincial or territorial securities laws.
The repurchase and cancellation of our Debentures could adversely affect the price or liquidity of the Debentures.
On August 26, 2024, the Company announced a normal course issuer bid for its outstanding 6.00% convertible unsecured subordinated debentures due January 31, 2026 (“the January Debentures”) and the December Debentures (the “Debentures NCIB”) which expired on August 27, 2025. On August 26, 2025, the Company announced the renewal of the Debentures NCIB which commenced on August 28, 2025 upon expiry of the Debentures NCIB (the “Renewed Debentures NCIB”). Under the Debentures NCIB and the Renewed Debentures NCIB. C$0.4 million and C$0.07 million principal amounts of the December Debentures and January Debentures, respectively, were acquired and cancelled. The January Debentures were repaid on maturity on January 31, 2026.
The Debentures NCIB and the Renewed Debentures NCIB have decreased, and may further decrease, the number of outstanding December Debentures, which could decrease liquidity in the market of the Debentures and increase the volatility of the prices at which
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they trade. Repurchases of the December Debentures may also cause the prices of the December Debentures to differ from what they would be in the absence of such repurchase. There can be no assurance any such repurchases will ultimately enhance shareholder value.
As at February 17, 2025, an aggregate principal amount of C$14.8 million ($10.8 million) of the December Debentures remain outstanding.
General Risks
Difficulties in recruiting and retaining qualified officers or employees, or experiencing labor shortages or disruptions, could have a material adverse effect on our business and results of operations.
Our success will depend in part on our ability to attract, develop, and retain qualified personnel as needed. We have undergone significant changes at a senior management level during recent years. Any changes to members of our senior management may be disruptive to our operations, including by diverting our Board of Directors’ and management’s time and attention and a decline in employee morale. If there are any delays in transitions, our business could be negatively impacted. We may be affected by labor shortages or disruptions, particularly in locations where we operate manufacturing facilities. If we fail to attract or retain qualified personnel, or experience labor shortages or disruptions, we could incur higher recruiting expenses, a loss of manufacturing capabilities, or inability to respond to significant increases in demand, all of which could have a material adverse effect on our business and results of operations.
We may have additional capital needs in the future and may not be able to obtain additional capital or financing on acceptable terms.
We plan to continually invest in business growth and may require additional funds to respond to business opportunities, such as expanding our sales and marketing activities, developing new software, acquiring complementary businesses, products or technology, and expanding or enhancing our manufacturing capabilities, including factory automation. To the extent that our existing capital is insufficient to meet our requirements, we may need to undertake equity or debt financings to secure additional funds. Further issuances of equity or convertible debt securities may result in significant share dilution. Additional new equity securities issued could have rights, preferences and privileges superior to those of our currently issued and outstanding common shares. Additional debt financings may involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We cannot provide any assurance that sufficient debt or equity financing will be available for necessary or desirable expenditures or acquisitions, or to cover losses, and accordingly, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our liquidity could be materially and adversely affected.
We may engage in future mergers, acquisitions, agreements, consolidations, or other corporate transactions that could adversely affect our business, financial condition, and results of operations.
While we currently have no specific plans to acquire any businesses, we may, in the future, seek to expand our business and capabilities through acquiring compatible technology, products or businesses. Additionally, we may explore other corporate transactions, including mergers, agreements, consolidations, or joint ventures, that we believe may be beneficial to our business or further specific business goals. Acquisitions involve certain risks and uncertainties, including, among other things, (i) difficulty integrating the newly acquired businesses and operations in an efficient and cost-effective manner; (ii) inability to maintain relationships with key clients, vendors and other business partners of the acquired businesses; (iii) potential loss of key employees of the acquired businesses; (iv) exposure to litigation or other claims in connection with our assumption of certain claims and liabilities of the acquired businesses; (v) diversion of management’s time and focus; and (vi) possible write-offs or impairment charges related to the acquired businesses. The occurrence of any of these risks could adversely affect our business, financial condition, and results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
The security of our information technology systems and Company data is important to our operations and reputation. Accordingly, we are committed to identifying and managing cybersecurity risks. Our cybersecurity team performs periodic risk assessments and, on at least a quarterly basis, provides our Enterprise Risk Management Committee (“ERM”) information related to the Company’s cybersecurity, including statistics on attempted cyber-attacks, status of employee information security training awareness, and information on any security investigations. The cybersecurity team advises the ERM of significant global cyber events that occurred during the quarter and whether they impacted DIRTT. The cybersecurity team regularly discusses with the ERM the Company’s cybersecurity posture and whether the Company should implement additional protections and controls to assist the Company in protecting, responding to, or mitigating potential future cyber-attacks.
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DIRTT has developed and
Identify
Identification processes at DIRTT include: system asset identification, threat identification, vulnerability identification and maintaining cybersecurity policies and standards.
Protect
Protection processes at DIRTT include: cyber awareness training, cyber awareness assessment (each employee is assigned a cybersecurity awareness grade calculated by a best in class cybersecurity vendor), implementation of identity and access controls, perimeter and endpoint security, annual vulnerability assessments and remediation, data encryption in transit, key vendor (third parties) control effectiveness assessment, and pre-implementation of software and systems cybersecurity assessments.
Detect
Detection processes at DIRTT include: automated event collection, collation, analysis, alerting and end user incident reporting.
Respond
Respond processes at DIRTT include: containment, communication, investigation and analysis, and long-term mitigation planning.
Recover
Recovery processes at DIRTT include: impact identification and analysis, system restoration, internal and external communications as deemed necessary.
The ERM of the Board of Directors oversees risks resulting from cybersecurity threats.
As of the date of this Annual Report,
Item 2. Properties.
Our principal executive offices are located in Calgary, Alberta, where we lease approximately 73,000 square feet of office and manufacturing space. Our lease expires in September 2030. Our principal manufacturing facilities are currently located in Calgary, Alberta; and Savannah, Georgia.
Our wall surfaces (which we call panels), casework and timber solutions are manufactured in Calgary, while aluminum, glass and power components are manufactured in Calgary and Savannah. In Calgary, we lease an aggregate of approximately 400,000 square feet of manufacturing space across four facilities (excluding our principal offices), which leases expire in January 2029, January 2030, September 2027, and January 2034. In Savannah, we lease approximately 81,000 square feet of manufacturing space, which lease expires in February 2029.
On February 22, 2022, we announced our intention to close the Phoenix manufacturing facility and DXC. In Phoenix, we lease approximately 130,000 square feet of manufacturing space across two facilities, which leases expire in March 2027 (the “Phoenix Facility”). As at December 31, 2025, we subleased 71,855 square feet and are pursuing options to sublease the remaining premises.
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In October 2019, we entered into a fifteen-year lease for a panel factory of approximately 130,000 square feet in Rock Hill, South Carolina. We decided to permanently close this facility in September 2025. On December 30, 2025, we entered an early termination agreement and ended the lease arrangement at the Rock Hill Facility.
In March 2020, we entered into an eight-year lease, which DIRTT may extend an additional five years at its option, of approximately 18,000 square feet of space for a DXC in Plano, Texas. During March 2023, we entered into an agreement to sublease our DXC in Plano to one of our Construction Partners in that region, from April 1, 2023, through October 31, 2028. In May 2025, we entered into a five-year lease of approximately 10,000 square feet in Houston, Texas, which we plan to use as a DXC.
In Chicago, Illinois, we own approximately 6,200 square feet of office space, which we use to operate a DXC.
Through distributed manufacturing, we can shift production of some components among our manufacturing sites, reduce transportation times and costs, and meet targeted lead times. We believe that our current and planned facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.
Item 3. Legal Proceedings.
There have been no material developments in the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024 except as described below regarding DIRTT’s litigation against Falkbuilt Ltd. (“Falkbuilt”), Messrs. Smed and Loberg, and their associates.
With respect to the DIRTT’s lawsuit against Falkbuilt in Utah, on February 5, 2025, the U.S. District Court for the Northern District of Utah (the “Utah Court”) granted Falkbuilt’s motion to dismiss the case, on the basis of forum non conveniens. In simple terms, the Utah Court decided that it would not hear DIRTT’s claim in Utah because Canada was more appropriate, and Canadian law applies to most of DIRTT’s claims. Further the Utah Court found that DIRTT’s Canadian company, DIRTT Environmental Solutions Ltd., owns the trade secrets that were the subject matter of the Utah claim, so whether the theft of those trade secrets occurred in Canada or abroad, they would result in injury to DIRTT Environmental Solutions Ltd. and should be pursued in Canada. The Utah Court, in essence, redirected the determination of those damages from Utah to Canada, being the appropriate forum for the legal dispute. On March 4, 2025, DIRTT filed a motion for reconsideration pursuant to Federal Rules of Civil Procedure, Rule 60(b). The reconsideration requests relief from the Utah Court’s February 5, 2025, Memorandum Decision and Order granting the Defendant’s motion to dismiss for forum non conveniens. The briefing is complete as of April 15, 2025, and the parties are awaiting a decision.
In November 2024, the Alberta Court of King’s Bench scheduled an 8-week trial commencing February 2, 2026, and running until March 27, 2026 for DIRTT’s action against Falkbuilt, Messrs. Smed and Loberg and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, employment duties and confidentiality. DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s Bench of Alberta. The Court of King’s Bench will determine whether Falkbuilt, Messrs. Smed and Loberg and others wrongfully caused DIRTT to suffer damages, which could exceed $50,000,000.
In 2019, Falkbuilt filed a lawsuit against DIRTT in the Court of Queen’s bench in Alberta (as it was then), alleging that DIRTT had misappropriated and misused their alleged proprietary information in furtherance of DIRTT’s product development. In June 2025, Falkbuilt requested discontinuance on a without costs basis on account of the delay. DIRTT has accepted this offer and the discontinuance of claim was filed in the Court of King's Bench of Alberta on July 17, 2025.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information; Holders of Record
Our common shares are traded on the TSX under the symbol “DRT” and are quoted on the OTC under the symbol “DRTTF”. Quotations of our common shares on the OTCQX reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
As of February 17, 2026, there were 191,836,460 common shares outstanding and 149 shareholders of record.
ISSUER PURCHASES OF SECURITIES
Period |
|
Total number of shares purchased |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced programs(1)(2)(3) |
|
|
Maximum number of shares that may yet be purchased under the program(1)(2)(3) |
|
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January 1, 2025 - January 31, 2025 |
|
|
109,556 |
|
|
$ |
0.77 |
|
|
|
109,556 |
|
|
|
7,347,199 |
|
February 1, 2025 - February 28, 2025(3) |
|
|
4,074,200 |
|
|
$ |
0.80 |
|
|
|
153,356 |
|
|
|
3,272,999 |
|
March 1, 2025 - March 31, 2025 |
|
|
255,351 |
|
|
$ |
0.69 |
|
|
|
255,351 |
|
|
|
3,017,648 |
|
April 1, 2025 - April 30, 2025 |
|
|
266,546 |
|
|
$ |
0.73 |
|
|
|
266,546 |
|
|
|
2,751,102 |
|
May 1, 2025 - May 31, 2025 |
|
|
197,129 |
|
|
$ |
0.66 |
|
|
|
197,129 |
|
|
|
2,553,973 |
|
June 1, 2025 - June 30, 2025 |
|
|
266,473 |
|
|
$ |
0.61 |
|
|
|
266,473 |
|
|
|
2,287,500 |
|
July 1, 2025 - July 31, 2025 |
|
|
255,173 |
|
|
$ |
0.65 |
|
|
|
255,173 |
|
|
|
2,032,327 |
|
August 1, 2025 - August 31, 2025 |
|
|
1,500 |
|
|
$ |
0.59 |
|
|
|
1,500 |
|
|
|
2,030,827 |
|
September 1, 2025 - September 30, 2025 |
|
|
84,956 |
|
|
$ |
0.52 |
|
|
|
84,956 |
|
|
|
1,945,871 |
|
October 1, 2025 - October 31, 2025 |
|
|
13,000 |
|
|
$ |
0.54 |
|
|
|
13,000 |
|
|
|
1,932,871 |
|
November 1, 2025 - November 30, 2025 |
|
|
88,456 |
|
|
$ |
0.70 |
|
|
|
88,456 |
|
|
|
1,844,415 |
|
December 1, 2025 - December 31, 2025(4) |
|
|
168,656 |
|
|
$ |
0.68 |
|
|
|
168,656 |
|
|
|
9,593,878 |
|
Total |
|
|
5,780,996 |
|
|
|
|
|
|
1,860,152 |
|
|
|
9,593,878 |
|
|
(1) The normal course issuer bid for common shares (the “Shares NCIB”) was announced on December 18, 2024,commenced on December 20, 2024, and expired on December 19, 2025. The renewal of the Shares NCIB (the “Renewed Shares NCIB”) was announced on December 18, 2025 and commenced on December 22, 2025;
(2) The maximum number of common shares approved to be purchased under the Shares NCIB was 7,515,233 common shares and the maximum number of common shares approved to be purchased under the Renewed Shares NCIB is 9,593,878;
(3) Includes 3,920,844 common shares that were repurchased from NGEN under the Share Repurchase at a purchase price of $0.80 per share. The Share Repurchase was completed on February 14, 2025. The Share Repurchase was a privately negotiated transaction and was not made pursuant to the Shares NCIB or any other publicly announced share repurchase programs, although it was counted against the Shares NCIB limit.
(4)In the month of December, 168,656 shares were purchased under the Shares NCIB and nil were purchased under the Renewed Shares NCIB, therefore no purchases were counted against the Renewed Shares NCIB limit of 9,593,878.
Dividends
We have not declared or paid any cash dividends on our common shares to date. The declaration and payment of dividends is at the discretion of the Board of Directors, taking into account (i) our earnings, capital requirements and financial condition, (ii) restrictions on our ability to pay dividends under the Fifth Extended RBC Facility, and (iii) such other factors as the Board of Directors considers relevant. The Fifth Extended RBC Facility generally limits our ability to pay any dividends or make any other distribution on our outstanding common shares. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Credit Facility” for more information. If and when our Board of Directors declares cash dividends on our common shares, such dividends may be declared and paid in either U.S. dollars or Canadian dollars.
Recent Sales of Unregistered Securities
None.
26
Item 6. [Reserved]
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2025 and 2024 together with our consolidated financial statements and related notes and other financial information appearing in this Annual Report. The 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 “Special Note Regarding Forward-Looking Statements” appearing elsewhere in the Annual Report.
Summary of Financial Results
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized construction for interior spaces. 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 Software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE Software is also licensed to our Construction Partners and certain third parties, including Armstrong World Industries, Inc. (“AWI”) which owns a 50% interest in the rights, title and interests in certain intellectual property rights in a portion of ICE Software that is used by AWI.
Key Fourth Quarter 2025 Highlights and Other Recent Developments
28
Key Annual 2025 Highlights
29
Pipeline
The table below presents our qualified leads and twelve-month forward pipeline as at January 1, 2026 and January 1, 2025. We define qualified leads as the quantity of projects being pursued as of the date presented, and define our pipeline as the estimated potential revenue from qualified leads where a client has engaged DIRTT and is assessing DIRTT as a potential provider of prefabricated interior solutions. We believe these metrics are helpful to estimate near-term performance, particularly given the macroeconomic factors that affect our operating environment, including labor availability, interest rate changes, and potential recessionary impacts on construction projects. There can be no assurance that our estimated qualified leads is accurate or that such qualified leads will deliver the revenue we expect.
As of January 1, 2026, our twelve-month forward pipeline increased by 20% from January 1, 2025, illustrated in the table below.
|
|
As at |
|
|||||||||
|
|
January 1, 2026 |
|
|
January 1, 2025 |
|
|
% Change |
|
|||
Twelve-Month Forward Pipeline ($ 000s) |
|
|
|
|
|
|
|
|
|
|||
Commercial |
|
|
183,323 |
|
|
|
147,609 |
|
|
|
24 |
|
Healthcare |
|
|
65,962 |
|
|
|
51,214 |
|
|
|
29 |
|
Government |
|
|
52,796 |
|
|
|
55,203 |
|
|
|
(4 |
) |
Education |
|
|
30,763 |
|
|
|
24,292 |
|
|
|
27 |
|
|
|
|
332,844 |
|
|
|
278,318 |
|
|
|
20 |
|
Leads (#) |
|
|
1,457 |
|
|
|
1,012 |
|
|
|
44 |
|
30
Price Increases and Impact of Tariffs
On February 11, 2025, we announced a price increase of 5% on all orders placed after March 18, 2025, and price adjustments on certain products in response to market feedback and to mitigate the impact of rising raw material costs.
Commencing in February 2025, the U.S. government proposed and enacted various tariffs. Refer to “Risk Factors” for further discussion on these tariffs. As of the date of this report, the following tariffs are currently in effect that materially affect DIRTT:
If further tariff changes are announced, we will consider the impact of such changes to our business. The most significant tariff impacting DIRTT at present is the 50% aluminum and steel tariff. We expect to continue mitigating the impact of prevailing tariffs through pricing actions, surcharges and various other internal tariff mitigation strategies. In February 2026, we announced an additional 1% price surcharge to mitigate rising aluminum prices.
Outlook
December 2025 was our highest revenue-grossing month in two years, culminating in $50.9 million of revenue and $6.2 million of Adjusted EBITDA for the fourth quarter of 2025, consistent with our guidance of $48.0 million to $52.0 million of revenue and $5.0 million to $7.0 million of Adjusted EBITDA.
The broader macroeconomic backdrop remains supportive, as the Dodge Momentum Index increased through year-end and, despite a slight decline in January 2026, remained well above its January 2025 level.
Concurrent with these industry and macroeconomic developments, we have continued to transform and optimize our business. In early 2025, the Company established a transformation office to accelerate the execution of strategic initiatives focused on streamlining processes, supporting the Construction Services team, and improving productivity across the organization (the “Transformation Office”). To support these efforts, the Company announced two short-term strategic leadership appointments. Scott Robinson was appointed Executive Chairman of the Board and Adrian Zarate was appointed Chief Transformation Officer, each effective November 26, 2025. These leaders are working closely with the executive team to implement operational and financial elements of the Company’s transformation plan. Refer to Note 5 of the consolidated financial statements for costs related to these initiatives. The program is expected to be completed in 2026.
The Company’s balance sheet remains strong, with $32.1 million of liquidity, consisting of unrestricted cash and available borrowing capacity, and modest indebtedness of $23.4 million.
In addition, the Company is currently involved the Falkbuilt Litigation. The trial commenced on February 2, 2026 and remains ongoing. DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s Bench of Alberta.
31
Non-GAAP Financial Measures
Note Regarding Use of Non-GAAP Financial Measures
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“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 Annual 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), tax consequences, reorganization expense, unusual or infrequent charges or gains (such as gain on sale of software and patents, gain on extinguishment of convertible debt, gain on disposal of lease, and impairment charges), stock-based compensation, related party expense, and government subsidies. We remove the impact of 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. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA. We have not reconciled forward-looking non-GAAP measures, including Adjusted EBITDA guidance, to its corresponding GAAP measures due to the high variability and difficulty in making accurate forecasts and projections, particularly with respect to non-operating income and expenditures, which are difficult to predict and subject to change.
Government subsidies, depreciation and amortization, stock-based compensation expense, reorganization expense, foreign exchange gains and losses, gain on extinguishment of convertible debt, impairment charges, gain on sale of software and patents, net interest income on cash deposits, interest expense on outstanding debt and debt facilities, tax expense, related party expense, gain on disposal of lease, and legal provisions 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 Annual Report, and a description of the calculation for each measure is included.
Adjusted Gross Profit |
|
Gross profit before deductions for 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 charges; reorganization expenses; stock-based compensation expense; government subsidies; unusual or infrequent charges and gains such as gain on sale of software and patents and gain on extinguishment of convertible debt; related party expense; 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.
32
Results of Operations
Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
|
|
For the Year Ended, December 31 |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Revenue |
|
|
168,855 |
|
|
|
174,313 |
|
|
|
(3 |
) |
Gross Profit |
|
|
55,447 |
|
|
|
64,375 |
|
|
|
(14 |
) |
Gross Profit Margin |
|
|
32.8 |
% |
|
|
36.9 |
% |
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
20,619 |
|
|
|
22,938 |
|
|
|
(10 |
) |
General and administrative |
|
|
23,612 |
|
|
|
19,903 |
|
|
|
19 |
|
Operations support |
|
|
7,881 |
|
|
|
7,438 |
|
|
|
6 |
|
Technology and development |
|
|
4,586 |
|
|
|
5,262 |
|
|
|
(13 |
) |
Reorganization |
|
|
4,928 |
|
|
|
1,113 |
|
|
|
343 |
|
Stock-based compensation |
|
|
3,037 |
|
|
|
2,965 |
|
|
|
2 |
|
Impairment charge |
|
|
2,948 |
|
|
|
530 |
|
|
|
456 |
|
Gain on disposal of lease |
|
|
(858 |
) |
|
|
- |
|
|
NA |
|
|
Total operating expenses |
|
|
66,753 |
|
|
|
60,149 |
|
|
|
11 |
|
Operating (loss) income |
|
|
(11,306 |
) |
|
|
4,226 |
|
|
|
(368 |
) |
Operating margin |
|
|
(6.7 |
)% |
|
|
2.4 |
% |
|
|
|
|
Interest expense |
|
|
(1,876 |
) |
|
|
(3,995 |
) |
|
|
(53 |
) |
Foreign exchange (loss) gain |
|
|
(1,724 |
) |
|
|
2,974 |
|
|
|
(158 |
) |
Interest income |
|
|
941 |
|
|
|
1,587 |
|
|
|
(41 |
) |
Gain on extinguishment of convertible debentures |
|
|
24 |
|
|
|
10,426 |
|
|
|
(100 |
) |
|
|
|
(2,635 |
) |
|
|
10,992 |
|
|
|
(124 |
) |
Net (loss) income before tax |
|
|
(13,941 |
) |
|
|
15,218 |
|
|
|
(192 |
) |
Current and deferred income tax expense |
|
|
507 |
|
|
|
448 |
|
|
|
13 |
|
Net (loss) income after tax |
|
|
(14,448 |
) |
|
|
14,770 |
|
|
|
(198 |
) |
Revenue
Revenue reflects sales to our Construction Partners for resale to their clients and, in limited circumstances, our direct sales to clients through Construction Services. 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 product and service offerings.
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Product |
|
|
146,352 |
|
|
|
152,856 |
|
|
|
(4 |
) |
Transportation |
|
|
16,987 |
|
|
|
16,066 |
|
|
|
6 |
|
License fees from Construction Partners |
|
|
719 |
|
|
|
738 |
|
|
|
(3 |
) |
Total product revenue |
|
|
164,058 |
|
|
|
169,660 |
|
|
|
(3 |
) |
Installation and other services |
|
|
4,797 |
|
|
|
4,653 |
|
|
|
3 |
|
|
|
|
168,855 |
|
|
|
174,313 |
|
|
|
(3 |
) |
33
Revenue for the year ended December 31, 2025, was $168.9 million, a decrease of $5.5 million or 3% from the year ended December 31, 2024, primarily due to delays in project start dates. The delays in projects were largely related to market uncertainties as well as specific job site readiness. When project delays occur, the project is typically deferred 1-12 months from the original planned start date. For the year ended December 31, 2025, we recorded $1.9 million in revenue related to the 3.5% surcharge on orders placed on or after June 20, 2025. The 5% price increase on orders placed on or after March 18, 2025 has been reflected in revenue. See “Price Increases and Impact on Tariffs.”
Installation and other services revenue was $4.8 million for the year ended December 31, 2025, compared to $4.7 million in the year ended December 31, 2024. This revenue primarily reflects services performed by our technology teams for third parties. Except in limited circumstances, historically our Construction Partners, rather than the Company, perform installation services. As we work on developing our Construction Services offerings, we expect to see a modest increase in installation and other services revenue.
Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At December 31, 2025, we had 66 (2024 - 71) Construction Partners servicing multiple locations. We also continue to work on developing our Construction Services offerings and partnering with our Construction Partner network to drive revenue for DIRTT.
We periodically analyze our revenue growth by vertical markets in the defined markets of commercial, healthcare, government and education.
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Commercial |
|
|
97,975 |
|
|
|
121,518 |
|
|
|
(19 |
) |
Healthcare |
|
|
40,302 |
|
|
|
21,230 |
|
|
|
90 |
|
Government |
|
|
11,293 |
|
|
|
17,114 |
|
|
|
(34 |
) |
Education |
|
|
13,769 |
|
|
|
9,060 |
|
|
|
52 |
|
License fees from Construction Partners |
|
|
719 |
|
|
|
738 |
|
|
|
(3 |
) |
Total product revenue |
|
|
164,058 |
|
|
|
169,660 |
|
|
|
(3 |
) |
Service revenue |
|
|
4,797 |
|
|
|
4,653 |
|
|
|
3 |
|
|
|
|
168,855 |
|
|
|
174,313 |
|
|
|
(3 |
) |
|
|
For the Year Ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in %) |
|
|||||
Commercial |
|
|
60 |
|
|
|
72 |
|
Healthcare |
|
|
25 |
|
|
|
13 |
|
Government |
|
|
7 |
|
|
|
10 |
|
Education |
|
|
8 |
|
|
|
5 |
|
Total Product Revenue(1) |
|
|
100 |
|
|
|
100 |
|
(1) Excludes license fees from Construction Partners.
Commercial sales decreased by 19% for the year ended December 31, 2025, primarily due to higher than normal order delays due to job sites not being ready. Healthcare revenues increased by 90% in the year ended December 31, 2025, from the prior year, primarily due to a higher volume of projects at a higher value with four large projects being shipped in the fourth quarter of 2025. Sales in the healthcare sector tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels. We continue to invest in growing healthcare through expanding product offerings and targeted business development efforts. Government sales decreased by 34% from the prior year due to lower value projects in 2025 compared to 2024. Education sales in 2025 increased by 52% from the prior year, primarily due to higher value projects in 2025 compared to 2024.
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:
34
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Canada |
|
|
19,433 |
|
|
|
23,921 |
|
|
|
(19 |
) |
U.S. |
|
|
149,422 |
|
|
|
150,392 |
|
|
|
(1 |
) |
|
|
|
168,855 |
|
|
|
174,313 |
|
|
|
(3 |
) |
In 2025, 12% of revenue was from Canada, as compared to 14% in 2024. Historically, approximately 11-15% and 85-89% of revenues are derived from sales to Canada and the United States, respectively.
Sales and marketing expenses
Sales and marketing expenses decreased by $2.3 million to $20.6 million for the year ended December 31, 2025, from $22.9 million for the year ended December 31, 2024. The decrease was primarily comprised of a $1.1 million decrease in commissions and pass through charges as a result of lower revenues, a $0.4 million decrease in travel, meals and entertainment expenses, a $0.2 million decrease in professional services costs, a $0.2 million decrease in salaries and benefits costs, a $0.3 million decrease in depreciation and amortization expenses, a $0.1 million decrease in marketing and tradeshow expenses, and a $0.1 million decrease in office costs.
General and administrative expenses
General and administrative expenses increased $3.7 million to $23.6 million for the year ended December 31, 2025, from $19.9 million for the year ended December 31, 2024. The increase was primarily driven by a $2.0 million legal provision (refer to Note 22 of our Consolidated Financial Statements for additional information), a $0.8 million increase in professional services costs, primarily as a result of litigation costs related to the Falkbuilt Litigation, a $0.5 million increase in board fees, a $0.4 million bad debt expense related to the write off of Phoenix sublease income (refer to Note 8 of our Consolidated Financial Statements for additional information), a $0.4 million increase in salaries and benefits costs, and a $0.2 million increase in communication costs. These increases were offset by a $0.5 million decrease in building and infrastructure costs, and a $0.2 million decrease in depreciation and amortization expenses.
Operations support expenses
Operations support is comprised primarily of our Construction Services team, project managers, order entry and other professionals that facilitate the integration of our Construction Partner and other customers’ project execution and our manufacturing operations. Operations support expenses of $7.9 million in 2025 increased $0.5 million from $7.4 million in 2024. The increase was largely driven by a $0.2 million increase in salaries and benefits costs, a $0.2 million increase in marketing and tradeshows expenses, and a $0.2 million increase in product research and development costs. The increase was offset by a $0.1 million decrease in travel, meals and entertainment expenses.
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 $0.7 million to $4.6 million for the year ended December 31, 2025, compared to $5.3 million for the year ended December 31, 2024. The decrease was primarily related to a $0.8 million decrease in salaries and benefits costs, a $0.3 million loss on disposal of a previously capitalized software development project in 2024 not repeated in 2025, and a $0.1 million decrease in communication costs. The decrease was offset by a $0.5 million increase in professional services costs.
Stock-based compensation
Stock-based compensation expense is dependent on share price in a period for fair value adjustments made on cash-settled deferred share units (“DSUs”) awards and grants, exercises, expirations or forfeitures made on other awards.
Stock-based compensation expense for the year ended December 31, 2025, was $3.0 million, consistent with prior year.
Reorganization
For the year ended December 31, 2025, we incurred $4.9 million of reorganization costs compared to $1.1 million during the year ended December 31, 2024. Reorganization expenses for the year ended December 31, 2025 primarily relate to termination and consultant costs associated with our transformation plan (refer to Note 5 of our Consolidated Financial Statements for additional information),
35
while the reorganization costs in the year ended December 31, 2024 relate to the movement of inventory and equipment from the Rock Hill Facility for use at our facility in Calgary, Alberta.
Impairment charge
The Company finalized the decision to close the Rock Hill Facility in the third quarter of 2023. The Company’s reassessment of the useful lives of the manufacturing equipment at the Rock Hill Facility resulted in an $8.7 million impairment charge in the twelve months ended December 31, 2023.
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 first quarter of 2024. We were not able to determine the likelihood of recoverability based on the current market interest in the equipment.
Effective December 30, 2025, the Company entered into an agreement for an early termination of the lease at the Rock Hill Facility. As such, the remaining leasehold improvements were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $2.3 million during 2025.
Additionally, the Company incurred an impairment charge of $0.7 million related to impairment of right-of-use assets at our Phoenix Facility in the fourth quarter of 2025.
Gain on disposal of lease
On December 30, 2025, the Company entered an early termination agreement for its Rock Hill Facility lease. As a result, the Company recognized a $0.9 million gain on the derecognition of the lease liability and ROU asset associated with this terminated lease.
Gain on extinguishment of convertible debt
During the year ended December 31, 2025, C$0.5 million ($0.3 million) principal amount of Debentures was repurchased for cancellation through the Debentures NCIB and Renewed Debentures NCIB, in aggregate, which triggered an extinguishment of debt. The gain on extinguishment of debentures of $0.02 million for the year ended December 31, 2025, was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs (refer to Note 7 of our Consolidated Financial Statements for additional information).
During the year ended December 31, 2024, C$43.4 million ($31.8 million) in principal amount of Debentures was repurchased for cancellation through the Issuer Bid, Debenture Repurchase, and Debentures NCIB which triggered an extinguishment of debt. The gain on extinguishment of $10.4 million for the year ended December 31, 2024, was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs (refer to Note 7 of our Consolidated Financial Statements for additional information).
Foreign exchange gain (loss)
In the year ended December 31, 2025, we had a foreign exchange loss of $1.7 million compared to a gain of $3.0 million in the year ended December 31, 2024, due to the strengthening of the Canadian dollar relative to the U.S. dollar throughout 2025 as compared to 2024.
Interest income
Interest income decreased to $0.9 million for the year ended December 31, 2025, compared to $1.6 million in the year ended December 31, 2024, primarily the result of declining interest rates yielded on lower cash balances in the year ended December 31, 2025.
Interest expense
Interest expense decreased by $2.1 million from $4.0 million for the year ended December 31, 2024, to $1.9 million for the year ended December 31, 2025. This decrease is largely due to repayment of debt throughout the years ended December 31, 2024 and 2025, reducing the interest payable on current and long-term debt.
Income tax
36
The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. Income tax expense for the year ended December 31, 2025, was $0.5 million, compared to $0.4 million for the same period of 2024. For the year ended December 31, 2025, the Company recorded valuation allowances of $1.0 million (2024 - $3.8 million utilized) against deferred tax assets incurred during the year as the Company has experienced cumulative losses in recent years. Due to the Company’s history of negative earnings, it is not more likely than not that the Company’s deferred tax assets will be utilized in the near term.
As at December 31, 2025, we had C$117.0 million of loss carry-forwards in Canada and $48.2 million in the United States. These loss carry-forwards will begin to expire in 2032.
Net (loss) income after tax
Net loss after tax decreased to $14.4 million or $0.08 net loss after tax per share, basic and diluted, in the year ended December 31, 2025, from net income after tax of $14.8 million or $0.08 and $0.07 net income after tax per share, basic and diluted, in the year ended December 31, 2024. The decreased income is primarily the result of a $8.9 million decrease in gross profit, a $3.8 million increase in reorganization expenses, one-time impairment charge and gain on disposal of lease of $1.6 million, a $10.4 million decrease in gain on extinguishment of convertible debt, a $4.7 million increase in foreign exchange loss, and a $0.6 million decrease in interest income, a $2.0 million legal provision (refer to Note 22 of our Consolidated Financial Statements for additional information), partially offset by a $2.1 million decrease in interest expense and a $0.7 million decrease in other operating expenses.
Three Months Ended December 31, 2025 Compared to the Three Months ended December 31, 2024
|
|
For the Three Months Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
% Change |
|
|||
|
|
($ in thousands) |
|
|||||||||
Revenue |
|
|
50,922 |
|
|
|
48,890 |
|
|
|
4 |
|
Gross Profit |
|
|
18,620 |
|
|
|
17,539 |
|
|
|
6 |
|
Gross Profit Margin |
|
|
36.6 |
% |
|
|
35.9 |
% |
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
5,354 |
|
|
|
5,773 |
|
|
|
(7 |
) |
General and administrative |
|
|
7,960 |
|
|
|
5,112 |
|
|
|
56 |
|
Operations support |
|
|
2,178 |
|
|
|
1,907 |
|
|
|
14 |
|
Technology and development |
|
|
1,073 |
|
|
|
1,281 |
|
|
|
(16 |
) |
Reorganization |
|
|
1,951 |
|
|
|
169 |
|
|
|
1,054 |
|
Stock-based compensation |
|
|
962 |
|
|
|
1,060 |
|
|
|
(9 |
) |
Impairment charge |
|
|
2,948 |
|
|
|
- |
|
|
NA |
|
|
Gain on disposal of lease |
|
|
(858 |
) |
|
|
- |
|
|
NA |
|
|
Total operating expenses |
|
|
21,568 |
|
|
|
15,302 |
|
|
|
41 |
|
Operating (loss) income |
|
|
(2,948 |
) |
|
|
2,237 |
|
|
|
(232 |
) |
Operating margin |
|
|
(5.8 |
)% |
|
|
4.6 |
% |
|
|
|
|
Interest expense |
|
|
(475 |
) |
|
|
(471 |
) |
|
|
1 |
|
Foreign exchange (loss) gain |
|
|
(302 |
) |
|
|
2,057 |
|
|
|
115 |
|
Interest income |
|
|
221 |
|
|
|
275 |
|
|
|
(20 |
) |
Gain on extinguishment of convertible debentures |
|
|
2 |
|
|
|
17 |
|
|
|
(88 |
) |
|
|
|
(554 |
) |
|
|
1,878 |
|
|
|
(129 |
) |
Net (loss) income before tax |
|
|
(3,502 |
) |
|
|
4,115 |
|
|
|
(185 |
) |
Current and deferred income tax expense |
|
|
199 |
|
|
|
77 |
|
|
|
158 |
|
Net (loss) income after tax |
|
|
(3,701 |
) |
|
|
4,038 |
|
|
|
(192 |
) |
37
Our fourth quarter revenue was $50.9 million, an increase of $2.0 million or 4% from $48.9 million for the same period in 2024. The fourth quarter of 2025 had a higher volume of healthcare projects at a higher value, partially offset by the benefit from four large commercial projects that were completed in the fourth quarter of 2024.
Annual 2025 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Years Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the years ended December 31, 2025, 2024, and 2023 of Adjusted Gross Profit to our gross profit and Adjusted Gross Profit Margin to gross profit margin, which are the most directly comparable GAAP measures for the periods presented:
|
|
For the Year Ended, December 31 |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Gross profit |
|
|
55,447 |
|
|
|
64,375 |
|
|
|
59,542 |
|
Gross profit margin |
|
|
32.8 |
% |
|
|
36.9 |
% |
|
|
32.7 |
% |
Add: Depreciation and amortization expense |
|
|
4,043 |
|
|
|
3,953 |
|
|
|
5,525 |
|
Adjusted Gross Profit |
|
|
59,490 |
|
|
|
68,328 |
|
|
|
65,067 |
|
Adjusted Gross Profit Margin |
|
|
35.2 |
% |
|
|
39.2 |
% |
|
|
35.8 |
% |
For the year ended December 31, 2025, gross profit and gross profit margin decreased to $55.4 million or 32.8% from $64.4 million or 36.9% for the prior year. Adjusted Gross Profit and Adjusted Gross Profit Margin decreased to $59.5 million or 35.2% for the year ended December 31, 2024, from $68.3 million or 39.2% for the year ended December 31, 2024.
The decrease in Adjusted Gross Profit was a result of a decrease in revenue due to higher than normal order delays due to job sites not being ready. In addition, there was an increase in tariff-related costs that commenced in March 2025 that resulted in a decrease to gross profit.
EBITDA and Adjusted EBITDA for the Years Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the results of 2025, 2024 and 2023 of EBITDA and Adjusted EBITDA to our net (loss) income, and of Adjusted EBITDA Margin to net (loss) income margin, which are the most directly comparable GAAP measures for the years presented:
|
|
For the Year Ended, December 31 |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Net (loss) income after tax for the period |
|
|
(14,448 |
) |
|
|
14,770 |
|
|
|
(14,584 |
) |
Add back (deduct): |
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
|
1,876 |
|
|
|
3,995 |
|
|
|
4,927 |
|
Interest income |
|
|
(941 |
) |
|
|
(1,587 |
) |
|
|
(490 |
) |
Income tax expense |
|
|
507 |
|
|
|
448 |
|
|
|
332 |
|
Depreciation and amortization |
|
|
6,176 |
|
|
|
6,575 |
|
|
|
8,934 |
|
EBITDA |
|
|
(6,830 |
) |
|
|
24,201 |
|
|
|
(881 |
) |
Reorganization expense(2) |
|
|
4,928 |
|
|
|
1,113 |
|
|
|
3,009 |
|
Stock-based compensation |
|
|
3,037 |
|
|
|
2,965 |
|
|
|
2,306 |
|
Impairment charge (2) |
|
|
2,948 |
|
|
|
530 |
|
|
|
8,716 |
|
Gain on disposal of lease (2) |
|
|
(858 |
) |
|
|
- |
|
|
|
- |
|
Related party expense (2) |
|
|
- |
|
|
|
- |
|
|
|
1,524 |
|
Foreign exchange loss (gain) |
|
|
1,724 |
|
|
|
(2,974 |
) |
|
|
626 |
|
Gain on extinguishment of convertible debentures(2) |
|
|
(24 |
) |
|
|
(10,426 |
) |
|
|
- |
|
Government subsidies(2) |
|
|
- |
|
|
|
- |
|
|
|
(236 |
) |
Gain on sale of software and patents(2) |
|
|
- |
|
|
|
- |
|
|
|
(7,130 |
) |
Legal provision(2) |
|
|
2,000 |
|
|
|
- |
|
|
|
- |
|
Phoenix sublease write-off (2) |
|
|
490 |
|
|
|
- |
|
|
|
- |
|
Adjusted EBITDA |
|
|
7,415 |
|
|
|
15,409 |
|
|
|
7,934 |
|
Net (Loss) Income Margin(1) |
|
|
(8.6 |
)% |
|
|
8.5 |
% |
|
|
(8.0 |
)% |
Adjusted EBITDA Margin |
|
|
4.4 |
% |
|
|
8.8 |
% |
|
|
4.4 |
% |
38
For the year ended December 31, 2025, Adjusted EBITDA and Adjusted EBITDA Margin decreased by $8.0 million to $7.4 million or 4.4% of revenue from $15.4 million or 8.8% of revenue in the same period of 2024. This reflects an $8.8 million decrease in Adjusted Gross Profit, discussed above, a $0.4 million decrease in salaries and benefits costs, a $1.1 million decrease in pass through charge and commissions as a result of lower revenues, a $0.5 million decrease in building and infrastructure costs, a $0.5 million decrease in travel, meals and entertainment, offset by a $2.0 million legal provision (refer to Note 22 of our Consolidated Financial Statements for additional information), a $1.0 million increase in professional services costs, a $0.5 million in board fees, a $0.2 million increase in research and development costs, a $0.2 million increase in marketing and tradeshow costs, and a $0.1 million increase in communication costs.
Reconciliation of Q4 2025 Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three Months Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the three months ended December 31, 2025, 2024, and 2023 of Adjusted Gross Profit to our gross profit, and Adjusted Gross Profit Margin to gross profit margin, which is the most directly comparable GAAP measures for the periods presented:
|
|
For the Three Months Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
($ in thousands) |
|
|||||||||
Gross profit |
|
|
18,620 |
|
|
|
17,539 |
|
|
|
19,238 |
|
Gross profit margin |
|
|
36.6 |
% |
|
|
35.9 |
% |
|
|
37.8 |
% |
Add: Depreciation and amortization expense |
|
|
1,066 |
|
|
|
1,441 |
|
|
|
869 |
|
Adjusted Gross Profit |
|
|
19,686 |
|
|
|
18,980 |
|
|
|
20,107 |
|
Adjusted Gross Profit Margin |
|
|
38.7 |
% |
|
|
38.8 |
% |
|
|
39.5 |
% |
39
EBITDA and Adjusted EBITDA for the Three Months Ended December 31, 2025, 2024 and 2023
The following table presents a reconciliation for the results of three months ended December 31, 2025, 2024 and 2023 of EBITDA and Adjusted EBITDA to our net (loss) income after tax, and of Adjusted EBITDA Margin to net (loss) income margin, which are the most directly comparable GAAP measures for the years presented:
|
|
For the Three Months Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
($ in thousands) |
|
|||||||||
Net (loss) income after tax for the period |
|
|
(3,701 |
) |
|
|
4,038 |
|
|
|
955 |
|
Add back (deduct): |
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
|
475 |
|
|
|
471 |
|
|
|
1,291 |
|
Interest income |
|
|
(221 |
) |
|
|
(275 |
) |
|
|
(219 |
) |
Income tax expense |
|
|
199 |
|
|
|
77 |
|
|
|
332 |
|
Depreciation and amortization |
|
|
1,615 |
|
|
|
2,033 |
|
|
|
1,718 |
|
EBITDA |
|
|
(1,633 |
) |
|
|
6,344 |
|
|
|
4,077 |
|
Reorganization expense(2) |
|
|
1,951 |
|
|
|
169 |
|
|
|
152 |
|
Stock-based compensation |
|
|
962 |
|
|
|
1,060 |
|
|
|
(237 |
) |
Impairment charge (2) |
|
|
2,948 |
|
|
|
- |
|
|
|
764 |
|
Gain on disposal of lease (2) |
|
|
(858 |
) |
|
|
- |
|
|
|
- |
|
Foreign exchange loss (gain) |
|
|
302 |
|
|
|
(2,057 |
) |
|
|
567 |
|
Gain on extinguishment of convertible debentures(2) |
|
|
(2 |
) |
|
|
(17 |
) |
|
|
- |
|
Gain on sale of software and patents(2) |
|
|
- |
|
|
|
- |
|
|
|
(985 |
) |
Legal provision (2) |
|
|
2,000 |
|
|
|
- |
|
|
|
- |
|
Phoenix sublease write-off (2) |
|
|
490 |
|
|
|
- |
|
|
|
- |
|
Adjusted EBITDA |
|
|
6,160 |
|
|
|
5,499 |
|
|
|
4,338 |
|
Net (Loss) Income Margin(1) |
|
|
(7.3 |
)% |
|
|
8.3 |
% |
|
|
1.9 |
% |
Adjusted EBITDA Margin |
|
|
12.1 |
% |
|
|
11.2 |
% |
|
|
8.5 |
% |
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Discussion and analysis of our financial condition and results of operations for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023, is included under the heading Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on February 26, 2025.
Liquidity and Capital Resources
As at December 31, 2025, the Company had $20.3 million of cash on hand and C$16.3 million ($11.8 million) of available borrowings, compared to $29.3 million of cash on hand and C$14.4 million ($10.0 million) of available borrowings as at December 31, 2024. Through the year ended December 31, 2025, the Company used $9.0 million in cash flows primarily for the payment of $4.4 million to repurchase common shares under the Shares NCIB and Share Repurchase, $4.1 million for capital expenditures, $0.4 million for the repayment of debt and $0.2 million of net cash flows used in operating activities.
We have assessed the Company’s liquidity as at December 31, 2025, taking into account our sales outlook for the next twelve months, our budget, forecast and expected cash outflows and our existing cash balances, debt and available credit facilities. Based upon this analysis, we believe the Company has sufficient liquidity to remain a going concern for at least the next twelve months. We note that the January Debentures amounting to C$16.6 million ($12.1 million) as at December 31, 2025 were due and paid in full on January 31, 2026 and have therefore been classified as current on our balance sheet. Another C$14.8 million ($10.8 million) of principal is due under the December Debentures, which mature on December 31, 2026. We are evaluating whether we will settle or refinance this debt.
On October 28, 2025, we entered into a non-binding term sheet with the BDC for proposed financing of up to C$15.0 million, the net proceeds of which are expected to be used to further strengthen our balance sheet and partially repay the January Debentures. On
40
December 11, 2025, the Company entered into a letter agreement (the “Letter”) with BDC, pursuant to which BDC committed to lending the Company up to C$15.0 million (the “Loan”) subject to the satisfaction of certain conditions. The conditions were amended on January 30, 2026 and February 9, 2026. The Company received $5.5 million from BDC on February 13, 2026. The next disbursement of C$4.5 million is subject to the receipt of certain landlord waivers and other conditions. The last disbursement of C$5.0 million is expected to be in the second half of the year, subject to certain conditions.
On November 4, 2025, the Company entered into the Fifth Extended RBC Facility (as defined herein), which matures on November 30, 2026. The Fifth Extended RBC Facility is subject to the same borrowing base terms as the previous facility; with the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points.
On February 11, 2026 and in connection with the Loan, the Company entered into the Seventh Amended RBC Facility and the Priority Agreement (each as defined herein). The Seventh Amended RBC Facility matures on November 30, 2026 and is subject to the same borrowing base terms as the previous facility. The Seventh Amended RBC Facility allows the Company to incur indebtedness to BDC of C$15 million under the Loan and incorporates permitting specific encumbrances to BDC and the Priority Agreement. The Seventh Amended RBC Facility releases certain mortgage collateral held by RBC.
The Fifth Extended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include a condition that, after giving effect to the relevant Restricted Payment, our FCCR be at least 1.10 to 1.00 on a trailing 12-month basis. In February 2026, we and RBC determined that our purchases of our common shares under our NCIB in December 2025 did not comply with the Restricted Payments covenant because our FCCR was below 1.10 to 1.00. RBC has agreed to provide a waiver pursuant to Section 8.3 of the Fifth Extended RBC Facility in connection with the foregoing.
To the extent that existing cash and cash equivalents and available facilities 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 incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our December Debentures and our equity securities or contain instruments that may be dilutive to our existing shareholders. Any additional equity or debt financing may be dilutive to our existing shareholders. While we believe we can access capital markets when needed or under acceptable terms, there can be no assurance that we will be able to do so, particularly in light of recent market conditions.
We note that as of the date of this report, the imposition of trade barriers, including tariffs, quotas, embargoes, safeguards, and customs restrictions between Canada and the U.S., may increase the cost or reduce the supply of materials and products available to us, increase shipping times, affect our customers’ construction needs or budgets, affect the demand for our products or our product mix or require us to modify our supply chain organization, manufacturing facilities, or other current business practices, any of which could harm our business, financial condition, and results of operations (refer to “Item 1.A Risk Factors” section).
Equity and Debt Issuances and Buyback Programs
During 2025, we continued to execute on various debt and share buyback programs. The Issuer Bid, Debenture Repurchase, Debentures NCIB, Renewed Debentures NCIB, Shares NCIB, Renewed Shares NCIB, and the Share Repurchase (each as defined herein) were initiated after careful consideration of cash flow, and the Company continues to evaluate uses of cash on hand. As discussed in the “Part I, Item 1A. Risk Factors” section and elsewhere of this Annual Report, proposed and implemented tariffs on Canadian exports into the United States, and vice versa, may have a material impact on future cash flows and liquidity, which the Company will continue to monitor.
In January 2021, we issued C$40.3 million principal amount of the January Debentures for net proceeds after costs of C$37.6 million ($29.5 million). The January Debentures accrued interest at a rate of 6.00% per annum and were convertible into common shares of DIRTT at an exercise price of C$4.65 per common share, or if not converted, would mature and be repayable on January 31, 2026. Interest and principal were payable in cash or shares at the option of the Company.
On December 1, 2021, we issued C$35.0 million principal amount of convertible unsecured subordinated debentures (the “December Debentures”, and collectively with the January Debentures, the “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 December 31, 2026. Interest and principal are payable in cash or shares at the option of the Company.
41
On August 28, 2024, the Company commenced the Debentures normal course issuer bid (the “Debentures NCIB”) which expired on August 27, 2025. Under the Debentures NCIB, DIRTT was permitted to acquire up to C$1,664,200 principal amount of the January Debentures and C$1,558,700 principal amount of the December Debentures. During the year ended December 31, 2025, C$0.3 million ($0.2 million) principal amounts of the December Debentures and C$0.06 million ($0.04 million) principal amounts of the January Debentures had been acquired through the Debentures NCIB. On August 26, 2025, the Company announced the Renewed Debentures NCIB which commenced August 28, 2025, and is expected to terminate on August 27, 2026 for the December Debentures and terminated on January 31, 2026 for the January Debentures, concurrent with the maturity date of the January Debentures. Under the Renewed Debentures NCIB, DIRTT is permitted to acquire up to C$1,656,900 principal amount of the January Debentures and C$1,493,500 principal amount of the December Debentures. During the year ended December 31, 2025, C$0.1 million ($0.1 million) principal amounts of the December Debentures and $0.01 million ($0.01 million) principal amounts of the January Debentures had been acquired through the Renewed Debentures NCIB. As at December 31, 2025, C$16.6 million ($12.1 million) principal amount of the January Debentures and C$14.8 million ($10.8 million) principal amount of the December Debentures were outstanding. On January 31, 2026, the Company repaid the outstanding balance of the January Debentures with cash on hand.
On December 20, 2024, the Company commenced a normal course issuer bid for common shares (the “Shares NCIB”) which terminated on December 19, 2025. Under the Shares NCIB, DIRTT was permitted to acquire up to 7,515,233 common shares. All purchases will be made on the open market at the market price of common shares at the time of acquisition. Any common shares acquired through the Shares NCIB were immediately cancelled. On December 18, 2025, the Company announced the Renewed Shares NCIB which commenced December 19, 2025, and is expected to terminate on December 21, 2026. Under the Renewed Shares NCIB, DIRTT is permitted to acquire up to 9,593,878 common shares. All purchases will be made on the open market at the market price of common shares at the time of acquisition. Any common shares acquired through the Shares NCIB will be immediately cancelled.
On February 13, 2025, the Company entered into a share repurchase agreement with NGEN III, LP (“NGEN”) to purchase for cancellation 3,920,844 common shares held by NGEN (the “NGEN Shares”) at a purchase price of $0.80 per NGEN Share (the “Share Repurchase”). Following the Share Repurchase, there were 189,643,903 common shares outstanding. The NGEN Shares repurchased under the Share Repurchase were counted against the maximum number of shares that may be repurchased pursuant to the Shares NCIB being 7,515,233 shares. For the year ended December 31, 2025, 5,780,996 common shares had been repurchased and cancelled for proceeds of C$6.2 million ($4.4 million) through the Shares NCIB and the Share Repurchase.
As explained above, initiating the debt and share buybacks was done after careful consideration of cash flow and with consideration to the risk of proposed and implemented tariffs.
Facilities
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 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 is calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the “Aggregate Excess Availability”, defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash is less than C$5.0 million, the Company is subject to a fixed charge coverage ratio (“FCCR”) covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR was below 1.10:1 for the three immediately preceding months, the Company would be required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Canada Leasing Facility and a leasing facility in the United States that is no longer available (together, the “Leasing Facilities”). Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for five consecutive business days, the Company would enter a cash dominion period whereby the Company’s bank accounts would be blocked by RBC and daily balances will set-off any borrowings and any remaining amounts made available to the Company.
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility has a maximum borrowing base of C$15.0 million and a one-year term. Interest was calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points. Under the Extended RBC Facility, until such time that the trailing twelve-month FCCR is above 1.25 for three consecutive months, a cash balance equivalent to one-year’s worth of Leasing Facilities payments would be required to be maintained.
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$15.0 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
42
or Adjusted Term CORRA or Term SOFR plus the Term SOFR Adjustment, in each case, plus 200 basis points. The Second Extended RBC Facility removed the three-month FCCR covenant, which resulted in the release of $0.1 million of restricted cash during the first quarter of 2024 (the Company had $0.4 million restricted cash as at December 31, 2023). On February 11, 2025, the Company extended the Second Extended RBC Facility (the “Third Extended RBC Facility”) for a period of two weeks up to February 25, 2025 whilst the Company and RBC completed negotiations.
On February 20, 2025, the Company extended the Third Extended RBC Facility (the “Fourth Extended RBC Facility”). The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million and matures on November 30, 2025. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points. The Fourth Extended RBC Facility also includes a new letter of credit facility guaranteed by the Export Development of Canada of C$5 million. The Company has also entered into a bonding facility with Great Midwest Insurance Company, and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. (“Skyward”), which allows access to a $15.0 million bonding facility subject to an individual maximum of $5 million. Under the terms of the facility with Skyward, any bonds issued will be secured through letters of credit issued pursuant to the Fourth Extended RBC Facility.
On November 4, 2025, the Company extended the Fourth Extended RBC Facility (the “Fifth Extended RBC Facility”). The Fifth Extended RBC Facility expires November 30, 2026 and is subject to the same borrowing base terms as the previous facility, with the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points. At December 31, 2025, available borrowings were C$16.3 million ($11.8 million) (December 31, 2024 – C$14.4 million ($10.0 million) of available borrowings), calculated in the same manner as the RBC Facility described above, of which no amounts have been drawn.
On February 11, 2026 and in connection with the Loan, the Company amended the Fifth Extended RBC Facility (the “Seventh Amended RBC Facility”) and entered into a priority agreement with RBC and BDC (the “Priority Agreement”). The Seventh Amended RBC Facility matures on November 30, 2026 and is subject to the same borrowing base terms as the previous facility. The Seventh Amended RBC Facility allows the Company to incur indebtedness to BDC of C$15 million under the Loan and incorporates permitting specific encumbrances to BDC and the Priority Agreement. The Seventh Amended RBC Facility also releases certain mortgage collateral held by RBC.
The Fifth Extended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include a condition that, after giving effect to the relevant Restricted Payment, our FCCR be at least 1.10 to 1.00 on a trailing 12-month basis. In February 2026, we and RBC determined that our purchases of our common shares under our NCIB in December 2025 did not comply with the Restricted Payments covenant because our FCCR was below 1.10 to 1.00. RBC has agreed to provide a waiver pursuant to Section 8.3 of the Fifth Extended RBC Facility in connection with the foregoing.
The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) of which, as of December 31, 2025, C$4.4 million ($3.2 million) has been drawn and C$4.0 million ($3.0 million) has been repaid. The Canada Leasing Facility has a seven-year term and bears interest at 4.25%. The Company did not make any draws on the Canada Leasing Facility during the years ended December 31, 2025 and 2024.
We are restricted from paying dividends unless Payment Conditions (as defined in the Fifth Extended RBC Facility) are met, including having a net borrowing availability of at least C$5.0 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 Fifth Extended RBC Facility is currently secured by substantially all of our real and personal property located in Canada and the United States.
43
The following table summarizes our consolidated cash flows for the years indicated:
|
|
|
|
For the Year Ended, December 31 |
|
|||||||||
|
|
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Net cash flows (used in) provided by operating activities |
|
|
|
|
(192 |
) |
|
|
7,344 |
|
|
|
14,821 |
|
Net cash flows (used in) provided by investing activities |
|
|
|
|
(3,723 |
) |
|
|
(1,900 |
) |
|
|
7,657 |
|
Net cash flows (used in) financing activities |
|
|
|
|
(4,981 |
) |
|
|
(415 |
) |
|
|
(11,605 |
) |
Effect of foreign exchange on cash, cash equivalents and restricted cash |
|
|
|
|
(60 |
) |
|
|
(597 |
) |
|
|
(13 |
) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
|
|
(8,956 |
) |
|
|
4,432 |
|
|
|
10,860 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
29,531 |
|
|
|
25,099 |
|
|
|
14,239 |
|
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
20,575 |
|
|
|
29,531 |
|
|
|
25,099 |
|
|
|
For the Year Ended, December 31 |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Cash and cash equivalents |
|
|
20,326 |
|
|
|
29,288 |
|
|
|
24,744 |
|
Restricted cash |
|
|
249 |
|
|
|
243 |
|
|
|
355 |
|
Total cash, cash equivalents and restricted cash |
|
|
20,575 |
|
|
|
29,531 |
|
|
|
25,099 |
|
Operating Activities
Net cash flows used by operating activities were $0.2 million for the year ended December 31, 2025, compared to $7.3 million provided by operating activities for the year ended December 31, 2024. The decrease in cash flows provided by operations during the year ended December 31, 2025 is largely due to a decrease of $8.0 million in Adjusted EBITDA.
Investing Activities
We invested $1.6 million in property, plant and equipment during the year ended December 31, 2025, compared to the prior year’s investment in property, plant and equipment of $1.4 million. The capital expenditures for the years ended December 31, 2025 and December 31, 2024, respectively, primarily consisted of $0.5 million and $0.4 million on manufacturing upgrades, $0.4 million and $0.3 million of information technology investments, $0.5 million and $0.1 million in marketing investments, and $0.2 million and $0.5 million in leasehold improvements. We invested $1.7 million on capitalized software during the year ended December 31, 2025 compared to $1.6 million for the year ended December 31, 2024. In 2024, we benefited from proceeds on sale of assets held for sale of $1.0 million.
Financing Activities
For the year ended December 31, 2025, $5.0 million of cash was used in financing activities compared to $0.4 million used during the year ended December 31, 2024. During the year ended December 31, 2025, $4.4 million was used in repurchases of common shares through the Shares NCIB and the Share Repurchase, and $0.4 million repayment on convertible debt through the Debentures NCIB and Renewed Debentures NCIB. During the year ended December 31, 2024, $0.4 million of cash was used in financing activities, comprising $21.5 million repayment of debt under the Issuer Bid, Debenture Repurchase, Debentures NCIB and $0.2 million relating to employee tax payments on vesting RSUs, $0.1 million of scheduled repayments under the Canada Leasing Facility, offset by $21.3 million of proceeds received from the Rights Offering.
44
Consolidated cash flows for the quarter as indicated:
|
|
|
|
For the Three Months Ended December 31, |
|
|||||||||
|
|
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
|
|
($ in thousands) |
|
|||||||||
Net cash flows (used in) provided by operating activities |
|
|
|
|
(4,344 |
) |
|
|
6,222 |
|
|
|
10,134 |
|
Net cash flows (used in) provided by investing activities |
|
|
|
|
(1,235 |
) |
|
|
(741 |
) |
|
|
568 |
|
Net cash flows (used in) financing activities |
|
|
|
|
(316 |
) |
|
|
(126 |
) |
|
|
(8,193 |
) |
Effect of foreign exchange on cash, cash equivalents and restricted cash |
|
|
|
|
95 |
|
|
|
309 |
|
|
|
153 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
|
|
(5,800 |
) |
|
|
5,664 |
|
|
|
2,662 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
26,375 |
|
|
|
23,867 |
|
|
|
22,437 |
|
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
20,575 |
|
|
|
29,531 |
|
|
|
25,099 |
|
Contractual Obligations
The following table summarizes DIRTT’s contractual obligations at December 31, 2025:
|
|
Payments due by period |
|
|||||||||||||||||
|
|
Less than |
|
|
|
|
|
|
|
|
Greater than |
|
|
|
|
|||||
|
|
1 year |
|
|
1 to 3 years |
|
|
3 to 5 years |
|
|
5 years |
|
|
Total |
|
|||||
|
|
($ in thousands) |
|
|||||||||||||||||
Accounts payable and accrued liabilities |
|
|
19,430 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,430 |
|
Other liabilities |
|
|
5,436 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,436 |
|
Customer deposits and deferred revenue |
|
|
3,507 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,507 |
|
Current and long-term portion of long-term debt and accrued interest1 |
|
|
24,064 |
|
|
|
222 |
|
|
|
18 |
|
|
|
- |
|
|
|
24,304 |
|
Lease liabilities (undiscounted) |
|
|
5,403 |
|
|
|
8,909 |
|
|
|
6,157 |
|
|
|
7,369 |
|
|
|
27,838 |
|
Purchase obligations |
|
|
4,238 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,238 |
|
Total |
|
|
62,078 |
|
|
|
9,131 |
|
|
|
6,175 |
|
|
|
7,369 |
|
|
|
84,753 |
|
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements appearing in Item 8 of this Annual Report. Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financial statements in conformity with GAAP. As a result, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Critical estimates and assumptions made by management include:
Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies
We have warranty obligations with respect to manufacturing defects on most of our manufactured products. Warranty periods generally range from one to ten years. We have recorded a reserve for estimated warranty and related costs based on historical experience and periodically adjust these provisions to reflect actual experience. We assess the adequacy of our warranty accrual on a quarterly basis, and adjust the previous amounts recorded, if necessary, to reflect the change in estimate of the future costs of claims yet to be serviced. Typically, product deficiencies requiring our warranty are identified and remediated within a year of production. The following provides information with respect to our warranty accrual. At December 31, 2025 and 2024, we had $0.9 million and $0.8 million,
45
respectively, accrued for warranty and other provisions, and third-party costs associated with remedying deficiencies were $0.6 million during the fiscal year ended December 31, 2025, consistent with the fiscal year ended December 31, 2024.
We establish reserves for estimated legal contingencies when we believe a loss on litigation is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liability reserves are reflected in operations in the period in which there are changes in facts and circumstances that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimate the probable cost by evaluating historical precedent as well as the specific facts relating to each contingency (including the opinion of outside advisors). Should the outcome differ from our assumptions and estimates, or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known. DIRTT Environmental Solutions Inc. received a subpoena for records in relation to an ongoing inquiry by the U.S. Department of Justice into certain projects and services provided by a third party and DIRTT dating back to 2014. The Company is complying with the subpoena and cooperating with the Department of Justice. There have been ongoing discussions regarding the possible resolution of these matters with the Department of Justice without admitting or denying liability. At December 31, 2025 and 2024, we had $2.0 million (relating to the Department of Justice matter) and $0.05 million provided for legal provisions, respectively.
Estimates of useful lives of depreciable assets, the fair value of long-term assets used for impairment calculations and the fair value less costs to sell for assets held for sale
We evaluate the recoverability of our property, plant, and equipment (“PP&E”), capitalized software costs and right of use assets when events or changes in circumstances indicate a potential impairment exists. If impairment is indicated, the impairment loss is measured as the amount the assets carrying value exceeds the fair value of the assets.
Our determination of the fair value associated with long-term assets involves significant estimates and assumptions, including those with respect to the determination of asset groups, future cash inflows and outflows, discount rates, and asset lives. These significant estimates require considerable judgment, which could affect our future results if the current estimates of future performance and fair values change.
We estimate the useful lives of PP&E, capitalized software costs and right of use assets based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed annually and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of the relevant assets may be based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the PP&E and capitalized software assets would increase the recorded expenses and decrease the non-current assets.
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale criteria are met. We estimate the fair value less costs to sell based on market prices and discussions with potential buyers on the assets that are held for sale. The amounts and timing that the assets held for sale are sold could be impacted on the ability to market and sell the assets held for sale, and find a suitable buyer.
Estimates of future taxable earnings used to assess the realizable value of deferred tax assets
We use the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts reported in our Consolidated Financial Statements. Deferred income tax assets also reflect the benefit of unutilized tax losses that can be carried forward to reduce income taxes in future years. Such method requires the exercise of significant judgment in determining whether or not it is more likely than not our deferred tax assets may be realized and, therefore, can be recognized in our Consolidated Financial Statements. Also, estimates are required to determine the expected timing upon which tax assets will be realized and upon which tax liabilities will be
46
settled. We assess the ability to recover our deferred tax assets every quarter and concluded that a valuation allowance was required against our deferred tax assets at December 31, 2025 of $30.9 million (2024 - $30.0 million).
Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company and its subsidiary operate
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, and Canadian federal and provincial, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
We have no liability for uncertain tax positions. However, should we accrue for such liabilities, when and if they arise in the future, we will recognize interest and penalties associated with uncertain tax positions as part of our income tax provision.
Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount
We use a fair-value based approach for measuring stock-based compensation and record compensation expense over an award’s vesting period based on the award’s fair value at the date of grant. Our awards vest based on performance and service conditions, and compensation expense is recognized on a straight-line basis. Stock-based compensation expense is recognized only for those awards that ultimately vest.
Estimates of ability and timeliness of customer payments of accounts receivable
Our expected credit loss reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Management uses significant judgment in estimating expected credit losses. In estimating the Company’s current estimate of expected credit losses, management considers historical credit loss experience as well as forward-looking information in order to establish rates for each class of financial receivable with similar risk characteristics. While we believe these processes effectively address our exposure for doubtful accounts and credit losses which have historically been within expectations, changes in the economy, industry, or specific customer conditions may require adjustments to the expected credit loss. We have a contract with a trade credit insurance provider, whereby a portion of our trade receivables are insured. The trade credit insurance provider determines the coverage amount, if any, on a customer-by-customer basis. Based on our trade receivables balance as at December 31, 2025 and 2024, approximately 59% and 82%, respectively, of that balance was covered by the trade credit insurance provider.
At December 31, 2025, we had an allowance for expected credit loss of $0.1 million (2024 - $0.1 million).
Recent Accounting Pronouncements
Please refer to Note 3 to our Consolidated Financial Statements presented elsewhere in this Annual Report.
47
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our financial assets and liabilities consist primarily of cash and cash equivalents, restricted cash, trade and accrued receivables, other receivables, deposits and long-term receivables, accounts payable and accrued liabilities, other liabilities, and long-term debt and accrued interest. We are exposed to market, credit and liquidity risks associated with financial assets and liabilities. We currently do not use financial derivatives to reduce exposures from changes in foreign exchange rates, commodity prices, or interest rates. We do not hold or use any derivative instruments for trading or speculative purposes. Our Board of Directors has responsibility for the establishment and approval of overall risk management policies, including those related to financial instruments. Management performs continuous assessments to ensure that all significant risks related to financial instruments are reviewed and addressed in light of changes to market conditions and operating activities.
Credit risk
Our principal financial assets are cash and cash equivalents, trade and accrued receivables, other receivables and deposits.
Our credit risk is primarily concentrated in our trade and accrued receivables as we do not believe that we are exposed to any significant credit risk related to our cash and cash equivalents, other receivables and deposits. The amounts disclosed in the consolidated balance sheet for trade and accrued receivables and other receivables are net of allowances for doubtful accounts. Allowances are provided for the Company’s current estimate of all expected credit losses using the lifetime expected credit loss model. As at December 31, 2025 and 2024, our allowance was $0.1 million. In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial well-being of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2025, approximately 59% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities, that have arisen since April 1, 2020, when the trade credit insurance became effective. Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. No single Construction Partner accounted for greater than 10% of revenue in 2025 or 2024. In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign currency exchange rates, will affect our income or the value of the financial instruments held.
Foreign exchange risk
The majority (approximately 85% to 90%) of our revenue is collected in U.S. dollars, and approximately 35% of our costs are also incurred in U.S. dollars. Most other revenue and costs are denominated in Canadian dollars. As a result, we are exposed to fluctuations in the U.S. dollar against the Canadian dollar, which could have a positive or negative impact on our revenue and costs. The recent weakening of the U.S. dollar versus the Canadian dollar in 2025 has had a negative impact on results.
48
Our financial instruments are exposed primarily to fluctuations in the Canadian dollar. The following table details our exposure to currency risk at the reporting dates and a sensitivity analysis to changes in currency. The sensitivity analysis includes Canadian dollar-denominated monetary items and adjusts their translation at period end for their respective change in the Canadian dollar. For the respective weakening of the Canadian dollar, there would be an equal and opposite impact on net income (loss) and comprehensive (loss) income.
|
|
|
|
|
|
|
|
Effect of net income |
|
|||
|
|
|
|
|
|
|
|
and comprehensive |
|
|||
|
|
|
|
|
|
|
|
income for the |
|
|||
|
|
|
|
|
|
|
|
year ended |
|
|||
|
|
Amount |
|
|
Change in |
|
|
December 31, 2025 |
|
|||
|
|
(C$ in thousands) |
|
|
Currency (%) |
|
|
(C$ in thousands) |
|
|||
Cash and cash equivalents |
|
|
2,357 |
|
|
|
10 |
% |
|
|
236 |
|
Trade and accrued receivables |
|
|
3,034 |
|
|
|
10 |
% |
|
|
303 |
|
Other receivables |
|
|
867 |
|
|
|
10 |
% |
|
|
87 |
|
Other assets |
|
|
148 |
|
|
|
10 |
% |
|
|
15 |
|
Accounts payable and accrued liabilities |
|
|
15,124 |
|
|
|
10 |
% |
|
|
1,512 |
|
Other liabilities |
|
|
2,980 |
|
|
|
10 |
% |
|
|
298 |
|
Current portion of long-term debt and accrued interest |
|
|
31,742 |
|
|
|
10 |
% |
|
|
3,174 |
|
Long-term debt |
|
|
1 |
|
|
|
10 |
% |
|
|
- |
|
Total |
|
|
56,253 |
|
|
|
10 |
% |
|
|
5,625 |
|
Commodity price risk
We consume raw materials such as aluminum, hardware, wood and veneer, timber, plastic, electrical wiring and components, paint and powder, fabric, and vinyl. While aluminum represents the largest component of our raw materials’ expenditures, overall aluminum spend comprises only approximately 9% of product revenues and, therefore, absolute exposure to price fluctuations has a limited impact on profitability.
Interest rate risk
The Fourth Extended RBC Facility was subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million. On November 4, 2025, the Company entered into the Fifth Extended RBC Facility. The Fifth Extended RBC Facility is subject to the same borrowing base terms as the previous facility; with the borrowing base calculation based on accounts receivable balances to a maximum of C$25.0 million. Interest is calculated as the Canadian or U.S. prime rate plus 50 basis points or at the Term CORRA Rate as adjusted by the Term CORRA Adjustment or Term SOFR plus the Term SOFR Adjustment, in each case plus 175 basis points.
We did not draw on the facilities during 2023, 2024 or 2025 and were, therefore not exposed to any interest rate risk.
The Company’s Leasing Facilities and Debentures bear interest at fixed interest rates and are therefore not subject to interest rate risk. Subsequent to year end the January Debentures were fully settled and the Company entered into the Loan which is also subject to fixed interest rates.
49
Item 8. Financial Statements and Supplementary Data.
INDEX |
|
Page No. |
Report of Independent Registered Public Accounting Firm (PCAOB ID |
|
51 |
|
|
|
Consolidated Balance Sheets, as at December 31, 2025 and 2024 |
|
53 |
|
|
|
Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2025, 2024 and 2023 |
|
54 |
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2025, 2024 and 2023 |
|
56 |
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023 |
|
57 |
|
|
|
Notes to the Consolidated Financial Statements |
|
58 |
|
|
|
50
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of DIRTT Environmental Solutions Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DIRTT Environmental Solutions Ltd. and its subsidiaries (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive (loss) income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
51
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue from Contracts with Customers - Product Sales
As described in Notes 2 and 20 to the consolidated financial statements, the Company’s revenue recognized from product sales was $146.4 million for the year ended December 31, 2025. The Company recognizes revenue upon transfer of control of promised goods to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods. The Company’s main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. The Company’s standard sales terms are Free On Board shipping point.
The principal consideration for our determination that performing procedures relating to revenue from contracts with customers is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, bills of lading and subsequent cash receipts; and (ii) confirming a sample of outstanding customer invoice balances as of December 31, 2025 and, for confirmations not returned, obtaining and inspecting source documents, such as invoices, bills of lading and subsequent cash receipts.
/s/
Chartered Professional Accountants
February 25, 2026
We have served as the Company’s auditor since 2017.
52
DIRTT Environmental Solutions Ltd.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
|
|
As at December 31, |
|
|
As at December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Restricted cash |
|
|
|
|
|
|
||
Trade and accrued receivables, net of expected credit losses of $ |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
Inventory |
|
|
|
|
|
|
||
Prepaids and other current assets |
|
|
|
|
|
|
||
Total Current Assets |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Capitalized software, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total Assets |
|
|
|
|
|
|
||
LIABILITIES |
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Customer deposits and deferred revenue |
|
|
|
|
|
|
||
Current portion of long-term debt and accrued interest |
|
|
|
|
|
|
||
Current portion of lease liabilities |
|
|
|
|
|
|
||
Total Current Liabilities |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Long-term lease liabilities |
|
|
|
|
|
|
||
Total Liabilities |
|
|
|
|
|
|
||
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Common shares, unlimited authorized without par value, |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total Shareholders’ Equity |
|
|
|
|
|
|
||
Total Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
||
Refer to Note 2 for policy on Common Shares.
Refer to Note 22 for Commitments.
Refer to Note 25 for Subsequent Events.
The accompanying notes are an integral part of these consolidated financial statements.
53
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Stated in thousands of U.S. dollars, except per share data)
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Product revenue |
|
|
|
|
|
|
|
|
|
|||
Service revenue |
|
|
|
|
|
|
|
|
|
|||
Total revenue |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Product cost of sales |
|
|
|
|
|
|
|
|
|
|||
Service cost of sales |
|
|
|
|
|
|
|
|
|
|||
Total cost of sales |
|
|
|
|
|
|
|
|
|
|||
Gross profit |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Expenses |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|||
General and administrative |
|
|
|
|
|
|
|
|
|
|||
Operations support |
|
|
|
|
|
|
|
|
|
|||
Technology and development |
|
|
|
|
|
|
|
|
|
|||
Reorganization |
|
|
|
|
|
|
|
|
|
|||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|||
Impairment charge |
|
|
|
|
|
|
|
|
|
|||
Gain on disposal of lease |
|
|
( |
) |
|
|
|
|
|
|
||
Related party expense |
|
|
|
|
|
|
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Operating (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange (loss) gain |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|||
Gain on extinguishment of convertible debentures |
|
|
|
|
|
|
|
|
|
|||
Government subsidies |
|
|
|
|
|
|
|
|
|
|||
Gain on sale of software and patents |
|
|
|
|
|
|
|
|
|
|||
|
|
|
( |
) |
|
|
|
|
|
|
||
Net (loss) income before tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|||
Current and deferred income tax expense |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income after tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per share |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per share − basic |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net (loss) income per share − diluted |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
Weighted average number of shares outstanding (in thousands) |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
|
|
|
|
|
|
|
|
|||
Diluted |
|
|
|
|
|
|
|
|
|
|||
Refer to Note 24 for Related Party Transactions included in this statement.
The prior year comparatives have been revised in line with current year presentation - refer to Earnings per share in Note 19.
The accompanying notes are an integral part of these consolidated financial statements.
54
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Operations and Comprehensive (Loss) Income (continued)
(Stated in thousands of U.S. dollars)
|
|
For the Year Ended December 31, |
|
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
|||
Net (loss) income after tax for the year |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
Exchange differences on translation of foreign operations |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
Comprehensive (loss) income for the year |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
55
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
(Stated in thousands of U.S. dollars, except for share data)
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||
|
Number of |
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
Total |
|
||||||
|
Common |
|
|
Common |
|
|
paid-in |
|
|
comprehensive |
|
|
Accumulated |
|
|
shareholders’ |
|
||||||
|
shares |
|
|
shares |
|
|
capital |
|
|
loss |
|
|
deficit |
|
|
equity |
|
||||||
As at December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Issued on vesting of RSUs and Share Awards |
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Issued for employee share purchase plan |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Issued to settle related party debt |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
RSUs and Share Awards withheld to settle employee tax obligations |
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Net loss for the year |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
As at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Issued on vesting of RSUs |
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Issued on Rights Offering |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
RSUs withheld to settle employee tax obligations |
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Issued for employee share purchase plan |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Cancelled from Normal Course Issuer Bid |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Net income for the year |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
As at December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Issued on vesting of RSUs |
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|||
Settlement of DSU liability (as defined in Note 17) |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
RSUs withheld to settle employee tax obligations |
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Issued for employee share purchase plan |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Cancelled from Shares NCIB and Share Repurchase (as each defined in Note 18) |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net loss for the year |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
As at December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
56
DIRTT Environmental Solutions Ltd.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income for the period |
|
|
( |
) |
|
|
|
|
|
(14,584 |
) |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
8,934 |
|
||
Impairment charge |
|
|
|
|
|
|
|
|
8,716 |
|
||
Stock-based compensation |
|
|
|
|
|
|
|
|
2,306 |
|
||
Foreign exchange loss (gain) |
|
|
|
|
|
( |
) |
|
|
1,099 |
|
|
Gain on extinguishment of convertible debt |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
Accretion of convertible debentures |
|
|
|
|
|
|
|
|
698 |
|
||
Loss on disposal |
|
|
|
|
|
|
|
|
153 |
|
||
Gain on sale of software and patents |
|
|
|
|
|
|
|
|
(7,130 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|||
Trade and accrued receivables |
|
|
( |
) |
|
|
( |
) |
|
|
(1,833 |
) |
Other receivables |
|
|
( |
) |
|
|
|
|
|
7,406 |
|
|
Inventory |
|
|
( |
) |
|
|
|
|
|
5,961 |
|
|
Prepaid and other assets, current and long term |
|
|
( |
) |
|
|
|
|
|
474 |
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
( |
) |
|
|
2,137 |
|
|
Other liabilities |
|
|
|
|
|
( |
) |
|
|
(421 |
) |
|
Customer deposits and deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
|
243 |
|
Current portion of long-term debt and accrued interest |
|
|
( |
) |
|
|
( |
) |
|
|
(40 |
) |
Lease liabilities |
|
|
( |
) |
|
|
|
|
|
702 |
|
|
Net cash flows (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
|
14,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|||
Purchase of property, plant and equipment, net of accounts payable changes |
|
|
( |
) |
|
|
( |
) |
|
|
(1,242 |
) |
Capitalized software development expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
(1,794 |
) |
Other asset expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
(398 |
) |
Recovery of software development expenditures |
|
|
|
|
|
|
|
|
127 |
|
||
Proceeds on sale of property, plant, and equipment |
|
|
|
|
|
|
|
|
14 |
|
||
Proceeds on sale of assets held for sale |
|
|
|
|
|
|
|
|
- |
|
||
Proceeds on sale of software and patents |
|
|
|
|
|
|
|
|
10,950 |
|
||
Net cash flows (used in) provided by investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
7,657 |
|
|
|
|
|
|
|
|
|
|
|
|||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|||
Common share repurchases |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
Repayment of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
|
(11,579 |
) |
Net proceeds received from Rights Offering |
|
|
|
|
|
|
|
|
- |
|
||
Employee tax payments on vesting of RSUs |
|
|
( |
) |
|
|
( |
) |
|
|
(26 |
) |
Net cash flows (used in) financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
(11,605 |
) |
Effect of foreign exchange on cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
|
(13 |
) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
|
10,860 |
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
14,239 |
|
||
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
|
|
|
|
25,099 |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|||
Interest paid |
|
|
( |
) |
|
|
( |
) |
|
|
(3,977 |
) |
Income taxes paid |
|
|
( |
) |
|
|
( |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet. |
|
|||||||||||
|
|
As at December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
24,744 |
|
||
Restricted cash |
|
|
|
|
|
|
|
|
355 |
|
||
Total cash, cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
25,099 |
|
||
The accompanying notes are an integral part of these consolidated financial statements.
57
DIRTT Environmental Solutions Ltd.
Notes to the Consolidated Financial Statements
(Amounts stated in thousands of U.S. dollars unless otherwise stated)
1. GENERAL INFORMATION
DIRTT Environmental Solutions Ltd. and its subsidiary (“DIRTT”, the “Company”, “we” or “our”) is a leader in industrialized construction. DIRTT’s system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public sector markets, DIRTT’s system provides total design freedom, and greater certainty in cost, schedule, and outcomes.
DIRTT’s proprietary design integration software, ICE® (“ICE software”), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE Software is also licensed to unrelated companies and Construction Partners of the Company.
DIRTT is incorporated under the laws of the province of Alberta, Canada. Its headquarters is located at 7303 – 30th Street S.E., Calgary, AB, Canada T2C 1N6 and its registered office is located at 4500, 855 – 2nd Street S.W., Calgary, AB, Canada T2P 4K7. DIRTT’s common shares trade on the Toronto Stock Exchange under the symbol “DRT”. On June 12, 2025, the Company began trading on the OTCQX® Best Market (“OTCQX”) under the symbol “DRTTF.” The Company previously traded on, and upgraded to OTCQX from, the OTC Pink® Market.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements (“Financial Statements”), including comparative figures, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
In these Financial Statements, unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars. DIRTT’s financial results are consolidated in Canadian dollars, the Company’s functional currency, and the Company has adopted the U.S. dollar as its reporting currency. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.
Principles of consolidation
The Financial Statements include the accounts of DIRTT and its subsidiary. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated upon consolidation.
Basis of measurement
These Financial Statements have been prepared on the historical cost convention except for certain financial instruments, assets held for sale and stock-based compensation that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
Use of estimates
The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the Financial Statements. Estimates are based on historical data and experience, as well as various other factors that management considers reasonable under the circumstances. Actual outcomes can differ from these estimates.
Significant estimates and assumptions made by management include:
58
Segments
Management has determined that DIRTT has
Foreign currency translation
DIRTT Environmental Solutions Ltd. is a Canadian company and its functional currency is the Canadian dollar. DIRTT’s wholly owned subsidiary, DIRTT Environmental Solutions Inc., is domiciled in the United States and its functional currency is the U.S. dollar.
Assets and liabilities denominated in foreign currencies, other than those held through foreign subsidiaries, are translated into the transacting company’s functional currency at the year-end exchange rate for monetary items, and at the historical exchange rates for non-monetary items. Foreign currency revenues and expenses are translated at the exchange rates in effect on the dates of the related transactions. Foreign exchange gains and losses, other than those arising from the translation of the Company’s net investments in its foreign subsidiary, are included in income.
The accounts of the Company’s U.S. dollar subsidiary is translated into Canadian dollars, and the Financial Statements are translated into U.S. dollars for financial statement presentation. Assets and liabilities are translated using year-end exchange rates, and revenues, expenses, gains and losses are translated using average monthly exchange rates. Foreign exchange gains and losses arising from the translation of the Company’s assets and liabilities are included in “comprehensive (loss) income for the year”.
Cash and cash equivalents and restricted cash
Cash and cash equivalents include cash on hand held at banks and cash equivalents, which are defined as highly liquid investments with original maturities of three months or less. Restricted cash is a reserve account not available for immediate or general business use and is required as collateral to commercial credit cards or when certain requirements are not met under the terms of the Company’s senior secured credit facility (as defined in Note 14).
Trade and other receivables, net of expected credit losses
Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates its allowance for doubtful accounts using the current expected credit loss methodology, which is designed to capture the Company’s current estimate of all expected credit losses.
Inventory
Inventory is comprised of raw materials and work in progress. The Company does not typically carry a significant amount of finished goods inventory. Inventory is valued at the lower of weighted average cost and net realizable value. Net realizable value is based on an item’s usability in the manufacturing of the Company’s products. The Company records an allowance for obsolescence when the net realizable value of inventory items declines below weighted average cost. Net realizable value is determined based on current market prices for inventory less the estimated cost to sell. Work in progress is valued at an estimate of cost, including attributable overheads, based on stage of completion.
Fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods where production levels are abnormally low, unallocated overheads are separately recognized as an expense in the period in which they are incurred.
59
Assets held for sale
The Company classifies an asset group (“asset”) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the consolidated statement of operations and comprehensive loss in the period in which the held for sale criteria are met. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset.
The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.
Leases
The Company categorizes leases at their inception as either operating or finance leases. Leases where the Company assumes substantially all of the rewards or ownership and leases where ownership is transferred at the end of the lease term, or by way of a bargain purchase option, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability, so as to achieve a constant rate of interest on the balance of the liability. Finance charges are recognized in the statement of operations.
The Company’s Leasing Facilities (as defined in Note 14) are accounted for as finance leases as ownership of the equipment is expected to return to the Company at the end of the lease term. These transactions are not accounted for as a sale of the underlying equipment as the Company continues to control the equipment.
For leases categorized as operating, the Company determines if an arrangement is a lease or contains a lease element at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Operating leases are separately disclosed as operating lease right-of-use (“ROU”) assets, with a corresponding lease liability split between current and long-term components on the balance sheet. Operating leases with an initial term of 12 months or less are not included on the balance sheet.
The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Upon derecognition of ROU assets and operating lease liabilities, costs associated with cease-use liabilities, including costs for early termination, will reduce the ROU asset in calculating any gain or loss from early termination.
Property, plant and equipment
Property, plant and equipment are recorded at cost, including direct costs, attributable indirect costs and carrying costs, less accumulated depreciation and any accumulated impairment losses. Expenditures for repairs and maintenance are expensed as incurred, while renewals and betterments are capitalized.
Depreciation is charged to the consolidated statement of operations on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the Company’s property, plant and equipment are as follows:
Building |
|
Manufacturing equipment |
|
Leasehold improvements |
Over term of lease ( |
Office equipment |
|
Tooling and prototypes |
|
Computer equipment |
|
Vehicles |
60
When assets are disposed of or retired, the cost and accumulated depreciation and impairment losses are removed from the respective accounts and any resulting gain or loss is reflected in operating expenses.
Capitalized software costs
The Company capitalizes costs related to internally developed software during the application development stage when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project, and (iii) it is probable that the project will be completed and performed as intended. Capitalized costs include costs of personnel and related expenses for employees and third parties directly attributable to the projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements are also capitalized. Costs related to preliminary project activities and post implementation activities, including training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the developed asset, which is
Software development is considered internal-use as it is used to design and sell the DIRTT products and is not included in the end client’s product. Revenues received from Construction Partners for ICE Software are recognized as revenues as they are considered an element of the product sale. Any incidental third-party revenues received for the ICE Software are credited against capitalized software costs. The Company follows this accounting policy for cloud computing arrangements that are considered a service contract, however, these projects are capitalized to prepaids and other assets on the balance sheet and are expensed as an operating cost, as opposed to amortization, over the expected term of the software service contract.
Impairment of long-lived assets
Management evaluates the recoverability of the Company’s property, plant and equipment, capitalized software costs and ROU assets when events or changes in circumstances indicate a potential impairment exists. Events and changes in circumstances considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, and changes in the Company’s business strategy. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (an “asset group”). In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Convertible Debentures
The Company accounts for convertible debentures as liabilities. Embedded features included in the convertible debentures that require bifurcation are accounted for separately. Costs incurred directly related to the issuance of convertible debentures are presented as a direct deduction against the carrying amount of the convertible debentures and are amortized to interest expense using the effective interest method.
Income taxes
Income tax expense is comprised of current and deferred tax. Income tax is recognized in the consolidated statement of operations and comprehensive income (loss) except to the extent it relates to items recognized directly in equity.
Current tax
Current tax expense is based on the results for the year, adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
61
Deferred tax
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income in the period during which the change occurs.
When appropriate, the Company records a valuation allowance against deferred tax assets to reflect that these tax assets may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of the Company’s deferred tax assets will not be realized, based on management’s judgment using available evidence about future events.
At times, tax benefits claims may be challenged by a tax authority. Tax benefits are recognized only for tax positions that are more likely than not sustainable upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than
Revenue recognition
The Company accounts for revenue in accordance with topic 606, Revenue from Contracts with Customers, (“ASC 606”) and Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers. Under ASC 606, an entity recognizes revenue in a manner that reflects the transfer of promised goods or services to customers in an amount which the entity expects to be entitled in exchange for those goods or services.
The Company recognizes revenue upon transfer of control of promised goods or services to customers at the transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is calculated as selling price net of variable consideration which may include estimates for sales incentives related to current period product revenue. Revenue is measured at the fair value of the consideration received or receivable, after discounts, rebates and sales taxes or income taxes and duties.
Product sales
The Company recognizes revenue upon transfer of control of products to the customer, which typically occurs upon shipment. The Company’s main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. Construction Partners typically sell DIRTT product to end clients and issue purchase orders to the Company to manufacture the product. Construction Partners utilize ICE Software licenses to sell DIRTT products. The ICE Software licenses sold to Construction Partners are not considered a separate performance obligation as they are not distinct, and ICE Software license revenue is recognized in conjunction with product sales. The Construction Partner ICE Software revenue is recognized over the license period.
The Company’s standard sales terms are Free On Board shipping point, which comprise the majority of sales. The Company usually requires a
The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized.
The Company accounts for product transportation revenue and costs as fulfillment activities and presents the associated costs in costs of goods sold in the period in which the Company sells its product.
62
Contracts containing multiple performance obligations
The Company offers certain arrangements whereby a customer can purchase products and installation together, which are generally capable of being distinct and accounted for as separate performance obligations. Where multiple performance obligations exist, the Company determines revenue recognition by (1) identifying the contract with the customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations based on the relative standalone selling prices, typically based on cost plus a reasonable margin, and (5) recognizing revenue as the performance obligations are satisfied.
Installation and other services
The Company provides installation and other services for certain customers as a distinct performance obligation. Revenue from installation services is recognized over time as the service is performed.
Principal vs Agent Considerations
The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling the product or service sales to customers. In certain instances, the Company facilitates contracting of certain sales on behalf of Construction Partners. The Company records these revenues on a gross basis when the Company is obligated to fulfill the service and has the risk associated with service delivery. The Company records these revenues on a net basis when the Construction Partner has the obligation to fulfill the services and has the risk associated with service delivery.
Rebates
Rebates to Construction Partners and customers are accrued for and recognized as a reduction of revenue at the date of the sale to the customer. Rebates include amounts collected directly by the Company owed to Construction Partners or customers in accordance with their agreements. Other sales discounts are deducted immediately from sales invoices.
Contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing. As the Company’s contracts are less than one year in duration, the Company has elected to apply the practical expedients to expense costs related to costs to obtain contracts and not disclose unfulfilled performance obligations. As deferred revenue and customer deposits are typically recognized during the year, the Company does not account for financing elements.
Warranties
The Company provides a warranty on all products sold to its clients and Construction Partner’s clients. Warranties are not sold separately to customers. Provisions for the expected cost of warranty obligations are recognized based on an analysis of historical costs for warranty claims relative to current activity levels and adjusted for factors based on management’s assessment that increase or decrease the provision. Warranty provision is recognized in cost of goods sold. Warranty claims have historically not been material and do not constitute a separate performance obligation.
Stock-based compensation
The Company follows the fair value-based approach to account for options, share awards and restricted share units (“RSUs”). Compensation expense and an increase in “Additional paid-in capital” are recognized for options and RSUs over their vesting period based on their estimated fair values on the grant date, as determined using the Black-Scholes option pricing model for the majority of options and the market value of the Company’s common shares on the grant date for share awards and RSUs. Certain executive RSUs have performance conditions and are valued using a Monte Carlo model.
On exercise of stock options and RSUs, the recorded fair value of the option or RSU is removed from “Additional paid-in capital” and credited to “Share capital”. For options, any consideration paid by employees is credited to “Share capital” when the option is exercised. The Company’s stock options and RSUs are not shares of the Company and have no rights to vote, receive dividends, or any other rights as a shareholder of the Company.
63
Stock-based compensation expense is also recognized for performance share units (“PSUs”) and deferred share units (“DSUs”) using the fair value method. Compensation expense is recognized over the vesting period and the corresponding amount is recorded as a liability on the balance sheet.
The Company measures the DSUs granted under the LTIP (as defined herein) beginning in the second quarter 2023, using the closing price of the Company’s common shares on the grant date as the present intention is to settle the New DSUs in equity. This is recognized as an increase to stock-based compensation and the corresponding liability on the balance sheet.
Technology and development expenditures
Technology and development expenses are comprised primarily of salaries and benefits associated with the Company’s product and software development personnel which do not qualify for capitalization. These costs are expensed as incurred and exclude certain information technology costs used in operations which are classified as general and administrative costs.
Government subsidies
The Company accounts for government subsidies on an accrual basis when the conditions for eligibility are met. The Company has adopted an accounting policy to present government subsidies as other income. The nature, significant terms and conditions of government subsidies are disclosed in the Financial Statements.
Common shares
In lieu of a par value for common shares, the Company has elected to calculate any cancellation of common shares using the stated value of shares. The excess of purchase cost over stated value of shares cancelled upon repurchase will be recorded as additional paid-in capital.
Earnings per share
Basic earnings per share is calculated using the weighted average number of common shares outstanding during the year and adjusted for any change in capital structure events triggering retroactive changes to weighted average number of common shares outstanding. Diluted earnings per share is calculated using the treasury stock method for determining the dilutive impact of stock options, RSUs, PSUs, PRSUs and New DSUs. The Company follows the “if converted” method for accounting for the impact of convertible debentures on net income (loss) per share, whereby interest charges applicable to the convertible debentures are added to the numerator and the convertible debentures are assumed to have been converted at the beginning of the period (or time of issuance, if later), and the resulting common shares are added to the denominator.
Fair value of financial instruments
ASC 820, “Fair Value Measurements,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the consolidated balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company’s fair value analysis is based on the degree to which the fair value is observable and grouped into categories accordingly:
64
The carrying amounts of cash and cash equivalents and restricted cash; trade and accrued receivables, other receivables; accounts payable and accrued liabilities; other liabilities; and customer deposits approximate fair value due to their short-term nature.
3. ADOPTION OF NEW ACCOUNTING STANDARDS AND RECENT PRONOUNCEMENTS ISSUED
On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, “Improvements to Income Tax Disclosures” (the “ASU-2023-09”) further disaggregated information on an entity’s tax rate reconciliation and income taxes paid. The amendments in ASU-2023-09 was effective for fiscal years beginning after December 15, 2024. The Company has adopted this standard.
On November 5, 2024, the FASB issued Accounting Standards Update No. 2024-03, “Disaggregation of Income Statement Expenses” (the “ASU-2024-03”) which requires further disaggregated information on an entity’s types of expenses presented to better understand the components of an entity’s expense captions. The amendments within ASU-2024-03 are effective for annual reporting periods starting December 15, 2026, and interim periods beginning after December 15, 2027, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard and expects this to impact the presentation and disclosures of the Consolidated Statement of Operations and Comprehensive (Loss) Income.
On November 27, 2024, the FASB issued Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible Debt Instruments” (the “ASU-2024-04”) which requires discussing an entity’s assessment of induced conversion and debt extinguishment of convertible debt instruments. The amendments in ASU-2024-04 are effective for fiscal years beginning after December 15, 2025, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this standard.
On July 30, 2025, the FASB issued Accounting Standards Update No. 2024-05, “Financial Instruments - Credit Losses” (the “ASU-2025-05”) which requires additional consideration when estimating the expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendments in ASU-2025-05 are effective for fiscal years beginning after December 15, 2025. The Company is evaluating the impact of the adoption of this standard.
On September 18, 2025, the FASB issued Accounting Standards Update No. 2025-06, “Targeted Improvements to the Accounting for Internal-Use Software” (the “ASU-2025-06”) which amends certain aspects of the accounting for and disclosure of software costs. The amendments in ASU-2025-06 are effective for fiscal years beginning after December 15, 2027, on a prospective basis with an option of retrospective application. The Company is evaluating the impact of the adoption of this trend.
On December 8, 2025, the FASB issued Accounting Standards Update No. 2025-11, “Narrow-Scope Improvements to Interim Reporting” (the “ASU-2025-11”) which clarifies the guidance on interim reporting disclosures. The amendments in ASU-2025-11 are effective for interim reporting periods with annual reporting periods beginning after December 15, 2027. The Company is evaluating the impact of the adoption of this trend.
Although there are several other new accounting standards issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its Financial Statements.
4. GOVERNMENT SUBSIDIES
In the United States, the Employee Retention Credit (“ERC”) was established by Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act to provide an incentive for employers to keep their employees on their payroll during COVID-19 closures. The ERC is a refundable payroll tax credit based on qualified wages paid by an eligible employer between March 12, 2020, and October 1, 2021, for companies experiencing a significant decline in gross receipts during a calendar quarter or having operations fully or partially suspended during the quarter due to COVID-19. During the third quarter of 2022, the Company determined it was eligible for the ERC for the first three quarters of 2021 and filed a claim for $
For the twelve months ended December 31, 2024 and 2025, no government subsidies were claimed or received.
5. REORGANIZATION AND ASSETS HELD FOR SALE
Temporary Suspension of Operations and Subsequent Closure at the Rock Hill Facility
On September 27, 2023, the Company decided to permanently close the Rock Hill Facility. Certain assets, including manufacturing equipment, which met held for sale criteria at that time were reclassified from property, plant and equipment. During the three months ended March 31, 2024, $
65
balance was reduced from $
Assets classified as held for sale as at December 31, 2023, of $
|
|
As at December 31, |
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|||||
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|
2025 |
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|
2024 |
|
||
Assets held for sale, opening |
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Proceeds from sale of assets held for sale |
|
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( |
) |
|
Impairment charge on reassessment |
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( |
) |
|
Net book value transferred from property, plant and equipment |
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Assets held for sale, ending |
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|
||
To move the assets or dispose of the assets at the Rock Hill Facility, the Company fully settled the principal balance of the U.S. leasing facility in the fourth quarter of 2023. Principal payments of $
Effective December 30, 2025, the Company entered into an agreement for an early termination of the lease at the Rock Hill Facility. As such, the remaining leasehold improvements were measured at the lower of the net book value versus the fair value less cost to sell resulting in an impairment charge of $
Transformation Office
In 2024, DIRTT’s leadership team set up a new team, the Construction Services team (previously referred to as Integrated Solutions), to support our Construction Partner network in increasing market share and accessing markets to which we previously did not have access. In early 2025, a transformation office was established to accelerate the strategic transformation of our business by streamlining the Company’s processes and procedures, supporting Construction Services and improving productivity across the Company (the “Transformation Office”). We are incurring consultant costs to assist in, advise, and implement our transformation process, as well as various non-recurring expenses. The program is planned to be completed in 2026.
For the year ended December 31, 2025, 2024, and 2023, the following reorganization costs incurred relate to the above mentioned initiatives:
|
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For the Year Ended December 31, |
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2025 |
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2024 |
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2023 |
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Termination benefits |
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Transformation Office costs |
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Rock Hill Facility temporary suspension and closure of operations |
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Other costs |
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Phoenix Facility closure |
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Total reorganization costs |
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Reorganization costs in accounts payable and accrued liabilities at January 1, 2025 |
|
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Reorganization expense |
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|
|
Reorganization costs paid |
|
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( |
) |
Reorganization costs in accounts payable and accrued liabilities at December 31, 2025 |
|
|
|
Of the $2
66
6. GAIN ON SALE OF SOFTWARE AND PATENTS
There were no sales of software and patents during the years ended December 31, 2025 and December 31, 2024.
In 2023, the Company entered into a Co-Ownership Agreement (the “Co-Ownership Agreement”) and a partial patent assignment agreement with AWI. The agreements provided for a cash payment from AWI to the Company of $
The $
7. GAIN ON EXTINGUISHMENT OF CONVERTIBLE DEBENTURES
On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”) pursuant to which the Company offered to repurchase for cancellation: (i) up to C$
C$
On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement (the “Repurchase Agreement”) with 22NW, pursuant to which the Company purchased for cancellation an aggregate of C$
On August 28, 2024, the Company commenced a normal course issuer bid (the “Debentures NCIB”) for the Debentures which expired on
67
Debentures. For the year ended December 31, 2025, C$
For the year ended December 31, 2025, the gain on extinguishment of convertible debentures relate to the above mentioned initiatives:
|
|
For the Year Ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Extinguishment of convertible debentures |
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|
||
Less: |
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|
||
Principal repayment through the Debentures NCIB and Renewed Debentures NCIB |
|
|
( |
) |
|
|
( |
) |
Principal repayment through the Repurchase Agreement |
|
|
|
|
|
( |
) |
|
Principal repayment through the Issuer Bid |
|
|
|
|
|
( |
) |
|
Gain on extinguishment of convertible debentures |
|
|
|
|
|
|
||
In accordance with GAAP, it was determined that the C$
8. LEASES
The Company leases office and factory space under various operating leases. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to instruments with similar characteristics when calculating its incremental borrowing rate. The Company’s operating leases have remaining lease terms of
The weighted average remaining lease term and weighted average discount rate at December 31, 2025, was
The Company entered into a sublease arrangement for part of the Phoenix Facility during the second quarter of 2022, commencing July 1, 2022. The Company entered in to an additional sublease arrangement for the remaining part of the Phoenix Facility during the third quarter of 2024, commencing October 1, 2024, which was terminated in the fourth quarter of 2025 resulting in $0.5 million of bad debt expense. The Company is actively pursuing options to sublease this area. Additionally, the Company entered into a sublease agreement for the Plano, DXC to one of our Construction Partners in that region, in which the subtenant has assumed responsibility for all monthly rent, utilities, maintenance, taxes and other costs as of April 1, 2023, through December 31, 2024. The Plano sublease agreement was extended for an additional four years, through October 31, 2028.
In May 2025, the Company entered into a leasing agreement for a Houston DXC. Undiscounted cash flows associated with this lease are $
On December 30, 2025, the Company entered an early termination agreement for its Rock Hill Facility lease (refer to Note 5). As a result of this termination, the lease liability and ROU asset associated with this lease have been derecognized. Undiscounted cash
68
flows associated with this modification were $
In November 2025, the Company modified and existing agreement for a Calgary manufacturing facility to extend the leasing term for an additional
In the fourth quarter of 2025, we determined that the Phoenix Facility (which was closed in 2022) was impaired. The Company determined that there were no impairment indicators for the facilities in use.
The following table includes ROU assets included on the balance sheet at December 31, 2025 and 2024:
|
|
ROU Assets |
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Cost |
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Accumulated depreciation |
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Net book value |
|
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At January 1, 2024 |
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|
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( |
) |
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|
||
Disposals |
|
|
( |
) |
|
|
|
|
|
- |
|
|
Modifications |
|
|
|
|
|
- |
|
|
|
|
||
Depreciation expense |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Exchange differences |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
At December 31, 2024 |
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|
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( |
) |
|
|
|
||
Additions |
|
|
|
|
|
- |
|
|
|
|
||
Termination of Rock Hill Facility lease |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Disposals |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Modifications |
|
|
|
|
|
|
|
|
|
|||
Depreciation expense |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Exchange differences |
|
|
|
|
|
( |
) |
|
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|
||
At December 31, 2025 |
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( |
) |
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|
|
||
The components of the lease cost for the years ended December 31, 2025, 2024 and 2023 were as follows:
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|
For the year ended December 31, |
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2025 |
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2024 |
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2023 |
|
|||
Operating lease cost (1) |
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|||
Fixed lease cost |
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|
|||
Sublease income |
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( |
) |
|
|
( |
) |
|
|
( |
) |
Total operating lease cost |
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|
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|
|
|
|||
|
|
|
|
|
|
|
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|
|||
(1) The lease costs, net of sublease income, are reflected in the Consolidated Statements of Operations and Comprehensive (Loss) Income as follows: |
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|
||||||||||
|
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|
|
For the year ended December 31, |
|
|||||||||
|
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|
|
2025 |
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|
2024 |
|
|
2023 |
|
|||
Cost of goods sold |
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|
|||
Selling and marketing |
|
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|
|||
General and administrative |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Technology and development |
|
|
|
|
|
|
|
|
|
|
|
|||
Total operating lease cost |
|
|
|
|
|
|
|
|
|
|
|
|||
69
The following table includes lease liabilities included on the balance sheet at December 31, 2025 and 2024:
|
|
Lease Liability |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
At January 1, |
|
|
|
|
|
|
||
Additions |
|
|
|
|
|
|
||
Termination of Rock Hill Facility lease |
|
|
( |
) |
|
|
|
|
Modifications |
|
|
|
|
|
|
||
Accretion |
|
|
|
|
|
|
||
Repayment of lease liabilities |
|
|
( |
) |
|
|
( |
) |
Exchange differences |
|
|
|
|
|
( |
) |
|
At December 31, |
|
|
|
|
|
|
||
Current lease liabilities |
|
|
|
|
|
|
||
Long-term lease liabilities |
|
|
|
|
|
|
||
The following table includes maturities of operating lease liabilities at December 31, 2025:
2026 |
|
|
|
|
2027 |
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|
|
|
2028 |
|
|
|
|
2029 |
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|
|
2030 |
|
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|
|
Thereafter |
|
|
|
|
Total |
|
|
|
|
Total lease liability |
|
|
|
|
Difference between undiscounted cash flows and lease liability |
|
|
|
9. TRADE AND ACCRUED RECEIVABLES
Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates an allowance for credit losses using the lifetime expected credit loss at each measurement date, taking into account historical credit loss experience as well as forward-looking information in order to establish rates for each class of financial receivable with similar risk characteristics. Adjustments to this estimate are recognized in the statement of operations.
In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial wellbeing of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2025, approximately 59% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities. In addition, and where possible, we collect a
Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the years ended December 31, 2025 and December 31, 2024, no single Construction Partner accounted for greater than
|
|
As At December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Current |
|
|
|
|
|
|
||
Overdue |
|
|
|
|
|
|
||
|
|
|
|
|
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|
||
Less: expected credit losses |
|
|
( |
) |
|
|
( |
) |
Trade and accrued receivables, net of expected credit losses |
|
|
|
|
|
|
||
No change to our expected credit loss was required during the year ended December 31, 2025, or December 31, 2024 for our trade receivables. We however have an expected credit loss on the sublease income of our Phoenix lease of $
70
are generally considered to be past due when over 60 days old, unless there is a separate payment arrangement in place for the collection of the receivable.
10. INVENTORY
|
|
As at December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Raw material |
|
|
|
|
|
|
||
Allowance for obsolescence |
|
|
( |
) |
|
|
( |
) |
Work in progress |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
As of December 31, 2025, the Company had $
11. PROPERTY, PLANT AND EQUIPMENT, NET
|
|
Office and computer equipment |
|
|
Factory equipment |
|
|
Leasehold improvements |
|
|
Total |
|
||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Disposals |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Exchange differences |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
At December 31, 2024 |
|
|
|
|
|
|
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|
|
|
|
|
||||
Additions |
|
|
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|
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|
|
|
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|
||||
Impairment (1) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Disposals |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Exchange differences |
|
|
(63 |
) |
|
|
1,229 |
|
|
|
971 |
|
|
|
2,137 |
|
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accumulated depreciation and impairment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Disposals |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Exchange differences |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
At December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Impairment (1) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Disposals |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Exchange differences |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
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|
||||
Net book value |
|
|
|
|
|
|
|
|
|
|
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|
||||
At December 31, 2024 |
|
|
|
|
|
|
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|
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|
||||
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
71
The following table presents a reconciliation of the impairment charge incurred for the year ended December 31, 2025:
|
|
For the Year Ended December 31, |
|
|
|
|
2025 |
|
|
Cost of impaired leasehold improvements |
|
|
|
|
Accumulated depreciation of impaired leasehold improvements |
|
|
( |
) |
Impairment charge |
|
|
|
|
As at December 31, 2025, the Company had $
As at December 31, 2024 the Company determined that there were no impairment indicators warranting an impairment test.
12. CAPITALIZED SOFTWARE, NET
|
For the Year Ended December 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Cost |
|
|
|
|
|
||
As at January 1 |
|
|
|
|
|
||
Additions |
|
|
|
|
|
||
Recovery of software development expenditures |
|
( |
) |
|
|
( |
) |
Disposals |
|
|
|
|
( |
) |
|
Exchange differences |
|
|
|
|
( |
) |
|
As at December 31 |
|
|
|
|
|
||
Accumulated amortization |
|
|
|
|
|
||
As at January 1 |
|
|
|
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|
||
Amortization expense |
|
|
|
|
|
||
Exchange differences |
|
|
|
|
( |
) |
|
As at December 31 |
|
|
|
|
|
||
Net book value |
|
|
|
|
|
||
Estimated amortization expense on capitalized software is $
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER LIABILITIES
|
|
As at December 31 |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Trade accounts payable |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Wages and commissions payable |
|
|
|
|
|
|
||
Rebates accrued(1) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
72
Other liabilities
|
|
As at December 31 |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Warranty and other provisions(1) |
|
|
|
|
|
|
||
Deferred share unit liability |
|
|
|
|
|
|
||
Sublease deposits |
|
|
|
|
|
|
||
Income taxes payable |
|
|
|
|
|
|
||
Other equipment lease liability |
|
|
|
|
|
|
||
Other provisions |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
|
|
As At December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
As at January 1, |
|
|
|
|
|
|
||
Additions to warranty provision |
|
|
|
|
|
|
||
Payments related to warranties |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
14. LONG-TERM DEBT
|
|
Leasing |
|
|
Convertible |
|
|
Total Debt |
|
|||
Balance at January 1, 2024 |
|
|
|
|
|
|
|
|
|
|||
Accretion of issue costs |
|
|
|
|
|
|
|
|
|
|||
Accrued interest |
|
|
|
|
|
|
|
|
|
|||
Interest payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Principal repayments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on extinguishment |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Exchange differences |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at December 31, 2024 |
|
|
|
|
|
|
|
|
|
|||
Current portion of long-term debt and accrued interest |
|
|
|
|
|
|
|
|
|
|||
Long-term debt |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Balance at January 1, 2025 |
|
|
|
|
|
|
|
|
|
|||
Accretion of issue costs |
|
|
|
|
|
|
|
|
|
|||
Accrued interest |
|
|
|
|
|
|
|
|
|
|||
Interest payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Principal repayments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on extinguishment |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Exchange differences |
|
|
|
|
|
|
|
|
|
|||
Balance at December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
Current portion of long-term debt and accrued interest |
|
|
|
|
|
|
|
|
|
|||
Long-term debt |
|
|
|
|
|
|
|
|
|
|||
Revolving Credit Facility
On February 12, 2021, the Company entered into a loan agreement governing a C$
73
below). Should an event of default occur or the Aggregate Excess Availability be less than C$
On February 9, 2023, the Company extended the RBC Facility (the “Extended RBC Facility”). The Extended RBC Facility had a maximum borrowing base of C$
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$
On February 20, 2025, the Company extended the Third Extended RBC Facility (the “Fourth Extended RBC Facility”). The Fourth Extended RBC Facility is subject to the borrowing base calculation based on accounts receivable balances to a maximum of C$
On November 4, 2025, the Company extended the Fourth Extended RBC Facility (the “Fifth Extended RBC Facility”). The Fifth Extended RBC Facility matures on
On February 11, 2026 and in connection with the Loan (as defined herein), the Company amended the Fifth Extended RBC Facility (the “Seventh Amended RBC Facility”) and, together with its subsidiary, entered into priority agreements with RBC and BDC (collectively, the “Priority Agreement”). The Seventh Amended RBC Facility matures on November 30, 2026 and is subject to the same borrowing base terms as the previous facility. The Seventh Amended RBC Facility allows the Company to incur indebtedness to BDC of C$15 million under the Loan and incorporates permitting specific encumbrances to BDC and the Priority Agreement. The Seventh Amended RBC Facility also releases certain mortgage collateral held by RBC.
The Fifth Extended RBC Facility includes a customary “Restricted Payments” covenant that prohibits us from, among other things, repurchasing our common shares, unless we have satisfied certain conditions (the “Payment Conditions”). The Payment Conditions include a condition that, after giving effect to the relevant Restricted Payment, our FCCR be at least 1.10 to 1.00 on a trailing 12-month basis. In February 2026, we and RBC determined that our purchases of our common shares under our NCIB in December 2025 did not comply with the Restricted Payments covenant because our FCCR was below 1.10 to 1.00. RBC has agreed to provide a waiver pursuant to Section 8.3 of the Fifth Extended RBC Facility in connection with the foregoing.
74
Leasing Facilities
The Company has a C$
The Company did not make any draws on the Leasing Facilities during 2025 or 2024. The associated financial liabilities are shown on the consolidated balance sheet in the current portion of long-term debt and accrued interest and long-term debt.
Convertible Debentures
On January 25, 2021, the Company completed a C$
On December 1, 2021, the Company completed a C$
75
Term Loan
On December 11, 2025, the Company entered into a letter agreement (the “Letter”) with the Business Development Bank of Canada (“BDC”), pursuant to which BDC committed to lending the Company up to C$15.0 million (the “Loan”) subject to the satisfaction of certain conditions. The Letter was subsequently amended on January 30, 2026 and February 9, 2026 (the “Amended Letter”) to amend certain conditions.
Following the satisfaction of the conditions precedent set forth in the Letter, BDC will make an initial disbursement to the Company of C$5.5 million and, subject to certain conditions, a secondary disbursement of C$4.5 million and a third disbursement of C$5.0 million. The Loan will accrue interest at a rate equal to BDC’s floating base rate (currently 6.55% per annum) minus 0.75%. Monthly principal repayments of the Loan commence in May 2026 with additional monthly interest-only payments due on the last day of each month following the first disbursement. The Loan matures on April 30, 2032.
The obligations of the Company under the Amended Letter are secured by: (a) a general security agreement from the Company granting (i) a first-ranking security interest in specific equipment and (ii) a second priority security interest in all other present and after-acquired personal property (excluding consumer goods), subject to certain registered charges; (b) a guarantee from DIRTT Environmental Solutions, Inc. for the full amount of the Loan; (c) various landlord’s waivers of distraint; (d) a first mortgage in the principal amount of US$5.0 million on the land and buildings located at 325 North Wells Street, Chicago, IL, USA and (e) a letter of credit for C$3.5 million for the third disbursement of C$5.0 million.
The proceeds of the Loan are expected to be used to partially refinance the Company’s outstanding 6.00% convertible debentures due January 31, 2026 (the "Debentures"). The remaining C$1.6 million principal amount of Debentures is expected to be repaid using cash on hand.
The Company received C$5.5 million from BDC on February 13, 2026. The next disbursement of C$4.5 million is subject to the receipt of certain landlord waivers and other conditions. The last disbursement of C$5.0 million is expected to be in the second half of the year, subject to certain conditions.
15. INCOME TAXES
Reconciliation of income taxes
The following reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense. The Canadian statutory rate includes federal and provincial income taxes. This rate was used because Canada is the domicile of the parent entity of the Company.
|
For the Year Ended December 31, |
|
|||||||||
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Net loss before tax |
|
( |
) |
|
|
|
|
|
( |
) |
|
Canadian statutory rate |
|
% |
|
|
% |
|
|
% |
|||
Expected income tax |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Effect on taxes resulting from: |
|
|
|
|
|
|
|
|
|||
Provincial and state income taxes |
|
( |
) |
|
|
|
|
|
( |
) |
|
Non-deductible expenses |
|
|
|
|
|
|
|
|
|||
Non-deductible stock-based compensation |
|
698 |
|
|
|
|
|
|
|
||
Tax rate impacts |
|
|
|
|
|
|
|
( |
) |
||
Adjustments related to prior year tax filings |
|
|
|
|
|
|
|
( |
) |
||
Valuation allowance |
|
|
|
|
( |
) |
|
|
|
||
Income tax expense |
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Current tax expense |
|
|
|
|
|
|
|
|
|||
Deferred tax recovery |
|
|
|
|
|
|
|
|
|||
Income tax expense |
|
|
|
|
|
|
|
|
|||
The provision for income taxes is comprised of federal, state, provincial and foreign taxes based on pre-tax income. In the United States, the CARES Act of 2020 allows, among other provisions, for the recovery of taxes paid over the preceding five years from current year losses.
76
The Company’s U.S. subsidiary’s result was taxable income for the year ended December 31, 2025. The Company utilized prior year operating losses against this income; however, U.S. tax law does not allow for the full offset of losses against current year taxable income to reduce tax payable to zero. This resulted in current tax payable of $
Deferred tax assets and liabilities
Significant components of the Company’s deferred tax assets and liabilities as at December 31, 2025 and 2024 were as follows:
|
As at December 31, 2025 |
|
|||||||||
|
Assets |
|
|
Liabilities |
|
|
Net |
|
|||
Operating losses |
|
|
|
|
- |
|
|
|
|
||
Research and development expenditures |
|
|
|
|
- |
|
|
|
|
||
Property and equipment |
|
- |
|
|
|
( |
) |
|
|
( |
) |
Capitalized software and other assets |
|
- |
|
|
|
( |
) |
|
|
( |
) |
Valuation allowance |
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
- |
|
|
|
|
||
Net deferred taxes |
|
|
|
|
( |
) |
|
|
|
||
|
As at December 31, 2024 |
|
|||||||||
|
Assets |
|
|
Liabilities |
|
|
Net |
|
|||
Operating losses |
|
|
|
|
- |
|
|
|
|
||
Research and development expenditures |
|
|
|
|
- |
|
|
|
|
||
Property and equipment |
|
- |
|
|
|
( |
) |
|
|
( |
) |
Capitalized software and other assets |
|
- |
|
|
|
( |
) |
|
|
( |
) |
Valuation allowance |
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
- |
|
|
|
|
||
Net deferred taxes |
|
|
|
|
( |
) |
|
|
|
||
Summary of temporary difference movements during the year:
|
Balance |
|
|
Recognized |
|
|
Foreign |
|
|
Balance |
|
||||
|
January 1, 2025 |
|
|
in Income |
|
|
Exchange |
|
|
December 31, 2025 |
|
||||
Operating losses |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Research and development |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Property and equipment |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Capitalized software and other assets |
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Valuation allowance |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net deferred taxes |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance |
|
|
Recognized |
|
|
Foreign |
|
|
Balance |
|
||||
|
January 1, 2024 |
|
|
in Income |
|
|
Exchange |
|
|
December 31, 2024 |
|
||||
Operating losses |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Research and development |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Property and equipment |
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Capitalized software and other assets |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
||||
Valuation allowance |
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net deferred taxes |
|
|
|
|
|
|
|
|
|
|
|
||||
For the year ended December 31, 2025, the Company recorded valuation allowances of $1.0 million against deferred tax assets incurred during the year. A valuation allowance is recognized to the extent that it is more likely than not that the deferred tax assets will not be realized (2024 – $3
77
On an annual basis, the Company and its subsidiary file tax returns in Canada and various foreign jurisdictions. In Canada, the Company’s federal and provincial tax returns for the years 2020 to 2023 remain subject to examination by taxation authorities. In the United States, both the federal and state tax returns filed for the years 2019 to 2023 remain subject to examination by the taxation authorities.
Tax loss carryforwards and other tax pools
The significant components of the Company’s net future income tax deductions in these consolidated financial statements are summarized as follows:
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
|
C$ |
|
|
C$ |
|
|
$ |
|
|
$ |
|
||||
Non-capital loss carry-forwards |
|
|
|
|
|
|
|
|
|
|
|
||||
Undepreciated capital costs |
|
|
|
|
|
|
|
|
|
|
|
||||
Share issuance costs |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Scientific research and experimental development |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Total future tax deductions |
|
|
|
|
|
|
|
|
|
|
|
||||
16. RIGHTS OFFERING
On November 21, 2023, the Company announced that the Board of Directors had approved a rights offering (the “Rights Offering”) to its common shareholders for aggregate gross proceeds of C$
In connection with the Rights Offering, the Company entered into a standby purchase agreement, dated November 20, 2023 (the “Standby Purchase Agreement”) with 22NW and 726 BC LLC and 726 BF LLC (together, “726”), or their permitted assigns (collectively and including WWT Opportunity #1 LLC, to which 726 transferred all of their common shares to on December 1, 2023, the “Standby Purchasers”). Subject to the terms and conditions of the Standby Purchase Agreement, each Standby Purchaser agreed to exercise its Basic Subscription Privilege (as defined below) in full and to collectively purchase from the Company, at the subscription price, all common shares not subscribed for by holders of Rights (as defined below) under the Basic Subscription Privilege or Additional Subscription Privilege (as defined below), up to a maximum of C$
On January 9, 2024, the Company announced the completion of the Rights Offering to its common shareholders and the issuance of
DIRTT issued an aggregate of
17. STOCK-BASED COMPENSATION
In May 2020, shareholders approved the DIRTT Environmental Solutions Ltd. Long Term Incentive Plan, which was subsequently amended and restated in each of 2023, 2024 and 2025 and is currently called the DIRTT Environmental Solutions Ltd. Third Amended and Restated Long-Term Incentive Plan (as amended and restated, the “LTIP”). Each amendment and restatement was approved by our shareholders. The 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”). No further awards have been or will be granted under either the Stock Option Plan or the PSU Plan following initial approval of the LTIP in May of 2020, but both plans remain in place to govern the terms of any awards that were granted pursuant to such plans.
The LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, deferred share units, restricted shares, dividend equivalent rights, and other share-based awards and cash awards to eligible employees, officers, consultants
78
and directors of the Company and its affiliates. In accordance with the LTIP, the sum of (i)
Prior to May of 2023, deferred share units (“DSUs”) were granted to non-employee directors under the Deferred Share Unit Plan for Non-Employee Directors (as amended and restated, the “DSU Plan”) and settleable only in cash. As of May 30, 2023, the LTIP provides the Company the ability to settle DSUs in either cash or common shares, while consolidating future share-based awards under a single plan. The terms of the DSU Plan are otherwise materially unchanged as incorporated into the LTIP. Effective May 30, 2023, no new awards have been or will be made under the DSU Plan, but awards previously granted under the DSU Plan will continue to be governed by the DSU Plan. DSUs are settled following cessation of services with the Company.
Stock-based compensation expense
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Equity-settled awards |
|
|
|
|
|
|
|
|
|
|||
Cash-settled awards |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
The following summarizes RSUs, PRSUs, PSUs (each as defined herein) and DSUs activity during the periods:
|
|
RSU Time- |
|
|
RSU Performance- |
|
|
|
|
|
|
|
||||
|
|
Based |
|
|
Based |
|
|
PSU |
|
|
DSU |
|
||||
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
||||
|
|
units |
|
|
units |
|
|
units |
|
|
units |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Vested or settled |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Withheld to settle employee tax obligations |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited or expired |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Outstanding at December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Vested or settled |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Withheld to settle employee tax obligations |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited or expired |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
Outstanding at December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted share units (time-based vesting)
Except as noted below, outstanding restricted share units (“RSUs”) that vest based on time have an aggregate time-based vesting period of
During 2023,
79
departed the Company. Under his executive employment contract,
During the fourth quarter of 2025,
Restricted share units (performance-based vesting)
During 2022 and 2021, RSUs were granted to executives with service and performance-based conditions for vesting based on the Company’s share price performance (the “PRSUs”). Based on share price performance since the date of grant,
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
During the fourth quarter of 2025,
During the fourth quarter of 2025,
Deferred share units
Granted under the DSU Plan
The fair value of the DSU liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently, at each reporting date between the grant date and settlement date, the fair value of the liability is remeasured with any changes in fair value recognized in profit or loss for the period. During 2025, the Company settled
80
Granted under 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 2025 and 2024 was C$
Options
The following summarizes options granted, forfeited and expired during the periods:
|
|
|
|
Number of |
|
|
Weighted average |
|
||
|
|
|
|
options |
|
|
exercise price C$ |
|
||
Outstanding at December 31, 2023 |
|
|
|
|
|
|
|
|
||
Forfeited |
|
|
|
|
( |
) |
|
|
|
|
Expired |
|
|
|
|
( |
) |
|
|
|
|
Outstanding and exercisable at December 31, 2024 |
|
|
|
|
|
|
|
|
||
Outstanding and exercisable at December 31, 2025 |
|
|
|
|
|
|
|
|
||
Range of exercise prices outstanding at December 31, 2023:
|
|
Options outstanding |
|
|
Options exercisable |
|
||||||||||||||||||
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
||||||
|
|
|
|
|
average |
|
|
average |
|
|
|
|
|
average |
|
|
average |
|
||||||
|
|
Number |
|
|
remaining |
|
|
exercise |
|
|
Number |
|
|
remaining |
|
|
exercise |
|
||||||
Range of exercise prices |
|
outstanding |
|
|
life |
|
|
price C$ |
|
|
exercisable |
|
|
life |
|
|
price C$ |
|
||||||
C$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||
C$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
As at December 31, 2025, the Company had no outstanding options.
Dilutive instruments
For the years ended December 31, 2025 and December 31, 2023, respectively,
For the year ended December 31, 2024,
18. SHARE REPURCHASES
On December 18, 2024, the Company announced a normal course issuer bid for common shares (the “Shares NCIB”), which commenced on
On February 13, 2025, the Company entered into a share repurchase agreement (the “NGEN Repurchase Agreement”) with NGEN III, LP (“NGEN”), pursuant to which the Company purchased for cancellation
81
On December 18, 2025, the Company announced the renewal of the Shares NCIB ("Renewed Shares NCIB") which commenced on
In addition to the Share Repurchase, DIRTT acquired and cancelled
The following table summarizes the common shares repurchased and cancelled during the period:
Period |
|
Total number of shares purchased |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced programs |
|
|
Maximum number of shares that may yet be purchased under the program |
|
||||
January 1, 2025 - January 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
February 1, 2025 - February 28, 2025(1) |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
March 1, 2025 - March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
April 1, 2025 - April 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
May 1, 2025 - May 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
June 1, 2025 - June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
July 1, 2025 - July 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
August 1, 2025 - August 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
September 1, 2025 - September 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
October 1, 2025 - October 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
November 1, 2025 - November 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
December 1, 2025 - December 31, 2025(2) |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1)
(2)
19. EARNINGS PER SHARE
On November 21, 2023, the Company announced a Rights Offering which allowed holders of common shares, as of the close of business on December 12, 2023, transferable subscription rights to purchase up to an aggregate of
82
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Net (loss) income per share – basic |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income (thousands of U.S. dollars) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Weighted average number of shares outstanding (thousands of shares as previously calculated) |
|
NA |
|
|
NA |
|
|
$ |
|
|||
Weighted average number of shares outstanding (thousands of shares restated) |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per share (U.S. dollars) − basic (as previously calculated, prior to Rights Offering) |
|
NA |
|
|
NA |
|
|
$ |
( |
) |
||
Net (loss) income per share (U.S. dollars) − basic (as on the Consolidated Statement of Operations) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per share − diluted |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income (thousands of U.S. dollars) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Interest on convertible debentures |
|
NA |
|
|
|
|
|
NA |
|
|||
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Weighted average number of shares outstanding (thousands of shares as previously calculated) |
|
NA |
|
|
NA |
|
|
|
|
|||
Weighted average number of shares outstanding (thousands of shares restated) |
|
|
|
|
|
|
|
|
|
|||
Dilutive debentures on convertible debt (thousands of shares) (1) |
|
|
|
|
|
|
|
|
|
|||
Dilutive RSUs and PRSUs (thousands of shares) (2) |
|
|
|
|
|
|
|
|
|
|||
Dilutive New DSUs (thousands of shares) (2) |
|
|
|
|
|
|
|
|
|
|||
Weighted average number of shares outstanding (thousands of shares) |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per share (U.S. dollars) − diluted (as previously calculated, prior to Rights Offering) |
|
NA |
|
|
NA |
|
|
$ |
( |
) |
||
Net (loss) income per share (U.S .dollars) − diluted (as on the Consolidated Statement of Operations) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
(1) For years ended December 31, 2025 and 2023, the Net loss per share - diluted excludes the effect of
(2) For the years ended December 31, 2025 and 2023, the Net loss per share − diluted excludes the effect of
20. REVENUE
In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. Refer to Note 21 for the disaggregation of revenue by geographic region.
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Product |
|
|
|
|
|
|
|
|
|
|||
Transportation |
|
|
|
|
|
|
|
|
|
|||
License fees from Construction Partners |
|
|
|
|
|
|
|
|
|
|||
Total product revenue |
|
|
|
|
|
|
|
|
|
|||
Installation and other services |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
DIRTT sells its products and services pursuant to fixed-price contracts which generally have a term of one year or less. The transaction price used in determining the amount of revenue to recognize from fixed-price contracts is based upon agreed contractual terms with each customer and is not subject to variability.
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
At a point in time |
|
|
|
|
|
|
|
|
|
|||
Over time |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
83
Revenue recognized at a point in time represents the majority of the Company’s sales. Revenue is recognized when a customer obtains legal title to the product, which is when ownership of the product is transferred to, or services are delivered to, the customer. Revenue recognized over time is limited to installation, services and ongoing maintenance contracts with customers and is recorded as performance obligations are satisfied over the term of the contract.
Contract Liabilities
|
|
As at December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Customer deposits |
|
|
|
|
|
|
|
|
|
|||
Deferred revenue |
|
|
|
|
|
|
|
|
|
|||
Contract liabilities |
|
|
|
|
|
|
|
|
|
|||
Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions. The balance of contract liabilities was lower as at December 31, 2025, compared to the prior year period mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2024 and 2023, respectively, totaling $
Sales by Industry
The Company periodically reviews product revenue by industry vertical market to evaluate trends and the success of industry specific sales initiatives. The nature of products sold to the various industries is consistent and therefore the periodic review is focused on sales performance.
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Commercial |
|
|
|
|
|
|
|
|
|
|||
Healthcare |
|
|
|
|
|
|
|
|
|
|||
Government |
|
|
|
|
|
|
|
|
|
|||
Education |
|
|
|
|
|
|
|
|
|
|||
License fees from Construction Partners |
|
|
|
|
|
|
|
|
|
|||
Total product and transportation revenue |
|
|
|
|
|
|
|
|
|
|||
Installation and other services |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
21. SEGMENT REPORTING
The Company has
Revenue from external customers
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Canada |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
84
Non-current assets
|
|
As at December 31, |
|
|
As at December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
Canada |
|
|
|
|
|
|
||
U.S. |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
DIRTT has one reportable segment: solutions. The DIRTT solutions segment derives revenues from customers by providing physical products and digital tools through our ICE Software to create interior spaces for our customers across the commercial, healthcare, education and government industries. The accounting policies of the solutions segment are the same as those described in Note 2 – significant accounting policies.
DIRTT’s chief operating decision maker in 2025 was the executive leadership team that includes the president and chief operating officer, chief financial officer, and the chief executive officer (subsequent to year-end, the president and chief operating officer departed the Company). The chief operating decision maker assesses performance for the solution segment and decides how to allocate resources based on gross profit and net (loss) income that also is reported on the consolidated statement of operations and comprehensive (loss) income as consolidated gross profit and net (loss) income. The measure of segment assets is reported on the balance sheet as total consolidated assets. The chief operating decision maker uses net (loss) 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 (loss) income are used to monitor budget versus actual results. The chief operating decision maker also uses net (loss) income in competitive analysis by benchmarking to DIRTT’s competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.
DIRTT derives revenue primarily in North America and manages the business activities on a consolidated basis. The technology used in the customer arrangements is based on a single software platform that is deployed to, and implemented by, customers in a similar manner.
Segment profit and loss reconciliation to net (loss) income after tax
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Operating expenses (1) |
|
|
|
|
|
|
|
|
|
|||
Operating (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other (expenses)/income and (losses)/gains (2) |
|
|
( |
) |
|
|
|
|
|
|
||
Net (loss) income after tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
Reconciliation of profit or loss |
|
|
|
|
|
|
|
|
|
|||
Adjustments and reconciling items |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income after tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
(1) Includes Sales and marketing, General and administrative, Operations support, Technology and development, Stock-based compensation, Reorganization costs, Gain on disposal of lease, and Impairment charges |
|
|||||||||||
(2) Includes Tax expenses, non-recurring gains and losses, foreign exchange gain(loss), interest income, and interest expense |
|
|||||||||||
22. COMMITMENTS AND CONTINGENCIES
As at December 31, 2025, the Company had outstanding purchase obligations of approximately $
As previously disclosed, DIRTT Environmental Solutions Inc. received a subpoena for records in relation to an ongoing inquiry by the U.S. Department of Justice into certain projects and services provided by a third party and DIRTT dating back to 2014. The Company is complying with the subpoena and cooperating with the Department of Justice. There have been ongoing discussions regarding the possible resolution of these matters with the Department of Justice without admitting or denying liability. Based on the discussions to date, the Company provided $2.0 million as at December 31, 2025 for the cost of a potential settlement of these matters with the Department of Justice.
85
23. LEGAL PROCEEDINGS
With respect to the DIRTT’s lawsuit against Falkbuilt Ltd. (“Falkbuilt”), Messrs. Smed and Loberg, and their associates, in Utah, on February 5, 2025, the U.S. District Court for the Northern District of Utah (the “Utah Court”) granted Falkbuilt’s motion to dismiss the case, on the basis of forum non conveniens. In simple terms, the Utah Court decided that it would not hear DIRTT’s claim in Utah because Canada was more appropriate, and Canadian law applies to most of DIRTT’s claims. Further the Utah Court found that DIRTT’s Canadian company, DIRTT Environmental Solutions Ltd., owns the trade secrets that were the subject matter of the Utah claim, so whether the theft of those trade secrets occurred in Canada or abroad, they would result in injury to DIRTT Environmental Solutions Ltd. and should be pursued in Canada. The Utah Court, in essence, redirected the determination of those damages from Utah to Canada, being the appropriate forum for the legal dispute. On March 4, 2025, DIRTT filed a motion for reconsideration pursuant to Federal Rules of Civil Procedure, Rule 60(b). The reconsideration requests relief from the Utah Court’s February 5, 2025, Memorandum Decision and Order granting the Defendant’s motion to dismiss for forum non conveniens. The briefing is complete as of April 15, 2025, and the parties are awaiting a decision.
In November 2024, the Alberta Court of King’s Bench scheduled an 8-week trial commencing February 2, 2026, and running until March 27, 2026 for DIRTT’s action against Falkbuilt, Messrs. Smed and Loberg and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, employment duties and confidentiality. DIRTT is pursuing damages and losses it suffered in Canada, the United States, and abroad in the Court of King’s Bench of Alberta. The Court of King’s Bench will determine whether Falkbuilt, Messrs. Smed and Loberg and others wrongfully caused DIRTT to suffer damages, which could exceed $
In 2019, Falkbuilt filed a lawsuit against DIRTT in the Court of Queen’s bench in Alberta (as it was then), alleging that DIRTT had misappropriated and misused their alleged proprietary information in furtherance of DIRTT’s product development. In June 2025, Falkbuilt requested discontinuance on a without costs basis on account of the delay. DIRTT has accepted this offer and the discontinuance of claim was filed in the Court of King's Bench of Alberta on July 17, 2025.
24. RELATED PARTY TRANSACTIONS
On March 15, 2023, the Company entered into a Debt Settlement Agreement (the “Debt Settlement Agreement”) with 22NW and Aron English, 22NW’s principal and a director of DIRTT, (together, the “22NW Group”) who, collectively, beneficially owned approximately
Pursuant to the Debt Settlement Agreement, the Company agreed to repay the Debt by either, or a combination of (i) a payment in cash by the Company to the 22NW Group, and/or (ii) the issuance of equity securities of the Company to the 22NW Group. The liability as at March 31, 2023 was revalued using the closing common share price at March 31, 2023, and a $
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
Other related party transactions for the year ended December 31, 2023, relate to the sale of DIRTT products and services to the 22NW Group for $
On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Group to purchase for cancellation of C$
Additionally, on August 2, 2024, DIRTT entered into a support and standstill agreement (the “2024 Support Agreement”) with 22NW and WWT, DIRTT’s second largest shareholder, which replaced the support and standstill agreement entered into with 22NW on March 22, 2024. Under the 2024 Support Agreement, both 22NW and WWT agreed to certain voting and standstill obligations, including voting in favor of the management director nominees at each of DIRTT’s next two annual general meetings and voting in favor of the ratification of the Amended and Restated SRP. Additionally, each of 22NW and WWT has the right to designate a director
86
nominee at each of DIRTT’s next two annual general meetings, and is subject to certain restrictions with respect to commencing a take-over bid for the Company. The 2024 Support Agreement also permits WWT to acquire up to
To give effect to the terms of the 2024 Support Agreement, the Board adopted the Amended and Restated SRP, effective August 2, 2024, which amended and restated the Company’s shareholder rights plan agreement originally adopted by the Board on March 22, 2024 (the “Original SRP”). The Amended and Restated SRP was ratified by shareholders at the special meeting held on September 20, 2024 (the “SRP Meeting”). The Amended and Restated SRP revised the definition of “Exempt Acquisition” in order to permit WWT to acquire additional common shares without triggering the provisions of the Amended and Restated SRP. The Amended and Restated SRP is otherwise consistent with the Original SRP and is substantially similar to the rights plan adopted by the Company in 2021. Like the Original SRP, the Amended and Restated SRP is intended to help ensure that all shareholders of the Company are treated fairly and equally in connection with any unsolicited take-over bid or other acquisition of control of the Company (including by way of a “creeping” take-over bid). The Amended and Restated SRP was not adopted in response to any specific proposal to acquire control of the Company, and the Board was not aware of any pending or potential take-over bid for the Company at the time of the adoption.
25. SUBSEQUENT EVENTS
On January 31, 2026, the Company repaid the principal amount of the Company’s issued and outstanding 6.00% convertible unsecured subordinated debentures (the “January Debentures”) of C$16.6 million ($12.1 million).
In February 2026, the Company received C$5.5 million from BDC as part of the Loan. Related to this transaction, the Company entered into the Seventh Amended RBC Facility and the Priority Agreement.
On February 17, 2026, the Company entered into a support and standstill agreement (the “2026 Support Agreement”) with 22NW, and 726 BF LLC and 726 BC LLC (collectively, the “726 Entities”), which amends 2024 Support Agreement in respect of certain matters. The 2026 Support Agreement was entered into in connection with the acquisition by the 726 Entities of certain common shares from WWT, as a result of which the 726 Entities own collectively approximately 15.0% of the Company's outstanding common shares. Under the 2026 Support Agreement, each of 22NW and the 726 Entities has the right to designate a director nominee at the Company's annual general meeting to be held in 2026 (the “2026 Meeting”), so long as they respectively own at least the lesser of (i) 10% of the then outstanding common shares, or (ii) 19,174,445 common shares. Under the 2026 Support Agreement, both 22NW and the 726 Entities are subject to certain voting and standstill obligations, including voting in favor of the management director nominees at the 2026 Meeting. Additionally, 22NW and the 726 Entities are each subject to certain restrictions with respect to commencing a take-over bid for the Company. The Support Agreement otherwise prohibits each of 22NW and the 726 Entities from acquiring any additional common shares and terminates on the date which is 90 days following the 2026 Meeting. Pursuant to the terms of the 2026 Support Agreement, the Company appointed Jeremy Gold, Managing Director, Briger Family Office, to the Board effective February 13, 2026. Mr. Gold is the nominee director for the 726 Entities under the 2026 Support Agreement.
87
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of 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 officer 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 officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2025. Based upon their evaluation, our principal executive officer 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as amended. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO framework) to evaluate the effectiveness of internal control over financial reporting. Management believes that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting.
Based on its evaluation under the framework in Internal Control—Integrated Framework, our management concluded that the Company maintained effective internal control over financial reporting at a reasonable assurance level as of December 31, 2025, based on those criteria.
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) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
During the fiscal quarter ended December 31, 2025, none of the Company’s directors or executive officers (as defined in Rule 16a-1 under the Exchange Act)
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
88
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated herein by reference to the information that will be contained in our information circular and proxy statement (“proxy statement”) related to the 2026 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2026 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2026 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2026 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2026 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.
89
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, as at December 31, 2025 and 2024
Consolidated Statements of Operations and Comprehensive (Loss) Income for the Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023
Notes to the Consolidated Financial Statements
All schedules have been omitted as they are either not required or not applicable or the required information is included in the Consolidated Financial Statements or notes thereto.
Exhibit No. |
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Exhibit or Financial Statement Schedule |
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3.1 |
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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). |
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3.2 |
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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). |
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4.1 |
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Description of Registrant’s Securities (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 10-K, File 001-39061, filed on February 26, 2025). |
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4.2 |
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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). |
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4.3 |
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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 4.2 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021). |
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4.4 |
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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). |
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4.5 |
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Amended and Restated Shareholder Rights Plan Agreement, dated as of August 2, 2024, by and between DIRTT Environmental Solutions Ltd. and Computershare Trust Company of Canada, as rights agent (incorporated by reference to Exhibit 4.1 of the Registrants Current Report on Form 8-K,File No. 001-39061, filed August 2, 2024). |
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10.1†# |
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Loan Agreement, dated February 12, 2021, by and among the Royal Bank of Canada, DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc., as borrowers (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on February 19, 2021). |
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10.2†# |
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First Amendment and Consent to Loan Agreement, dated November 15, 2021, by and among the Royal Bank of Canada, as lender, and DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc., as borrowers |
90
Exhibit No. |
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Exhibit or Financial Statement Schedule |
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(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on November 23, 2021). |
10.3+ |
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Amended and Restated Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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10.4+ |
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DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020). |
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10.5+ |
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Form of Option Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020). |
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10.6+ |
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Form of Time-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020). |
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10.7+ |
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DIRTT Environmental Solutions Ltd. 2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022). |
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10.8+ |
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Form of Performance-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020). |
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10.9+ |
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Deferred Share Unit Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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10.10+ |
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DIRTT Environmental Solutions Ltd. Amended and Restated Employee Share Purchase Plan (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, File No. 333-234143, filed on October 9, 2019). |
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10.11+ |
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Executive Employment Agreement, dated June 22, 2022 by and between DIRTT Environmental Solutions Ltd. and Benjamin Urban (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 27, 2022). |
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10.12+ |
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Executive Employment Agreement, dated August 2, 2023, by and between DIRTT Environmental Solutions Inc. and Fareeha Khan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 9, 2023). |
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10.13+ |
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Indemnity Agreement, dated April 26, 2022, between the Company and Douglas A. Edwards, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022). |
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10.14+ |
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Indemnity Agreement, dated June 22, 2022, between DIRTT Environmental Solutions Ltd and Benjamin Urban, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 27, 2022). |
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10.15+ |
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Indemnity Agreement, dated August 2,2023, between DIRTT Environmental Solutions Ltd and Fareeha Khan (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No. 001-39061, filed on November 9, 2023). |
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10.16# |
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Industrial Lease, dated September 15, 2012, by and between Piret (7303-30th Street SE) Holdings Inc. and DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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Exhibit No. |
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Exhibit or Financial Statement Schedule |
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10.17# |
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Agreement of Lease, dated November 5, 2013, by and between Dundee Industrial Twofer (GP) Inc. and DIRTT Environmental Solutions Ltd., as amended by the Lease Amending Agreement, dated October 21, 2016, by and between Dream Industrial Twofer (GP) Inc. (formerly known as Dundee Industrial Twofer (GP) Inc.) and DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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10.18# |
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Lease of Industrial Space, dated February 12, 2015, by and between Hoopp Realty Inc./Les Immeubles Hoopp Inc., by its duly authorized agent, Triovest Realty Advisors Inc., and DIRTT Environmental Solutions Ltd., as amended by the Amendment of Lease, dated April 16, 2015, the Lease Modification Agreement, dated October 27, 2015, the Third Amendment of Lease, dated November 12, 2015, the Fourth Amendment of Lease, dated January 8, 2016 and the Fifth Amendment of Lease, dated August 9, 2019 (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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10.19# |
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Lease Agreement, dated March 29, 2011, by and between EastGroup Properties, L.P. and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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10.20# |
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Lease, dated July 1, 2015, by and between Majik Ventures, L.L.C. and DIRTT Environmental Solutions, Inc., as amended by the First Amendment to Lease, dated May 11, 2017, by and between CAM Investment 352 LLC and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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10.21# |
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Industrial Lease Agreement, dated October 2, 2008, by and between 141 Knowlton Way, LLC and DIRTT Environmental Solutions, Inc., as amended by the First Amendment to Industrial Lease Agreement, dated March 11, 2009, and the Second Amendment to Industrial Lease Agreement, dated August 23, 2018, by and between SH7-Savannah, LLC and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019). |
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10.22# |
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Lease Agreement between Tennyson Campus Owner, LP and DIRTT Environmental Solutions, Inc. dated March 4, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q, File No. 001-39061, filed on May 6, 2020). |
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10.23# |
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Lease Amending Agreement, dated April 6, 2022, by and between Piret (7303 - 30th Street SE) Holdings Inc. and DIRTT Environmental Solutions Ltd (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, File No. 001-39061, filed on July 27, 2022). |
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10.24 |
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Letter Agreement, dated January 7, 2021, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39061, filed on January 13, 2021). |
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10.25+ |
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Subscription Agreement, dated November 14, 2022, by and between DIRTT Environmental Solutions Ltd. and 22NW Fund, LP, together with a schedule identifying substantially identical agreements between DIRTT Environmental Solutions Ltd. and each shareholder and U.S. director and executive officer listed on the schedule and identifying the material differences between each of those agreements and the filed Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, File No. 001-39061, filed on November 18, 2022). |
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10.26#† |
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Second Amendment to Loan Agreement, dated February 9, 2023, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.45 to the Registrant’s Form 10-K,File No. 001-39061, filed on February 22, 2023). |
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10.27+#† |
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Co-ownership Agreement by and between DIRTT Environmental Solutions Ltd. and Armstrong World Industries, Inc., effective May 9, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q,File No. 001-39061, filed on August 2, 2023). |
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10.28+# |
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DIRTT Environmental Solutions Ltd. Amended and Restated Long Term Incentive Program effective May 30, 2023 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q,File No. 001-39061, filed on August 2, 2023). |
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Exhibit No. |
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Exhibit or Financial Statement Schedule |
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10.29 |
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DIRTT Environmental Solutions Ltd. 2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022) |
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10.30#† |
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Third Amendment to Loan Agreement, dated February 9, 2024, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.39 to the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 24, 2024). |
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10.31 |
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Lease Amending Agreement, dated February 6, 2023, by and between HOOPP Realty Inc./Les Immeubles HOOPP Inc., (6335 - 57th Street SE) and DIRTT Environmental Solutions Ltd (incorporated by reference to Exhibit 10.40 to the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 21, 2024). |
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10.32† |
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Indemnity Agreement, dated March 4, 2024, between DIRTT Environmental Solutions Ltd and Shalima Pannikode.(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q, File No. 001-39061, filed on May 8, 2024). |
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10.33 |
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Support and Standstill Agreement, dated as of March 22, 2024, by and between DIRTT Environmental Solutions Ltd. and 22NW Fund, LP (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, File No. 001-39061, filed on March 25, 2024). |
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10.35 |
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DIRTT Environmental Solutions Second Amended and Restated DIRTT Environmental Solutions Ltd. Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current report on Form 8-K, File No. 001-39061, filed May 10, 2024). |
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10.36# |
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Convertible Debenture Repurchase Agreement, dated as of August 2, 2024, by and between DIRTT Environmental Solutions Ltd. and 22NW Fund, LP (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K,File No. 001-39061, filed August 2, 2024). |
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10.37# |
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Support and Standstill Agreement, dated as of August 2, 2024, by and among DIRTT Environmental Solutions Ltd., 22NW Fund, LP and WWT Opportunity #1 LLC (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K,File No. 001-39061, filed August 2, 2024). |
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10.38#* |
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Support and Standstill Agreement, dated as of February 13, 2026, among DIRTT Environmental Solutions Ltd., 22NW Fund. LP, 726 BF LLC, and 726 BC LLC. |
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10.39# |
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Indemnity Agreement, dated November 26, 2024, between DIRTT Environmental Solutions Ltd. and Holly Hess Groos (incorporated by reference to Exhibit 10.42 of the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 26, 2025). |
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10.40# |
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Triparty Agreement dated February 20, 2025, by and among Royal Bank of Canada, Great Midwest Insurance Company and any other company that is part of or added to Skyward Specialty Insurance Group, Inc. for which surety business is underwritten by the Skyward Specialty surety division and DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.43 of the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 26, 2025). |
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10.41# |
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Fourth Amendment to Loan Agreement, dated February 12, 2025, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.44 of the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 26, 2025). |
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10.42#† |
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Fifth Amendment to Loan Agreement, dated February 20, 2025, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.45 of the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 26, 2025). |
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10.43#† |
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Lease Amending Agreement dated April 25, 2024, by and between Piret (7303 - 30th Street SE) Holdings Inc. and DIRTT Environmental Solutions, Ltd. (incorporated by reference to Exhibit 10.46 of the Registrant’s Current Report on Form 10-K, File No. 001-39061, filed on February 26, 2025). |
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93
Exhibit No. |
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Exhibit or Financial Statement Schedule |
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10.44# |
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Indemnity Agreement, dated July 30, 2025, between DIRTT Environmental Solutions Ltd. and Adrian Zarate (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 10-Q, File No. 001-39061, filed on November 6, 2025). |
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10.45* |
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Lease Amending Agreement dated November 10, 2025, by and between Dream Industrial Twofer (GP) Inc. and DIRTT Environmental Solutions, Ltd. |
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10.46*+† |
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Form of Performance Share Unit Award Agreement, dated November 26, 2025, Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020). |
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10.47*+ |
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Amendment of Letter of Offer for BDC Loan, dated February 6, 2026, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Business Development Bank of Canada. |
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10.48*+ |
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Executive Employment Agreement, dated November 26, 2025, by and between DIRTT Environmental Solutions Ltd. and Adrian Zarate. |
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10.49 |
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Sixth Amendment to Loan Agreement, dated November 4, 2025, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 10-Q, File No. 001-39061, filed on November 6, 2025). |
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10.50* |
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Letter of Offer for BDC Loan, dated October 22, 2025, by and among DIRTT Environmental Solutions Ltd. and Business Development Bank of Canada. |
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10.51* |
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Amendment of Letter of Offer for BDC Loan, dated January 30, 2026, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Business Development Bank of Canada. |
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10.52* |
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Seventh Amendment to Loan Agreement, dated February 11, 2026, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada. |
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10.53* |
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Indemnity Agreement, dated January 30, 2026, between DIRTT Environmental Solutions Ltd. and Jeremy Gold. |
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10.54*# |
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Priority Agreement with BDC, dated February 11, 2026, by and among Business Development Bank of Canada and DIRTT Environmental Solutions, Ltd. |
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10.55*# |
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Priority Agreement with BDC, dated February 11, 2026, by and among Business Development Bank of Canada and DIRTT Environmental Solutions, Inc. |
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19.1* |
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19.2* |
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Insider Trading Policy (Pre-clearance group) |
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21.1* |
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Subsidiaries of DIRTT Environmental Solutions Ltd. |
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23.1* |
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Consent of PricewaterhouseCoopers, L.L.P., independent registered public accounting firm. |
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31.1* |
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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. |
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31.2* |
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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. |
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32.1** |
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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. |
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94
Exhibit No. |
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Exhibit or Financial Statement Schedule |
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32.2** |
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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. |
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101.INS* |
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Inline XBRL Instance Document |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
+ Compensatory plan or agreement.
# Information in this exhibit identified by brackets is confidential and has been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is not material and is the type of information that the Company customarily treats as private or confidential. An unredacted copy of this exhibit will be furnished to the Securities and Exchange Commission on a supplemental basis upon request.
† Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission upon request.
95
Item 16. Form 10-K Summary
None.
96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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DIRTT ENVIRONMENTAL SOLUTIONS LTD. |
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Date: February 25, 2026 |
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By: |
/s/ Benjamin Urban |
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Name: Benjamin Urban |
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Title: Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature |
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Title |
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Date |
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/s/ Benjamin Urban
Benjamin Urban |
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Chief Executive Officer and Director (Principal Executive Officer) |
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February 25, 2026 |
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/s/ Fareeha Khan
Fareeha Khan |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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February 25, 2026 |
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/s/ Scott Robinson
Scott Robinson |
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Director |
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February 25, 2026 |
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/s/ Douglas Edwards
Douglas Edwards |
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Director |
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February 25, 2026 |
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/s/ Adrian Zarate
Adrian Zarate |
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Director |
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February 25, 2026 |
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/s/ Holly Hess Groos
Holly Hess Groos |
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Director |
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February 25, 2026 |
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/s/ Shalima Pannikode
Shalima Pannikode |
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Director |
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February 25, 2026 |
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/s/ Scott Ryan
Scott Ryan |
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Director |
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February 25, 2026 |
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/s/ Jeremy Gold
Jeremy Gold
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Director
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February 25, 2026 |
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97
FAQ
What does DIRTT Environmental Solutions Ltd. (DRTTF) primarily do?
How does DIRTT Environmental Solutions (DRTTF) go to market and generate revenue?
What are key financial and liquidity risks highlighted by DIRTT Environmental Solutions (DRTTF)?
How are tariffs and raw material costs affecting DIRTT Environmental Solutions (DRTTF)?
What sustainability and ESG initiatives does DIRTT Environmental Solutions (DRTTF) emphasize?
What major strategic initiatives is DIRTT Environmental Solutions (DRTTF) pursuing?
What competitive and legal risks does DIRTT Environmental Solutions (DRTTF) identify?
