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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2025


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

For the transition period from to

Commission file number 001-39061

DIRTT ENVIRONMENTAL SOLUTIONS LTD.

(Exact name of registrant as specified in its charter)


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

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

(Registrant’s telephone number, including area code): (403) 723-5000

Securities registered pursuant to Section 12(b) of the Exchange Act: None

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

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

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


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

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

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

The registrant had 191,832,029 common shares outstanding as of October 30, 2025.

DIRTT ENVIRONMENTAL SOLUTIONS LTD.

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2025

TABLE OF CONTENTS


		Page
Cautionary Statement Regarding Forward-Looking Statements		ii
PART I – FINANCIAL INFORMATION		4
Item 1. Financial Statements (Unaudited)		4
Interim Condensed Consolidated Balance Sheet		4
Interim Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income		5
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity		7
Interim Condensed Consolidated Statement of Cash Flows		8
Notes to the Unaudited Interim Condensed Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk		46
Item 4. Controls and Procedures		46

PART II – OTHER INFORMATION		47
Item 1. Legal Proceedings		47
Item 1A. Risk Factors		47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 3. Defaults Upon Senior Securities		47
Item 4. Mine Safety Disclosures		47
Item 5. Other Information		48
Item 6. Exhibits		49

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 (this “Quarterly Report”) are “forward-looking statements” within the meaning of “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and “forward-looking information” within the meaning of applicable Canadian securities laws. All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,” “outlook,” “may,” “will,” “should,” “would,” “could,” “can,” “continue,” the negatives thereof, variations thereon and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Forward-looking statements are based on certain estimates, beliefs, expectations and assumptions made in light of management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may be appropriate.

Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those contained in, or expressed or implied 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 the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the U.S. Securities and Exchange Commission (the “SEC”) and applicable securities commissions or similar regulatory authorities in Canada on February 26, 2025 (the “Annual Report on Form 10-K”), and in this Quarterly Report under “Part II, Item 1A. Risk Factors.” These factors include, but are not limited to, the following:

•

the effects of tariffs or other trade barriers on exports or imports to and from Canada and the U.S., retaliatory measures in response thereto, including potential increases in the cost of our raw materials, our finished goods, and our ability to mitigate such effects and timing thereof;

•

general economic and business conditions in the jurisdictions in which we operate, including potential recession risks in North America;

•

our ability to successfully implement the Company’s strategic transformation plan to grow DIRTT’s revenue and pipeline and manage profitability;

•

our ability to develop our Construction Services team (previously referred to as Integrated Solutions) and the effects thereof;

•

inflation and material fluctuations of commodity prices, including raw materials, and our ability to set prices for our products that satisfactorily adjust for inflation, tariffs, and fluctuations in commodity prices;

•

shortages of supplies of certain key components and materials or disruption in supplies due to global events;

•

volatility of our share price and potentially limited liquidity for U.S. investors due to our common shares being quoted on the “OTCQX”;

•

the availability of capital or financing on acceptable terms, or at all, which may impact our liquidity and impair our ability to make investments in the business;

•

refinancing or repaying our indebtedness on maturity;

•

turnover of our key executives and difficulties in recruiting or retaining key employees;

•

our ability to generate sufficient revenue to achieve and sustain profitability and positive cash flows;

•

our ability to attract, train and retain qualified hourly labor on a timely basis to increase overall productive capacity in our manufacturing facilities to enable us to capture any rising demand in the construction industry;

•

our ability to achieve and manage growth effectively;

•

competition in the interior construction industry;

•

the voting influence our two largest shareholders are able to exercise over the Company due to their ownership of our common shares;

•

competitive behaviors by our co-founders and former executives;

•

the condition and changing trends of the overall construction industry;

•

our reliance on our network of Construction Partners (as defined herein) for sales, marketing and installation of our solutions;

•

our ability to introduce new designs, solutions and technology and gain client and market acceptance;

•

defects in our designing and manufacturing software and warranty and product liability claims brought against us;

•

the effectiveness of our manufacturing processes and our success in implementing improvements to those processes;

•

the effectiveness of certain elements of our administrative systems and the need for investment in those systems;

•

global economic, political and social conditions affecting financial markets, such as the war in Ukraine and the conflict in the Middle East;

•

our exposure to currency exchange rates, tax rates, interest rates and other fluctuations, including those resulting from changes in laws or administrative practice, or changes in monetary policies;

•

legal and regulatory proceedings brought against us;

•

infringement on our patents and other intellectual property and our ability to protect and enforce our intellectual property rights, including certain intellectual property rights that are jointly owned with a third party;

•

cyber-attacks and other security breaches of our information and technology systems;

•

damage to our information technology and software systems;

•

our requirements to comply with applicable environmental, health, safety and other similar laws;

•

the impact of environmental, social and governance (“ESG”) matters on our business, including potentially incurring additional expenses implementing Canadian, U.S. and other regulations requiring additional disclosures regarding greenhouse gas emissions and/or broader ESG related-factors;

•

periodic fluctuations in our results of operations and financial conditions;

•

the effect of being governed by the corporate laws of a foreign country, including the difficulty of enforcing civil liabilities against directors and officers residing in a foreign country;

•

the availability and treatment of government subsidies (including any current or future requirements to repay or return such subsidies); and

•

future mergers, acquisitions, agreements, consolidations or other corporate transactions we may engage in.

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

iii

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

DIRTT Environmental Solutions Ltd.

Interim Condensed Consolidated Balance Sheet

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


	As at September 30,			As at December 31,
	2025			2024
ASSETS
Current Assets
Cash and cash equivalents		26,132			29,288
Restricted cash		243			243
Trade and accrued receivables, net of expected credit losses of $0.1 million at September 30, 2025 and December 31, 2024		14,994			19,494
Other receivables		838			416
Inventory		15,974			15,109
Prepaids and other current assets		3,249			2,609
Total Current Assets		61,430			67,159
Property, plant and equipment, net		17,977			20,199
Capitalized software, net		3,145			2,548
Operating lease right-of-use assets, net		23,898			25,369
Other assets		2,760			2,945
Total Assets		109,210			118,220
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		17,447			16,352
Other liabilities		3,126			3,217
Customer deposits and deferred revenue		5,771			4,028
Current portion of long-term debt and accrued interest		12,206			359
Current portion of lease liabilities		5,503			5,619
Total Current Liabilities		44,053			29,575
Long-term debt		10,805			21,993
Long-term lease liabilities		22,865			24,062
Total Liabilities		77,723			75,630
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 191,840,863 issued and outstanding at September 30, 2025 and 193,605,237 issued and outstanding at December 31, 2024		215,052			219,023
Additional paid-in capital		10,571			8,206
Accumulated other comprehensive loss		(17,275	)		(18,541	)
Accumulated deficit		(176,861	)		(166,098	)
Total Shareholders’ Equity		31,487			42,590
Total Liabilities and Shareholders’ Equity		109,210			118,220

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

DIRTT Environmental Solutions Ltd.

Interim Condensed Consolidated Statement of Operations

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2025			2024			2025			2024
Product revenue		36,677			42,475			114,764			121,690
Service revenue		1,039			900			3,169			3,733
Total revenue		37,716			43,375			117,933			125,423

Product cost of sales		25,794			26,208			79,512			76,589
Service cost of sales		455			354			1,594			1,998
Total cost of sales		26,249			26,562			81,106			78,587
Gross profit		11,467			16,813			36,827			46,836

Expenses
Sales and marketing		4,795			5,183			15,265			17,165
General and administrative		4,429			5,834			15,652			14,791
Operations support		1,801			1,915			5,703			5,531
Technology and development		805			1,294			3,513			3,981
Stock-based compensation		742			803			2,075			1,905
Reorganization		2,593			604			2,977			944
Impairment charge on Rock Hill Facility (as defined in Note 4)		-			-			-			530
Total operating expenses		15,165			15,633			45,185			44,847

Operating (loss) income		(3,698	)		1,180			(8,358	)		1,989
Gain on extinguishment of convertible debentures		8			7,478			22			10,409
Foreign exchange gain (loss)		602			(360	)		(1,422	)		917
Interest income		226			341			720			1,312
Interest expense		(465	)		(1,525	)		(1,401	)		(3,524	)
		371			5,934			(2,081	)		9,114
Net (loss) income before tax		(3,327	)		7,114			(10,439	)		11,103
Income taxes
Current and deferred income tax expense		157			23			308			371
Net (loss) income after tax		(3,484	)		7,091			(10,747	)		10,732

Net (loss) income per share
Net (loss) income per share − basic		(0.02	)		0.04			(0.06	)		0.06
Net (loss) income per share − diluted		(0.02	)		0.03			(0.06	)		0.05

Weighted average number of shares outstanding (in thousands)
Basic		190,981			193,020			190,693			189,585
Diluted		190,981			241,272			190,693			239,301

Interim Condensed Consolidated Statement of Comprehensive (Loss) Income


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2025			2024		2025			2024
Net (loss) income after tax for the period		(3,484	)		7,091		(10,747	)		10,732
Exchange differences on translation of foreign operations		(540	)		386		1,266			(221	)
Comprehensive (loss) income for the period		(4,024	)		7,477		(9,481	)		10,511

Interest expense for the three and nine months ended September 30, 2025 includes $nil earned by a related party ($0.3 million and $1.0 million for the three and nine months ended September 30, 2024). Refer to Note 17.

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

DIRTT Environmental Solutions Ltd.

Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited – Stated in thousands of U.S. dollars, except for share data)


										Accumulated
	Number of						Additional			other						Total
	Common			Common			paid-in			comprehensive			Accumulated			shareholders’
	shares			shares			capital			loss			deficit			equity
As at December 31, 2023		105,377,667			196,128			7,954			(16,125	)		(180,856	)		7,101
Stock-based compensation		-			-			248			-			-			248
Issued on vesting of RSUs (as defined in Note 9)		521,253			771			(771	)		-			-			-
Issued on Rights Offering (as defined in Note 15)		85,714,285			21,273			-			-			-			21,273
Issued for employee share purchase plan		267,021			122			-			-			-			122
RSUs withheld to settle employee tax obligations		-			-			(76	)		-			-			(76	)
Foreign currency translation adjustment		-			-			-			(297	)		-			(297	)
Net income for the period		-			-			-			-			3,045			3,045
As at March 31, 2024		191,880,226			218,294			7,355			(16,422	)		(177,811	)		31,416
Stock-based compensation		-			-			194			-			-			194
Issued on vesting of RSUs		702,918			300			(300	)		-			-			-
Issued for employee share purchase plan		384,499			135			-			-			-			135
RSUs and Share Awards withheld to settle employee tax obligations		-			-			(131	)		-			-			(131	)
Foreign currency translation adjustment		-			-			-			(310	)		-			(310	)
Net income for the period		-			-			-			-			596			596
As at June 30, 2024		192,967,643			218,729			7,118			(16,732	)		(177,215	)		31,900
Stock-based compensation		-			-			542			-			-			542
Issued on vesting of RSUs		125,205			49			(49	)		-			-			-
Issued for employee share purchase plan		300,036			137			-			-			-			137
RSUs and Share Awards withheld to settle employee tax obligations		-			-			(46	)		-			(5	)		(51	)
Foreign currency translation adjustment		-			-			-			386			-			386
Net income for the period		-			-			-			-			7,091			7,091
As at September 30, 2024		193,392,884			218,915			7,565			(16,346	)		(170,129	)		40,005

As at December 31, 2024		193,605,237			219,023			8,206			(18,541	)		(166,098	)		42,590
Stock-based compensation		-			-			566			-			-			566
Issued on vesting of RSUs		343,455			366			(366	)		-			-			-
RSUs withheld to settle employee tax obligations		-			-			(1	)		-			-			(1	)
Issued for employee share purchase plan		236,834			152			-			-			-			152
Cancelled from Shares NCIB and Share Repurchase (each as defined in Note 10)		(4,439,107	)		(4,880	)		1,368			-			-			(3,512	)
Foreign currency translation adjustment		-			-			-			67			-			67
Net loss for the period		-			-			-			-			(661	)		(661	)
As at March 31, 2025		189,746,419			214,661			9,773			(18,474	)		(166,759	)		39,201
Stock-based compensation		-			-			561			-			-			561
Issued on vesting of RSUs		1,130,876			524			(524	)		-			-			-
RSUs withheld to settle employee tax obligations		-			-			(60	)		-			(16	)		(76	)
Issued for employee share purchase plan		298,039			152			-			-			-			152
Cancelled from Shares NCIB		(730,148	)		(852	)		365			-			-			(487	)
Foreign currency translation adjustment		-			-			-			1,739			-			1,739
Net loss for the period		-			-			-			-			(6,602	)		(6,602	)
As at June 30, 2025		190,445,186			214,485			10,115			(16,735	)		(173,377	)		34,488
Stock-based compensation		-			-			604			-			-			604
Issued on vesting of RSUs		235,807			231			(231	)		-			-			-
Settlement of DSU liability (as defined in Note 9)		1,234,487			592			-			-			-			592
RSUs withheld to settle employee tax obligations		-			-			(92	)		-			-			(92	)
Issued for employee share purchase plan		267,012			130			-			-			-			130
Cancelled from Shares NCIB		(341,629	)		(386	)		175			-			-			(211	)
Foreign currency translation adjustment		-			-			-			(540	)		-			(540	)
Net loss for the period		-			-			-			-			(3,484	)		(3,484	)
As at September 30, 2025		191,840,863			215,052			10,571			(17,275	)		(176,861	)		31,487

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

DIRTT Environmental Solutions Ltd.

Interim Condensed Consolidated Statement of Cash Flows

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2025			2024			2025			2024
Cash flows from operating activities:
Net (loss) income for the period		(3,484	)		7,091			(10,747	)		10,732
Adjustments:
Depreciation and amortization		1,534			1,487			4,561			4,542
Impairment charge on Rock Hill Facility		-			-			-			530
Stock-based compensation		742			803			2,075			1,905
Foreign exchange loss (gain)		(492	)		1,051			1,573			(420	)
Gain on extinguishment of convertible debt		(8	)		(7,478	)		(22	)		(10,409	)
Accretion of convertible debentures		80			1,013			255			1,398
Loss on disposal		-			132			115			422
Changes in operating assets and liabilities:
Trade and accrued receivables		1,977			(2,609	)		4,638			(4,598	)
Other receivables		242			106			(425	)		(43	)
Inventory		(422	)		327			(498	)		1,558
Prepaid and other assets, current and long term		118			9			(447	)		335
Accounts payable and accrued liabilities		1,773			(781	)		1,342			(3,366	)
Other liabilities		(110	)		(34	)		(110	)		(34	)
Customer deposits and deferred revenue		2,387			609			1,730			(1,761	)
Current portion of long-term debt and accrued interest		(11	)		(352	)		(14	)		(445	)
Lease liabilities		64			148			126			776
Net cash flows provided by operating activities		4,390			1,522			4,152			1,122

Cash flows from investing activities:
Purchase of property, plant and equipment, net of accounts payable changes		(283	)		(310	)		(1,084	)		(973	)
Capitalized software development expenditures		(490	)		(409	)		(1,420	)		(1,333	)
Other asset expenditures		(58	)		29			(149	)		(103	)
Recovery of software development expenditures		51			94			165			215
Proceeds on sale of property, plant, and equipment		-			-			-			10
Proceeds on sale of assets held for sale		-			-			-			1,025
Net cash flows (used in) investing activities		(780	)		(596	)		(2,488	)		(1,159	)

Cash flows from financing activities:
Common share repurchases		(211	)		-			(4,204	)		-
Repayment of long-term debt		(122	)		(16,230	)		(312	)		(21,323	)
Net proceeds received from Rights Offering		-			-			-			21,273
Employee tax payments on vesting of RSUs		(89	)		(32	)		(149	)		(239	)
Net cash flows (used in) financing activities		(422	)		(16,262	)		(4,665	)		(289	)
Effect of foreign exchange on cash, cash equivalents and restricted cash		(156	)		(567	)		(155	)		(906	)
Net increase (decrease) in cash, cash equivalents and restricted cash		3,032			(15,903	)		(3,156	)		(1,232	)
Cash, cash equivalents and restricted cash, beginning of period		23,343			39,770			29,531			25,099
Cash, cash equivalents and restricted cash, end of period		26,375			23,867			26,375			23,867
Supplemental disclosure of cash flow information:
Interest paid		(367	)		(853	)		(1,076	)		(2,531	)
Income taxes paid		(1	)		(133	)		(5	)		(544	)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within
the consolidated balance sheet.							As at September 30,
							2025			2024
Cash and cash equivalents								26,132			23,626
Restricted cash								243			241
Total cash, cash equivalents and restricted cash								26,375			23,867

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

DIRTT Environmental Solutions Ltd.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise stated)

1. GENERAL INFORMATION

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

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

DIRTT is incorporated under the laws of the province of Alberta, Canada. Its headquarters is located at 7303 – 30th Street S.E., Calgary, AB, Canada T2C 1N6 and its registered office is located at 4500, 855 – 2nd Street S.W., Calgary, AB, Canada T2P 4K7. DIRTT’s common shares trade on the Toronto Stock Exchange under the symbol “DRT”. 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. BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements (the “Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, the Financial Statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the Company, the Financial Statements contain all adjustments necessary, consisting of only normal recurring adjustments, for a fair statement of its financial position as of September 30, 2025, and its results of operations and cash flows for the three and nine months ended September 30, 2025 and 2024. The condensed balance sheet at December 31, 2024, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. These Financial Statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2024 and 2023 and for each of the three years in the period ended December 31, 2024 included in the Annual Report on Form 10-K of the Company as filed with the SEC and applicable securities commission or similar regulatory authorities in Canada.

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

Principles of consolidation

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

Basis of measurement

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

Seasonality

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

3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS

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

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

On November 27, 2024, the FASB issued Accounting Standards Update No. 2024-04, “Induced Conversions of Convertible Debt Instruments” (“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 September 18, 2025, the FASB issued Accounting Standards Update No. 2025-06, “Intangibles - Goodwill and Other - Internal-Use Software” (“ASU-2025-06”) which targets improvements to the accounting for internal-use software. 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 standard.

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

4. REORGANIZATION

Temporary Suspension of Operations and Subsequent Closure at Rock Hill, South Carolina Facility (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, $1.0 million of the assets held for sale were sold. At March 31, 2024, the assets held for sale balance was reduced from $0.5 million to $nil, resulting in a $0.5 million impairment charge for the first quarter as we were not able to determine the likelihood of a sale based on the market interest at that time.


	As at September 30,
	2025		2024
Assets held for sale, opening		-		1,555
Proceeds from sale of assets held for sale		-		(1,025	)
Impairment charge on reassessment		-		(530	)
Assets held for sale, ending		-		-

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 set up, to accelerate the strategic transformation of our business by streamlining the Company’s processes and procedures, supporting the Construction Services team and improving productivity across the Company (the “Transformation Office”). We are incurring one-time consultant costs to assist in, advise, and implement our transformation actions, as well as one-time termination benefits as a result of elimination of positions. The program is planned to be completed in 2026. At present, the Transformation Office is led by a special committee of the Board of Directors and has one dedicated staff member.

For the three months and nine months ended September 30, 2025 and 2024, the following reorganization costs incurred relate to the above mentioned initiatives:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2025		2024		2025		2024
Termination benefits		1,879		-		1,879		-
Transformation Office costs		689		-		689		-
Rock Hill Facility temporary suspension and closure of operations		-		604		-		932
Other costs		25		-		409		12
Total reorganization costs		2,593		604		2,977		944


Reorganization costs in accounts payable and accrued liabilities at January 1, 2025	117
Reorganization expense	2,977
Reorganization costs paid	(1,794	)
Reorganization costs in accounts payable and accrued liabilities at September 30, 2025	1,300

Of the $1.3 million of reorganization costs in accounts payable and accrued liabilities as at September 30, 2025 (December 31, 2024 – $0.1 million), $1.1 million relates to termination benefits (December 31, 2024 – $0.07 million) and $0.2 million relates to other reorganization costs (December 31, 2024 – $0.03 million).

5. GAIN ON EXTINGUISHMENT OF CONVERTIBLE DEBENTURES

On February 15, 2024, the Company commenced a substantial issuer bid and tender offer (the “Issuer Bid”) pursuant to which the Company offered to repurchase for cancellation: (i) up to C$6.0 million principal amount of its issued and outstanding January Debentures (as defined in Note 8) at a purchase price of C$720 per C$1,000 principal amount of January Debentures, and (ii) up to C$9.0 million principal amount of its issued and outstanding December Debentures (as defined in Note 8 and together with the January Debentures, the “Debentures”), at a purchase price of C$600 per C$1,000 principal amount of December Debentures.

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

On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement (the “Repurchase Agreement”) with 22NW Fund, LP (“22NW”), pursuant to which the Company purchased for cancellation an aggregate of C$18,915,000 principal amount of the January Debentures at a purchase price of C$684.58 per C$1,000 principal amount of January Debentures and C$13,638,000 principal amount of the December Debentures at a purchase price of C$665.64 per C$1,000 principal amount of December Debentures, for an aggregate purchase price of C$22,104,591.45, inclusive of a cash payment for all accrued and unpaid interest up to, but excluding, the date on which such Debentures were purchased by the Company (the “Debenture Repurchase”). The Debenture Repurchase closed on August 2, 2024. The purchase price of each series of Debentures (excluding the cash payment for accrued and unpaid interest) represented a discount of approximately 4% to the average trading price of the applicable series of Debentures on the Toronto Stock Exchange (the “TSX”) for the 20 trading days preceding August 2, 2024. Following the Debenture Repurchase, C$16,642,000 principal amount of the January Debentures and C$15,587,000 principal amount of the December Debentures remained outstanding and 22NW no longer held any Debentures.

On August 28, 2024, the Company commenced a normal course issuer bid (the “Debentures NCIB”) for the Debentures 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”). The Renewed Debentures NCIB is expected to terminate on August 27, 2026 with respect to the December Debentures and is expected to terminate on January 31, 2026 with respect to the January Debentures, concurrent with the maturity date of the January Debentures. 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. For the three and nine months ended September 30, 2025, C$0.1 million ($0.1 million) and C$0.3 million ($0.2 million) principal amounts of the December Debentures (respectively) and C$0.01 million ($0.01 million) and C$0.06 million (C$0.04 million) principal amounts of the January Debentures (respectively) had been acquired in aggregate through the Debentures NCIB. 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. For the three months ended September 30, 2025, C$0.01 million ($0.01 million) principal amounts of the December Debentures and $nil principal amounts of the January Debentures had been acquired through the Renewed Debentures NCIB.

For the three months and nine months ended September 30, 2025 and 2024, the gain on extinguishment of convertible debentures relate to the above mentioned initiatives:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2025			2024			2025			2024
	($ in thousands)						($ in thousands)
Extinguishment of convertible debentures		109			23,685			274			31,671
Less:
Principal repayment through the Debentures NCIB and Renewed Debentures NCIB		(101	)		(73	)		(252	)		(73	)
Principal repayment through the Repurchase Agreement		-			(16,134	)		-			(16,134	)
Principal repayment through the Issuer Bid		-			-			-			(5,055	)
Gain on extinguishment of convertible debentures		8			7,478			22			10,409

In accordance with GAAP, it was determined that the C$0.1 million ($0.1 million) repayment on convertible debt through the Debentures NCIB and the Renewed Debentures NCIB, in aggregate, in the three months ended September 30, 2025 (C$22.2 million ($16.2 million) repayment of convertible debt through the Repurchase Agreement and the Debentures NCIB for the three months ended September 30, 2024), triggered an extinguishment of C$0.1 million ($0.1 million) (C$32.6 million and $23.9 million for the three months ended September 30, 2024) of principal amount of debt. The gain on extinguishment of C$0.01 million ($0.01 million) for the three months ended September 30, 2025 (C$10.2 million and $7.5 million for the three months ended September 30, 2024), was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs.

In accordance with GAAP, it was determined that the C$0.4 million ($0.3 million) repayment on convertible debt through the Debentures NCIB and the Renewed Debentures NCIB, in aggregate, in the nine months ended September 30, 2025 (C$29.0 million ($21.3 million) repayment of convertible debt through the Issuer Bid, the Debenture Repurchase, and the Debentures NCIB in the nine months ended September 30, 2024), triggered an extinguishment of C$0.4 million ($0.3 million) (C$43.1 million ($31.7 million) for the nine months ended September 30, 2024) of principal amount of debt. The gain on extinguishment of C$0.03 million ($0.02 million) for the nine months ended September 30, 2025 (C$14.2 million ($10.4 million) for the nine months ended September 30, 2024), was calculated as the difference between the repayment and the net carrying value of the extinguished principal less unamortized issuance costs.

6. TRADE AND ACCRUED RECEIVABLES

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

In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial well-being of our customers. At September 30, 2025, approximately 67% of our trade accounts receivable are trade credit insured, relating to accounts receivable from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities.

Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the three and nine months ended September 30, 2025, no single Construction Partner accounted for greater than 10% of revenue (no single Construction Partner for the three and nine months ended September 30, 2024). In addition, and where possible, we collect a 50% deposit on sales, excluding the government and certain other clients.

The Company’s aged receivables were as follows:


	As at
	September 30, 2025			December 31, 2024
Current		11,596			16,677
Overdue		3,474			2,916
		15,070			19,593
Less: expected credit losses		(76	)		(99	)
Trade and accrued receivables, net of expected credit losses		14,994			19,494

No adjustment to our expected credit losses of $0.1 million was required for the three and nine months ended September 30, 2025. Receivables are generally considered to be past due when over 60 days old, unless there is a separate payment arrangement in place for the collection of the receivable.

7. OTHER LIABILITIES


	As at
	September 30, 2025		December 31, 2024
Warranty provisions (1)		858		849
DSU liability		1,652		2,028
Income taxes payable		283		-
Sublease deposits		206		206
Other provisions and other liabilities		127		134
Other liabilities		3,126		3,217

(1)

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


		As at

DIRTT ENVIRONMENTAL SOLUTIONS LTD 10-Q