DIRTT ENVIRONMENTAL SOLUTIONS LTD

Current report

Risks Relating to Market Conditions

Current report

New and existing trade policies, tariffs or import or export regulations imposed by the U.S., Canada or other foreign governments may adversely affect demand for our products and our ability to source and sell our products profitably, or at all.

Current report

The U.S. has instituted certain changes, and has proposed additional changes, in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., and other government regulations affecting trade between the U.S. and other countries (such as Canada, Mexico, China, and the European Union) where we conduct our business. For example, in February 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, as well as further tariffs on steel and aluminum. The new tariffs and other changes in U.S. trade policy have triggered retaliatory actions by affected countries, and foreign governments have instituted, or are considering, imposing tariffs or other trade sanctions 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. While a certain number of these tariffs have been suspended or temporarily paused, there remains great uncertainty regarding the imposition of tariffs, global trade disruption, significant introductions of trade barriers and bilateral trade frictions, and resulting effects on the general economy.

Current report

DIRTT imports raw materials from, and has manufacturing facilities in, both Canada and the U.S. We also import raw materials from other countries including China. 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, timing, 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.

Previous report

Our two largest shareholders, 22NW and WWT, 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 and the Support Agreement limit the concentration of ownership of our common shares by shareholders other than 22NW and WWT, which may make it more difficult for a shareholder to acquire the Company.

Previous report

As of November 5, 2024, 22NW and Aron English (collectively, the “22NW Group”) and WWT and Shaun Noll (collectively, the “WWT Group”) owned 29.7% and 27.6% of our outstanding common shares, respectively, together beneficially owning approximately 57.3% of our outstanding common shares. So long as the 22NW Group and WWT Group 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). Further, Aron English and Shaun Noll, who serve as the investment manager and Managing Member of the 22NW Group and WWT Group, respectively, also serve as directors on the Company’s Board of Directors. 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.

Previous report

In addition, the Amended and Restated SRP, which was ratified by shareholders at the SRP 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.

Previous report

The repurchase and cancellation of our Debentures in 2024, the Debenture Repurchase and the NCIB could adversely affect the price or liquidity of the Debentures.

Previous report

On March 22, 2024, the Company completed the Issuer Bid in which the Company repurchased for cancellation C$4.7 million of the principal balance of the January Debentures and C$5.8 million of the principal balance of the December Debentures.

Previous report

On August 2, 2024, the Company and 22NW closed the Debenture Repurchase in which the Company purchased for cancellation an aggregate of C$18,915,000 principal amount of the January Debentures and C$13,638,000 principal amount of the December Debentures. Following the Issuer Bid and Debenture Repurchase, C$16,642,000 principal amount of the January Debentures and C$15,587,000 principal amount of the December Debentures remain outstanding and 22NW no longer holds any debentures.

Previous report

On August 26, 2024, the company announced a NCIB of the January and December debentures. For the quarter ended September 30, 2024, C$0.1 million and $nil principal amounts of the December Debentures and January Debentures, respectively, were acquired and cancelled.

Previous report

The Issuer Bid, the Debenture Repurchase, and the NCIB have decreased, and the NCIB may further decrease the number of outstanding Debentures, and therefore could decrease their liquidity in the market of the Debentures and increase the volatility of the prices at which they trade. The Debenture Repurchase may also cause the prices of the Debentures to differ from what they would be in the absence of the Debenture Repurchase. There can be no assurance the Debenture Repurchase will ultimately enhance shareholder value.