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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ NoNo

The registrant had ~~85,867,270~~86,988,828 common shares outstanding as of ~~May 2,~~July 21, 2022.

Certain statements contained in this Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2022 (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,” 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 expressed or implied in 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~~an adverse effect on our business, financial condition, results of operations and growth prospects include, but are not limited to, the severity and duration of the coronavirus (“COVID-19”) pandemic and related economic repercussions and other risks described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) and applicable securities commissions or similar regulatory authorities in Canada on February 23, 2022 (the “Annual Report on Form 10-K”), as supplemented by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on May 4, 2022, and in this Quarterly Report under “Part II, Item 1A. Risk Factors.” These factors include, but are not limited to, the following:

These risks are not exhaustive. Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the forward-looking statements in this Quarterly Report. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the effects of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or 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.


	As at March 31,			As at December 31,			As at June 30,			As at December 31,
	2022			2021			2022			2021
ASSETS
Current Assets
Cash and cash equivalents		38,861			60,313			19,739			60,313
Restricted cash		3,224			3,095			3,206			3,095
Trade and other receivables, net of expected credit losses of $0.1 million at March 31, 2022 and at December 31, 2021		22,590			17,540
Trade and other receivables, net of expected credit losses of $0.1 million at June 30, 2022 and at December 31, 2021								19,686			17,540
Inventory		22,114			18,457			25,296			18,457
Prepaids and other current assets		4,497			4,399			5,343			4,399
Total Current Assets		91,286			103,804			73,270			103,804
Property, plant and equipment, net		48,742			51,697			46,507			51,697
Capitalized software, net		6,709			7,395			6,252			7,395
Operating lease right-of-use assets, net		31,932			30,880			30,748			30,880
Other assets		5,787			5,663			5,628			5,663
Total Assets		184,456			199,439			162,405			199,439
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		24,437			22,751			24,516			22,751
Other liabilities		2,359			2,379			1,853			2,379
Customer deposits and deferred revenue		5,768			2,420			6,122			2,420
Current portion of long-term debt and accrued interest		3,321			3,323			3,297			3,323
Current portion of lease liabilities		6,113			6,214			5,868			6,214
Total Current Liabilities		41,998			37,087			41,656			37,087
Long-term debt		67,673			67,319			65,948			67,319
Long-term lease liabilities		28,487			27,267			27,635			27,267
Total Liabilities		138,158			131,673			135,239			131,673
SHAREHOLDERS’ EQUITY
Common shares, unlimited authorized without par value, 85,832,977 issued and outstanding at March 31, 2022 and 85,345,433 at December 31, 2021		182,985			181,782
Common shares, unlimited authorized without par value, 86,988,828 issued and outstanding at June 30, 2022 and 85,345,433 at December 31, 2021								186,253			181,782
Additional paid-in capital		13,147			13,200			10,629			13,200
Accumulated other comprehensive loss		(15,483	)		(15,916	)		(16,077	)		(15,916	)
Accumulated deficit		(134,351	)		(111,300	)		(153,639	)		(111,300	)
Total Shareholders’ Equity		46,298			67,766			27,166			67,766
Total Liabilities and Shareholders’ Equity		184,456			199,439			162,405			199,439

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


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2022			2021			2022			2021			2022			2021
Product revenue		37,451			28,542			43,091			40,087			80,542			68,629
Service revenue		835			923			1,610			1,015			2,445			1,938
Total revenue		38,286			29,465			44,701			41,102			82,987			70,567

Product cost of sales		34,607			23,551			37,185			31,091			71,792			54,642
Costs of under-utilized capacity		-			1,756			-			-			-			1,756
Service cost of sales		392			788			1,240			787			1,632			1,575
Total cost of sales		34,999			26,095			38,425			31,878			73,424			57,973
Gross profit		3,287			3,370			6,276			9,224			9,563			12,594

Expenses
Sales and marketing		7,228			6,670			7,777			7,564			15,005			14,234
General and administrative		7,993			7,241			6,877			7,780			14,870			15,021
Operations support		2,498			2,297			2,528			2,213			5,026			4,510
Technology and development		2,140			1,935			1,879			1,924			4,019			3,859
Stock-based compensation		1,302			1,094			1,326			1,861			2,628			2,955
Reorganization		3,692			-			5,163			-			8,855			-
Total operating expenses		24,853			19,237			25,550			21,342			50,403			40,579

Operating loss		(21,566	)		(15,867	)		(19,274	)		(12,118	)		(40,840	)		(27,985	)
Government subsidies		575			4,068			49			3,431			624			7,499
Foreign exchange loss		(732	)		(180	)
Foreign exchange gain (loss)								1,246			(60	)		514			(240	)
Interest income		11			19			20			23			31			42
Interest expense		(1,330	)		(500	)		(1,329	)		(794	)		(2,659	)		(1,294	)
		(1,476	)		3,407			(14	)		2,600			(1,490	)		6,007
Loss before tax		(23,042	)		(12,460	)		(19,288	)		(9,518	)		(42,330	)		(21,978	)
Income taxes
Current tax expense								-			210			-			210
Deferred tax expense		-			39			-			10			-			49
		-			39			-			220			-			259
Net loss		(23,042	)		(12,499	)		(19,288	)		(9,738	)		(42,330	)		(22,237	)

Loss per share
Basic and diluted loss per share		(0.27	)		(0.15	)		(0.22	)		(0.11	)		(0.49	)		(0.26	)

Weighted average number of shares outstanding (in thousands)
Basic and Diluted		85,451			84,681			86,023			84,752			85,739			84,717

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


								Accumulated																Accumulated
	Number of				Additional			other						Total			Number of				Additional			other						Total
	Common		Common		paid-in			comprehensive			Accumulated			shareholders’			Common		Common		paid-in			comprehensive			Accumulated			shareholders’
	shares		shares		capital			loss			deficit			equity			shares		shares		capital			loss			deficit			equity
As at December 31, 2020		84,681,364		180,639		10,175			(17,018	)		(57,265	)		116,531			84,681,364		180,639		10,175			(17,018	)		(57,265	)		116,531
Stock-based compensation		-		-		796			-			-			796			-		-		796			-			-			796
Foreign currency translation adjustment		-		-		-			605			-			605			-		-		-			605			-			605
Net loss for the period		-		-		-			-			(12,499	)		(12,499	)		-		-		-			-			(12,499	)		(12,499	)
As at March 31, 2021		84,681,364		180,639		10,971			(16,413	)		(69,764	)		105,433			84,681,364		180,639		10,971			(16,413	)		(69,764	)		105,433
Stock-based compensation																		-		-		1,285			-			-			1,285
Issued on vesting of RSUs																		630,211		1,074		(1,074	)		-			-			-
RSUs and Share Awards withheld to settle employee tax obligations																		-		-		(252	)		-			(342	)		(594	)
Foreign currency translation adjustment																		-		-		-			716			-			716
Net loss for the period																		-		-		-			-			(9,738	)		(9,738	)
As at June 30, 2021																		85,311,575		181,713		10,930			(15,697	)		(79,844	)		97,102

As at December 31, 2021		85,345,433		181,782		13,200			(15,916	)		(111,300	)		67,766			85,345,433		181,782		13,200			(15,916	)		(111,300	)		67,766
Stock-based compensation		-		-		1,339			-			-			1,339			-		-		1,339			-			-			1,339
Issued on vesting of RSUs and Share Awards		487,544		1,203		(1,203	)		-			-			-			487,544		1,203		(1,203	)		-			-			-
RSUs and Share Awards withheld to settle employee tax obligations		-		-		(189	)		-			(9	)		(198	)		-		-		(189	)		-			(9	)		(198	)
Foreign currency translation adjustment		-		-		-			433			-			433			-		-		-			433			-			433
Net loss for the period		-		-		-			-			(23,042	)		(23,042	)		-		-		-			-			(23,042	)		(23,042	)
As at March 31, 2022		85,832,977		182,985		13,147			(15,483	)		(134,351	)		46,298			85,832,977		182,985		13,147			(15,483	)		(134,351	)		46,298
Stock-based compensation																		-		-		1,286			-			-			1,286
Issued on vesting of RSUs and Share Awards																		1,155,851		3,268		(3,268	)		-			-			-
RSUs and Share Awards withheld to settle employee tax obligations																		-		-		(536	)		-			-			(536	)
Foreign currency translation adjustment																		-		-		-			(594	)		-			(594	)
Net loss for the period																		-		-		-			-			(19,288	)		(19,288	)
As at June 30, 2022																		86,988,828		186,253		10,629			(16,077	)		(153,639	)		27,166

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


		For the Three Months Ended March 31,							For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2022			2021				2022			2021			2022			2021
Cash flows from operating activities:
Net loss for the period			(23,042	)		(12,499	)			(19,288	)		(9,738	)		(42,330	)		(22,237	)
Adjustments:
Depreciation and amortization			4,622			3,402				3,344			3,421			7,966			6,823
Stock-based compensation, net of settlements			1,302			1,094				406			1,649			1,708			2,743
Foreign exchange loss			651			172
Foreign exchange (gain) loss										(1,433	)		68			(782	)		240
Accretion of convertible debentures			165			53				177			94			342			147
Gain on disposal of equipment										(165	)		-			(165	)		-
Deferred income tax expense			-			39				-			10			-			49
Changes in operating assets and liabilities:
Trade and other receivables			(4,966	)		(243	)			2,824			(2,588	)		(2,142	)		(2,831	)
Inventory			(3,443	)		197				(3,661	)		(697	)		(7,104	)		(500	)
Prepaid and other assets, current and long term			(108	)		(948	)			(1,059	)		770			(1,167	)		(178	)
Accounts payable and accrued liabilities			2,460			(5,934	)			713			4,759			3,173			(1,257	)
Other liabilities			-			507				(39	)		1,260			(39	)		1,767
Customer deposits and deferred revenue			3,332			1,607				387			(290	)		3,719			1,317
Current portion of long-term debt and accrued interest			(56	)		320				(86	)		604			(142	)		1,006
Lease liabilities			41			139				80			764			121			903
Net cash flows used in operating activities			(19,042	)		(12,094	)
Net cash flows (used in) provided by operating activities										(17,800	)		86			(36,842	)		(12,008	)
Cash flows from investing activities:
Purchase of property, plant and equipment, net of accounts payable changes			(963	)		(2,908	)			(924	)		(5,799	)		(1,887	)		(8,707	)
Capitalized software development expenditures			(483	)		(705	)			(418	)		(631	)		(901	)		(1,336	)
Other asset expenditures			(174	)		-				(107	)		-			(281	)		-
Proceeds on sales of equipment										73			-			73			-
Recovery of software development expenditures			-			24				45			-			45			24
Net cash flows used in investing activities			(1,620	)		(3,589	)			(1,331	)		(6,430	)		(2,951	)		(10,019	)
Cash flows from financing activities:
Proceeds received on long-term debt			-			29,545				647			8,407			647			37,952
Repayment of long-term debt			(618	)		(208	)			(618	)		(552	)		(1,236	)		(760	)
Employee tax payments on vesting of RSUs			(209	)		-				(92	)		(589	)		(301	)		(589	)
Net cash flows (used in) provided by financing activities			(827	)		29,337				(63	)		7,266			(890	)		36,603
Effect of foreign exchange on cash, cash equivalents and restricted cash			166			303				54			408			220			711
Net (decrease) increase in cash, cash equivalents and restricted cash			(21,323	)		13,957				(19,140	)		1,330			(40,463	)		15,287
Cash, cash equivalents and restricted cash, beginning of period			63,408			45,846				42,085			59,803			63,408			45,846
Cash, cash equivalents and restricted cash, end of period			42,085			59,803				22,945			61,133			22,945			61,133
Supplemental disclosure of cash flow information:
Interest paid			(1,152	)		(62	)			(1,179	)		(67	)		(2,331	)		(129	)
Income taxes received			25			-
Income taxes (paid) received										3,182			(48	)		3,207			(48	)

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

		For the Three Months Ended March 31,													For the Six Months Ended June 30,
		2022			2021										2022			2021
Cash and cash equivalents			38,861			58,656										19,739			58,326
Restricted cash			3,224			1,147										3,206			2,807
Total cash, cash equivalents and restricted cash			42,085			59,803										22,945			61,133

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

	Revolving Credit Facility		Leasing Facilities			Convertible Debentures			Total Debt
Balance on January 1, 2021		-		5,967			-			5,967
												Revolving Credit Facility		Leasing Facilities			Convertible Debentures			Total Debt
Balance on December 31, 2020													-		5,967			-			5,967
Issuances		-		9,805			55,107			64,912			-		9,805			55,107			64,912
Accretion of issue costs		-		-			352			352			-		-			352			352
Accrued interest		-		556			1,935			2,491			-		556			1,935			2,491
Interest payments		-		(556	)		(987	)		(1,543	)		-		(556	)		(987	)		(1,543	)
Principal repayments		-		(1,808	)		-			(1,808	)		-		(1,808	)		-			(1,808	)
Exchange differences		-		(55	)		326			271			-		(55	)		326			271
Balance at December 31, 2021		-		13,909			56,733			70,642			-		13,909			56,733			70,642
Current portion of long-term debt and accrued interest		-		2,386			937			3,323			-		2,386			937			3,323
Long-term debt		-		11,523			55,796			67,319			-		11,523			55,796			67,319

Balance on December 31, 2021		-		13,909			56,733			70,642			-		13,909			56,733			70,642
Issuances															647			-			647
Accretion of issue costs		-		-			165			165			-		-			342			342
Accrued interest		-		187			909			1,096			-		379			1,810			2,189
Interest payments		-		(187	)		(965	)		(1,152	)		-		(379	)		(1,952	)		(2,331	)
Principal repayments		-		(618	)		-			(618	)		-		(1,236	)		-			(1,236	)
Exchange differences		-		30			831			861			-		(90	)		(918	)		(1,008	)
Balance at March 31, 2022		-		13,321			57,673			70,994
Balance at June 30, 2022													-		13,230			56,015			69,245
Current portion of long-term debt and accrued interest		-		2,423			898			3,321			-		2,515			782			3,297
Long-term debt		-		10,898			56,775			67,673			-		10,715			55,233			65,948

On February 12, 2021, the Company entered into a loan agreement governing a C$25.0 million senior secured revolving credit facility with the Royal Bank of Canada (“RBC”), as lender (the “RBC Facility”). Under the RBC Facility, the Company is able to borrow up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of (i) 75% of the book value of eligible inventory and (ii) 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims (the “Borrowing Base”). At ~~March 31,~~June 30, 2022, available borrowings are C$14.5 million ($~~11.6~~11.3 million), of which no amounts have been drawn. 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 has been below 1.10:1 for the three immediately preceding months, the Company is required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Leasing Facilities (defined below). The Company did not meet the three-month FCCR requirement during the ~~first~~second quarter of 2022 which resulted in requiring the restriction of ~~$3.2~~ $3.2million of cash. Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for 5 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.

The Company has a C$5.0 million equipment leasing facility in Canada (the “Canada Leasing Facility”) and a ~~$14.0~~ $14.0million equipment leasing facility in the United States (the “U.S. Leasing Facility” and, together with the Canada Leasing Facility, the “Leasing Facilities”) with RBC, and one of its affiliates, which are available for equipment expenditures and certain equipment expenditures already incurred. The Leasing Facilities, respectively, have seven and five-year terms and bear interest at ~~4.25%~~4.25% and ~~5.59%~~5.59%. The U.S. Leasing Facility is amortized over a six-year term and extendible at the Company’s option for an additional year.

During the ~~first quarter of~~three and six months ended June 30, 2022, the Company received ~~$nil~~$NaN (twelve months ended December 31, 2021: ~~$9.8~~$9.8 million) of cash consideration under the U.S. Leasing Facility.The associated financial liabilities are shown on the

consolidated balance sheet in current other liabilities and long-term debt.~~Subsequent to March 31,~~ In April 2022 the Company received C$0.9 million ($0.7 million) under the Canada Leasing Facility.

On January 25, 2021, the Company completed a C$35.0 million ($27.5 million) bought-deal financing of convertible unsecured subordinated debentures with a syndicate of underwriters (the “January Debentures”). On January 29, 2021, the Company issued a further C$5.25 million ($4.1 million) of the January Debentures under the terms of an overallotment option granted to the underwriters. The January Debentures will mature and be repayable on January 31, 2026 (the “January Debentures Maturity Date”) and will accrue interest at the rate of ~~6.00%~~6.00% per annum payable semi-annually in arrears on the last day of January and July of each year commencing on July 31, 2021 until the January Debentures Maturity Date. Interest and principal are payable in cash or shares at the option of the Company. The January Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the January ~~Notes~~Debentures Maturity Date and the date specified by the Company for redemption of the January Debentures at a conversion price of C$4.65 per common share, being a ratio of approximately 215.0538 common shares per C$1,000 principal amount of the January Debentures. Costs of the transaction were approximately C$2.7 million, including the underwriters’ commission.

On December 1, 2021, the Company completed a C$35.0 million ($27.4 million) bought-deal financing of convertible unsecured subordinated debentures with a syndicate of underwriters (the “December Debentures” and, together with the January Debentures, the “Debentures”). These December Debentures will mature and be repayable on December 31, 2026 (the “December Debentures Maturity Date”) and will accrue interest at the rate of ~~6.25%~~6.25% per annum payable semi-annually in arrears on the last day of June and December of each year commencing on June 30, 2022 until the December Debentures Maturity Date. Interest and principal are payable in cash or shares at the option of the Company. The December Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the December Debentures Maturity Date and the date specified by the Company for redemption of the December Debentures at a conversion price of C$4.20 per common share, being a ratio of approximately 238.0952 common shares per C$1,000 principal amount of the December Debentures. Costs of the transaction were approximately C$2.3 million, including the underwriters’ commission.

The following summarizes RSUs ~~Share Awards~~ (as defined below), Share Awards, PSUs, and DSUs activity during the periods:


	RSU Time-			RSU Performance-			Share							RSU Time-			RSU Performance-			Share
	Based			Based			Awards			PSU		DSU		Based			Based			Awards			PSU			DSU
	Number of			Number of			Number of			Number of		Number of		Number of			Number of			Number of			Number of			Number of
	units			units			units			units		units		units			units			units			units			units
Outstanding at December 31, 2020		2,414,066			200,000			-			197,471		363,664		2,414,066			200,000			-			197,471			363,664
Granted		1,890,987			878,601			-			-		31,837		1,897,281			878,601			-			-			57,898
Vested															(630,042	)		(169	)		-			(9,314	)		(57,380	)
Withheld to settle employee tax obligations															(161,031	)		-			-			-			-
Forfeited		(5,588	)		-			-			-		-		(116,656	)		(9,635	)		-			(1,733	)		-
Outstanding at March 31, 2021		4,299,465			1,078,601			-			197,471		395,501
Outstanding at June 30, 2021															3,403,618			1,068,797			-			186,424			364,182
Outstanding at December 31, 2021		3,216,536			1,021,739			-			157,200		361,577		3,216,536			1,021,739			-			157,200			361,577
Granted		2,109,205			863,279			162,682			-		180,314		2,140,605			863,279			162,682			-			386,083
Vested		(393,016	)		-			(94,528	)		-		-		(1,245,386	)		(303,568	)		(94,528	)		-			(468,654	)
Withheld to settle employee tax obligations		(60,039	)		-			(68,154	)		-		-		(526,259	)		(242,460	)		(68,154	)		-			-
Forfeited		(614,151	)		(502,628	)		-			-		-	��	(685,229	)		(502,628	)		-			(157,200	)		-
Outstanding at March 31, 2022		4,258,535			1,382,390			-			157,200		541,891
Outstanding at June 30, 2022															2,900,267			836,362			-			-			279,006

Restricted share units ("RSUs") that vest based on time have an aggregate time-based vesting period of three years and generally one-third of the RSUs vest every year over a three-year period from the date of ~~grant (“RSUs”).~~grant. At the end of a three-year term, the RSUs will be settled by way of the provision of cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted was C$~~2.40~~2.39 (2021 – C$~~3.11)~~3.11) which was determined using the closing price of the Company’s common shares on their respective grant dates.

During 2022 and 2021, restricted share units were granted to executives with service and performance-based conditions for vesting (the “PRSUs”). If the Company’s share price increases to certain values for 20 consecutive trading days, as outlined below, a percentage of the PRSUs will vest at the end of the three-year service period. PRSUs awarded in 2020 were forfeited in January 2022 upon the departure of an executive from the Company.

The grant date fair value of the 2022 and 2021 PRSUs were valued using the Monte Carlo valuation method and determined to have a weighted average grant date fair value of C$1.87 and C$3.27, respectively.

Based on share price performance since the date of grant, NaN of the 2022 PRSUs and ~~66.7%~~66.7% of the 2021 PRSUs will vest upon completion of the three-year service period.

During the first quarter of 2022, certain executives were issued share awards in lieu of cash paid variable incentive compensation (“Share Awards”). These Share Awards vested upon grant. The fair value of the Share Awards

granted was C$2.40 ($~~1.88)~~1.88), which was determined using the closing price of the Company’s common shares on the grant date.

The fair value of the DSU liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently, at each reporting date between the grant date and settlement date, the fair value of the liability is remeasured with any changes in fair value recognized in profit or loss for the year. DSUs outstanding at ~~March 31,~~June 30, 2022 had a fair value of ~~$0.8~~$0.3 million which is included in other liabilities on the balance sheet (December 31, 2021 – $0.8 million).

~~Under the terms of the PSU Plan, PSUs granted vest at the end of a~~ ~~three-year~~Options term. At the end of a three-year term, employees will be awarded cash at the discretion of the board of directors of the Company, calculated based on Adjusted EBITDA, total shareholder return, or revenue growth related to performance conditions.

The fair value of the liability and the expense attributable to the vesting period 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. As at March 31, 2022, outstanding PSUs had a fair value of $nil which is included in other liabilities on the balance sheet (December 31, 2021 – $nil).

The following summarizes options granted, exercised, forfeited and expired during the periods:

Range of exercise prices outstanding at ~~March 31,~~June 30, 2022:


	Options outstanding						Options exercisable						Options outstanding						Options exercisable
			Weighted		Weighted				Weighted		Weighted				Weighted		Weighted				Weighted			Weighted
			average		average				average		average				average		average				average			average
	Number		remaining		exercise		Number		remaining		exercise		Number		remaining		exercise		Number		remaining			exercise
Range of exercise prices	outstanding		life		price C$		exercisable		life		price C$		outstanding		life		price C$		exercisable		life			price C$
C$4.01 – C$5.00		22,537		2.64		4.12		15,025		2.64		4.12
C$5.01 – C$6.00		-		-		-		-		-		-
C$6.01 – C$7.00		1,549,833		1.63		6.36		1,543,901		1.63		6.36
C$7.01 – C$8.00		751,204		2.13		7.84		510,250		2.13		7.84
C$4.01 – C$5.00														15,025		2.40		4.12		15,025		2.40			4.12
C$6.01 – C$7.00														789,017		1.56		6.33		783,085		1.55			6.33
C$7.01 – C$8.00														740,227		1.88		7.84		740,227		1.88			7.84
Total		2,323,574						2,069,176						1,544,269						1,538,337			��

For the three and six months ended ~~March 31,~~June 30, 2022, ~~2.3~~1.5 million options (2021 – 4.8 million), ~~5.6~~3.7 million RSUs and PRSUs (2021 – ~~4.4~~4.5 million) and ~~43.0~~53.8 million shares, which would be issued if the principal amount of the Debentures were settled in our common shares at the quarter end share price (2021 – ~~11.0~~8.7 million), were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive to the net loss per share.

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 is based upon agreed contractual terms with the customer and is not subject to variability.

Revenue recognized at a point in time represents the majority of the Company’s sales and revenue is recognized when a customer obtains legal title to the product, which is when ownership of products is transferred to, or services are delivered to the contract counterparty. Revenue recognized over time is limited to installation and other services provided to customers and is recorded as performance obligations which are satisfied over the term of the contract.

Contract liabilities primarily relate to deposits received from customers and deferred revenue from license subscriptions. The balance of contract liabilities was higher as at ~~March 31,~~June 30, 2022 compared to December 31, 2021 mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2021 and 2020 ~~respectively,~~ totaling ~~$2.1~~$2.3 million and ~~$1.5~~$1.6 million, respectively, were recognized as revenue during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively.

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

On April 8, 2022, we completed our final shift at the Phoenix Facility and commenced decommissioning activities, including redeployment of certain pieces of manufacturing equipment to Calgary and Rock Hill, shipping and rationalization of aluminum inventory to other aluminum frame plants and subletting of the space. Decommissioning is expected to be complete by the end of

On April 26, 2022, at the Company’s 2022 annual and special meeting of shareholders, shareholders of the Company elected to replace the then-existing board of directors with seven new individuals, all of whom were nominated by 22 NW Fund, LP and other participants named in the definitive proxy statement filed on January 7, 2022, as amended. Following the election and appointment, the Board of Directors terminated the employment of Todd Lillibridge as Interim Chief Executive Officer and appointed Geoffrey Krause and Jeffrey Calkins as Interim Co-Chief Executive Officers, in each case effective as of April 26, 2022.

The Board of Directors in cooperation with management immediately commenced an in-depth review of the Company’s commercial and manufacturing operations, financial performance and outlook as well as accelerated its search for a permanent Chief Executive Officer. That review identified risks to DIRTT that are now being addressed (see “Item 1A. Risk Factors” below). As a result of this review, on June 3, 2022, the Company announced the departure

of Jennifer Warawa as Chief Commercial Officer and Jeffrey Calkins as Chief Operating Officer and Interim Co-Chief Executive Officer. The Company has commenced a search for a permanent Chief Operating Officer.

On June 22, 2022, the Company announced the appointment of Benjamin Urban as DIRTT’s new Chief Executive Officer, effective June 27, 2022 and along with Mr. Urban, the appointment of Shaun Noll to the Board of Directors. With the addition of Messrs. Urban and Noll, the Board of Directors is now comprised of nine highly qualified individuals.

On July 27, 2022, the Company announced additional leadership changes, including the departures of Charles Kraus, Senior Vice President and General Counsel and Colin Blehm, Vice President Product Development, and the promotion of Trevor Didluck to Vice President Product Development. Nandini Somayaji has been promoted to Senior Vice President Talent, General Counsel & Corporate Secretary. Geoffrey Krause, DIRTT’s current Chief Financial Officer, announced his intention to retire from the Company, effective September 30, 2022. A search for a suitable replacement has commenced.

Second quarter 2022 revenues were $44.7 million, an increase of 16.8% and 8.8% over the first quarter of 2022 and the second quarter of 2021, respectively, and within the guidance range of between $43 million and $47 million. As at July 1, 2022, our 12-month forward pipeline, which represents known projects and leads at various stages of maturation which our sales teams are working to convert into orders, increased by 13% to $359 million from $318 million at April 1, 2022, comprised of 65% commercial, 16% healthcare, 8% education and 11% government verticals. The relative split between verticals remains consistent with pre-pandemic actual percentage results. It is important to note that these ~~activities,~~figures do not reflect the impact of the 10% price increase nor termination of the Reflect and Inspire pilot price reduction. These pricing changes are expected to increase the Company’s gross margins; however, the net positive or negative impacts on the 12-month forward pipeline are not yet known. Although the current 12-month forward pipeline is a positive indicator of the Company’s future revenue potential, in the context of continued global macroeconomic uncertainty and possible recession risks, our fiscal year 2022 revenue guidance remains unchanged at $175 to $185 million. The midpoint of our 2022 guidance represents an approximate 22% increase over actual 2021 revenue of $147.6 million.

With demand for DIRTT’s product continuing to increase, the Company’s current and immediate focus is to unlock manufacturing capacity, improve revenues and profitability and accelerate the Company’s near-term progress towards cashflow breakeven and beyond. Under new leadership, the following actions have been taken and discussed in more detail below:

In the second quarter, we increased our overall manufacturing headcount in Calgary by 9%, following the closure of the Phoenix Facility, where we ~~expect~~have commenced a night shift for certain operations. We are experiencing the effects of a tight labor market, which has made it more difficult than expected to ~~incur reorganization costs~~attract and retain skilled labor. This has been particularly the case at our Savannah facility. As a result of ~~approximately $5 million,~~these challenges, some of ~~which $3.7 million~~our orders were ~~incurred~~pushed to the third quarter from June 2022 while we worked to ramp up our hourly work force. To increase our competitiveness, we have raised hourly wages in both Calgary and Savannah, established headcount targets and factored in attrition rates in hiring and retention strategies. We are continuing to add to our work force in anticipation of higher activity in the ~~first quarter. We anticipate a further $4.4 million of reorganization costs~~third and fourth quarters to avoid manufacturing capacity constraints that we experienced in the second quarter asof 2022. We also commenced operational improvements on our Reflect and Inspire product lines to increase overall productive capacity and improve lead times, with such improvements expected to be complete by

August 2022. Finally, we completed the closure of our Phoenix Facility in June 2022 and sublet the associated factory space in July 2022 at a premium to the prior rent commitment.

In June 2022, in addition to a 5% price increase effective June 1, 2022, the Company ~~incurred~~announced a ~~$3.1 million charge~~further 10% increase in prices on its products effective July 21, 2022 to further address the impact of ongoing inflationary pressure on raw material and labor costs. DIRTT also terminated the 20% pilot price reduction program on its Reflect and Inspire product lines, which comprise approximately 10% of product revenue for ~~incremental insurance on change of control~~the six months ended June 30, 2022, that it announced in February 2022. This program termination is a result of the ~~board~~combination of increased aluminum prices and the unanticipated impact that the increased demand placed on ~~April 26, 2022.~~our productive capacity due to the immaturity of production processes related to these product lines.

Through the course of the pandemic, the Company increased its use of discounting in an attempt to drive higher revenues, with approximately 10.5% of discounts on total revenue in the second quarter of 2022 compared to 8.7% in the same period of 2020. A pricing oversight committee was established in the second quarter to provide increased scrutiny of discounting behaviors and pricing decision making, with the goal of significantly reducing the amount of discounting provided on a go forward basis.

Under the leadership of its new Chief Executive Officer, the Company took further steps in July 2022 to flatten its organization to increase its overall effectiveness and to optimize its fixed salaried cost base in light of current activity levels and strategic needs. This resulted in annualized cost savings of $5.0 million and the elimination of 36 salaried positions, including the leadership changes described earlier. Key objectives of this process include breaking down interdepartmental silos, increasing cross functional communication and joint accountabilities, improving overall productivity across the organization and enhancing DIRTT’s overall approach to Construction Partner recruitment, onboarding, management and accountability. We ~~finished~~are making additional investments in the ICE team and investing to support the long-term success of our Partners. These changes include but are not limited to:

While revenues were in line with expectations and grew sequentially over the first quarter and the same period last year, the Company used approximately $19.1 million of cash in the second quarter compared to $21.3 million in the first quarter 2022. This included approximately $6.0 million in the quarter ~~with~~($11.1 million year to date) of one-time reorganization and contested director election costs and DSU payments. Excluding these amounts, net of working capital, cash used would have been $13.7 million in the second quarter of ~~$49.3~~2022 compared to $18.3 million ~~(December 31, 2021 - $66.7 million), including unrestricted cash~~in the first quarter of ~~$39.0 million (December 31, 2021 - $60.3 million). Cash usage was driven by the slow start to the quarter which resulted in~~2022. From a working capital ~~build combined with one-time reorganization costs~~management perspective, we continued to experience a buildup in inventory, primarily in aluminum extrusions, reflecting our difficulty in increasing productive capacity relative to expectations as described above. Inventory increased by $3.7 million and ~~professional fees related~~$3.2 million in the first and second quarter of 2022, respectively. We have taken steps to moderate such supply and expect to begin to reduce our inventory levels in the ~~contested election~~third and fourth quarters. As a result of ~~directors. We~~the steps mentioned, we expect cash usage to improve as 2022 progresses ~~as a result of sequential improvements in revenues~~ and ~~a lower fixed cost base, approaching~~to approach monthly cashflow breakeven in the ~~third or~~ fourth ~~quarters of 2022. That said, we expect one-time costs, comprising of reorganization expenses and activist costs, for the second~~ quarter of 2022 ~~to be consistent with~~(see “–Liquidity and Capital Resources").

As revenues improve, including the ~~first quarter of 2022 due to certain insurance payments required on account~~effect of the ~~change of control at~~price increases above, and the ~~board level.~~

~~Based on budgeted annual revenue levels, taking into account the~~cost reduction initiatives ~~previously described and excluding our related one-time reorganization costs and expected incremental professional fees, (1)~~take hold, we ~~believe that our 2022~~expect to continue to progress toward an improvement in net loss and Adjusted EBITDA ~~loss will demonstrate~~breakeven in the fourth quarter of 2022. Unrestricted cash and net working capital at June 30, 2022 was $19.7 million and $31.6 million, compared to $38.9 million and $49.3 million at March 31, 2022, respectively, and $60.3 million and $66.7 million at December 31, 2021, respectively. The Company’s asset backed credit facility, which is based upon a ~~significant improvement from 2021 levels~~percentage of accounts receivable and ~~(2) we believe we will experience~~inventory, remains undrawn at June 30, 2022 with approximately$11.3 million available. The Company continues to focus on revenue growth and cost initiatives to positively affect DIRTT’s balance sheet, cash flow and profitability and expects to see a decrease in net loss and, correspondingly, a shift to positive Adjusted EBITDA in 2023. This is due to both the improved sales focus and operational efficiencies described above, and an improved macroeconomic environment as the pandemic recovery takes hold and accelerates for DIRTT. trend of increasing monthly working capital by year end.

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

As a result, we also provide financial information in this Quarterly Report that is not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. Management uses these non-GAAP financial measures in its review and evaluation of the financial performance of the Company. We believe that these non-GAAP financial measures also provide additional insight to investors and securities analysts as supplemental information to our GAAP results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt and debt facilities, or foreign exchange movements), asset base (depreciation and amortization), the impact of under-utilized capacity on gross profit, tax consequences, reorganization expense and stock-based compensation. We remove the impact of all foreign exchange from Adjusted EBITDA. Foreign exchange gains and losses can vary significantly period-to-period due to the impact of changes in the U.S. and Canadian dollar exchange rates on foreign currency denominated monetary items on the balance sheet and are not reflective of the

underlying operations of the Company. We remove the impact of under-utilized capacity from gross profit, and fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods where production levels are abnormally low, unallocated overheads are recognized as an expense in the period in which they are incurred. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA.

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

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

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.

Three and Six Months Ended ~~March 31,~~June 30, 2022, Compared to Three and Six Months Ended ~~March 31,~~June 30, 2021


	For the Three Months Ended March 31,									For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2022			2021			% Change			2022			2021			% Change			2022			2021			% Change
	($ in thousands)									($ in thousands)									($ in thousands)
Revenue		38,286			29,465			30			44,701			41,102			9			82,987			70,567			18
Gross Profit		3,287			3,370			(2	)		6,276			9,224			(32	)		9,563			12,594			(24	)
Gross Profit Margin		8.6	%		11.4	%					14.0	%		22.4	%					11.5	%		17.8	%
Operating Expenses
Sales and Marketing		7,228			6,670			8			7,777			7,564			3			15,005			14,234			5
General and Administrative		7,993			7,241			10			6,877			7,780			(12	)		14,870			15,021			(1	)
Operations Support		2,498			2,297			9			2,528			2,213			14			5,026			4,510			11
Technology and Development		2,140			1,935			11			1,879			1,924			(2	)		4,019			3,859			4
Stock-Based Compensation		1,302			1,094			19			1,326			1,861			(29	)		2,628			2,955			(11	)
Reorganization		3,692			-			100			5,163			-			100			8,855			-			100
Total Operating Expenses		24,853			19,237			29			25,550			21,342			20			50,403			40,579			24
Operating Loss		(21,566	)		(15,867	)		36			(19,274	)		(12,118	)		59			(40,840	)		(27,985	)		46
Operating Margin		(56.3	)%		(53.9	)%					(43.1	)%		(29.5	)%					(49.2	)%		(39.7	)%

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

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

Our sales activity and associated revenues continue to be impacted by the severe economic and social impact of the COVID-19 pandemic since March 2020, including a major contraction in construction activity levels in North America due to work-from-home requirements, lock-down measures and other regulatory responses implemented by governments and public health officials.

During the quarter ended ~~March 31,~~June 30, 2022, revenue was ~~$38.3~~$44.7 million, an increase of ~~$8.8~~$3.6 million or ~~30%~~9% from the same period in ~~2021 and~~2021. Revenue for the six months ended June 30, 2022 was $83.0million an increase of ~~which 46% was generated in March 2022.~~12.4 million

or 18% from the six months ended June 30, 2021. The first quarter of 2022 marked the transition of the COVID-19 pandemic to an endemic with the broad easing of health restrictions, including work-from-home mandates, across North America. While the resurgence in COVID-19 infections due to the Omicron variant at the beginning of the year temporarily sent many employees back to their home offices and delayed return dates, the Company and our ~~Distribution~~Construction Partners experienced an uptick in planning activity and ~~opportunities~~opportunity growth in our commercial vertical which began to translate into orders in March 2022 that has continued into the second quarter. In response, the Company began efforts to increase its manufacturing labor headcount to enable it to capture the increase in demand but experienced the ongoing effects of a tight labor market. This has made it more difficult than expected to attract and retain skilled labor particularly, the case at our Savannah facility. As a result of these challenges in combination with the time to fully onboard new hires up to productive status, some orders had to be pushed to the third quarter from June 2022 while we worked to ramp up our hourly workforce.

We remain uncertain as to the ongoing impact of the pandemic, including effects of resurgent infection rates due to variants, on future projects that are either in the planning or conceptual stage. It is likely that future projects will experience similar delays as the COVID-19 pandemic runs its ~~course.~~course and as DIRTT works through the aforementioned hiring and training challenges. See Item 1A. “Risk Factors”.

In response to significant increases in the costs of raw materials, shipping materials, labor and freight, effective November 16, 2021, DIRTT increased product and transportation prices on new projects by approximately 6.5%, with

the benefits largely expected to be realized in 2022. On February 17, 2022, we ~~announced~~implemented a further price increase of 5% ~~effective~~that came into effect June 1, 2022. Based on experience to date, these increases were not sufficient to offset the significant inflationary impacts on raw materials. Accordingly, on June 21, 2022 ~~as well as pricing strategy changes on our Reflect and Inspire lines~~an additional price increase of ~~glass wall products, which we expect to result in increased sales volumes of these products.~~10% was announced effective July 21, 2022. The benefits of ~~these changes~~this additional increase are largely expected to be realized in the ~~latter quarters~~second half of 2022. DIRTT also terminated the 20% pilot price reduction program on its Reflect and Inspire product lines that it announced in February 2022 as a result of the combination of increased aluminum prices and the unanticipated impact that the increased demand placed on our productive capacity due to the immaturity of production processes related to these product lines.

Installation and other services revenue was ~~$0.8~~$1.6 million and $2.4 million for the three and six months ended ~~March 31,~~June 30, 2022 respectively, compared to ~~$0.9~~$1.0 million and $1.9 million in the same period of 2021. Except in limited circumstances, our ~~Distribution~~Construction Partners, rather than the Company, perform installation services, and accordingly, we are not anticipating significant growth in this revenue stream.

Our success is partly dependent on our ability to profitably develop our ~~Distribution~~Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At ~~March 31,~~June 30, 2022, we had ~~70 Distribution~~69 (December 31, 2021: 69) Construction Partners servicing multiple locations. During 2021 and the first quarter of 2022, we made several changes and upgrades to our ~~Distribution~~Construction Partner network, expanding our relationships with new and existing partners and ending our relationships with others. In February 2022, we announced the establishment of a Partner Advisory Council to provide a greater link with ~~Distribution~~Construction Partners and end clients who they service. The Partner Advisory Council will offer advice on sales and marketing effectiveness, product issues and new market needs, market conditions, competitive landscape, marketing support and other related areas of mutual interest.

We periodically analyze our revenue growth by vertical markets in the defined markets of commercial, healthcare, government and education. The following table presents our product and transportation revenue by vertical market:

For the Three Months Ended March 31,

2022

2021

% Change

($ in thousands)

Commercial

24,044

16,144

49

Healthcare

6,964

6,487

7

Government

3,281

4,181

(22
)
Education

2,965

1,523

95

License fees from Distribution Partners

197

207

(5
)
Total product revenue

37,451

28,542

31

Service revenue

835

923

(10
)

38,286

29,465

30

(1)

Excludes license fees from Construction Partners.

Commercial revenues increased by ~~49%~~56% and 53% in the three and six month periods ended June 30, 2022 from the same prior year ~~period,~~periods, reflecting improving market conditions as health restrictions and work-from-home requirements ease and include one large customer in the technology sector with revenue of ~~over $3 million.~~$2.3 million and $5.6 million for the respective periods. Healthcare ~~increased~~decreased by 7%64% and 42% in the ~~first quarter of~~three and six months ended June 30, 2022, respectively, from the same ~~period~~periods in 2021. Such sales tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels. ~~Current quarter healthcare revenues included two large projects of approximately $3 million, which is consistent with same period of~~In 2021, ~~where~~ we had ~~two separate~~one large ~~projects~~healthcare project with revenue of ~~approximately $3 million.~~ $6.9 million in the second quarter which did not recur in 2022.

Education sales in the ~~first quarter of~~three and six months ended June 30, 2022 increased by ~~95%~~26% and 52%, respectively, over the prior ~~period.~~periods. At the beginning of the pandemic, education spending effectively paused with many institutions suspending in-person classes. There were no individually significant education projects and the ~~95% increase represents~~increases represent higher volumes of projects due to the easing of health restrictions and many students returning to in-person learning. Government revenues in the ~~first quarter of~~three months ended June 30, 2022

increased by 19% and decreased by ~~22%~~1% for the six month period then ended over the prior ~~period due to a one-time project in the prior period of approximately $0.8 million that did not recur in the first quarter of 2022.~~year periods.

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:

Historically, approximately 15-25% and 75-85% of revenues are derived from sales to Canada and the United States, respectively. In the quarter ended ~~March 31,~~June 30, 2020, revenues from Canada fell to 10% of total sales while sales

to the United States increased to 90%. The geographical split for the quarter ended ~~March 31,~~June 30, 2022 began to return to historical averages and reflects the easing of health restrictions in Canada which was later than the United States.

Sales and marketing expenses increased by ~~$0.6~~$0.2 million and $0.8 million to ~~$7.2~~$7.8 million and $15.0 million for the three and six months ended ~~March 31,~~June 30, 2022, from ~~$6.7~~$7.6 million and $14.2 million for the three and six months ended ~~March 31, 2021.~~June 30, 2021 respectively. The increase was largely related to an increase of ~~$0.4~~$0.9 million and $1.3 million for the three and six months ended June 30, 2022, respectively, in travel, meals and entertainment expenses as business activity has increased and restrictions on travel have eased, aoffset by lower salary and benefit expenses due to planned headcount reductions as part of the cost savings initiatives.

General and administrative expenses decreased $0.9 million to $6.9 million and $0.1 million to $14.9 million for the three and six months ended June 30, 2022 from $7.8 million and $15.0 million for the three and six months ended June 30, 2021. In the three months ended June 30, 2022, approximately $0.3 million ~~increase in commissions due to higher sales volumes and increased facilities costs related to~~of professional fees associated with the ~~Dallas DXC which opened in the third quarter~~contested election of ~~2021,~~directors was more than offset by ~~a decrease in~~lower salaries and benefits costs.

~~General and administrative expenses increased $0.8 million to $8.0 million for~~ For the ~~three months~~six month period ended ~~March 31,~~June 30, 2022, ~~from $7.2 million for the three months ended March 31, 2021. The increase reflects $1.5~~approximately $1.8 million of incremental professional fees associated with the contested election of directors was offset by ~~a $0.7 million decrease~~lower salaries and benefits cost. Reductions in salaries and benefits ~~costs.~~includes planned headcount reductions as part of cost savings initiatives as well as the impact of the Chief Executive Officer vacancy in the periods.

Operations support is comprised primarily of project managers, order entry and other professionals that facilitate the integration of our ~~Distribution~~Construction Partner project execution and our manufacturing operations. Operations support expenses increased by ~~$0.2~~$0.3 million and $0.5 million from ~~$2.3~~$2.2 million and $4.5 million for the three and six months ended ~~March 31,~~June 30, 2021, respectively, to $2.5 million and $5.0 million for the three and six months ended ~~March 31,~~June 30, 2022. The increase was due to lower costs capitalized to internal projects with the completion of the South Carolina Facility and the DIRTT Experience Centre ("DXC") in Dallas ~~DXC.~~and an increase in salaries and benefits of $0.2 million and $0.3 million for the three and six month period ended June 30, 2022 compared to the previous year same period.

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 ~~increased by $0.2 million to $2.1 million~~ for the three ~~months~~and six month period ended ~~March 31,~~June 30, 2022 ~~compared~~were consistent with prior period costs as $0.2 million and $0.5 million of lower capitalized costs due to ~~$1.9 million for the three months ended March 31, 2021, primarily related to a decrease~~fewer internal projects, respectively, were offset by reductions in ~~capitalized software development costs.~~salaries and benefits expense.

Stock-based compensation expense for the three and six months ended ~~March 31,~~June 30, 2022 was $1.3 million and $2.6 million compared to ~~$1.1~~$1.9 million and $3.0 million for the same periods in 2021. The ~~increase~~movement in this expense was largely ~~due to~~the impact of grants of RSUs to the Company's employees, including those in lieu of cash compensation to the Company’s former interim Chief Executive Officer in January 2022 and DSUs granted to the ~~board~~Board of ~~directors,~~Directors, lowered by the impact of fair value adjustments on cash settled awards as a result of our share price decreasing during the quarter and six months ended ~~March 31,~~June 30, 2022. The Board of Directors receives 100% of their remuneration in DSUs.

On February 22, 2022, we announced a plan to close the Phoenix Facility, shifting related manufacturing to both our Savannah and Calgary aluminum ~~manufacturing~~ facilities. The closure of the Phoenix Facility was substantially completed in the second quarter of 2022. Of the initial estimate of cost savings of approximately $2.4 million from this closure, we expect to realize annualized savings of approximately $1.0 million as $1.4 million of work force reductions were offset by additions in Calgary and Savannah due to increased demand. No amounts were realized in the second quarter. Additionally, we ~~announced our intention to eliminate~~eliminated approximately 14% of the expected 18% reduction of our salaried workforce including manufacturing and office positions, which, along with other cost reduction initiatives, are expected to yield annualized

savings of approximately $13.0 million. Of these cost reduction initiatives, $9.0 million was implemented during the first and second quarters of 2022, $3.0 million will be implemented in the second half of 2022, and $1.0 million, comprised of certain manufacturing positions, has been deferred as we work to increase manufacturing headcount in light of increased demand. One-time costs associated with these reductions and other costs savings measures were previously estimated to be ~~$5 million.~~$4.4 million for the second quarter, and $8.1 million for the year. For the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2022, we incurred ~~$3.7~~$5.2 million and $8.9 million in reorganization costs, ~~and we anticipate a further $4.4 million~~respectively. Actual costs for the quarter ended June 30, 2022 are higher due to additional termination benefits arising in June 2022 with the departure of ~~reorganization costs in the second quarter, as the Company incurred a $3.1 million charge for incremental insurance on change of control of the board on April 26, 2022.~~two executives.

The Company was not eligible and did not receive any new government subsidies in the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2022 compared to ~~$4.1~~$3.4 and $7.5 million of subsidies received during the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2021. Upon finalization of 2021 compensation to specified executives, approximately C$0.5 million ($0.4 million) of previously-received subsidies ~~is expected to be returned~~were repaid to the Canadian authorities in the second quarter of 2022. The amount was fully provided for in the third quarter of 2021 and ~~in the first quarter of 2022 and~~ the Company reversed a $0.6 million incremental provision related to this that iswas no longer ~~necessary.~~necessary in the first quarter of 2022. The last claim period under the CEWS and CERS programs expired on October 23, 2021.

The Company is currently evaluating its eligibility for the Employer Retention Tax Credit in the United States, which, if eligible, could provide additional subsidies to the Company.

Interest expense increased by $0.5 million from $0.8 million ~~from $0.5~~for the three months ended June 30, 2022 to $1.3 million ~~in the quarter ended March 31,~~compared to June 30, 2021 toand by $1.4 million from $1.3 million in the ~~quarter~~six months ended ~~March 31,~~June 30, 2022 asto $2.7 million compared to June 30, 2021. The increased interest expense is a result of the issuance of C$~~70.3~~35.0 million ($27.4 million) of ~~the~~ Debentures in December 2021 and draws on the Leasing Facilities.

The provision for income taxes is comprised of U.S. and Canadian federal, state and provincial taxes based on pre-tax income. The Company incurred no income tax expense or recovery during the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2022, compared to a ~~$0.04~~$0.2 million and $0.3 million expense for the same period of 2021. As at ~~March 31,~~June 30, 2022 the Company had a valuation allowance of ~~$22.8~~$27.0 million (December 31, 2021 $17.3 million) against deferred tax assets due to ongoing near term uncertainties on the business caused by the COVID-19 pandemic and the related decline in business activity which impacted our ability to generate sufficient taxable income in Canada and the United States to fully deduct historical losses. As at ~~March 31,~~June 30, 2022, we had C$~~76.3~~89.8 million of non-capital loss carry-forwards in Canada and ~~$53~~$60.4 million in the United States. These loss carry-forwards will begin to expire in 2032.

Net loss increased to ~~$23.0~~$19.3 million or ~~$0.27~~$0.22 net loss per share in the three months ended ~~March 31,~~June 30, 2022 from a net loss of ~~$12.5~~$9.7 million or ~~$0.15~~$0.11 net loss per share for the ~~three months~~quarter ended ~~March 31,~~June 30, 2021. The increased loss is primarily the result of a ~~$0.1~~$2.9 million decrease in gross profit, a ~~$5.6~~$4.2 million increase in operating expenses ~~including $3.7~~(which includes $5.2 million of reorganization expenses and ~~$1.5~~$0.3 million of incremental professional fees described previously), a $0.5 million increase in interest expense and a $3.4 million decrease in government subsidies offset by a $1.3 million increase in foreign exchange gain.

Net loss increased to $42.3 million or $0.49 net loss per share in the first half of 2022 from a net loss of $22.2 million or $0.26 net loss per share for the six months ended June 30, 2021. The increased loss is primarily the result of a $3.0 million decrease in gross profit, a $9.8 million increase in operating expenses (which includes $8.9 million of reorganization expenses and $1.8 million of incremental professional fees as described ~~previously,~~previously), a ~~$0.8~~$1.4 million increase in interest expense ~~a $0.6 million increase in foreign exchange loss~~ and a ~~$3.5~~$6.9 million decrease in government ~~subsidies.~~subsidies offset by a foreign exchange gain of $0.8 million.

EBITDA and Adjusted EBITDA for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021

The following table presents a reconciliation for the ~~first~~second quarter and year to date results of 2022 and 2021 of EBITDA and Adjusted EBITDA to our net loss, which is the most directly comparable GAAP measure for the periods presented:

For the Three Months Ended March 31,

2022

2021

($ in thousands)

Net loss for the period

(23,042
)

(12,499
)
Add back (deduct):

Interest Expense

1,330

500

Interest Income

(11
)

(19
)
Income Tax Expense

-

39

Depreciation and Amortization

4,622

3,402

EBITDA

(17,101
)

(8,577
)
Foreign Exchange Losses

732

180

Stock-Based Compensation

1,302

1,094

Government Subsidies

(575
)

(4,068
)
Reorganization Expense

3,692

-

Adjusted EBITDA

(11,950
)

(11,371
)
Net Loss Margin⁽¹⁾

(60.2
)%

(42.4
)%
Adjusted EBITDA Margin

(31.2
)%

(38.6
)%
(1)

Net loss divided by revenue.

~~(1)~~

~~Net loss divided by revenue.~~

For the three months ended ~~March 31,~~June 30, 2022, Adjusted EBITDA and Adjusted EBITDA Margin decreased by ~~$0.6~~$2.6 million to a ~~$12.0~~$9.4 million loss or ~~(31.2)~~(21.1)% from ~~$11.4~~$6.8 million loss or ~~(38.6)~~(16.6)% in the same period of 2021. This primarily reflects a ~~$0.4~~$2.8 million decrease in Adjusted Gross Profit, ~~$1.5~~$1.0 million increase in travel and entertainment costs, $0.3 million of incremental professional fees as described previously ~~$0.4~~and, $0.3 million reduction in capitalized costs due to fewer internal projects, ~~$0.4~~offset by $1.4 million of lower salaries and benefits costs due to headcount reductions and other cost savings.

For the six months ended June 30, 2022, Adjusted EBITDA and Adjusted EBITDA Margin decreased by $3.2 million to a $21.4 million loss or (25.8)% from $18.2 million loss or (25.8)% in the same period of 2021. This primarily reflects a $3.2 million decrease in Adjusted Gross Profit, $1.8 million of incremental professional fees as described previously, $1.5 million increase in ~~sales~~ travel and entertainment costs, and ~~$0.3~~$0.7 million ~~of higher commission expense~~reduction in capitalized costs due to ~~increased activity,~~fewer internal projects, offset by $1.8 million of costs of underused capacity in the first quarter of 2021 which did not re-occur and $2.6 million lower salaries and benefits costs due to headcount reductions.

Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021

The following table presents a reconciliation for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 of Adjusted Gross Profit to our gross profit, which is the most directly comparable GAAP measure for the periods presented:


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2022			2021			2022			2021			2022			2021
	($ in thousands)						($ in thousands)						($ in thousands)
Gross profit		3,287			3,370			6,276			9,224			9,563			12,594
Gross profit margin		8.6	%		11.4	%		14.0	%		22.4	%		11.5	%		17.8	%
Add: Depreciation and amortization expense		3,472			2,029			2,188			2,033			5,660			4,062
Add: Costs of under-utilized capacity		-			1,756			-			-			-			1,756
Adjusted Gross Profit		6,759			7,155			8,464			11,257			15,223			18,412
Adjusted Gross Profit Margin		17.7	%		24.3	%		18.9	%		27.4	%		18.3	%		26.1	%

Gross profit and gross profit margin decreased to ~~$3.3~~$6.3 million or ~~8.6%~~14.0% for the three months ended ~~March 31,~~June 30, 2022, from ~~$3.4~~$9.2 million or ~~11.4%~~22.4% for the three months ended ~~March 31,~~June 30, 2021. Adjusted Gross Profit and Adjusted Gross Profit Margin decreased to ~~$6.8~~$8.5 million or ~~17.7%~~18.9% for the three months ended ~~March 31,~~June 30, 2022, from ~~$7.2~~$11.3 million or ~~24.3%~~27.4% for the three months ended ~~March 31,~~June 30, 2021.

For the six month period ended June 30, 2022, gross profit and gross profit margin decreased to $9.6 million or 11.5% from $12.6 million or 17.8% for the six month period ended June 30, 2021. Adjusted Gross Profit and Adjusted Gross Profit Margin decreased to $15.2 million or 18.3% for the six months ended June 30, 2022, from $18.4 million or 26.1% for the six months ended June 30, 2021.

The decrease in gross profit margin largely reflects significant and industry wide inflationary increases in the realized cost of materials, transportation, labor and ~~packaging, partially~~packaging. In addition, in the second quarter and in response to a sustained increase in demand that began in the first quarter of 2022, the Company began efforts to increase its manufacturing labor headcount but experienced the ongoing effects of a tight labor market. This has made it more difficult than expected to attract and retain skilled labor, particularly at our Savannah facility, and as a result the Company increased hourly rates by 6% on average to increase its overall competitiveness.

To address these cost increases, the Company implemented a series of price increases, including a 6.5% increase effective November 1, 2021 and an additional 5% price increase effective June 1, 2022. As these increases were not sufficient to offset the continuing inflationary pressure, the Company announced a further 10% price increase effective July 21, 2022 and will continue to monitor raw material, labor and other costs to determine whether further action is necessary.

For the three month period ended June 30, 2022, gross profit margin decreased by ~~improved labor utilization and fixed cost leverage on higher revenues. Gross profit decreased~~8.4% from the same period in 2021 as material, transportation and packaging costs increased by approximately 9%5.4% as a percentage of revenue and a negative labor efficiency of 2.3% was realized due to higher labor rates and increased inefficiencies resulting from training and onboarding of new employees. In addition, the Company had previously announced intentions to extend its scheduling lead times, while removing deposit requirements, and accordingly reduce standby production labor capacity by up to 20%. Following further discussions with our Construction Partners, including the importance of short lead times, we reversed this decision in the second quarter of 2022. Other cost increases negatively impacted the gross profit by 1.1% partially offset by marginal fixed cost leverage on account of the 9% increase in revenue compared to the same period last year.

For the six month period ended June 30, 2022, gross profit margin decreased by 6.3% from the same period in 2021 as material, transportation and packaging costs increased by approximately 6.7% as a percentage of revenue. Other cost increases negatively impacted the gross profit by 1.4% and gross profit was reduced by approximately 1% due to incremental South Carolina Facility

fixed costs. Additional depreciation and amortization due to revision to the useful lives of assets, including the Phoenix Facility, contributed $1.1 million or 2%1.1% of the gross margin. This ~~12%~~ increased cost impact was offset by 3%2.8% of improved ~~labor utilization and~~ fixed cost leverage on account of the ~~$8.8~~$12.4 million or ~~30%~~18% increase in revenue compared to the same period in 2021.

Like many other industries and as noted above, we experienced a significant increase in the cost of raw materials, transportation and packaging, largely driven by the effects of the pandemic with much of the increases experienced in the second half of 2021. In response, effective November 16, 2021, we increased prices on new orders by approximately 6.5% to effectively offset these cost increases, with the benefits largely expected to be realized in the latter half of 2022. We expect such inflationary pressures to continue into 2022 and accordingly announced a further 5% price increase on February 17, 2022, effective June 1, 2022. We did not realize the full benefit of the initial price increase in the first quarter, and in addition we incurred higher than historical discounts on sales which further compressed our gross profit margin.

During the fourth quarter of 2019, we determined that we were carrying abnormal excess capacity in our manufacturing facilities as a result of the slowdown in sales and determined certain production overheads should be directly expensed in cost of sales, representing production overheads that were not attributable to production. In the first quarter of 2021, we experienced the full impact of the slowdown in non-residential construction activity on our business. In anticipation of a recovery in demand for our products and services and to preserve our skilled workforce, we deliberately maintained manufacturing headcount, while implementing selective furlough days, in the first quarter of 2021 despite the shortfall in revenues relative to capacity. As a result, in the first quarter of 2021 we separately classified $1.8 million as costs related to our under-utilized capacity (1.2% of 2021 first quarter gross profit margin) in cost of sales. For the remaining quarters of 2021 and 2022, we did not have abnormal excess capacity as our workforce was better aligned with current production volumes.

Liquidity and Capital Resources

Cash and cash equivalents at ~~March 31,~~June 30, 2022 totaled ~~$38.9~~$19.7 million, a decrease of ~~$21.5~~$40.5 million from December 31, 2021. The decrease in cash over the six month period primarily reflects the impact of ~~$19.0~~$36.8 million cash used in

operations, of which $1.8 million related to one-time costs associated with the contested director election and $8.9 million of reorganization costs. In addition, capital expenditures ~~of $1.6~~totaled $3.0 million and scheduled Leasing Facilities repayments ~~of $0.6~~totaled $1.2 million.

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

In December 2021, we issued C$35.0 million of the December Debentures for net proceeds after costs of C$32.7 million ($25.6 million). The December Debentures accrue interest at a rate of 6.25% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.20 per common share, or if not converted will mature and be repayable on the December Debenture Maturity Date. Interest and principal are payable in cash or shares at the option of the Company.

The Company has a C$5.0 million Canada Leasing Facility of which C$3.6 million ($2.6 million) has been drawn, and a $14.0 million U.S. Leasing Facility of which $13.3 million has been drawn with RBC and one of its affiliates. The Leasing Facilities are available for equipment expenditures and certain equipment expenditures already incurred. Subsequent to March 31, 2022, the Company received C$0.9 million ($0.7 million) draw under the Canada Leasing ~~Facility.~~Facility received in April 2022.

~~In light~~The impact of COVID-19 on the Company’s sales and operations has been severe, including a contraction of demand since the beginning of the ~~uncertainty caused by the near~~pandemic and ~~potential mid-term impacts of COVID-19, we have evaluated multiple downside scenarios and have implemented cost control and expenditure management processes. On February~~

22, 2022 we announced multiple initiatives to improve liquidity and return to a positive EBITDA position by 2023. These initiatives include the rationalizing of our manufacturing footprint through the closure of the Phoenix Facility, organization-wide restructuring of positions that will contribute to the reduction of fixed expenses and the conversion of certain payroll costs into shares rather than cash. To offset the impacts of continued inflationary pressuremore recently, significant inflation on ~~the cost of~~ raw materials and transportation, a price increase of 5% effective June 1, 2022 was announced as well as pricing strategy changes on our Reflect and Inspire lines of glass walls to drive increased sales of these products.

The first quarter of 2022 included the impact of one-time costs associated with our reorganization, and professional fees incurred as described previously. These costs will be largely completed in the second quarter with an additional $1.3 million of reorganization expenses expected and $3.1 million for run-off directors and officers insurance purchased by the previous board on the change of control.

~~While the previously discussed COVID-19 impacts and upstream supply chain issues causing project delays during 2021~~material costs. This has resulted in a significant usage of cash ~~reserves,~~which we have financed through existing cash on hand and financings as described further below. Furthermore, we have implemented multiple initiatives to reduce our overall fixed cost base, including the ~~combination~~closure of ~~an improved~~our Phoenix Facility in the second quarter of 2022, reduction in our hourly headcount in 2021 and salaried headcount reductions and other cost savings initiatives in February 2022 and July 2022. We have also implemented three price increases to mitigate the inflationary effect, comprised of 6.5% effective November 1, 2021, 5% effective June 1, 2022 and a further 10% effective July 21, 2022. We continue to monitor the cost of our raw materials and labor to determine whether further price increases are warranted. Since March 2022, however, the Company and its Construction Partners have experienced a significant increase in demand, particularly within its commercial and education verticals, with the broad lifting of health restrictions across North America. In response the Company began efforts to increase manufacturing headcount within its Calgary and Savannah facilities to enable it to meet both near-term demand and anticipated sustained increases. We have increased wage rates in both Canada and the United States to increase our competitiveness in what is proving to be a tight labor market, particularly in Savannah. We are also taking steps to decongest our manufacturing processes to return productivity to pre-pandemic levels. We believe the benefits of the price increases, manufacturing headcount additions, training and debottlenecking will begin to be realized in the middle of the third quarter 2022, continuing throughout the balance of the year.

We have assessed the Company’s liquidity using multiple downside and upside scenarios, taking into account these circumstances, our sales outlook for ~~2022, our cost optimization activities~~the next twelve months and ~~our~~actions in combination with existing cash ~~reserves~~balances and available credit ~~facilities lead us~~facilities. Based upon this analysis, we believe the Company has sufficient liquidity to ~~believe that we have sufficient liquidity~~remain a going concern for at least the next ~~twelve~~12 months. However, a number of factors, including our ability to satisfy the expected growth in pipeline demand and those discussed below could impact our liquidity over such period.

Should the recovery of the North American construction activities from the pandemic be delayed, or a sustained economic depression and its adverse impacts on customer demand occur, significant inflationary pressure on raw materials and transportation costs continue that we are unable to recover through price increases or should we be unable to economically increase manufacturing labor headcount and related capacity, this could continue to adversely affect our liquidity. To the extent that existing cash and cash equivalents and increased liquidity from the aforementioned 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 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.

~~Since~~During 2021, we completed financings to increase our ~~inception,~~liquidity in light of the highly uncertain economic conditions caused by the pandemic. In January 2021, we ~~have financed operations primarily through~~issued C$40.3 million of the January Debentures for net proceeds after costs of C$37.6 million ($29.5 million). The January Debentures accrue interest at a rate of 6.00% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.65 per common share, or if not converted will mature and be repayable on the January Debenture Maturity Date. Interest and principal are payable in cash ~~flows from operations, long-term debt,~~or shares at the option of the Company.

In February 2021, we entered into the RBC Facility, a C$25.0 million senior secured revolving credit facility with RBC. Under the RBC Facility, the “Borrowing Base” is a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the ~~sale~~net orderly liquidation value of equity securities. Over the past three years, we have funded our operations and capital expenditures through a combination of cash flow from operations, long-term debt, government subsidies and cash on hand. As at March 31, 2022, we had no amounts outstandingeligible inventory less any reserves for potential prior ranking claims. Available borrowings under the RBC Facility at June 30, 2022 were C$14.5 million or $11.3 million.

be repayable on the December Debenture Maturity Date. Interest and principal are payable in cash or shares at the option of the Company.

The Company has a C$5.0 million Canada Leasing Facility of which C$4.5 million ($3.4 million) has been drawn, and a $14.0 million U.S. Leasing Facility of which $13.3 million ~~outstanding under the~~has been drawn with RBC and one of its affiliates. The Leasing Facilities are available for equipment expenditures and ~~$57.7 million of Debentures outstanding.~~certain equipment expenditures already incurred.

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

For the Three Months Ended March 31,

2022

2021

($ in thousands)

Net cash flows used in operating activities

(19,042
)

(12,094
)
Net cash flows used in investing activities

(1,620
)

(3,589
)
Net cash (used in) provided by financing activities

(827
)

29,337

Effect of foreign exchange on cash, cash equivalents and restricted
Cash

166

303

Net (decrease) increase in cash, cash equivalents and restricted
Cash

(21,323
)

13,957

Cash, cash equivalents and restricted cash, beginning of period

63,408

45,846

Cash, cash equivalents and restricted cash, end of period

42,085

59,803


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2022			2021			2022			2021
	($ in thousands)						($ in thousands)
Net cash flows (used in) provided by operating activities		(17,800	)		86			(36,842	)		(12,008	)
Net cash flows used in investing activities		(1,331	)		(6,430	)		(2,951	)		(10,019	)
Net cash flows (used in) provided by financing activities		(63	)		7,266			(890	)		36,603
Effect of foreign exchange on cash, cash equivalents and restricted cash		54			408			220			711
Net (decrease) increase in cash, cash equivalents and restricted cash		(19,140	)		1,330			(40,463	)		15,287
Cash, cash equivalents and restricted cash, beginning of period		42,085			59,803			63,408			45,846
Cash, cash equivalents and restricted cash, end of period		22,945			61,133			22,945			61,133

Operating Activities

Net cash flows used in operating activities ~~was $19.0~~were $17.8 million for the ~~first~~ three months ended June 30, 2022 compared to $0.1 million cash flows provided by operating activities in the three months ended June 30, 2021. Included in the $17.8 million used in operating activities in the second quarter of 2022 are $5.2 million of reorganization costs, $0.3 million of professional fees associated with the contested director election, and $3.7 million of increased inventory where the Company took on incremental reserves to mitigate against potential supply chain disruption, offset by the receipt of a $3.2 million income tax refund related to 2020. We have since taken steps to adjust our aluminum supply and expect to begin drawing down such inventory in the third and fourth quarter. Excluding these amounts, cashflow from operations would have been $11.8 million in the second quarter of 2022 compared to ~~$12.1~~$0.1 million cash provided by operations in the same period of 2021, with the decrease reflecting $3.4 million of government subsidies that did not re-occur in 2022, $2.8 million of lower Adjusted Gross Profit, higher interest payments and working capital timing. Apart from the above noted items, working capital changes primarily reflect the timing of insurance renewals and increased accounts payable due to higher activity and timing of payments.

Net cash flows used in operating activities were $36.8 million for the six months ended June 30, 2022 compared to $12.0 million in the six months ended June 30, 2021. Included in the $36.8 million used in operating activities in the first half of 2022 are $8.9 million of reorganization costs, $1.8 million of professional fees associated with the contested director election, and $7.1 million of increased inventory where the Company took on incremental inventory from suppliers to mitigate against potential supply chain disruption, offset by the receipt of a $3.2 million income tax refund related to 2020. We have since taken steps to adjust our aluminum supply and expect to begin drawing down such inventory in the third and fourth quarter. Excluding these amounts, cashflow from operations would have been $22.2 million in the first ~~three months~~half of ~~2021. The~~2022 compared to $12.0 million cash used in operations in the same period of 2021, with the decrease is cash flows from operations is largely due to reorganization costs of $3.7 million and a $2.7 million net increase in operating assets and liabilities. Accounts receivable increased by $5.0 million as our March revenues were higher than January and February by a corresponding amount while inventory increased by $3.4 million. As a result of ongoing supply chain issues, the Company increased its inventory to ensure it can meet its end customers’ expectations of lead times. Offsetting this increase in operating assets was a $3.3 million increase in customer deposits and deferred revenue and a $2.4 million increase in accounts payable and accrued liabilities, both reflecting ~~the increased activity in March 2022. For the quarter ended March 31,~~

~~2021 we were eligible for $4.1~~$7.5 million of government subsidies ~~compared~~that did not re-occur in 2022, $1.4 million lower Adjusted Gross Profit before underutilized capacity, higher interest payments and working capital timing. Apart from the above noted items, working capital changes primarily reflect the timing of insurance renewals and increased accounts receivable, accounts payable and customer deposits due to ~~$0.6 million~~ higher activity and timing of payments.

~~in the quarter ended March 31, 2022.~~Investing Activities

~~Investing Activities~~

We invested ~~$1.0~~$0.9 million and $1.9 million in property, plant and equipment during the three and six months ended ~~March 31,~~June 30, 2022, respectively, compared to ~~$2.9~~$5.8 million and $8.7 million during the three and six months ended

June 30, 2021. This expenditure for the three months ended June 30, 2022 comprised of $0.1 million of working capital changes, $0.5 million of manufacturing upgrades, $0.1 million related to our website redesign, $0.1 million of leasehold improvements and $0.1 million of DXC refreshes. The expenditure for the six months ended June 30, 2022 comprised of $1.0 million of working capital changes, $0.6 million of manufacturing upgrades, $0.2 million related to our website design and $0.1 million related to DXC refreshes and IT equipment.

We invested $0.4 million on capitalized software during the three months ended ~~March 31, 2021. This expenditure comprised of $0.4~~June 30, 2022, as compared to $0.6 million ~~of working capital changes, $0.3~~in the three months ended June 30, 2021 and $0.9 million ~~of information technology and~~for the ~~continued enhancement of our customer relationship management system and website redesign, $0.1~~six months ended June 30, 2022 compared to $1.3 million ~~of DXC refreshes and $0.1 million of manufacturing upgrades.~~ for the comparative period.

Our 2022 capital expenditure program ~~is comprised of~~comprises approximately $2.5 million related to refreshes of DXCs, continued enhancement of our customer relationship management system and website redesign, approximately $2.5 million on software development and approximately $2.0 million on manufacturing and other capital upgrades. The decrease in cash flows used in investing activities is largely due to reduced spending as the South Carolina Facility and Dallas DXC were completed in 2021. ~~We invested $0.5 million on capitalized software during the three months ended March 31, 2022, as compared to $0.7 million in the three months ended March 31, 2021.~~

Financing Activities

For the three and six months ended ~~March 31,~~June 30, 2022, ~~$0.8~~$0.1 million and $0.9 million of cash was used in financing activities, comprising mainly of $0.6 million and $1.2 million of scheduled payments under the Leasing ~~Facilities. In~~Facilities for the ~~same~~three and six month period ~~last year,~~ended June 20, 2022. During the second quarter, we received ~~$29.5~~C$0.9 million ($0.7 million) under the Canada Leasing Facility. For the three and six months ended June 30, 2021, $7.3 million and $36.6 million of cash was provided by financing activities, respectively, mainly due to the proceeds received from the issuance of C$40.3 million of Debentures in January 2021 and the ~~January Debentures and had lower~~receipt of $8.4 million of cash consideration under the U.S. Leasing ~~Facility scheduled payments of $0.2 million due to a lower outstanding Leasing Facility balance at March 31, 2021.~~Facility.

We currently expect to fund anticipated future investments with available cash, including the proceeds from ~~our issuance of~~ Debentures issued in 2021, and drawings on our ~~Leasing Facilities. Subsequent to March 31, 2022, C$0.9 million ($0.7 million) was drawn under the Canada Leasing~~Credit Facility. We do not expect to make any significant further draws under the Leasing Facilities. Apart from cash flow from operations, issuing equity and debt has been our primary source of capital to date. Additional debt or equity financing may be pursued in the future as we deem appropriate. We may also use debt or pursue equity financing depending on the ~~share~~ price of our common shares at the time, interest rates, and nature of the investment opportunity and economic climate.

Credit Facility

On February 12, 2021, the Company entered into the RBC Facility. Under the RBC Facility, the Borrowing Base is up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims. At ~~March 31,~~June 30, 2022, available borrowings are C$14.5 million ($~~11.6~~11.3 million), of which no amounts have been drawn. 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 is less than C$5.0 million, the Company is subject to a FCCR covenant of 1.10:1 on a trailing twelve-month basis. Additionally, if the FCCR has been below 1.10:1 for the three immediately preceding months, the Company is required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Leasing Facilities. The Company did not meet the three-month FCCR requirement during the ~~first~~second quarter of 2022, which resulted in requiring the restriction of $3.2 million of cash. 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.

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

The Company has drawn $13.3 million of cash consideration under the U.S. Leasing Facility and commenced the lease term in 2020 for the equipment at the South Carolina Facility. The Company has drawn C$~~3.6~~4.5 million ($~~2.6~~

3.4 million) of cash consideration under the Canada Leasing Facility and commenced the lease term for the Canadian equipment expenditures during 2020. ~~Subsequent to March 31, 2022,~~ C$0.9 million ($0.7 million) ~~was drawn under~~of the Canada Leasing ~~Facility.~~Facility was drawn in the three months ended June 30, 2022.

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

Contractual Obligations

There have been no material changes in our contractual obligations during the three months ended ~~March 31,~~June 30, 2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations” in our Annual Report on Form ~~10-K.~~10-K, other than the forthcoming additional commitments related to the extension of our headquarters lease in Calgary. See Note 13, “Commitments” to our interim condensed consolidated financial statements in this Quarterly Report for additional information.

Significant Accounting Policies and Estimates

There have been no material changes in our significant accounting policies during the three months ended ~~March 31,~~June 30, 2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K. For information regarding significant accounting policies and estimates, please refer to Item 7 and Item 8 in our Annual Report on Form 10-K. As disclosed in Note 5, “Adoption of New and Revised Accounting Standards” to our condensed consolidated interim financial statements appearing in this Quarterly Report, we adopted Accounting Standards Update No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The ASU provides guidance on required disclosures with respect to government assistance in a company’s notes to the annual financial statements. The amendments in the ASU are effective for periods beginning after December 15, 2021. The Company has adopted this standard effective January 1, 2022 and notes there is no impact of this standard on our accounting or disclosures of government assistance.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, please refer to Note 5, “Adoption of New and Revised Accounting Standards” to our condensed consolidated interim financial statements ~~appearing~~ and “–Significant Accounting Policies and Estimates” appearing in this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

There have been no material changes to our market risk exposures since our disclosures in our Annual Report on Form 10-K. For information regarding our exposure to certain market risks, please refer to Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K.

~~Item 4.~~

~~Controls and Procedures~~

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

As required by Rule 13a-15 under the Exchange Act, our principal executive officers and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2022. Based upon their evaluation, our principal executive officers and principal financial

officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended ~~March 31,~~June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~Item 1.~~

~~Legal Proceedings~~

We are pursuing multiple lawsuits against our former founders, Mogens Smed and Barrie Loberg, their new company Falkbuilt Ltd. ~~(“Falkbuilt”)~~, and other related individual and corporate defendants for violations of fiduciary duties and noncompetition and non-solicitation covenants contained in their executive employment agreements, and the misappropriation of our confidential and proprietary information in violation of numerous Canadian and U.S. state, and federal laws pertaining to the protection of our trade secrets and proprietary information and the prevention of false advertising and deceptive trade practices. ~~Except as described below, there~~There have been no material developments in the legal proceedings previously disclosed in our Annual Report on Form ~~10-K.~~

~~On March 10, 2022, the U.S. District Court~~10-K, as supplemented by our Quarterly Report on Form 10-Q for the Northern District of Texas dismissed our complaint by DIRTT Environmental Solutions Inc., a Colorado corporation, against Falkbuilt Inc., a Delaware corporation, under the doctrine of forum non conveniens. We disagreequarter ended March 31, 2022, filed with the ~~decision and have filed a notice of appeal with the Fifth Circuit Court of Appeals.~~SEC on May 4, 2022.

Item 1A. Risk Factors

~~Item 1A.~~

~~Risk Factors~~

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K, as supplemented by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 4, 2022, which could materially affect our businesses, financial condition, or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.

We are under the leadership of a reconstituted ~~board~~Board of ~~directors and new Interim Co-Chief Executive Officers~~Directors who plan to implement a variety of operational, organizational, cultural and other changes to our business, and we may not be able to achieve some or all of the anticipated benefits of this transformation plan. We are also undergoing changes at a senior management level, including the appointment of a new Chief Executive Officer in June 2022.

Our ~~board~~Board of ~~directors~~Directors was entirely reconstituted at our annual and special meeting of shareholders held on April 26, 2022 and, following that meeting, Geoffrey D. Krause and Jeffrey A. Calkins were appointed Interim Co-Chief Executive Officers. In June 2022, Jeffrey A. Calkins and Jennifer Warawa departed the company and a new Chief Executive Officer, Benjamin Urban was appointed. Messrs. Urban and Noll were also appointed to our Board of Directors in June 2022. On July 27, 2022, the Company announced additional leadership changes, including the departures of Charles Kraus, Senior Vice President and General Counsel and Colin Blehm, Vice President Product Development, and the promotion of Trevor Didluck to Vice President Product Development. Nandini Somayaji has been promoted to Senior Vice President Talent, General Counsel & Corporate Secretary. Geoffrey Krause, DIRTT’s current Chief Financial Officer, announced his intention to retire from the Company, effective September 30, 2022. A search for a suitable replacement has commenced. As a result of these events, ~~during~~ the ~~second quarter~~timely integration of 2022, we expect to record severance payments and other compensation expense associated with the departure of certain of our officers and other employees, and we may incur other similar types of expenses and charges during the second quarter and thereafter related to other employee departures or otherwise associated with implementation of the new board’s plan. In addition, while we believe thatsenior management will be critical in the successful implementation of the ~~plan will improve our operational and financial performance, there~~Board of Directors' plans. There can be no assurance that we will be able to successfully implement the plan or otherwise realize the anticipated benefits of the plan, and we may encounter short-term disruptions of certain aspects of our business as elements of the plan are implemented.

In addition to overseeing the changes to DIRTT’s leadership described above, since its election, the reconstituted Board of Directors has undertaken an extensive review of DIRTT’s operations, a process which is still ongoing (see Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Outlook”, above), and are in the process of implementing a variety of operational, organizational, cultural and other changes to our business, including plans to meet pipeline demand and expand revenues. We may not be successful in achieving some or all of the anticipated benefits of these plans, which may have an adverse effect on our results from operations and financial condition. Specifically, we are addressing the following issues:

•

Ability to increase manufacturing capacity to service current pipeline:

As at July 1, 2022, DIRTT’s 12-month forward pipeline, which represents known projects and leads at various stages of maturation which our sales teams are working to convert into orders, increased by 13% to $359 million from $318 million as at April 1, 2022. Servicing of this pipeline and capturing the underlying revenue growth is dependent upon the Company's ability to ramp up production capabilities on a timely basis. The Board of Directors and DIRTT’s management team have prioritized removing constraints in DIRTT’s manufacturing processes and are pursuing a number of initiatives including increased hourly labor, improved hourly labor

retention and streamlined manufacturing processes. DIRTT may not be successful in implementing such initiatives and may be negatively impacted by the competitive nature of attracting personnel and other current market conditions. DIRTT may not be able meet such demand and capture the underlying revenue growth which could adversely affect the Company’s results of operations and financial condition.

•

Discounting and raw material cost inflation impacts on profitability:

DIRTT's gross margins and resulting profitability have been negatively affected by the impacts of material cost inflation and the use of increased discounting to drive higher demand. DIRTT has taken steps to improve gross margin by reducing discounts and increasing prices, including a 5% price increase at June 1, 2022 and a further 10% price increase at July 21, 2022. If we are unable to realize the effects of reduced discounting or price increases, if inflationary increases continue without corresponding increases in our pricing or if such reduced discounting and price increases cause a material impact on demand, DIRTT’s results of operations and financial condition could be adversely impacted.

•

The effectiveness of certain elements of DIRTT’s administrative systems:

DIRTT has identified the need to upgrade its inventory management and cost accounting systems. Other information technology may require investment in the future. However, the success, in whole or in part, of this investment cannot be guaranteed.

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

None.

~~Unregistered Sales of Equity Securities and Use of Proceeds~~


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

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


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


		Page
Cautionary Statement Regarding Forward-Looking Statements		ii
PART I – FINANCIAL INFORMATION		4
Item 1. Financial Statements (Unaudited)		4
Interim Condensed Consolidated Balance Sheets		4
Interim Condensed Consolidated Statement of Operations and Comprehensive Loss		5
Interim Condensed Consolidated Statement of Changes in Shareholders’ Equity		6
Interim Condensed Consolidated Statement of Cash Flows		7
Notes to the Unaudited Interim Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3033
Item 4. Controls and Procedures		3033

PART II – OTHER INFORMATION		3235

Item 1. Legal Proceedings		3235
Item 1A. Risk Factors		3235
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3236
Item 3. Defaults Upon Senior Securities		3236
Item 4. Mine Safety Disclosures		3236
Item 5. Other Information		3236
Item 6. Exhibits		3337


	As at						As at
	March 31,			December 31,			June 30,			December 31,
	2022			2021			2022			2021
Current		18,167			13,659			18,514			13,659
Overdue		977			621			913			621
		19,144			14,280			19,427			14,280
Less: expected credit losses		(132	)		(130	)		(128	)		(130	)
		19,012			14,150			19,299			14,150
Sales tax receivable		411			196			387			196
Income tax receivable		3,167			3,194			-			3,194
		22,590			17,540			19,686			17,540


	June 30, 2022			December 31, 2021
As at January 1		1,451			1,763
Adjustments to timber provision		-			(500	)
Additions to warranty provision		304			1,019
Payments related to warranties		(461	)		(831	)
		1,294			1,451


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


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


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☒


	As at,
	June 30, 2022		December 31, 2021
Legal provisions(1)		45		143
DSU liability		302		785
Sublease deposits		212		-
Warranty and other provisions(2)		1,294		1,451
Other liabilities		1,853		2,379

	As at,
	March 31, 2022		December 31, 2021
Legal provisions⁽¹⁾		145		143
DSU liability		759		785
Warranty and other provisions⁽²⁾		1,455		1,451
Other liabilities		2,359		2,379


	% of PRSUs Vesting
			33.3	%		66.7	%		100.0	%		150.0	%
2022 and 2021 PRSUs		$	3.00		$	4.00		$	5.00		$	7.00

	% of PRSUs Vesting
			33.3	%		50.0	%		66.7	%		100.0	%		150.0	%
2022 and 2021 PRSUs		$	3.00		$	-		$	4.00		$	5.00		$	7.00


	Number of			Weighted average		Number of			Weighted average
	options			exercise price C$		options			exercise price C$
Outstanding at December 31, 2020		4,774,328			6.52		4,774,328			6.52
Forfeited		(3,213	)		6.81		(21,588	)		7.21
Outstanding at March 31, 2021		4,771,115			6.52
Outstanding at June 30, 2021							4,752,740			6.52
Outstanding at December 31, 2021		4,064,489			6.64		4,064,489			6.64
Forfeited		(1,740,915	)		6.40		(2,520,220	)		6.40
Outstanding at March 31, 2022		2,323,574			6.82
Exercisable at March 31, 2022		2,069,176			6.71
Outstanding at June 30, 2022							1,544,269			7.03
Exercisable at June 30, 2022							1,538,337			6.71


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

Adjusted Gross Profit Margin	Adjusted Gross Profit divided by revenue

EBITDA	Net income before interest, taxes, depreciation and amortization

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

Adjusted EBITDA Margin	Adjusted EBITDA divided by revenue