10-K/A: DIRTT Environmental Solutions Files Amendment No. 1 to 2024 Annual Report on Form 10-K/A

DIRTT Environmental Solutions Ltd. amends its 2024 Annual Report on Form 10-K to restate Part III, Items 10-14, and file new certifications.

Summary

• DIRTT Environmental Solutions Ltd. filed Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
• The amendment restates Part III, Items 10 (Directors, Executive Officers and Corporate Governance), 11 (Executive Compensation), 12 (Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters), 13 (Certain Relationships and Related Transactions, and Director Independence), and 14 (Principal Accountant Fees and Services).
• New certifications of the principal executive officer and principal financial officer are filed as exhibits.
• The original 2024 Annual Report was filed on February 26, 2025.
• As of April 24, 2025, the company had 189,649,452 common shares outstanding.
• The aggregate market value of voting and non-voting common equity held by non-affiliates on June 30, 2024, was $32,812,276.
• The Board consists of eight members, with Douglas Edwards serving as Senior Vice President at Humana Inc. and Aron English as Portfolio Manager of 22NW LP.
• Holly Hess Groos joined the board in November 2024 and is a senior financial executive.
• Shaun Noll is the Managing Member of WWT Opportunity #1 LLC, which owns approximately 28.2% of the company's outstanding common shares.
• Shalima Pannikode serves as Chief Technology Officer at Zelis.
• Scott Robinson is Senior Vice President at Plymouth Industrial REIT, Inc.
• Scott Ryan is a Founding Partner and Managing Member of FR Law Group, PLLC.
• Benjamin Urban is the Chief Executive Officer of DIRTT.
• The company has established an Audit Committee, a Corporate Governance and Compensation Committee, and an Enterprise Risk Management Committee.
• Executive compensation includes base salary, short-term incentives through a Variable Pay Plan (VPP), and long-term equity incentives under the LTIP.
• For 2024, the VPP metrics were based on Revenue and Adjusted Free Cashflow as a percentage of Revenue.
• The company repurchased convertible debentures from 22NW Group for C$22.1 million ($16.2 million).
• A support and standstill agreement is in place with 22NW Fund and WWT Opportunity #1 LLC.
• PricewaterhouseCoopers LLP (PwC) provided audit services for fees of $540,201 in 2024 and $543,697 in 2023.
• Audit-related fees were $23,751 in 2024 and $39,999 in 2023.

Sentiment

Score: 6

Explanation: The document is primarily factual and descriptive, with a neutral tone. The restatement of certain items and the late filing of some reports are slightly negative, but the overall sentiment is balanced.

Positives

• The company has a diverse Board of Directors with experience across multiple industries.
• The company has established key committees to oversee important aspects of its operations.
• The company has implemented strong corporate governance practices, including an Incentive Recoupment Policy (Clawback Policy).
• The company has a Related Party Transactions Policy to ensure fair dealings.
• The company has a comprehensive program for identifying and mitigating information and cybersecurity risks.

Negatives

• The company reported that several Section 16(a) reports were not timely filed in 2024 due to administrative oversights.
• The company's 2024 revenue was below the threshold required for a payout under the Variable Pay Plan (VPP).

Risks

• The company faces risks related to information security, cybersecurity, and data protection.
• The company's performance-based share units (PSUs) did not vest in 2023 or 2024 due to not achieving the target revenue and EBITDA.
• The company's success depends on the performance of its executive officers and directors.
• The company's share price could be affected by the actions of its major shareholders.

Future Outlook

The Company is evaluating its current ESG goals, including those relating to environmental sustainability and will present those in its 2025 ESG report later this year.

Industry Context

The document provides insight into the corporate governance, executive compensation, and related party transactions of a publicly traded company, which is relevant for understanding its operations and financial health within its industry.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• However, the company's corporate governance practices, executive compensation structure, and related party transaction policies appear to be generally consistent with those of other publicly traded companies of similar size and complexity.
• A more detailed comparison would require benchmarking against specific peer companies and industry benchmarks.

Related Party Transactions

• The Company entered into the Debt Settlement Agreement with 22NW.
• During the year ended December 31, 2023, 22NW Fund and Aron English (collectively, the 22NW Group) acquired an aggregate of C$18.9 million of our 6.00% convertible unsecured subordinated debentures due January 31, 2026 (the January Debentures) and C$13.6 million of our 6.25% convertible unsecured subordinated debentures due December 31, 2026 (together with the January Debentures, the Debentures), respectively (the 22NW Debenture Purchases).
• Pursuant to the Rights Offering, Aron English and 22NW Fund collectively acquired 29,767,055 Common Shares for total consideration of C$10,418,469.25, Shaun Noll and 726 collectively acquired 31,185,364 Common Shares for total consideration of C$10,914,877.40, and all other directors and executive officers acquired 839,884 Common Shares for total consideration of C$293,959.40.
• On August 2, 2024, the Company entered into a Convertible Debenture Repurchase Agreement with 22NW Group to purchase for cancellation C$18.9 million ($14.0 million) principal amount of the January Debentures and C$13.6 million ($10.1 million) principal amount of the December Debentures from 22NW for an aggregate purchase price of C$22.1 million ($16.2 million) (the Debenture Repurchase).
• On August 2, 2024, the Company entered into a support and standstill agreement (the Support Agreement), with 22NW Fund and WWT, DIRTTs two largest shareholders, which replaced the support and standstill agreement entered into with 22NW on March 22, 2024.

Stakeholder Impact

• Shareholders are impacted by changes in corporate governance, executive compensation, and related party transactions.
• Employees are impacted by changes in executive compensation and the Employee Share Purchase Plan.
• Customers and suppliers may be indirectly impacted by changes in the company's financial performance and strategic direction.
• Creditors are impacted by the company's debt levels and its ability to meet its financial obligations.

Next Steps

• The company will hold its Annual Meeting and the 2026 Annual Meeting of Shareholders.
• The company will present its ESG goals in its 2025 ESG report.
• The Corporate Governance and Compensation Committee will continue to oversee the execution of orientation and continuing education programs for new and existing directors.

Key Dates

Keywords

corporate governance, executive compensation, directors, financial reporting, risk management, equity compensation, related party transactions, audit fees, securities, DIRTT