What changed in this filing

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Item 1A. Risk Factors

2021-04-15 compared with 2020-04-21 · 92 added, 64 removed, 128 unchanged (55% of the section changed)

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These risk factors should be considered together with information included elsewhere in this Annual Report on Form 10-K.

The Company’s business could be negatively impacted by the recent Coronavirus (“COVID-19”) outbreak.

An outbreak of a novel strain of coronavirus, COVID-19, was identified in Wuhan, China in December 2019 and was subsequently recognized as a pandemic by the World Health Organization on March 11, 2020.

This outbreak has severely restricted the level of economic activity around the world.

In response to this COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations.

The Company’s business has been and could continue to be negatively impacted by the recent COVID-19 outbreak.

The COVID-19 outbreak has severely restricted the level of economic activity around the world.

In response to this COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions, as well as customers and suppliers, have taken preventative or protective actions, such as imposing restrictions on travel and business operations, shutdowns, lockdowns, mask mandates and other measures.

Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily.

These actions have expanded significantly in the past several weeks and may continue to expand in scope, type and impact.

These measures, while intended to protect human life, are expected to have significant adverse impacts on domestic and foreign economies of uncertain severity and duration.

It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is possible that it could cause a global recession.

Currently, the effectiveness of economic stabilization efforts being taken to mitigate the effects of these actions and the spread of COVID-19 is uncertain.

A public health pandemic, including COVID-19, poses the risk that the Company or its affiliates, employees, suppliers, customers and others may be prevented from conducting business activities for an indefinite period of time, including as a result of shutdowns, travel restrictions and other actions that may be requested or mandated by governmental authorities.

Such actions may prevent the Company from accessing the facilities of its customers to deliver products and provide services.

In addition, the Company’s customers may choose to delay or abandon projects on which it provides products and/or services as a result of such actions.

Further, the Company has experienced, and may continue to experience, disruptions or delays in its supply chain as a result of such actions.

While a substantial portion of the Company’s businesses have been classified as an essential business in jurisdictions in which facility closures have been mandated, the Company can give no assurance that this will not change in the future or that the Company’s businesses will be classified as essential in each of the jurisdictions in which it operates.

This COVID-19 outbreak has impacted, and may continue to impact, the Company's office locations and manufacturing facilities, as well as those of its third party vendors, including through the effects of facility closures, reductions in operating hours and other social distancing efforts.

These actions may continue to expand in scope, type and impact depending on the ongoing severity of the pandemic.

These measures, while intended to protect human life, have had and are expected to continue to have significant adverse impacts on domestic and foreign economies.

Currently, the effectiveness of economic stabilization efforts being taken by federal and state government authorities to mitigate the effects of these actions and the spread of COVID-19 is uncertain.

This COVID-19 outbreak has impacted, and will continue to impact, the Company's office locations and manufacturing facilities, as well as those of its customers and third-party vendors, including through the effects of facility closures, reductions in operating hours and other social distancing efforts.

In addition, the Company has modified its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers, partners and suppliers.

The Company may also experience impacts from market downturns and changes in demand for the Company's products and services related to pandemic fears and impacts on its workforce as a result of COVID-19.

If the COVID-19 pandemic becomes more pronounced in the Company’s markets, or if another significant natural disaster or pandemic were to occur in the future, the Company’s operations in areas impacted by such events could experience further adverse financial impacts due to market changes and other resulting events and circumstances.

The extent to which the COVID-19 outbreak impacts the Company’s results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19 and the actions to contain its impact.

However, it is likely that the impact of COVID-19 will adversely affect the Company's results of operations, financial conditions and cash flows in fiscal 2020.

In some cases, customer mitigation efforts have prevented the Company from accessing the facilities of its customers to deliver products and provide services.

In addition, some of the Company’s customers have chosen to delay and some of the Company's customers may choose to abandon projects for which the Company provides products and/or services as a result of such actions.

Further, the Company may experience disruptions or delays in its supply chain as a result of such actions.

The Company’s results of operations, financial condition, liquidity and cash flow in 2020 were materially adversely affected by the COVID-19 pandemic and will likely continue to be materially adversely affected, the extent to which remains unclear at this time.

Crude oil and natural gas prices are volatile, and the substantial and extended decline in oil and natural gas prices has had, and may continue to have, a material adverse effect on demand and pricing in the Company's business.

Prices for crude oil and natural gas fluctuate widely.

Generally, when the prices for crude oil and natural gas are higher, demand for certain of the Company’s products increases and the Company is able to negotiate higher prices.

On the other hand, when the prices of crude oil and natural gas are lower, demand for certain of the Company’s products decreases and the Company is forced to compete with lower prices and other concessions.

Volatility in these commodity prices can also result in circumstances where demand for certain of the Company’s products is suddenly high, but the Company is unable to negotiate higher prices, thereby adversely impacting the Company’s margins and capacity to accept new projects at higher margins.

Among the factors that can or could cause these price fluctuations are:

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the price and availability of, and demand for, competing energy sources, including alternative energy sources.

In early fiscal 2020, pricing for oil and natural gas dropped substantially and may continue to be at depreciated levels through fiscal 2020, which could substantially reduce the demand for the Company’s oil and gas related products.

In February 2020, the Kingdom of Saudi Arabia and the Russian Federation failed to reach an agreement on oil production limitations.

The news of a failed agreement resulted in a steep decline in global oil prices.

On April 12, 2020, the Kingdom of Saudi Arabia and the Russian Federation agreed on oil production cuts, which will begin on May 1, 2020.

Additionally, the reduction in worldwide consumption as a result of the coronavirus pandemic has added further downward pressure to oil prices.

In response to the decrease in oil prices, international oil companies have announced capital spending budget cuts that are reported to be approximately 30%.

At this time the impact of the anticipated reduction in capital spending on the Company's results of operations is uncertain.

Generally, when the prices for crude oil and natural gas are higher, demand for the Company’s products increases and the Company is able to negotiate higher prices.

On the other hand, when the prices of crude oil and natural gas are lower, demand for the Company’s products decreases and the Company is forced to compete with lower prices and other concessions.

Volatility in these commodity prices can also result in circumstances where demand for the Company’s products is suddenly high, but the Company is unable to negotiate higher prices, thereby adversely impacting the Company’s margins and capacity to accept new projects at higher margins.

At current commodity prices it is expected that oil and gas customers may drastically cut capital spending and/or delay spending until projects are economically viable.

The Company's results in fiscal 2020 may not comply with all covenants in its Senior Credit Facility.

In response to the extraordinary steps taken to combat the spread of COVID-19 and the impact of decreased demand for oil and the associated collapse of oil prices, the Company undertook a reforecast to determine the potential financial impact of these events on the Company’s results of operations.

The results of the reforecast indicated a risk that the Company could be out of compliance with a debt covenant related to the Senior Credit Facility (as defined below) in the second quarter of 2020.

To address the possible covenant compliance issue the Company has made plans to reduce planned capital expenditures and non-essential operating expenses, and if necessary, to repatriate foreign cash to bring the covenant into compliance.

In early fiscal 2020, prices for oil and natural gas dropped substantially and continued at depreciated levels through fiscal 2020, which substantially reduced the demand for the Company’s oil and gas related products.

Additionally, the reduction in worldwide consumption as a result of the COVID-19 pandemic has added further downward pressure to oil prices.

In response to the decrease in oil prices, international oil companies announced capital spending budget cuts that are reported to be approximately 30%.

These reductions in capital spending could have a material effect on the Company's results of operations.

Oil prices may continue to be volatile as a result of these events and the ongoing COVID-19 outbreak.

Oil prices have increased from approximately $35 per barrel in October 2020 to approximately $60 per barrel in March 2021.

While the Company can give no assurance that this increase in prices will result in increased sales and earnings, continued higher prices historically lead to higher capital spending by energy companies.

The Company's results in fiscal 2020 have not complied with all covenants in its Senior Credit Facility.

Due to continued project delays as a result of the COVID-19 pandemic, as of January 31, 2021, the Company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the three-month period ended January 31, 2021 under the First Amendment and Waiver to the Revolving Credit and Security Agreement (“Amendment and Waiver”) for the North American Loan Parties.

Per the Amendment and Waiver, the Company will repatriate approximately $0.8 million in cash from its subsidiary in the United Arab Emirates in April 2021 to cure the breach.

The repatriation will not cause the Company to incur any additional fees or taxes, nor did it force the Company to change any of its assertions with regards to permanent reinvestment in any of its foreign subsidiaries.

As of January 31, 2021, the Company’s foreign subsidiaries that are not a party to the Credit Agreement had approximately $6.6 million of cash available to satisfy a future potential repatriation cure of any potential future breach of the fixed charge coverage ratio covenant.

The Company estimates that it may need to repatriate cash of up to $0.1 million in the next six months.

Any cash required to cure future covenant defaults would be repatriated through the Company’s subsidiaries in the United Arab Emirates, Saudi Arabia, Egypt and/or India.

Most of this cash could be repatriated without any tax consequences, however, some repatriation would require payment of withholding taxes.

The Company does not anticipate any material tax impacts of any potential future repatriation.

Based on the actions taken by the Company and expected future results, the Company believes it has alleviated any concerns about its ability to satisfy its obligations in the normal course of business for the next year after the date these financial statements are available to be issued.

See further discussion below and in Note 5 - Debt, in the Notes to Consolidated Financial Statements.

The Company may be unable to repay its debt or renew its expiring credit facilities.

There is a substantial risk that the Company may not be able to remain in compliance with its credit agreement covenants due to, among other matters, the expected impact on the Company's results of operations and financial condition resulting from the COVID-19 pandemic and the current depressed market for oil and gas.

There is a substantial risk that the Company may not be able to remain in compliance with its credit agreement covenants due to, among other matters, the ongoing potential impact on the Company's results of operations and financial condition resulting from the COVID-19 pandemic and the current depressed market for oil and gas.

If there were an event of default under the Company's current revolving credit facilities, including as set forth above, the lenders could cause all amounts outstanding with respect to that debt to be due and payable immediately.

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In addition to these credit arrangements, the Company also obtains project financing in the Middle East on a project-by-project basis.

While the Company believes that it will be able to renew its Middle East credit

arrangements and will have continued access to individual project financing, there is no assurance that such arrangements will be renewed or made available in similar amounts or on similar terms and conditions as the current arrangements, or that such individual project financing will be available for projects that the

Company is interested in pursuing.

While the Company believes that it will be able to renew its Middle East credit arrangements and will have continued access to individual project financing, there is no assurance that such arrangements will be renewed or made available in similar amounts or on similar terms and conditions as the current arrangements, or that such individual project financing will be available for projects that the Company is interested in pursuing.

Any replacement credit arrangements outside of the United States may further limit the Company’s ability to repatriate funds from abroad.

Repatriation of funds from certain countries may become limited based upon regulatory restrictions or economically unfeasible because of the taxation of funds when moved to another

subsidiary or to the parent company.

Repatriation of funds from certain countries may become limited based upon regulatory restrictions or economically unfeasible because of the taxation of funds when moved to another subsidiary or to the parent company.

In addition, any refinancing, replacement or additional financing the Company may obtain could contain similar or more restrictive covenants than those currently applicable to the Company.

The Company’s ability to comply with any covenants may be adversely affected by general

economic conditions, political decisions, industry conditions and other events beyond management’s control.

The Company incurred net losses for its three fiscal years prior to 2019 and it may be unable to maintain its 2019 levels of profitability or positive cash flows in the future.

The Company experienced net losses for its three fiscal years prior to 2019.

Generating net income and positive cash flows in the future will depend

on the Company's ability to successfully complete and execute its strategic plan.

There is no guarantee that the Company will be able to maintain its 2019 levels of profitability or positive cash flows in the future.

The Company’s inability to successfully maintain profitability and positive cash flows may result in it

experiencing a serious liquidity deficiency resulting in material adverse consequences that could threaten its viability.

The Company’s ability to comply with any covenants may be adversely affected by general economic conditions, political decisions, industry conditions and other events beyond management’s control.

The Company has incurred indebtedness under the Coronavirus Aid, Relief, and Economic Security Act (the “ CARES Act ” ), which will be subject to review, may not be forgivable in whole or in part and may eventually have to be repaid.

On May 1, 2020, the Company entered into a loan agreement under the SBA’s PPP and received proceeds of approximately $3.2 million.

Interest on the loan accrued at a fixed interest rate of 1.0%.

Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses.

During the three months ended July 31, 2020, the Company used all of the PPP loan proceeds to pay for qualified expenses.

100% of the PPP loan proceeds was used for payroll related expenses.

The Company believes the PPP loan proceeds will be forgiven under the terms of the CARES Act, although no assurance to that effect can be provided.

Under the current provisions of the CARES Act, any recipient of a PPP loan may be subject to an audit by the SBA to confirm it qualifies for the loan and that the proceeds were used for qualified expenses as prescribed by the PPP rules.

The Company has submitted its application and supporting documentation for forgiveness to its bank, which has submitted the application and supporting documentation to the SBA.

We are currently awaiting approval of forgiveness from the SBA.

No assurance is provided that we will be able to obtain full or partial forgiveness of the PPP loan.

The Company incurred net losses for its three fiscal years prior to 2019 and may be unable to return to sustained levels of profitability or positive cash flows in the future.

The Company experienced net losses for its three fiscal years prior to 2019 and incurred a net loss in 2020 as well.

Generating net income and positive cash flows in the future will depend on the Company's ability to successfully complete and execute its strategic plan.

There is no guarantee that the Company will be able to return to its 2019 levels of profitability or positive cash flows in the future.

The Company’s inability to successfully maintain profitability and positive cash flows may result in it experiencing a serious liquidity deficiency resulting in material adverse consequences that could threaten its viability.

In addition, the increase in other income in 2020 as compared to 2019 was primarily the result of recognition of the Company's reasonable expectation of forgiveness of its PPP loan proceeds during the period of $3.2 million, as well as income recorded for funds received under the Canadian Emergency Wage Subsidy ("CEWS") and Canadian Emergency Rent Subsidy ("CERS") programs, each of which are non-recurring items.

The Company will not experience a similar amount of other income in the next fiscal year.

Global economic weakness and volatility would likely adversely affect operating margins for the Company’s services and products.

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This volatility may negatively impact market conditions thus reducing project activity and the Company's results of operations.

The Company utilizes escalation clauses and bid expiration dates to mitigate any impact of this volatility on its earnings.

Through a series of Presidential Proclamations pursuant to Section 232 of the Trade Expansion Act of 1962, as of the date of this filing, U.S.

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In addition, if the Company is unable to acquire timely steel supplies, it may need to decline bid and order opportunities, which could also have an adverse effect on the Company's business, results of operations, financial position and cash flows.

Delays in the timing of orders for the Company’s products may negatively impact the Company’s operating results.

Since the Company's revenues are based on discrete projects, the Company's operating results in any reporting period could be negatively impacted as a result of large variations in the level of overall market demand or delays in the timing of project execution phases.

The United States has maintained tariffs on certain imported steel, aluminum and items originating from China.

These tariffs have increased the cost of raw materials and components we purchase.

If the United States or other countries impose additional tariffs, that could have a further adverse impact on our business.

There can be no assurance that the new administration will follow a similar approach to global trade policies and any changes to those policies could have negative impacts on the price and availability of steel and other imports used in the Company's business.

Delays in the timing of order receipt, execution, delivery and acceptance for the Company’s products generally negatively impact the Company’s operating results.

Since the Company's revenues are based on discrete projects, the Company's operating results in any reporting period generally are negatively impacted as a result of large variations in the level of overall market demand or delays in the timing of project execution phases.

Decreases in government spending on projects using the Company’s products, and challenges to the Company’s non-government customers’ liquidity and availability of capital funds, may adversely impact demand for the Company’s products.

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Governmental spending on large infrastructure projects in the Gulf Cooperation Council ("GCC") countries vary and spending has in the past been curtailed or delayed as a result of reduced public spending budgets in countries which are dependent on oil and gas revenues and their respective price levels.

The Company may not be able to successfully negotiate progress-billing arrangements for its large contracts, which could adversely impact the Company’s working capital needs and credit risk.

The Company may not be able to successfully negotiate progress-billing arrangements for its large contracts, which could adversely impact the Company’s working capital needs, cash flows and credit risk.

The Company sells systems and products under contracts that allow the Company to either bill upon the completion of certain agreed upon milestones, or upon actual shipment of the system or product.

The Company attempts to negotiate progress-billing milestones on large contracts to help manage its working capital and to reduce the credit risk associated with these large contracts.

Consequently, shifts in the billing terms of the contracts in the backlog from period to period can increase the Company's requirements for working capital and can increase its exposure to credit risk.

The Company attempts to negotiate progress-billing milestones on large contracts to help manage its working capital and cash flows, and to reduce the credit risk associated with these large contracts.

Consequently, shifts in the billing terms of the contracts in the backlog from period to period can increase the Company's requirements for working capital, negatively impact its cash flows and increase its exposure to credit risk.

Aggressive pricing by existing competitors and the entrance of new competitors in the markets in which the Company operates could drive down the Company's profits and reduce the Company's revenue.

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Any cancellation or delay in orders may result in lower than expected revenue.

The Company extended credit to a customer for a project in the Middle East and, if the Company is unable to collect this account receivable, its future profitability could be adversely impacted .

In 2013, the Company started a project in the Middle East as a sub-contractor, with billings in the aggregate amount of approximately $41.9 million.

The Company completed all of its deliverables in 2015, and has since then collected approximately $38.1 million, with a remaining balance due in the amount of $3.8 million.

Included in this balance is an amount of $3.4 million, which pertains to retention clauses within the agreements of the Company's customer (contractor), and which become payable by the customer when this project is fully tested and commissioned.

In the absence of a firm date for the final commissioning of the project, and due to the long-term nature of this receivable, $2.4 million of this retention amount was reclassified to a long-term receivable account.

The Company has been engaged in ongoing active efforts to collect the outstanding amount.

During 2020, the Company received approximately $0.2 million from the customer.

The Company has also received an updated acknowledgment of the outstanding balances and assurances of payment from the customer.

As a result, the Company did not reserve any allowance against this amount as of January 31, 2021.

However, if the Company’s efforts to collect on this account are not successful in fiscal 2021, then the Company may be required to recognize an allowance for all, or substantially all, of any such then uncollected amounts in the future.

The Company's results of operations could be adversely affected by changes in international regulations and other activities of U.S.

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These factors include, but are not limited to, changes in a country's or region's economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights in some countries, changes in the regulatory or legal environment, restrictions on currency exchange activities, burdensome taxes and tariffs and other trade barriers.

administration has called for changes to foreign policy, which could create uncertainty and caution in the international business community.

We cannot predict the impact, if any, the policies adopted by the new administration will have on our business.

International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced international sales and reduced profitability associated with such sales.

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Foreign Corrupt Practices Act and similar laws from other countries as well as new regulatory requirements regarding data privacy.

The Company’s foreign subsidiaries are governed by laws, rules and business practices that differ from those of the U.S.

The Company’s foreign subsidiaries are governed by laws, rules and business practices that differ from those of the United States.

If the activities of these entities do not comply with U.S.

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The Company cannot predict the nature, scope or effect of future regulatory requirements to which its operations might be subject or the manner in which existing laws might be administered or interpreted.

The Company may be unable to attract and retain its senior management and key personnel.

The Company may be unable to retain its senior management and key personnel.

The Company's ability to meet its strategic and financial goals will depend to a significant extent on the continued contributions of its senior management and key personnel.

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Although the Company believes its assumptions, judgements and estimates are reasonable, changes in tax laws or the Company's interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in the Company's consolidated financial statements.

The Company ’ s ability to use its net operating loss carryforwards and certain other tax attributes may be limited.

The Company’s net operating loss (“NOL”) carryforwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S.

As of January 31, 2021, the Company had $41.1 million of federal NOLs and $2.7 million of state NOLs available to offset the Company’s future taxable income, if any.

These federal and state NOLs expire at various dates from 2022 to 2031.

The Company may experience ownership changes in the future as a result of subsequent shifts in its stock ownership.

As a result, if the Company earns net taxable income, the Company’s ability to use its pre-change NOLs to offset U.S.

federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to the Company.

In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

The Company may be required to reverse previously recorded revenue and profits as a result of inaccurate estimates made in connection with the Company’s percentage-of-completion revenue recognition.

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However, given the uncertainties associated with these types of contracts, it is possible for actual cost to vary from estimates previously made, which may result in reductions or reversals of previously recorded revenue and profits.

Management previously reported on a material weakness in the Company's internal control over financial reporting that resulted from an accounting error identified by the Company’s auditors during the audit of the Company’s financial statements for the fiscal year ended January 31, 2020 related to the Company’s revenue recognition under percentage of completion accounting.

Specifically, the Company had improperly recognized revenue for an open project based on imputed sales amounts greater than the total contracted amount by approximately $0.5 million.

This accounting error was attributable to the Company’s deviation from its standard contract accounting policies and failure to recognize the error during monthly revenue reviews, and led management to conclude that a material weakness existed with respect to the Company’s internal control over financial reporting.

The Company considered this material weakness fully remediated as of October 31, 2020, and such material weakness remained fully remediated as of January 31, 2021.

The Company can give no assurance that it will not incur another material weakness in our internal control over financial reporting.

The Company’s failure to establish and maintain effective internal control over financial reporting could harm its business and financial results.

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Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that the Company would prevent or detect a misstatement of its financial statements or fraud.

As of January 31, 2020, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was not effective due to an identified material weakness.

The material weakness resulted from an accounting error identified by the Company’s auditors during the audit of the Company’s financial statements for the fiscal year ended January 31, 2020 related to the Company's revenue recognition under percentage of completion accounting.

Specifically, the Company had improperly recognized revenue for an open project based on imputed sales amounts greater than the total contracted amount.

The accounting error related to this one project was attributable to the Company’s deviation from its standard contract accounting policies and failure to recognize the error during monthly reviews.

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

If the current material weakness is not remediated, or if additional material weaknesses or significant deficiencies in the Company’s internal control over financial reporting are discovered or occur in the future, the Company’s consolidated financial statements may contain material misstatements and the Company could be required to restate its financial results.

The failure to maintain an effective system of internal control over financial reporting could limit the Company’s ability to report its financial results accurately and in a timely manner or to detect and prevent fraud and could also cause a loss of investor confidence and decline in the market price of the Company’s common stock.

See further discussion of the material weakness, including the Company's planned remediation procedures, in Item 9A., Controls and Procedures.

The Company's information technology systems may be negatively affected by cybersecurity threats.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors