What changed in this filing

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Item 1A. Risk Factors

2022-04-19 compared with 2021-04-15 · 130 added, 146 removed, 74 unchanged (79% of the section changed)

1 unchanged sentence

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

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.

Market Condition Risks

The Company’s business has been and may continue to be negatively impacted by the ongoing COVID-19 pandemic. 

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

In response to this COVID-19 pandemic, 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.

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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.

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.

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 pandemic has impacted, and may 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, 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.

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 they operate.

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.

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.

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 provide 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 they operate.

The Company’s results of operations, financial condition, liquidity and cash flow in 2020 were materially adversely affected by the COVID-19 pandemic and may in the future be materially adversely affected if the COVID-19 pandemic again worsens, although the extent of any such impacts remains unclear at this time.

Crude oil and natural gas prices are volatile, and any substantial and extended increases or decreases in oil and natural gas prices will likely have a material effect on demand and pricing in the Company's business.

 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.

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

the level of consumer demand;

domestic and worldwide supplies of crude oil and natural gas;

domestic and international drilling activity;

global supplies of crude oil and natural gas;

global drilling activity;

the actions of other crude oil exporting nations and the Organization of Petroleum Exporting Countries;

worldwide economic and political conditions, including political instability or armed conflict in oil and gas producing regions;

government sanctions and boycotts of crude oil, natural gas and other energy products produced by certain countries, such as the current sanctions and boycotts of oil and natural gas provided by Russia as a result of the war in Ukraine;

worldwide economic and political conditions, including political instability or armed conflict in oil and gas producing regions, such as the current war in Ukraine;

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

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.

Oil prices may continue to be volatile as a result of the disruption of global markets from the war in Ukraine and resulting boycotts of Russian oil and gas by several countries, as well as the ongoing COVID-19 pandemic.

West Texas Intermediate crude oil prices have increased from approximately $60 per barrel in March 2021 to approximately $75 per barrel in December 2021 and further increasing to approximately $100 per barrel in March 2022.

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 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.

The Company cannot assure that its cash flow will be sufficient to fully repay amounts due under any of the financing arrangements, if accelerated upon an event of default, or, that the Company would be able to repay, refinance or restructure the payments under any such arrangements.

Complying with the covenants under the Company's domestic and/or foreign revolving credit facilities may limit management's discretion by restricting options such as:

incurring additional debt;

entering into transactions with affiliates;

making investments or other restricted payments;

repurchasing of the Company's shares;

paying dividends, capital returns, intercompany obligations and other forms of repatriation;

creating liens.

The Company’s credit arrangements used by its Middle Eastern subsidiaries are renewed on an annual basis.

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.

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.

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 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.

federal government or other restrictions on oil and gas production, transportation or use, could have an impact on the Company's business;

however, most of the Company's sales attributable to oil and gas markets are outside of the United States.

As such, any impacts are not expected to be material. 

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

If the global economy experiences a severe and prolonged downturn, it would likely adversely impact the Company's business.

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Because economic and market conditions vary within the Company's geographic regions, the Company's performance will also vary.

In addition, the Company is exposed to fluctuations in currency exchange rates and commodity prices, including rising steel prices and surcharges and lower oil and natural gas prices.

Fluctuations in the availability of, and price of steel, may affect the Company's results of operations .

In addition, the Company is exposed to fluctuations in currency exchange rates and commodity prices, including rising steel prices and volatility in oil prices.

The Company notes that the current Russian oil and gas boycotts have caused a surge in oil prices which has impacted some of our material and freight costs, adding to upward pressure from global supply chain impacts from the COVID-19 pandemic.

The Company has experienced and anticipates continuing to experience increased prices for purchasing and shipping raw materials. The Company has updated its pricing to customers to offset the impacts of the raw material price increases.

Fluctuations in the availability of, and price of, steel may affect the Company's results of operations .

The steel industry is highly cyclical in nature, and at times, pricing can be highly volatile due to a number of factors beyond the Company's control, including general economic conditions, import duties, other trade restrictions and currency exchange rates.

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.

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.

imports of certain steel products are subject to a 25% tariff (exceptions are Australia, Argentina, Brazil and South Korea imports), with retaliatory tariffs imposed by importing countries.

These tariffs could lead to increased steel costs and decreased supply availability.

The Company regularly updates its quoting system for the movements in steel prices, and attempts to recover these price differentials through price increases in the Company's products;

however, the Company is not always successful.

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.

imports of certain steel products are subject to a 25% tariff (exceptions are Australia, Argentina, Brazil and South Korea imports), with retaliatory tariffs imposed by importing countries.

These tariffs could lead to increased steel costs and decreased supply availability. 

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.

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 current administration will continue its 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.

The Company is in active discussions with our suppliers to ensure any supply disruptions are minimal if tariffs increase or there is any outright ban on Chinese imports in the future. 

The Company regularly updates its quoting system for the movements in steel prices and attempts to recover these price differentials through price increases in the Company's products;

however, the Company is not always successful.

Any increase in steel prices that is not offset by an increase in the Company's prices that is accepted by customers could have an adverse effect on the Company's business, results of operations, financial position and cash flows. 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.

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.

Uncertainty about economic market conditions poses risks that the Company's customers may postpone spending for capital improvement and maintenance projects in response to tighter credit markets or negative financial news, which could have a material adverse effect on the 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, 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 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.

Financial Risks

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

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

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

Complying with the covenants under the Company's domestic and/or foreign revolving credit facilities may limit management's discretion by restricting options such as:

incurring additional debt;

entering into transactions with affiliates;

making investments or other restricted payments;

paying dividends, capital returns, intercompany obligations and other forms of repatriation;

creating liens.

The Company has approximately $4.2 million becoming due in 2022 under its various foreign revolving lines of credit.

The Company’s credit arrangements used by its Middle Eastern subsidiaries are renewed on an annual basis.

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

The Company has approximately $1.8 million becoming due in 2022 under its project financing agreements.

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.

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, as well as in 2020, and may be unable to maintain sustained levels of profitability or positive cash flows in the future.

The Company experienced net losses for its three fiscal years prior to 2019, as well as in 2020.

While the Company was profitable and had positive cash flow in 2021, there is no guarantee that the Company will be able to sustain its 2021 levels of profitability or positive cash flows in the future. 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. 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 extended credit to a customer for a project in the Middle East in 2013 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 its deliverables in 2015, and has since then collected approximately $38.3 million, with a remaining balance due in the amount of $3.6 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, 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, $2.0 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 2021, the Company received approximately $0.1 million from the customer.

In August 2021, the Company has also received an updated acknowledgment of the outstanding balances and assurances of payment from the customer.

Further, the Company has been engaged by the customer to perform additional work in 2022 under customary trade credit terms that supports the continued cooperation between the Company and the customer.

As a result, the Company did not reserve any allowance against this amount as of January 31, 2022.

However, if the Company’s efforts to collect on this account are not successful in 2022, 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 may be impacted by interpretations and changes in tax regulations and legislation which could adversely affect the Company's results of operations. 

Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company operates are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or recovery, and deferred income tax assets or liabilities. 

Tax rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by the Company that may be challenged by the applicable taxation authorities upon audit.  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  

operating  

carryforwards and certain other tax attributes may be limited.

The Company’s net operating loss (“NOL”) carryforwards in the U.S.

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, 2022, the Company had $40.1 million of gross federal NOLs and $2.7 million of state NOLs available to offset the Company’s future taxable income, if any.

Of the gross federal NOL amount, $33.8 million will begin to expire between tax years 2030 and 2037 and the remainder has an indefinite carryforward.

The state NOLs expire at various dates from 2022 to 2032.

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 over time revenue recognition.

Certain domestic divisions have contracts that recognize revenues using periodic recognition of income.

For these contracts, the Company uses the over time accounting method.

This methodology allows revenue and profits to be recognized proportionally over the life of a contract by comparing the amount of the cost incurred to date against the total amount of cost expected to be incurred.

The effect of revisions to revenue and total estimated cost is recorded when the amounts are known or can be reasonably estimated.

These revisions can occur at any time and could be material.

On a historical basis, management believes that reasonably reliable estimates of the progress towards completion on long-term contracts have been made.

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.

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

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting.

Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States.

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.

Business Condition Risks

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

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 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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To the extent the Company relies upon a single source for key components of several of its products, the Company believes there are alternate sources available for such components.

However, there can be no assurance that the interruption of supplies of such components would not have an adverse effect on the financial condition of the Company and that the Company, if required to do so, would be able to negotiate agreements with alternative sources on acceptable terms.

The Company's global supply chains have been negatively affected by the COVID-19 pandemic.

Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company routinely experiences significant delays and increased prices for raw materials used in our production processes.

To mitigate these impacts, the Company has implemented several strategies, including purchasing from alternative suppliers and planning for material purchases farther in advance to ensure the Company has materials when needed.

The Company has also updated its pricing to customers to offset the impacts of the raw material price increases.

While these impacts are expected to continue into 2022, the resulting future disruptions to the Company’s operations are uncertain.

The Company may be subject to claims for damages for defective products.

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While the Company currently has product liability insurance, the Company cannot be certain that its product liability insurance coverage will be adequate for liabilities that may be incurred in the future or that such coverage will continue to be available to the Company on commercially reasonable terms.

Any claims relating to defective products that result in liabilities exceeding the Company's insurance coverage could have a material adverse effect on the Company's business, results of operations financial position and cash flows.

The Company may not be able to recover costs and damages from vendors that supply defective materials .

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The cost to repair, remake or replace defective products could be greater than the amount that can be recovered from the vendor.

Such excess costs could have an adverse effect on the Company's business, results of operations, financial position and cash flows.

Product and service orders included in the Company’s backlog may be reduced or cancelled.

Such excess costs could have an adverse effect on the Company's business, results of operations, financial position and cash flows.

Product and service orders included in the Company’s backlog may be reduced or cancelled.

The Company defines backlog as the revenue value resulting from confirmed customer purchase orders that have not yet been recognized as revenue.

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No assurance can be given that these amounts will be recovered after cancellation.

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.

Any cancellation or delay in orders may result in revenues that are lower than expected.

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

governmental agencies related to the Company’s international operations .

International sales represent a significant portion of the Company's total sales.

The Company's sales to foreign customers decreased to 49.8% in 2020 from 55.6% in 2019.

The Company's anticipated growth and profitability may require increasing foreign sales volume and may necessitate further international expansion.

The Company's sales to foreign customers increased to 66.2% in 2021 from 49.8% in 2020.

The Company's anticipated growth and profitability may require increasing foreign sales volume and may necessitate further international expansion.

The Company's results of operations could be adversely affected by changes in trade, monetary and fiscal policies, laws and regulations, other activities of U.S.

governments, agencies and similar organizations, and other factors.

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.

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.

In addition, these risks can include extraordinarily delayed collections of accounts receivable.

Because the Company conducts a significant portion of its business activities in the Middle East, the political and economic events of the countries that comprise the GCC can have a material effect on the Company’s business, results of operations, financial condition and cash flows.

Due to the international scope of the Company’s operations, it is subject to a complex system of commercial and trade regulations around the world.

Recent years have seen an increase in the development and enforcement of laws regarding trade compliance anti-corruption, such as the U.S.

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 United States.

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

laws or business practices or the Company’s Code of Business Conduct, then violations of these laws may result in severe criminal or civil sanctions, which could disrupt the Company’s business, and result in an adverse effect on the Company’s reputation, business and results of operations or financial condition.

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 retain its senior management and key personnel.

General Risks

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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The Company's cyclical or general expansion may result in unanticipated adverse consequences, including significant strain on management, operations and financial systems, as well as on the Company's ability to attract and retain competent employees.

In the future, the Company may seek to grow its business by investing in new or existing facilities, making acquisitions, entering into partnerships and joint ventures, or constructing new facilities, which could entail a number of additional risks, including:

In the future, the Company may seek to grow its business by investing in new or existing facilities, making acquisitions, entering partnerships and joint ventures, or constructing new facilities, which could entail a number of additional risks, including:

strain on working capital;

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As a result of these and other factors, including general economic risks, the Company may not be able to realize the expected benefits from future acquisitions, new facility developments, partnerships, joint ventures or other investments.

The Company may be impacted by interpretations and changes in tax regulations and legislation which could adversely affect the Company's results of operations.

Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or recovery, and deferred income tax assets or liabilities.

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.

Certain domestic divisions have contracts that recognize revenues using periodic recognition of income.

For these contracts, the Company uses the "percentage of completion" accounting method.

The effect of revisions to revenue and total estimated cost is recorded when the amounts are known or can be reasonably estimated.

These revisions can occur at any time and could be material.

On a historical basis, management believes that reasonably reliable estimates of the progress towards completion on long-term contracts have been made.

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.

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting.

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

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A successful attack could disrupt and otherwise adversely affect the Company's reputation and results of operations, including through lawsuits by third parties.

The Audit Committee of the Board of Directors is responsible for overseeing the Company's cybersecurity policies and programs. 

UNRESOLVED STAFF COMMENTS - None.

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