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Item 2. Management’s Discussion and Analysis

2023-06-14 compared with 2022-12-06 · 81 added, 161 removed, 99 unchanged (71% of the section changed)

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Risk Factors included in the Company's latest Annual Report on Form 10-K.

The Company's fiscal year ends on January 31. Years and balances described as 2022 and 2021 are for the fiscal year ending January 31, 2023 and the fiscal year ended January 31, 2022, respectively.

The Company's fiscal year ends on January 31. Years and balances described as 2023 and 2022 are for the fiscal year ending January 31, 2024 and the fiscal year ended January 31, 2023, respectively.

This MD&A should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, contained elsewhere in this report.

Percentages set forth below in the MD&A have been rounded to the nearest percentage point. 

The war in Ukraine and resulting Russian oil and gas boycotts have added to the surge in oil prices which has impacted some of the Company's material and freight costs.

However, the Company has not experienced any direct impact from the disruption in this region.

Percentages set forth below in this MD&A have been rounded to the nearest percentage point. 

The ongoing war between Ukraine and Russia has continued to disrupt certain global markets. However, the Company has not experienced any direct impact from the disruption in this region.

The Company does not source materials from this region, nor does it serve this market in any material nature. 

Oil and Gas Market

Increases in oil prices helped to improve demand for the Company's products in the oil and gas markets during the three and nine months ended October 31, 2022 as compared to the same periods in 2021.

In particular, the Company's activity level in Canada has increased significantly due to the rise in energy prices.  West Texas Intermediate crude oil average prices have increased from approximately $68 per barrel in 2021 to approximately $96 per barrel in the year-to-date 2022. 

Supply Chain Constraints and Inflationary Impacts

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These impacts are expected to continue throughout 2023.

Liquidity Position

The Company further enhanced its liquidity position on September 17, 2021 when it executed an extension of a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a new five-year $18 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”). 

As of October 31, 2022, the Company had borrowed an aggregate of $7.1 million and had $7.9 million available under the Renewed Senior Credit Facility. 

See further discussion of the Company's liquidity position as of October 31, 2022 in "Liquidity and capital resources" below. 

Additionally, as of October 31, 2022, the Company had borrowed $6.6 million and had an additional $12.1 million of borrowing remaining available under its foreign revolving credit arrangements.

RESULTS OF OPERATIONS

The Company is engaged in the manufacture and sale of products in one reportable segment.

Since the Company focuses on large discrete projects, operating results can be significantly impacted as a result of large variations in the level of project activity in reporting periods.

Since the Company focuses on discrete projects, operating results can be significantly impacted as a result of large variations in the level of project activity in reporting periods.

($ in thousands)

Three Months Ended October 31,

Nine Months Ended October 31,

Change favorable/(unfavorable)

Three Months Ended April 30,

Change favorable/(unfavorable)

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Percent of Net Sales

General and administrative expenses

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Interest expense, net

Other (expense)/income

Income before income taxes

Loss before income taxes

Income tax expense

Three months ended October 31, 2022

Three months ended October 31, 2021

Three months ended April 30, 2023

Three months ended April 30, 2022

Net sales were $

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31.2 million in the

three months ended October 31, 2022 and 2021, respectively. 

three months ended April 30, 2023 and 2022, respectively. 

 million, or 5%

, was a result of higher sales volumes and pricing in North America.

, was a result of lower sales volumes in North America.

Gross profit:

Gross profit was $11.1 million, or 29% of net sales, and $7.6 million, or 22% of net sales, in the three months ended October 31, 2022 and 2021, respectively.

The increase of $3.5 million was driven primarily by higher sales volumes and improved gross margins.

Gross profit was $6.8 million, or 23% of net sales, and $7.0 million, or 23% of net sales, in the three months ended April 30, 2023 and 2022, respectively.

The decrease of $0.2 million was driven by lower sales volumes.

General and administrative expenses:

General and administrative expenses were $5.3 million and $4.6 million in the three months ended October 31, 2022 and 2021, respectively.

The increase of $0.7 million, or 15%, was primarily related to higher incentive compensation costs based on 2022 forecasted results.

General and administrative expenses were $5.5 million and $5.7 million in the three months ended April 30, 2023 and 2022, respectively.

The decrease of $0.2 million, or 4%, was due to lower payroll costs, primarily related to timing.  

Selling expenses:

Selling expenses did not change and were $1.3 million in the three months ended October 31, 2022 and 2021.

Selling expenses were consistent at $1.2 million in the three months ended April 30, 2023 and 2022.

Interest expense, net:

Net interest expense was $0.7 million and $0.3 million in the three months ended October 31, 2022 and 2021, respectively. 

The increase  was related primarily to increased borrowings and  higher interest rates.

In connection with the termination of the Company's defined benefit plan during the quarter, a current year net periodic benefit cost of $0.2 million was recognized during the three months ended October 31, 2022. 

Other (expense)/income:

Other (expense)/income was expense 

of $ 0.9 million versus an income of $ 0.1  million in the three months ended October 31, 2022 and 2021 , respectively.

The change was due primarily to a 

non-cash pre-tax settlement charge of $0.9 million resulting from the 

termination of the Company's pension plan. 

Net interest expense remained consistent and was $0.5 million and $0.4 million in the three months ended April 30, 2023 and 2022, respectively.  

Other income:

Other income was consistent and less than $0.1 million for  the three months ended April 30, 2023 and 2022 , respectively. 

Income tax expense:

The Company's worldwide effective tax rates ("ETR") were 40% and 67% in the three months ended October 31, 2022 and 2021, respectively. The change in the ETR was largely due to changes in the mix of income and loss in various jurisdictions.

The Company's worldwide effective tax rates ("ETR") were (207.7%) and (455.9%) in the three months ended April 30, 2023 and 2022, respectively. The change in the ETR is due to the inability to recognize tax benefits on losses in the United States due to a full valuation allowance and changes in the mix of income and loss in various jurisdictions.

For further information, see Note 5 - Income taxes, in the Notes to Consolidated Financial Statements.

Net income was $1.7 million and $0.5 million in the three months ended October 31, 2022 and 2021, respectively. 

The increase of $1.2 million was primarily due to increased gross profit as a result of increased sales volumes.

Nine months ended  

October 31, 2022  vs. Nine months ended  

October 31, 2021

Net sales were $106.1 million and $99.4 million in the nine months ended October 31, 2022 and 2021, respectively.

The increase of $6.7 million, or 7%, was a result of increased sales volumes and pricing in North America.

Gross profit:

Gross profit was $28.1 million, or 26% of net sales, and $22.9 million, or 23% of net sales, in the nine months ended October 31, 2022 and 2021, respectively.

The increase  of $5.2 million 

was driven primarily by higher sales volumes and improved gross margins.

General and administrative expenses:

General and administrative expenses were $16.2 million and $14.6 million in the nine months ended October 31, 2022 and 2021, respectively.

The majority of the increase of $1.6 million, or 11%, was the result of increased incentive compensation costs and additions to headcount in support of the Company's business growth. 

Selling expenses:

Selling expenses were $3.9 million and $3.4 million in the nine months ended October 31, 2022 and 2021, respectively. 

The increase of $0.5 million was due primarily to increased payroll and commission expenses and the additional expenses related to marketing and trade shows.

Interest expense, net:

Net interest expense was $1.6 million and $0.7 million in the nine months ended October 31, 2022 and 2021, respectively.

This increase was related to increased borrowings and higher interest rates as well as the sale leaseback transaction for the operating facility in Tennessee entered into in April 2021.

Additionally, i n connection with the termination of the Company's defined benefit plan during the quarter, a current year net periodic benefit cost of $0.2 million was recognized during the nine months ended October 31, 2022. 

Other (expense)/income:

Other (expense)/income was expense of $1.0 million versus income of $1.0 million in the nine months ended October 31, 2022 and 2021, respectively.

The change was in part due to a 

non-cash pre-tax settlement charge of $0.9 million resulting from the 

termination of the Company's pension plan.

Additionally, g rants from the Canadian government for approximately $0.7 million were received in the nine months ended October 31, 2021.

Grants to the Company under these programs ended in the second quarter of 2021.  

Income tax expense:

The Company's worldwide ETRs were 50% and 40% in the nine months ended October 31, 2022 and 2021, respectively. The change in the ETR is largely due to changes in the mix of income and loss in various jurisdictions.

Net income was $2.7 million and $3.1 million in the  nine months ended October 31, 2022 and 2021, respectively. 

The decrease of $0.4 million was primarily due to increases in general and administrative, selling, interest and other expenses, partially offset by increased gross profit as a result of increased sales volumes.

Net loss was consistent at $(1.1) million and $(0.9) million in the three months ended April 30, 2023 and 2022, respectively.  

Liquidity and capital resources

Cash and cash equivalents as of 

October 31, 2022 were $

8.6 million compared to $

8.2 million on

January 31, 2022.

October 31, 2022, $

0.1 million was held in the United States, and $

8.5 million was held at the Company's foreign subsidiaries. The Company's working capital was $

41.9 million on 

October 31, 2022 compared to $

40.0 million on 

January 31, 2022.

Of the working capital components, accounts receivable 

decreased by $

0.4 million and cash and cash equivalents 

increased by $

0.4 million as the result of the movements discussed below.

October 31, 2022, the Company ha

 million of borrowing capacity under the Renewed Senior Credit Facility in North America and $12.1

 million of borrowing capacity under its foreign revolving credit agreements.

The Company had $7.1

 million borrowed under the Renewed Senior Credit Facility and $6.6

 million borro wed under its foreign revolving credit agreements at

October 31, 2022.

Net cash used in operating activities in the nine months ended October 31, 2022 and 2021 was $5.1 million and less than $0.1 million, respectively.

This increase of $5.1 million was due primarily to increases in unbilled accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, and a decrease to accounts payable, offset by changes to accounts receivable and other assets and liabilities. 

Net cash used in investing activities in the nine months ended October 31, 2022 and 2021 was $3.1 million and $1.9 million, respectively.

The increase of $1.2 million was due primarily to expansion activities in the United Arab Emirates in preparation for the Company's intended relocation from Fujairah to Abu Dhabi, as well as capital expenditures in Canada. 

Net cash provided by financing activities in the nine months ended October 31, 2022 and 2021 was $7.6 million and $5.3 million, respectively.

The main source of cash from financing activities during the nine months ended October 31, 2022 was net proceeds from borrowings of approximately $8.5 million under the Company's credit facilities, as compared to the nine months ended October 31, 2021 , when net proceeds were approximately $1.9 million.

Additionally, during the nine months ended October 31, 2021 , the Company received net proceeds of $9.5 million as a result of the sale and leaseback of its land and buildings in Lebanon, Tennessee (the "Property"), partially offset by payment of $4.8 million to settle the mortgage debt . Debt totaled $28.0 million and $21.9 million as of October 31, 2022 and January 31, 2022, respectively. For additional information, see Note 10 - Debt, in the Notes to Consolidated Financial Statements.

Cash and cash equivalents as of April 30, 2023 were $8.8 million compared to $5.8 million on January 31, 2023.

On April 30, 2023, $0.5 million was held in the United States, and $8.3 million was held at the Company's foreign subsidiaries. The Company's working capital was $38.5 million on April 30, 2023 compared to $41.9 million on January 31, 2023.

Of the working capital components, accounts receivable decreased by $2.1 million and cash and cash equivalents increased by $3.0 million as the result of the movements discussed below.

As of April 30, 2023, the Company ha d $7.5  million of borrowing capacity under the Renewed Senior Credit Facility in North America and $10.0  million of borrowing capacity under its foreign revolving credit agreements.

The Company had $4.1  million borrowed under the Renewed Senior Credit Facility and $8.9  million borro wed under its foreign revolving credit agreements at April 30, 2023.

Net cash provided by operating activities in the three months ended April 30, 2023 and 2022 was $3.8 million and net cash used in operating activities was $7.1 million in the three months ended April 30, 2022. This increase of $10.9 million was due primarily to decreases in unbilled accounts receivable, inventory and costs and estimated earnings in excess of billings on uncompleted contracts, offset by changes to accounts receivable and accounts payable. 

Net cash used in investing activities in the three months ended April 30, 2023 and 2022 was $3.2 million and $0.3 million, respectively.

The increase of $2.9 million was due primarily to investment in the Middle East.

Net cash provided by financing activities in the three months ended April 30, 2023 and 2022 was $2.5 million and $5.1 million, respectively.

The main source of cash from financing activities during the three months ended April 30, 2023 was net proceeds from borrowings of approximately $2.8 million under the Company's credit facilities, as compared to the three months ended April 30, 2022 , when net proceeds were approximately $5.3 million.

Debt totaled $27.0 million and $24.3 million as of April 30, 2023 and January 31, 2023, respectively. For additional information, see Note 9 - Debt, in the Notes to Consolidated Financial Statements.

Treasury stock.

On October 4, 2021, the Company's Board of Directors approved a share repurchase program, which authorized the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock.

Stock repurchases were permitted to be executed through open market or privately negotiated transactions over the course of 12 months, depending upon current market conditions and other factors. As of October 31, 2022, the Company used $ 2.0 million of the $3.0 million authorized to repurchase its outstanding shares of common stock.

On July 26, 2022, the Company retired all treasury stock previously repurchased under the share repurchase program.

The retirement was recorded as a reduction to common stock based on the par value of the shares, and the excess over par value was recorded as 

an increase to accumulated deficit in accordance with ASC 505-30, Equity -Treasury Stock.

Revolving lines - North America

On December 7, 2022 the Board of Directors authorized the use of $1.0 million remaining under the share repurchase program previously approved on October 4, 2021 that expired on October 3, 2022.

Share repurchases may be executed through open market or in privately negotiated transactions over the course of the 12 months following the Board of Directors authorization.

The repurchase program approved on October 4, 2021 authorized the Company to use up to $3.0 million for the purchase of its outstanding shares of common stock.

Stock repurchases were permitted to be executed through open market or privately negotiated transactions, depending upon current market conditions and other factors.

During the three months ended April 30, 2023, the Company has not made any repurchases of its outstanding shares of common stock.

On July 26, 2022, the Company retired 239,168 shares of treasury stock previously repurchased under the stock repurchase program.

The retirement was recorded as a reduction to common stock based on the par value of the shares, and the excess over par value was recorded as a decrease to retained earnings in accordance with ASC 505-30, Equity - Treasury Stock.

Revolving lines - North America . 

On September 20, 2018, the Company and certain of its U.S.

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and (iii) for other corporate purposes, including potentially additional stock repurchases.

Borrowings under the Renewed Senior Credit Facility bear interest at a rate equal to an alternate base rate, London Inter-Bank Offered Rate ("LIBOR") or a LIBOR successor rate index, plus, in each case, an applicable margin.

The applicable margin is based on a fixed charge coverage ratio ("FCCR") range.  Interest on alternate base rate borrowings is the alternate base rate (as defined in the Renewed Senior Credit Facility) plus an applicable margin ranging from 1.00% to 1.50%, based on the FCCR in the most recently reported period.

Interest on LIBOR or LIBOR successor rate borrowings is the LIBOR rate (as defined in the Renewed Senior Credit Facility) plus an applicable margin ranging from 2.00% to 2.50%, based on the FCCR in the most recently reported period. Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility.

Borrowings under the Renewed Senior Credit Facility bear interest at a rate equal to an alternate base rate or the Secured Overnight Financing Rate ("SOFR"), plus, in each case, an applicable margin.

The applicable margin is based on a fixed charge coverage ratio ("FCCR") range.

Interest on alternate base rate borrowings is the alternate base rate (as defined in the Renewed Senior Credit Facility) plus an applicable margin ranging from 1.00% to 1.50%, based on the FCCR in the most recently reported period.

Interest on SOFR borrowings is the SOFR rate (as defined in the Renewed Senior Credit Facility) plus an applicable margin ranging from 2.00% to 2.50%, based on the FCCR in the most recently reported period, as well as an additional SOFR adjustment ranging from 0.10% to 0.25%, based on the term of the interest period.

Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility.

Subject to certain exceptions, borrowings under the Renewed Senior Credit Facility are secured by substantially all of the North American Loan Parties’

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The Renewed Senior Credit Facility also contains a free cash flow financial covenant (the "FCF covenant") requiring the North American Loan Parties to achieve a ratio of its EBITDA to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior Credit Facility to be not less than 1.10 to 1.00 for any five consecutive days in which the undrawn availability is less than $3.0 million or any day in which the undrawn availability is less than $2.0 million.

October 31, 2022, the calculated ratio was

greater than 1.10 to 1.00.

In order to cure any future breach of the FCF covenant by the North American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the Company’s Consolidated EBITDA, would result in pro forma compliance with the FCF covenant.

The Company was in compliance with these covena nts as of

October 31, 2022.

As of April 30, 2023, the calculated ratio was greater than 1.10 to 1.00.

In order to cure any future breach of the FCF covenant by the North American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the North American Loan Parties' EBITDA (as defined in the Renewed Senior Credit Facility), would result in pro forma compliance with the FCF covenant.

The Company was in compliance with these covena nts as of April 30, 2023.

The Renewed Senior Credit Facility contains customary events of default.

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Loans outstanding under the Renewed Senior Credit Facility will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) while a bankruptcy event of default exists or (ii) upon the lender's request, during the continuance of any other event of default.

October 31, 2022

, the Company had borrowed an aggregate of $7.1

 million at a rate of 7.25%

 and had $7.9

 million available under the Renewed Senior Credit Facility.

As of April 30, 2023 , the Company had borrowed an aggregate of $4.1  million at a rate of 9.0%  and had $7.5  million available under the Renewed Senior Credit Facility.

As of January 31, 2023, the Company had borrowed an aggregate of $4.4 million and had $9.9 million available under the Renewed Senior Credit Facility.

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The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E., Egypt, and Saudi Arabia as discussed further below.

United Arab Emirates

The Company has a revolving line for 8.0 million U.A.E.

Dirhams (approximately $2.2 million at October 31, 2022) from a bank in the U.A.E.

The facility has an interest rate of approximately 5.05% and was originally set to expire in November 2020, however, the expiration was extended due to the COVID-19 pandemic.

The facility was renewed in July 2022 and is now set to expire in July 2025.

Dirhams (approximately $2.2 million at April 30, 2023) from a bank in the U.A.E.

As of April 30, 2023 the facility has an interest rate of approximately 8.4% and is set to expire in May 2024.

The Company has a revolving line for 17.5 million U.A.E.

Dirhams (approximately $4.8 million at October 31, 2022) from a bank in the U.A.E.

The facility has an interest rate of approximately 6.99% and is set to expire in January 2023.

The Company has a credit agreement for project financing with a bank in the U.A.E.

Dirhams (approximately $4.8 million at April 30, 2023) from a bank in the U.A.E.

As of April 30, 2023 the facility has an interest rate of approximately 8.4% and is set to expire in May 2024.

The Company has a credit agreement for capital expenditure financing with a bank in the U.A.E.

for 2.0 million U.A.E.

Dirhams (approximately $0.3 million at October 31, 2022).

This credit arrangement is in the form of project financing at rates competitive in the U.A.E.

The line is secured by the contract for a project being financed by the Company's U.A.E.

The facility has an interest rate of approximately 6.99% and is expected to expire in June 2023 in connection with the completion of the project.

The Company has a credit agreement for project financing with a bank in the U.A.E.

for 2.0 million U.A.E.

Dirhams (approximately $0.5 million at October 31, 2022).

This credit arrangement is in the form of project financing at rates competitive in the U.A.E.

The line is secured by the contract for a project being financed by the Company's U.A.E.

The facility has an interest rate of approximately 6.53% and is expected to expire in May 2024 in connection with the completion of the project.

In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 100.0 million Egyptian Pounds (approximately $4.1  million at October 31, 2022).

Dirhams (approximately $0.5 million at April 30, 2023).

As of April 30, 2023 the facility has an interest rate of approximately 8.7% and is expected to expire in July 2023.

In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 100.0 million Egyptian Pounds (approximately $3.2  million at April 30, 2023).

This credit arrangement is in the form of project financing at rates competitive in Egypt.

The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. As of April 30, 2023 the facility has an interest rate of approximately 8.0%  and expired in June 2022 , however the Company has started the renewal process for this credit arrangement. The Company is in regular communication with the bank throughout the renewal process and the facility has continued without interruption or penalty.

In December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for 28.2 million Egyptian Pounds.

As this project has progressed and the Company has made collections, the facility has decreased to a current amount of 13.5 million Egyptian Pounds (approximatel y $0.6  mi llion at October 31, 2022).

As this project has progressed and the Company has made collections, the facility has decreased to a current amount of 8.9 million Egyptian Pounds (approximatel y $0.3  mi llion at April 30, 2023).

This credit arrangement is in the form of project financing at rates competitive in Egypt.

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The facility has an interest rate of approximately 

8.00% and was set to expire in November 2022, however, the Company is in the process of extending it in connection with the completion of the project.

21.1% and, as of November 2022, is no longer available for borrowings by the Company.

The facility will expire in connection with final customer balance collections and the completion of the project. 

In August 2022, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 100.0 million Egyptian Pounds (approximately $3.2 

million at October 31, 2022).

million at April 30, 2023).

This credit arrangement is in the form of project financing at rates competitive in Egypt.

The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable, to be tested annually at fiscal year-end. The facility has an interest rate of approximately 8.00%  and expired in August 2023 .

In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi Arabia for a revolving line of 20.0 million Saudi Riyal (approximately $5.3 million at October 31, 2022) This credit arrangement is in the form of project financing at rates competitive in Saudi Arabia.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable, to be tested annually at fiscal year-end. As of April 30, 2023 the facility has an interest rate of approximately 8.0%  and is set to expire in August 2023 .

In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi Arabia for a revolving line of 25.0 million Saudi Riyal (approximately $6.7 million at April 30, 2023) This credit arrangement is in the form of project financing at rates competitive in Saudi Arabia.

The line is secured by certain assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary.

The facility has an interest rate of approximately 7.43% and is set to expire in April 2023.

The facility was set to expire in April 2023.

Upon renewal of the credit arrangement in May 2023, the line was increased to 37.0 million Saudi Riyal (approximately $9.9 million at April 30, 2023).

As of April 30, 2023 the facility has an interest rate of approximately 9.2% and is set to expire in May 2024.

These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates.

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The Company guarantees only a portion of the subsidiaries' debt, including foreign debt.

As of October 31, 2022, the amount of foreign subsidiary debt guaranteed by the Company was approxim ately $0.6 million. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of October 31, 2022. On October 31, 2022, interest rates were based on the Emirates Inter Bank Offered Rate plus 3.0% to 3.5% per annum for the U.A.E.

credit arrangements, two of which have a minimum interest rate of 4.5% per annum, based on the stated interest rate in the agreement for the Egypt credit arrangement, and based on the Saudi Inter Bank Offered Rate plus 3.5% for the Saudi Arabia credit arrangement.

Based on these base rates, as of October 31, 2022, the Company's interest rates ranged from 5.05% to 8.00%, with a weighted average rate of 7.36%, and the Company had facility limits totaling $21.9  million under these credit arrangements.

As of October 31, 2022 , 

As of April 30, 2023, the amount of foreign subsidiary debt guaranteed by the Company was approxim ately $1.2 million. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of April 30, 2023, with the exception of those arrangements that have expired and have not yet been renewed. Although certain of the arrangements have expired and the borrowings could be required to be repaid immediately by the banks, the Company is in regular communication with the respective banks throughout the renewal process and all of the arrangements have continued without interruption or penalty.

On April 30, 2023, interest rates were based on (i) the Emirates Inter Bank Offered Rate plus 3.0% to 3.5% per annum for the U.A.E.

credit arrangements, two of which have a minimum interest rate of 4.5% per annum;

(ii) either the Central Bank of Egypt corporate loan rate plus 3.5% per annum or the stated interest rate in the agreements for the Egypt credit arrangements; and (iii) the Saudi Inter Bank Offered Rate plus 3.5% for the Saudi Arabia credit arrangement.

Based on these base rates, as of April 30, 2023, the Company's interest rates ranged from 8.0% to 21.1%, with a weighted average rate of 11.5%, and the Company had facility limits totaling $21.2  million under these credit arrangements.

As of April 30, 2023 , 

$2.7  million o f availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, as of October 31, 2022 , the Company had borrow ed $6.6  million  and had an additional $12.1  million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of October 31, 2022 and January 31, 2022, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Additionally, as of April 30, 2023 , the Company had borrow ed $8.9  million  and had an additional $10.0  million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of April 30, 2023 and January 31, 2023, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Finance obligation - buildings and land.

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Under the Lease Agreement, the Company has four consecutive options to extend the term of the lease by five years for each such option.  

In accordance with ASC Topic 842, "Leases", this transaction was recorded as a failed sale and leaseback as the present value of lease payments exceeded substantially all of the fair value of the underlying asset.

In accordance with ASC 842, Leases , this transaction was recorded as a failed sale and leaseback as the present value of lease payments exceeded substantially all of the fair value of the underlying asset.

The Company utilized an incremental borrowing rate of 8.0% to determine the finance obligation to record for the amounts received and will continue to depreciate the assets. 

The current portion of the finance obligation of $0.1 million is recognized in current maturities of long-term debt and the long-term portion of $9.2 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of 

October 31, 2022 . T he net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

Liquidity from Canadian government grants

The Company's subsidiary, Perma-Pipe Canada, Ltd., received relief in the form of grants from the Canadian government of approximately $0.7 million during the year ended January 31, 2022.

Grants to the Company ended in the second quarter of 2021.

The proceeds from these grants were recognized in other (expense)/income in the consolidated statement of operations.

April 30, 2023 . T he net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

Accounts receivable: 

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The system has not yet been commissioned by the customer.

Nevertheless, the Company has settled appro ximately $ 39.2  million as of October 31, 2022 , with a remaining balance due in the amount of $2.7  million , all of w hich pertains to retention clauses within the agreements with the Company's customer, and which become payable by the customer when this project is fully tested and commissioned.

Nevertheless, the Company has settled appro ximately $ 39.1  million as of April 30, 2023 , with a remaining balance due in the amount of $2.7  million , all of w hich pertains to retention clauses within the agreements with the Company's customer, and which become payable by the customer when this project is fully tested and commissioned.

Of this retention amount, $1.6  million is classified in a long-term receivable account.

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The Company continues to engage with the customer to ensure full payment of open balances, and during June 2022 received a partial payment to settle $0.9 million of the customer's outstanding balances.

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

As a result, the Company did not reserve any allowance against the remaining outstanding balances as of October 31, 2022.

Further, the Company has been engaged by the customer to perform additional work in 2022 and 2023 under customary trade terms that supports the continued cooperation between the Company and the customer.

As a result, the Company did not reserve any allowance against the remaining outstanding balances as of April 30, 2023.

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

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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-Q

Item 2. Management’s Discussion and Analysis