What changed in this filing

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Item 9A. Controls and Procedures

2024-04-26 compared with 2023-04-27 · 684 added, 872 removed, 630 unchanged (71% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. 

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) under the Exchange Act as of January 31, 2023 .

This evaluation included consideration of the controls, processes and procedures that are designed to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, the certifying officers have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were not effective because of the material weakness described below under "Management's Annual Report on Internal Control Over Financial Reporting." 

Evaluation of Disclosure Controls and Procedures.

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) under the Exchange Act as of January 31, 2024 .

This evaluation included consideration of the controls, processes and procedures that are designed to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, the certifying officers have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were not effective because of the material weaknesses described below under "Management's Annual Report on Internal Control Over Financial Reporting."

Management's Annual Report on Internal Control Over Financial Reporting.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is 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 Company's annual or interim financial statements will not be prevented or detected on a timely basis. 

Management has identified a material weakness in the Company's internal control over financial reporting regarding the design and operating effectiveness of controls related to the existence of inventory during the fiscal year ended January 31, 2023.

Based on management's evaluation, management has concluded that we did not maintain effective internal control over financial reporting as of January 31, 2024, due to the material weaknesses identified below.

Material Weaknesses Identified in the Period Ended January 31, 2024.

We did not maintain effective information technology general controls ("ITGC") specifically related to the policies and procedures over the timely review of security management and monitoring, user access and security administration, password control, administrative access, program change management, data security and back up, review of third-party SOC 1 reports, and related management's review of the completeness and accuracy of certain system-generated reports.

Additionally, we did not maintain effective controls over certain entity level controls over financial reporting related to the review and approval of manual journal entries, the timely review of the financial close process, and timely review of certain financial policies and procedures and respective HR policies.

We also did not maintain effective controls at certain operating locations in the Middle East and North Africa ("MENA"), specifically we did not maintain sufficient documentation to support our evaluation that controls over business processes were operating effectively.

Material Weakness Identified in the Prior Year Ended January 31, 2023 and Continuing Remediation Plan.

As previously disclosed in the January 31, 2023 10-K, management had identified a material weakness in the Company's internal control over financial reporting regarding the design and operating effectiveness of controls related to the existence of inventory during the fiscal year ended January 31, 2023.

Specifically, the Company failed to appropriately perform cycle count procedures at one of the Company's operating facilities, resulting in a significant adjustment during the full physical inventory count at period end.

Further, management review of the process and resulting adjustments on a periodic basis failed to identify the issue.

The material weakness did not result in any material misstatements to the Company’s consolidated financial statements.

As a result, at January 31, 2023 and on the date of this Annual Report, the Company's internal control over financial reporting is not effective. 

Remediation Plan for the Material Weakness in Internal Control over Financial Reporting:

To address the material weakness, the Company will do the following:

Hire additional resources and expertise to oversee inventory management;

Engage outside consultants for additional expertise to review current practices and advise management on industry best practices regarding policies and procedures;

Redesign cycle count parameters to ensure higher value and more active inventory parts are counted more frequently and include additional review by finance and accounting personnel to ensure any necessary adjustments are addressed in a timely manner;

Perform full physical inventory counts periodically throughout the year at the Lebanon, Tennessee plant until management determines that other inventory controls are operating effectively to prevent or detect a material misstatement;

Review and update physical organization of inventory to better identify and segregate inventory.

The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company's processes, procedures and controls related to inventory management and will address the related material weakness described above.

However, the material weakness cannot be considered fully remediated until the remediation processes have been in operation for a period of time and successfully tested.

Further, management’s review of the process and resulting adjustments on a periodic basis failed to identify the issue.

The material weakness did not result in any material misstatements to the Company’s consolidated financial statements.

The Company's remediation plans progressed during the year ended January 31, 2024, and included hiring of an additional resource with inventory management expertise, engaged outside consultants for additional expertise to review current practices to assist in updating and monitoring inventory count policies and procedures, and performed physical counts periodically throughout the year at the Lebanon, Tennessee plant to supplement the cycle count process.

The Company has also redesigned cycle count parameters to ensure higher value and more active inventory parts are counted more frequently and include additional review by finance and accounting personnel to ensure any necessary adjustments are addressed in a timely manner;

and reviewed and updated physical organization of inventory to better identify and segregate inventory.

Management has determined that with its new control over quarterly physical counts at the plant, along with updated reviews, the Company has changed its controls over the existence of inventory.

As a result, the Company has determined that the material weakness over the existence of inventory at the above Lebanon plant has been remediated as of January 31, 2024.

Remediation Plan for the Material Weaknesses Identified in the Period Ended January 31, 2024.

The remediation plans related to ITGCs include:

(i) addressing the identified issues with control owners, including company leadership and IT personnel;

(ii) engage outside consultants with expertise relating to ITGCs to document processes, assist in addressing the design and operating business process controls, monitoring and testing reviews focusing on systems supporting our financial reporting process (iii) developing and maintaining documentation underlying ITGCs for knowledge transfer and function changes, including access control and change management;

(iv) outsource certain functions to third-party providers, specifically relating to servers and firewalls, and managed detection and response.

The remediation plans related to the entity level controls and business process controls over MENA locations include:

(i) addressing issues with control owners, including company leadership;

(ii) evaluating and updating the Company's evidence of internal control policies and procedures as needed and providing necessary guidance to applicable locations;

(iii) assessing the adequacy and determine whether enhancements are needed to the design of corporate and / or operating locations business process controls;

and (iv) augmenting our internal audit function by hiring an additional resource to assist in overseeing the remediation process, including updating policies and procedures, and implementing internal controls;

(v) engage outside consultants to conduct training sessions.

The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company's processes, procedures and will address the related material weaknesses described above.

However, the material weaknesses cannot be considered fully remediated until the remediation processes have been in operation for a period of time and successfully tested.

Changes in Internal Control over Financial Reporting.

While the Company continues to implement design enhancements to our internal control procedures, we believe that, other than the changes described above regarding the ongoing remediation efforts, there were no changes to our internal control over financial reporting which were identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Exchange Act during the fourth quarter of the fiscal year ending January 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

Attestation Report of Registered Public Accounting Firm. 

This Annual Report does not contain an attestation report of our independent registered public accounting firm related to internal control over financial reporting because the rules for smaller reporting companies provide an exemption from the attestation requirement. 

While the Company continues to implement design enhancements to our internal control procedures, we believe that, other than the changes described above regarding the ongoing remediation efforts, there were no changes to our internal control over financial reporting which were identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Exchange Act during the fourth quarter of the fiscal year ending January 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of Registered Public Accounting Firm.

OTHER INFORMATION - Not applicable.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 

- Not applicable.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS - Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 

2023  annual meeting of stockholders.

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2024 annual meeting of stockholders.

Information with respect to executive officers of the Company is included in Part I, Item 1, hereof under the caption "Information about our Executive Officers".

EXECUTIVE COMPENSATION

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 

2023  annual meeting of stockholders.

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2024 annual meeting of stockholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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Equity compensation plans approved by stockholders

(1) The amounts shown in columns (a) and (b) of the above table do not include 267,377  outstanding shares of restricted stock granted under the Company's 2013 Omnibus Stock Incentive Plan as amended on June 14, 2013, the 2017 Omnibus Stock Incentive Plan as amended on June 13, 2017 ("2017 Plan") or the 2021 Omnibus Stock Incentive Plan dated May 26, 2021 ("2021 Plan").

(1) The amounts shown in columns (a) and (b) of the above table do not include 222,852 outstanding shares of restricted stock granted under the Company's 2013 Omnibus Stock Incentive Plan as amended on June 14, 2013, the 2017 Omnibus Stock Incentive Plan as amended on June 13, 2017 ("2017 Plan") or the 2021 Omnibus Stock Incentive Plan dated May 26, 2021 ("2021 Plan").

(2) The 2017 Plan expired in June 2020.

The 2021 Plan will expire on May 26, 2024.

The other information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 

2023  annual meeting of stockholders.

The other information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2024 annual meeting of stockholders.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 

2023  annual meeting of stockholders.

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2024 annual meeting of stockholders.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 

2023  annual meeting of stockholders.

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2024 annual meeting of stockholders.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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We have audited the accompanying consolidated balance sheets of Perma-Pipe International Holdings, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of January 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’

equity, and cash flows for each of the two years in the period ended January 31, 2023, and the related notes and financial statement schedule (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

(a Delaware corporation) and subsidiaries (the “Company”) as of January 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended January 31, 2024, and the related notes and financial statement schedule included in Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue at U.S.

operating entities for specialty piping systems and coating is recognized using the input method over time

As described further in Note 2 and 4 to the consolidated financial statements, the Company’s U.S.

operating entities record specialty piping and coating systems revenue over time based upon the costs incurred to date relative to the estimated total contract costs.

Significant changes in estimates could have a material effect on the Company’s results of operations.

As described further in Note 2 and 4 to the consolidated financial statements, the Company’s U.S.

operating entities record specialty piping and coating systems revenue over time based upon the costs incurred to date relative to the estimated total contract costs.

Significant changes in estimates could have a material effect on the Company’s results of operations.

We identified revenue being recognized using the input method over time as a critical audit matter.

The principal considerations for our determination that revenue recognition using the input method over time is a critical audit matter are the Company’s estimates include all labor and materials necessary to complete the contract to arrive at the total contract costs. 

These estimates are based on management’s assessment of the current status of the contract and historical results.

The principal considerations for our determination that revenue recognition using the input method over time is a critical audit matter are the Company’s estimates include the forecasted costs to complete the contract that may vary significantly from past estimates due to changes in facts and circumstances.

These estimates are based on management’s assessment of the current status of the contract and historical results.

Our audit procedures included the following, among others:

Evaluated the design and implementation of controls that are designed to address the reasonableness of estimates of costs to complete contracts;

• Obtained supporting documentation for a sample of contract costs incurred to date as well as recalculated revenue recognition based on the percentage of completion;

Evaluated the reasonableness of management's estimates related to the cost to complete for contracts through testing of the key components of the estimated costs to complete, including:

labor, materials, and subcontractor costs;

• Evaluated the reasonableness of management's estimates related to the cost to complete for contracts through testing of the key components of the estimated costs to complete;

• Performed a retrospective review to assess management's historical ability to accurately estimate the transaction price and cost to complete the contracts including investigating significant cost changes;

Obtained confirmations of significant contract terms and status for a sample of contracts. 

• Obtained confirmations of significant contract terms for certain significant new contracts.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2004.

Houston, Texas

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Year ended January 31,

$ 150,668 $ 142,569

Cost of sales

109,210 104,268

41,458 38,301

Operating expenses

General and administrative expenses

22,591 21,994

Selling expense

Total operating expenses

28,099 27,157

Income from operations

Interest expense, net

Other income, net

13,359 11,144

Interest expense

Other (expense) income

( 1,202 ) 533

Income before income tax

Income tax expense

Income tax (benefit) expense

( 3,320 ) 3,613

Net income attributable to non-controlling interest

Net income attributable to common stock

$ 10,471 $ 5,945

Weighted average common shares outstanding

Earnings per share

Earnings per share attributable to common stock

$ 1.31 $ 0.75

$ 1.30 $ 0.73

See accompanying notes to consolidated financial statements.

Earnings per share calculations could be impacted by rounding.

PERMA-PIPE INTERNATIONAL HOLDINGS, INC.

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Year ended January 31,

Other comprehensive (loss)/income

$ 13,211 $ 5,945

Other comprehensive income (loss)

Currency translation adjustments, net of tax

898 ( 4,592 )

Minimum pension liability adjustment, net of tax

Other comprehensive (loss)/income

Comprehensive income

Comprehensive income (loss)

$ 14,109 $ 2,600

Comprehensive income attributable to non-controlling interest

Total comprehensive income attributable to common stock

$ 11,369 $ 2,600

See accompanying Notes to Consolidated Financial Statements.

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Cash and cash equivalents

$ 5,773  

$ 8,214  

$ 5,845 $ 5,773

Restricted cash

Trade accounts receivable, less allowance for doubtful accounts of $ 699 at January 31, 2024 and $ 612 at January 31, 2023

42,010  

44,449  

Inventories, net

14,738  

13,760  

46,646 42,010

15,541 14,738

Prepaid expenses and other current assets

Unbilled accounts receivable

11,634  

16,597 11,634

Costs and estimated earnings in excess of billings on uncompleted contracts

Total current assets

85,658  

78,389  

98,818 85,658

Long-term assets

Property, plant and equipment, net of accumulated depreciation

26,518  

24,756  

37,620 26,518

Operating lease right-of-use asset

11,213  

Deferred tax assets

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Total long-term assets

37,308  

45,012  

$ 122,966  

$ 123,401  

56,893 37,308

$ 155,711 $ 122,966

LIABILITIES AND STOCKHOLDERS' EQUITY

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Trade accounts payable

$ 14,754  

$ 13,618  

$ 25,323 $ 14,754

Accrued compensation and payroll taxes

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Customers' deposits

Outside commission liability

Operating lease liability short-term

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Total current liabilities

43,790  

38,397  

57,742 43,790

Long-term liabilities

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Operating lease liability long-term

11,270  

Other long-term liabilities

Total long-term liabilities

21,392  

30,547  

25,991 21,392

Non-controlling interest

Commitments and contingencies

Stockholders' equity

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Additional paid-in capital

62,562  

61,766  

60,063 62,562

Treasury stock, 112 shares at January 31, 2024 and 3 shares at January 31, 2023

( 26 )  

Retained earnings/(accumulated deficit)

( 968 ) ( 26 )

Retained earnings

Accumulated other comprehensive loss

( 6,449 )  

( 5,551 ) ( 6,449 )

Total stockholders' equity

57,784  

54,457  

65,712 57,784

Total liabilities and stockholders' equity

$ 122,966  

$ 123,401  

$ 155,711 $ 122,966

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(In thousands, except share data)

Additional Paid-in Capital

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Total stockholders' equity on January 31, 2022

$ 82 $ 61,766 $ ( 2,295 ) $ ( 1,992 ) $ ( 3,104 ) $ 54,457

- - 5,945 - - 5,945

Common stock issued under stock plans, net of shares used for tax withholding

- ( 206 ) - - - ( 206 )

Repurchase of common stock

- - - ( 69 ) - ( 69 )

Retirement of treasury stock

( 2 ) ( 2,033 ) 2,035 -

Stock-based compensation expense

- 1,002 - - - 1,002

Pension liability adjustment

- - - - 1,247 1,247

Foreign currency translation adjustment

- - - - ( 4,592 ) ( 4,592 )

Total stockholders' equity on January 31, 2023

$ 80 $ 62,562 $ 1,617 $ ( 26 ) $ ( 6,449 ) $ 57,784

- - 10,471 - - 10,471

Common stock issued under stock plans, net of shares used for tax withholding

- ( 274 ) - - - ( 274 )

Repurchase of common stock

Retirement of treasury stock

- - - ( 942 ) - ( 942 )

Stock-based compensation expense

Pension liability adjustment

- 913 - - - 913

Acquisition-related adjustment

- ( 3,138 ) - - - ( 3,138 )

Foreign currency translation adjustment

- - - - 898 898

Total stockholders' equity on January 31, 2024

Common stock shares

$ 80 $ 60,063 $ 12,088 $ ( 968 ) $ ( 5,551 ) $ 65,712

Balances at beginning of year

8,007,002 8,151,754

Treasury stock purchased

Shares issued, net of shares used for tax withholding

66,726 94,416

Prior year adjustments

( 56,947 ) ( 234,281 )

Balance end of year

8,016,781 8,007,002

See accompanying notes to consolidated financial statements.

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Operating activities

Adjustments to reconcile net income to net cash used in operating activities

$ 13,211 $ 5,945

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Depreciation and amortization

Deferred tax expense (benefit)

( 6,920 ) 479

Stock-based compensation expense

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Provision on uncollectible accounts

Loss on disposal of fixed assets

(Gain) loss on disposal of fixed assets

Gain from insurance recovery

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Accrued compensation and payroll taxes

( 830 ) ( 1,505 )

Proceeds from insurance recovery for inventory

Customers' deposits

2,315 ( 336 )

Income taxes receivable and payable

Prepaid expenses and other current assets

( 2,849 ) ( 123 )

Accounts receivable

( 4,859 ) ( 3,232 )

Costs and estimated earnings in excess of billings on uncompleted contracts

( 1,218 ) ( 351 )

Unbilled accounts receivable

( 5,053 ) ( 9,814 )

Other assets and liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

14,731 ( 1,241 )

Investing activities

Capital expenditures

( 11,106 ) ( 6,975 )

Proceeds from insurance recovery for property and equipment

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Net cash used in investing activities

( 11,098 ) ( 6,382 )

Financing activities

Proceeds from revolving lines

155,706 96,903

Payments of debt on revolving lines

Proceeds from term loan

Payments of debt on mortgage

Proceeds from finance obligation, net of issuance costs

( 156,996 ) ( 91,438 )

Payments of principal on finance obligation

( 118 ) ( 88 )

Payments of other debt

( 243 ) ( 263 )

Decrease in drafts payable

Payments on finance lease obligations, net

( 193 ) ( 338 )

Repurchase of common stock

( 942 ) ( 69 )

Stock options exercised and taxes paid related to restricted shares vested

Net cash provided by financing activities

( 273 ) ( 206 )

Net cash (used in) provided by financing activities

( 3,256 ) 4,543

Effect of exchange rate changes on cash, cash equivalents and restricted cash

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

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

447 ( 2,978 )

Cash, cash equivalents and restricted cash - beginning of period

Cash, cash equivalents and restricted cash - end of period

$ 7,240 $ 6,793

Supplemental cash flow information

Interest paid

$ 2,285 $ 2,045

Income taxes paid

Fixed assets acquired under capital leases - non-cash

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JANUARY 31, 

2023 AND 

(Tabular amounts presented in thousands, except per share data)

YEARS ENDED JANUARY 31, 2024 AND 2023

(In thousands, except per share data, or unless otherwise specified)

Note 1 - Business information

Perma-Pipe International Holdings, Inc.

("PPIH", the "Company", or the "Registrant") was incorporated in Delaware on October 

("PPIH", the "Company", or the "Registrant") was incorporated in Delaware on October 12, 1993.

The Company is engaged in the manufacture and sale of products in one distinct segment:

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The Company's fiscal year ends on January 31.

Years, results and balances described as 

2022  and 

2021  are for the fiscal 

years ended January 31, 2023 and 2022 , respectively.

Years, results and balances described as 2023 and 2022 are for the fiscal years ended January 31, 2024 and 2023 , respectively.

Nature of business.

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Net sales attributed to a geographic area are based on the destination of the product shipment.

Sales to foreign customers were 63.8 %  in 

2022 compared to 

66.2 % in 

Sales to foreign customers were 65.6 % in 2023 compared to 63.8 % in 2022 .

Long-lived assets are based on the physical location of the assets and consist of property, plant and equipment.

(In thousands)

United States

$ 51,557  

$ 46,770  

36,482  

28,302  

Middle East/North Africa

50,432  

51,543  

11,101  

$ 51,893 $ 51,557

31,351 36,482

Middle East/North Africa/India

63,880 53,742

Total net sales

$ 142,569  

$ 138,552  

$ 150,668 $ 142,569

Property, plant and equipment, net of accumulated depreciation

United States

$ 5,920  

$ 6,415  

Middle East/North Africa

10,677  

$ 5,600 $ 5,920

Middle East/North Africa/India

21,244 11,308

Total property, plant and equipment, net of accumulated depreciation

$ 26,518  

$ 24,756  

$ 37,619 $ 26,518

Note 2 - Significant accounting policies

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Actual results could differ from those estimates.

Revenue recognition. 

2022  and 

2021 and in accordance with Accounting Standards Codification ("ASC") 

606, Revenue from Contracts with Customers , the Company recognizes revenue for certain contracts when a customer obtains control of promised goods or services. 

Other contracts recognize revenues using periodic recognition of income.

Revenue recognition.

During 2023 and 2022 and in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers , the Company recognizes revenue for certain contracts when a customer obtains control of promised goods or services.

Other contracts recognize revenues using periodic recognition of income.

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

Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete. The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract.

Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete.

The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract.

Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined.

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Such revisions are recognized in the period in which they are determined.

Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable, the amount can be reliably estimated and the amount is not subject to reversal. See Note 4 - Revenue recognition for more detail.

Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable, the amount can be reliably estimated, and the amount is not subject to reversal.

See Note 4 - Revenue recognition, in the Notes to Consolidated Financial Statements, for further information relating to input and output accounting methods.

Shipping and handling.

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Operating cycle.

The length of contracts vary but are typically less than one year.

The length of contracts varies but are typically less than one year.

The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion unless completion of such contracts extends significantly beyond one year.

Consolidation.

The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries, all of which are wholly owned.

The consolidated financial statements include the accounts of the Company and its subsidiaries.

This includes all wholly owned subsidiaries as well as certain joint ventures in which the Company has a controlling financial interest.

All intercompany balances and transactions have been eliminated.

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dollars at exchange rates in effect at year-end.

Revenues and expenses are translated at weighted average exchange rates prevailing during the year.

The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensive income (loss).

Gains or losses on foreign currency transactions and the related tax effects are reflected in net income. The aggregated foreign exchange transaction loss recognized in the income statement was $ 0.3 million and $ 0.1 million in 2022 and 2021, respectively.

Revenues and expenses are translated at weighted average exchange rates prevailing during the year.

The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensive loss.

Gains or losses on foreign currency transactions and the related tax effects are reflected in net income.

The aggregate foreign exchange transaction loss recognized in the income statement was $ 0.1 million and $ 0.3 million in 2023 and 2022, respectively.

Additionally, translation adjustments attributable to intercompany transactions, such as loans and receivables, are included in stockholders' equity as part of accumulated other comprehensive loss .

Contingencies.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, including those involving environmental, tax, product liability and general liability claims.

The Company accrues for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated.

The Company accrues for such liabilities when it is probable that future costs will be incurred, and the amount can be reasonably estimated.

Such accruals are based on developments to date, the Company's estimates of the outcomes of these matters, and its experience in contesting, litigating and settling other similar matters.

2 unchanged sentences

All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents.

Cash and cash equivalents were $ 5.8  million and $ 8.2  million as of January 31, 2023  and 

2022 , respectively.

On January 31, 2023 , $ 0.1  million was held in the United States and $ 5.7 million was held by foreign subsidiaries.

On January 31, 2022 , less than $ 0.1  million was held in the United States and $ 8.2 million was held by foreign subsidiaries.

Accounts payable included drafts payable o f $ 0.2  million on January 31, 2023  and 

Restricted cash. 

There was no restricted cash held in the United States on January 31, 2023  or 

2022 . Restricted cash held by foreign subsidiaries was $ 1.0 million and $ 1.6 million as of January 31, 2023  and 

2022 , respectively.

Cash and cash equivalents were $ 5.8 million as of January 31, 2024 and 2023 , respectively.

On January 31, 2024 , $ 0.1 million was held in the United States and $ 5.7 million was held by foreign subsidiaries.

On January 31, 2023 , less than $ 0.1 million was held in the United States and $ 5.7 million was held by foreign subsidiaries.

Restricted cash.

There was no restricted cash held in the United States on January 31, 2024 or 2023 .

Restricted cash held by foreign subsidiaries was $ 1.4 million and $ 1.0 million as of January 31, 2024 and 2023 , respectively.

Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.

(In thousands)

Cash and cash equivalents

$ 5,773  

$ 8,214  

$ 5,845 $ 5,773

Restricted cash

Cash, cash equivalents and restricted cash shown in the statement of cash flows

$ 6,793  

$ 9,771  

Cash, cash equivalents and restricted cash as presented in the statement of cash flows

$ 7,240 $ 6,793

Accounts receivable.

2 unchanged sentences

In the United States, collateral is not generally required.

In the United Arab Emirates ("U.A.E."), Saudi Arabia, Egypt and India letters of credit are usually obtained for significant orders.

Accounts receivable are due within various time periods specified in the terms applicable to the specific customer and are stated at amounts due from customers net of an allowance for claims and doubtful accounts.

Standard payment terms are net 30 days.

In the United Arab Emirates ("U.A.E."), Saudi Arabia, Egypt and India letters of credit are usually obtained for significant orders.

Accounts receivable are due within various time periods specified in the terms applicable to the specific customer and are stated as amounts due from customers net of an allowance for claims and doubtful accounts.

Standard payment terms are generally net 30 to 60 days.

The allowance for doubtful accounts is based on specifically identified amounts in customers' accounts, where future collectability is deemed uncertain.

1 unchanged sentence

Past due trade accounts receivable balances are written off when the Company's collection efforts have been unsuccessful in collecting the amount due and the amount is deemed uncollectible.

The write off is recorded against the allowance for doubtful accounts. 

In 2015, the Company completed a project in the Middle East with billings in the aggregate amount of approximately $ 41.9 million.

The system has not yet been commissioned by the customer.

Nevertheless, the Company has settled approximately $ 39.1 million as of January 31, 2023 , with a remaining balance due in the amount of $ 2.7 million, all of which 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, $ 2.5 million is classified in a long-term receivable account.

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

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 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 January 31, 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.

For the years ended 

January 31, 2023  and 2022 , respectively, no one customer accounted for greater than 10% of the Company's consolidated net sales.

As of January 31, 2023 , 

no one  customer accounted for greater than 

10%  of accounts receivable.

As of January 31, 2022 , 

one  customer accounted for 

11.9 %  of accounts receivable.

The write off is recorded against the allowance for doubtful accounts.

For the years ended January 31, 2024 and 2023 , respectively, no one customer accounted for greater than 10% of the Company's consolidated net sales.

As of January 31, 2024 and 2023 , respectively, no one customer accounted for greater than 10% of accounts receivable.

Concentration of credit risk.

3 unchanged sentences

The Company has not experienced any losses in such accounts.

The Company's foreign cash is held in accounts at multiple institutions in the various countries in which the Company operates, limiting the concentration of risk internationally.

The Company's foreign cash is held in accounts at multiple institutions in the various countries in which the Company operates, limiting the concentration of risk internationally.

The Company has a broad customer base doing business in all regions of the United States as well as other areas in the world.

1 unchanged sentence

Accumulated other comprehensive loss represents the change in equity from non-owner transactions and consisted of foreign currency translation and minimum pension liability.

(In thousands)

Equity adjustment foreign currency, gross

$ ( 6,707 )  

$ ( 5,804 ) $ ( 6,707 )

Minimum pension liability, gross

Subtotal excluding tax effect

( 6,707 )  

( 5,804 ) ( 6,707 )

Tax effect of equity adjustment foreign currency

1 unchanged sentence

Total accumulated other comprehensive loss

$ ( 6,449 )  

$ ( 5,551 ) $ ( 6,449 )

Inventories are stated at the lower of cost or net realizable value.

Cost is determined using the first -in, first -out method for all inventories.

(In thousands)

Raw materials

$ 14,992  

$ 13,909  

$ 13,787 $ 14,992

Work in process

Finished goods

15,945  

14,862  

16,420 15,945

Less allowance

Inventories, net

$ 14,738  

$ 13,760  

$ 15,541 $ 14,738

Long-lived assets.

3 unchanged sentences

If such a review indicates impairment, the carrying amount of such assets is reduced to an estimated fair value.

Depreciation is computed using the straight-line method over the estimated useful lives of assets, which range from three to 30 years.

Depreciation is computed using the straight-line method over the estimated useful lives of assets, as presented in the following table.

Leasehold improvements are depreciated over the remaining life of the lease or its useful life, whichever is shorter.

Amortization of assets under capital leases is included in depreciation.

Depreciation expense was approximately $ 3.7  million and $ 4.1 million in the years ended 

January 31, 2023  and 2022 , respectively.

(In thousands)

Amortization of finance lease assets is included in depreciation.

Depreciation expense was approximately $ 3.8 million and $ 3.7 million in the years ended January 31, 2024 and 2023 , respectively.

Useful Life (Years)

Land, buildings and improvements

$ 22,276  

$ 22,748  

3 - 30 $ 25,620 $ 22,276

Machinery and equipment

54,200  

50,534  

3 - 10 56,411 54,200

Furniture, office equipment and computer systems

3 - 7 3,169 3,727

Transportation equipment

82,930  

79,223  

3 2,293 2,727

87,493 82,930

Less accumulated depreciation

56,412  

54,467  

49,873 56,412

Property, plant and equipment, net of accumulated depreciation

$ 26,518  

$ 24,756  

$ 37,620 $ 26,518

Impairment of long-lived assets.

The Company's assessment of long-lived assets, and other identifiable intangibles is based upon factors that market participants would use in accordance with the accounting guidance for the fair value measurement of assets. At 

January 31, 2023 , the Company performed a qualitative analysis assessment to determine if it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values.

The Company assessed three asset groups as part of this analysis:

United States, Canada and Middle East.

The qualitative assessment indicated that it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values for all three  asset groups.

Therefore, it was determined that there was 

no  impairment of the Company's long-lived assets for the year ended January 31, 2023 . The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.

At January 31, 2024 , the Company performed an assessment to determine whether there were any triggering events that may have occurred which could indicate that the carrying value of the Company's long-lived assets are not recoverable, and an impairment may exist.

Based on this assessment, the Company did not identify any triggering events that would indicate that the carrying amounts may not be recoverable with respect to long-lived assets for the year ended January 31, 2024 .

The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.

The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill.

All identifiable goodwill as of January 31, 2023  and 2022 , is attributable to the purchase of the remaining 50% interest in Perma-Pipe Canada, Ltd., which occurred in 2016.

The movement of the goodwill for the years ended 

January 31, 2023  and 2022  are as follows:

(In thousands)

All identifiable goodwill as of January 31, 2024 and 2023 , is attributable to the purchase of the remaining 50% interest in Perma-Pipe Canada, Ltd., which occurred in 2016.

The following table provides a reconciliation of changes in the carrying amount of goodwill:

Balance at beginning of year

$ 2,342  

$ 2,332  

$ 2,227 $ 2,342

Foreign exchange adjustment

( 115 )  

( 5 ) ( 115 )

Balance at end of year

$ 2,227  

$ 2,342  

The Company performs an impairment assessment of goodwill annually as of January 31, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset.

$ 2,222 $ 2,227

The Company performs an impairment assessment of goodwill annually as of January 31, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

January 31, 2023 , the Company elected to perform a qualitative analysis assessment to determine if it was more likely than 

not  that the fair value of the Company's Canadian reporting unit exceeded its carrying value, including goodwill.

The qualitative assessment did 

not  identify any triggering events that would indicate potential impairment of the Company's Canadian reporting unit. Therefore, it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in 

no  impairment for the year ended 

January 31, 2023 .

The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.

At January 31, 2024 , the Company performed a qualitative assessment to determine whether there were any triggering events that may have occurred which could indicate that more likely than not that the fair value of the reporting unit did not exceed its carrying value, resulting in an impairment.

Based on this assessment, the Company did not identify any triggering events that would indicate that the fair value is less than the carrying value of the reporting unit for the year ended January 31, 2024 .

The Company will continue testing for impairment at least annually as of January 31, or as otherwise required by applicable accounting standards.

Other intangible assets with definite lives.

2 unchanged sentences

The Company expenses costs incurred to renew or extend the term of intangible assets.

Gross patents were $ 2.7  million as of January 31, 2023  and 2022 .

Accumulated amortization was approximately $ 2.6  million as of 

January 31, 2023  and 2022 .

Gross patents were $ 2.7 million as of January 31, 2024 and 2023 .

Accumulated amortization was approximately $ 2.6 million as of January 31, 2024 and 2023 .

Amortization over the next five fiscal years will be less than $ 0.1 million and less than $0.1 million thereafter.

3 unchanged sentences

Research and development costs are expensed as incurred.

Research and development expense was approximately $ 0.7 million and $ 0.4 million in the years ended 

January 31, 2023  and 2022 , respectively.

Research and development expense was approximately $ 0.5 million and $ 0.6 million in the years ended January 31, 2024 and 2023 , respectively.

Income taxes.

2 unchanged sentences

The Company assesses its deferred tax assets and liabilities for realizability at each reporting period.

The Company recognizes a tax position in its consolidated financial statements only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

The Company recognizes a tax position in its consolidated financial statements only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

For further information, see Note 7  - Income taxes.

For further information, see Note 7 - Income taxes.

One of the base broadening provisions of the U.S.

1 unchanged sentence

In accordance with guidance issued by the Financial Accounting Standards Board ("FASB") staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred.

Thus, for the years ended 

January 31, 2023  and 2022 , deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense. 

The Inflation Reduction Act ("IRA") was signed into law in August 2022.

The Company has evaluated the provisions of the IRA and does not expect any material impact to its consolidated provision for income taxes. 

Thus, for the years ended January 31, 2024 and 2023 , deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Fair value of financial instruments .

 The carrying values of cash and cash equivalents, accounts receivable and accounts payable are based upon reasonable estimates of their fair value due to their short-term nature.

The carrying amount of the Company's short-term debt, revolving line of credit and long-term debt approximate fair value because the majority of the amounts outstanding accrue interest at variable rates.

1 unchanged sentence

Earnings per share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding (basic).

The Company reported net income in 2022  and 

2021 . Therefore, the Company adjusted for dilutive shares in 2022  and 

2021 , assuming conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share.

The Company reported net income in 2023 and 2022 .

Therefore, the Company adjusted for dilutive shares in 2023 and 2022 , assuming conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share.

The dilutive shares are in the following table:

Basic weighted average number of common shares outstanding (in thousands)

Basic weighted average number of common shares outstanding

Dilutive effect of stock options and restricted stock units

2 unchanged sentences

Canceled options during the year

( 11 )  

( 17 ) ( 11 )

Restricted stock and stock options with an exercise price below the average stock price

2 unchanged sentences

restricted stock, deferred stock and stock options.

Non-cash compensation expense associated with restricted stock is based on the fair value of the common stock at the date of grant, and amortized using the straight line method over the vesting period.

Compensation expense associated with deferred stock which has been awarded to the Board of Directors (non-employee) is based upon the fair value of the common stock at the date of grant, and since the grant vests immediately it is expensed on the date of the grant. Stock compensation expense for stock options is recognized ratably over the requisite service period of the award.

Non-cash compensation expense associated with restricted stock is based on the fair value of the common stock at the grant date, and amortized using the straight line method over a vesting period range of one to four years .

Stock compensation expense for stock options is recognized ratably over the requisite service period of the award.

The Black-Scholes option-pricing model is utilized to estimate the fair value of option awards.

Treasury Stock.

In accordance with ASC 

505, Equity , the Company accounted for share repurchases pursuant to its repurchase program under the cost method.

This resulted in recognizing the shares as treasury stock, a reduction of stockholders' equity on the Company's consolidated balance sheets and on the Company's consolidated statements of stockholders' equity.

These amounts included costs associated with the acquisition of the shares.

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 .

 Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker ("CODM") in making decisions regarding resource allocation and assessing performance the Company’s Chief Executive Officer is the CODM, and he uses a combination of several management reports, including the Company's financial information in determining how to allocate resources and assess performance.

In accordance with ASC 505, Equity , the Company accounts for share repurchases pursuant to the repurchase program under the cost method.

This results in recognizing the shares as treasury stock, a reduction of stockholders' equity on the Company's consolidated balance sheets and on the Company's consolidated statements of stockholders' equity.

These amounts include costs associated with the acquisition of the shares.

See Note 11 - Treasury stock for further detail.

The Company has determined that it operates in one segment.

Recent accounting pronouncements . In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020 - 04,  

Reference Rate Reform  (Topic 848 ), which provides guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by the scheduled discontinuation of the London Inter-Bank Offered Rate ("LIBOR") on December 31, 2021.

It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform.

The ASU provides the option to account for and present a modification that meets the scope of the standard as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination required under the relevant topic or subtopic.

This ASU is effective for all entities;

however, application of the guidance is optional, is only available in certain situations and is only available for companies to apply from March 12, 2020 until December 31, 2022. 

The Company's Renewed Senior Credit Facility which matures on September 20, 2026, 

bears interest at a rate equal to an alternate base rate, the LIBOR or a LIBOR successor rate index, plus, in each case, an applicable margin.

Based on the inclusion of the LIBOR successor rate index in the Renewed Senior Credit Facility, there was no  material impact on the Company's financial statements from the adoption of this standard.

In June 2016, the FASB issued ASU No.

Recent accounting pronouncements .

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No.

2016 - 13, Financial Instruments-Credit Losses ( Topic 326 ):

Measurement of Credit Losses on Financial Instruments. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

A recently adopted amendment has delayed the effective date until fiscal years beginning after December 15, 2022. 

The Company is currently evaluating this standard and does not expect a material impact to the financial statements of the Company. 

The Company evaluated other recent accounting pronouncements and does not expect them to have a material impact on its consolidated financial statements.

Measurement of Credit Losses on Financial Instruments .

The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The amended guidance requires the application of a current expected credit loss ("CECL") model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and as subsequently amended and extended to December 15, 2022.

The Company adopted this guidance effective February 1, 2023, which did not have a material impact on the consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023 - 07, Segment Reporting ( Topic 280 ):

Improvements to Reportable Segment Disclosures .

The standard update requires additional disclosures, including further details about segment expenses regarding a public entity's reportable segments on an annual and interim basis.

The additional segment disclosures are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company is still evaluating the impact of these updated disclosure requirements on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023 - 09, Income Taxes ( Topic 740 ):

Improvements to Income Tax Disclosures .

Pursuant to this standard update, companies are required to provide additional information which is primarily attributable to the rate reconciliation and income taxes paid.

The new income tax disclosures are effective for fiscal years beginning after December 15, 2024.

The Company is still evaluating this standard update but does not expect it to have a material impact on its consolidated financial statements.

Note 3 - Retention

A retention receivable is a portion of an outstanding receivable balance amount withheld by a customer until a contract is fully completed as specified in the contract.

Retention receivables of $ 2.4  million and $ 2.8  million were included in the balance of trade accounts receivable as of January 31, 2023  and 2022 , respectively.

A retention receivable of $ 2.9  million and $ 4.3  million was included in the balance of other long-term assets as of 

January 31, 2023  and 2022 , respectively, due to the long-term nature of the receivables.

Retention receivables of $ 2.5 million and $ 2.4 million were included in the balance of trade accounts receivable as of January 31, 2024 and 2023 , respectively.

A retention receivable of $ 1.7 million and $ 2.9 million was included in the balance of other long-term assets as of January 31, 2024 and 2023 , respectively, due to the long-term nature of the receivables.

See Note 2 - Accounts receivable for further information regarding the future realization of these long-term balances.

Note 4 - Revenue recognition 

The Company accounts for its revenues under ASC 606, Revenue from Contracts with Customers .

In 2015, the Company completed a project in the Middle East with billings in the aggregate amount of approximately $ 41.9 million.

The system has not yet been commissioned by the customer.

Nevertheless, the Company has settled approximately $

million as of

January 31, 2024

, with a remaining balance due in the amount of $

million, all of which 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, $

million is classified as a long-term asset.

The Company has been actively involved in ongoing efforts to collect the outstanding amount.

The Company continues to engage with the customer to ensure full payment of open balances, and at various times throughout 2023 and in June 2022, the Company received a partial payment to settle $ 0.6 million and $ 0.9 million of the customer's outstanding balances, respectively.

Further, the Company has been engaged by the customer to perform additional work in

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

January 31, 2024

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.

For further information regarding accounts receivable, see Note 2 - Significant accounting policies, in the Notes to Consolidated Financial Statements.

Note 4 - Revenue recognition

The Company accounts for its revenues under ASC 606, Revenue from Contracts with Customers .

Revenue from contracts with customers

The Company defines a contract as an agreement that has approval and commitment from both parties, defined rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability is reasonably assured.

The Company’s standard revenue transactions are classified into two main categories:

Systems and Coating - which include all bundled products in which Perma-Pipe engineers, and manufactures pre-insulated specialty piping systems, insulates subsea flowline pipe, subsea oil production equipment, and land-lines.

Additionally, this systems classification also includes coating applied to pipes and structures. 

The Company’s standard revenue transactions are classified into two main categories:

Systems and Coating - which include all bundled products in which Perma-Pipe engineers, and manufactures pre-insulated specialty piping systems mainly relating to the district heating and cooling and oil & gas markets.

Products - which include cables, leak detection products, heat trace products, material/goods not bundled with piping or flowline systems, and field services not bundled into a project contract.

1 unchanged sentence

The customer owns the material that is being insulated or coated, so the customer controls the asset and thus the work-in-process;

the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured as evidenced by the Company’s right to payment for work performed to date plus profit margin for products that have no alternative use to the Company.

The customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured, which has no alternative future use, and there is a right to payment for work performed to date plus profit margin.

Products revenue is recognized when goods are shipped or services are performed (ASC 606 - 10 - 25 - 30 ).

A breakdown of the Company's revenues by revenue class for the years ended January 31, 2023  and 2022  are as follows (in thousands):

$ 14,626  

$ 13,575  

A breakdown of the Company's revenues by revenue class for the years ended January 31, 2024 and 2023 are as follows:

$ 10,368 7 % $ 14,626 10 %

Specialty Piping Systems and Coating

Revenue recognized under input method

44,648  

44,778  

51,977 34 % 44,648 31 %

Revenue recognized under output method

83,295  

80,199  

$ 142,569  

$ 138,552  

The input method as noted in ASC 606 - 10 - 55 - 20 is used by certain U.S.

operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract over time.

Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the "over time" method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer.

88,323 59 % 83,295 59 %

$ 150,668 100 % $ 142,569 100 %

The input method as noted in ASC 606 - 10 - 55 - 20 is used by certain operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract over time.

Costs include all material, labor, and direct costs incurred to satisfy the performance obligations of the contract.

Revenue recognition begins when projects costs are incurred.

The output method as noted in ASC 606 - 10 - 55 - 17 is used by all other operating entities to measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract.

Due to the types of end customers, generally these contracts require formal inspection protocols or specific export documentation for units produced, or produced and shipped, therefore, the output method is the most faithful depiction of the Company’s performance.

Depending on the conditions of the contract, revenue may be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped. 

Some of the Company’s operating entities invoice and collect milestones or other contractual obligations prior to the transfer of goods and services, but do 

not recognize revenue until the performance obligations are satisfied under the methods discussed above.

The output method as noted in ASC 606 - 10 - 55 - 17 is used by all other operating entities to measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract.

Depending on the conditions of the contract, revenue may be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped.

Some of the Company’s operating entities invoice and collect milestones or other contractual obligations prior to the transfer of goods and services, but do not recognize revenue until the performance obligations are satisfied under the methods discussed above.

Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract and revenue is recognized using the modified contract value.

1 unchanged sentence

Provisions are made for estimated losses on uncompleted contracts in the contract liabilities account in the period in which such losses are determined.

The transaction price associated with the Company's contracts with customers are generally determined based on the fixed amount of consideration as specified in a contract.

This may also include variable consideration in certain instances where it is considered probable that a significant reversal of cumulative revenue recognized will not occur.

As a result, the amount of consideration ultimately received from the customer can fluctuate due to the variability of future events stated in a contract.

Therefore, the aggregate amount of the transaction price includes the fixed consideration contained in a contract that is generally not subject to change and excludes sales and value added taxes, or amounts collected on behalf of third parties, along with any variable consideration.

The total transaction price is then allocated to the performance obligations which is eventually recognized as revenue based on the project type and the method that is used to measure the transfer of promised goods and services to customers.

Additionally, transaction prices relating to cost-plus contracts are determined by applying the applicable profit margin to costs incurred on contracts, whereas transaction prices relating to fixed price contracts are determined on a lump-sum basis.

Further , standard payment terms are generally net 30 to 60 days, which is customer specific.

Contract assets and liabilities

Contract assets represent revenue recognized in excess of amounts billed for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed.

Contract liabilities represent billings in excess of costs for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed.

Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impact the period end balances in these accounts.

The Company anticipates that substantially all costs incurred for uncompleted contracts as of 

January 31, 2023  will be billed and collected within one year.

The following table shows the reconciliation of the cost in excess of billings:

(In thousands)

Contract assets represent revenue recognized in excess of amounts billed for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed.

Contract liabilities represent billings in excess of costs for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed.

Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impact the period end balances in these accounts.

In addition, contract assets include receivables or amounts that are billable beyond the passage of time.

For additional information, see Note 3 - Retention, in the Notes to Consolidated Financial Statements, and Unbilled accounts receivable, as further described below.

The Company anticipates that substantially all costs incurred on uncompleted contracts as of January 31, 2024 will be billed and collected within one year.

The following table shows the reconciliation of the cost in excess of billings and billings in excess of costs:

Costs incurred on uncompleted contracts

$ 18,342  

$ 20,021  

$ 21,912 $ 18,342

Estimated earnings

12,030  

Earned revenue

27,712  

32,051  

33,182 27,712

Less billings to date

26,329  

31,019  

30,580 26,329

Costs in excess of billings, net

$ 1,383  

$ 1,032  

$ 2,602 $ 1,383

Balance sheet classification

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Costs and estimated earnings in excess of billings on uncompleted contracts

$ 3,126  

$ 2,309  

$ 3,097 $ 3,126

Contract liabilities:

Billings in excess of costs and estimated earnings on uncompleted contracts

( 1,743 )  

( 495 ) ( 1,743 )

Costs in excess of billings, net

$ 1,383  

$ 1,032  

Substantially all of the $ 1.3 million and $ 0.8 million contract liabilities balances at 

January 31, 2022 and 2021 , respectively, were recognized in revenues during 

2022 and 2021 , respectively.

$ 2,602 $ 1,383

Substantially all of the $ 1.7 million and $ 1.3 million contract liabilities balances at January 31, 2023 and 2023 , respectively, were recognized in revenues during 2023 and 2022 , respectively.

Unbilled accounts receivable

The Company has recorded $ 11.6 million and $ 2.7 million of unbilled accounts receivable on the consolidated balance sheets as of 

January 31, 2023  and 2022 , respectively, from revenues generated by its subsidiaries in the Middle East and North Africa.

The Company has recorded $ 16.6 million and $ 11.6 million of unbilled accounts receivable on the consolidated balance sheets as of January 31, 2024 and 2023 , respectively, from revenues generated by certain of its subsidiaries.

The Company has fulfilled all performance obligations and has recorded revenue under the respective contracts.

The deliverables under these contracts have been accepted by the customer and billings will be made once the customer takes possession of or arranges shipping for the products.

The Company anticipates that substantially all of the amounts included in unbilled accounts receivable as of 

January 31, 2023  will be billed within one year. 

The deliverables under these contracts have been accepted by the customer and billings will be made once the customer takes possession of or arranges shipping for the products.

The Company anticipates that substantially all of the amounts included in unbilled accounts receivable as of January 31, 2024 will be billed within one year.

Practical expedients

Costs to obtain a contract are not considered project costs as they are not usually incremental, nor does job duration span more than one year.

The Company applies the practical expedient for these types of costs and as such are expensed in the period incurred.

As the Company's contracts are less than one year, the Company has applied the practical expedient regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.

Costs to obtain a contract are not considered to be incremental or material, and project duration generally does not span more than one year.

Accordingly, the Company applies the practical expedient for these types of costs and as such, are expensed in the period incurred.

As a result of the Company's contracts having a duration of less than one year, a practical expedient was applied regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.

Note 5 - Debt

(In thousands)

Revolving line - North America

$ 4,387  

$ 5,519 $ 4,387

Mortgage note

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Term loan - foreign

Loan payable to GIG

Finance lease obligations

24,350  

21,917  

25,732 24,350

Unamortized debt issuance costs

( 132 )  

( 125 ) ( 132 )

Less current maturities

10,614  

Total long-term debt

$ 13,604  

$ 14,386  

$ 16,017 $ 13,604

Current portion of long-term debt

$ 9,590 $ 10,614

Unamortized debt issuance costs

Total short-term debt

$ 9,590 $ 10,614

The following table summarizes the Company's scheduled maturities on January 31:

(In thousands)

Revolving line - North America

$ 4,387  

$ 5,519 $ 5,519 $ - $ - $ - $ - -

Mortgage note

4,512 239 239 239 239 239 3,317

Revolving lines - foreign

3,632 3,632 - - - - -

Long-term finance obligation

Term loan - foreign

9,203 175 210 247 287 329 7,955

Loan payable to GIG

2,753 - - - - - 2,753

Finance lease obligations

$ 24,350  

$ 10,614  

$ 12,226  

Revolving lines -  

North America .

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

and Canadian subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a three -year $ 18  million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”).

On September 17, 2021, 

the North American Loan Parties executed an extension of the Credit Agreement with PNC, 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”).

The Company's obligations under the Renewed Senior Credit Facility are currently guaranteed by Perma-Pipe Canada, Inc.

113 25 34 37 17 - -

$ 25,732 $ 9,590 $ 483 $ 523 $ 543 $ 568 $ 14,025

Revolving lines - North America .

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

and Canadian subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and lender, providing for a three -year $ 18 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”).

On September 17, 2021, the North American Loan Parties executed an extension of the Credit Agreement with PNC, 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”).

The Company's obligations under the Renewed Senior Credit Facility are currently guaranteed by Perma-Pipe Canada, Inc.

Each of the North American Loan Parties other than Perma-Pipe Canada, Inc.

is a borrower under the Renewed Senior Credit Facility (collectively, the “Borrowers”).

The Borrowers have used and will continue to use borrowings under the Renewed Senior Credit Facility (i) to fund future capital expenditures;

(ii) to fund ongoing working capital needs;

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, LIBOR or a LIBOR successor rate index, plus, in each case, an applicable margin.

is a borrower under the Renewed Senior Credit Facility (collectively, the “Borrowers”).

The Borrowers have used and will continue to use borrowings under the Renewed Senior Credit Facility (i) to fund future capital expenditures;

(ii) to fund ongoing working capital needs;

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, SOFR 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. 

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

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 rate 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’ assets.

The Renewed Senior Credit Facility matures on September 20, 2026.

Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’

ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions.

In addition, the North American Loan Parties may not make capital expenditures in excess of $ 5.0 million annually, plus a limited carryover of unused amounts.

Further, the North American Loan Parties may not make repurchases of the Company's common stock in excess of $ 3.0 million. 

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.

Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions.

In addition, the North American Loan Parties may not make capital expenditures in excess of $ 5.0 million annually, plus a limited carryover of unused amounts.

Further, the North American Loan Parties may not make repurchases of the Company's common stock in excess of $ 3.0 million.

The Renewed Senior Credit Facility also contains financial covenants requiring the North American Loan Parties to achieve a ratio of its EBITDA (as defined in the Renewed Senior Credit Facility) 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.

As of January 31, 2024 , 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 covenants as of January 31, 2023 .

In order to cure any future breach of these covenants 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 compliance on a pro forma basis.

The Company was in compliance with respect to these covenants as of January 31, 2024 .

The Renewed Senior Credit Facility contains customary events of default.

1 unchanged sentence

In addition, if any of the North American Loan Parties or certain of their subsidiaries become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Renewed Senior Credit Facility will automatically become immediately due and payable.

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.

As of January 31, 2023 , the Company had borrowed an aggregate of $ 4.4 million at a rate of 

8.50 % and had $ 9.9 million available under the Renewed Senior Credit Facility.

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.

As of January 31, 2024 , the Company had borrowed an aggregate of $ 5.5 million at a rate of 10.0 % and had $ 4.0 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.

Finance obligation - buildings and land.

April 14, 2021, 

the Company entered into a purchase and sale agreement (the "Purchase and Sale Agreement").

Pursuant to the terms of the Purchase and Sale Agreement, the Company sold the Property for $ 10.4  million.

The transaction generated net cash proceeds of $ 9.1  million.

Concurrently with the sale of the Property, the Company paid off the approximately $ 0.9  million remaining on the mortgage note on the Property to its lender. 

The Company used the remaining proceeds to repay its borrowings under the Senior Credit Facility, for strategic investments, and for general corporate needs.

Concurrent with the sale of the Property, the Company entered into a 

15 -year lease agreement (the “Lease Agreement”), whereby the Company is leasing back the Property at an annual rental rate of approximately $ 0.8  million, subject to annual rent increases of 

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 

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 

8.00 % 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 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 

January 31, 2023 . The net carrying amount of the financial liability and remaining assets will be 

zero  at the end of the lease term.

Revolving lines -  

 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.

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

Dirhams (approximately $ 2.2 million at January 31, 2023 ) from a bank in the U.A.E.

The facility has an interest rate of approximately 

8.38 % . The facility was renewed in July 2022 and is now set to expire in July 2025.

The Company has a revolving line for 

17.5 million U.A.E.

Dirhams (approximately $ 4.8 million at January 31, 2023 ) from a bank in the U.A.E.

The facility has an interest rate of approximately 

8.38 %  and expired  in 

January 2023, however the Company is in the process of renewing it. T he Company is in regular communication with the bank throughout the renewal process and the facility has continued without interruption or penalty.

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

1.0 million U.A.E.

Dirhams (approximately $ 0.3 million at January 31, 2023 ).

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 

8.38 % 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.

On April 14, 2021, the Company entered into a purchase and sale agreement (the "Purchase and Sale Agreement").

Pursuant to the terms of the Purchase and Sale Agreement, the Company sold the Property for $ 10.4 million.

The transaction generated net cash proceeds of $ 9.1 million.

Concurrently with the sale of the Property, the Company paid off the approximately $ 0.9 million remaining on the mortgage note on the Property to its lender.

The Company used the remaining proceeds to repay its borrowings under the Senior Credit Facility, for strategic investments, and for general corporate needs.

Concurrent with the sale of the Property, the Company entered into a fifteen -year lease agreement (the “Lease Agreement”), whereby the Company is leasing back the Property at an annual rental rate of approximately $ 0.8 million, subject to annual rent increases of 2.0 %.

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

As of January 31, 2024 and 2023 , the Company had a net book value relating to this asset of $ 1.9 million and $ 2.1 million, respectively.

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 $ 0.2 million is recognized in current maturities of long-term debt and the long-term portion of $ 9.0 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of January 31, 2024 .

The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

Revolving lines - foreign .

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

United Arab Emirates

The Company has a revolving line for

million U.A.E.

Dirhams (approximately $ 0.5 million at January 31, 2023 ).

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 approxi mately 

8.38 % and is expected t o 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 $ 3.3 million at January 31, 2023 ).

Dirhams (approximately $

January 31, 2024

) from a bank in the U.A.E.

as of January 31, 2024 , the facility has an interest rate of approximately

and is set to expire in May 2024.

The Company had borrowed an aggregate of $ 0.2 million and $ 0.6 million as of January 31, 2024 and January 31, 2023 , respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

As of January 31, 2024 and January 31, 2023 , the Company had unused borrowing availability of approximately $ 1.9 million and $ 1.6 million, respectively.

The Company has a revolving line for 20.5 million U.A.E.

Dirhams (approximately $ 5.6 million at January 31, 2024 ) from a bank in the U.A.E.

as of January 31, 2024 , the facility has an interest rate of approximately 9.00 % and is set to expire in May 2024.

The Company had borrowed an aggregate of $ 0.1 million and $ 1.0 million as of January 31, 2024 and January 31, 2023 , respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

As of January 31, 2024 and January 31, 2023 , the Company had unused borrowing availability of approximately $ 1.0 million and $ 1.8 million, respectively.

In June 2021, and as renewed or amended subsequently thereafter, 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 January 31, 2024 ).

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 arra ngement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. The facility has an interest rate of approximately 

8.00 % and expired in June 2022, however the Company has started the renewal process for this credit arrangement. T he 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 

11.2 million Egyptian Pounds (approximately $ 0.4 million at January 31, 2023 ).

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 January 31, 2024 , the facility has an interest rate of approximately 20.75 % and expired in August 2023.

This credit arrangement was subsequently renewed in November 2023 with substantially the same terms and conditions and expires in November 2024.

The Company had borrowed an aggregate of $ 1.4 million and $ 3.1 million as of January 31, 2024 and January 31, 2023 , respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

Further, as of January 31, 2024 and January 31, 2023 , the Company had unused borrowing capacity of $ 3.2 million and $ 2.0 million, respectively.

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

As this project has progressed and the Company received collections, the facility has decreased to a current amount of 2.1 million Egyptian Pounds (approximately $ 0.1 million at January 31, 2024 ).

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

The line is secured by the contract for a project being financed by the Company's Egyptian subsidiary.

The facility has an interest rate of approximately 

8.00 % and expired in 

November 2022, however, the Company is in the process of extending it in connection with the completion of the project. T he Company is in regular communication with the bank throughout the process and the facility has continued without interruption or penalty.

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 $ 3.3 million at January 31, 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 

18.25 % 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 January 31, 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 

9.15 % and is set to expire in April 2023.

The facility has an interest rate of approximately 20.75 % 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.

The Company had approximately $ 0.1 million and $ 0.4 million outstanding as of January 31, 2024 and January 31, 2023 , respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

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 37.0 million Saudi Riyal (approximately $ 9.9 million at January 31, 2024 .) 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, and as of January 31, 2024 , the facility has an interest rate of approximately 9.50 % and is set to expire in May 2024.

The Company had borrowed an aggregate of $ 3.2 million and $ 1.1 million as of January 31, 2024 and January 31, 2023 , respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

The unused borrowing availability attributable to this credit arrangement at January 31, 2024 and January 31, 2023 , was $ 6.1 million and $ 2.3 million, respectively.

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

3 unchanged sentences

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

As of January 31, 2023 , the amount of foreign subsidiary debt guaranteed by the Company was approximately $ 0.5  million. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of January 31, 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 January 31, 2023 , 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 January 31, 2023 , the Company's interest rates ranged from 

8.00 % to 18.25 % , with a weighted average rate of 10.72 % , and the Company had facility limits totaling $ 21.5 million under these credit arrangements.

As of January 31, 2023 , $ 5.6 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, as of January 31, 2023 , the Company had borrowed $ 5.7 million and had an additional $ 10.2 million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of January 31, 2023 and 2022 , were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Mortgages. 

On July 

28, 2016, the Company entered into a mortgage agreement secured by the Company's manufacturing facility located in Alberta, Canada that matures on December 

January 31, 2023 , the remaining balance on the mortgage in Canada is approximately 

6.4 million Canadian Dollars ("CAD") (approximately $ 4.8 million at 

January 31, 2023 ). The interest rate is variable, and was 

8.30 % at 

January 31, 2023 . Principal payments began in January 2018.

On June 

19, 2012, the Company borrowed $ 1.8 million under a mortgage note secured by its manufacturing facility in Lebanon, Tennessee.

The proceeds were used for repayment of amounts borrowed. On April 14, 2021, the Company entered into the Purchase and Sale Agreement discussed above. Concurrently with the sale, the Company paid off the approximately $ 0.9 million remaining on the mortgage note on the Property to its lender.

The amount of foreign subsidiary debt guaranteed by the Company was approximately $ 0.1 at January 31, 2024 and January 31, 2023 , respectively.

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of January 31, 2024 , with the exception of those arrangements that may have expired and have not yet been renewed.

Although certain of the arrangements may 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.

As of January 31, 2024 , 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 1.5 % to 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 rates, as of January 31, 2024 , the Company's interest rates ranged from 8.00 % to 20.75 % , with a weighted average rate of 10.71 % , and the Company had facility limits totaling $ 24.5 million under these credit arrangements.

As of January 31, 2024 , $ 8.3 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, the Company had borrowed approximately $ 6.4 million and had an additional $ 15.4 million of remaining borrowing capacity available under the foreign revolving credit arrangements.

The foreign revolving line balances were included as current maturities of long-term debt in the Company's consolidated balance sheets as of January 31, 2024 and January 31, 2023 , respectively.

In June 2023, the Company assumed a promissory note of approximately $ 2.8 million in connection with the formation of the joint venture with GIG.

In accordance with the promissory note, all principal is due and payable on the maturity date of April 9, 2026, with the option to prepay, in whole or in part, at any time prior to the maturity date, without premium or penalty.

On July 28, 2016, the Company entered into a mortgage agreement secured by the Company's manufacturing facility located in Alberta, Canada that matures on December 23, 2042.

As of January 31, 2024 , the remaining balance on the mortgage in Canada is approximately 6.1 million Canadian Dollars ("CAD") (approximately $ 4.5 million at January 31, 2024 ).

The interest rate is variable, and was 10.19 % at January 31, 2024 .

The principal balance is included as a component of long-term debt, less current maturities in the Company's consolidated balance sheets and is presented net of issuance costs of $ 0.1 million as of January 31, 2024 and January 31, 2023 , respectively.

Note 6 - Leases

The Company accounts for its leases under ASC 842, Leases . Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities short-term, and operating lease liabilities long-term in the Company's consolidated balance sheets.

Finance leases are included in property, plant and equipment, current maturities of long-term debt, and long-term debt less current maturities in the Company's consolidated balance sheets. 

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. 

Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. 

For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. 

For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. 

Variable lease expenses are recorded when incurred. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

In calculating the ROU asset and lease liability, the Company elects to combine lease and non-lease components. 

The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

The Company accounts for its leases under ASC 842, Leases .

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheets.

Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities short-term, and operating lease liabilities long-term in the Company's consolidated balance sheets.

Finance leases are included in property, plant and equipment, current maturities of long-term debt, and long-term debt less current maturities in the Company's consolidated balance sheets.

Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term.

For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term.

For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term.

Variable lease expenses are recorded when incurred.

ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.

The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

In calculating the ROU asset and lease liability, the Company elects to combine lease and non-lease components.

Additionally, the Company excludes short-term leases having an initial term of 12 months or less in accordance with the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

Operating Leases.

In August 2020, the Company entered into a new lease in Abu Dhabi for land upon which the Company has built a production facility.

The annual payments are approximately 1.2  million U.A.E.

Dirhams (approximately $ 0.3  million at 

January 31, 2023 ), inclusive of rent and common charges, with escalation clauses in the agreement. Rent payments were deferred until August 2022 and have now commenced. The lease expires in August 2050. 

In March and December 2022, the Company served Notices of Termination to its lessor for the Company's lease of the land and buildings in Fujairah in the U.A.E. The Company served the Notices of Termination in connection with the Company's intended relocation to a different facility in Abu Dhabi.

The Company vacated portions of the leased space in December 2022 and is expected to vacate the remaining space in April 2023.

The first Notice of Termination required that the Company pay an additional amount equal to three months' rent after that termination to enable the lessor to prepare the assets for lease by another party.

As a result of the termination, the Company has recognized adjustments to the amounts recorded in the consolidated financial statements as of 

January 31, 2023 .

The termination resulted in decreases of $ 0.4 million, $ 6.0 million and $ 5.5 million to operating lease liability short-term, operating lease liability long-term and operating lease right-of-use asset, respectively, in the consolidated balance sheets as of 

January 31, 2023 .

The termination also resulted in a decrease in rent expense of $ 1.1 million in the consolidated statement of operations for the year ended 

January 31, 2023 .

Finance Leases. 

2019,  the Company obtained 

two  finance leases for a total of CAD 

1.1  million (approximately $ 0.8  million at the prevailing exchange rates on the transaction dates) to finance vehicle equipment.

The interest rates for these finance leases were 

8.0 % per annum with monthly principal and interest payments of less than $ 0.1  million.

These leases mature in 

August 2023. 

The Company has several significant operating lease agreements, with lease terms of one to 30 years, which consist of real estate, vehicles and office equipment leases.

These leases do not require any contingent rental payments, impose any financial restrictions or contain any residual value guarantees. 

Certain of the Company’s leases include renewal options and escalation clauses;

renewal options have not been included in the calculation of the lease liabilities and ROU assets as the Company is not reasonably certain to exercise the options. 

Variable expenses generally represent the Company’s share of the landlord’s operating expenses. 

The Company does not have any arrangements where it acts as a lessor, other than one sub-lease arrangement. 

January 31, 2023 , the Company had total operating lease liabilities of $ 5.2 million and operating ROU assets of $ 4.5 million, which are reflected in the consolidated balance sheet.

January 31, 2023 , the 

Company also had finance lease liabilities of $ 0.2 million included in current maturities of long-term debt and long-term debt less current maturities, and finance ROU assets of $ 0.5 million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheet.

Supplemental balance sheet information related to leases follows (in thousands):

The annual payments are approximately 1.2 million U.A.E.

Dirhams (approximately $ 0.3 million at January 31, 2024 ), inclusive of rent and common charges, with escalation clauses in the agreement.

Rent payments were deferred until August 2022 and have now commenced.

The lease expires in August 2050.

In March and December 2022, the Company served Notices of Termination to its lessor for the Company's lease of the land and buildings in Fujairah in the U.A.E.

The Company served the Notices of Termination in connection with the Company's intended relocation to a different facility in Abu Dhabi.

The Company vacated portions of the leased space in December 2022 and is expected to vacate the remaining space in December 2024.

The first Notice of Termination required that the Company pay an additional amount equal to three months' rent after that termination to enable the lessor to prepare the assets for lease by another party.

As a result of the termination, the Company has recognized adjustments to the amounts recorded in the consolidated financial statements as of January 31, 2023 .

The termination also resulted in a decrease in rent expense of $ 1.1 million in the consolidated statement of operations for the year ended January 31, 2023 .

There were no other adjustments in connection with these terminations for the year ended January 31, 2024 .

At January 31, 2024 , the Company had total operating lease liabilities of $ 7.2 million and operating ROU assets of $ 6.5 million, which are reflected in the consolidated balance sheets.

Finance Leases.

The Company has several significant lease agreements, with lease terms of one to thirty years, which consist of real estate, vehicles and office equipment leases.

These leases do not require any contingent rental payments, impose any financial restrictions or contain any residual value guarantees.

Certain of the Company’s leases include renewal options and escalation clauses;

renewal options have not been included in the calculation of the lease liabilities and ROU assets as the Company is not reasonably certain to exercise the options.

Variable expenses generally represent the Company’s share of the landlord’s operating expenses.

The Company does not have any arrangements where it acts as a lessor, other than one sub-lease arrangement.

At January 31, 2024 , the Company also had finance lease liabilities of $ 0.1 million included in current maturities of long-term debt and long-term debt less current maturities, and finance ROU assets of $ 0.4 million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheets.

Supplemental balance sheet information related to leases is as follows:

Operating and Finance leases

1 unchanged sentence

January 31, 2023

Finance leases assets:

Finance lease assets

Property and Equipment - gross

$ 1,161  

$ 1,221  

$ 970 $ 1,161

Accumulated depreciation and amortization

( 700 )  

( 536 ) ( 700 )

Property and Equipment - net

5 unchanged sentences

Operating lease ROU assets

$ 4,527  

$ 11,213  

$ 6,467 $ 4,527

Operating lease liabilities

Operating lease liability short-term

$ 1,496  

Operating lease liability long-term

11,270  

Total operating lease liabilities

$ 5,164  

$ 12,766  

Total lease costs consist of the following (in thousands):

$ 7,184 $ 5,164

Total lease costs consist of the following:

Consolidated Statements of Operations Classification

Three Months Ended January 31, 2023

Year Ended January 31, 2024

11 unchanged sentences

SG&A expenses

( 20 )  

( 81 )  

( 61 ) ( 81 )

Total Lease costs

$ 1,989  

$ 3,170  

( 1 ) Includes variable lease costs, which are immaterial

Supplemental cash flow information related to leases is as follows (in thousands):

Year Ended January 31,  

$ 2,528 $ 1,989

( 1 ) Includes variable lease costs, which are not material

Supplemental cash flow information related to leases is as follows:

Year Ended January 31,

Cash paid for amounts included in the measurement of lease liabilities

3 unchanged sentences

ROU Assets obtained in exchange for new lease obligations:

Finance leases liabilities

Operating leases liabilities

Weighted-average lease terms discount rates are as follows:

Weighted-average lease terms and discount rates are as follows:

January 31, 2024

5 unchanged sentences

Finance leases

12.0 %  

Operating leases

On January 31, 2023 , future minimum annual rental commitments under non-cancelable lease obligations were as follows (in thousands):

Maturities of lease liabilities as of January 31, 2024 , are as follows:

Operating Leases

1 unchanged sentence

For the year ended January 31, 2025

$ 1,533  

For the year ended January 31, 2026

3 unchanged sentences

Total lease payments

10,995  

amount representing interest

( 5,831 )  

( 8,525 ) ( 14 )

Total lease liabilities at January 31, 2023

$ 5,164  

Rental expense for operating leas es was $ 1.7 million and $ 3.0 millio n for the years ended 

January 31, 2023 and 

2022 , respectively.

The Company has several significant operating lease agreements as follows:

Office space of approximately 31,650 square feet in Niles, IL is leased until October 2023.

Production facilities and office space of approximately 139,000 square feet in Lebanon, Tennessee is leased until December 31, 2035.

Five acres of land in Louisiana is leased thro ugh March 2027.

Twenty acres of land in Canada leased through December 2022 which was extended to April 2023.

Nine acres of land in the Kingdom of Saudi Arabia is leased through April 2030.

Production facilities in the U.A.E.

of approximately 80,200 square feet on approximately 107,600 square feet of land is leased until June 2030.

Office space of approximately 21,500 square feet and land for production facilities of approximately 423,000 square feet in the U.A.E.

is leased until July 2032.

Production facilities in the U.A.E.

of approximately 78,100 square feet is leased until December 2032.

Approximately fourteen acres of land in the U.A.E.

is leased through August 2050.

$ 7,184 $ 113

Rent expense on operating leas es, which is recorded on a straight-line basis, was $ 2.4 million and $ 1.7 millio n for the years ended January 31, 2024 and 2023 , respectively.

Note 7 - Income taxes

Income/(loss) from continuing operations before income taxes (in thousands)

$ ( 5,392 )  

14,950  

11,684  

$ 9,558  

$ 8,327  

Income (loss) from continuing operations before income taxes

$ ( 8,541 ) $ ( 5,392 )

18,432 14,950

$ 9,891 $ 9,558

( 1 ) The domestic loss from continuing operations before income taxes includes corporate overhead costs.

Components of income tax expense/(benefit) (in thousands)

$ ( 3 )  

Components of income tax (benefit) expense

$ ( 21 ) $ ( 3 )

State and other

1 unchanged sentence

State and other

Total deferred income tax expense/(benefit)

Total deferred income tax (benefit) expense

( 6,920 ) 479

Total income tax expense

$ 3,613  

$ 2,265  

As a result of the onetime transition tax from the U.S.

Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company estimates that distributions from foreign subsidiaries will no longer be subject to incremental U.S.

tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction.

$ ( 3,320 ) $ 3,613

As a result of the one -time transition tax from the U.S.

Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company estimates that distributions from foreign subsidiaries will no longer be subject to incremental U.S.

federal income tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction to offset any U.S.

federal income tax liability on the undistributed earnings.

However, upon repatriation, various state taxes and foreign withholding taxes may be levied on such amounts.

Determination of the amount of unrecognized state and local tax liability is not practicable due to the complexities associated with its hypothetical calculation.

Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested.

Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered. The Company's liability was $ 0.6  million and $ 0.2  million as of January 31, 2023 and 2022 , respectively, related to these taxes.

income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. The Company intends to permanently reinvest the undistributed earnings of its Middle Eastern and Indian subsidiaries. The Middle Eastern and Indian subsidiaries have unremitted earnings of $ 28.2  million and $ 8.4  million, respectively, as of January 31, 2023 , all of which has been subject to the transition tax in the United States.

Unremitted earnings of $ 22.8  million in the United Arab Emirates would not be subject to withholding tax in the event of a distribution, and $ 5.4 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of $ 0.3 million.

The Company has not recorded a deferred tax liability related to any financial reporting basis over tax basis related to the investment in these foreign subsidiaries as it is not practical to estimate.

The Inflation Reduction Act ("IRA") was signed into law in August 2022.

The Company has evaluated the provisions of the IRA and does not expect any material impact to its consolidated provision for income taxes. 

Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered.

The Company's liability was $ 0.8 million and $ 0.6 million as of January 31, 2024 and 2023 , respectively, related to these taxes.

The Company intends to permanently reinvest the undistributed earnings of its Middle Eastern and Indian subsidiaries.

The Middle Eastern and Indian subsidiaries have unremitted earnings of $ 35.5 million and $ 10.5 million, respectively, as of January 31, 2024 .

Unremitted earnings of $ 23.9 million in the United Arab Emirates would not be subject to withholding tax in the event of a distribution, and $ 11.6 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of $ 0.6 million.

The difference between the provision for income taxes and the amount computed by applying the U.S.

Federal statutory rate of 21%  was as follows:

(In thousands)

Federal statutory rate of 21% was as follows:

Tax expense at federal statutory rate

$ 2,007  

$ 1,749  

$ 2,083 $ 2,007

State expense, net of federal income tax effect

Domestic return to provision

Deferred compensation adjustment

( 32 )  

Domestic valuation allowance

( 590 )  

( 8,065 ) ( 590 )

Domestic return to provision

Global Intangible Low-Taxed Income inclusion

State NOL expirations

Permanent differences other

Valuation allowance for state NOLs

( 1,314 ) 133

Differences in foreign tax rate

( 410 )  

( 598 ) ( 410 )

Reductions of uncertain tax positions of prior years

Deferred tax on unremitted earnings

2 unchanged sentences

Pension Settlement

( 115 )  

All other, net expense

( 48 )  

Total income tax expense/(benefit)

$ 3,613  

$ 2,265  

The Company's worldwide effective tax rates ("ETR") were 37.8 %  and 27.2 %  in the years ended January 31, 2023 and 2022 , respectively. The change in the ETR was primarily due to additional tax expense for the Global Intangible Low-Taxed Income inclusion, the absence of recognizing tax benefits on losses in the United States due to a full valuation allowance and changes in the mix of income and loss in the various tax jurisdictions.

Components of deferred income tax assets (in thousands)

Total income tax (benefit) expense

$ ( 3,320 ) $ 3,613

The Company's worldwide effective tax rates ("ETR") were ( 33.6 %) and 37.8 % in the year ended January 31, 2024 and 2023 , respectively.

The change in the ETR was largely due to a partial release of the domestic valuation allowance, changes in the mix of income and loss in various tax jurisdictions, and the global intangible low-taxed income inclusion.

Components of deferred income tax assets

Federal NOL carryforward

$ 7,197  

$ 8,424  

$ 6,173 $ 7,197

Deferred compensation

6 unchanged sentences

Accrued commissions and incentives

Inventory valuation allowance

Inventory reserve

Lease liability

Deferred tax assets, gross

17,122  

18,477  

14,566 17,122

Valuation allowance

( 15,993 )  

( 5,689 ) ( 15,993 )

Total deferred tax assets, net of valuation allowances

$ 1,129  

$ 1,572  

$ 8,877 $ 1,129

Components of the deferred income tax liability

$ ( 415 )  

$ ( 370 ) $ ( 415 )

Foreign subsidiaries unremitted earnings

( 591 )  

( 70 )  

Accrued pension

( 783 ) ( 591 )

( 94 ) ( 70 )

Right of use asset

( 266 )  

( 855 ) ( 266 )

Total deferred tax liabilities

$ ( 1,342 )  

Deferred tax (liability)/asset, net

$ ( 213 )  

$ ( 2,175 ) $ ( 1,342 )

Deferred tax assets (liabilities), net

$ 6,702 $ ( 213 )

Balance sheet classification

Long-term assets

$ 7,919 $ 696

Long-term liability

( 909 )  

( 1,217 ) ( 909 )

Total deferred tax assets (liabilities), net of valuation allowances

$ ( 213 )  

As of January 31, 2023  the Company had a deferred tax asset of $ 7.2 million related to gross U.S.

Federal net operating loss ("NOL") carryforwards of $ 34.3 million, of which $ 26.9 million will expire between tax years 

2033 and 

2038 , with the remainder not subject to expiration.

As of January 31, 2023  the Company had a deferred tax asset of $ 2.7  million related to gross state NOLs of $ 45.5  million that expire between 

2023  and 

2032  As of January 31, 2023  the Company had a deferred tax asset of $ 0.3 million related to gross foreign NOLs of $ 1.6 million for its subsidiary in Saudi Arabia, which can be carried forward indefinitely and does not have a valuation allowance recorded against it. The ultimate realization of the tax benefit is dependent upon the future generation of operating income in the respective tax jurisdictions. 

The Company periodically reviews the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates, evaluates future sources of taxable income and tax planning strategies and may make further adjustments based on management's outlook for continued profits in each jurisdiction. 

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. 

A significant piece of objective negative evidence evaluated was the domestic cumulative loss incurred over the three -year period ended January 31, 2023 .

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of January 31, 2023 , a full valuation allowance was recorded against the domestic deferred tax assets. 

The amount of the domestic deferred tax assets considered realizable, however, could be increased if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future growth.

$ 6,702 $ ( 213 )

As of January 31, 2024 and 2023 , the Company had deferred tax assets of $ 6.2 million and $ 7.2 million, respectively, related to gross U.S.

Federal net operating loss ("NOL") carryforwards of $ 30.1 million and $ 34.3 million, respectively.

Of this amount, $ 22.7 million will begin to expire between tax years 2036 and 2037 , with the remainder not subject to expiration.

As of January 31, 2024 and 2023 , the Company had deferred tax assets of $ 1.5 million and $ 2.7 million, respectively, related to gross state NOLs of $ 21.0 million and $ 45.5 million, respectively, that expire between 2024 and 2032 .

The Company has released the valuation allowance recorded against U.S.

Federal NOLs and continues to maintain a valuation allowance against its state NOLs.

As of January 31, 2024 and 2023 , the Company had deferred tax assets of $ 0.3 million related to gross foreign NOLs of $ 1.3 million and $ 1.6 million, respectively, for its subsidiary in Saudi Arabia, which can be carried forward indefinitely and does not have a valuation allowance recorded against it.

The ultimate realization of the tax benefit is dependent upon the future generation of taxable income in the respective tax jurisdictions.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets.

A significant piece of objective evidence previously evaluated was the domestic cumulative loss incurred over the three -year period.

The Company has achieved three years of cumulative income in the U.S.

federal tax jurisdiction as of the period ended January 31, 2024 .

As such, management has determined that certain deferred tax assets are more likely than not to be realized and have partially released the valuation allowance accordingly during the period ended January 31, 2024 .

The Company continues to maintain a valuation allowance against certain domestic deferred tax assets, including its foreign tax credit carryovers, R&D credit carryovers, and state deferred tax assets.

The amount of the domestic deferred tax assets considered realizable, however, could be increased if there are changes to the objective positive and negative evidence considered.

The valuation allowance decreased $ 10.3 million during the period ended January 31, 2024 .

The Company has a deferred tax asset of $ 2.6 million for U.S.

foreign tax credits after considering the impact of the repatriated foreign earnings and the one -time transition tax.

The foreign tax credit deferred tax asset is fully offset with a valuation allowance.

The foreign tax credit deferred tax asset is fully offset with a valuation allowance.

The excess foreign tax credits are subject to a ten -year carryforward and will begin to expire on January 31, 2026 .

The following table summarizes uncertain tax position ("UTP") activity, excluding the related accrual for interest and penalties:

(In thousands)

The following table summarizes uncertain tax position ("UTP") activity, excluding the related accrual for interest and penalties:

Balance at beginning of year

$ 1,611  

$ 1,591  

$ 1,673 $ 1,611

Decreases in positions taken in a prior period

2 unchanged sentences

Decreases due to settlements

( 94 )  

( 106 ) ( 94 )

Balance at end of year

$ 1,673  

$ 1,611  

Included in the total UTP liability were estimated accrued interest and penalties of $ 0.3  million and $ 0.2  million as of 

January 31, 2023  and 2022 , respectively.

These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheet and recognized as an expense during the period. The Company's policy is to include interest and penalties in income tax expense.

On January 31, 2023 , the Company did 

not anticipate any significant adjustments to its unrecognized tax benefits within the next twelve months.

Included in the balance on January 31, 2023  were amounts offset by deferred taxes (i.e.

temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Upon reversal, $ 0.9 million of the amount accrued on 

January 31, 2023 would impact the future ETR.

$ 1,433 $ 1,673

Included in the total UTP liability were estimated accrued interest and penalties of $ 0.4 million and $ 0.3 million as of January 31, 2024 and 2023 , respectively.

These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheets and recognized as an expense during the period.

The Company's policy is to include interest and penalties in income tax expense.

On January 31, 2024 , the Company did not anticipate any significant adjustments to its unrecognized tax benefits within the next twelve months.

Included in the balance on January 31, 2024 were amounts offset by deferred taxes (i.e.

temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments).

Upon reversal, $ 1.1 million of the amount accrued on January 31, 2024 would impact the future ETR.

The Company is subject to income taxes in the U.S.

federal jurisdiction, and various states and foreign jurisdictions.

Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Tax years related to January 31, 2019, 2020, 2021  and 2022  are open for federal and state tax purposes.

In addition, federal and state tax years January 31, 

2004  through January 31, 2010 , are subject to adjustment on audit, up to the amount of research tax credit generated in those years.

Any NOL carryover can still be adjusted by the Internal Revenue Service in future year audits.

Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

Tax years related to January 31, 2020, 2021, 2022 and 2023 are open for federal and state tax purposes.

In addition, federal and state tax years January 31, 2004 through January 31, 2010 , are subject to adjustment on audit, up to the amount of research tax credit generated in those years.

Any NOL carryover can still be adjusted by the Internal Revenue Service in future year audits.

The Company's management periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments.

2 unchanged sentences

If such changes take place, there is a risk that the tax rate may increase or decrease in any period.

Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state tax issues are included in other long-term liabilities on the consolidated balance sheet.

Note 8 - Retirement plans

The defined benefit plan (the "Pension Plan") that covered the hourly rate employees of a non-operating filtration business unit, previously located in Winchester, Virginia, was frozen on June 

30, 2013 per the third Amendment to the Pension Plan dated May 15, 2013.

The accrued benefit of each participant was frozen as of the freeze date, and no further benefits accrued with respect to any service or hours of service after the freeze date.

The benefits were based on fixed amounts multiplied by years of service of participants.

The Company engaged outside actuaries to calculate its obligations and costs. 

During the year ended January 31, 2023 , the Company’s Board of Directors approved the termination of the Pension Plan.

The Company provided participants of the Pension Plan an option to elect either a lump sum distribution or an annuity.

A group annuity contract was purchased with an insurance company for all participants who did not elect a lump sum distribution.

That insurance company became responsible for administering and paying pension benefit payments effective December 1, 2022.

During the year ended January 31, 2023 , the Company recognized a non-cash pre-tax settlement charge of $ 0.9 million, within other income/(expense) in the consolidated statements of operations in connection with the Pension Plan termination process, which represents the acceleration of deferred charges previously included within accumulated other comprehensive loss and the impact of remeasuring the Pension Plan assets and obligations at termination.

In addition, the Company recorded an income tax benefit of $ 0.1 million for the year ended January 31, 2023 , to reclassify the tax effects in accumulated other comprehensive loss upon completion of the termination of the Pension Plan.

The Pension Plan termination did not require a cash outlay by the Company. Upon completion of the termination and settlement processes, the Company expects a remaining pension surplus investment balance of approximately $ 0.9 million.

Asset allocation

The Pension Plan holds no securities of Perma-Pipe International Holdings, Inc.;

100 % of the assets are held for benefits under the Pension Plan.

The fair value of the major categories of the Pension Plan's investments are presented below.

The FASB has established a fair value hierarchy that distinguishes between ( 1 ) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and ( 2 ) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 ) and the lowest priority to unobservable inputs (Level 3 ).

The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates);

and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

(In thousands)

Level 1 market value of plan assets

Equity securities

$ 4,119  

Real estate securities

Level 2 significant other observable inputs

Money market fund

Investments measured at net asset value*

$ 7,135  

* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the reconciliation of benefit obligations, plan assets and funded status of the Pension Plan.

On January 31, 2023 , the Pension Plan assets were held 100 % in cash. 

Investment market conditions in 

2022  resulted in $ 0.5 million 

loss on plan assets, computed as the actual return as presented below less the expected return, which decreased the fair value of plan assets at year end. 

Reconciliation of benefit obligations, plan assets and funded status of plan (in thousands)

Accumulated benefit obligations

Vested benefits

$ 6,448  

Accumulated benefits

$ 6,448  

Change in benefit obligation

Benefit obligation - beginning of year

$ 6,448  

$ 7,090  

Interest cost

Actuarial gain

( 220 )  

Benefits paid

( 259 )  

Lump sum benefits paid

( 5,531 )  

Reimbursement of premiums

Effect of settlement/curtailment

( 691 )  

Benefit obligation - end of year

$ 6,448  

Change in plan assets

Fair value of plan assets - beginning of year

$ 7,135  

$ 7,016  

Actual (loss) gain on plan assets

( 540 )  

Benefits paid

( 259 )  

Lump sum benefits paid

( 5,531 )  

Reimbursement of premiums

Fair value of plan assets - end of year

$ 7,135  

Over-funded/(unfunded) status

Balance sheet classification

Prepaid expenses and other current assets

Deferred compensation liabilities

Net amount recognized

Amounts recognized in accumulated other comprehensive loss

Unrecognized actuarial loss

$ 1,362  

Net amount recognized

$ 1,362  

Weighted-average assumptions used to determine net cost and benefit obligations

End of year benefit obligation discount rate

End of year net periodic benefit cost discount rate

Expected return on plan assets

In connection with the termination of the Pension Plan, participants elected either a lump sum payment or annuity.

For those electing lump sum payouts, the benefit obligation was based on rates determined as of the beginning of the plan year, in accordance with the plan document.

For those electing annuity payouts, the benefit obligation was determined by the annuity provider. 

Components of net periodic benefit cost (in thousands)

Interest cost

Expected return on plan assets

Recognized actuarial loss

Net periodic benefit expense/(income)

Amounts recognized in other comprehensive income (in thousands)

Actuarial gain/(loss) on obligation

Settlement/plan termination

Actual gain/(loss) on plan assets

( 540 )  

Amounts recognized in current year

Total in other comprehensive income

$ 1,247  

Other comprehensive income is also affected by the tax effect of the valuation allowance recorded on the domestic deferred tax assets.

During the year ended January 31, 2023 , there was an actuarial 

loss of $ 0.3 million.

This actuarial 

loss is comprised of an asset 

loss of $ 0.5 million and liability 

gain of $ 0.2 million.

The liability gain is primarily the result of demographic gains. During the year ended January 31, 2022 , there was an actuarial 

gain of $ 0.4  million.

This actuarial 

gain is comprised of an asset 

loss of $ 0.1 million and liability 

gain of $ 0.5 million.

The liability gain is the combination of:

(i) a gain due to a 50 basis point increase in the discount rate, (ii) a loss resulting from an update to the mortality improvement assumption and (iii) other demographic gains. 

Due to the termination of the Pension Plan there are no expected employer contributions.

The domestic employees of the Company participate in the PPIH 401 (k) Employee Savings Plan, which is applicable to all employees except employees covered by collective bargaining agreement benefits.

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The Company matches 100 % of each participant's payroll deferral contributions up to 1 % of their compensation, plus 50 % of each participant's payroll deferral contributions on the next 5 % of compensation.

Contributions to the 401 (k) plan were $ 0.3  

million each in the years ended January 31, 2023 and 2022 .

Contributions to the 401 (k) plan were $ 0.4 million and $ 0.3 million in the years ended January 31, 2024 and 2023 , respectively.

Multi-employer plans

7 unchanged sentences

The Company made contributions to the bargaining unit supported multi-employer pension plans (in thousands):

(In thousands) (In thousands)

FIP/RP Status

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Plumbers & Pipefitters Local 572 Pension Fund

62 - 6102837  

62 - 6102837 001 Yellow

$ 161 $ 178 No

Note 9 - Stock-based compensation

The Company’s 2017 Omnibus Stock Incentive Plan dated June 13, 2017, as amended, which the Company's stockholders approved in June 2017 ( "2017 Plan"), expired in June 2020. 

The Company has prior incentive plans under which previously granted awards remain outstanding, including the 2017 Plan, but under which no new awards may be granted.

At January 31, 2023 , the Company had reserved a total of 307,475  shares for grants and issuances under these incentive stock plans, which includes a reserve for issuances pursuant to unvested or unexercised prior awards.

While the 2017 Plan provided for the grant of deferred shares, non-qualified stock options, incentive stock options, restricted shares, restricted stock units, and performance-based restricted stock units intended to qualify under section 422 of the Internal Revenue Code, the Company issued only restricted shares and restricted stock units under the 2017 Plan.

At January 31, 2024 , the Company had reserved a total of 245,150 shares for grants and issuances under these incentive stock plans, which includes a reserve for issuances pursuant to unvested or unexercised prior awards.

While the 2017 Plan provided for the grant of deferred shares, non-qualified stock options, incentive stock options, restricted shares, restricted stock units, and performance-based restricted stock units intended to qualify under section 422 of the Internal Revenue Code, the Company issued only restricted shares and restricted stock units under the 2017 Plan.

The 2017 Plan authorized awards to officers, employees, consultants, and independent directors.

The Company's 

2021  Omnibus Stock Incentive Plan dated 

May 26, 2021 

was approved by the Company's stockholders in 

May 2021 ( "2021  Plan").

2021  Plan will expire in 

May 2024. 

2021  Plan authorizes awards to officers, employees, consultants and independent directors.

Grants were made to the Company's employees, officers and independent directors under the 

2021  Plan, as described below.

The Company's 2021 Omnibus Stock Incentive Plan dated May 26, 2021 was approved by the Company's stockholders in May 2021 ( "2021 Plan").

The 2021 Plan will expire in May 2024.

The 2021 Plan authorizes awards to officers, employees, consultants and independent directors.

Grants were made to the Company's employees, officers and independent directors under the 2021 Plan, as described below.

Stock compensation expense

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The Company recognized the following stock-based compensation expense for the periods presented:

(In thousands)

Restricted stock based compensation expense

$ 1,002  

$ 1,101  

$ 913 $ 1,002

Total stock-based compensation expense

$ 1,002  

$ 1,101  

$ 913 $ 1,002

Stock options

The Company did not grant any stock options during the years ended January 31, 2023  or 2022 .

The Company did not grant any stock options during the years ended January 31, 2024 or 2023 .

The following tables summarizes the Company's stock option activity:

(Shares in thousands)

Weighted average exercise price

Weighted average remaining contractual term

Aggregate intrinsic value

Weighted average grant date fair value

Outstanding on January 31, 2022

$ 9.24  

67 $ 9.51 1.74 $ 63

Expired or forfeited

( 33 )  

Outstanding on January 31, 2023

40 10.85 1.1 19

Options exercisable on January 31, 2023

$ 9.51  

( 16 )  

40 $ 10.85 1.1 19

Expired or forfeited

( 11 )  

Outstanding on January 31, 2024

22 11.15 0.7 6

Options exercisable on January 31, 2024

$ 10.85  

There was 

no  vesting, expiration or forfeiture of previously unvested stock options during the year ended 

January 31, 2023 .

January 31, 2023 , there were no remaining unvested stock options outstanding, and therefore no unrecognized compensation expense related to unvested stock options.

22 $ 11.15 0.7 $ 6

There was no vesting, expiration or forfeiture of previously unvested stock options during the year ended January 31, 2024 .

In addition, there were no remaining unvested stock options outstanding, and therefore no unrecognized compensation expense related to unvested stock options during the year ended January 31, 2024 .

Deferred stock

As part of their compensation, in previous years the Company granted deferred stock units to each non-employee director, equal to the result of dividing the award amount by the fair market value of the common stock on the date of grant.

As part of their compensation, in previous years the Company granted deferred stock units to each non-employee director, equal to the result of dividing the award amount by the fair market value of the common stock on the date of grant.

The stock vests on the date of grant;

however, it is distributed to the directors only upon their separation from service.

During the year ended 

January 31, 2023 , 

34,873 deferred stock units were distributed. 

There were approximately 

62,926 and 

97,799 deferred stock units outstanding included in the restricted stock activity shown below as of 

January 31, 2023 and 2022 , respectively.

however, it is distributed to the directors only upon their separation from service.

During the year ended January 31, 2024 , no deferred stock units were distributed.

There were approximately 62,926 deferred stock units outstanding included in the restricted stock activity shown below as of January 31, 2024 and 2023 , respectively.

Restricted stock

The Company has granted restricted stock to executive officers, independent directors, and employees.

The restricted stock vests ratably over 

one to four years.

The restricted stock vests ratably over one to four years.

The Company calculates restricted stock compensation expense based on the grant date fair value and recognizes expense on a straight-line basis over the vesting period.

The following table summarizes restricted stock activity for the years ended 

January 31, 2023  and 

2022 , respectively:

(Shares in thousands)

The following table summarizes restricted stock activity for the years ended January 31, 2024 and 2023 , respectively:

Restricted shares

Weighted average price

Aggregate intrinsic value

Weighted average grant date fair value

Outstanding on January 31, 2022

$ 7.62  

$ 2,843  

( 113 )  

( 43 )  

353 $ 7.48 $ 2,652

Issued / vested

Outstanding on January 31, 2023

$ 7.48  

$ 2,652  

( 147 )  

( 42 )  

266 $ 8.55 $ 2,286

Issued / vested

Outstanding on January 31, 2024

$ 8.55  

$ 2,286  

The fair value of vested restricted stock was $ 1.2  million and $ 1.1  million in the 

year ended January 31, 2023  and 2022  respectively.

As of January 31, 2023 , there was $ 1.1 million of unrecognized compensation cost related to unvested restricted stock granted under the plans.

That cost is expected to be recognized over the weighted-average period of 

Note 10 - Interest expense, net

(In thousands)

222 $ 9.33 $ 2,078

The fair value of vested restricted stock was $ 1.1 million and $ 1.2 million in the year ended January 31, 2024 and 2023 respectively.

Additionally, t here was $ 1.0 million and $ 1.1 million of unrecognized compensation cost related to unvested restricted stock granted under the plans as of January 31, 2024 and 2023 , respectively.

These costs are expected to be recognized over the weighted-average period of 1.8 years and 2.0 years, respectively.

Further, the Company had approximately 0.2 million of non-vested restricted stock granted under the plan as of January 31, 2024 .

The remaining amount of non-vested restricted stock is expected to vest over the weighted-average period of 1.8 years.

Note 10 - Interest expense

Interest expense

Interest income

Interest expense, net

Note 11  - Treasury stock

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.

In total, the Company used $ 2.0 million of the $ 3.0 million authorized to repurchase its outstanding shares of common stock under the program. 

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 .

The following table sets forth information with respect to repurchases by the Company of its shares of common stock during 

2021 and 

2022  (In thousands, except per share data) :  

Interest expense

Note 11 - Treasury stock

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.

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.

During the 12 months ended January 31, 2024, the Company used the remaining $ 1.0 million of the $ 3.0 million authorized to repurchase its outstanding shares of common stock.

The following table sets forth information with respect to repurchases by the Company of its shares of common stock during 2022 and 2023 :

Total number of shares purchased

2 unchanged sentences

Approximate dollar value of shares that may yet be purchased under the plans or programs

October 1, 2021 - October 31, 2021

$ 8.45  

$ 2,505  

November 1, 2021 - November 30, 2021

December 1, 2021 - December 31, 2021

January 1, 2022 - January 31, 2022

98 $ 8.81 98 $ 1,008

July 1, 2022 - July 31, 2022

December 1, 2022 - December 31, 2022

July 1, 2023 - July 31, 2023

37 8.51 37 628

August 1, 2023 - August 31, 2023

62 8.67 62 92

September 1, 2023 - September 30, 2023

Note 12 - Joint venture and non-controlling interest

On June 1, 2023, the Company closed on its formation of the joint venture ("The JV Agreement" or "JV") with Gulf Insulation Group ("GIG") a leading provider of pre-insulated piping systems and pipe fabrication, in which the Company acquired a 60 % financial controlling interest and contributed assets consisting of a building and equipment.

The JV is a limited liability company named Perma Pipe Gulf Arabia Industry and is a closed joint stock Company established under laws of the Kingdom of Saudi Arabia.

The Company’s capital is comprised of ordinary shares with 60% owned by the Company and remaining 40 % owned by GIG.

The Company expects this collaborative business arrangement to result in expanding its market presence in Saudi Arabia, Kuwait, and Bahrain.

The primary business activities of the JV include the manufacture and sale of the pre-insulated piping systems and pipe coating services.

The other party to this business arrangement acquired a 40% non-controlling interest in the JV by contributing assets (i.e.

acquired by the Company) of approximately $ 6.8 million in fair value, mainly consisting of an idle building and equipment.

The fair value of the net assets contributed was determined through the use of a third -party appraiser using the indirect cost method.

Pursuant to the applicable guidance in ASC 805, Business Combinations and Noncontrolling Interests , the Company determined that the transaction did not meet the necessary conditions to be considered a business as the set of assets acquired did not contain an organized workforce and therefore was recorded as an asset acquisition.

The assets transferred by the Company to JV were recorded at historical cost, and no gain was recognized as a result of this exchange since the Company has a controlling interest in the JV.

The Company’s measurement of the acquired assets is comprised of the fair value of the contributed net assets given up by the Company and the fair value of the non-controlling interest excluding the contributed assets.

The non-controlling interest attributable to the other party was recorded as of the investment date and was measured as part of the carrying amount of the ownership interest in the net assets given up by the Company plus the fair value of the non-controlling interest excluding the contributed assets.

No gain or loss was recognized as a result of this exchange.

In connection with the joint venture, the Company also assumed a promissory note issued as part of the formation of the JV in the principal amount of $ 2.8 million payable to GIG.

The principal amount is presented within the Long-term debt, less current maturities caption in the Company's consolidated balance sheets.

The Company also has a promissory note due from the JV that was issued as part of the formation of the JV in the amount of approximately $ 4.2 million and eliminates in consolidation.

The Company has a 60% controlling financial interest in the joint venture which is not considered a wholly owned subsidiary.

Accordingly, there remains a minority portion of the equity interest that is owned by a third party, GIG.

Pursuant to the applicable guidance contained in ASC 810, Consolidations , the balance sheets and operating activities of this investment are included in the Company's consolidated financial statements.

The carrying amount of the assets and liabilities of the JV that are consolidated by the Company totaled $ 27.3 million and $ 19.8 , respectively, as of January 31, 2024 .

The Company adjusts net income in the consolidated statements of operations to exclude the proportionate share of results that is attributable to the non-controlling interest.

Additionally, the Company presents the proportionate share that is attributable to redeemable non-controlling interest as temporary equity within the consolidated balance sheets.

This mezzanine presentation is the result of the non-controlling interest being subject to a put option that is not solely within the Company's control and in connection with the equity shares of the business arrangement that is redeemable any time after five years following the date of incorporation.

The redemption amount per the JV agreement is at fair value of the non-controlling interest which is the fair value of ordinary shares of JV owned by GIG.

Further, neither the call option or put option contained in the business arrangement met the definition of a derivative as a result of not containing a net settlement provision and the shares not being readily convertible to cash, thereby being considered embedded with respect to non-controlling interest and not a freestanding instrument.

As a result of the non-controlling interest being subject to redemption rights that are not entirely within the Company's control, it was concluded that the necessary conditions were met to be accounted for in accordance with ASC 480, Distinguishing Liabilities from Equity .

Pursuant to this accounting standard, the Company determined that the only criteria for the security to become redeemable is the passage of time and, therefore, is considered probable of redemption.

The Company made a policy election to measure changes in the non-controlling interest immediately as they occur and adjust the carrying amount of non-controlling interest equal to its redemption amount as the non-controlling interest has no stated fixed price or fixed date.

As such, at each subsequent balance sheet date following the formation of this business arrangement, the Company must determine whether further adjustment is required to increase the carrying value of the redeemable non-controlling interest.

If the Company determines that the fair value of the redeemable non-controlling interest exceeds its carrying value, an adjustment is made to reflect this change.

However, if the value is determined to be less than its carrying value, such adjustment is limited to its original carrying value at the formation of the business arrangement.

Additionally, adjustments made to reflect the change in the value of the redeemable non-controlling interest are offset against permanent equity within the Company's consolidated balance sheets.

Net income attributable to GIG was $ 2.7 million and $ 0.0 million for the twelve months ended January 31, 2024 and 2023 , respectively.

The proportionate share of net income was accounted for as a reduction in deriving net income attributable to common stock in the Company's consolidated statements of operations.

The Company is the ultimate parent of the JV through its 60% financial control and as part of the JV agreement has majority control of the operational activities of the JV and no joint control exists.

The JV agreement has no veto or kickout rights and board voting is proportional to the ownership interest.

Certain activities do include a two - third majority affirmative vote of shareholders of the JV and include acquiring another company, establishing new subsidiaries, entering another partnership or joint venture, any merger or material change to the business of the JV.

These are considered protective rights.

The 60% equity ownership of the JV by the Company allows it to receive its proportionate share of losses and residual returns.

The non-controlling interest is measured at fair value was $ 6.3 million and $ 0.0 million recorded within temporary equity at January 31, 2024 and 2023 , respectively.

The change in non-controlling interest consists of an initial measurement of the JV of approximately $ 1.0 million, $ 2.7 million in current year net income attributable to non-controlling interest, and approximately $ 2.5 million as an adjustment in the carrying value of the redeemable non-controlling interest pertaining to the business arrangement.

In addition, there were no dividends or any other form of distributions from non-controlling interest for the year ended January 31, 2024 and 2023 , respectively.

Note 13 - Subsequent events

On February 1, 2024, the Company entered into a settlement agreement ("Settlement Agreement") due to a legal proceeding that arose in 2018 regarding a series of projects executed during years ended 2015 - 2016 for an existing customer.

Pursuant to this Settlement Agreement, the Company will pay the counter party approximately $ 0.8 million to resolve the matter, subject to certain terms and conditions therein, including a limitation on future claims that pertain to the projects contained in this legal proceeding.

In connection with this Settlement Agreement, the Company recognized an expense of approximately $ 0.8 million which is presented as a component of other expense in the Company's consolidated statement of operations for the year ended January 31, 2024 .

Additionally, this amount is presented as a component of other accrued liabilities within the Company's consolidated balance sheets as of January 31, 2024 .

The Company has evaluated subsequent events through April 26, 2024 , the date the financial statements were issued.

Apart from what is described above, there were no other identified material subsequent events that occurred during this time that required to be recognized and/or disclosed in the Company's consolidated financial statements.

Perma-Pipe International Holdings, Inc.

1 unchanged sentence

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended 

January 31, 2023 and 2022

(In thousands)

For the Years Ended January 31, 2024 and 2023

Balance at beginning of period

5 unchanged sentences

Valuation allowance for deferred tax assets

$ 16,905  

$ ( 585 )  

$ ( 327 )  

$ 15,993  

$ 15,993 $ ( 208 ) $ - $ ( 10,096 ) $ 5,689

Allowance for possible losses in collection of trade receivables

( 14 )  

612 123 ( 36 ) - 699

Year Ended January 31, 2023

Valuation allowance for deferred tax assets

$ 17,746  

$ ( 717 )  

$ ( 124 )  

$ 16,905  

$ 16,905 $ ( 585 ) $ - $ ( 327 ) $ 15,993

Allowance for possible losses in collection of trade receivables

( 20 )  

( 1 ) Uncollectible accounts charged off.

( 2 ) Trade receivable allowances primarily related to recoveries from accounts previously written off and currency translation.

Deferred tax asset valuation allowance primarily related to amounts charged to other comprehensive income.

486 140 ( 14 ) - 612

( 1 ) The release of valuation allowances related to deferred tax assets.

( 2 ) Uncollectible accounts written off.

EXHIBIT INDEX

9 unchanged sentences

[Incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 6, 2019]

Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 [Incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed on April 21, 2020]

Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 [Incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed on April 21, 2020]

Form of Directors and Officers Indemnification Agreement [Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2006 filed on May 15, 2006] *

2013 Omnibus Stock Incentive Plan as Amended June 14, 2013 [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 17, 2013] *

Executive Employment Agreement with David J.

Mansfield dated October 19, 2016 [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on December 13, 2016]*

2017 Omnibus Stock Incentive Plan as Amended June 13, 2017 [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on September 19, 2017] *

Form of Restricted Stock Unit Agreement under the 2017 Omnibus Stock Incentive Plan as Amended June 13, 2017 [Incorporated by reference to Exhibit 10(b) to the Company ’

s Quarterly Report on Form 10-Q filed on September 11, 2018]*

Revolving Credit and Security Agreement, dated September 20, 2018, by and among the Company, PNC Bank, National Association, and the other parties thereto [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 24, 2018]

Second Amendment and Waiver to Revolving Credit and Security Agreement, dated September 17, 2021, by and among the Company, PNC Bank, National Association, and other parties thereto [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 21, 2021]

Executive Employment Agreement, dated October 1, 2018, by and between the Company and D.

Bryan Norwood [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 1, 2018]*

Form of Restricted Stock Agreement under the 2017 Omnibus Stock Incentive Plan as Amended June 13, 2017 [Incorporated by reference to Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed on April 21, 2020] *

Executive Employment Agreement, dated January 31, 2020 by and between the Company and Wayne Bosch [Incorporated by reference to Exhibit 10(aa) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed on April 21, 2020]

Form of Restricted Stock and Performance Award Agreement under the 2017 Omnibus Stock Incentive Plan as Amended June 13, 2017

[Incorporated by reference to Exhibit 10.L to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021 filed on April 15, 2021]

Executive Employment Agreement, dated October 2, 2023, by and between the Company and Matthew E.

Lewicki [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 2, 2023]*

Perma-Pipe International Holdings, Inc.

1 unchanged sentence

Lease dated March 15, 2021, between the Company and Nash88 [Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K/A filed on April 22, 2021]

Executive Employment Agreement, dated July 26, 2021, by and between the Company and Grant Dewbre [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended July 31, 2021 filed on September 8, 2021]*

Form of Restricted Stock and Performance Award Agreement under the 2021 Omnibus Stock Incentive Plan [Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed on April 19, 2022] *

Form of Non-Employee Director Restricted Stock Unit Agreement under the 2021 Omnibus Stock Incentive Plan 

[Incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed on April 19, 2022] *

Form of Non-Employee Director Restricted Stock Unit Agreement under the 2021 Omnibus Stock Incentive Plan [Incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed on April 19, 2022] *

Form of Employee Restricted Stock Unit Agreement under the 2021 Omnibus Stock Incentive Plan [Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed on April 19, 2022] *

7 unchanged sentences

Section 1350 Certifications(1) Chief Executive Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(2) Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Recoupment of Incentive Compensation Following a Restatement

Inline XBRL Instance

5 unchanged sentences

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

*Management contracts and compensatory plans or agreements 

FORM 10-K SUMMARY - None.

1 unchanged sentence

Perma-Pipe International Holdings, Inc.

Date:  

April 26, 2024

3 unchanged sentences

Director, President and Chief Executive Officer (Principal Executive Officer)

BRYAN NORWOOD*

Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

April 26, 2024

CYNTHIA BOITER* 

ROBERT MCNALLY*

2 unchanged sentences

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 9A. Controls and Procedures