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Item 4. Controls and Procedures

2024-06-13 compared with 2023-12-08 · 48 added, 25 removed, 3 unchanged (96% of the section changed)

1 unchanged sentence

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 Securities Exchange Act of 1934, as amended) as of October 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 Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective because of the material weakness described below. 

Management has previously reported on 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.

These deficiencies led management to conclude that a material weakness existed with respect to the Company's internal control over financial reporting.

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

As a result, at January 31, 2023, the Company's internal control over financial reporting was not effective.

Subsequent to the fiscal year end, the Company has substantially executed on its plan to remediate the material weakness in internal control over financial reporting.

October 31, 2023 , a nd on the date of this Quarterly Report on Form 10-Q, the Company's remediation plan is substantially complete, subject to testing the design and operating effectiveness of controls in connection with the annual audit. 

Notwithstanding the material weakness described above, the Company's management, including the Chief Executive Officer and Chief Financial Officer, has concluded that the financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company's financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Changes in Internal Control over Financial Reporting.

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 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.

As a result of the material weakness identified, the Company has begun updating its internal control over financial reporting as discussed in its remediation plan updated below. 

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

To address the material weakness, the Company has implemented its remediation plan.

Specifically, the Company has:

Hired additional personnel with significant experience in inventory management to oversee the process at the Lebanon, Tennessee facility;

Engaged outside consultants to assist in reviewing and updating policies, procedures and controls over inventory management;

Redesigned cycle count procedures to better identify higher value and more active inventory parts, as well as to include additional review of results prior to recording of any adjustments;

Performed updates with respect to the Company's physical inventory and inventory management system.

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, are successfully tested and management concludes that these processes and controls are operating effectively.

The Company will continue to monitor the effectiveness of its remediation measures in connection with its future assessments of the effectiveness of internal control over financial reporting and disclosure controls and procedures, and management will make any changes to the design of the Company's plan and take such other actions deemed appropriate given the circumstances.

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 Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective because of the material weakness described below.

Management has previously reported on material weaknesses in the Company's internal control over information technology general controls ("ITGC"), financial reporting relating to the review and approval of manual journal entries, timely review of the financial close process, and timely review of certain financial policies and procedures and respective HR policies.

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

These deficiencies led management to conclude that a material weakness existed with respect to the Company's internal control over financial reporting.

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

As a result, at January 31, 2024 and April 30, 2024 , a nd on the date of this Quarterly Report on Form 10-Q, the Company's internal control over financial reporting is not effective.

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.

As a result of the material weaknesses identified, the Company has begun updating its internal control over financial reporting as discussed in its remediation plan as further described below.

Remediation Plan for the Material Weaknesses in Internal Control over Financial Reporting .

To address these matters, the Company has begun implementing its remediation plan.

Specifically, the Company is executing on the following:

The remediation plans related to ITGCs include:

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

(ii) engaging 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) outsourcing 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) engaging 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.

Change 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 fiscal quarter ended April 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Rule 13a - 14(a)/15d - 14(a) Certifications

(1) Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Rule 13a - 14(a)/15d - 14(a) Certifications

(2) Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Section 1350 Certifications (Chief Executive Officer and Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Perma-Pipe International Holdings, Inc.

June 13, 2024

President and Chief Executive Officer

(Principal Executive Officer)

June 13, 2024

/s/ Matthew E.

Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

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

What changed 10-Q

Item 4. Controls and Procedures