UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July~~October 31, 2020.

Commission File No. ~~0-18370~~001-32530

Perma-Pipe International Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	36-3922969
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6410 W. Howard Street, Niles, Illinois	60714
(Address of principal executive offices)	(Zip Code)

(847) 966-1000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	PPIH	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ~~S-T(§~~S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On ~~September 4,~~December 18, 2020, there were 8,164,989 shares of the registrant's common stock outstanding.

Table of Contents

Perma-Pipe International Holdings, Inc.

FORM 10-Q

For the fiscal quarter ended ~~July~~October 31, 2020

TABLE OF CONTENTS

Item		Page		Page

Part I	Financial Information		Financial Information

1.	Financial Statements		Financial Statements
	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended July 31, 2020 and 2019	2	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended October 31, 2020 and 2019	2
	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Six Months Ended July 31, 2020 and 2019	3	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Nine Months Ended October 31, 2020 and 2019	3
	Consolidated Balance Sheets as of July 31, 2020 (Unaudited) and January 31, 2020	4	Consolidated Balance Sheets as of October 31, 2020 (Unaudited) and January 31, 2020	4
	Consolidated Statements of Stockholders' Equity (Unaudited) for the Three and Six Months Ended July 31, 2020 and 2019	5	Consolidated Statements of Stockholders' Equity (Unaudited) for the Three and Nine Months Ended October 31, 2020 and 2019	5
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended July 31, 2020 and 2019	6	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended October 31, 2020 and 2019	6
	Notes to Consolidated Financial Statements (Unaudited)	7	Notes to Consolidated Financial Statements (Unaudited)	7

2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

4.	Controls and Procedures	26	Controls and Procedures	26

Part II	Other Information		Other Information

6.	Exhibits	27	Exhibits	27

Signatures	Signatures	28	Signatures	28

Table of Contents

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

PERMA-PIPE INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share data)

	Three Months Ended July 31,						Six Months Ended July 31,					Three Months Ended October 31,						Nine Months Ended October 31,
	2020			2019			2020			2019		2020			2019			2020			2019
Net sales	$	20,364		$	36,667		$	43,106		$	60,943	$	20,294		$	34,457		$	63,399		$	95,400
Cost of sales		18,000			27,014			37,275			46,568		17,356			26,814			54,630			73,382
Gross profit		2,364			9,653			5,831			14,375		2,938			7,643			8,769			22,018

Operating expenses
General and administrative expenses		4,488			4,814			8,792			9,271		4,528			4,636			13,320			13,907
Selling expenses		1,331			1,416			2,978			2,676		1,174			1,354			4,153			4,030
Total operating expenses		5,819			6,230			11,770			11,947		5,702			5,990			17,473			17,937

Income/(loss) from operations		(3,455	)		3,423			(5,939	)		2,428		(2,764	)		1,653			(8,704	)		4,081

Interest expense, net		118			209			304			419		107			194			411			612
Other income		3,739			241			3,674			256
Other income/(expense)													(2	)		95			3,672			351
Income/(loss) from operations before income taxes		166			3,455			(2,569	)		2,265		(2,873	)		1,554			(5,443	)		3,820

Income tax (benefit)/expense		(101	)		(265	)		(315	)		47		(23	)		1,699			(339	)		1,747

Net income/(loss)	$	267		$	3,720		$	(2,254	)	$	2,218	$	(2,850	)	$	(145	)	$	(5,104	)	$	2,073

Weighted average common shares outstanding
Basic		8,126			7,887			8,087			7,937		8,165			8,037			8,113			7,970
Diluted		8,278			8,202			8,087			8,122		8,165			8,037			8,113			8,272

Income/(loss) per share
Basic		0.03			0.47			(0.28	)		0.28		(0.35	)		(0.02	)		(0.63	)		0.26
Diluted		0.03			0.45			(0.28	)		0.27		(0.35	)		(0.02	)		(0.63	)		0.25

See accompanying notes to consolidated financial statements.

Note: Earnings per share calculations could be impacted by rounding.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (Unaudited)

(In thousands)

	Three Months Ended July 31,				Six Months Ended July 31,					Three Months Ended October 31,						Nine Months Ended October 31,
	2020		2019		2020			2019		2020			2019			2020			2019
Net income/(loss)	$	267	$	3,720	$	(2,254	)	$	2,218	$	(2,850	)	$	(145	)	$	(5,104	)	$	2,073

Other comprehensive income/(loss)
Foreign currency translation adjustments, net of tax		153		358		(214	)		41		110			12			(104	)		53
Other comprehensive income/(loss)		153		358		(214	)		41		110			12			(104	)		53

Comprehensive income/(loss)	$	420	$	4,078	$	(2,468	)	$	2,259	$	(2,740	)	$	(133	)	$	(5,208	)	$	2,126

See accompanying notes to consolidated financial statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	July 31, 2020			January 31, 2020			October 31, 2020			January 31, 2020
		(Unaudited)						(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	9,106		$	13,371		$	6,593		$	13,371
Restricted cash		1,150			1,287			1,154			1,287
Trade accounts receivable, less allowance for doubtful accounts of $300 at July 31, 2020 and $407 at January 31, 2020		23,884			29,402
Trade accounts receivable, less allowance for doubtful accounts of $411 at October 31, 2020 and $407 at January 31, 2020								26,441			29,402
Inventories, net		12,137			14,498			12,094			14,498
Prepaid expenses and other current assets		7,033			3,531			5,022			3,531
Costs and estimated earnings in excess of billings on uncompleted contracts		1,750			2,166			1,362			2,166
Total current assets		55,060			64,255			52,666			64,255
Property, plant and equipment, net of accumulated depreciation		27,306			28,629			26,958			28,629
Other assets
Operating lease right-of-use asset		10,889			11,475			13,762			11,475
Deferred tax assets		566			293			604			293
Goodwill		2,222			2,254			2,237			2,254
Other assets		3,955			5,319			3,532			5,319
Total other assets		17,632			19,341			20,135			19,341
Total assets	$	99,998		$	112,225		$	99,759		$	112,225
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable	$	7,943		$	9,577		$	7,905		$	9,577
Accrued compensation and payroll taxes		1,496			1,190			1,760			1,190
Commissions and management incentives payable		1,107			1,759			322			1,759
Revolving line - North America		2,470			8,577			1,803			8,577
Current maturities of long-term debt		1,715			1,458			1,732			1,458
Customers' deposits		1,844			2,202			2,098			2,202
Outside commission liability		1,712			1,755			1,661			1,755
Operating lease liability short-term		1,338			1,040			1,408			1,040
Other accrued liabilities		2,836			3,444			3,002			3,444
Billings in excess of costs and estimated earnings on uncompleted contracts		767			1,173			672			1,173
Income taxes payable		750			664			1,000			664
Total current liabilities		23,978			32,839			23,363			32,839
Long-term liabilities
Long-term debt, less current maturities		6,293			6,717			6,194			6,717
Deferred compensation liabilities		4,415			4,199			4,487			4,199
Deferred tax liabilities		672			1,052			583			1,052
Operating lease liability long-term		10,563			11,214			13,477			11,214
Other long-term liabilities		628			575			661			575
Total long-term liabilities		22,571			23,757			25,402			23,757
Stockholders' equity
Common stock, $.01 par value, authorized 50,000 shares; 8,165 issued and outstanding at July 31, 2020 and 8,048 issued and outstanding at January 31, 2020		82			80
Common stock, $.01 par value, authorized 50,000 shares; 8,165 issued and outstanding at October 31, 2020 and 8,048 issued and outstanding at January 31, 2020								82			80
Additional paid-in capital		60,310			60,024			60,595			60,024
Accumulated deficit		(2,969	)		(715	)		(5,819	)		(715	)
Accumulated other comprehensive loss		(3,974	)		(3,760	)		(3,864	)		(3,760	)
Total stockholders' equity		53,449			55,629			50,994			55,629
Total liabilities and stockholders' equity	$	99,998		$	112,225		$	99,759		$	112,225

See accompanying notes to consolidated financial statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except share data)

	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Revised total stockholders' equity at January 31, 2019	$	79	$	58,793	$	(4,291	)	$	(2,880	)	$	51,701		$	79	$	58,793	$	(4,291	)	$	(2,880	)	$	51,701

Net loss		-		-		(1,502	)		-			(1,502	)		-		-		(1,502	)		-			(1,502	)
Common stock issued under stock plans, net of shares used for tax withholding		-		79		-			-			79			-		79		-			-			79
Stock-based compensation expense		-		154		-			-			154			-		154		-			-			154
Foreign currency translation adjustment		-		-		-			(317	)		(317	)		-		-		-			(317	)		(317	)
Total stockholders' equity at April 30, 2019	$	79	$	59,026	$	(5,793	)	$	(3,197	)	$	50,115		$	79	$	59,026	$	(5,793	)	$	(3,197	)	$	50,115

Net income		-		-		3,720			-			3,720			-		-		3,720			-			3,720
Common stock issued under stock plans, net of shares used for tax withholding		1		43		-			-			44			1		43		-			-			44
Stock-based compensation expense		-		406		-			-			406			-		406		-			-			406
Foreign currency translation adjustment		-		-		-			358			358			-		-		-			358			358
Total stockholders' equity at July 31, 2019	$	80	$	59,475	$	(2,073	)	$	(2,839	)	$	54,643		$	80	$	59,475	$	(2,073	)	$	(2,839	)	$	54,643

Net loss															-		-		(145	)		-			(145	)
Common stock issued under stock plans, net of shares used for tax withholding															-		53		-			-			53
Stock-based compensation expense															-		226		-			-			226
Foreign currency translation adjustment															-		-		-			12			12
Total stockholders' equity at October 31, 2019														$	80	$	59,754	$	(2,218	)	$	(2,827	)	$	54,789

	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity			Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Total stockholders' equity at January 31, 2020	$	80	$	60,024		$	(715	)	$	(3,760	)	$	55,629		$	80	$	60,024		$	(715	)	$	(3,760	)	$	55,629

Net loss		-		-			(2,521	)		-			(2,521	)		-		-			(2,521	)		-			(2,521	)
Stock-based compensation expense		-		219			-			-			219			-		219			-			-			219
Foreign currency translation adjustment		-		-			-			(367	)		(367	)		-		-			-			(367	)		(367	)
Total stockholders' equity at April 30, 2020	$	80	$	60,243		$	(3,236	)	$	(4,127	)	$	52,960		$	80	$	60,243		$	(3,236	)	$	(4,127	)	$	52,960

Net income		-		-			267			-			267			-		-			267			-			267
Common stock issued under stock plans, net of shares used for tax withholding		2		(193	)		-			-			(191	)		2		(193	)		-			-			(191	)
Stock-based compensation expense		-		260			-			-			260			-		260			-			-			260
Foreign currency translation adjustment		-		-			-			153			153			-		-			-			153			153
Total stockholders' equity at July 31, 2020	$	82	$	60,310		$	(2,969	)	$	(3,974	)	$	53,449		$	82	$	60,310		$	(2,969	)	$	(3,974	)	$	53,449

Net loss																-		-			(2,850	)		-			(2,850	)
Stock-based compensation expense																-		285			-			-			285
Foreign currency translation adjustment																-		-			-			110			110
Total stockholders' equity at October 31, 2020															$	82	$	60,595		$	(5,819	)	$	(3,864	)	$	50,994

Shares	2020		2019
Balances at beginning of year		8,048,006		7,854,322
Shares issued		116,983		193,684
Balances at period end		8,164,989		8,048,006

See accompanying notes to consolidated financial statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)	Six Months Ended July 31,						Nine Months Ended October 31,
	2020			2019			2020			2019
Operating activities
Net income/(loss)	$	(2,254	)	$	2,218		$	(5,104	)	$	2,073
Adjustments to reconcile net income/(loss) to net cash flows provided by/(used in) in operating activities
Adjustments to reconcile net income/(loss) to net cash flows provided by operating activities
Depreciation and amortization		2,241			2,302			3,616			3,349
Deferred tax expense/(benefit)		(630	)		54
Deferred tax benefit								(763	)		(288	)
Equity-based compensation expense		479			560			764			786
Loss on disposal of fixed assets		10			85
(Gain)/loss on disposal of fixed assets								(2	)		154
Provision on uncollectible accounts		(105	)		(80	)		6			49
Changes in operating assets and liabilities
Accounts receivable		3,782			980			1,226			2,960
Inventories		2,315			(4,238	)		2,383			(3,980	)
Contract assets and contract liabilities		10			(2,250	)		302			(2,929	)
Accounts payable		(1,733	)		641			(1,606	)		525
Accrued compensation and payroll taxes		(475	)		(627	)		(1,087	)		(199	)
Customers' deposits		(352	)		(112	)		(107	)		(704	)
Income taxes receivable and payable		(66	)		(1,421	)		102			80
Prepaid expenses and other current assets		(3,774	)		(8	)		(1,518	)		1,523
Other assets and liabilities		3,170			953			3,757			(601	)
Net cash provided by/(used in) operating activities		2,618			(943	)
Net cash provided by operating activities								1,969			2,798
Investing activities
Capital expenditures		(761	)		(981	)		(1,633	)		(1,423	)
Proceeds from sales of property and equipment								2			-
Net cash used in investing activities		(761	)		(981	)		(1,631	)		(1,423	)
Financing activities
Proceeds from revolving lines		23,533			40,630			36,563			61,281
Payments of debt on revolving lines of credit		(29,341	)		(41,912	)		(42,988	)		(61,613	)
Proceeds from term loan								19			-
Payments of other debt		(175	)		(179	)		(269	)		(276	)
Increase/(decrease) in drafts payable		100			(131	)
Decrease in drafts payable								(49	)		(162	)
Payments on finance lease obligations		(202	)		(103	)		(310	)		(185	)
Stock options exercised and restricted shares retired for tax		(193	)		123			(192	)		176
Net cash used in financing activities		(6,278	)		(1,572	)		(7,226	)		(779	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		19			(22	)		(23	)		26
Net decrease in cash, cash equivalents and restricted cash		(4,402	)		(3,518	)
Net increase/(decrease) in cash, cash equivalents and restricted cash								(6,911	)		622
Cash, cash equivalents and restricted cash - beginning of period		14,658			12,737			14,658			12,737
Cash, cash equivalents and restricted cash - end of period	$	10,256		$	9,219		$	7,747		$	13,359
Supplemental cash flow information
Interest paid	$	321		$	408		$	421		$	609
Income taxes paid		170			1,393			83			1,961
Fixed assets acquired under capital leases - non-cash								-			848

See accompanying notes to consolidated financial statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~July~~October 31, 2020

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

Note 1 - Basis of presentation

The interim consolidated financial statements of Perma-Pipe International Holdings, Inc., and subsidiaries (collectively, "PPIH", "Company", or "Registrant") are unaudited, but include all adjustments that the Company's management considers necessary to present fairly the financial position and results of operations for the periods presented. These adjustments consist of normal recurring adjustments. Information and footnote disclosures have been omitted pursuant to Securities and Exchange Commission ("SEC") rules and regulations. The consolidated balance sheet as of January 31, 2020 is derived from the audited consolidated balance sheet as of that date. The results of operations for any interim period are not necessarily indicative of future or annual results. Interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. The Company's fiscal year ends on January 31. Years and balances described as 2020 and 2019 are for the three and ~~six~~nine months ended ~~July~~October 31, 2020 and 2019, and for the fiscal years ended January 31, 2021 and 2020, respectively.

Note 2 - Business segment reporting

The Company is engaged in the manufacture and sale of products in one segment: Piping Systems. The Company engineers, designs, manufactures and sells specialty piping systems, and leak detection systems. Specialty piping systems include: (i) insulated and jacketed district heating and cooling piping systems for efficient energy distribution from central energy plants to multiple locations, (ii) primary and secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products, and (iii) the coating and/or insulation of oil and gas gathering and transmission pipelines. The Company's leak detection systems are sold with its piping systems or on a stand-alone basis, to monitor areas where fluid intrusion may contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services or damage equipment or property.

Note 3 - Accounts receivable

The majority of the Company's accounts receivable are due from geographically dispersed contractors and manufacturing companies. Credit is extended based on an evaluation of a customer's financial condition, including the availability of credit insurance. In the U.S., collateral is not generally required. In the United Arab Emirates and Saudi Arabia, 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. The allowance for doubtful accounts is based on specifically identified amounts in customers' accounts, where future collectability is deemed uncertain. Management may exercise its judgment in adjusting the provision as a consequence of known items, such as current economic factors and credit trends. 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.

One of the Company’s accounts receivable in the total amount of $~~4.1~~3.9 million and $4.1 million as of ~~July~~October 31, 2020 and January 31, 2020, respectively, has been outstanding for several years. Included in this balance is a retention receivable that is payable upon the commissioning of the system in the amount of $~~3.6~~3.4 million, of which, due to the long-term nature of the receivable, $1.6 million and $2.1 million were included in the balance of other long-term assets as of ~~July~~October 31, 2020 and January 31, 2020, respectively. The Company completed all of its deliverables in 2015 under the related contract, ~~and~~but the system has not yet been commissioned by the customer. Nevertheless, the Company has been engaged in ongoing active efforts to collect this outstanding amount. During the first quarter of 2020, the Company certified invoices of $0.5 million in the process of collection. ~~In August~~During the third quarter of 2020, the Company received approximately $0.2 million from the customer and additional receipts are expected in ~~September~~the fourth quarter of 2020 and ~~throughout the remainder of the year.~~in 2021. The Company continues to engage with the customer to ensure full payment of open balances, and during fiscal 2019 received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. As a result, the Company did not reserve any allowance against this receivable as of ~~July~~October 31, ~~2020.~~2020. 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 three months ended ~~July~~October 31, 2020 ~~and 2019,~~, no individual customer accounted for 10% of the Company’s consolidated net sales, and during the same period in 2019, one individual customer accounted for 16% of the Company's consolidated net sales. For the ~~six~~nine months ended ~~July~~October 31, 2020 ~~and 2019,~~, no individual customer accounted for more than 10% of the Company's consolidated net sales, and during the same period in 2019, one individual customer accounted for 11% of the Company's consolidated net sales.

At ~~July~~October 31, 2020 and January 31, 2020, one customer accounted for ~~14.4%~~10.1% and 13.3% of the Company's accounts receivable, respectively.

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Note 4 - Revenue recognition

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 - which include all bundled products in which the Company designs, 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.

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

In accordance with Accounting Standards Codification ("ASC") 606-10-25-27 through 29, the Company recognizes specialty piping and coating systems revenue over time as the manufacturing process progresses because one of the following conditions exist:

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

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 seller’s profit margin for products that have no alternative use for the Company.

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 three and ~~six~~nine months ended ~~July~~October 31, 2020 and 2019 are as follows:

	Three Months Ended July 31,										Six Months Ended July 31,										Three Months Ended October 31,										Nine Months Ended October 31,
	2020					2019					2020					2019					2020					2019					2020					2019
	Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total
Products	$	1,703		8	%	$	5,860		16	%	$	6,168		14	%	$	10,757		18	%	$	2,435		12	%	$	2,448		7	%	$	8,603		14	%	$	13,205		14	%

Specialty Piping Systems and Coating
Revenue recognized under input method		9,784		48	%		15,451		42	%		18,346		43	%		24,238		40	%		8,252		41	%		14,363		42	%		26,597		42	%		38,601		40	%
Revenue recognized under output method		8,877		44	%		15,356		42	%		18,592		43	%		25,948		42	%		9,607		47	%		17,646		51	%		28,199		44	%		43,594		46	%
Total	$	20,364		100	%	$	36,667		100	%	$	43,106		100	%	$	60,943		100	%	$	20,294		100	%	$	34,457		100	%	$	63,399		100	%	$	95,400		100	%

The input method, as noted in ASC 606-10-55-20, is used by the U.S. operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract using the percentage-of-completion method. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the percentage-of-completion 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. 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.

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. Contract modifications that occur during the manufacturing process (changes in scope of work, job performance, material costs, and/or final contract settlements) are recognized in the period in which the revisions are known. Provisions for losses on uncompleted contracts are made in contract liabilities account in the period such losses are identified.

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Contract assets and liabilities:

Contract assets represent revenue recognized in excess of amounts billed (unbilled receivables) 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 (unearned revenue) 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 impacts the period end balances in these accounts.

The Company anticipates that substantially all costs incurred for uncompleted contracts as of ~~July~~October 31, 2020 will be billed and collected within one year.

During the three months ended October 31, 2020, one of the Company's customers in Qatar made a call on a performance bond held to secure one of the Company's contracts. The Company believes the customer's claims of non-performance under the contract are invalid and that the customer's actions were themselves a breach of the contract. The Company has engaged local counsel to seek reimbursement as well as additional compensation for lost profits suffered as a result of cancellation of certain work orders under the contract. This expense was offset by funds received under the CEWS program in Canada. The Company has recorded the expense related to the encashment of approximately $0.6 million in other income/(expense) in the consolidated statements of operations.

The following tables set forth the changes in the Company's contract assets and liabilities for the periods indicated. In addition to these amounts, the Company has recorded ~~$3.3~~$1.4 million of unbilled receivables from ~~one of~~ its subsidiaries in the Middle East in prepaid expenses and other current assets on its consolidated balance sheet as of ~~July~~October 31, ~~2020.~~2020.

	Contract Assets			Contract Assets
Balance January 31, 2019	$	1,653		$	1,653
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,038	)		(1,038	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		1,368			1,368
Closing Balance at April 30, 2019	$	1,983		$	1,983
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,509	)		(1,509	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		3,000			3,000
Closing Balance at July 31, 2019	$	3,474		$	3,474
Costs and gross profit recognized during the period for uncompleted contracts from the prior period					(1,799	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period					2,688
Closing Balance at October 31, 2019				$	4,363

Balance January 31, 2020	$	2,166		$	2,166
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(2,896	)		(2,896	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		3,630			3,630
Closing Balance at April 30, 2020	$	2,900		$	2,900
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,743	)		(1,743	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		593			593
Closing Balance at July 31, 2020	$	1,750		$	1,750
Costs and gross profit recognized during the period for uncompleted contracts from the prior period					(930	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period					542
Closing Balance at October 31, 2020				$	1,362

	Contract Liabilities			Contract Liabilities
Balance January 31, 2019	$	1,569		$	1,569
Revenue recognized during the period for uncompleted contracts from the prior period		(444	)		(444	)
New contracts entered into that are uncompleted at the end of the current period		721			721
Closing Balance at April 30, 2019	$	1,846		$	1,846
Revenue recognized during the period for uncompleted contracts from the prior period		(1,250	)		(1,250	)
New contracts entered into that are uncompleted at the end of the current period		545			545
Closing Balance at July 31, 2019	$	1,141		$	1,141
Revenue recognized during the period for uncompleted contracts from the prior period					(774	)
New contracts entered into that are uncompleted at the end of the current period					984
Closing Balance at October 31, 2019				$	1,351

Balance January 31, 2020	$	1,173		$	1,173
Revenue recognized during the period for uncompleted contracts from the prior period		(17	)		(17	)
New contracts entered into that are uncompleted at the end of the current period		(95	)		(95	)
Closing Balance at April 30, 2020	$	1,061		$	1,061
Revenue recognized during the period for uncompleted contracts from the prior period		631			631
New contracts entered into that are uncompleted at the end of the current period		(925	)		(925	)
Closing Balance at July 31, 2020	$	767		$	767
Revenue recognized during the period for uncompleted contracts from the prior period					104
New contracts entered into that are uncompleted at the end of the current period					(199	)
Closing Balance at October 31, 2020				$	672

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.

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Note 5 - Income taxes

The determination of the consolidated provision for income taxes, deferred tax assets and liabilities and related valuation allowances requires management to make judgments and estimates. As a company with subsidiaries in foreign jurisdictions, the process of calculating income taxes involves estimating current tax obligations and exposures in each jurisdiction as well as making judgments regarding the future recoverability of deferred tax assets. Income earned in the United Arab Emirates is not subject to local country income tax. Additionally, the relative proportion of taxable income earned domestically versus internationally can fluctuate significantly from period to period. Changes in the estimated level of annual pre-tax income, tax laws and the results of tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company's projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.

The Company's effective tax rate ("ETR") from operations ~~for~~in the ~~second~~third quarter and year-to-date in fiscal 2020 was ~~(56.8%)~~0.8% and ~~12.3%~~6.2% compared to ~~(7.6%)~~127.8% and ~~2.1%~~48.6% during the respective prior year periods. The change in the ETR from the prior year quarter to the current year quarter ~~was~~is largely due to ~~changes~~the impact of tax rates in various jurisdictions and the changing mix of taxable income and loss in ~~various~~those jurisdictions.

The amount of unrecognized tax benefits, including interest and penalties at ~~July~~October 31, 2020, recorded in other long-term liabilities was $0.1 million, all of which would impact the Company’s ETR if recognized.

On March 7, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (H.R. 748) (the "CARES Act"). Among the changes to the U.S. federal income tax rules, the CARES Act restored net operating loss carryback rules that were eliminated by the U.S. Tax Cuts and Jobs Act ("Tax Act"), restored 100% bonus depreciation for qualified improvement property, modified the limit on the deduction for net interest expense and accelerated the timeframe for refunds of alternative minimum tax credits. With consideration to these changes to federal income tax rules, there is no net impact to the Company's deferred taxes due to the full valuation allowance. The Company will continue to evaluate the effects of the CARES Act as additional legislative guidance becomes available.

Note 6 - 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 ~~July~~October 31, 2020, 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 the United States and Middle East asset groups. However, triggering events were identified related to the Company's Canada asset group, indicating potential impairment of the asset group's long-lived assets. Therefore, the Company performed a quantitative assessment to determine any potential impairment. After completion of this additional assessment, it was determined that there was no impairment of the Company's long-lived assets for the three and ~~six~~nine months ended ~~July~~October 31, 2020 and 2019. The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.

Goodwill. 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 ~~July~~October 31, 2020 and January 31, 2020 was attributable to the purchase of Perma-Pipe Canada, Ltd., which occurred in 2016.

January 31, 2020

Foreign exchange change effect

July 31, 2020

Goodwill
$ 2,254 $ (32 ) $ 2,222

		January 31, 2020				Foreign exchange change effect				October 31, 2020
Goodwill		$	2,254			$	(17	)		$	2,237

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. At ~~July~~October 31, 2020, the Company elected to perform a Step 0 qualitative analysis assessment to determine if it was more likely than not that the fair value of the Company's goodwill exceeded its carrying value. The qualitative assessment identified triggering events that indicated potential impairment of the Company's goodwill. Therefore, the Company proceeded to complete the Step 1 analysis to determine any potential impairment. The Step 1 analysis involved a quantitative fair valuation of the reporting unit associated with the Company's goodwill, including a market approach, transaction approach and discounted cash flow analysis. After completion of the Step 1 analysis, it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment for the three and ~~six~~nine months ended ~~July~~October 31, 2020 and 2019., however there can be no assurance that a future impairment charge will not be required.

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Note 7 - 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. Prior to the 2017 Plan's expiration, grants were made to the Company's employees, officers and independent directors, as described below.

The Company has prior incentive plans under which previously granted awards remain outstanding, but under which no new awards may be granted. At ~~July~~October 31, 2020 the Company had reserved a total of ~~534,670~~529,570 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 has granted stock-based compensation awards to eligible employees, officers or independent directors. The following were the Company's stock-based compensation expenses for the periods presented:

	Three Months Ended July 31,				Six Months Ended July 31,				Three Months Ended October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019		2020		2019		2020		2019
Stock-based compensation expense	$	1	$	3	$	3	$	8	$	-	$	2	$	3	$	10
Restricted stock-based compensation expense		259		403		476		552		285		224		761		776
Total stock-based compensation expense	$	260	$	406	$	479	$	560	$	285	$	226	$	764	$	786

Stock Options

The Company did not grant any stock options during the three or ~~six~~nine months ended ~~July~~October 31, 2020. The following tables summarizes the Company's stock option activity:

Option activity	No. of Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value		No. of Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 31, 2020		132		$	8.98		3.2	$	160		132		$	8.98		3.2	$	160
Exercised		-			-		-		-
Expired or forfeited		(13	)		-		-		-		(18	)		-		-		-
Outstanding at July 31, 2020		119			9.20		2.9		4
Outstanding at October 31, 2020											114			9.20		2.6		-

Exercisable at July 31, 2020		119		$	9.20		2.9	$	4
Exercisable at October 31, 2020											114		$	9.20		2.6	$	-

No stock options were exercised during the ~~six~~nine months ended ~~July~~October 31, 2020.

Unvested option activity	No. of Shares Underlying Options			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value		No. of Shares Underlying Options			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at January 31, 2020		3		$	7.33	$	4		3		$	7.33	$	4
Vested		(3	)		-		-		(3	)		-		-
Expired or forfeited		-			-		-		-			-		-
Outstanding at July 31, 2020		-		$	-	$	-
Outstanding at October 31, 2020									-		$	-	$	-

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As of ~~July~~October 31, 2020, there were no remaining unvested stock options outstanding, and therefore no unrecognized compensation expense related to unvested stock options.

Restricted stock

The following table summarizes the Company's restricted stock activity for the ~~six~~nine months ended ~~July~~October 31, 2020:

Restricted stock activity	Restricted Shares			Weighted Average Grant Price Per Share		Aggregate Intrinsic Value		Restricted Shares			Weighted Average Grant Price Per Share		Aggregate Intrinsic Value
Outstanding at January 31, 2020		321		$	8.89	$	2,857		321		$	8.89	$	2,857
Granted		156			5.88				156			5.88
Vested and issued		(63	)		8.96				(63	)		8.96
Forfeited or retired for taxes		(36	)		8.72				(38	)		8.20
Outstanding at July 31, 2020		378		$	7.63	$	2,884
Outstanding at October 31, 2020									376		$	7.61	$	2,857

As of ~~July~~October 31, 2020, there was ~~$1.9~~$1.6 million of unrecognized compensation expense related to unvested restricted stock granted under the 2017 Plan. That cost is expected to be recognized over a weighted average period of ~~2.1~~1.9 years.

Note 8 - Income/(loss) per share

	Three Months Ended July 31,				Six Months Ended July 31,				Three Months Ended October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019		2020		2019		2020		2019
Basic weighted average common shares outstanding		8,126		7,887		8,087		7,937		8,165		8,037		8,113		7,970
Dilutive effect of equity compensation plans		152		315		-		185		-		-		-		302
Weighted average common shares outstanding assuming full dilution		8,278		8,202		8,087		8,122		8,165		8,037		8,113		8,272

Stock options and restricted stock not included in the computation of diluted earnings per share of common stock because the option exercise prices or grant date prices exceeded the average market prices of the common shares		248		73		197		203		227		83		223		68
Stock options and restricted stock with exercise prices or grant date prices below the average market prices		152		315		203		185		165		287		169		302

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Note 9 - Debt

Debt totaled $~~10.5~~9.7 million and $16.9 million at ~~July~~October 31, 2020 and January 31, 2020, respectively.

Paycheck Protection Program Loan. On May 1, 2020, the Company entered into a loan agreement under the Small Business Administration's Paycheck Protection Program ("PPP") and received proceeds of approximately $3.2 million. Interest on the loan accrued at a fixed interest rate of 1.0%, and the loan had a maturity date of April 28, 2022. Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses. During the three months ended July 31, 2020, the Company used all of the PPP loan proceeds to pay for qualified expenses, 100% of which were used for payroll related expenses. The Company believes the PPP loan proceeds will be forgiven under the terms of the CARES Act program.

Guidance from the American Institute of Certified Public Accountants' ("AICPA") Technical Question and Answer Section 3200.18 states that if a company expects to meet the PPP’s eligibility criteria and concludes that the PPP loan represents, in substance, a grant that is expected to be forgiven, it may analogize to International Accounting Standards ("IAS") 20 - Accounting for Government Grants and Disclosure of Government Assistance to account for the PPP loan. The Company believes the PPP loan proceeds will be forgiven under the terms of the CARES Act program, although no assurance to that effect can be provided. Therefore, the Company has recognized the earnings impact on a systematic basis over the periods in which the Company recognized as expenses the related costs for which the grants were intended to compensate. We noted that all of these expenses, and thus the related earnings impact, were incurred during the ~~three~~nine months ended ~~July~~October 31, ~~2020.~~2020.

The IAS 20 guidance allows for recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected the former option, to make a more clear distinction in its financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness. As such, we have recognized the proceeds in earnings during the ~~three~~nine months ended ~~July~~October 31, ~~2020.~~2020. The amounts are recognized in other income in the consolidated statements of operations.

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”).

The Company has used proceeds from the Senior Credit Facility for on-going working capital needs, and expects to continue using this facility to fund future capital expenditures, working capital needs and other corporate purposes. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate or London Interbank Offered Rate ("LIBOR"), plus, in each case, an applicable margin. The applicable margin is based on average quarterly undrawn availability with respect to the Senior Credit Facility. Interest on alternate base rate borrowings are generally payable monthly in arrears and interest on LIBOR borrowings are generally payable in arrears on the last day of each interest period. Additionally, the Company is required to pay a 0.375% per annum facility fee on the unused portion of the Senior Credit Facility. The facility fee is payable quarterly in arrears.

Subject to certain exceptions, borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company and certain of the assets of its North American subsidiaries. The North American Loan Parties’ obligations under the Senior Credit Facility are guaranteed by Perma-Pipe Canada, Inc. The Senior Credit Facility will mature on September 20, 2021. Subject to certain qualifications and exceptions, the 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 cannot allow capital expenditures to exceed $3.0 million annually (plus a limited carryover of unused amounts).

The Senior Credit Facility also contains financial covenants requiring (i) the North America Loan Parties to achieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility (excluding from the calculation items related to the financial performance of the Company’s foreign subsidiaries not party to the Credit Agreement) ("fixed charge coverage ratio") to be not less than 1.10 to 1.00 at each quarter end on a trailing four-quarter basis; and ~~(iii)~~(ii) the Company and its subsidiaries (including the Company’s foreign subsidiaries not party to the Credit Agreement) to achieve a fixed charge coverage ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility of not less than 1.10 to 1.00 at each quarter end on a trailing four-quarter basis.

Due to project delays as a result of the COVID-19 pandemic, as of October 31, 2020, the Company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the trailing four-quarters ended October 31, 2020 under its Credit Agreement for both the North American Loan Parties and the Company and its subsidiaries.

On December 18, 2020, the Company entered into the First Amendment and Waiver to the Revolving Credit and Security Agreement (“Amendment and Waiver”) with PNC, which (i) reflected PNC’s waiver of the Company’s failure to maintain a fixed charge coverage ratio of 1.10 to 1.00 as of October 31, 2020 on a trailing four quarter basis as required under the Company’s Credit Agreement and (ii) further amended certain future fixed charge coverage ratio covenants requirements under the Credit Agreement as described below. Additionally, the Company was also required to have received, and applied to reduce the outstanding balance under the Credit Agreement, $1 million from one of its foreign subsidiaries, Perma-Pipe Middle East FZC, in the United Arab Emirates. The transfer and repayment occurred on December 17, 2020 and did not cause the Company to incur any additional fees or taxes, nor did it force the Company to change any of its assertions with regards to permanent reinvestment in any of its foreign subsidiaries. The Company ~~was~~will incur additional fees over the remainder of the Amendment and Waiver of approximately $0.2 million. The Amendment and Waiver also eliminates the Company’s ability to make LIBOR borrowings and reduces the overall availability by $2.0 million until maturity.

The amended fixed charge coverage ratio requirements for the Company and its subsidiaries under the Amendment and Waiver are (i) 1.25 to 1.00 for the six-month period ending April 30, 2021 and (ii) 1.25 to 1.00 for the nine-month period ending July 31, 2021. The amended fixed charge coverage ratio requirements for the North American Loan Parties under the Amendment and Waiver are (i) 1.10 to 1.00 for the three-month period ending January 31, 2021; (ii) 1.10 to 1.00 for the six-month period ending April 30, 2021; and (iii) 1.10 to 1.00 for the nine-month period ending July 31, 2021. In order to cure any future breach of the fixed charge coverage ratio 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 Credit Agreement in an amount which, when added to the amount of the Company’s Consolidated EBITDA, would result in pro forma compliance with ~~these covenants as~~the covenant. As of ~~July~~October 31, 2020, the Company’s foreign subsidiaries that are not a party to the Credit Agreement had approximately $6.2 million of cash available to satisfy a future potential repatriation cure of any potential future breach of the fixed charge coverage ratio covenant. Any cash required to cure future covenant defaults would be repatriated through the Company’s subsidiaries in the United Arab Emirates, Saudi Arabia, Egypt and/or India. The Company estimates that it may need to repatriate cash of up to $1.3 million in the next six months. Most of this cash could be repatriated without any tax consequences, however, some repatriation would require payment of withholding taxes. The Company does not anticipate any material tax impacts of any potential future repatriation.

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The Company believes it has alleviated any concerns about its ability to satisfy its obligations in the normal course of business for the next year after the date these financial statements are available to be issued based on the following:

●

The Company’s execution of the Amendment and Waiver described above,

●

The Company’s ability to repatriate cash from its foreign subsidiaries to cure any future covenant defaults without any material cost or tax consequences,

●

The Company expects an increase in business activity and cash flow from operations over the remaining term of the Amendment and Waiver,

●

Management expects to be able to borrow within the reduced availability parameters noted above, and

●

The Company’s planned capital expenditures have some flexibility in the timing of the spend, allowing the Company to defer cash spending if necessary to aid compliance with loan covenants in the future.

As of ~~July~~October 31, 2020, the Company had borrowed an aggregate of ~~$2.5~~$1.8 million at rates of 6.25% and ~~4.17%~~4.15% resulting in a weighted average rate of ~~4.56%~~5.09% and had ~~$5.2~~$5.8 million available under the

Senior Credit ~~Facility.~~Facility, before application of the $2.0 million availability block noted above in connection with the Amendment and Waiver.

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Revolving lines - foreign. The Company also has credit arrangements used by its Middle Eastern subsidiaries in the United Arab Emirates (the "U.A.E.") and Egypt as discussed further below.

The Company has a revolving line for 8.0 million Dirhams (approximately $2.2 million at ~~July~~October 31, ~~2020)~~2020) from a bank in the U.A.E. The facility has an interest rate of approximately ~~3.8%~~3.7% and ~~expires~~was originally set to expire in November ~~2020.~~2020, however, the expiration has been extended to December 2020 due to the global pandemic and inability to finalize renewal documentation prior to that time.

The Company has a second revolving line for 19.5 million Dirhams (approximately $5.3 million at ~~July~~October 31, ~~2020)~~2020) from a bank in the U.A.E. The facility has an interest rate of approximately ~~4.3%~~4.2% and was originally set to expire in July 2020, however, the expiration has been extended to ~~September~~December 2020 due to the global pandemic and inability to finalize renewal documentation prior to that time.

These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. The lines are secured by certain equipment, certain assets (such as accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt.

In November 2019, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 200.0 million Egyptian Pounds (approximately ~~$12.5~~$12.7 million at ~~July~~October 31, ~~2020)~~2020). 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 establishes a maximum leverage ratio allowable and restricts the Company's Egyptian subsidiary's ability to undertake any additional debt. The facility has an interest rate of approximately ~~12.8%~~11.6% and was originally set to expire in June 2020, however, the expiration ~~has been~~was extended to ~~September 2020~~January 2021 due to the global pandemic and inability to finalize renewal documentation prior to that time.

The Company’s credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. The Company guarantees the subsidiaries' debt including all foreign debt.

The Company was in compliance with the covenants under the credit arrangements in the U.A.E. and Egypt as of ~~July~~October 31, 2020. On ~~July~~October 31, 2020, interest rates were based on the Emirates Inter Bank Offered Rate ("EIBOR") plus 3.0% to 3.5% per annum, with a minimum interest rate of 4.5% per annum for the U.A.E. credit arrangements and based on the Central Bank of Egypt corridor rate plus 1.5% per annum for the Egypt credit arrangement. Based on these base rates, as of ~~July~~October 31, 2020, the Company's interest rates ranged from ~~3.8%~~3.7% to ~~12.8%~~11.6%, with a weighted average rate of ~~3.76%~~3.88%, and the Company could borrow ~~$20.0~~$20.2 million under these credit arrangements. As of ~~July~~October 31, 2020, ~~$4.3~~$4.5 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. Additionally, as of ~~July~~October 31, 2020, the Company had borrowed $1.0 million, and had an additional $14.7 million of borrowing remaining available under the foreign revolving credit arrangements. The foreign revolving lines balances as of ~~July~~October 31, 2020 and January 31, 2020, were included as current maturities of long-term debt in the Company's consolidated balance sheets.

Mortgages. On July 28, 2016, the Company borrowed CAD 8.0 million (approximately $6.1 million at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the Company's manufacturing facility located in Alberta, Canada that matures on December 23, 2042. The interest rate is variable, and was 4.55% at ~~July~~October 31, ~~2020.~~2020. 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 payment of amounts borrowed. The loan bears interest at 4.5% with monthly payments of $13 thousand for both principal and interest and matures July 1, 2027. On June 19, 2022, and on the same day of each year thereafter, the interest rate shall adjust to the prime rate, provided that the applicable interest rate shall not adjust more than 2.0% per annum and shall be subject to a ceiling of 18.0% and a floor of 4.5%.

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Note 10 - Leases

Operating Leases. In August 2020, the Company entered into a new lease in Abu Dhabi for land upon which the Company intends to build a facility. The annual payments are initially expected to be approximately 1.2 million Dirhams (approximately $0.3 million at October 31, 2020), inclusive of rent and common charges, with escalation clauses in the agreement. Rent payments are deferred until August 2022. The lease expires in August 2050.

Finance Leases. In 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. In 2017, the Company obtained three 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 range from 4.0% to 7.8% per annum with monthly principal and interest payments of less than $0.1 million. These leases mature between April 2021 to September 2022.

In August 2016, the Company obtained a finance lease for 0.6 million Indian Rupees (approximately $8 thousand at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for this finance lease was 15.6% per annum with monthly principal and interest payments of less than $1 thousand. This lease expired in July 2019.

The Company has several significant operating lease agreements, with lease terms of one to 14 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~~right-of-use ("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 ~~July~~October 31, 2020, the Company had total operating lease liabilities of ~~$11.9~~$14.9 million and total operating ROU assets of ~~$10.9~~$13.8 million, which are reflected in the consolidated balance sheet. At ~~July~~October 31, 2020, the Company also had total finance lease liabilities of $~~0.9~~0.8 million included in current maturities of long-term debt and long-term debt less current maturities, and total finance ROU assets of $1.0 million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheet.

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Supplemental balance sheet information related to leases is as follows:

*Operating and Finance leases:*	July 31, 2020			January 31, 2020			October 31, 2020			January 31, 2020
Finance leases assets:
Property and Equipment - gross	$	1,659		$	1,696		$	1,683		$	1,696
Accumulated depreciation and amortization		(640	)		(551	)		(700	)		(551	)
Property and Equipment - net	$	1,019		$	1,145		$	983		$	1,145

Finance lease liabilities:
Finance lease liability short-term	$	375		$	417		$	333		$	417
Finance lease liability long-term		502			677			446			677
Total finance lease liabilities	$	877		$	1,094		$	779		$	1,094

Operating lease assets:
Operating lease ROU assets	$	10,889		$	11,475		$	13,762		$	11,475

Operating lease liabilities:
Operating lease liability short-term	$	1,338		$	1,040		$	1,408		$	1,040
Operating lease liability long-term		10,563			11,214			13,477			11,214
Total operating lease liabilities	$	11,901		$	12,254		$	14,885		$	12,254

Total lease costs consist of the following:

Lease costs	Consolidated Statements of Operations Classification	Three Months Ended July 31, 2020			Three Months Ended July 31, 2019			Six Months Ended July 31, 2020			Six Months Ended July 31, 2019			Consolidated Statements of Operations Classification	Three Months Ended October 31, 2020			Three Months Ended October 31, 2019			Nine Months Ended October 31, 2020			Nine Months Ended October 31, 2019
Finance Lease Costs
Amortization of ROU assets	Cost of sales	$	53		$	51		$	101		$	102		Cost of sales	$	50		$	53		$	151		$	155
Interest on lease liabilities	Interest expense		18			8			37			17		Interest expense		17			18			54			36
Operating lease costs	Cost of sales, SG&A expenses		610			581			1,222			1,132		Cost of sales, SG&A expenses		682			579			1,904			1,716
Short-term lease costs (1)	Cost of sales, SG&A expenses		213			82			236			266		Cost of sales, SG&A expenses		53			140			289			401
Sub-lease income	SG&A expenses		(20	)		(20	)		(40	)		(40	)	SG&A expenses		(21	)		(20	)		(61	)		(61	)
Total Lease costs	Total Lease costs	$	874		$	702		$	1,556		$	1,477		Total Lease costs	$	781		$	770		$	2,337		$	2,247

(1) Includes variable lease costs, which are immaterial

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Supplemental cash flow information related to leases is as follows:

	Six Months Ended July 31, 2020		Six Months Ended July 31, 2019		Nine Months Ended October 31, 2020		Nine Months Ended October 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	202	$	103	$	310	$	185
Operating cash flows from finance leases	$	37		17		54		17
Operating cash flows from operating leases	$	1,385		1,127		1,713		1,127

	~~Six~~Nine Months Ended ~~July~~October 31, 2020
ROU Assets obtained in exchange for new lease obligations:
Finance leases liabilities	$	-
Operating leases liabilities		533,255

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

	~~July~~October 31, 2020
Weighted-average remaining lease terms (in years):
Finance leases		~~2.6~~2.5
Operating leases		~~8.3~~12.9

Weighted-average discount rates:
Finance leases		7.7	%
Operating leases		7.9	%

Maturities of lease liabilities as of ~~July~~October 31, 2020, are as follows:

Year:	Operating Leases			Finance Leases			Operating Leases			Finance Leases
For the six months ended January 31, 2021	$	949		$	239
For the three months ended January 31, 2021							$	630		$	121
For the year ended January 31, 2022		2,340			325			2,360			328
For the year ended January 31, 2023		2,229			264			2,406			266
For the year ended January 31, 2024		2,061			142			2,392			143
For the year ended January 31, 2025		1,330			-			1,662			-
For the year ended January 31, 2026		1,144			-			1,475			-

Thereafter		6,214			-			14,339			-
Total lease payments		16,267			970			25,264			858
Less: amount representing interest		(4,366	)		(93	)		(10,379	)		(79	)
Total lease liabilities at July 31, 2020	$	11,901		$	877
Total lease liabilities at October 31, 2020							$	14,885		$	779

Rent expense on operating leases, which is recorded on straight-line basis, was ~~$0.8~~$0.7 million and $0.7 million for the three months ended ~~July~~October 31, 2020 and 2019, and ~~$1.5~~$2.2 million and ~~$1.4~~$2.0 million for the ~~six~~nine months ended ~~July~~October 31, 2020 and 2019, respectively.

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Note 11 - Restricted cash

Restricted cash held by foreign subsidiaries was $1.2 million and $1.1 million as of ~~July~~October 31, 2020 and 2019, respectively, and is related to fixed deposits that also serve as security deposits and guarantees.


	July 31, 2020		July 31, 2019		October 31, 2020		October 31, 2019
Cash and cash equivalents	$	9,106	$	8,052	$	6,593	$	12,221
Restricted cash		1,150		1,167		1,154		1,138
Cash, cash equivalents and restricted cash shown in the statement of cash flows	$	10,256	$	9,219	$	7,747	$	13,359

Note 12 - Fair value

The carrying values of cash and cash equivalents, accounts receivable and accounts payable are 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 market rates.

Note 13 - Recent accounting pronouncements

In March 2020, the Financial Accounting Standards Board ("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 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 Senior Credit Facility which matures on September 20, 2021 bears interest using an alternate base rate or LIBOR plus an applicable margin. Based on the maturity of the Senior Credit Facility prior to the discontinuation of LIBOR, the Company does not expect a material impact from the adoption of this standard on the financial statements of the Company.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes, enacts changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this standard and the impact to the financial statements of the Company.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which removes disclosures that are no longer considered cost beneficial, clarifies specific requirements of existing disclosures and adds disclosure requirements identified as relevant. This ASU is effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company will adopt this standard in its Annual Report on Form 10-K footnote disclosures for the year ended January 31, 2021 and does not expect a material impact on the financial statements of the Company.

In June 2016, the 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 the 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 or related disclosures.

Note 14 - Subsequent events

As described in more detail in Note 9 - Debt, on December 18, 2020, the Company entered into the Amendment and Waiver with PNC, which (i) reflected PNC's waiver of the Company's failure to maintain a fixed charge coverage ratio of 1.10 to 1.00 as of October 31, 2020 on a trailing four quarter basis as required under the Company's Credit Agreement and (ii) further amended certain future fixed charge coverage ratio covenant requirements under the Credit Agreement.

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Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")

The statements contained under the caption MD&A and other information contained elsewhere in this quarterly report, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely" and "probable" or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors, including, but not limited to, those under the heading Item 1A. Risk Factors included in the Company's latest Annual Report on Form 10-K.

This MD&A should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, contained elsewhere in this report. Percentages set forth below in the MD&A have been rounded to the nearest percentage point, and may not exactly correspond to the comparative data presented.

COVID-19 and Depressed Oil and Gas Market Impact

In ~~January 2020,~~late 2019, an outbreak of novel coronavirus (also known as "COVID-19") ~~started in Wuhan, China.~~began. The virus was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the rapid spread of the virus, national and local governments have instituted varying levels of actions to contain the virus's spread.

As of the date of filing this Form 10-Q, all of the Company’s plants are operating and, to date, the ~~Compay's~~Company's global supply chains have not been materially affected by the global pandemic. Due to the unprecedented actions taken to stem the spread of the virus and the uncertainty of the duration and impact of additional actions that may be required, the resulting future disruptions to the Company’s operations are uncertain.

In response to the extraordinary steps taken to combat the spread of COVID-19 and the impact of decreased oil prices, the Company has updated its forecasts more frequently during this period to determine the continuing financial impact of these events on the Company’s results of ~~operations.~~operations, financial condition and liquidity. The resulting actions from these reforecasts included reducing planned capital expenditures, ~~and~~ non-essential operating ~~expenses. With~~expenses and headcount reductions. Due to project delays as a result of COVID-19, as of October 31, 2020, the Company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the trailing four-quarters ended October 31, 2020 under its Credit Agreement for both the North American Loan Parties and the Company and its subsidiaries. Based on the actions taken by the Company and expected future results, the Company believes it ~~will remain~~has alleviated any concerns about its ability to satisfy its obligations in ~~compliance with its debt covenants under its Senior Credit Facility; however, foreign cash can~~the normal course of business for the next year after the date these financial statements are available to be ~~repatriated to maintain debt covenant compliance if necessary.~~issued. See further discussion below and in Note 9 - Debt.

On May 1, 2020, the Company entered into a loan agreement under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") and received proceeds of approximately $3.2 million. Interest on the loan accrued at a fixed interest rate of 1.0%. Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses. During the three months ended July 31, 2020, the Company used all of the PPP loan proceeds to pay for qualified expenses, 100% of which were used for payroll related expenses. The Company believes the PPP loan proceeds will be forgiven under the terms of the CARES Act program, although no assurance to that effect can be provided. Under the current provisions of the CARES Act, any recipient of a PPP loan may be subject to an audit to confirm it qualifies for the loan and that the proceeds were used for qualified expenses as prescribed by the program rules.

Based on the facts and circumstances of the Company's PPP loan and according to the applicable accounting guidance described herein, the Company has elected to account for the PPP proceeds as a grant that has reasonable assurance of being forgiven. As such, the Company recognized the proceeds in earnings during the ~~three~~nine months ended ~~July~~October 31, ~~2020.~~2020. The amounts are recognized in other income in the consolidated statements of operations. The Company has submitted its application and documentation for forgiveness to its bank and it is in the review process prior to being submitted to the SBA.

Beginning in April 2020, the Company's subsidiary, Perma-Pipe Canada, Ltd. ("PPCA"), applied for relief in the form of grants from the Canadian government under the Canadian Emergency Wage Subsidy ("CEWS") program. Based on the program rules, the grants are applied for each month and are granted based on the amount of eligible employee expenses incurred over the previous month. PPCA was approved for and received approximately ~~$0.6~~$1.1 million in grants under the program during the ~~six~~nine months ended ~~July~~October 31, ~~2020.~~2020. The CEWS program is scheduled to continue through ~~November 2020.~~June 2021. PPCA plans to apply for additional grants under the program, however there is no guarantee that PPCA will be granted any additional funds under the program. The CEWS proceeds are recognized in other income in the consolidated statements of operations.

The Company’s results of operations, financial condition, liquidity and cash flow in 2020 have been materially adversely affected by the COVID-19 pandemic and the current depressed market prices for oil and gas and will likely continue to be materially adversely affected, the extent to which remains unclear at this time. See Item 1A. Risk Factors included in the Company's latest Annual Report on Form 10-K for additional information.

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RESULTS OF OPERATIONS

The Company is engaged in the manufacture and sale of products in one reportable segment. Since the Company focuses on large discrete projects, operating results ~~could be~~are significantly impacted ~~in the future~~ as a result of large variations in the level of project activity in reporting periods.

($ in thousands)	Three Months Ended July 31,																		Six Months Ended July 31,																	Three Months Ended October 31,																		Nine Months Ended October 31,
	2020						2019						Change favorable/(unfavorable)						2020						2019					Change favorable/(unfavorable)						2020						2019						Change favorable/(unfavorable)						2020						2019					Change favorable/(unfavorable)
	Amount			Percent of Net Sales			Amount			Percent of Net Sales			Amount			Percent			Amount			Percent of Net Sales			Amount		Percent of Net Sales			Amount			Percent			Amount			Percent of Net Sales			Amount			Percent of Net Sales			Amount			Percent			Amount			Percent of Net Sales			Amount		Percent of Net Sales			Amount			Percent
Net sales	$	20,364					$	36,667					$	(16,303	)		(44	%)	$	43,106					$	60,943				$	(17,837	)		(29	%)	$	20,294					$	34,457					$	(14,163	)		(41	%)	$	63,399					$	95,400				$	(32,001	)		(34	%)

Gross profit		2,364			12	%		9,653			26	%		(7,289	)		(76	%)		5,831			14	%		14,375		24	%		(8,544	)		(59	%)		2,938			14	%		7,643			22	%		(4,705	)		(62	%)		8,769			14	%		22,018		23	%		(13,249	)		(60	%)

General and administrative expenses		4,488			22	%		4,814			13	%		326			7	%		8,792			20	%		9,271		15	%		479			5	%		4,528			22	%		4,636			13	%		108			2	%		13,320			21	%		13,907		15	%		587			4	%

Selling expense		1,331			7	%		1,416			4	%		85			6	%		2,978			7	%		2,676		4	%		(302	)		(11	%)		1,174			6	%		1,354			4	%		180			13	%		4,153			7	%		4,030		4	%		(123	)		(3	%)

Interest expense, net		118						209						91			44	%		304						419					115			27	%		107						194						87			45	%		411						612					201			33	%

Other income		3,739						241						3,498			1451	%		3,674						256					3,418			1335	%
Other income/(expense)																																					(2	)					95						(97	)		(104	%)		3,672						351					3,321			946	%

Income/(loss) from operations before income taxes		166						3,455						(3,289	)		(95	%)		(2,569	)					2,265					(4,834	)		(213	%)		(2,873	)					1,554						(4,427	)		(285	%)		(5,443	)					3,820					(9,263	)		(242	%)

Income tax (benefit)/expense		(101	)					(265	)					(164	)		(62	%)		(315	)					47					362			770	%		(23	)					1,699						1,722			(101	%)		(339	)					1,747					2,086			119	%

Net income/(loss)		267						3,720						(3,453	)		(93	%)		(2,254	)					2,218					(4,472	)		(202	%)		(2,850	)					(145	)					(2,705	)		1866	%		(5,104	)					2,073					(7,177	)		(346	%)

Three months ended ~~July~~October 31, 2020 ("current quarter") vs. Three months ended ~~July~~October 31, 2019 ("prior year quarter")

Net sales:

Net sales were $~~20.4~~20.3 million in the current quarter, a decrease of ~~$16.3~~$14.2 million, or ~~44%~~41%, from $~~36.7~~34.5 million in the prior year quarter. The decrease was a result of lower sales volumes in the Company's ~~our~~ Canadian and offshore Gulf of Mexico businesses ~~resulted from~~driven by the impact of lower oil prices, combined with ~~project delays~~a reduction in sales in the Company's U.S. and Middle East district heating and cooling businesses caused by project delays arising as a result of the COVID-19 pandemic.

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Gross profit:

Gross profit decreased to $~~2.4~~2.9 million, or ~~12%~~14% of net sales, in the current quarter from $~~9.7~~7.6 million, or ~~26%~~22% of net sales, in the prior year quarter. This decrease was driven primarily ~~driven~~ by lower sales volumes.

General and administrative expenses:

General and administrative expenses decreased to $4.5 million in the current quarter from ~~$4.8~~$4.6 million in the prior year quarter. This decrease was driven primarily ~~driven~~ by cost cutting measures enacted as a result of the COVID-19 pandemic.

Selling expenses:

Selling expenses decreased to $~~1.3~~1.2 million in the current quarter, compared to $1.4 million in the prior year quarter due primarily to lower personnel costs.

Interest expense, net:

Net interest expense decreased to $0.1 million in the current quarter, compared to $0.2 million in the prior year quarter. This decrease was ~~driven by~~due to lower ~~interest rates on~~ borrowings during the period.

Other ~~income:~~income/(expense):

Other ~~income increased~~income/(expense) decreased to ~~$3.7~~an expense of less than $0.1 million in the current quarter, compared to ~~$0.2~~income of $0.1 million in the prior year ~~quarter, an increase~~quarter. This decrease was driven by the encashment of ~~$3.5 million. This increase was primarily the result of recognition~~a $0.6 million performance bond securing one of the Company's ~~reasonable expectation~~contracts with a customer in Qatar. The Company believes the customer's claims of ~~forgiveness~~non-performance under the contract are invalid and that the customer's actions were themselves a breach of ~~its PPP loan proceeds during~~ the ~~period~~contract. The Company has engaged local counsel to seek reimbursement as well as additional compensation for lost profits suffered as a result of ~~$3.2 million.~~cancellation of certain work orders under the contract. This expense was partially offset by income recorded for funds received under the CEWS program in Canada.

Income/(loss) from operations before income taxes:

~~Income~~Income/(loss) from operations before income taxes decreased by $~~3.3~~4.4 million to ~~$0.2~~a loss of $2.9 million in the current quarter from ~~$3.5~~income of $1.5 million in the prior year quarter. The decrease ~~resulted from~~was a result of lower ~~revenues~~sales volumes in ~~North America due to declines in~~the Company's Canadian and offshore Gulf of Mexico businesses driven by the impact of lower oil prices, ~~and certain of~~combined with a reduction in sales in the Company's U.S. and Middle East ~~and U.S.~~ district heating and cooling ~~operations due to~~businesses caused by project delays arising as a result of the COVID-19 pandemic. ~~The negative impact of these lower revenues was offset by increased income from the Company's new operations in Egypt and by reduced overhead as a consequence of cost reduction initiatives.~~

Income tax (benefit)/expense:

The Company's worldwide effective tax rates ("ETR") were ~~(56.8%)~~0.8% and ~~(7.6%)~~127.8% in the current quarter and the prior year quarter, respectively. The change in the ETR from the prior year quarter to the current year quarter ~~was largely~~is due to ~~changes~~the impact of tax rates in various jurisdictions and the changing mix of taxable income and loss in ~~various~~those jurisdictions, as well as the impact of the lower current quarter pre-tax income as compared to the prior year quarter.

The Company expects that future distributions from foreign subsidiaries will not be subject to incremental U.S. federal tax as they will either be remittances of previously taxed earnings and profits or eligible for a full ~~dividends received~~dividends-received deduction. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested, and earnings in its Indian subsidiary are partially permanently reinvested. The earnings from these subsidiaries will be subject to tax in their local jurisdiction, and the impact of Indian, Canadian and Egyptian withholding taxes will be recorded. As such, the Company has accrued a liability of ~~$0.4~~$0.3 million as of ~~July~~October 31, 2020 related to these taxes.

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

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Net ~~income:~~loss:

The resulting net ~~income~~loss of ~~$0.3~~$2.8 million in the current quarter was a decline of ~~$3.4~~$2.7 million over the net ~~income~~loss of ~~$3.7~~$0.1 million in the prior year quarter. The decrease ~~resulted from~~was a result of lower ~~revenues~~sales volumes in ~~North America due to declines in~~the Company's Canadian and offshore Gulf of Mexico businesses driven by the impact of lower oil prices, ~~and certain of~~combined with a reduction in sales in the Company's U.S. and Middle East ~~and U.S.~~ district heating and cooling ~~operations due to~~businesses caused by project delays arising as a result of the COVID-19 pandemic. ~~The negative impact of these lower revenues was offset by increased income from the Company's new operations in Egypt and by reduced overhead as a consequence of cost reduction initiatives.~~

~~Six~~Nine months ended ~~July~~October 31, 2020 ("year-to-date") vs. ~~Six~~Nine months ended ~~July~~October 31, 2019 ("prior year year-to-date")

Net sales:

Net sales were ~~$43.1~~$63.4 million in the current year-to-date, a decrease of ~~$17.8~~$32.0 million, or ~~29%~~34%, from ~~$60.9~~$95.4 million in the prior year year-to-date. The decrease ~~resulted from~~was a result of lower ~~revenues~~sales volumes in ~~North America due to declines in~~the Company's Canadian and offshore Gulf of Mexico businesses driven by the impact of lower oil prices, ~~and certain of~~combined with a reduction in sales in the Company's U.S. and Middle East ~~and U.S.~~ district heating and cooling ~~operations due to~~businesses caused by project delays arising as a result of the COVID-19 pandemic.

Gross profit:

Gross profit decreased to ~~$5.8~~$8.8 million, or 14% of net sales, in the current year-to-date from ~~$14.4~~$22.0 million, or ~~24%~~23% of net sales, in the prior year year-to-date. This decrease was driven primarily ~~driven~~ by lower sales volumes.

General and administrative expenses:

General and administrative expenses decreased to ~~$8.8~~$13.3 million in the current year-to-date from ~~$9.3~~$13.9 million in the prior year year-to-date. This decrease was driven primarily ~~driven~~ by cost cutting measures enacted as a result of the COVID-19 pandemic.

Selling expenses:

Selling expenses increased to ~~$3.0~~$4.2 million in the current year-to-date, compared to ~~$2.7~~$4.0 million in the prior year year-to-date, an increase of ~~$0.3~~$0.2 million, or ~~11%~~3%. This increase was primarily due to ~~payroll expenses for additional~~the addition of new sales employees ~~added in 2019.~~and severance payments for terminated employees.

Interest expense, net:

Net interest expense decreased to ~~$0.3~~$0.4 million in the current year-to-date, compared to ~~$0.4~~$0.6 million in the prior year year-to-date. This decrease was ~~driven by~~due to lower ~~interest rates on~~ borrowings during the period.

Other ~~income:~~income/(expense):

Other ~~income~~income/(expense) increased to income of $3.7 million in the current year-to-date, compared to ~~$0.3~~income of $0.4 million in the prior year year-to-date, an increase of ~~$3.4~~$3.3 million. This increase was primarily the result of recognition of the Company's reasonable expectation of forgiveness of ~~the~~its PPP loan proceeds during the period of $3.2 ~~million.~~million, as well as income recorded for funds received under the CEWS program in Canada. These amounts were offset partially by the encashment of a performance bond securing one of the Company's contracts with a customer in Qatar. The Company believes the customer's claims of non-performance under the contract are invalid and that the customer's actions were themselves a breach of the contract. The Company has engaged local counsel to seek reimbursement as well as additional compensation for lost profits suffered as a result of cancellation of certain work orders under the contract.

Income/(loss) from operations before income taxes:

Income/(loss) from operations before income taxes decreased by ~~$4.8~~$9.2 million to a loss of ~~$2.6~~$5.4 million in the current year-to-date from income of ~~$2.2~~$3.8 million in the prior year year-to-date. The decrease ~~resulted from~~was a result of lower ~~revenues~~sales volumes in ~~North America due to declines in~~the Company's Canadian and offshore Gulf of Mexico businesses driven by the impact of lower oil prices, ~~and certain of~~combined with a reduction in sales in the Company's U.S. and Middle East ~~and U.S.~~ district heating and cooling ~~operations due to~~businesses caused by project delays arising as a result of the COVID-19 pandemic. ~~The negative impact of these lower revenues was offset by increased income from the Company's new operations in Egypt and by reduced overhead as a consequence of cost reduction initiatives.~~

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Income tax (benefit)/expense:

The Company's worldwide ETRs were ~~12.3%~~6.2% and ~~2.1%~~48.6% in the current year-to-date and the prior year year-to-date, respectively. The change in the ETR from the prior year year-to-date to the current year year-to-date ~~was largely~~is due to ~~changes~~the impact of tax rates in various jurisdictions and the changing mix of taxable income and loss in ~~various~~those jurisdictions.

The Company expects that future distributions from foreign subsidiaries will not be subject to incremental U.S. federal tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested, and earnings in its Indian subsidiary are partially permanently reinvested. The earnings from these subsidiaries will be subject to tax in their local jurisdiction, and the impact of the Indian, Canadian and Egyptian withholding taxes will be recorded. As such, the Company has accrued a liability of ~~$0.4~~$0.3 million as of ~~July~~October 31, 2020 related to these taxes.

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

Net income/(loss):

The resulting net loss of ~~$2.3~~$5.1 million in the current year-to-date was a decline of ~~$4.5~~$7.2 million over the net income of ~~$2.2~~$2.1 million in the prior year year-to-date. The decrease ~~resulted from~~was a result of lower ~~revenues~~sales volumes in ~~North America due to declines in~~the Company's Canadian and offshore Gulf of Mexico businesses driven by the impact of lower oil prices, ~~and certain of~~combined with a reduction in sales in the Company's U.S. and Middle East ~~and U.S.~~ district heating and cooling ~~operations due to~~businesses caused by project delays arising as a result of the COVID-19 pandemic. ~~The negative impact of these lower revenues was offset by increased income from the Company's new operations in Egypt and by reduced overhead as a consequence of cost reduction initiatives.~~

Liquidity and capital resources

Cash and cash equivalents as of ~~July~~October 31, 2020 were $~~9.1~~6.6 million compared to $13.4 million on January 31, 2020. On ~~July~~October 31, 2020, $~~0.2~~0.4 million was held in the U.S., and $~~8.9~~6.2 million was held at the Company's foreign subsidiaries. The Company's working capital was $~~31.1~~29.3 million on ~~July~~October 31, 2020 compared to $31.4 million on January 31, 2020. Of the working capital components, cash decreased ~~$4.3~~$6.8 million as the result of the movements discussed below.

Net cash provided by operating activities in the ~~current quarter~~nine months ended October 31, 2020 was ~~$2.6~~$2.0 million, as compared to ~~net cash used in operating activities of $0.9~~$2.8 million in the comparable prior year ~~quarter.~~period. This ~~increase~~decrease was due primarily ~~due~~ to the Company ~~collecting more~~settling accounts ~~receivable~~payable and ~~purchasing less~~increases in prepaid expenses and other current assets, partially offset by decreases in inventory ~~for projects~~ in the current ~~quarter~~period compared to the prior year ~~quarter.~~period.

Net cash used in investing activities in the ~~current quarter~~nine months ended October 31, 2020 and in the comparable prior year ~~quarter~~period was ~~$0.8~~$1.6 million and ~~$1.0~~$1.4 million, respectively. This was due primarily to ~~a decrease~~an increase in investments in fixed assets ~~needed for~~supporting growth initiatives in the ~~operation of the business, including the deferral of certain capital expenditures until the global markets recover from the current downturn.~~Middle East.

Net cash used in financing activities in the ~~current quarter~~nine months ended October 31, 2020 and the comparable prior year ~~quarter~~period was ~~$6.3~~$7.2 million and ~~$1.6~~$0.8 million, respectively. The primary reason for this change was that during the ~~prior year quarter~~current period the ~~Company's~~Company had greater net repayments ~~exceeded its borrowings~~ under its revolving credit facility byof approximately ~~$1.3~~$6.4 million, ~~whereas in~~as compared to the ~~current quarter,~~prior year period where the Company had net repayments ~~exceeded borrowings by~~under its revolving credit facility of approximately ~~$5.8~~$0.3 million. Debt totaled $~~10.5~~9.7 million and $16.9 million as of ~~July~~October 31, 2020 and January 31, 2020, respectively. For additional information, see Note 9 - Debt, in the Notes to Consolidated Financial Statements.

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Revolving line - 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, 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”).

The Company has used proceeds from the Senior Credit Facility to pay outstanding amounts under a prior credit facility, a cash collateralized letter of credit, and for on-going working capital needs, and expects to continue using this facility to fund future capital expenditures, working capital needs and other corporate purposes. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate or LIBOR, plus, in each case, an applicable margin. The applicable margin is based on average quarterly undrawn availability with respect to the Senior Credit Facility. Interest on alternate base rate borrowings are generally payable monthly in arrears and interest on LIBOR borrowings are generally payable in arrears on the last day of each interest period. Additionally, the Company is required to pay a 0.375% per annum facility fee on the unused portion of the Senior Credit Facility. The facility fee is payable quarterly in arrears.

Subject to certain exceptions, borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company and certain of assets of its North American subsidiaries. The North American Loan Parties’ obligations under the Senior Credit Facility are guaranteed by Perma-Pipe Canada, Inc. The Senior Credit Facility will mature on September 20, 2021. Subject to certain qualifications and exceptions, the 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 cannot allow capital expenditures to exceed $3.0 million annually (plus a limited carryover of unused amounts).

The Senior Credit Facility also contains financial covenants requiring (i) the North America Loan Parties to achieve a ratio of their EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility (excluding from the calculation items related to the financial performance of the Company’s foreign subsidiaries not party to the Credit Agreement) to be not less than 1.10 to 1.00 at each quarter end on a trailing four-quarter basis; and ~~(iii)~~(ii) the Company and its subsidiaries (including the Company’s foreign subsidiaries not party to the Credit Agreement) to achieve a ratio of their EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility of not less than 1.10 to 1.00 at each quarter end on a trailing four-quarter basis.

The amended fixed charge coverage ratio requirements for the Company and its subsidiaries under the Amendment and Waiver are (i) 1.25 to 1.00 for the six-month period ending April 30, 2021 and (ii) 1.25 to 1.00 for the nine-month period ending July 31, 2021. The amended fixed charge coverage ratio requirements for the North American Loan Parties under the Amendment and Waiver are (i) 1.10 to 1.00 for the three-month period ending January 31, 2021; (ii) 1.10 to 1.00 for the six-month period ending April 30, 2021; and (iii) 1.10 to 1.00 for the nine-month period ending July 31, 2021. In order to cure any future breach of the fixed charge coverage ratio 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 Credit Agreement in an amount which, when added to the amount of the Company’s Consolidated EBITDA, would result in pro forma compliance with ~~these requirements as~~the covenant. As of ~~July~~October 31, 2020,. the Company’s foreign subsidiaries that are not a party to the Credit Agreement had approximately $6.2 million of cash available to satisfy a future potential repatriation cure of any potential future breach of the fixed charge coverage ratio covenant. Any cash required to cure future covenant defaults would be repatriated through the Company’s subsidiaries in the United Arab Emirates, Saudi Arabia, Egypt and/or India. The Company estimates that it may need to repatriate cash of up to $1.3 million in the next six months. Most of this cash could be repatriated without any tax consequences, however, some repatriation would require payment of withholding taxes. The Company does not anticipate any material tax impacts of any potential future repatriation.

●

The Company’s execution of the Amendment and Waiver described above,

●

The Company’s ability to repatriate cash from its foreign subsidiaries to cure any future covenant defaults without any material cost or tax consequences,

●

The Company expects an increase in business activity and cash flow from operations over the remaining term of the Amendment and Waiver,

●

Management expects to be able to borrow within the reduced availability parameters noted above, and

●

As of ~~July~~October 31, 2020, the Company had borrowed an aggregate of ~~$2.5~~$1.8 million at a rate of 6.25% and ~~4.17%~~4.15% resulting in a weighted average rate of ~~4.56%~~5.09% and had ~~$5.2~~$5.8 million available under the Senior Credit ~~Facility.~~Facility, before application of the $2.0 million availability block noted above in connection with the Amendment and Waiver.

Revolving lines - foreign. The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E. and Egypt as discussed further below. The Company has a revolving line for 8.0 million Dirhams (approximately $2.2 million at ~~July~~October 31, ~~2020)~~2020) from a bank in the U.A.E. The facility has an interest rate of approximately ~~3.8%~~3.7% and ~~expires~~was originally set to expire in November ~~2020.~~2020, however, the expiration has been extended to December 2020 due to the global pandemic and inability to finalize renewal documentation prior to that time.

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In November 2019, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 200.0 million Egyptian Pounds (approximately ~~$12.5~~$12.7 million at ~~July~~October 31, 2020). 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 establishes a maximum leverage ratio allowable and restricts the Company's Egyptian subsidiary's ability to undertake any additional debt. The facility has an interest rate of approximately ~~12.8%~~11.6% and was originally set to expire in June 2020, however, the expiration ~~has been~~was extended to ~~September 2020~~January 2021 due to the global pandemic and inability to finalize renewal documentation prior to that time.

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The Company’s credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. The Company guarantees the subsidiaries' debt including all foreign debt.

The Company was in compliance with the covenants under the credit arrangements in the U.A.E. and Egypt as of ~~July~~October 31, ~~2020.~~2020. On ~~July~~October 31, 2020, interest rates were based on the Emirates Inter Bank Offered Rate ("EIBOR") plus 3.0% to 3.5% per annum, with a minimum interest rate of 4.5% per annum for the U.A.E. credit arrangements and based on the Central Bank of Egypt corridor rate plus 1.5% per annum for the Egypt credit arrangement. Based on these base rates, as of ~~July~~October 31, 2020, the Company's interest rates ranged from ~~3.8%~~3.7% to ~~12.8%~~11.6%, with a weighted average rate of ~~3.76%~~3.88%, and the Company could borrow ~~$20.0~~$20.2 million under these credit arrangements. As of ~~July~~October 31, 2020 ~~$4.3~~, $4.5 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. Additionally, as of ~~July~~October 31, 2020, the Company had borrowed $1.0 million, and had an additional $14.7 million of borrowing remaining available under the foreign revolving credit arrangements. The foreign revolving lines balances as of ~~July~~October 31, 2020 and January 31, 2020, were included as current maturities of long-term debt in the Company's consolidated balance sheets.

Additional ~~Liquidity~~liquidity from the PPP

On May 1, 2020, the Company entered into a loan agreement under the SBA's PPP and received proceeds of approximately $3.2 million. Interest on the loan accrued at a fixed interest rate of 1.0%, and the loan had a maturity date of April 28, 2022. Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses. During the three months ended July 31, 2020, the Company used all of the PPP loan proceeds to pay for qualified expenses, 100% of which were used for payroll related expenses. The Company believes the PPP loan proceeds will be forgiven under the terms of the CARES Act program, although no assurance to such effect may be provided. Under the current provisions of the CARES Act, any recipients of a PPP loan may be subject to an audit to confirm they qualify for the loan and that the proceeds were used for qualified expenses as prescribed by the program rules.

Based on the facts and circumstances of the Company's loan and according to the applicable accounting guidance described herein, the Company has elected to account for the PPP proceeds as a grant that has reasonable assurance of being forgiven. As such, the Company recognized the proceeds in earnings during the ~~three~~nine months ended ~~July~~October 31, 2020. The amounts are recognized in other income in the consolidated statements of operations.

Additional liquidity from the CEWS Program

Beginning in April 2020, the Company's subsidiary, PPCA, applied for relief in the form of grants from the Canadian government under the CEWS program. Based on the program rules, the grants are applied for each month and are granted based on the amount of eligible employee expenses incurred over the previous month. PPCA was approved for and received approximately $1.1 million in grants under the program during the nine months ended October 31, 2020. The ~~amounts~~CEWS program is scheduled to continue through June 2021. PPCA plans to apply for additional grants under the program, however there is no guarantee that PPCA will be granted any additional funds under the program. The CEWS proceeds are recognized in other income in the consolidated statements of operations.

Accounts receivable:

In 2013, the Company started a project in the Middle East as a sub-contractor, with billings in the aggregate amount of approximately $41.9 million. The Company completed all of its deliverables in 2015 ~~and~~under the related contract, but the system has not yet been commissioned by the customer. Nevertheless, the Company has since then collected approximately ~~$37.8~~$38.1 million as of ~~July~~October 31, 2020, with a remaining balance due in the amount of ~~$4.1~~$3.8 million. Included in this balance is an amount of ~~$3.6~~$3.4 million, which pertains to retention clauses within the agreements of the Company's customer (contractor), and which become payable by the customer when this project is fully tested and commissioned. In the absence of a firm date for the final commissioning of the project, and due to the long-term nature of this receivable, $1.6 million of this retention amount was reclassified to a long-term receivable account.

The Company has been engaged in ongoing active efforts to collect the outstanding ~~amount, but due to the current global pandemic and associated government shutdowns, has not made any collections during the~~ ~~six months ended July 31, 2020~~.amount. During fiscal 2019, the Company received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. During the first quarter of 2020, the Company ~~has~~had certified invoices of $0.5 million in the process of collection. In August 2020, the Company received approximately $0.2 million from the customer and additional receipts are expected in ~~September~~the fourth quarter of 2020 and ~~throughout the remainder of the year.~~in 2021. As a result, the Company did not reserve any allowance against this amount as of ~~July~~October 31, 2020. 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are described in Item 7. MD&A and in the Notes to the Consolidated Financial Statements for the year ended January 31, 2020 contained in the Company's latest Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of critical accounting policies may require management to make assumptions, judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

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Item 4.

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 Securities Exchange Act of 1934, as amended) as of ~~July~~October 31, 2020. Based upon the foregoing, ~~and the material weakness remediation activities implemented by the Company as described below,~~ the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective and operating to provide reasonable assurance 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. The Company's management, including the Chief Executive Officer and Chief Financial Officer, based on the remediation activities implemented by the Company as described below, 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. Other than as set forth below, there were no changes in the Company's internal control over financial reporting during the Company's most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Management ~~has~~ previously reported on a material weakness in the Company's internal control over financial reporting that resulted from an accounting error identified by the Company’s auditors during the audit of the Company’s financial statements for the fiscal year ended January 31, 2020 related to the Company’s revenue recognition under percentage of completion accounting. Specifically, the Company had improperly recognized revenue for an open project based on imputed sales amounts greater than the total contracted amount. This accounting error was attributable to the Company’s deviation from its standard contract accounting policies and failure to recognize the error during monthly revenue reviews and led management to conclude that a material weakness existed with respect to the Company’s internal control over financial reporting.

~~As described below, the~~ The Company has adopted and implemented policies and procedures to ensure that personnel will not deviate from the Company's standard accounting policies and perform monthly reviews that will result in appropriate revenue recognition.

~~Notwithstanding the~~considered this material weakness ~~described above, the Company's management, including the Chief Executive Officer and Chief Financial Officer, based on the remediation activities implemented by the Company~~fully remediated as ~~described below, 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.~~ October 31, 2020. 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.

The ~~Company's auditors identified an accounting error during~~Company has implemented the ~~audit of the Company's financial statements for the fiscal year ended January 31, 2020 related~~following changes in response to the Company's revenue recognition under percentage of completion accounting. Specifically, the Company had improperly recognized revenue for an open project based on imputed sales amounts greater than the total contracted amount. The accounting error was attributable to the Company’s deviation from its standard contract accounting policies and failure to recognize the error during monthly revenue reviews and led management to conclude that a material weakness existed with respect to the Company's internal control over financial reporting. As a result of the material weakness ~~identified, the Company has updated its internal control over financial reporting as discussed in its remediation plan below.~~

~~Remediation Plan for the Material Weakness in Internal Control over Financial Reporting.~~ ~~To address the material weakness regarding the improper recognition of revenue for open projects, the Company has substantially completed the following:~~described above:

•	Reinforced the importance of adherence to Company policies regarding entering into and subsequently modifying contracts with customers, and confirmed in monthly meetings with managers that no contracts have been entered into that deviate from Company’s accounting policies;
•	Created additional reports to identify potential system errors and exceptions related to project revenues and costs where higher risk may exist for inappropriate revenue recognition;
•	Reviewed listing of material request invoices each month to identify if any significant items are included and reviewed with additional scrutiny for appropriate revenue recognition;
•	Ensured adherence to guidelines for preparation of the Company's monthly revenue and contribution margin presentation to include all components of a project in one line to provide full visibility of total job performance; and
•	Implemented a monthly meeting between accounting personnel to discuss and analyze the asset and liability work-in-process accounts to identify any specific projects that require further investigation.

The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company's processes, procedures and controls related to revenue recognition under percentage of completion accounting 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 an acceptable period of time and successfully tested.

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PART II OTHER INFORMATION

Item 6.

Exhibits

10 (bb)	First Amendment and Waiver to Revolving Credit and Security Agreement, dated December 18, 2020, by and among the Company, PNC Bank, National Association, and the other parties thereto
31.1	Rule 13a - 14(a)/15d - 14(a) Certifications (1) Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Rule 13a - 14(a)/15d - 14(a) Certifications (2) Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Section 1350 Certifications (Chief Executive Officer and Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation

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SIGNATURES

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.


Date:	~~September 9,~~December 21, 2020	/s/ David J. Mansfield
		David J. Mansfield
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	~~September 9,~~December 21, 2020	/s/ D. Bryan Norwood
		D. Bryan Norwood
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)