Note

- Significant accounting policies

Use of estimates.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue recognition.

In accordance with Accounting Standards Update

No.

2014

19,

“Revenue from Contracts with Customers” (“ASC

606”

), revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for such goods or services. Revenue is recognized net of revenue-based taxes assessed by governmental authorities. The Company recognizes revenue when a customer obtains control of promised goods or services.

Percentage of completion revenue recognition.

All divisions recognize revenues under the above stated revenue recognition policy except for domestic complex contracts that require periodic recognition of income. For these contracts, the Company uses the "percentage of completion" accounting method. Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete. The choice of accounting method is made at the time the contract is received based on the expected length and complexity of the project. The percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements,

may

result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. Claims for additional compensation due the Company are recognized in contract revenues when realization is probable and the amount can be reliably estimated.

Shipping and handling.

Shipping and handling costs are included in cost of sales, and the amounts invoiced to customers relating to shipping and handling are included in net sales.

Sales tax.

Sales tax is reported on a net basis in the consolidated financial statements.

Operating cycle.

The length of contracts vary, but are typically less than

one

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

one

year.

Consolidation.

The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries, all of which are wholly owned. All intercompany balances and transactions have been eliminated.

Translation of foreign currency.

Assets and liabilities of consolidated foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at year-end. Revenues and expenses are translated at average weighted exchange rates prevailing during the year. Gains or losses on foreign currency transactions and the related tax effects are reflected in net income. The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensive income (loss).

Contingencies.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, including those involving environmental, tax, product liability and general liability claims. The Company accrues for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes of these matters, and its experience in contesting, litigating and settling other similar matters. The Company does

not

currently anticipate the amount of any ultimate liability with respect to these matters will materially affect the Company's financial position, liquidity or future operations.

Cash and cash equivalents.

All highly liquid investments with a maturity of

three

months or less when purchased are considered to be cash equivalents. Cash and cash equivalents were

$10.2

million and

$7.1

million as of

January

31,

2019

and

2018,

respectively. On

January

31,

2019,

$0.1

million was held in the U.S. and

$10.1

million was held in the foreign subsidiaries. On

January

31,

2018,

$0.7

million was held in the U.S. and

$6.4

million was held in the foreign subsidiaries.

Accounts payable included drafts payable of

$0.2

million and less than

$0.1

million on

January

31,

2019

and

2018,

respectively.

Restricted cash.

Restricted cash held in the U.S. on

January 31, 2019

was

$1.5

million, all of which is a cash collateral held by PNC Bank in relation to the new credit agreement. There was

restricted cash held in the U.S. on

January 31, 2018.

Restricted cash, held by foreign subsidiaries, was

$1.1

million and

$1.2

million as of

January

31,

2019

and

2018,

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

(In thousands)	2018		2017
Cash and cash equivalents	$	10,156	$	7,084
Restricted cash		2,581		1,237
Cash, cash equivalents and restricted cash shown in the statement of cash flows	$	12,737	$	8,321

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 U.A.E. 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

$5.4

million as of

January 31, 2018 (

inclusive of a retention receivable amount of

$3.7

million, of which

$3.5

million and

3.2

million were included in the balance of other long-term assets as of

January 31, 2019

and

January 31, 2018,

due to the long-term nature of the receivables) has been outstanding for several years. The Company completed all of its deliverables in

2015,

and has been engaged in ongoing active efforts to collect this outstanding amount. During fiscal year

2018,

the Company received payments of approximately $

0.7

million, which reduced the balance of this receivable to $

4.7

million as of

January 31, 2019.

Subsequent to

January 31, 2019,

the Company received a further $

0.3

million, thus reducing this balance to $

4.4

million. As a result, the Company did

not

reserve any allowance against this receivable as of

January 31, 2019.

The Company continues to engage with the customer to ensure full payment of open balances, and has also received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. However, if the Company’s efforts to collect on this account are

not

successful in fiscal

2019,

then the Company

may

recognize an allowance for all, or substantially all, of any such then uncollected amounts.

January

31,

2019

and

January

31,

201

one

customer accounted for more than

10%

of the Company's net sales.

Three customers accounted for

42.0%

and

34.9%

of accounts receivable on

January

31,

2019

and

2018,

respectively.

Concentration of credit risk.

The Company maintains its U.S. cash in bank deposit accounts at financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC"). Cash balances are below FDIC limits. The Company has

not

experienced any losses in such accounts.

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

Accumulated other comprehensive loss.

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

(In thousands)	2018			2017
Equity adjustment foreign currency, gross	$	(1,438	)	$	(268	)
Minimum pension liability, gross		(1,648	)		(1,307	)
Marketable security, gross		—			—
Subtotal excluding tax effect		(3,086	)		(1,575	)
Tax effect of foreign exchange currency		91			(6	)
Tax effect of minimum pension liability		115			115
Tax effect of marketable security		—			—
Total accumulated other comprehensive loss	$	(2,880	)	$	(1,466	)

Inventories.

Inventories are stated at the lower of cost or market. Cost is determined using the

first

-in,

first

-out method for all inventories.

(In thousands)	2018		2017
Raw materials	$	11,962	$	17,166
Work in process		488		291
Finished goods		731		1,024
Subtotal		13,181		18,481
Less allowance		892		1,625
Inventories	$	12,289	$	16,856

Long-lived assets.

Property, plant and equipment are stated at cost. Interest is capitalized in connection with the construction of facilities and amortized over the asset's estimated useful life. Long-lived assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets

may

not

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

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from

three

years. Leasehold improvements are depreciated over the remaining life of the lease or its useful life, whichever is shorter. Amortization of assets under capital leases is included in depreciation. Depreciation expense was approximately

$4.5

million in

2018

and

$4.9

million in

2017.

(In thousands)	2018		2017
Land, buildings and improvements	$	22,327	$	22,796
Machinery and equipment		47,168		47,009
Furniture, office equipment and computer systems		4,335		4,504
Transportation equipment		3,311		3,490
Subtotal		77,141		77,799
Less accumulated depreciation		46,743		43,290
Property, plant and equipment, net of accumulated depreciation	$	30,398	$	34,509

Impairment of long-lived assets.

The Company evaluates long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset

may

not

be recoverable. A factor considered important that could trigger an impairment review includes a year-to-date loss from operations. The Company reported income from operations in

2018,

compared to losses from operations in

2017.

An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. Based on the Company's review of the projected cash flows over the remaining useful lives of the assets, management had determined that there was

impairment of long-lived assets as of

January

31,

2018.

Since there was

triggering event in

2018,

management has determined that there was

impairment of long-lived assets as of

January

31,

2019.

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

January

31,

2019

and

2018,

is attributable to the purchase of Perma-Pipe Canada, Ltd. ("PPC").

			Foreign exchange
(In thousands)	January 31, 2018		change effect			January 31, 2019
Goodwill	$	2,423	$	(154	)	$	2,269

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. 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. There was

impairment to goodwill during

2018

2017.

Other intangible assets with definite lives.

The Company owns several patents including those covering features of its piping and electronic leak detection systems. Patents are capitalized and amortized on a straight-line basis over a period

not

to exceed the legal lives of the patents. The Company expenses costs incurred to renew or extend the term of intangible assets. Gross patents were

$2.6

million as of

January

31,

2019

and

2018.

Accumulated amortization was approximately

$2.5

million and

$2.4

million as of

January

31,

2019

and

2018.

Future amortization over the next

five

years ending

January 31

will be less than

$0.1

million in the years

2019

2023

and less than

$0.1

million thereafter. Amortization expense is expected to be recognized over the weighted-average period of

7.3

years.

Research and development

Research and development expenses consist of materials, salaries and related expenses of engineering personnel and outside services for product development projects. Research and development costs are expensed as incurred. Research and development expense was approximately

$0.2

million and

$0.3

million in

2018

and

2017,

respectively.

Income taxes.

Deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary differences have been recorded at the current tax rate. The Company assesses its deferred tax assets and liabilities for realizability at each reporting period.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than

not

sustain the position following an audit. For tax positions meeting the more likely than

not

threshold, the amount recognized in the financial statements is the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, see Note

- Income taxes in the Notes to Consolidated Financial Statements.

Net loss per common share.

Earnings per share ("EPS") is computed by dividing net loss by the weighted average number of common shares outstanding (basic). The Company reported net losses in

2018

and

2017;

therefore, the diluted loss per share was identical to the basic loss per share rather than assuming conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share. The dilutive shares are in the following table:

Basic weighted average number of common shares outstanding (in thousands)	2018			2017
Basic weighted average number of common shares outstanding		7,812			7,680
Dilutive effect of stock options and restricted stock units		—			—
Weighted average number of common shares outstanding assuming full dilution		7,812			7,680

Stock options not included in the computation of diluted EPS of common stock because the option exercise prices exceeded the average market prices		136			139
Canceled options during the year		(63	)		(131	)
Stock options with an exercise price below the average stock price		82			219

Equity-based compensation.

The Company issues various types of stock-based awards to employees and directors: restricted stock, deferred stock and stock options. Non-cash compensation expense associated with restricted stock is based on the fair value of the common stock at the date of grant, and amortized using the straight line method over the vesting period. Compensation expense associated with deferred stock which is awarded to the Board of Directors (non-employee) is based upon the fair value of the common stock at the date of grant, and since the grant vests immediately it is expensed on the date of the grant. Stock

compensation expense for stock options is recognized ratably over the requisite service period of the award. The Black-Scholes option-pricing model is utilized to estimate the fair value of option awards.

Segments.

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

one

segment.

Fair value of financial instruments

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.

Recent accounting pronouncements

. In

March 2017,

the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that changes the income statement presentation of the components of net periodic benefit cost related to defined benefit pension and other postretirement plans. The primary change under the new guidance is that only the service cost component of net periodic benefit cost should be included in operating income and is eligible for capitalization as an asset. The other components of net periodic benefit cost, such as interest cost, the expected return on assets, amortization of actuarial gains and losses and prior service cost, should be presented below operating income. The guidance is effective for the Company starting

February 1, 2018

and was applied retrospectively to the presentation of net periodic benefit cost, and recorded in miscellaneous income and expense in

2017

and

2018.

Since the plans have

not

incurred any service costs, there has been

need to capitalize any costs. The adoption of this guidance did

not

have a material impact on the Company's results of operations or financial position.

October 2016,

the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a

third

party as required under the current guidance. The new guidance is effective for the Company beginning

February

2018,

with early adoption permitted. The adoption of this guidance did

not

have a material impact on the Company's results of operations or financial position.

February 2016,

the FASB issued ASU

2016

02,

Leases

(Topic

842

). This ASU requires entities to recognize assets and liabilities for most leases on their balance sheets. It also requires additional qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU

No.

2016

is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018,

with early adoption permitted. The Company will adopt the ASU effective

February 1, 2019

using the alternative transition approach - a cumulative effect adjustment to retained earnings at that date, which is expected to be zero. The Company will avail itself of the practical expedients provided under the ASU and its subsequent amendments regarding identification of leases, lease classification, indirect costs, and the combination of lease and non-lease components. The Company expects to record a right-of-use asset and lease liability of approximately

$10.0

million to

$11.0

million at adoption.

May 2014,

FASB issued ASU

No.

2014

09,

Revenue from Contracts with Customers

("Topic

606"

)", with several clarifying updates issued during

2016.

This ASU was effective for the Company beginning

February 1, 2018.

The adoption of this ASU did

not

have a material impact on the Company's results of operations or financial position. Refer to Note

- Revenue recognition - for more detail.

The Company evaluated other recent accounting pronouncements and does

not

expect them to have a material impact on the consolidated financial statements.