Note

- 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

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

alternative use for the Company.

Products revenue is recognized when goods are shipped or services are performed (ASC

606

A breakdown of the Company's revenues by revenue class for the

three

and

nine

months ended

October 31, 2020

and

2019

are as follows:

	Three Months Ended October 31,										Nine Months Ended October 31,
	2020					2019					2020					2019
	Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total
Products	$	2,435		12	%	$	2,448		7	%	$	8,603		14	%	$	13,205		14	%

Specialty Piping Systems and Coating
Revenue recognized under input method		8,252		41	%		14,363		42	%		26,597		42	%		38,601		40	%
Revenue recognized under output method		9,607		47	%		17,646		51	%		28,199		44	%		43,594		46	%
Total	$	20,294		100	%	$	34,457		100	%	$	63,399		100	%	$	95,400		100	%

The input method, as noted in ASC

606

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

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.

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

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

$1.4

million of unbilled receivables from its subsidiaries in the Middle East in prepaid expenses and other current assets on its consolidated balance sheet as of

October 31, 2020

	Contract Assets
Balance January 31, 2019	$	1,653
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,038	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		1,368
Closing Balance at April 30, 2019	$	1,983
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,509	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		3,000
Closing Balance at July 31, 2019	$	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
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(2,896	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		3,630
Closing Balance at April 30, 2020	$	2,900
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,743	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		593
Closing Balance at July 31, 2020	$	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
Balance January 31, 2019	$	1,569
Revenue recognized during the period for uncompleted contracts from the prior period		(444	)
New contracts entered into that are uncompleted at the end of the current period		721
Closing Balance at April 30, 2019	$	1,846
Revenue recognized during the period for uncompleted contracts from the prior period		(1,250	)
New contracts entered into that are uncompleted at the end of the current period		545
Closing Balance at July 31, 2019	$	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
Revenue recognized during the period for uncompleted contracts from the prior period		(17	)
New contracts entered into that are uncompleted at the end of the current period		(95	)
Closing Balance at April 30, 2020	$	1,061
Revenue recognized during the period for uncompleted contracts from the prior period		631
New contracts entered into that are uncompleted at the end of the current period		(925	)
Closing Balance at July 31, 2020	$	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.