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Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), 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 Exchange Act 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 headings Cautionary Statements Regarding Forward Looking Information and Item 1A. Risk Factors.

The analysis presented below and discussed in more detail throughout this MD&A was organized to provide instructive information for better understanding the Company's results of operations, financial condition and cash flows. However, this MD&A should be read in conjunction with the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, including the notes thereto and the risk factors contained herein. The Company's fiscal year ends on January 31. Years, results and balances described as 2021 and 2020 are for the fiscal years ended January 31, 2022 and 2021, respectively.

The Company is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. Since the Company's revenues are significantly dependent upon discrete projects, the Company's operating results in any reporting period could be negatively impacted as a result of variations in the level of the Company's discrete project orders or delays in the timing of the specific project phases.

COVID-19 and the Oil and Gas Market

The Company’s results of operations, financial condition, liquidity and cash flow in 2021 were materially adversely affected by the COVID-19 pandemic and the then depressed market prices for oil and gas. During 2021, the Company experienced improved results as the adverse impact of the COVID-19 pandemic diminished and delayed projects were turned to production. Increases in oil prices also helped to improve the Company's results in Canada and in the Middle East. See Item 1A. Risk Factors for additional information.

Liquidity Position

As discussed further below, on April 14, 2021, the Company entered into a purchase and sale agreement to sell its land and buildings in Lebanon, Tennessee (the "Property"), and subsequently enter into a fifteen-year lease agreement to lease back the Property. The transaction generated net cash proceeds of $9.1 million, following the release of the escrowed amount of $0.4 million in June 2021. The transaction provided significant liquidity for the Company, which used a portion of the proceeds to repay its borrowings under the Senior Credit Facility. The Company expects to use its liquidity for strategic investments and general corporate needs. The Company will lease back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent increases of 2.0%.

The Company further enhanced its liquidity position on September 17, 2021 when the North American Loan Parties executed an extension of the Credit Agreement with PNC, providing for a new five-year $18.0 million senior secured revolving credit facility, subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”). See further discussion below and in Note 5 - Debt, in the Notes to Consolidated Financial Statements.

Supply Chain Constraints

The Company's global supply chains have been negatively affected by the COVID-19 pandemic. Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company routinely experiences significant delays and increased prices for raw materials used in our production processes. To mitigate these impacts, the Company has implemented several strategies, including purchasing from alternative suppliers and planning for material purchases farther in advance to ensure the Company has materials when needed. The Company has also updated its pricing to customers to offset the impacts of the raw material price increases. While these impacts are expected to continue into 2022, the resulting future disruptions to the Company’s operations are uncertain. See Item 1A. Risk Factors for additional information.

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Results of Operations

Consolidated Results of Operations:

Change favorable

Amount Percent of Net Sales Amount Percent of Net Sales Amount

Income/(loss) from operations before income taxes 8,327 (7,775 ) 16,102

2021 Compared to 2020

Net sales:

Net sales were $138.6 million in 2021, an increase of $53.9 million, or 63.6%, from $84.7 million in 2020. The increase was a result of increased sales volumes in both North America and the Middle East, North Africa and India ("MENA") due largely to recovery from the effects of the COVID-19 pandemic.

Gross profit:

Gross profit increased to $32.5 million, or 23.5% of net sales, in 2021, an increase of $21.4 million, or 191.0%, from $11.2 million, or 13.2% of net sales, in 2020. This increase was primarily driven by higher sales volumes without a corresponding increase in fixed plant costs. In addition, the Company's U.A.E. business benefitted from the introduction of a high margin new product line in late 2020.

General and administrative expenses:

General and administrative expenses were $19.9 million in 2021 compared to $17.2 million in 2020, an increase of $2.7 million, or 15.5%. This increase was driven primarily by the increase in headcount as operations returned to pre-pandemic levels, as well as incentive compensation associated with the improved financial results in 2021.

Selling expenses:

Selling expenses decreased by $0.8 million, or 15.1%, from $5.3 million in 2020 to $4.5 million in 2021. This decrease was primarily due to organizational changes during the year.

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Interest expense:

Interest expense increased to $0.8 million in 2021 from $0.4 million in 2020. This increase is primarily related to the sale and leaseback of the Company's land and buildings in Lebanon, Tennessee in April 2021, whereby a portion of the Company's monthly rent payments are recorded to interest expense.

Other income, net:

Other income was $1.1 million in 2021 compared to $4.0 million in 2020, a decrease of $2.9 million. This decrease was primarily the result of income recorded in 2020 for funds received under the PPP program of $3.2 million. Funds received under the Canadian Emergency Wage Subsidy ("CEWS") and Canadian Emergency Rent Subsidy ("CERS") programs in Canada during 2021 were also less than in 2020, as CEWS and CERS grants ceased in the second quarter of 2021. These decreases were offset by individually immaterial increases in our North American businesses.

Income/(loss) from operations before income taxes:

Income from operations before income taxes increased to income of $8.3 million in 2021 compared to a loss of ($7.8) million in 2020. The increase was a result of increased sales volumes in both North America and MENA. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line in late 2020.

Income taxes:

The Company's worldwide effective tax rates ("ETR") were 27.2% and 1.7% in 2021 and 2020, respectively. The change in the ETR from the prior year to the current year is largely due to changes in the mix of income and loss in various jurisdictions and the absence of recognizing tax benefits on losses in the United States due to a full valuation allowance applied against its deferred tax assets.

As a result of the one-time transition tax from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company estimates that distributions from foreign subsidiaries will not be subject to incremental U.S. tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested. Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholdings taxes in these jurisdictions are considered. The Company's liability has remained consistent at $0.2 million as of January 31, 2022 and 2021, respectively, related to these taxes.

For further information, see Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.

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Net income/(loss):

The resulting net income of $6.1 million in 2021 was a $13.7 million increase from the net loss of ($7.6) million in 2020. The increase was a result of increased sales volumes in both North America and MENA due to recovery from the effects of the COVID-19 pandemic. In addition, the Company's U.A.E. business benefitted from the introduction of a new product line in late 2020.

Liquidity and capital resources

Cash and cash equivalents as of January 31, 2022 and 2021 were $8.2 million and $7.2 million, respectively. On January 31, 2022, less than $0.1 million was held in the United States and $8.2 million was held by the Company's foreign subsidiaries. The Company has no plans to repatriate any foreign earnings, but the potential repatriation of foreign earnings is discussed further in Note 7 - Income taxes, in the Notes to the Consolidated Financial Statements. Further, the Company's Renewed Senior Credit Facility permits the repatriation of foreign earnings to cure a breach of its debt covenants, should one occur. See further discussion in Note 5 - Debt, in the Notes to the Consolidated Financial Statements. The Company's working capital was $40.0 million on January 31, 2022 compared to $25.6 million on January 31, 2021. Of the working capital components, cash increased $1.0 million primarily as a result of the activity discussed below.

Net cash used in operating activities was $(2.6) million in 2021 compared to net cash provided by operating activities of $0.2 million in 2020. This decrease of $2.8 million was due primarily to increases in accounts receivable and inventory, partially offset by increases in net income and increases in accounts payable and accrued compensation and payroll taxes in the current period compared to the prior year period.

Net cash used in investing activities during 2021 and 2020 was $2.3 million and $2.0 million, respectively. The increase of $0.3 million was primarily due to increased capital investment in the Middle East and Canada during the period.

Net cash provided by financing activities was $6.2 million in 2021 compared to net cash used in financing activities of $4.1 million in 2020. The main source of cash from financing activities during 2021 was net proceeds of $8.6 million as a result of the sale and leaseback of the Company's land and buildings in Lebanon, Tennessee during 2021. Additionally, during the current period, the Company had approximately $0.5 million less net repayments under its revolving credit facility, as compared to $3.2 million in the prior year period. Further, the Company's debt totaled $21.9 million and $13.2 million as of January 31, 2022 and 2021, respectively. This large increase in the Company's debt is mainly attributable to the sale and leaseback transaction noted above. For additional information, see Note 5 - Debt, in the Notes to Consolidated Financial Statements.

The Company believes it will have the ability to satisfy all working capital needs and any planned capital expenditures for the twelve months following the issuance of these financial statements, based on its existing cash on hand, positive cash flows from operations and available credit facilities.

There was no restricted cash held in the United States on January 31, 2022 or January 31, 2021. Restricted cash held by foreign subsidiaries was $1.6 million and $1.2 million as of January 31, 2022 and 2021, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.

The following table summarizes the Company's estimated contractual obligations on January 31, 2022

($ in thousands) Year Ending January 31,

Revolving line - North America (1) $ 634 $ 634 $ - $ - $ - $ - $ -

Revolving lines - foreign (3) 6,049 6,049 - - - - -

Term loan - foreign 26 6 13 7 - - -

Uncertain tax position obligations (6) 652 - - - - - 652

(2) Scheduled maturities, excluding interest.

(3) Scheduled maturities of foreign revolver line, excluding interest.

(5) Minimum contractual amounts, assuming no changes in variable expenses.

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Financing

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 ("PNC"), as administrative agent and lender, providing for a three-year $18 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”).

On September 17, 2021, the North American Loan Parties executed an extension of the Credit Agreement with PNC, providing for a new five-year $18.0 million senior secured revolving credit facility, subject to a borrowing base including various reserves (the “Renewed Senior Credit Facility”). The Company's obligations under the Renewed Senior Credit Facility are currently guaranteed by Perma-Pipe Canada, Inc. Each of the North American Loan Parties other than Perma-Pipe Canada, Inc. is a borrower under the Renewed Senior Credit Facility (collectively, the “Borrowers”).

The Borrowers are using borrowings under the Renewed Senior Credit Facility (i) to fund capital expenditures; (ii) to fund ongoing working capital needs; and (iii) for other corporate purposes, including potentially additional stock repurchases under the Company's $3.0 million stock repurchase program. Borrowings under the Renewed Senior Credit Facility bears interest at a rate equal to an alternate base rate, the London Inter-Bank Offered Rate (“LIBOR”) or a LIBOR successor rate index, plus, in each case, an applicable margin. The applicable margin is based on a fixed charge coverage ratio ("FCCR") range. Interest on alternate base rate borrowings are based on the alternate base rate as defined in the Renewed Senior Credit Facility plus an applicable margin ranging from 1.00% to 1.50%, based on the FCCR in the most recently reported period. Interest on LIBOR or LIBOR successor rate borrowings will be the LIBOR rate as defined in the Renewed Senior Credit Facility plus an applicable margin ranging from 2.00% to 2.50%, based on the FCCR in the most recently reported period. Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility.

Subject to certain exceptions, borrowings under the Renewed Senior Credit Facility are secured by substantially all of the North American Loan Parties’ assets. The Renewed Senior Credit Facility will mature on September 20, 2026. Subject to certain qualifications and exceptions, the Renewed Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties may not make capital expenditures in excess of $5.0 million annually, plus a limited carryover of unused amounts. Further, the North American Loan Parties may not make repurchases of the Company's common stock in excess of $3.0 million.

The Renewed Senior Credit Facility also contains financial covenants requiring the North American Loan Parties to achieve a ratio of its EBITDA to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior Credit Facility to be not less than 1.10 to 1.00 if for any five consecutive days the undrawn availability is less than $3.0 million or any day in which the undrawn availability is less than $2.0 million. As of January 31, 2022, the calculated ratio was substantially greater than 1.10 to 1.00. In order to cure any future breach of the FCCR covenant by the North American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the Company’s Consolidated EBITDA, would result in pro forma compliance with the covenant. The Company was in compliance with these covenants as of January 31, 2022.

The Renewed Senior Credit Facility contains customary events of default. If an event of default occurs and is continuing, then PNC may terminate all commitments to extend further credit and declare all amounts outstanding under the Renewed Senior Credit Facility due and payable immediately. In addition, if any of the North American Loan Parties or certain of their subsidiaries become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Renewed Senior Credit Facility will automatically become immediately due and payable. Loans outstanding under the Renewed Senior Credit Facility will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) while a bankruptcy event of default exists or (ii) upon the lender's request, during the continuance of any other event of default.

As of January 31, 2022, the Company had borrowed an aggregate of $0.6 million at a rate of 4.25% and had $8.5 million available under the Renewed Senior Credit Facility, before application of a $2.5 million availability block that can be reduced by the Company's financial performance. This block on the Company's availability under its Renewed Senior Credit Facility was removed completely based on its financial performance as of and for the year ended January 31, 2022.

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 U.A.E. Dirhams (approximately $2.2 million at January 31, 2022) from a bank in the U.A.E. The facility has an interest rate of approximately 3.77% and was

originally set to expire in November 2020, however, the expiration was extended due to the COVID-19 pandemic. The Company has submitted final documentation to complete the renewal process and is awaiting official notification from the bank of the renewal completion. This process is expected to be completed in May 2022.

The Company has a second revolving line for 19.5 million U.A.E. Dirhams (approximately $5.3 million at January 31, 2022) from a bank in the U.A.E. The facility has an interest rate of approximately 4.5% and is set to expire in January 2023.

The Company has a third credit arrangement for project financing with a bank in the U.A.E. for 3.0 million U.A.E. Dirhams (approximately $0.8 million at January 31, 2022). This credit arrangement is in the form of project financing at rates competitive in the U.A.E. The line is secured by the contract for a project being financed by the Company's U.A.E. subsidiary. The facility has an interest rate of approximately 4.5% and is expected to expire in June 2023 in connection with the completion of the project.

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 by the respective subsidiary.

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In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 100.0 million Egyptian Pounds (approximately $6.2 million at January 31, 2022). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line was secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. The facility has an interest rate of approximately 8.0% and is set to expire in August 2022.

In December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for 28.2 million Egyptian Pounds (approximately $1.8 million at January 31, 2022). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by the contract for a project being financed by the Company's Egyptian subsidiary. The facility has an interest rate of approximately 8.0% and is expected to expire in June 2022 in connection with the completion of the project.

The Company’s credit arrangements used by its Middle Eastern subsidiaries are subject to renewal on an annual basis.

The Company was in compliance with the covenants under the credit arrangements in the U.A.E. as of January 31, 2022. The Company was not in compliance with a covenant under its 28.2 million Egyptian Pound project financing in Egypt as of January 31, 2022. The Company did not meet its required debt to equity ratio as of January 31, 2022. The Company has received a waiver from the bank as of January 31, 2022. On January 31, 2022, interest rates were based on the Emirates Inter Bank Offered Rate plus 3.0% to 3.5% per annum for the U.A.E. credit arrangements, two of which have a minimum interest rate of 4.5% per annum, and based on the stated interest rate in the agreement for the Egypt credit arrangement. Based on these base rates, as of January 31, 2022, the Company's interest rates ranged from 3.77% to 8.0%, with a weighted average rate of 7.31%, and the Company had facility limits totaling $16.4 million under these credit arrangements. As of January 31, 2022, $1.2 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. Additionally, as of January 31, 2022, the Company had borrowed $6.0 million, and had an additional $6.1 million of borrowing remaining available under the foreign revolving credit arrangements. The foreign revolving lines balances as of January 31, 2022 and 2021 were included as current maturities of long-term debt in the Company's consolidated balance sheets.

Finance obligation - buildings and land.On April 14, 2021, the Company entered into a purchase and sale agreement (the "Purchase and Sale Agreement"). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its land and buildings in Lebanon, Tennessee (the "Property") for a purchase price of $10.4 million. The transaction generated net cash proceeds of $9.1 million, following the release of the escrowed amount in June 2021 discussed below. The Company used a portion of the proceeds to repay its borrowings under the Senior Credit Facility. The Company expects to use its liquidity for strategic investments and general corporate needs. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent increases of 2.0%. Under the Lease Agreement, the Company has four consecutive options to extend the term of the lease by five years for each such option. Concurrently with the sale of the Property, the Company paid off the approximately $0.9 million remaining on the mortgage note on the Property to its lender. At closing, $0.4 million was placed in a short-term escrow account to cover certain post-closing contingencies that may arise. The contingencies were resolved in May 2021 and the Company received the escrowed funds in June 2021.

In accordance with ASC Topic 842, "Leases", this transaction was recorded as a failed sale and leaseback as the present value of lease payments exceeded substantially all of the fair value of the underlying asset. The Company utilized an incremental borrowing rate of 8.0% to determine the finance obligation to record for the amounts received and will continue to depreciate the assets. The current portion of the finance obligation of $0.1 million is recognized in current maturities of long-term debt and the long-term portion of $9.3 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of January 31, 2022. The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

Prior additionalliquidityfromthe 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%. Under Section 1106 of the CARES Act, borrowers were eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds were 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 submitted its application and supporting documentation for forgiveness to its bank, which submitted the application and supporting documentation to the Small Business Administration ("SBA"). On June 24, 2021, the Company was notified by its lender that its PPP loan had been forgiven by the SBA.

Based on the facts and circumstances of the Company's PPP loan and according to the applicable accounting guidance described herein, the Company elected to account for the PPP loan proceeds as a grant that had reasonable assurance of being forgiven. As such, the Company recognized the proceeds in earnings during the year ended January 31, 2021. The amounts were recognized in other income, net in the consolidated statements of operations.

Prior additional liquidity from the CEWS and CERS Programs

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 CEWS program. Based on the program rules, the grants were applied for each month and were granted based on the amount of eligible employee expenses incurred over the previous month. Beginning in October 2020, PPCA also applied for grants under the CERS program. PPCA was approved for and received approximately $0.6 million and $0.1 million in grants under the CEWS and CERS programs, respectively, during the year ended January 31, 2022. Grants to the Company under both programs ended in the second quarter of 2021. The proceeds from CEWS and CERS are recognized in other income, net in the consolidated statements of operations.

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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 its deliverables in 2015 under the related contract, but the system has not yet been commissioned by the customer. Nevertheless, the Company has collected approximately $38.3 million as of January 31, 2022, with a remaining balance due in the amount of $3.6 million. Included in this balance is an amount of $3.4 million, which pertains to retention clauses within the agreements of the Company's customer, 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, $2.0 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. During the first quarter of 2021, the Company received approximately $0.1 million from the customer. The Company continues to engage with the customer to ensure full payment of open balances, and during April 2022 received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. Further, the Company has been engaged by the customer to perform additional work in 2022 under customary trade credit terms that supports the continued cooperation between the Company and the customer. As a result, the Company did not reserve any allowance against this amount as of January 31, 2022. 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.

Stock repurchase plan

On October 4, 2021, the Company's Board of Directors approved a stock repurchase program, which authorizes the Company to purchase up to $3.0 million of its outstanding shares of common stock. Stock repurchases are permitted to be executed through open market or privately negotiated transactions over the course of 12 months, depending upon current market conditions and other factors. As of January 31, 2022, the Company had repurchased its stock with a total value of $2.0 million, leaving $1.0 million remaining authorized for potential repurchase under the program.

Critical accounting estimates and policies

The Company's significant accounting policies are discussed in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. The application of certain of these policies requires significant judgments or a historical based estimation process that can affect the results of operations and financial position of the Company, as well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates, the revisions are included in the Company's results of operations for the period in which the actual amounts become known.

Revenue recognition. In accordance with Accounting Standards Update No. 2014-19, “Revenue from Contracts with Customers” (“ASC 606”), the Company recognizes revenue when a customer obtains control of promised goods or services. See Note 4 - Revenue recognition, in the Notes to Consolidated Financial Statements, for more detail.

Over time revenue recognition. Certain domestic divisions have contracts that recognize revenues using periodic recognition of income. For these contracts, the Company uses the over time accounting method. Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete. The amount of revenue recognized is determined by the relationship of costs incurred to the total estimated costs of the contract. 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 to the Company are recognized in contract revenues when realization is probable, the amount can be reliably estimated and the amount is not subject to reversal.

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 for realizability at each reporting period. The Company has not recognized any tax benefits on losses in the United States due to a full valuation allowance applied against its deferred tax assets.

The Company recognizes a tax position in its consolidated financial statements only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, See Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.

New accounting pronouncements. See Recent accounting pronouncements in Note 2 - Significant accounting policies, in the Notes to Consolidated Financial Statements.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company for each of the two years in the periods ended as of January 31, 2022 and 2021 and the notes thereto are set forth as an exhibit hereto.

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Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) under the Exchange Act as of January 31, 2022. This evaluation included consideration of the controls, processes and procedures that are designed to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon the foregoing, 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 its Chief Executive Officer and Chief Financial Officer, have further concluded that the financial statements included in this Annual Report on Form 10-K 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.

Management's Annual Report on Internal Control Over Financial Reporting. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. As required by Rule 13a-15(c) under the Exchange Act, the Company's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of its internal control over financial reporting as of January 31, 2022. The framework on which such evaluation was based is contained in the report entitled Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company's system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on this evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of January 31, 2022.

Changes in Internal Control over Financial Reporting. There were no changes in the Company's internal control over financial reporting during the Company's most recent year that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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Item 9B. OTHER INFORMATION - Not applicable.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2022 annual meeting of stockholders.

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

Item 11. EXECUTIVE COMPENSATION

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2022 annual meeting of stockholders.

Equity Compensation Plan Information

The following table provides information regarding the number of shares of common stock that may be issued upon exercise of outstanding options, warrants and rights under the Company's equity compensation plans and the weighted average exercise price and number of shares of common stock remaining available for issuance under those plans as of January 31, 2022.

Plan Category (a)(1) (b)(1) (c)(2)

Equity compensation plans approved by stockholders 66,875 $9.51 -

(1) The amounts shown in columns (a) and (b) of the above table do not include 354,382 outstanding shares of restricted stock granted under the Company's 2013 Omnibus Stock Incentive Plan as amended on June 14, 2013, the 2017 Omnibus Stock Incentive Plan as amended on June 13, 2017 ("2017 Plan") or the 2021 Omnibus Stock Incentive Plan dated May 26, 2021 ("2021 Plan").

(2) The 2017 Plan expired in June 2020. The 2021 Plan will expire on May 26, 2024.

The other information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2022 annual meeting of stockholders.

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2022 annual meeting of stockholders.

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Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for its 2022 annual meeting of stockholders.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. List of documents filed as part of this report:

(1) Financial Statements - Consolidated Financial Statements of the Company

Refer to Part II, Item 8 of this report.

(2) Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

c. The response to this portion of Item 15 is submitted under 15a(2) above.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Perma-Pipe International Holdings, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Perma-Pipe International Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of January 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income/(loss), stockholders’ equity, and cash flows for each of the two years in the period ended January 31, 2022, and the related notes and financial statement schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue at U.S. operating entities for specialty piping systems and coating is recognized using the input method over time

As described in Notes 2 and 4 to the consolidated financial statements, the Company’s U.S. operating entities record specialty piping and coating systems revenue over time based upon the costs incurred to date relative to the estimated total contract costs. Significant changes in estimates could have a material effect on the Company’s results of operations. We identified revenue being recognized using the input method over time as a critical audit matter.

The principal considerations for our determination that revenue recognition using the input method over time is a critical audit matter are the Company’s estimates include all labor and materials necessary to complete the contract to arrive at the total contract costs. These estimates are based on management’s assessment of the current status of the contract and historical results.

Our audit procedures included the following, among others:

/s/ GRANT THORNTON LLP

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

Houston, Texas

April 19, 2022

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended January 31,

(In thousands, except per share data) 2022 2021

Operating expenses:

Income/(loss) from operations before income taxes 8,327 (7,775 )

Income tax expense/(benefit) 2,265 (133 )

Weighted average common shares outstanding

Income/(loss) per share

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. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

Year ended January 31,

Other comprehensive income/(loss)

Currency translation adjustments, net of tax (357 ) 288

Minimum pension liability adjustment, net of tax 540 185

Other comprehensive income/(loss) 183 473

Comprehensive income/(loss) $ 6,245 $ (7,169 )

See accompanying Notes to Consolidated Financial Statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

January 31,

(In thousands, except per share data) 2022 2021

ASSETS

Current assets

Cash and cash equivalents $ 8,214 $ 7,174

Prepaid expenses and other current assets 5,444 3,863

Unbilled accounts receivable 2,656 247

Property, plant and equipment, net of accumulated depreciation 24,756 26,897

Other assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Commissions and management incentives payable 2,047 218

Accrued compensation and payroll taxes 1,612 1,448

Revolving line - North America 634 2,826

Current maturities of long-term debt 6,750 3,941

Operating lease liabilities short-term 1,496 1,402

Long-term liabilities

Long-term debt, less current maturities 5,059 6,268

Long-term finance obligation 9,327 -

Deferred compensation liabilities 3,379 4,120

Deferred tax liabilities 712 914

Operating lease liabilities long-term 11,270 13,174

Other long-term liabilities 800 650

Stockholders' equity

Accumulated other comprehensive loss (3,104 ) (3,287 )

Total liabilities and stockholders' equity $ 123,401 $ 102,691

See accompanying Notes to Consolidated Financial Statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Accumulated Total

Common Additional Accumulated Treasury Other Comprehensive Stockholders'

Stock-based compensation expense - 1,044 - - 1,044

Pension liability adjustment - - - 185 185

Foreign currency translation adjustment - - - 288 288

Repurchase of common stock - - - (1,992 ) - (1,992 )

Stock-based compensation expense - 1,101 - - - 1,101

Pension liability adjustment - - - - 540 540

Foreign currency translation adjustment - - - - (357 ) (357 )

Treasury stock purchased (234,281 ) -

See accompanying Notes to Consolidated Financial Statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended January 31,

Operating activities

Depreciation and amortization 4,324 4,739

Deferred tax benefit (195 ) (669 )

Stock-based compensation expense 1,101 1,044

Provision on uncollectible accounts 20 72

Loss on disposal of fixed assets 41 58

Changes in operating assets and liabilities

Accrued compensation and payroll taxes 2,094 (1,597 )

Income taxes receivable and payable 955 213

Prepaid expenses and other current assets (2,205 ) (2,705 )

Unbilled accounts receivable (351 ) 247

Net cash (used in)/provided by operating activities (2,574 ) 165

Investing activities

Proceeds from sales of property and equipment 9 2

Net cash used in investing activities (2,253 ) (1,961 )

Financing activities

Payments of debt on revolving lines (22,639 ) (43,192 )

Proceeds from term loan 23 19

Payments of debt on mortgage (892 ) -

Proceeds from finance obligation, net of issuance costs 9,538 -

Payments of principal on finance obligation (124 ) -

Payments of other debt (260 ) (371 )

Decrease in drafts payable 58 -

Payments on finance lease obligations, net (375 ) (432 )

Repurchase of common stock (1,992 ) -

Net cash provided by/(used in) financing activities 6,233 (4,144 )

Cash, cash equivalents and restricted cash - beginning of period 8,375 14,658

Cash, cash equivalents and restricted cash - end of period $ 9,771 $ 8,375

Supplemental cash flow information

See accompanying Notes to Consolidated Financial Statements.

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PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED January 31, 2022 and 2021

(Tabular dollars in thousands, except per share data)

Note 1 - Business information

Perma-Pipe International Holdings, Inc. ("PPIH", the "Company", or the "Registrant") was incorporated in Delaware on October 12,1993. The Company is engaged in the manufacture and sale of products in one distinct segment: Piping Systems.

Fiscal year. The Company's fiscal year ends on January 31. Years, results and balances described as 2021 and 2020 are the fiscal years ended January 31, 2022 and 2021, respectively.

Nature of business. 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 ("DHC") 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.

Geographic information. Net sales attributed to a geographic area are based on the destination of the product shipment. Sales to foreign customers were 66.2% in 2021 compared to 49.8% in 2020. Long-lived assets are based on the physical location of the assets and consist of property, plant and equipment used in the generation of revenues in the geographic area.

Net sales

Property, plant and equipment, net of accumulated depreciation

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Note 2 - 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. During 2021 and 2020 and in accordance with Accounting Standards Codification ("ASC") 606, “Revenue from Contracts with Customers”, the Company recognizes revenue when a customer obtains control of promised goods or services. See Note 4 - Revenue Recognition for more detail.

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. The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensive income (loss). Gains or losses on foreign currency transactions and the related tax effects are reflected in net income. The aggregated foreign exchange transaction loss recognized in the income statement was $0.1 million in 2021 as compared to a gain of less than $0.1 million recognized in 2020.

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 $8.2 million and $7.2 million as of January 31, 2022 and 2021, respectively. On January 31, 2022, less than $0.1 million was held in the United States and $8.2 million was held by foreign subsidiaries. On January 31, 2021, $0.1 million was held in the United States and $7.1 million was held by foreign subsidiaries.

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Accounts payable included drafts payable of $0.2 million and $0.1 million on January 31, 2022 and 2021, respectively.

Restricted cash. There was no restricted cash held in the United States on January 31, 2022 or January 31, 2021. Restricted cash held by foreign subsidiaries was $1.6 million and $1.2 million as of January 31, 2022 and 2021, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.

Cash and cash equivalents $ 8,214 $ 7,174

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. In the United States, collateral is not generally required. In the U.A.E., Saudi Arabia, Egypt and India letters of credit are usually obtained for significant orders. Accounts receivable are due within various time periods specified in the terms applicable to the specific customer and are stated at amounts due from customers net of an allowance for claims and doubtful accounts. Standard payment terms are net 30 days. 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 $3.6 million and $3.8 million as of January 31, 2022 and 2021, respectively, has been outstanding for several years. Included in this balance is a retention receivable that is payable upon commissioning of the system in the amount of $3.4 million, of which, due to the long-term nature of the receivable, $2.0 million and $2.4 million were included in the balance of other long-term assets in the Company's consolidated balance sheets as of January 31, 2022 and January 31, 2021, respectively. The Company completed all of its deliverables in 2015 under the related contract, but the system has not yet been commissioned by the customer as additional activities must be completed prior to the overall system completion and commissioning. Nevertheless, the Company has been engaged in ongoing active efforts to collect this outstanding amount. During 2021, the Company received payments of approximately $0.1 million. The Company continues to engage with the customer to ensure full payment of open balances, and during April 2022 received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. Further, the Company has been engaged by the customer to perform additional work in 2022 under customary trade credit terms that supports the continued cooperation between the Company and the customer. As a result, the Company did not reserve any allowance against this receivable as of January 31, 2022. However, if the Company’s efforts to collect on this account are not successful, the Company may recognize an allowance for all, or substantially all, of any such then uncollected amounts.

For the years ended January 31, 2022 and 2021, respectively, noone customer accounted for greater than 10% of the Company's consolidated net sales.

As of January 31, 2022 and 2021,one customer accounted for 11.9% and noone customer accounted for greater than 10% of accounts receivable, 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 United States as well as other areas in the world.

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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.

Equity adjustment foreign currency, gross $ (1,947 ) $ (1,590 )

Minimum pension liability, gross (1,362 ) (1,902 )

Subtotal excluding tax effect (3,309 ) (3,492 )

Tax effect of equity adjustment foreign currency 91 91

Tax effect of minimum pension liability 114 114

Total accumulated other comprehensive loss $ (3,104 ) $ (3,287 )

Inventories. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for all inventories.

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 to 30 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 $4.1 million in 2021 and $4.3 million in 2020.

Furniture, office equipment and computer systems 3,941 3,830

Property, plant and equipment, net of accumulated depreciation $ 24,756 $ 26,897

Impairment of long-lived assets. The Company's assessment of long-lived assets, and other identifiable intangibles is based upon factors that market participants would use in accordance with the accounting guidance for the fair value measurement of assets. At January 31, 2022, the Company performed a qualitative analysis assessment to determine if it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values. The Company assessed three asset groups as part of this analysis: United States, Canada and Middle East. The qualitative assessment indicated that it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values for all three asset groups. Therefore, it was determined that there was no impairment of the Company's long-lived assets for the year ended January 31, 2022. The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.

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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, 2022 and 2021, is attributable to the purchase of Perma-Pipe Canada, Ltd., which occurred in 2016.

Foreign exchange

(In thousands) January 31, 2021 change effect January 31, 2022

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 January 31, 2022, the Company elected to perform a qualitative analysis assessment to determine if it was more likely than not that the fair value of the Company's Canadian reporting unit exceeded its carrying value, including goodwill. The qualitative assessment did not identify any triggering events that would indicate potential impairment of the Company's Canadian reporting unit. Therefore, it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment for the years ended January 31,2022. The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.

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 $2.7 million and $2.6 million as of January 31, 2022 and 2021, respectively. Accumulated amortization was approximately $2.6 million and $2.5 million as of January 31, 2022 and 2021 Future amortization over the next five years ending January 31 will be less than $0.1 million in the years 2022 to 2026 and less than $0.1 million thereafter. Amortization expense is expected to be recognized over the weighted-average period of 3.4 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 $0.4 million in 2021 and $0.3 million in 2021 and 2020.

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 a tax position in its consolidated financial statements only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, see Note 7 - Income taxes, in the Notes to Consolidated Financial Statements.

One of the base broadening provisions of the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Act") is the global intangible low-taxed income provisions ("GILTI"). In accordance with guidance issued by the FASB staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred. Thus, for periods ended January 31, 2022 and 2021, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Fair value of financial instruments. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are based upon reasonable estimates of their fair value due to their short-term nature. The carrying amount of the Company's short-term debt, revolving line of credit and long-term debt approximate fair value because the majority of the amounts outstanding accrue interest at variable rates.

Reclassifications. Certain reclassifications have been made to prior period financial statements to conform to current period presentation. These reclassifications have no effect on net income. Unbilled accounts receivable was broken out from prepaid expenses and other current assets on the consolidated balance sheet. Unbilled accounts receivable was segregated from prepaid expenses and other current assets and reclassified into its own line on the consolidated balance sheets and consolidated statements of cash flows.

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Net income/(loss) per common share. Earnings per share ("EPS") is computed by dividing net income/(loss) by the weighted average number of common shares outstanding (basic). The Company reported net income in 2021 and a net loss in 2020. Therefore, the Company adjusted for dilutive shares in 2021, while in 2020 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 8,133 8,126

Dilutive effect of stock options and restricted stock units 285 -

Canceled options during the year (33 ) (25 )

Equity-based compensation. The Company issues or has issued 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 has been awarded to the Board of Directors (non-employee) is based upon the fair value of the common stock at the date of grant, and since the grant vests immediately it is expensed on the date of the grant. Stockcompensation expense for stock options is recognized ratably over the requisite service period of the award. The Black-Scholes option-pricing model is utilized to estimate the fair value of option awards.

Treasury Stock.In accordance with ASC Topic 505, "Equity", the Company has accounted for the stock repurchases under the cost method, as the Company has not elected to retire the repurchased stock at this time. This results in recognizing the shares as treasury stock, a reduction of stockholders' equity on the Company's consolidated balance sheets as of January 31, 2022 and on the Company's consolidated statements of stockholders' equity for the year ended January 31,2022. The amounts recognized as treasury stock in the consolidated balance sheets and consolidated statements of stockholders' equity include costs associated with the acquisition of the shares.

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.

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 Renewed Senior Credit Facility which matures on September 20, 2026, bears interest at a rate equal to an alternate base rate, the London Inter-Bank Offered Rate ("LIBOR") or a LIBOR successor rate index, plus, in each case, an applicable margin. Based on the inclusion of the LIBOR successor rate index in the Renewed Senior Credit Facility, the Company does not expect a material impact from the adoption of this standard 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.

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Note 3 - Retention

A retention receivable is a portion of an outstanding receivable balance amount withheld by a customer until a contract is fully completed as specified in the contractual agreement. Retention receivables of $2.9 million and $2.7 million were included in the balance of trade accounts receivable as of January 31, 2022 and 2021, respectively. A retention receivable of $4.3 million and $2.7 million was included in the balance of other long-term assets as of January 31, 2022 and 2021 due to the long-term nature of the receivables. See Note 2 - Accounts receivable for further information regarding the future realization of these long-term balances.

Note 4 - Revenue recognition

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

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 in to two main categories:

In accordance with 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:

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

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A breakdown of the Company's revenues by revenue class for the years ended January 31, 2021 and 2020 are as follows (in thousands):

Sales % to Total Sales % to Total

Specialty Piping Systems and Coating

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 over time 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 over time method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer. 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.

Contract assets and liabilities:

Contract assets represent revenue recognized in excess of amounts billed for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities represent billings in excess of costs for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impact the period end balances in these accounts.

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The Company anticipates that substantially all costs incurred for uncompleted contracts as of January 31, 2022 will be billed and collected within one year.

During the year ended January 31, 2021, 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. The Company has recorded the expense related to the encashment of approximately $0.6 million in other income in the consolidated statements of operations for the year ended January 31, 2021. No receivable has been recorded related to the potential reimbursement in the consolidated financial statements as of January 31, 2022.

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

Costs incurred on uncompleted contracts $ 20,021 $ 17,543

Costs in excess of billings, net $ 1,032 $ 3,245

Balance sheet classification

Costs in excess of billings, net $ 1,032 $ 3,245

Substantially all of the $0.8 million and $1.2 million contract liabilities balances at January 31, 2021 and 2020, respectively, were recognized in revenues during 2021 and 2020, respectively.

Unbilled accounts receivable:

The Company has recorded $2.7 million and $0.2 million of unbilled accounts receivable on the consolidated balance sheets as of January 31, 2022 and 2021, respectively, from revenues generated by its subsidiaries in MENA. The Company has fulfilled all performance obligations and has recorded revenue under the respective contracts. The deliverables under these contracts have been accepted by the customer and billings will be made once the customer picks up or arranges shipping for the products. All of the amounts included in unbilled accounts receivable as of January 31, 2021 are expected to be billed in the first quarter of 2022.

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 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 - Debt

Revolving line - North America $ 634 $ 2,826

Term loan - foreign 33 17

Unamortized debt issuance costs (147 ) (166 )

Current portion of long-term debt $ 7,384 $ 6,776

Unamortized debt issuance costs - (9 )

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

Revolving line - North America $ 634 $ 634 $ - $ - $ - $ - $ -

Revolving lines - foreign 6,049 6,049 - - - - -

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 submitted its application and supporting documentation for forgiveness to its bank, which submitted the application and supporting documentation to the Small Business Administration ("SBA"). On June 24, 2021, the Company was notified by its lender that its PPP loan had been forgiven by the SBA.

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 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 year ended January 31, 2021.

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 year ended January 31, 2021. The amounts were recognized in other income, net in the consolidated statements of operations.

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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 ("FCCR") 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. Additionally, the Company was also required to have received, and applied to reduce the outstanding balance under the Credit Agreement, $1.0 million from one of its foreign subsidiaries, Perma-Pipe Middle East FZC, in the U.A.E. 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 incurred additional fees over the remainder of the Amendment and Waiver of approximately $0.1 million. The Amendment and Waiver also eliminated the Company’s ability to make LIBOR borrowings and reduced the overall availability by $2.0 million until maturity.

The Borrowers are using borrowings under the Renewed Senior Credit Facility (i) to fund capital expenditures; (ii) to fund ongoing working capital needs; and (iii) for other corporate purposes, including potentially additional stock repurchases. Borrowings under the Renewed Senior Credit Facility bears interest at a rate equal to an alternate base rate, the London Inter-Bank Offered Rate (“LIBOR”) or a LIBOR successor rate index, plus, in each case, an applicable margin. The applicable margin is based on an FCCR range. Interest on alternate base rate borrowings are based on the alternate base rate as defined in the Renewed Senior Credit Facility plus an applicable margin ranging from 1.00% to 1.50%, based on the FCCR in the most recently reported period. Interest on LIBOR or LIBOR successor rate borrowings will be the LIBOR rate as defined in the Renewed Senior Credit Facility plus an applicable margin ranging from 2.00% to 2.50%, based on the FCCR in the most recently reported period. Additionally, the Borrowers pay a 0.25% per annum facility fee on the unused portion of the Renewed Senior Credit Facility.

The Renewed Senior Credit Facility also contains financial covenants requiring the North American Loan Parties to achieve a ratio of its EBITDA to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior Credit Facility to be not less than 1.10 to 1.00 if for any five consecutive days the undrawn availability is less than $3.0 million or any day in which the undrawn availability is less than $2.0 million. As of January 31, 2022, the calculated ratio was substantially greater than 1.10 to 1.00. 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 Renewed Senior Credit Facility in an amount which, when added to the amount of the Company’s Consolidated EBITDA, would result in pro forma compliance with the covenant. The Company was in compliance with these covenants as of January 31, 2022.

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Finance obligation - buildings and land.On April 14, 2021, the Company entered into a purchase and sale agreement (the "Purchase and Sale Agreement"). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its land and buildings in Lebanon, Tennessee (the "Property") for a purchase price of $10.4 million. The transaction generated net cash proceeds of $9.1 million, following the release of the escrowed amount in June 2021 discussed below. The Company used a portion of the proceeds to repay its borrowings under the Senior Credit Facility. The Company expects to use its liquidity for strategic investments and general corporate needs. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $0.8 million, subject to annual rent increases of 2.0%. Under the Lease Agreement, the Company has four consecutive options to extend the term of the lease by five years for each such option. Concurrently with the sale, the Company paid off the approximately $0.9 million mortgage note on the Property to its lender. At closing, $0.4 million was placed in a short-term escrow account to cover certain post-closing contingencies that may arise. The contingencies were resolved in May 2021 and the Company received the escrowed funds in June 2021.

In accordance with ASC Topic 842, "Leases", this transaction was recorded as a failed sale and leaseback as the present value of lease payments exceeded substantially all of the fair value of the underlying asset. The Company utilized an incremental borrowing rate of 8.0% to determine the finance obligation to record for the amounts received and will continue to depreciate the assets. The current portion of the finance obligation of $0.1 million is recognized in current maturities of long-term debt and the long-term portion of $9.3 million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of January 31,2022. The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

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

The Company has a revolving line for

8.0 million U.A.E. Dirhams (approximately

$2.2 million at

January 31, 2022) from a bank in the U.A.E. The facility has an interest rate of approximately

3.77% and was

The Company has a third credit arrangement for project financing with a bank in the U.A.E. for 3.0 million U.A.E. Dirhams (approximately $0.8 million at January 31,2022). This credit arrangement is in the form of project financing at rates competitive in the U.A.E. The line is secured by the contract for a project being financed by the Company's U.A.E. subsidiary. The facility has an interest rate of approximately

4.5% and is expected to expire in

June 2023 in connection with the completion of the project.

June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of

100.0 million Egyptian Pounds (approximately

$6.2 million at

January 31, 2022). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line was secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. The facility has an interest rate of approximately

8.0% and is set to expire in

August 2022.

December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for

28.2 million Egyptian Pounds (approximately

$1.8 million at

January 31,2022). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by the contract for a project being financed by the Company's Egyptian subsidiary. The facility has an interest rate of approximately

8.0% and is expected to expire in

June 2022 in connection with the completion of the project.

The Company’s credit arrangements used by its Middle Eastern subsidiaries are subject to renewal on an annual basis. The Company guarantees only a portion of the subsidiaries' debt, including foreign debt. As of

January 31, 2022, the amount of foreign subsidiary debt guaranteed by the Company was approximately

$0.2 million.

The Company was in compliance with the covenants under the credit arrangements in the U.A.E. as of

January 31,2022. The Company was

not in compliance with a covenant under its

28.2 million Egyptian Pound project financing in Egypt as of

January 31, 2022. The Company did

not meet its required debt to equity ratio as of

January 31, 2022. The Company has received a waiver from the bank as of

January 31, 2022. On

January 31,2022, interest rates were based on the Emirates Inter Bank Offered Rate plus

3.0% to

3.5% per annum for the U.A.E. credit arrangements,

two of which have a minimum interest rate of

4.5% per annum, and based on the stated interest rate in the agreement for the Egypt credit arrangement. Based on these base rates, as of

January 31,2022, the Company's interest rates ranged from

3.77% to

8.0%, with a weighted average rate of

7.31%, and the Company had facility limits totaling

$16.4 million under these credit arrangements. As of

January 31, 2022,

$1.2 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. Additionally, as of

January 31,2022, the Company had borrowed

$6.0 million, and had an additional

$6.1 million of borrowing remaining available under the foreign revolving credit arrangements. The foreign revolving lines balances as of

January 31,2022 and

2021 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 USD $6.1 million at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the manufacturing facility located in Alberta, Canada that matures on December 23,2042. The interest rate is variable, and was 4.3% at January 31, 2022. 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. On April 14, 2021, the Company entered into the Purchase and Sale Agreement discussed above. Concurrently with the sale of the Property, the Company paid off the approximately $0.9 million remaining on the mortgage note on the Property to its lender.

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Note 6 - Leases

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

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.

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

In calculating the ROU asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

Operating Leases. In August 2020, the Company entered into a new lease in Abu Dhabi, U.A.E. for land upon which the Company intends to build a facility. The annual payments are initially expected to be approximately 1.2 million U.A.E. 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 CAD 1.1 million (approximately USD $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 CAD 1.1 million (approximately USD $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. Two of these leases matured in April 2021 and new leases have been entered into in May 2021 to replace the matured leases. The remaining lease matures in September 2022.

The Company has several significant operating lease agreements, with lease terms of one to 30 years, which consist of real estate, vehicles and office equipment leases. These leases do not require any contingent rental payments, impose any financial restrictions or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and ROU assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any arrangements where it acts as a lessor, other than one sub-lease arrangement.

At January 31, 2022, the Company had total operating lease liabilities of $12.8 million and operating ROU assets of $11.2 million, which are reflected in the consolidated balance sheet. At January 31, 2022, the Company also had finance lease liabilities of $0.5 million included in current maturities of long-term debt and long-term debt less current maturities, and finance ROU assets of $0.7 million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheet.

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

Operating and Finance leases: January 31, 2022 January 31, 2021

Finance leases assets:

Property and Equipment - gross $ 1,221 $ 879

Accumulated depreciation and amortization (490 ) (96 )

Property and Equipment - net $ 731 $ 783

Finance lease liabilities:

Finance lease liability short-term $ 357 $ 300

Finance lease liability long-term 173 401

Total finance lease liabilities $ 530 $ 701

Operating lease assets:

Operating lease liabilities:

Operating lease liability short-term $ 1,496 $ 1,402

Total operating lease liabilities $ 12,766 $ 14,576

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

Finance Lease Costs

Amortization of ROU assets Cost of sales $ 245 $ 214

Interest on lease liabilities Interest expense 53 69

Operating lease costs Cost of sales, SG&A expenses 2,502 2,570

Short-term lease costs (1) Cost of sales, SG&A expenses 591 398

Sub-lease income SG&A expenses (81 ) (81 )

(1) Includes variable lease costs, which are immaterial

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

Cash paid for amounts included in the measurement of lease liabilities:

Financing cash flows from finance leases $ 375 $ 432

Operating cash flows from finance leases 53 69

Operating cash flows from operating leases 2,784 3,097

ROU Assets obtained in exchange for new lease obligations:

Finance leases liabilities $ -

Operating leases liabilities 121

Weighted-average lease terms discount rates are as follows:

Weighted-average remaining lease terms (in years):

Finance leases 1.5

Operating leases 13.5

Weighted-average discount rates:

Finance leases 9.1 %

Operating leases 7.4 %

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On January 31, 2022, future minimum annual rental commitments under non-cancelable lease obligations were as follows (in thousands):

Year: Operating Leases Finance Leases

Less: amount representing interest (8,442 ) (33 )

Rental expense for operating leases was $3.1 million and $3.0 million in 2021 and 2020, respectively.

The Company has several significant operating lease agreements as follows:

• Five acres of land in Louisiana is leased through March 2022.

• Twenty acres of land in Canada leased through December 2022.

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Note 7 - Income taxes

Components of income tax expense/(benefit) (in thousands) 2021 2020

Current

Federal $ 1 $ 18

Total current income tax expense 2,462 536

Deferred

Federal — —

State and other — —

Total deferred income tax expense/(benefit) (197 ) (669 )

Total income tax expense/(benefit) $ 2,265 $ (133 )

Repatriation of foreign earnings

As a result of the onetime transition tax from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company estimates that distributions from foreign subsidiaries will no longer be subject to incremental U.S. tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested. Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered. The Company's liability has remained consistent at $0.2 million as of January 31, 2022 and 2021, respectively, related to these taxes.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. The Company intends to permanently reinvest the undistributed earnings of its Middle Eastern and Indian subsidiaries. The Middle Eastern and Indian subsidiaries have unremitted earnings of $22.7 million and $0.8 million, respectively, as of January 31, 2022, all of which has been subject to the transition tax in the United States. Unremitted earnings of $19.2 million in the United Arab Emirates would not be subject to withholding tax in the event of a distribution, and $3.5 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of $0.2 million. The Company has not recorded a deferred tax liability related to any financial reporting basis over tax basis related to the investment in these foreign subsidiaries as it is not practical to estimate.

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The difference between the provision for income taxes and the amount computed by applying the U.S. Federal statutory rate of 21% was as follows:

Tax expense at federal statutory rate $ 1,749 $ (1,633 )

State expense, net of federal income tax effect 148 (97 )

Deferred compensation adjustment 456 (5 )

Domestic valuation allowance (636 ) 1,807

Domestic return to provision (6 ) (485 )

Global Intangible Low Tax Income Inclusion 742 -

Nontaxable Paycheck Protection Program Loan Forgiveness Proceeds - (662 )

Permanent differences other 56 282

Valuation allowance for state NOLs (29 ) 183

Differences in foreign tax rate (430 ) 527

Foreign rate change (31 ) 18

Deferred tax on unremitted earnings (55 ) (176 )

Foreign withholding taxes 178 209

All other, net expense 123 (101 )

Total income tax expense/(benefit) $ 2,265 $ (133 )

The Company's worldwide effective tax rates ("ETR") were 27.2% and 1.7% in 2021 and 2020, respectively. The change in the ETR from the prior year to the current year is largely due to the Company’s valuation allowance against its domestic deferred tax asset and changes to the mix of income in various jurisdictions.

Components of deferred income tax assets (in thousands) 2021 2020

U.S. Federal NOL carryforward $ 8,424 $ 8,626

Foreign NOL carryforward 448 543

Other accruals not yet deducted 276 245

Accrued commissions and incentives 483 362

Inventory valuation allowance 116 106

Accrued pension - 18

Total deferred tax assets, net of valuation allowances $ 1,572 $ 1,684

Components of the deferred income tax liability

Foreign subsidiaries unremitted earnings (231 ) (289 )

Accrued pension (159 ) -

Right of use asset (386 ) (484 )

Total deferred tax liabilities $ (1,473 ) $ (1,775 )

Deferred tax asset/(liability), net $ 99 $ (91 )

Balance sheet classification

Long-term liability (712 ) (914 )

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The Company has a gross U.S. Federal operating loss carryforward of $40.1 million. Of this amount, $33.8 million will begin to expire between tax years 2030 and 2037 and the remainder has an indefinite carryforward.

The deferred tax asset ("DTA") for state net operating loss ("NOL") carryforwards of $2.7 million relates to amounts that expire at various times from 2022 to 2032.

The Company has a DTA foreign NOL carryforward of $0.4 million for its subsidiary in Saudi Arabia. The NOL in Saudi Arabia can be carried forward indefinitely and does not have a valuation allowance recorded against it. The NOL in India was fully utilized in 2021. The ultimate realization of this tax benefit is dependent upon the generation of enough operating income in the foreign tax jurisdictions.

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

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the domestic cumulative loss incurred leading up to the period ended January 31, 2013. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2013, a full valuation allowance was recorded against the domestic deferred tax assets as the Company has determined that they are not more likely than not to be realized based upon the available evidence. As of January 31, 2022, the Company has not released the valuation allowance as the objective negative evidence in the form of cumulative losses continues to exist. The amount of the domestic deferred tax assets considered realizable, however, could be increased if objective negative evidence in the form of cumulative losses is no longer present.

The Company has a deferred tax asset of $2.6 million for U.S. foreign tax credits after considering the impact of the repatriated foreign earnings and the one-time transition tax. The foreign tax credit deferred tax asset is fully offset with a valuation allowance. The excess foreign tax credits are subject to a ten-year carryforward and will begin to expire on January 31,2026.

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

Balance at beginning of the year $ 1,591 $ 1,545

Increases in positions taken in a prior period (4 ) 2

Increases in positions taken in a current period 66 65

Decreases due to lapse of statute of limitations (8 ) (21 )

Decreases due to settlements (34 ) -

Balance at end of the year $ 1,611 $ 1,591

Included in the total UTP liability were estimated accrued interest and penalties of $0.2 million in January 31, 2022 and 2021, respectively. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheet and recognized as an expense during the period. The Company's policy is to include interest and penalties in income tax expense. On January 31, 2022, the Company did not anticipate any significant adjustments to its unrecognized tax benefits within the next twelve months. Included in the balance on January 31, 2022 were amounts offset by deferred taxes (i.e. temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Upon reversal, $0.6 million of the amount accrued on January 31, 2022 would impact the future ETR.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Tax years related to January 31, 2019, 2020 and 2021 are open for federal and state tax purposes. In addition, federal and state tax years January 31, 2003 through January 31, 2009 are subject to adjustment on audit, up to the amount of research tax credit generated in those years. Any NOL carryover can still be adjusted by the Internal Revenue Service in future year audits.

The Company's management periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period. Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state tax issues are included in other long-term liabilities on the consolidated balance sheet.

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Note 8 - Retirement plans

Pension plan

The defined benefit plan that covered the hourly rate employees of a non-operating filtration business unit, previously located in Winchester, Virginia, was frozen on June 30,2013 per the third Amendment to the Plan dated May 15, 2013. The accrued benefit of each participant was frozen as of the freeze date, and no further benefits shall accrue with respect to any service or hours of service after the freeze date. The benefits are based on fixed amounts multiplied by years of service of participants. The Company engages outside actuaries to calculate its obligations and costs. The funding policy is to contribute such amounts as are necessary to provide for benefits attributed to service to date. The amounts contributed to the plan are sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974.

Asset allocation

Perma-Pipe International Holdings, Inc. PPIH US Equity

PPIH · 10-K · period ended 2022-01-31

Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 9A. CONTROLS AND PROCEDURES

Item 9B. OTHER INFORMATION - Not applicable.

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 11. EXECUTIVE COMPENSATION

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Perma-Pipe International Holdings, Inc. PPIH US Equity☆

PPIH · 10-K · period ended 2022-01-31

Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 9A. CONTROLS AND PROCEDURES

Item 9B. OTHER INFORMATION - Not applicable.

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 11. EXECUTIVE COMPENSATION

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Perma-Pipe International Holdings, Inc. PPIH US Equity