Note

- Revenue recognition

February 1, 2018,

the Company adopted Accounting Standards Codification Topic

606,

"Revenue from Contracts with Customers," ("Topic

606"

), using the modified retrospective method applied to contracts that were

not

completed as of that date. Under this methodology the effect, if any, of initially applying the new revenue standard was to be recorded as an adjustment to the opening balance of retained earnings, while periods prior to the adoption date were

not

to be adjusted and continue to be reported in accordance with the accounting policies in effect for those periods.

The Company conducted a complete and thorough analysis of each single element of the

five

-step model of Topic

606

and concluded that there was

material impact to the Company as a result of the adoption of the new standard. As such, the Company was

not

required to make a cumulative adjustment to the opening balances of retained earnings, contract assets or contract liabilities upon its initial application of the new revenue standard.

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:

)

Systems - which include all bundled products in which Perma-Pipe designs, engineers, and manufactures pre-insulated piping systems, insulates subsea flowline pipe or subsea oil production equipment. Additionally, this systems classification also includes coating applied to pipes and structures which are provided by the customer.

)

Products - which include cables, leak detection products, heat trace products sold under the PermAlert brand name, material/goods

not

bundled with piping or flowline systems, and field services

not

bundled into a project contract.

The Systems revenue class has generally accounted for more than

90%

of the Company’s total revenue and is recognized over time. The remaining revenue (Product class) is recognized when goods are shipped or services are performed. A breakdown of the Company's revenues by revenue class for the

three

and

nine

months ended

October 31, 2018

and

2017

are as follows:

	Three Months Ended October 31,										Nine Months Ended October 31,
	2018					2017					2018					2017
	Sales		% to Total			Sales		% to Total			Sales		% to Total			Sales		% to Total
Products	$	4,440		14	%	$	2,504		9	%	$	9,447		10	%	$	5,830		7	%

Specialty Piping Systems and Coating
Revenue recognized under input method		11,869		36	%		10,986		40	%		32,778		35	%		34,240		44	%
Revenue recognized under output method		16,497		50	%		14,008		51	%		51,795		55	%		37,781		49	%
Total	$	32,806		100	%	$	27,498		100	%	$	94,020		100	%	$	77,851		100	%

Most of the Company’s revenue is recognized over time as the manufacturing process progresses because

one

of the following conditions exist:

)

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

)

the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured as evidenced by the Company’s right to payment for work performed to date plus seller’s profit margin for products that have

alternative use for the Company.

The U.S. operating entities measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract using the percentage-of-completion method (an input method). Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the percentage-of-completion method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer. Costs include all material, labor, and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when projects costs are incurred.

All other operating entities measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract (output method). 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.

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

Contract assets and liabilities:

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

The Company anticipates that substantially all costs incurred for uncompleted contracts as of

October 31, 2018

will be billed and collected within

one

year.

The following tables set forth the changes in the Company's contract assets and liabilities for the periods indicated. The Company expects to recognize the remaining balances as of

October 31, 2018

within

one

year.

	Contract Assets
Balance January 31, 2018	$	1,502
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,085	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		1,417
Closing Balance at April 30, 2018	$	1,834
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,395	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		1,575
Closing Balance at July 31, 2018	$	2,014
Costs and gross profit recognized during the period for uncompleted contracts from the prior period		(1,917	)
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period		2,260
Closing Balance at October 31, 2018	$	2,357

	Contract Liabilities
Balance January 31, 2018	$	1,967
Revenue recognized during the period for uncompleted contracts from the prior period		(1,810	)
New contracts entered into that are uncompleted at the end of the current period		413
Closing Balance at April 30, 2018	$	570
Revenue recognized during the period for uncompleted contracts from the prior period		(422	)
New contracts entered into that are uncompleted at the end of the current period		398
Closing Balance at July 31, 2018	$	546
Revenue recognized during the period for uncompleted contracts from the prior period		(497	)
New contracts entered into that are uncompleted at the end of the current period		1,550
Closing Balance at October 31, 2018	$	1,599

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.