Note

- Revenue recognition

The Company accounts for its revenues under Accounting Standards Codification 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:

)

Systems and Coating - which include all bundled products in which Perma-Pipe designs, engineers, and manufactures pre-insulated specialty piping systems, insulates subsea flowline pipe, subsea oil production equipment, and land-lines. Additionally, this systems classification also includes coating applied to pipes and structures.

)

Products - which include cables, leak detection products, heat trace products, material/goods

not

bundled with piping or flowline systems, and field services

not

bundled into a project contract.

In accordance with ASC

606

through

29,

the Company recognizes specialty piping and coating systems revenue over time as the manufacturing process progresses because

one

of the following conditions exist:

)

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

)

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

alternative use for the Company.

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

606

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

2020

and

2019

are as follows (in thousands):

	2020					2019
	Sales		% to Total			Sales		% to Total
Products	$	11,496		14	%	$	15,991		12	%

Specialty Piping Systems and Coating
Revenue recognized under input method		35,041		41	%		48,415		38	%
Revenue recognized under output method		38,157		45	%		63,257		50	%
Total	$	84,694		100	%	$	127,663		100	%

The input method as noted in ASC

606

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

The output method as noted in ASC

606

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 does

not

recognize revenue until the performance obligations are satisfied under the methods discussed above.

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

Contract assets and liabilities:

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

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

January 31, 2021

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.

receivable has been recorded related to the potential reimbursement in the consolidated financial statements as of

January 31, 2021.

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

(In thousands)	2020			2019
Costs incurred on uncompleted contracts	$	17,543		$	15,553
Estimated earnings		9,651			8,641
Earned revenue		27,194			24,194
Less billings to date		23,949			23,201
Costs in excess of billings, net	$	3,245		$	993
Balance sheet classification
Contract assets: Costs and estimated earnings in excess of billings on uncompleted contracts	$	4,007		$	2,166
Contract liabilities: Billings in excess of costs and estimated earnings on uncompleted contracts		(762	)		(1,173	)
Costs in excess of billings, net	$	3,245		$	993

Substantially all of the

$1.2

million and

$1.6

million contract liabilities balances at

January 31, 2020

and

2019,

respectively, were recognized in revenues during

2020

and

2019,

respectively.

In addition to these amounts, the Company has recorded

$0.2

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

January 31, 2021.

The Company had

unbilled receivables recorded as of

January 31, 2020.

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.