Perma-Pipe International Holdings, Inc. Annual Report 2015

FY2015 Annual Report · Perma-Pipe International Holdings, Inc.

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2015 Annual Report

Dear Fellow Shareholder,

During the past year the Company implemented many elements of a major strategic shift in MFRI’s
future by executing a series of transactions designed to place all of our efforts in the Piping segment
going forward. To that end, we completed the successful sale of the pleated element parts of our
Filtration businesses and have taken steps to exit the fabric filter portion of that segment. We hope to
complete that part of the program by the end of the second quarter of Fiscal 2016/17.

Also, we further expanded our efforts as an international leader in pre-insulated piping and leak
detection systems. Using proceeds from the sale of the pleated filtration business, we transitioned from
part ownership of Bayou Perma-Pipe Canada (BPPC) to full ownership of that business and now operate
as Perma Pipe Canada. From our plant in Alberta, Canada we will continue to provide corrosion coatings
for the oil sands industry and are enhancing our ability to serve the insulated pipe markets in Canada
and the northwestern United States.

Just as the Company is transitioning through many changes, the elements that impact the markets for
specialty insulated piping systems are also in the midst of tremendous change. The dramatic drop in the
price of oil and gas during the past 18 months has had a significant impact on project demand for us,
both directly and indirectly. On the direct front, new projects that require our products to move oil
efficiently have been delayed. Indirectly, reduced revenue from oil sales has caused postponement of
projects in Canada and the Middle East, particularly Saudi Arabia. Even so, Perma Pipe, which now
represents the continuing operations part of the business, was able to generate net sales of
approximately $123 million and $3.0 million of income before taxes for the year as the Company worked
on projects already in the backlog.

We recognize that 2016 will continue to be a difficult market for the traditional products used in large
scale chilled water distribution as well as oil gathering and transportation projects. In an effort to offset
some of those headwinds, we have taken appropriate cost reduction measures and will continue with
those initiatives as needed. In addition, we are expanding the scope of activities that are offered to our
customers. For example, we are increasing our efforts in pipe spool fabrication for traditional and
industrial use and applying newer specialty coatings for corrosion prevention. The list of available
opportunities remains strong even though the timing of when projects will move forward is not
something we can predict. When projects do proceed we are better positioned today than ever to
capitalize on those opportunities.

Consistent with reviewing all our activities in the current environment, the Nominating and Corporate
Governance Committee, along with the Board, has reviewed the needs of the Company in the context of
migrating to a Perma Pipe centric business model. It was concluded that resizing the Board is an
appropriate step to align with the focus of the Company going forward while continuing to provide
excellent governance oversight at an appropriate cost. As a result the Board has nominated five
directors for election by the shareholders verses the current eight member size now serving the
Company. The three current members that are not nominated for election this coming June are Michael

Gade, Dennis Kessler and David Unger. Each of them has made a positive difference to the Company
and its shareholders and we would like to share a few words about them here.

Michael Gade has been a member of the Board for seven years. In addition to various committee
assignments he also acted as the leader of the compensation committee. His experience in larger
company environments, consulting, and teaching at the graduate business level brought valuable
insights in corporate finance, strategy and marketing. This is reflected in the new direction the Company
has taken with its focus on the Piping segment. We greatly appreciate all that Mike has contributed to
the Company and thank him for his many years of dedicated participation.

Dennis Kessler has been part of our Board for eighteen years. During that time he has taken on just
about every governance and oversight role the Company needed and has influenced the transition of
the Company to a greater international scope. He has served as Audit Committee Chair, Lead
Independent Director and most recently as our Nominating and Governance Committee Chair. His
broad business experiences coupled with his insight about organizational structure and skill
development brings out the best in everyone. We thank Dennis from the bottom of our hearts for his
dedication, wisdom and thoughtful guidance.

All of us have been fortunate to have David Unger as our colleague and leader. He began his career with
the predecessor of MFRI some 57 years ago. He was the driving force that moved the Company from a
small local mechanical contracting firm to a multinational manufacturing Company. In 1989 he began
the Company’s migration into the public market to further enhance the opportunities for growth. It is
simply not possible to encapsulate all that he has done for the Company and shareholders and the love
of company employees for him in the few words of this letter. His intellect, creativity, unwavering
integrity and compassion for others are attributes not often found in one person. Although he will not
be part of the group nominated for election to the Board this year, we look forward to continuing to
receive David’s insights and sage advice as an Emeritus status member of our Board.

We owe all of them a great debt of gratitude for their unwavering support of the Company.

Finally, as another example of navigating change, this year we will be hosting our annual shareholder
meeting solely on the internet. We are excited to embrace the latest technology to provide expanded
access, improved communication and cost savings for our shareholders and the Company. By hosting a
virtual meeting we will be able to have broader participation as shareholders can participate from any
location around the world. Details regarding the annual meeting can be found in the Company’s proxy
material.

We thank all of you for your support and look forward to the continuing development of our specialty
insulated piping products and other capabilities that will act as drivers for our future growth.

Sincerely,

DAVID S. BARRIE
Chairman

BRADLEY E. MAUTNER
Chief Executive Officer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2016
Commission File No. 0-18370
MFRI, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
7720 N. Lehigh Avenue, Niles, Illinois
(Address of principal executive offices)

36-3922969
(I.R.S. Employer Identification No.)
60714
(Zip Code)

(847) 966-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $.01 per share

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained
herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule
12b-2 of the Exchange Act. (Check one): Large accelerated filer
reporting company

Non-accelerated filer

Accelerated filer

Smaller

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (the exclusion of
the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant) was $35,417,613 based on the closing sale price of $5.61 per share as reported on the NASDAQ Global
Market on July 31, 2015.

The number of shares of the registrant's common stock outstanding at April 22, 2016 was 7,403,958.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2016 Annual Meeting of Stockholders are incorporated by reference in Part III.

MFRI, Inc.

FORM 10-K

For the fiscal period ended January 31, 2016

TABLE OF CONTENTS

Item
Part I
1.

1A.
1B.
2.
3.
4.

Part II
5.

7A.

9A.

9B.

Part III
10.
11.
12.

13.
14.

Part IV
15.

Business
Piping Systems
Filtration Products
Employees
International
Executive Officers of the Registrant
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data

Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Exhibits and Financial Statement Schedules

Report of Independent Registered Public Accounting Firm
Signatures

Page

1
2
4
4
4
5
5
8
9
9
9

20
20
20

20
20

21
54

Forward Looking Statements

PART I

Statements in this Form 10-K that are not historical facts, so-called "forward-looking statements," are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are
cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in MFRI's
filings with the Securities and Exchange Commission ("SEC"). See "Risk Factors" in Item 1A.

Available Information

The Company files with and furnishes to the SEC, reports including annual meeting materials, Annual Reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as amendments thereto. The
Company maintains a website, www.mfri.com, where these reports and related materials are available free of charge
as soon as reasonably practicable after the Company electronically delivers such material to the SEC. The
information on the Company's website is not part of this Annual Report on Form 10-K and is not incorporated into
this or any other filings by the Company with the SEC.

Item 1. BUSINESS

As of January 31, 2016, MFRI, Inc., collectively with its subsidiaries ("MFRI", "Company" or "Registrant"), is
engaged in the manufacture and sale of products in one reportable segment: Piping Systems. As described below,
prior to January 29, 2016, the Company was also engaged in the manufacture and sale of products in the Filtration
Products segment. The Company's fiscal year ends on January 31. Years and balances described as 2015 and 2014
are the fiscal years ended January 31, 2016 and 2015, respectively.

In January 2016, the Company took a series of actions designed to refocus its business portfolio and cost structure
to enhance the Company’s overall performance. These actions included the sale of MFRI’s domestic and
international filtration businesses, including TDC Filter Manufacturing, Inc., Nordic Air Filtration, A/S and related
assets, and the planned sale of the domestic fabric filter business in Winchester, Virginia. The sales follow a
competitive bidding process that MFRI initiated as part of this program.

In addition to paying down debt, the sale of the filtration business will give the Company the opportunity to focus
resources on new Piping Systems growth opportunities such as the recent acquisition of 100% ownership of Bayou
Perma-Pipe Canada, Ltd. ("BPPC"), which the Company believes creates a strong platform to diversify and expand
Perma-Pipe Inc’s ("Perma-Pipe") business into new markets and geographies.

In connection with its strategic repositioning, the Company:

• On January 29, 2016, sold certain assets and liabilities of its TDC Filter business based in Bolingbrook,
Illinois for approximately $11 million, subject to certain post-closing adjustments, to the Industrial Air
division of CLARCOR, a NYSE-listed company based in Franklin, Tennessee. CLARCOR is a leading
diversified marketer and manufacturer of mobile, industrial and environmental filtration products. As a part
of this program, MFRI plans to sell the 100,000 square foot TDC manufacturing and office facility in
Bolingbrook, Illinois.

• On January 29, 2016, sold its Nordic Air Filtration, Denmark and Nordic Air Filtration, Middle East

businesses, for approximately $11 million, on a debt/cash free basis, subject to certain post-closing
adjustments, to Hengst Holding GmbH. Hengst is a leading specialist in filtration and filtration
management and an international development partner and OEM supplier for all major automobile
manufacturers.

•

Is reorganizing the Company’s corporate staff and reducing expenses to reflect its new strategic focus and
structure. The restructuring is expected to yield annualized savings of approximately $1.2 million.

At January 31, 2016, one customer accounted for 10.3% of the Company's net sales. At January 31, 2015, one
customer accounted for 17.2% of the Company's net sales.

Two customers accounted for 46.4% of accounts receivable at January 31, 2016, and one customer accounted for
37.4% of accounts receivable at January 31, 2015. As of April 1, 2016, these customers have paid 40.4% of their
receivables outstanding at January 31, 2016.

MFRI, Inc.'s Operating Units

Perma-Pipe, Inc.

Niles, IL

New Iberia, LA

Lebanon, TN

Perma-Pipe Middle East FZC

Fujarah, United Arab Emirates

Perma-Pipe Saudi Arabia, LLC

Dammam, Kingdom of Saudi Arabia

Bayou Perma-Pipe Canada, Ltd.
Camrose, Alberta, Canada

Perma-Pipe India Pvt. Ltd

Gandidham, India

All operating units shown are, directly or indirectly, wholly owned by MFRI except BPPC, which was
owned 49% by MFRI and 51% by an unrelated party until February 4, 2016 when MFRI purchased the
remaining shares and became the sole owner.

Piping Systems

Products and services. The Company engineers, designs, manufactures and sells specialty piping and leak
detection and location systems. Piping Systems include (i) industrial and secondary containment piping systems for
transporting chemicals, hazardous fluids and petroleum products, (ii) insulated and jacketed district heating and
cooling ("DHC") piping systems for efficient energy distribution to multiple locations from central energy plants,
(iii) subsea oil and gas gathering flow and (iv) above ground long lines for oil and mineral transportation. The leak
detection and location systems are sold with some of its piping systems and also 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.

Piping Systems frequently engineers and custom fabricates to job site dimensions and incorporates provisions for
thermal expansion due to varying temperatures. This custom fabrication helps to minimize the amount of field
labor required by the installation contractor. Most of the piping systems are produced for underground installations
and, therefore, require trenching, which is the responsibility of the general contractor, and done by unaffiliated
installation contractors.

The Piping Systems segment is based on large discrete projects, and domestic Piping Systems is seasonal. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") - Piping
Systems."

Recent developments. On December 31, 2015, MFRI entered into a purchase agreement with its joint venture
partner Aegion Corporation to acquire 100% ownership of BPPC, a coating and insulation company in Camrose,
Alberta, which acquisition closed on February 4, 2016. MFRI had owned a 49% interest in BPPC since 2009, when
the joint venture was formed with Aegion to serve the oil and gas industry in Western Canada.

The purchase price was approximately $9.6 million in cash and debt at closing and is subject to certain post-closing
adjustments.

Customers. The customer base is industrially and geographically diverse. In the United States of America
("U.S."), the Company employs national and regional sales managers who use and assist a network of independent
manufacturers' representatives, none of whom sells products that are competitive with the Company's Piping
Systems. The Company employs a direct sales force as well as an exclusive agent network for several countries in
the Middle and Far East to market and sell products and services.

Intellectual property. The Company owns several patents covering its piping and electronic leak detection systems.
The patents are not material either individually or in the aggregate overall, because the Company believes sales
would not be materially reduced if patent protection were not available. The Company owns numerous trademarks
connected with its piping and leak detection systems including the following U.S. trademarks: Perma-Pipe®, Chil-
Gard®, Double Quik®, Escon-A®, FluidWatch®, Galva-Gard®, Polytherm®, Pal-AT®, Stereo-Heat®,
LiquidWatch®, PalCom®, Xtru-therm®, Auto-Therm®, Pex-Gard®, Multi-Therm®, Ultra-Therm®, Cryo-Gard®,
Sleeve-Gard®, Electro-Gard® and Sulphur-Therm™. The Company also owns a number of trademarks throughout
the world. Some of the Company's more significant trademarks include: Auto-Therm®, Cryo-Gard®, Electro-
Gard®, Sleeve-Gard®, Permalert®, Pal-AT®, Perma-Pipe®, Polytherm®, Ric-Wil®, and Xtru-therm®.

Raw materials. Basic raw materials used in production are pipes and tubes made of carbon steel, alloy, copper,
ductile iron, plastics and various chemicals such as polyols, isocyanate, urethane resin, polyethylene and fiberglass,
mostly purchased in bulk quantities. The Company believes there are currently adequate supplies and sources of
availability of these needed raw materials.

The sensor cables used in the leak detection and location systems are manufactured to the Company's specifications
by companies regularly engaged in manufacturing such cables. The Company owns patents for some of the features
of its sensor cables. The Company assembles the monitoring component of the leak detection and location systems
from components purchased from many sources.

Competition. Piping Systems is highly competitive and believes its principal competition consists of between ten
and twenty major competitors and more small competitors. The Company believes quality, service, a
comprehensive product line and price are key competitive factors. The Company also believes it has a more
comprehensive line for DHC than any competitor. Some competitors have greater financial resources and cost
advantages as a result of manufacturing a limited range of products.

Government regulation. The demand for the Company's leak detection and location systems and secondary
containment piping systems, a small percentage of the total annual piping sales, is driven by federal and state
environmental regulation with respect to hazardous waste. The Federal Resource Conservation and Recovery Act
requires, in some cases, that the storage, handling and transportation of fluids through underground pipelines feature
secondary containment and leak detection. The National Emission Standard for hydrocarbon airborne particulates
requires reduction of airborne volatile organic compounds and fugitive emissions. Under this regulation, many
major refineries are required to recover fugitive vapors and dispose of the recovered material in a process sewer
system, which then becomes a hazardous secondary waste system that must be contained. Although there can be no
assurances as to the ultimate effects of these governmental regulations, the Company believes such regulations may
increase the demand for its Piping Systems products.

Filtration Products

Products and services. Prior to January 29, 2016, the Company manufactured and sold a wide variety of filter
elements for cartridge collectors and baghouse air filtration and particulate collection systems. The principal types
of industrial air filtration and particulate collection systems in use are baghouses, cartridge collectors, electrostatic
precipitators, scrubbers and mechanical collectors. This equipment is used to eliminate particulates from the air by
passing particulate laden gases through fabric filters (filter bags) or pleated media filter elements, in the case of
baghouses or cartridge collectors, between electrically charged collector plates, in the case of electrostatic
precipitators and contact with liquid reagents (scrubbers). The Company manufactured filter elements in standard
industry sizes, shapes and filtration media and to custom specifications, maintaining manufacturing standards for
more than 10,000 styles of filter elements to suit substantially all industrial applications. Filter elements were
manufactured from industrial yarn, fabric and paper purchased in bulk. Most filter elements were produced from
cellulose, acrylic, fiberglass, polyester, aramid, laminated membranes, or polypropylene fibers. The Company also
manufactured filter elements from more specialized materials, sometimes using special finishes.

The Company marketed numerous filter related products and accessories used during the installation, operation and
maintenance of cartridge collectors and baghouses, including wire cages used to support filter bags, spring
assemblies for proper tensioning of filter bags and clamps and hanger assemblies for attaching filter elements. In
addition, the Company marketed hardware items used in the operation and maintenance of cartridge collectors and
baghouses. The Company also provided maintenance services, consisting primarily of air filtration system
inspection and filter element replacement, using a network of independent contractors. The Company had
particular expertise in supplying filter bags for use with electric arc furnaces in the steel industry. Over the past
three years, Filtration Products supplied filter elements to more than 4,000 user locations.

Customers. The customer base was industrially and geographically diverse. These products and services are used
primarily by operators of utility and industrial coal-fired boilers, incinerators and cogeneration plants and by
producers of metals, cement, chemicals and other industrial products.

Filtration Products were marketed domestically under the names Midwesco Filter and TDC Filter Manufacturing.
The Company marketed its U.S. manufactured Filtration Products internationally using domestically based sales
resources to target major users in foreign countries. The Denmark filtration facility marketed pleated filter elements
under the name Nordic Filtration throughout Europe, Asia and the Middle East, primarily to original equipment
manufacturers.

Employees

As of January 31, 2016, the Company had 998 employees, of whom 51% worked outside the U.S.

International

The Company's international operations as of January 31, 2016 include subsidiaries and a joint venture in four
foreign countries on two continents. The Company's international operations contributed approximately 48.4% of
revenue in 2015 and 43.7% of revenue in 2014.

Refer to the Business descriptions on pages 1 through 4 above and Note 1 - Business and segment information in
the Notes to Consolidated Financial Statements for additional information on international activities. International
operations are subject to risks inherent in conducting business in foreign countries, including price controls,
exchange controls, limitations on participation in local enterprises, nationalization, expropriation and other
governmental action, and changes in currency exchange rates.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information regarding the executive officers of the Company as of April 1, 2016:

Name
Bradley E. Mautner Director, President and Chief Executive Officer; Age 60

Offices and positions, if any, held with the Company; age

Karl J. Schmidt

Vice President and Chief Financial Officer; Age 62

Wayne Bosch

Vice President, Chief Human Resources Officer; Age 59

Fati A. Elgendy

President and Chief Operating Officer, Perma-Pipe; Age 67

All of the executive officers serve at the discretion of the Board of Directors.

Executive officer of
the Company or its
predecessor since
1994

2013

1990

Bradley E. Mautner, Chief Executive Officer since February 2013. President since December 2004; Chief
Operating Officer from December 2004 to January 2013; Executive Vice President from December 2002 to
December 2004;Vice President from December 1996 through December 2002; Director since 1994.

Karl J. Schmidt, Appointed Vice President and Chief Financial Officer in January 2013. From 2010 to 2012, Mr.
Schmidt served as the Chief Financial Officer of Atkore International (previously Tyco Electrical and Metal
Products), a manufacturer of steel pipe and tube products, electrical conduits, cable, and cable management
systems. From 2002 to 2009, Mr. Schmidt served as the Executive Vice President and Chief Financial Officer of
Sauer-Danfoss, Inc., a global manufacturer of hydraulic, electrical, and electronic components and solutions for off-
road vehicles.

Wayne Bosch, Appointed Vice President and Chief Human Resources Officer in December 2013. From 2010 to
2012, Mr. Bosch was Vice President of Human Resources at Pactiv, a $4 billion global manufacturer and distributor
of food packaging products. Prior to Pactiv, he led the human resource activities at the North American segment of
Barilla America, a $6.3 billion global pasta, sauces and bakery manufacturer and was the Chief Human Resources
Officer for water filtration leader Culligan International.

Fati A. Elgendy, President and Chief Operating Officer of Perma-Pipe since March 1995.

Item 1A. RISK FACTORS

The Company's business, financial condition, results of operations and cash flows are subject to various risks,
including, but not limited to those set forth below, which could cause actual results to vary materially from recent
results or from anticipated future results. These risk factors should be considered together with information
included elsewhere in this Annual Report on Form 10-K.

Economic factors. If the economy experienced a severe and prolonged downturn, it could adversely impact all of
the Company's businesses, directly or indirectly. Downturns in such general economic conditions can significantly
affect the business of our customers, which in turn affects demand, volume, pricing, and operating margin for our
services and products. A downturn in one or more of our significant markets could have a material adverse effect
on the Company's business, results of operations or financial condition. Because economic and market conditions
vary within the Company's segment, the Company's performance will also vary. In addition, the Company is
exposed to fluctuations in currency exchange rates and commodity prices. Failure to successfully manage any of
these risks could have an adverse impact on the Company's financial position, results of operations and cash flow.

Project cycles. Since Piping Systems is based on large discrete projects, operating results could be negatively
impacted in the future as a result of large variations in the level of market demand in both geographies and reporting
periods.

Customer access to capital funds. Uncertainty about economic market conditions poses risks that the Company's
customers may postpone spending for capital improvement and maintenance projects in response to tighter credit
markets or negative financial news, which could have a material negative effect on the demand for the Company's
products. The continuing decrease in federal and state spending on projects using the Company's products has
significantly decelerated government funded construction activity in the U.S., negatively impacting sales volume at
the Company's domestic facilities.

Crude oil and natural gas prices are volatile, and the substantial and extended decline in commodity prices has
had, and may continue to have, a material and adverse effect on demand and pricing in the Company's business.
Prices for crude oil and natural gas fluctuate widely. Among the factors that can or could cause these price
fluctuations are:

• the level of consumer demand;
• domestic and worldwide supplies of crude oil and natural gas;
• domestic and international drilling activity;
• the actions of other crude oil exporting nations and the Organization of Petroleum Exporting Countries;
• worldwide economic and political conditions, including political instability or armed conflict in oil and gas
producing regions; and
• the price and availability of, and demand for, competing energy sources, including alternative energy sources.

Beginning in the fourth quarter of 2014 and continuing through 2015 and into 2016, crude oil prices have
substantially declined. In addition, natural gas prices began to decline substantially in the second quarter of 2014,
and such declines continued during 2015 and into 2016. The above described factors and the volatility of
commodity prices make it difficult to predict future crude oil and natural gas prices. As a result, the Company
cannot predict how long these lower prices will continue, and there can be no assurance that the prices for crude oil
and natural gas will not decline further. Additionally, the decline in oil prices has had budgetary impact on the
governments of key Gulf Cooperation Council ("GCC") countries, delaying or canceling major planned
infrastructure projects unrelated to oil and gas production. It is impossible to predict when and in what volume
these planned projects will be implemented. The GCC is a political and economic alliance of six Middle Eastern
countries—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Now that the Company's
focus is only on Piping Systems, the Company is more concentrated, and these risk factors could potentially have a
greater effect on the Company.

Risks related to international business. International sales represent a significant portion of the Company's total
sales. During 2015, the Company's international sales increased from 43.7% to 48.4%. The Company's anticipated
growth and profitability may require maintaining current international sales volume and may necessitate further
international expansion. The Company's financial results could be affected by changes in trade, monetary and fiscal
policies, laws and regulations, or other activities of U.S. and non U.S. governments, agencies and similar
organizations. These conditions include, but are not limited to, changes in a country's or region's economic or
political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions
and regulations, reduced protection of intellectual property rights in some countries, changes in the regulatory or
legal environment, restrictions on currency exchange activities, burdensome taxes and tariffs and other trade
barriers. International risks and uncertainties, including changing social and economic conditions as well as
terrorism, political hostilities and war, could lead to reduced international sales and reduced profitability associated
with such sales. In addition these risks can include extraordinarily delayed collections of accounts receivable.
Because the Company conducts a significant portion of its business activities in the Middle East, the political and
economic events of the countries that comprise the GCC can have a material effect on the Company’s business.

Financing. If there were an event of default under the Company's current revolving credit facilities, the holders of
the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately.

The Company cannot assure that the assets or cash flow would be sufficient to fully repay amounts due under any
of the financing arrangements, if accelerated upon an event of default, or, that the Company would be able to repay,
refinance or restructure the payments under any such arrangements. Complying with the covenants under the
Company's revolving credit facility may limit management's discretion by restricting options such as:

incurring additional debt;
entering into transactions with affiliates;

·
·
· making investments or other restricted payments;
·
·

paying dividends or making other distributions; and
creating liens.

Any additional financing the Company may obtain could contain similar or more restrictive covenants. The
Company's ability to comply with any covenants may be adversely affected by general economic conditions,
political decisions, industry conditions and other events beyond management's control.

Competition. The business in which the Company is engaged is highly competitive. Many of the competitors are
larger and have more resources than the Company. Additionally, many of the Company's products are also subject
to competition from alternative technologies and alternative products. In periods of declining demand, the
Company's fixed cost structure may limit ability to cut costs, which may be a competitive disadvantage compared to
firms with lower cost structures, or may result in reduced operating margins and operating losses.

Suppliers. To the extent the Company relies upon a single source for key components of several of its products, the
Company believes there are alternate sources available for such components; however, there can be no assurance
that the interruption of supplies of such components would not have an adverse effect on the financial condition of
the Company and that the Company, if required to do so, would be able to negotiate agreements with alternative
sources on acceptable terms.

Backlog. The Company defines backlog as the revenue value in dollars resulting from confirmed customer
purchase orders that have not yet been recognized as revenue. However, by industry practice, orders may be
canceled or modified at any time. If a customer cancels an order, the customer is normally responsible for all
finished goods, all direct and indirect costs incurred and also for a reasonable allowance for anticipated profits. No
assurance can be given that these amounts will be recovered after cancellation. Any cancellation or delay in orders
may result in lower than expected revenue.

Attracting and retaining senior management and key personnel. The Company's ability to meet strategic and
financial goals will depend to a significant extent on the continued contributions of senior management. Future
success will also depend in large part on the ability to identify, attract, motivate, effectively utilize and retain highly
qualified managerial, sales, marketing and technical personnel. The loss of senior management or other key
personnel or the inability to identify, attract and retain qualified personnel in the future could make it more difficult
to manage the business and could adversely affect operations and financial results.

Rapid growth of business. Expansion may result in unanticipated adverse consequences, including significant
strain on management, operations and financial systems as well as on the Company's ability to attract and retain
competent employees. In the future, the Company may seek to grow the business by investing in new or existing
facilities, making acquisitions, entering into partnerships and joint ventures, or constructing new facilities, which
could entail a number of additional risks, including:

•
•
•
•
•
•
•

strain on working capital;
diversion of management from other activities, which could impair the operation of existing businesses;
failure to successfully integrate the acquired businesses or facilities into existing operations;
inability to maintain key pre-acquisition business relationships;
loss of key personnel of the acquired business or facility;
exposure to unanticipated liabilities; and
failure to realize efficiencies, synergies and cost savings.

As a result of these and other factors, including the general economic risk, the Company may not be able to realize
the expected benefits from any recent or future acquisitions, new facility developments, partnerships, joint ventures
or other investments.

Percentage-of-completion revenue recognition. All divisions recognize revenues under the stated revenue
recognition policy except for sizable domestic complex contracts that require periodic recognition of income. For
these contracts, the Company uses the "percentage of completion" accounting method. This methodology allows
revenue and profits to be recognized proportionally over the life of a contract by comparing the amount of the cost
incurred to date against the total amount of cost expected to be incurred. The effect of revisions to revenue and
total estimated cost is recorded when the amounts are known or can be reasonably estimated. These revisions can
occur at any time and could be material. On a historical basis, management believes that reasonably reliable
estimates of the progress towards completion on long-term contracts have been made. However, given the
uncertainties associated with these types of contracts, it is possible for actual cost to vary from estimates previously
made, which may result in reductions or reversals of previously recorded revenue and profits.

Income Taxes. Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax
rates. The Company is a United States-based multinational company subject to tax in multiple U.S. and foreign tax
jurisdictions. A significant portion of earnings for the current fiscal year were earned by foreign subsidiaries. In
addition to providing for U.S. income taxes on earnings from the U.S., the Company provides for U.S. income taxes
on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested
outside the U.S. If certain foreign earnings previously treated as permanently reinvested are repatriated, the related
U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.

Regulatory and legal requirements. As a public company, the Company is required to comply with the reporting
obligations of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Keeping informed of and in
compliance with, changing laws, regulations and standards relating to corporate governance, public disclosure and
accounting standards, including the Sarbanes-Oxley Act, Dodd-Frank Act, as well as new and proposed SEC
regulations and accounting standards, has required an increased amount of management attention and external
resources. Compliance with such requirements has resulted in increased general and administrative expenses and
an increased allocation of management time and attention to compliance activities.

Effective internal control over financial reporting. As a public reporting company, the Company is in a continuing
process of developing, establishing, and maintaining internal controls and procedures . Management is required to
report on internal controls over financial reporting under Section 404 Sarbanes-Oxley Act of 2002. If the Company
fails to achieve and maintain adequate internal controls, management would not be able to conclude on an ongoing
basis that the Company has effective internal controls over financial reporting in accordance with Section 404. If
the Company does not remediate the material weaknesses described in Item 9A, or if other material weaknesses are
identified in the future , the reported financial results of the Company could be materially misstated or could
subsequently require restatement, which would require additional financial and management resources, and the
market price of our stock could decline.

Item 1B. UNRESOLVED STAFF COMMENTS - None.

Item 2. PROPERTIES Principal properties at January 31, 2016:
Piping Systems

Illinois
Louisiana
Tennessee
Canada

India

Kingdom of
Saudi Arabia
United Arab
Emirates

Owned production facilities and office space
Owned production facilities and leased land
Owned production facilities and office space
Joint venture owned production facilities and
office space
Leased production facilities, office space and
land
Owned production facilities on leased land

16,800 square feet
30,000 square feet on approximately 6 acres
131,800 square feet on approximately 23.5 acres
87,160 square feet on approximately 128 acres

33,700 square feet on approximately 1.2 acres

91,000 square feet on approximately 11 acres

Leased office space and production facilities on
leased land

108,300 square feet on approximately 23 acres

Filtration Products

Illinois

Virginia

Bolingbrook - owned production facilities and office space,
currently idle
Cicero - owned production facilities and office space, currently idle 130,700 square feet on 2.8 acres
97,500 square feet on 5.0 acres
Owned production facilities
6,000 square feet
Leased office space

101,500 square feet on 5.5 acres

The Company's principal executive offices, which occupy approximately 23,400 square feet of space in Niles,
Illinois, are owned by the Company. This property is currently held for sale. In anticipation of this sale, the
Company signed a lease in September 2015 for new office space currently under construction. The Company
anticipates that it will begin occupying the new headquarters in the second quarter of 2016. The Company believes
its properties and equipment are well maintained and in good operating condition and that production capacities will
be adequate for present and currently anticipated needs.

The Company has several significant operating lease agreements as follows:

• Nine acres of land in the Kingdom of Saudi Arabia is leased through 2030.

• Land for production facilities in the United Arab Emirates, ("U.A.E.") of approximately 80,200 square feet is

leased until June 30, 2030. Office space and land for production facilities of approximately 21,500 square feet in
the U.A.E. is leased until July 2032.

For further information, see Note 8 - Lease information, in the Notes to Consolidated Financial Statements.

Item 3. LEGAL PROCEEDINGS - The Company had no material pending litigation.

Item 4. MINE SAFETY DISCLOSURES - Not applicable.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company's fiscal year ends on January 31. Years and balances described as 2015 and 2014 are the fiscal years
ended January 31, 2016 and 2015, respectively.

The Company's Common Stock is traded on the Nasdaq Global Market under the symbol "MFRI". The following
table sets forth, for the periods indicated, the high and low Common Stock sale prices as reported by the Nasdaq
Global Market for 2015 and 2014.

Fiscal 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter

High

Low

$6.88
5.68
6.40
6.83

9.03
13.40
12.57
16.80

$5.17
4.52
5.56
5.60

5.46
8.62
9.62
9.19

As of April 1, 2016, there were 69 stockholders of record and other additional stockholders for whom securities
firms acted as nominees.

On February 5, 2015, the Company's Board of Directors approved a share repurchase program, which authorizes the
Company to use up to $2 million for the purchase of its outstanding shares of common stock. Share repurchases
were permitted to be executed through open market or privately negotiated transactions on or prior to December 31,
2015. There were no stock repurchases in the fourth quarter.

The following table sets forth information with respect to repurchases by the Company of its shares of common
stock during 2015:

Period

February

March

April - December

Total

Total number of
shares purchased

Average price
paid per share

28,066

16,500

—

44,566

6.64

6.27

—

6.50

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum number (or
approximate dollar
value) of shares (or
units) that may yet be
purchased under the
plans or programs

28,066

16,500

—

44,566

1,813,632

1,710,342

—

The Company has never declared or paid a cash dividend and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. Management presently intends to retain all available funds for the
development of the business and for use as working capital. Future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition and other relevant factors. For further information,
see "Financing" in Item 7 and Note 6 - Debt, in the Notes to Consolidated Financial Statements.

The Company has not made any sale of unregistered securities during the preceding three years.

The Transfer Agent and Registrar for the Common Shares is Continental Stock Transfer & Trust Company, 17
Battery Place, New York, New York 10004, (212) 509-4000.

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, 2016.

Number of shares to be
issued upon exercise of
outstanding options,
warrants and rights
(a)(1)

Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)(1)

Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding shares
reflected in column (a))
(c)

719,650

$11.38

205,576

Plan Category
Equity compensation plans approved
by stockholders

(1) The amounts shown in columns (a) and (b) of the above table do not include 77,293 outstanding deferred stock
units granted under the Company's Deferred Stock Purchase Plan and the 2013 Omnibus Stock Incentive Plan as
amended June 14, 2013 ("Omnibus Plan").

ITEM 6. SELECTED FINANCIAL DATA - Not applicable.

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

RESULTS OF OPERATIONS

The statements contained under the caption MD&A and other information contained elsewhere in this Annual
Report on Form 10-K, 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 heading Item 1A.
Risk Factors.

CONSOLIDATED RESULTS OF OPERATIONS

($ in thousands)
Backlog

January 31,
2016
$47,937

2015
$30,715

As of January 31, 2016, MFRI, Inc. is engaged in the manufacture and sale of products in one reportable segment:
Piping Systems. As described below, prior to January 29, 2016, the Company was also engaged in the manufacture
and sale of products in the Filtration Products segment. Since Piping Systems is based on large discrete projects,
operating results could be negatively impacted in the future as a result of large variations in the level of market
demand in both geographies and reporting periods.

The analysis presented below and discussed in more detail throughout the MD&A was organized to provide
instructive information for understanding the business going forward. However, this discussion should be read in
conjunction with the Consolidated Financial Statements in Item 8 of this report, including the notes thereto and the
risk factors contained herein. An overview of the segment results is provided in Note 1 - Business and segment
information, in the Notes to Consolidated Financial Statements.

At January 31, 2016, one customer accounted for 10.3% of the Company's net sales. At January 31, 2015, one
customer accounted for 17.2% of the Company's net sales.

In January 2016, the Company took a series of actions designed to refocus its business portfolio and cost structure
to enhance the Company’s overall performance, including selling its filtration products business in Denmark and
Illinois and intend to sell the domestic fabric filter business in Virginia. These businesses were previously reported
as Filtration Products. These businesses are reported as discontinued operations in the consolidated financial
statements, and the notes to consolidated financial statements have been restated to conform to the current year
reporting of this business. The prior year financial statements have been revised to conform to the current year
reporting. The Company sold its Illinois and international filtration businesses for $22.0 million, including cash
proceeds of $18.4 million, of which $1.9 million is held in escrow until July 2017. Loss from discontinued
operation net of tax was $6.0 million and $4.4 million for January 31, 2016 and 2015, respectively. For further
information, see Note 4 - Discontinued operations, in the Notes to Consolidated Financial Statements.

2015 Compared to 2014
Piping Systems

($ in thousands)
Net sales

Gross profit
Percentage of net sales

General and administrative expenses
Percentage of net sales

Selling expense
Percentage of net sales

Income from operations
Percentage of net sales

Income from joint venture

2015
$122,696

2014
$126,923

26,741
22%

30,774
24%

% Increase
(Decrease)
(3.3)%

(13.1)%

11,211

12,309

(8.9)%

9.1%

9.7%

4,994

5,725

(12.8)%

4.1%

4.5%

10,537
8.6%

12,740
10.0%

(17.3)%

602

1,960

(69.3)%

Net sales were $122.7 million in 2015, a decrease of 3% from $126.9 million in 2014. This $4.2 million decrease
compared to the prior year was due to lower volume in domestic oil and gas projects and lower volume in Saudi
Arabia due to a slower pace of new projects based on the deterioration of the price of oil.

Gross profit decreased 13% to $26.7 million in 2015 from $30.8 million in 2014 due to lower volume. Gross
margin decreased to 22% of net sales from 24% of net sales in the prior year. Gross profit decreased due to the
lower volume. An excess inventory reserve adjustment of $0.4 million was recorded at January 31, 2016 due to
market condition changes.

General and administrative expenses decreased to $11.2 million in 2015 from $12.3 million in 2014 due to lower
management incentive compensation expense resulting from lower earnings in the period. General and
administrative expenses as a percentage of net sales decreased to 9.1% in 2015 from 9.7% in the prior year.

Selling expenses decreased to $5.0 million from $5.7 million in the prior year due to reduced staffing and
commission expenses due to lower sales. As a percentage of net sales, selling expenses decreased to 4.1% in 2015
from 4.5% in the prior year.

Income from the joint venture in 2015 was $0.6 million, a decrease of $1.4 million over prior year, driven by
reduced sales volume.

Corporate

Corporate expenses include interest expense and general and administrative expenses that are not allocated to the
segment. General and administrative expenses increased 11% to $7.7 million in 2015 from $6.9 million in 2014.
As a percentage of sales, expenses increased to 6.2% from 5.4%. The spending rose due to an increase in stock
compensation expense and professional service expenses. The prior year included a stock compensation benefit
that related to the cancellation of stock options from former employees of discontinued operations. The increase in
general and administrative expenses was also due to temporary staffing costs partially offset by lower management
incentive compensation expense and lower deferred compensation expense.

Interest expense decreased to $1.0 million in 2015 from $1.0 million in 2014 due to a reduction in interest rates and
lower borrowing volume on the domestic revolver relative to the prior year.

INCOME TAXES

The Company's worldwide effective tax rates ("ETR") were 45.7% and 41.9% in 2015 and 2014, respectively. The
ETR in 2015 was higher than the statutory U.S. federal income tax rate, mainly due to the impact of the full
valuation allowance maintained against domestic deferred tax assets and the recognition of foreign earnings
resulting from the dispositions of certain foreign operations. The Company remains in an NOL carryforward
position.

During the fourth quarter of 2015, the Company sold its foreign filtration operations, the gain from which was
taxable in the U.S. As such, the Company no longer considers the earnings of the remaining Denmark subsidiary
permanently reinvested. Therefore, the Company has recorded a deferred tax liability of $0.2 million related to the
U.S. federal and state income taxes on approximately $0.7 million of undistributed earnings. The Company has not
provided Federal tax on remaining unremitted earnings of its Middle East subsidiaries. The Company does not
believe that it will be necessary to repatriate earnings from these subsidiaries. The Company intends and has the
ability to reinvest these earnings for the foreseeable future outside the U.S. If these amounts were distributed to the
U.S., in the form of dividends or otherwise, the Company could be subject to additional U.S. income taxes.
Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable,
because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

During the fourth quarter of 2014, the Company concluded that not all of the undistributed earnings of Perma-Pipe
India Ltd, will remain permanently reinvested outside the U.S. and are available for use in the U.S. or in entities in
other foreign countries. As such, the Company recorded a deferred tax liability of $0.2 million and $0.9 million for
the periods ending January 31, 2016 and 2015, respectively, related to the U.S. federal and state income taxes and
foreign withholding taxes on approximately $2.8 million and $4.2 million of undistributed earnings. The decrease
in deferred tax liability primarily relates to a $2.0 million dividend paid during January 2016 along with a decrease
in accumulated earnings and profits. Future earnings related to this subsidiary are not deemed permanently
reinvested. No U.S. cash tax payments will be made upon distribution of these foreign earnings as long as the
Company has sufficient tax attributes in the U.S. to reduce the cash tax consequences of potential repatriation.

A reconciliation of the ETR to the U.S. Statutory tax rate is as follows:

Statutory tax rate
Repatriation
Valuation allowance for domestic deferred tax assets
Permanent difference management fee allocation
Permanent differences other
Foreign tax credit
Differences in foreign tax rate
Domestic deferred tax true ups
Nontaxable income from the Canadian joint venture
Research tax credit
Valuation allowance for state NOLs
Valuation allowance for foreign NOLs
State taxes, net of federal benefit
All other, net expense
Effective income tax rate

2015
34.0 %
30.2 %
29.6 %
22.8 %
7.9 %
(28.0)%
(29.9)%
(12.7)%
(7.5)%
(2.0)%
3.2 %
1.2 %
(2.1)%
(1.0)%
45.7 %

2014
34.0 %
21.2 %
— %
27.0 %
(7.5)%
(11.0)%
(4.1)%
— %
(9.2)%
(0.4)%
(4.4)%
0.5 %
(1.8)%
(2.4)%
41.9 %

For further information, see Note 9 - Income taxes, in the Notes to Consolidated Financial Statements.

Net income from continuing operations was $1.6 million in 2015 compared to net income from continuing
operations of $4.2 million in 2014.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of January 31, 2016 were $16.6 million, compared to $9.9 million at
January 31, 2015. At January 31, 2016, $0.2 million was held in the U.S., and $16.4 million was held in the foreign
subsidiaries. The Company's working capital was $30.3 million at January 31, 2016 compared to $41.0 million at
January 31, 2015. Cash used in operations in 2015 was $2.9 million compared to cash provided by operations of
$3.5 million in 2014.

In addition to paying down debt, the sale of the filtration business will give the Company the opportunity to focus
resources on new Piping Systems growth opportunities such as the recent acquisition of 100% ownership of BPPC,
which the Company believes creates a strong platform to diversify and expand Perma-Pipe's business into new markets
and geographies.

Foreign earnings from the remaining Denmark subsidiary are no longer considered to be indefinitely reinvested
outside the U.S. As a result of that conclusion, the Company has provided deferred taxes on the unremitted
earnings. Foreign earnings in the Middle East are considered to be indefinitely reinvested outside the U.S. The
Company has not provided Federal tax on unremitted earnings of its Middle East subsidiaries. The Company does
not believe that it will be necessary to repatriate investments from these subsidiaries.

Net cash provided by investing activities in 2015 was $13.9 million compared to $5.7 million used in 2014 as a
result of the Filtration divestiture. The Company estimates that capital expenditures for 2016 could be $3.1 million,
and the Company may finance capital expenditures through real estate mortgages, term loans, equipment financing
loans, internally generated funds and its revolving line of credit. The majority of such expenditures relates to
diversification and expansion of business in the Middle East.

On February 5, 2015, the Board of Directors authorized a $2 million share repurchase program. Share repurchases
were executed through open market or privately negotiated transactions on or prior to December 31, 2015. The
Company repurchased 45 thousand shares. For additional information, see Note 12 - Treasury stock/share
repurchase program, in the Notes to Consolidated Financial Statements.

Debt totaled $15.5 million at January 31, 2016. Net cash used in financing activities was $3.0 million in 2015
compared to $0.5 million in 2014. The domestic revolver decreased $6.1 million mainly due to sales proceeds from
the domestic sale of the Filtration business. The Denmark debt of $2.2 million was deducted from the sale price
and paid at closing. The revolvers in the Middle East increased $5.4 million for their working capital needs. For
additional information, see Note 7 - Debt, in the Notes to Consolidated Financial Statements. Other long-term
liabilities of $0.2 million were composed primarily of deferred revenue.

The following table summarizes the Company's estimated contractual obligations at January 31, 2016.

($ in thousands)

Contractual obligations

Revolving line domestic (1)

Mortgages (2)

Revolving line foreign (3)

Term loans (2)

Subtotal

Capitalized lease obligations

Operating lease obligations (4)

Projected pension contributions (5)

Deferred compensation (6)

Employment agreements (7)

Contractual obligations of
discontinued operations (8)

Uncertain tax position obligations (9)

Total

$5,237

1,822

8,348

261

15,668

1,453

17,666

3,590

6,167

101

3,439

140

2017

$5,237

162

8,348

175

13,922

1,386

1,944

326

6,167

—

3,439

—

Year Ending January 31,

2018

2019

2020

2021 Thereafter

$—

162

—

248

$—

162

—

162

—

$—

162

—

162

—

$—

162

—

162

—

1,640

349

1,378

348

1,311

363

1,327

363

—

$—

1,012

—

1,012

—

10,066

1,841

—

101

—

140

Total

$48,224

$27,184

$2,304

$1,888

$1,836

$1,852

$13,160

Notes to contractual obligations table
(1) Interest obligations exclude floating rate interest on debt payable under the domestic revolving line of credit.
Based on the amount of such debt at January 31, 2016, and the weighted average interest rate of 4.19% on that
debt, such interest was being incurred at an annual rate of approximately $0.1 million.

(2) Scheduled maturities, including interest.
(3) Scheduled maturities of foreign revolver line, including interest.
(4) Minimum contractual amounts, assuming no changes in variable expenses.
(5) Includes estimated future benefit payments.
(6) Non-qualified deferred compensation plan - The Company had a Supplemental Retirement and Deferred
Compensation Plan ("Supplemental Plan"), under which key employees deferred compensation. The
Supplemental Plan was terminated on April 10, 2014. Refer to Note 9 - Retirement plans, in the Notes to
Consolidated Financial Statements.

(7) Refer to the proxy statement for a description of compensation plans for Named Executive Officers.
(8) Included payments for other liabilities and mortgages for properties held for sale.
(9) Refer to Note 8 - Income taxes, in the Notes to Consolidated Financial Statements for a description of the

uncertain tax position obligations.

Financing

On September 24, 2014, the Company entered into a credit and security agreement with a financial institution (as
amended, "Credit Agreement"). Under the terms of the Credit Agreement, which matures on September 24, 2019,
the Company can borrow up to $25.0 million, subject to borrowing base and other requirements, under a revolving
line of credit. The Credit Agreement covenants restrict debt, liens, and certain investments, and require attainment
of specific levels of profitability and cash flows when reaching certain levels of availability. Interest rates are based
on options selected by the Company as follows: (a) a margin in effect plus a base rate, if below certain availability
limits; or (b) a margin in effect plus the Eurodollar rate for the corresponding interest period. At January 31, 2016,
the Company was in compliance with all covenants under the Credit Agreement. The domestic revolving line
balance as of January 31, 2015 and January 31, 2016 was included as a current liability on the consolidated balance
sheets.

At January 31, 2016, the Company was in compliance with all covenants under the Credit Agreement. The
domestic revolving line balance as of January 31, 2016 has been classified as a current liability in the
accompanying financial statements.

As of January 31, 2016, the Company had borrowed $5.2 million at 3.25% and 1.5% and had $8.3 million available
to it under the revolving line of credit. In addition, $0.3 million of availability was used under the Credit
Agreement primarily to support letters of credit to guarantee amounts committed for inventory purchases. Cash
required for operations is provided by draw-downs on the line of credit.

On February 29, 2016, the Company reduced the amount that can be borrowed under the Credit Agreement to
$15.0 million.

Revolving lines foreign. The Company also has credit arrangements used by its Middle Eastern subsidiaries. These
credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries
in which the Company operates. Some credit arrangement covenants requires a minimum tangible net worth to be
maintained. At January 31, 2016, the Company was in compliance with the covenants under the credit
arrangement. Interest rates are 4.0% per annum below National Bank of Fujairah Base Rate, minimum 3.5% per
annum and Emirates Inter Bank Offered Rate (EIBOR) plus 3.50% per annum. The Company's interest rates range
from 3.5% to 6.0%. At January 31, 2016, the Company can borrow $43.8 million under these credit arrangements.
The Company borrowed $8.1 million and had $28.7 million available under these credit arrangements as of
January 31, 2016. In addition, $7.0 million of availability was used to support letters of credit to guarantee amounts
committed for inventory purchases. For further information, see Note 7 - Debt, in the Notes to Consolidated
Financial Statements.

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. The Company recognizes revenues, including shipping and handling charges billed to
customers, when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv)
collectability is reasonably assured. All subsidiaries of the Company, except as noted below, recognize revenues
upon shipment or delivery of goods or services when title and risk of loss pass to customers.

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

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

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 recognizes the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more
likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater
than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Equity-based compensation. Stock compensation expense for employee equity awards 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. Determining the fair value of stock options using the Black-Scholes model requires
judgment, including estimates for (1) risk-free interest rate - an estimate based on the yield of zero-coupon treasury
securities with a maturity equal to the expected life of the option; (2) expected volatility - an estimate based on the
historical volatility of the Company's Common Stock; and (3) expected life of the option - an estimate based on
historical experience including the effect of employee terminations.

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 value of the cash surrender value of life insurance policies approximated fair value and was based on the
market value of the underlying investments, which may increase or decrease due to fluctuations in the overall
financial markets. 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.

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

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not

applicable.

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, 2016 and 2015 and the notes thereto are set forth as an exhibit hereto.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - None.

Item 9A.

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, 2016. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures were not effective as of January 31, 2016 to ensure that
information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SEC's rules and forms and is
accumulated and communicated to the issuer's management, including the principal executive and financial officers,
to allow timely decisions regarding required disclosure. This determination was based on the matters discussed
below under Management's Report on Internal Control over Financial Reporting.

Management's 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, MFRI'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 the end of the last fiscal year. The framework on
which such evaluation was based is contained in the report entitled "Internal Control-Integrated Framework" issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO 2013 Framework").

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 its assessment, management has concluded that the Company has not maintained effective internal control
over financial reporting as of January 31, 2016, based on criteria in the COSO 2013 Framework.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis.

The Company's processes, procedures and controls related to management’s period end review over certain
calculations and estimates did not operate effectively. Management discovered that it did not properly perform all
of the required calculations to determine whether a current report on Form 8-K for a planned acquisition agreement
would be required. Although the requisite calculations were subsequently made, such calculation were not
performed properly as of the January 31, 2016 financial statement date. As such the current report on Form 8-K
was not made on a timely basis.

Management also found an error in estimating excess and obsolete inventory reserves. With respect to the excess
and obsolete inventory reserve, management identified control deficiencies related to documentation and review.
The Company did not appropriately factor in all pertinent information when estimating the excess and obsolete
inventory reserve.

These material weaknesses did not result in any material adjustments to the Registrant's financial statements, notes
thereto, or other disclosures in this Annual Report on Form 10-K.

Change in Internal Controls. Other than the material weaknesses noted above, there has been no change in internal
control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, internal control over financial reporting.

Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting: To address the material
weakness regarding timely filing of the current report on Form 8-K, the Company has adopted revised policies to
ensure that management’s review process over complex estimates and calculations properly factors in all relevant
assumptions and required inputs and include inputs from outside advisors as appropriate.

To address the material weakness regarding excess and obsolete inventory reserves, we have also implemented
certain remedial measures. The Company will ensure excess and obsolete inventory reserve calculations and
qualitative assessments are reviewed by appropriate operations management as well as the Chief Financial Officer
on a quarterly basis. The excess and obsolete inventory reserve methodology will now be calculated using the
demand, the age of the inventory and specific identification determined based on extended value of excess
inventory.

Management will monitor the remediation progress of this material weakness against the revised policies that have
been implemented.

We anticipate the actions described above and resulting improvements in controls will strengthen the Company's
processes, procedures and controls related to review over certain calculations and estimates, and will address the
related material weakness that we identified as of January 31, 2016. However, the material weaknesses cannot be
remediated fully until the remediation processes have been in operation for a period of time and successfully tested.

Item 9B.

OTHER INFORMATION - None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE