mlnk-20230131

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

FORM 10-Q

________________________

(Mark One)


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

For the quarterly period ended January 31, 2023


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

For the transition period from to

Commission File Number 001-35319

_______________________

Steel Connect, Inc.

(Exact name of registrant as specified in its charter)

_______________________


Delaware (State or other jurisdiction of incorporation or organization)						04-2921333 (I.R.S. Employer Identification No.)


2000 Midway Ln Smyrna, Tennessee (Address of principal executive offices)						37167 (Zip Code)

(914) 461-1276

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

_______________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	STCN	Nasdaq Capital Market
Rights to Purchase Series D Junior Participating Preferred Stock	--	Nasdaq Capital Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 7, 2023, there were 60,784,589 shares issued and outstanding of the registrant's Common Stock, $0.01 par value per share.

Table of Contents

STEEL CONNECT, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page Number
Part I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	January 31, 2023		July 31, 2022
	(unaudited)
ASSETS
Cash and cash equivalents	$	62,427	$	53,142
Accounts receivable, trade, net of allowance for doubtful accounts of $1,008 and $44 at January 31, 2023 and July 31, 2022, respectively	37,180		40,083
Inventories, net	8,916		8,151
Funds held for clients	4,354		4,903
Prepaid expenses and other current assets	5,223		3,551
Total current assets	118,100		109,830
Property and equipment, net	3,493		3,534
Operating lease right-of-use assets	30,538		19,655
Other assets	3,981		4,730
Total assets	$	156,112	$	137,749
LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Accounts payable	$	32,805	$	30,553
Accrued expenses	25,632		28,396
Funds held for clients	4,323		4,903
Current lease obligations	7,665		6,466
Other current liabilities	15,031		13,482
Total current liabilities	85,456		83,800
Convertible note payable	12,104		11,047
Long-term lease obligations	22,904		12,945
Other long-term liabilities	5,222		3,983
Total long-term liabilities	40,230		27,975
Total liabilities	125,686		111,775
Contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at January 31, 2023 and July 31, 2022	35,180		35,180
Stockholders' deficit:
Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at January 31, 2023 and July 31, 2022; zero shares issued and outstanding at January 31, 2023 and July 31, 2022	—		—
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 60,784,589 issued and outstanding shares at January 31, 2023; 60,529,558 issued and outstanding shares at July 31, 2022	607		605
Additional paid-in capital	7,479,719		7,479,366
Accumulated deficit	(7,489,960)		(7,493,317)
Accumulated other comprehensive income	4,880		4,140
Total stockholders' deficit	(4,754)		(9,206)
Total liabilities, contingently redeemable preferred stock and stockholders' deficit	$	156,112	$	137,749

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended January 31,				Six Months Ended January 31,
	2023		2022		2023		2022
Net revenue	$	50,781	$	54,322	$	102,140	$	98,676
Cost of revenue	37,719		43,421		74,813		78,369
Gross profit	13,062		10,901		27,327		20,307
Operating expenses:
Selling, general and administrative	10,459		9,994		20,845		18,829
Restructuring	—		856		—		856
Total operating expenses	10,459		10,850		20,845		19,685
Operating income	2,603		51		6,482		622
Other income (expense):
Interest income	332		1		476		5
Interest expense	(848)		(750)		(1,674)		(1,512)
Other losses, net	(2,959)		(65)		(74)		(546)
Total other expense, net	(3,475)		(814)		(1,272)		(2,053)
(Loss) income from continuing operations before income taxes	(872)		(763)		5,210		(1,431)
Income tax (benefit) expense	(346)		723		779		1,038
Net (loss) income from continuing operations	(526)		(1,486)		4,431		(2,469)
Net loss from discontinued operations	—		(21,491)		—		(40,002)
Net (loss) income	(526)		(22,977)		4,431		(42,471)
Less: Preferred dividends on redeemable preferred stock	(537)		(537)		(1,074)		(1,074)
Net (loss) income attributable to common stockholders	$	(1,063)	$	(23,514)	$	3,357	$	(43,545)

Net (loss) income per common shares - basic
Continuing operations	$	(0.02)	$	(0.03)	$	0.06	$	(0.06)
Discontinued operations	—		(0.36)		—		(0.67)
Net (loss) income attributable to common stockholders	$	(0.02)	$	(0.39)	$	0.06	$	(0.73)

Net (loss) income per common shares - diluted
Continuing operations	$	(0.02)	$	(0.03)	$	0.06	$	(0.06)
Discontinued operations	—		(0.36)		—		(0.67)
Net (loss) income attributable to common stockholders	$	(0.02)	$	(0.39)	$	0.06	$	(0.73)

Weighted-average number of common shares outstanding - basic	60,178		59,748		60,129		60,027
Weighted-average number of common shares outstanding - diluted	60,178		59,748		60,637		60,027

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended January 31,				Six Months Ended January 31,
	2023		2022		2023		2022
Net (loss) income	$	(526)	$	(22,977)	$	4,431	$	(42,471)
Other comprehensive income (loss):
Foreign currency translation adjustment	4,655		(13)		1,818		185

Pension liability adjustments, net of tax	—		—		(1,078)		—
Other comprehensive income (loss)	4,655		(13)		740		185
Comprehensive income (loss)	$	4,129	$	(22,990)	$	5,171	$	(42,286)

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

(in thousands, except share amounts)

(unaudited)


	Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Deficit
Balance at October 31, 2022	60,657,539	$	606	$	7,479,542	$	(7,488,897)	$	225	$	(8,524)
Net loss	—	—		—		(526)		—		(526)
Preferred dividends	—	—		—		(537)		—		(537)

Restricted stock grants	127,050	1		(1)		—		—		—

Share-based compensation	—	—		178		—		—		178
Other comprehensive items	—	—		—		—

SEC Form 10-Q filed by Steel Connect Inc.