mlnk-20211031

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 October 31, 2021


☐			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 December 1, 2021, there were 60,437,654 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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

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)


	October 31, 2021		July 31, 2021
	(unaudited)
ASSETS
Cash and cash equivalents	$	81,330	$	96,931
Accounts receivable, trade, net of allowance for doubtful accounts of $44 and $49 at October 31, 2021 and July 31, 2021, respectively	74,841		69,805
Inventories, net	18,166		16,228
Funds held for clients	6,531		8,212
Prepaid expenses and other current assets	18,491		22,222
Total current assets	199,359		213,398
Property and equipment, net	54,710		58,862
Goodwill	231,470		231,470
Other intangible assets, net	110,823		115,005
Operating lease right-of-use assets	49,941		50,836
Other assets	6,851		6,810
Total assets	$	653,154	$	676,381
LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Accounts payable	$	51,920	$	55,517
Accrued expenses	109,382		106,871
Funds held for clients	6,531		8,212
Current portion of long-term debt	5,611		5,602
Current lease obligations	13,259		13,690
Other current liabilities	29,366		28,101
Total current liabilities	216,069		217,993
Convertible note payable	9,729		9,343
Long-term debt, excluding current portion	356,783		358,189
Long-term lease obligations	38,338		38,927
Other long-term liabilities	10,486		10,537
Total long-term liabilities	415,336		416,996
Total liabilities	631,405		634,989
Contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at October 31, 2021 and July 31, 2021	35,180		35,180
Stockholders' equity:
Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at October 31, 2021 and July 31, 2021; zero shares issued and outstanding at October 31, 2021 and July 31, 2021	—		—
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 60,437,654 issued and outstanding shares at October 31, 2021; 63,099,496 issued and outstanding shares at July 31, 2021	605		632
Additional paid-in capital	7,478,855		7,478,638
Accumulated deficit	(7,500,251)		(7,480,220)
Accumulated other comprehensive income	7,360		7,162
Total stockholders' (deficit) equity	(13,431)		6,212
Total liabilities, contingently redeemable preferred stock and stockholders' (deficit) equity	$	653,154	$	676,381

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 October 31,
	2021		2020
Net revenue:
Products	$	81,059	$	105,708
Services	44,354		64,226
Total net revenue	125,413		169,934
Cost of revenue:
Products	75,185		81,192
Services	34,948		48,274
Total cost of revenue	110,133		129,466
Gross profit	15,280		40,468
Operating expenses:
Selling, general and administrative	22,005		26,858

Amortization of intangible assets	4,182		6,535
Total operating expenses	26,187		33,393
Operating (loss) income	(10,907)		7,075
Other income (expense):
Interest income	4		20
Interest expense	(7,795)		(7,823)
Other losses, net	(481)		(2,019)
Total other expense, net	(8,272)		(9,822)
Loss before income taxes	(19,179)		(2,747)
Income tax expense	315		804

Net loss	(19,494)		(3,551)
Less: Preferred dividends on redeemable preferred stock	(537)		(537)
Net loss attributable to common stockholders	$	(20,031)	$	(4,088)

Basic and diluted net loss per share attributable to common stockholders	$	(0.33)	$	(0.07)


Weighted average common shares used in basic and diluted loss per share	60,307		61,893

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended October 31,
	2021		2020
Net loss	$	(19,494)	$	(3,551)
Other comprehensive (loss) income:
Foreign currency translation adjustment	198		2,973


Other comprehensive income	198		2,973
Comprehensive loss	$	(19,296)	$	(578)

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' Equity (Deficit)
Balance at July 31, 2021	63,099,496	$	632	$	7,478,638	$	(7,480,220)	$	7,162	$	6,212
Net loss	—	—		—		(19,494)		—		(19,494)
Preferred dividends	—	—		—		(537)		—		(537)
Issuance of common stock pursuant to employee stock purchase plan	168	—		—		—		—		—
Restricted stock grants	87,990	1		(1)		—		—		—
Restricted stock forfeitures	(2,750,000)	(28)		28		—		—		—
Share-based compensation	—

SEC Form 10-Q filed by Steel Connect, Inc.