mlnk-20231031

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, 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.)


590 Madison Avenue New York, New York (Address of principal executive offices)						10022 (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, 2023, there were 6,267,230 shares issued and outstanding of the registrant's Common Stock, $0.01 par value per share.

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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	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

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STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	Successor
	October 31, 2023		July 31, 2023
	(unaudited)
ASSETS
Cash and cash equivalents	$	276,705	$	121,372
Accounts receivable, trade, net of allowance for credit losses of $211 and $219 at October 31, 2023 and July 31, 2023, respectively	27,974		28,616
Inventories, net	6,756		8,569
Funds held for clients	1,946		2,031
Prepaid expenses and other current assets	4,402		158,686
Total current assets	317,783		319,274
Property and equipment, net	3,724		3,698
Operating lease right-of-use assets	25,997		27,098
Investments	3,443		—
Other intangible assets, net	33,714		34,589
Goodwill	22,785		22,785
Other assets	3,149		3,737
Total assets	$	410,595	$	411,181
LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Accounts payable	$	24,889	$	26,514
Accrued expenses	26,198		26,774
Funds held for clients	1,902		1,949
Current lease obligations	8,680		7,973
Convertible note payable	12,327		—
Other current liabilities	3,902		4,544
Total current liabilities	77,898		67,754
Convertible note payable	—		12,461
Long-term lease obligations	17,818		19,161
Other long-term liabilities	5,475		5,442
Total long-term liabilities	23,293		37,064
Total liabilities	101,191		104,818
Series C contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at October 31, 2023 and July 31, 2023	35,006		35,006
Series E contingently redeemable preferred stock, $0.01 par value per share. 3,500,000 shares authorized, issued and outstanding at October 31, 2023 and July 31, 2023	202,733		202,733
Total contingently redeemable preferred stock	237,739		237,739
Stockholders' equity:
Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at October 31, 2023 and July 31, 2023; zero shares issued and outstanding at October 31, 2023 and July 31, 2023	—		—
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 6,267,230 issued and outstanding shares at October 31, 2023; 6,250,493 issued and outstanding shares at July 31, 2023	65		65
Additional paid-in capital	61,671		61,534
Accumulated earnings	11,512		7,612
Accumulated other comprehensive loss	(1,583)		(587)
Total stockholders' equity	71,665		68,624
Total liabilities, contingently redeemable preferred stock and stockholders' equity	$	410,595	$	411,181

See accompanying notes to unaudited condensed consolidated financial statements

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STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Successor		Predecessor
	Three Months Ended October 31,		Three Months Ended October 31,
	2023		2022
Net revenue	$	41,341	$	51,359
Cost of revenue	29,866		37,094
Gross profit	11,475		14,265
Operating expenses:
Selling, general and administrative	8,795		10,386
Amortization	875		—
Total operating expenses	9,670		10,386
Operating income	1,805		3,879
Other income (expense):
Interest income	3,219		144
Interest expense	(247)		(826)
Other gains, net	330		2,886
Total other income, net	3,302		2,204
Income before income taxes	5,107		6,083
Income tax expense	671		1,126
Net income	4,436		4,957
Less: Preferred dividends on Series C redeemable preferred stock	(536)		(537)
Net income attributable to common stockholders	$	3,900	$	4,420

Net income per common shares - basic	$	0.15	$	0.69

Net income per common shares - diluted	$	0.15	$	0.59

Weighted-average number of common shares outstanding - basic	6,199		6,434
Weighted-average number of common shares outstanding - diluted	26,066		8,403

See accompanying notes to unaudited condensed consolidated financial statements

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STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Successor		Predecessor
	Three Months Ended October 31,		Three Months Ended October 31,
	2023		2022
Net income	$	4,436	$	4,957
Other comprehensive loss:
Foreign currency translation adjustment	(996)		(2,837)

Pension liability adjustments, net of tax	—		(1,078)
Other comprehensive loss	(996)		(3,915)
Comprehensive income	$	3,440	$	1,042

See accompanying notes to unaudited condensed consolidated financial statements

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STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except share amounts)

(unaudited)


	Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
Balance at 7/31/2023 (Successor)	6,250,493	$	65	$	61,534	$	7,612	$	(587)	$	68,624
Net income	—	—		—		4,436		—		4,436
Preferred dividends	—	—		—		(536)		—		(536)

Restricted stock grants	16,737	—		—		—		—		—

Share-based compensation	—	—		137		—		—		137
Other comprehensive items	—	—		—		—		(996)		(996)
Balance at 10/31/2023 (Successor)	6,267,230	$	65	$	61,671	$	11,512	$	(1,583)	$	71,665





	Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Deficit
Balance at 7/31/2022 (Predecessor)	6,485,309	$	65	$	7,479,906	$	(7,493,317)	$	4,140	$	(9,206)
Net income	—	—		—		4,957		—		4,957
Preferred dividends	—	—		—		(537)		—		(537)

Restricted stock grants	13,712	—		—		—		—		—
Share-based compensation	—	—		177		—		—		177
Other comprehensive items	—	—		—		—		(3,915)		(3,915)
Balance at 10/31/2022 (Predecessor)	6,499,021	$	65	$	7,480,083	$	(7,488,897)	$	225	$	(8,524)

See accompanying notes to unaudited condensed consolidated financial statements

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STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Successor		Predecessor
	Three Months Ended October 31,		Three Months Ended October 31,
	2023		2022
Cash flows from operating activities:
Net income	$	4,436	$	4,957
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation	435		459
Amortization of finite-lived intangible assets	875		—
Amortization of deferred financing costs	—		12
Accretion of debt discount	—		510
Share-based compensation	137		177
Non-cash lease expense	2,197		2,230
Bad debt (recovery) expense	(8)		960
Other gains, net	(330)		(2,885)
Changes in operating assets and liabilities:
Accounts receivable, net	238		3,026
Inventories, net	1,525		(1,077)
Prepaid expenses and other current assets	(367)		(168)
Accounts payable, accrued restructuring and accrued expenses	(1,351)		1,553
Refundable and accrued income taxes, net	312		118
Other assets and liabilities	(1,516)		(1,620)
Net cash provided by operating activities	6,583		8,252
Cash flows from investing activities:
Purchases of investments	(3,890)		—
Proceeds from disposition of securities	154,526		—
Additions of property and equipment	(552)		(548)
Proceeds from the disposition of property and equipment	—		16
Net cash provided by (used in) investing activities	150,084		(532)
Cash flows from financing activities:
Preferred dividend payments	(536)		(537)
Repayments on capital lease obligations	—		(19)

Net cash used in financing activities	(536)		(556)
Net effect of exchange rate changes on cash, cash equivalents and restricted cash	(884)		(405)
Net increase in cash, cash equivalents and restricted cash	155,247		6,759
Cash, cash equivalents and restricted cash, beginning of period	123,404		58,045
Cash, cash equivalents and restricted cash, end of period	$	278,651	$	64,804

Cash and cash equivalents, end of period	$	276,705	$	59,948
Restricted cash for funds held for clients, end of period	1,946		4,856
Cash, cash equivalents and restricted cash, end of period	$	278,651	$	64,804

See accompanying notes to unaudited condensed consolidated financial statements

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STEEL CONNECT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1)NATURE OF OPERATIONS

Steel Connect, Inc. (the "Company" or "Steel Company"), is a holding company which operates through its wholly-owned subsidiary ModusLink Corporation ("ModusLink" or "Supply Chain").

ModusLink is a supply chain business process management company serving clients in markets such as consumer electronics, communications, computing, medical devices, software and retail. ModusLink designs and executes elements in its clients' global supply chains to improve speed to market, product customization, flexibility, cost, quality and service. The Company also produces and licenses an entitlement management solution for activation, provisioning, entitlement subscription and data collection from physical goods (connected products) and digital products.

Steel Partners and Steel Connect Exchange Transaction

On April 30, 2023, Steel Partners Holdings L.P., (“Steel Holdings”) and the Company executed a series of agreements in which Steel Holdings and certain of its affiliates (the “Steel Partners Group”) agreed to transfer certain marketable securities held by the Steel Partners Group to the Company in exchange for 3.5 million shares of Series E Convertible Preferred Stock of the Company (the “Series E Convertible Preferred Stock”, and, such transfer and related transactions, the “Exchange Transaction”). The Exchange Transaction closed on May 1, 2023, which is the date that the consideration was exchanged between Steel Holdings and the Company.

(2)BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes for the year ended July 31, 2023 (Fiscal Year 2023), which are contained in the Company's Fiscal Year 2023 Form 10-K filed. The results for the three months ended October 31, 2023 are not necessarily indicative of the results to be expected for the full fiscal year. The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.

Predecessor/Successor Reporting

On May 1, 2023, the Exchange Transaction resulted in Steel Holdings obtaining control of the Company for financial statement consolidation purposes. Steel Holdings does not consolidate the Company for Federal income tax purposes because the ownership in the Company is dispersed between different federal tax consolidation groups within Steel Holdings. As of May 1, 2023, the Company elected pushdown accounting in which it used Steel Holdings' basis of accounting, which reflected the fair market value of the Company’s assets and liabilities at the date of the Exchange Transaction. As a result, the Company has reflected the required pushdown accounting adjustments in its consolidated financial statements. Due to the application of pushdown accounting, the Company’s consolidated financial statements and certain footnote disclosures include a black line division between the two distinct periods to indicate the application of two different bases of accounting, which may not be comparable, between the periods presented. The pre- exchange period through April 30, 2023 is referred to as the "Predecessor" period. The post-exchange period, May 1, 2023 and onward, includes the impact of pushdown accounting and is referred to as the "Successor" period. As such for purposes of this quarterly report, all references to the three months ended October 31, 2023 are for the Successor period, and all references to the three months ended October 31, 2022 are for the Predecessor period. See Note 4 - "Exchange Transaction" for further information regarding the Exchange Transaction and the application of pushdown accounting.

Reverse/Forward Stock Split

At the special stockholders meeting held on June 6, 2023, the stockholders approved proposals to amend the Company’s restated certificate of incorporation (the “Charter”), to effect a 1-for-3,500 reverse stock split of the common stock (the “Reverse Stock Split”), followed immediately by a 375-for-1 forward stock split of the common stock (the “Forward Stock Split,” and, together with the Reverse Stock Split, the “Reverse/Forward Stock Split”). On June 7, 2023, Steel Connect's Board of Directors ("the Board") approved the Reverse/Forward Stock Split, and as such, the Board directed the Company to file with the State of Delaware certificates of amendment to our Charter to effectuate the Reverse/Forward Stock Split. The Reverse/Forward Stock

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Split was effective on June 21, 2023 (the “Effective Date”). The Company’s common stock began trading on a Reverse/Forward Stock Split-adjusted basis on the Nasdaq Capital Market when the market opened on June 22, 2023. The trading symbol for the Company’s common stock remains “STCN.” Accordingly, all share and per-share amounts for the current period and prior periods have been adjusted to reflect the Reverse/Forward Stock Split.

All significant intercompany transactions and balances have been eliminated in consolidation.

The Company considers events or transactions that occur after the balance sheet date but before the issuance of financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For the three months ended October 31, 2023, the Company evaluated subsequent events for potential recognition and disclosure through the date these financial statements were filed.

(3)RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Issued and Not Yet Implemented

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the impacts of the new standard.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40). The amendment in this update simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity's financial statements and information about events, conditions and circumstances that can affect how to assess the amount or timing of an entity's future cash flows related to those instruments. The guidance is effective for interim and annual periods beginning in our fiscal year ending July 31, 2025, with early adoption permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

Other new pronouncements issued but not effective until after October 31, 2023 are not expected to have a material impact on our financial condition, results of operations or liquidity.

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(4)EXCHANGE TRANSACTION

Steel Partners and Steel Connect Exchange Transaction

On April 30, 2023, the Company and Steel Holdings executed a series of agreements, in which Steel Holdings and the Steel Partners Group transferred an aggregate of 3.6 million shares of common stock, par value $0.10 per share, of Aerojet Rocketdyne Holdings, Inc. ("Aerojet") held by the Steel Partners Group to the Company in exchange for 3.5 million shares of newly created Series E Convertible Preferred Stock of Steel Connect (the “Series E Convertible Preferred Stock” and such transfer and related transactions, the "Exchange Transaction"). Following approval by the Company's stockholders pursuant to the rules of The Nasdaq Stock Market LLC at a special meeting of stockholders held on June 6, 2023, the Series E Convertible Preferred Stock is convertible into an aggregate of 19.8 million shares of the Company's common stock, par value $0.01 per share (the “common stock” or “Common Stock”), and votes together with the Company's common stock and participates in any dividends paid on the Company's common stock, in each case on an as-converted basis. Upon conversion of the Series E Convertible Preferred Stock, the Steel Partners Group would hold approximately 84.0% of the outstanding equity interests of the Company as of May 1, 2023, and the Company became a consolidated subsidiary of Steel Holdings for financial statement purposes. The Company is not consolidated by Steel Holdings for Federal income tax purposes because Steel Holdings' ownership in the Company is dispersed between different federal tax consolidation groups. The Exchange Transaction closed on May 1, 2023, the date that the consideration was exchanged between the Company and Steel Holdings. The Company's assets and liabilities have been included in Steel Holdings' consolidated balance sheet as of May 1, 2023, with a related noncontrolling interest of 16.0% of the Company's common stock. Prior to May 1, 2023, Steel Holdings held a 49.6% ownership interest in the Company and accounted for its investment in the Company in accordance with the equity method of accounting. As of the date of the Exchange Transaction, Steel Holdings remeasured the previously held equity method investment to its fair value based upon a valuation of the Company. The Exchange Transaction accomplishes Steel Holdings' objective, which is to increase ownership in the Company in order to benefit from future earnings and growth and strengthens the Company's balance sheet to permit it to do acquisitions.

The Exchange Transaction was accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and, accordingly, the Company's results of operations were consolidated in Steel Holdings' financial statements on the date of the Exchange Transaction. Steel Holdings recorded a preliminary allocation of the Exchange Transaction to assets acquired and liabilities assumed based on their estimated fair values as of May 1, 2023. The final Exchange Transaction allocation, which is expected to be completed by December 31, 2023, will be based on final appraisals and other analysis of fair values of acquired assets and liabilities. Steel Holdings does not expect that differences between the preliminary and final Exchange Transaction allocation will have a material impact on its results of operations or financial position. As discussed in Note 2 - "Basis of Presentation", the Company elected pushdown accounting in which it uses Steel Holdings' basis of accounting, which reflects the fair market value of the Company’s assets and liabilities at the date of the Exchange Transaction.

The following table summarizes the total Exchange Transaction consideration:


(in thousands)	May 1, 2023
Fair value of Aerojet common stock	$	202,733
Fair value of Steel Holdings' previously held interests in Steel Connect and Steel Holdings' noncontrolling interest	111,816
Less: cash acquired from Steel Connect	(65,896)
Total estimated consideration, less cash acquired	$	248,653

The following represents the initial calculation of goodwill and fair value amounts recognized. The Company notes that there were no measurement period adjustments made in the current period that would result in an updated preliminary fair value allocation.

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(in thousands)	May 1, 2023
Assets
Accounts receivable, trade	$	36,900
Inventories, net	6,900
Prepaid expenses and other current assets	4,957
Other intangible assets	35,500
Other assets	3,900
Property and equipment, net	3,400
Operating lease right-of-use assets	29,250
Investments	202,733
Estimated fair value of total assets acquired by Steel Holdings	323,540
Liabilities
Accounts payable	26,300
Accrued expenses	29,100
Current lease obligations	7,994
Other current liabilities	7,236
Long-term lease obligations	21,300
Other long-term liabilities	5,742
Estimated fair value of total liabilities assumed by Steel Holdings	97,672
Fair value of identifiable net assets	225,868
Goodwill attributable to Steel Connect	$	22,785

As part of pushdown accounting, the Company calculated the amount of goodwill recognized based on the excess of the Exchange Transaction consideration over the fair value of net identifiable assets acquired and liabilities assumed. Goodwill is primarily attributable to expected synergies and the assembled workforce of the Company. The goodwill recognized will not be deductible for income tax purposes.

Identifiable intangible assets were recognized at their estimated fair value as of the date of the Exchange Transaction. The fair value of the trade name asset was determined using the relief-from-royalty method and the fair value of the customer relationships asset was determined using the excess earnings method. These income-based approaches included assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, and the assessment of the asset’s life cycle. The estimated fair value and estimated remaining useful lives of identifiable intangible assets as of the Exchange Transaction date were as follows:


(in thousands)	Useful Life (Years)	Amount
Customer relationships	7	$	25,000
Trade name	Indefinite	10,500
Estimated fair value of identifiable intangible assets		$	35,500

(5)GOODWILL AND OTHER INTANGIBLE ASSETS, NET

In connection with the application of pushdown accounting, the Company recorded intangible assets for goodwill, customer relationships and tradenames. A reconciliation of the change in the carrying amount of goodwill by reportable segment is as follows:

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	Supply Chain
Balance at July 31, 2023 (Successor)
Gross goodwill	$	22,785
Accumulated impairments	—
Net goodwill	$	22,785
Balance at October 31, 2023 (Successor)
Gross goodwill	$	22,785
Accumulated impairments	—
Net goodwill	$	22,785

A summary of Other intangible assets, net is as follows:


	Successor
	October 31, 2023						July 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Customer relationships	$	25,000	$	1,786	$	23,214	$	25,000	$	911	$	24,089
Trade name	10,500		—		10,500		10,500		—		10,500
Total	$	35,500	$	1,786	$	33,714	$	35,500	$	911	$	34,589

The trade name intangible asset has an indefinite useful life. Customer relationships are amortized on a straight-line basis. Amortization expense related to intangible assets was $0.9 million for the three months ended October 31, 2023. The Exchange Transaction closed on May 1, 2023, and as such, there was no intangible assets or related amortization expense for the three months ended October 31, 2022.

Based on gross carrying amounts at October 31, 2023, the Company's estimate of amortization expense for identifiable intangible assets for the remainder of fiscal year ending July 31, 2024, and fiscal years 2025 through 2028 and thereafter is presented in the table below:


	Fiscal Year Ending July 31,
	2024		2025		2026		2027		2028		Thereafter
Estimated amortization expense	$	2,679	$	3,571	$	3,571	$	3,571	$	3,571	$	6,251

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(6)INVENTORIES, NET

The table below presents the components of Inventories, net:


	Successor
	October 31, 2023		July 31, 2023
	(In thousands)
Raw materials	$	3,680	$	4,805
Work-in-process	71		239
Finished goods

SEC Form 10-Q filed by Steel Connect Inc.