(Mark One)


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


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

(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:

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.

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,~~7, 2022, there were ~~60,437,654~~60,657,539 shares issued and outstanding of the registrant's Common Stock, $0.01 par value per share.

Item 1. Condensed Consolidated Financial Statements.

See accompanying notes to unaudited condensed consolidated financial statements

STEEL CONNECT, INC. AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements

Three Months Ended
October 31,
2021 2020
Cash flows from operating activities:
Net loss $ (19,494) $ (3,551)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation 8,607 5,780
Amortization of intangible assets 4,182 6,535
Amortization of deferred financing costs 137 148
Accretion of debt discount 386 292
Share-based compensation 190 188
Non-cash lease expense 3,439 3,613
Other losses, net 392 3,622
Changes in operating assets and liabilities:
Accounts receivable, net (5,059) 12,839
Inventories, net (1,978) 514
Prepaid expenses and other current assets 3,660 (4,473)
Accounts payable and accrued expenses (482) 6,416
Refundable and accrued income taxes, net (268) 503
Other assets and liabilities (4,137) (6,699)
Net cash (used in) provided by operating activities (10,425) 25,727
Cash flows from investing activities:
Additions of property and equipment (4,742) (1,059)
Proceeds from the disposition of property and equipment 61 —
Net cash used in investing activities (4,681) (1,059)
Cash flows from financing activities:
Long-term debt repayments (1,500) (1,500)
Preferred dividend payments (537) (537)
Repayments on capital lease obligations (18) (17)
Proceeds from issuance of common stock — 3
Net cash used in financing activities (2,055) (2,051)
Net effect of exchange rate changes on cash, cash equivalents and restricted cash (121) (269)
Net (decrease) increase in cash, cash equivalents and restricted cash (17,282) 22,348
Cash, cash equivalents and restricted cash, beginning of period 105,143 94,642
Cash, cash equivalents and restricted cash, end of period $ 87,861 $ 116,990
Cash and cash equivalents, end of period $ 81,330 $ 104,522
Funds held for clients, end of period 6,531 12,468
Cash, cash equivalents and restricted cash, end of period $ 87,861 $ 116,990

See accompanying notes to unaudited condensed consolidated financial statements

(1)NATURE OF OPERATIONS

Steel Connect, Inc.~~, together with its consolidated subsidiaries~~ (the "Company"), is a holding company which operates through its wholly-owned ~~subsidiaries, IWCO Direct Holdings, Inc. ("IWCO Direct" or "Direct Marketing") and~~subsidiary ModusLink Corporation ("ModusLink" or "Supply Chain").

IWCO Direct delivers data-driven marketing solutions for its customers. Its full range of services includes strategy, creative and execution for omnichannel marketing campaigns, along with postal logistics programs for direct mail. Through its Mail-Gard® division, IWCO Direct also offers business continuity and disaster recovery services to protect against unexpected business interruptions, along with providing print and mail outsourcing services.

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.

Disposition of IWCO Direct

On February 25, 2022 (the "Disposal Date"), the Company entered into a transaction agreement (the “Transaction Agreement”) with (a) IWCO Direct Holding Inc. (''IWCO Direct" or "Direct Marketing") and its indirect subsidiaries, (b) Cerberus Business Finance, LLC, in its capacities as collateral agent and administrative agent under a financing agreement (in such capacities, the “Agent”), dated as of December 15, 2017, between IWCO Direct, IWCO Direct’s direct and indirect subsidiaries, the Agent and the lenders party thereto (the “Lenders”) (the “Financing Agreement”), (c) the Lenders, (d) the Lenders or their respective designees listed on the signature pages to the Transaction Agreement under the caption “Participating Lender Purchasers” (the “Participating Lender Purchasers”), (e) SPH Group Holdings LLC (the “Sponsor”) and (f) Instant Web Holdings, LLC (the “Buyer”), an entity owned by the Participating Lender Purchasers. On the Effective Date (as defined in the Transaction Agreement) and pursuant to the terms of the Transaction Agreement, the Company transferred all of its interests in IWCO Direct to the Buyer as part of a negotiated restructuring of the capital structure and certain financial obligations of IWCO Direct under the Financing Agreement as contemplated by the Transaction Agreement. The results of operations of the IWCO Direct business are reported as discontinued operations for the period presented. See Note 4 - "Discontinued Operations" for additional information.

All references made to financial data in this Quarterly Report on Form 10-Q are to the Company's continuing operations, unless otherwise specifically noted.

Liquidity and Capital Resources

Steel Connect, Inc. (as parent company, the “Parent”)

Historically, the ~~Company has~~Parent financed its operations and met its capital requirements primarily through funds generated from operations, the sale of its securities, borrowings from lending institutions and ~~sale~~sales of facilities that were not fully utilized. The ~~Company~~Parent believes it has access to adequate resources to meet its needs for normal operating costs, capital expenditures, ~~mandatory~~ debt ~~redemptions~~obligations and working capital for ~~its existing business for~~ at least the next twelve ~~months~~months. Upon a redemption request by the holder of the Preferred Stock (as discussed in Note 16 - "Related Party Transactions" and in the Company's Fiscal Year 2022 Form 10-K filed), the Parent believes it is probable that it has access to adequate resources, including cash on hand and potential dividends from ModusLink, to pay the ~~date~~redemption price and continue its operations.

As of ~~this filing. These~~October 31, 2022, these resources include ~~current~~ cash and cash equivalents and ModusLink's credit agreement with ~~MidCap Financial Trust ("MidCap"~~Umpqua Bank (the “Umpqua Revolver”), ~~IWCO's revolving~~as lender and as agent. The Umpqua Revolver provides for a maximum credit ~~facility~~commitment of $12.5 million and a sublimit of $5.0 million for letters of credit and expires on March 16, 2024. There was no balance outstanding on the Umpqua Revolver as of October 31, 2022. See Note 9 - "Debt" for further details regarding the Umpqua Revolver.

ModusLink believes that if dividends to the Parent are required, it would have access to adequate resources to meet its

operating needs while remaining in compliance with ~~Cerberus Business Finance, LLC ("Cerberus"), and cash,~~the Umpqua Revolver's covenants over the next twelve months. However,

there can be no assurances that ModusLink will continue to have access to its line of credit under the Umpqua Revolver if ~~any, provided~~its financial performance does not satisfy the financial covenants set forth in its financing agreement, which could also result in the acceleration of its debt obligations by ~~operating activities. The Company's expectations regarding~~ its ability to use its existing cash and available credit facilities to continue funding its operations are based on assumptions that may prove to be inaccurate, and the Company may require capital resources sooner than currently expected. While the Company believes it will be able to access this additional liquidity based on existing information, the assumptions underlying this belief may also later prove to be inaccurate.lender, adversely affecting liquidity.

As of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, the Company had cash and cash equivalents of ~~$81.3~~$59.9 million and ~~$96.9~~$53.1 million, respectively. As of October 31, ~~2021,~~2022, the Company had aexcess working capital ~~deficit~~ of ~~$16.7 million, which includes accrued pricing liabilities and certain tax related liabilities, which the Company believes will not require a significant cash outlay in the next twelve months. As~~$30.2 million.

. As of October 31, 2021, ModusLink had readily available borrowing capacity under its revolving credit facility of $8.5 million. The Company believes it will generate sufficient cash to meet its debt covenants under its credit facilities to which certain of its subsidiaries are a party and that it will be able to obtain cash through its current and future credit facilities, if needed.

The ~~ongoing~~COVID-19 pandemic (in particular, the emergence of new variants of the virus across the globe) has caused, and may continue to cause, significant disruptions in the U.S. and global economies. Measures taken by national and local governments in the United States and around the world restricted, and in certain jurisdictions continue to restrict, individuals’ daily activities and curtail or cease many businesses’ normal operations. The COVID-19 pandemic has adversely impacted, and ~~is likely to~~may further adversely impact, nearly all aspects of our business and markets, including our workforce and the operations of our clients, suppliers, and business partners. Beginning in March 2020, ~~when the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency,~~ we experienced impacts to our customers' demand, facility operations, supply chain, availability and productivity of personnel, while also working to comply with rapidly evolving international, federal, state and local restrictions and recommendations on travel and workplace health and safety. We experienced disruptions

to our business continuity as a result of temporary closures of certain of ModusLink’s facilities in the third and fourth quarters of fiscal year 2020, as well as the fourth quarter of fiscal year 2021. However, these temporary closures did not have a significant impact on ModusLink’s ~~operations. Additionally, although IWCO Direct operated as~~operations

More recently, an ~~essential business,~~outbreak in Mainland China forced temporary lockdown orders from March 14, 2022 to March 20, 2022 in several cities in which ModusLink operates. In April and May 2022, there were further temporary lockdown orders which impacted several ModusLink facilities in China; however, ModusLink was able to resume operations on May 5, 2022 at one site and at another site on May 31, 2022. In July 2022, there were further temporary lockdown orders, which impacted one ModusLink facility in China. In September and October 2022, there were further temporary lockdown orders, which impacted several ModusLink facilities in China. The lockdowns in China have not had a significant impact to ModusLink’s operations

through the filing of this Quarterly Report on Form 10-Q. If the situation continues at this level or worsens, however, it ~~had reduced operating levels and labor shifts due to lower sales volume during the third quarter of fiscal year 2020.~~

~~To help combat these impacts and mitigate the financial~~could result in a potential adverse impact ~~of the COVID-19 pandemic~~ on our business, ~~during fiscal year 2020 we took proactive measures by initiating cost reduction actions, including the waiver~~results of ~~board fees, hiring freezes, staffing~~operations and force reductions, company-wide salary reductions, bonus payment deferrals and temporary 401(k) match suspension. The temporary waiver of board fees and company-wide salary reduction actions taken in the prior fiscal year were fully restored prior to the beginning of fiscal year 2021, and the majority of salary reductions were repaid prior to the fiscal quarter ended January 31, 2021.Wefinancial condition.

We continue ~~our focus on cash management and liquidity, which includes aggressive working capital management.~~

~~In addition, we aim~~ to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including its impact on our clients, employees, suppliers, vendors, business partners and distribution channels. We believe that such impacts could include ~~but are not limited to, the extent and severity of the impact on our customers and suppliers;~~ the continued disruption to the demand for our businesses' products and services; disruptions in or closures of our business operations or those of our customers or suppliers; the impact of the global business and economic environment on liquidity and the availability of capital; increased costs and delays in payments of outstanding receivables beyond normal payment terms; supply chain disruptions; uncertain demand; and the effect of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers. ~~The full extent to which~~Despite indications of economic recovery, the severity of the impact of the COVID-19 pandemic ~~will directly or indirectly impact our~~on the Company’s business ~~results of operations and financial condition,~~in the future is difficult to predict and will depend on a number of uncertain factors and trends. Such factors and trends include, but are not limited to: the duration and ~~spread~~severity of the ~~ongoing COVID-19 pandemic (including~~virus and its current variants; the emergence of new ~~variants~~variant strains; the widespread use of ~~COVID-19), its~~vaccines; the impact of the global business and economic environment on liquidity and the availability of capital; the extent and severity of the ~~actions to contain the virus or address its~~ impact ~~the timing, distribution,~~on our customers and ~~efficacy of vaccines~~suppliers; and ~~other treatments,~~ U.S. and foreign government actions that have been taken, or may be taken in the future, to ~~respond~~mitigate adverse economic or other impacts or to mitigate the spread of the virus and its variants. The Company continues to monitor for any developments or updates to COVID-19 guidelines from public health and governmental authorities, as well as the protection of the health and safety of its personnel, and is continuously working to ensure that its health and safety protocols, business continuity plans and crisis management protocols are in place to help mitigate any negative impacts of the COVID-19 pandemic on the Company’s employees, business or operations.

Proposed Merger with Steel Holdings

On June 12, 2022, the Company, Steel Partners Holdings L.P. (“Steel Holdings”) and SP Merger Sub, Inc., a wholly owned subsidiary of Steel Holdings (“Merger Sub”), entered into an agreement and plan of merger (the “Merger Agreement”), pursuant to which Merger Sub would merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Steel Holdings. The Merger Agreement provided that each share of the Company’s common stock issued and outstanding immediately prior to the ~~reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. As~~effective time of the ~~filing~~Merger (other than dissenting shares and shares owned by the Company, Steel Holdings or any of ~~this Form 10-Q,~~their respective subsidiaries) would, subject to the terms and conditions set forth in the Merger Agreement, be converted into the right to receive (i) $1.35 in cash, without interest and (ii) one contingent value right to receive a pro rata share of the proceeds received by the Company, Steel Holdings or any of their affiliates with respect to the sale, transfer or other disposition of all or any portion of ~~our facilities were open~~the assets currently owned by ModusLink within two years of the Merger’s closing date, to the extent such proceeds exceed $80.0 million plus certain related costs and able to operate at normal capacities. We will evaluate further actions if circumstances warrant while continuing to strategically support the Company’s future growth initiatives (including its Competitive Improvement Plan for IWCO Direct), sales and marketing activities and supply chain solutions and services.expenses.

Steel Holdings ~~Expression~~and certain of ~~Interest~~its affiliates also entered into a Voting and Support Agreement, dated as of June 12, 2022 (the “Voting and Support Agreement”), pursuant to which, among other things, they agreed to vote all shares of common stock and Series C Preferred Stock beneficially owned by them in favor of the adoption of the Merger Agreement and the Merger and any alternative acquisition agreement approved by the Company's Board of Directors (acting on the recommendation of the special committee (the “Special Committee”) of independent and disinterested directors formed to consider and negotiate the terms and conditions of the Merger and to make a recommendation to our Board of Directors).

Our Board of Directors, acting on the unanimous recommendation of the Special Committee, and the Board of Directors of Steel Partner Holdings GP Inc., the general partner of Steel Holdings, approved the Merger Agreement and the transactions contemplated by the Merger Agreement (such transactions, collectively, the “Transactions”) and resolved to recommend the stockholders adopt the Merger Agreement and approve the Transactions. The Special Committee, which is comprised solely of independent and disinterested directors of the Company who are unaffiliated with Steel Holdings, exclusively negotiated the terms of the Merger Agreement with Steel Holdings, with the assistance of its independent financial and legal advisors.

On November ~~19, 2020,~~15, 2022, Steel Holdings terminated the ~~Company's Board~~Merger Agreement. The Merger Agreement was terminated following the 2021 Annual Meeting of ~~Directors (the "Board") received~~Stockholders of the Company at which the proposal to adopt the Merger Agreement was (a) approved by the affirmative vote of the holders of (i) a ~~preliminary, non-binding expression~~majority of ~~interest (the "Expression~~the outstanding shares of ~~Interest") from Steel Partners Holdings L.P. ("Steel Holdings")~~Series C Preferred Stock, par value $0.01 per share, of the Company and (ii) a majority in voting power of the issued and outstanding shares of common stock and Series C Preferred Stock (voting on an as converted to ~~acquire all~~shares of common stock basis), voting together as a single class, but (b) not approved by a majority of the outstanding shares of common stock not ~~already~~ owned, ~~by Steel Holdings~~directly or its affiliates for a combination of cash and Steel Holdings 6% Series A Preferred Units, which would imply a value per share of common stock in the range of $0.65 to $0.72 per share. The Board has established a special committee comprised solely of independent directors (the "Acquisition Proposal Special Committee") authorized to retain independent legal and financial advisors and to review, evaluate, negotiate and approve or disapprove the Expression of Interest, and to explore alternative strategies or transactions. The Acquisition Proposal Special Committee announced on January 11, 2021 that it had retained financial advisors and legal counsel. As set forth in the Expression of Interest, the proposed transaction will be subject to the approval of the Acquisition Proposal Special Committee, as well as a non-waivable condition requiring approval of a majority of the shares outstanding of the Company not ownedindirectly, by Steel Holdings, and ~~its affiliates and related parties. The Board resolutions establishing~~Merger Sub, any other officer or director of the ~~Acquisition Proposal Special Committee expressly provide that the Board will not approve the proposed transaction contemplated by the Expression of Interest~~Company or any ~~alternative thereto without~~other person having any equity interest in, or any right to acquire any equity interest in, Merger Sub or any person of which Merger Sub is a ~~prior favorable recommendation by~~direct or indirect subsidiary as required under the ~~Acquisition Proposal Special Committee.~~Merger Agreement.

~~The Board has only received~~As a proposal, which it continues to negotiate with Steel Holdings. The proposal under negotiation does not constitute a definitive offer capable of acceptance, and may be withdrawn at any time and in any manner. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that the transaction proposed in the Expression of Interest or any other transaction will be approved or completed. The Company is not obligated to disclose any further developments or updates on the progressresult of the ~~proposed transaction until either~~termination of the Merger Agreement, the Voting and Support Agreement, dated as of June 12, 2022, by and among the Company, ~~enters into a definitive agreement or the Acquisition Proposal Special Committee determines no such transaction will be approved.~~Steel Holdings and certain of its affiliates, automatically terminated pursuant to its terms.

(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, ~~2021~~2022 (Fiscal Year ~~2021)~~2022), which are contained in the Company's ~~Annual Report on~~Fiscal Year 2022 Form 10-K ~~filed with the Securities and Exchange Commission on October 29, 2021.~~filed. The results for the three months ended October 31, ~~2021~~2022 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.

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, ~~2021,~~2022, the Company evaluated subsequent events for potential recognition and disclosure through the date these financial statements were filed. Please refer to Note 18 - "Subsequent Events" for further details.

~~Certain reclassifications have been made to the prior year balances to conform with current reporting.~~ On the statement of cash flows for the three months ended October 31, 2022 and 2021, the Company reclassified ~~the~~bad debt expense (recovery) as a non-cash ~~portion of lease expense~~adjustment to net income (loss) which totaled ~~$3.6~~$1.0 million and $(5.0) thousand from ~~Other Assets~~Accounts receivable, net to Bad debt expense (recovery). This reclassification was made to prior year balances to conform with current reporting and ~~Liabilities to Non-cash Lease Expense. These reclassifications~~ had no impact on net loss or ~~stockholder’s equity.~~stockholder's deficit.

(3)RECENT ACCOUNTING PRONOUNCEMENTS

~~Adoption of New Accounting Standards~~

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of U.S. GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The new guidance was effective for the Company's first quarter of the fiscal year ending July 31, 2022 (Fiscal Year 2022). The adoption of this new guidance did not have a material impact on the Company's consolidated financial statements.

Accounting Standards Issued and Not Yet Implemented

In June 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Loses on Financial Instruments, an ASU that requires measurement and recognition of expected credit losses for financial instruments, including trade receivables, based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The ASU will be effective for the Company beginning in the first quarter of the fiscal year ending July 31, 2024 on a modified retrospective basis, which requires a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In ~~March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,~~ which is intended to provide temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate, known as LIBOR, or by another reference rate expected to be discontinued. This optional guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

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 the assessment of 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.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The ASU requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This guidance is effective for all entities for annual periods beginning after December 15, 2021 and early adoption is 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, 2022 are not expected to have a material impact on our financial condition, results of operations or liquidity.

(4)DISCONTINUED OPERATIONS

As discussed in Note 1 - "Nature of Operations", on February 25, 2022, the Company completed the disposition of IWCO Direct. The Company received no cash consideration for the disposition (the entire transaction being referred to as the “IWCO Direct Disposal”). As of the Disposal Date and subject to the terms and conditions of the Transaction Agreement, the parties entered into certain mutual releases as fully set forth in the Transaction Agreement. In addition, as part of the overall transaction, the Buyer issued a note in the principal amount of $6.9 million payable to the Company as consideration for intercompany obligations owed by IWCO Direct to the Company (the “Subordinated Note”). The Subordinated Note is subordinated to the obligations under the Financing Agreement (including any amendments or other modifications thereto) and matures on the date that is the earlier of (a) the later of (i) August 25, 2027 and (ii) the date that is six months after the maturity of the Financing Agreement, or (b) the date that is six months after repayment in full of the obligations under the Financing Agreement. Due to the subordinated nature of the Subordinated Note and the assessment of collectability, the Company determined the fair value of the Subordinated Note was zero.

The Company deconsolidated IWCO Direct as of the Disposal Date as the Company no longer held a controlling financial interest in IWCO Direct as of that date. The Company did not have any amounts included in accumulated other comprehensive loss associated with IWCO Direct at the time of deconsolidation. The disposal of IWCO Direct represents a strategic shift to exit the direct marketing business and its results are reported as discontinued operations for all periods presented.

A summary of the results of the discontinued operations is as follows:


	Three months ended October 31,
	2021
Net revenue	$	81,059
Cost of revenue	75,185
Gross profit	5,874
Operating expenses:
Selling, general and administrative	13,170
Amortization of intangible assets	4,182
Total operating expenses	17,352
Operating loss	(11,478)
Other expense:
Interest expense	(7,033)
Total other expense, net	(7,033)
Loss from discontinued operations before income taxes	(18,511)
Income tax expense	—
Loss from discontinued operations, net of tax	$	(18,511)

The table below presents the components of Inventories, net:

October 31,
2021 July 31,
2021
(In thousands)
Raw materials $ 17,206 $ 15,484
Work-in-process 175 76
Finished goods 785 668
$ 18,166 $ 16,228

~~(5)GOODWILL AND INTANGIBLE ASSETS~~

The Company's goodwill of $231.5 million as of October 31, 2021 and July 31, 2021, respectively, relates to the Company's Direct Marketing reporting unit, which is the only reporting unit in the Direct Marketing reportable segment. The carrying value of goodwill is not amortized, but is tested for impairment annually as of June 30, and, additionally on an interim basis, whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

~~Other intangible assets, net, as of October 31, 2021, include customer relationships. The trademarks and tradenames intangible assets were fully amortized as of January 31, 2021.~~

~~A summary of other intangible assets, net are reflected in the table below:~~
October 31, 2021 July 31, 2021
Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
(in years) (In thousands)
Customer relationships 15 $ 192,730 $ 81,907 $ 110,823 $ 192,730 $ 77,725 $ 115,005
Trademarks and tradenames 3 20,520 20,520 — 20,520 20,520 —
Total $ 213,250 $ 102,427 $ 110,823 $ 213,250 $ 98,245 $ 115,005

~~The table below presents amortization expense recorded by the Company for other intangible assets:~~
Three Months Ended
October 31,
2021 2020
(In thousands)
Customer relationships $ 4,182 $ 4,825
Trademarks and trade names — 1,710
Total $ 4,182 $ 6,535


	October 31, 2022		July 31, 2022
	(In thousands)
Raw materials	$	8,274	$	7,330
Work-in-process	134		124
Finished goods	583		697
	$	8,991	$	8,151

(6)ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The following tables reflect the components of "Accrued expenses" and "Other current liabilities":


	October 31, 2022		July 31, 2022
Accrued Expenses	(In thousands)
Accrued compensation	$	5,781	$	5,099
Accrued audit, tax and legal	3,841		4,564
Accrued taxes	3,385		3,344
Accrued occupancy costs	1,570		1,671
Accrued IT costs	1,160		1,108
Accrued contract labor	1,009		792
Accrued freight	1,023		782
Accrued other	9,516		11,036
Total accrued expenses	$	27,285	$	28,396

October 31,
2021 July 31,
2021
Accrued Expenses (In thousands)
Accrued taxes $ 56,509 $ 57,152
Accrued compensation 27,458 22,987
Accrued worker's compensation 1,805 1,818
Accrued audit, tax and legal 3,840 3,674
Accrued contract labor 1,119 930
Accrued interest 190 476
Accrued other 18,461 19,834
$ 109,382 $ 106,871

October 31,
2021 July 31,
2021
Other Current Liabilities (In thousands)
Accrued pricing liabilities $ 10,295 $ 10,295
Customer postage deposits 15,370 13,452
Other 3,701 4,354
$ 29,366 $ 28,101

~~As of October 31, 2021 and July 31, 2021, the Company had accrued taxes of $56.5 million and $57.2 million, respectively, which reflected the Company's estimate for certain tax related liabilities.~~ As of both October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, accrued other was primarily comprised of accrued price concessions for customer programs that have unit price or management fee true-ups based on their contract agreements.


	October 31, 2022		July 31, 2022
Other Current Liabilities	(In thousands)
Accrued pricing liabilities	$	9,435	$	9,435
Deferred revenue - current	2,357		2,705

Other	1,851		1,342
Total other current liabilities	$	13,643	$	13,482

As of both October 31, 2022 and July 31, 2022, the Company had accrued pricing liabilities of approximately ~~$10.3~~$9.4 million. As previously reported by the Company, several principal adjustments were made to its historic financial statements for periods ending on or before January 31, 2012, the most significant of which related to the treatment of vendor rebates in its pricing policies. Where the retention of a rebate or a mark-up was determined to have been inconsistent with a client contract, the Company concluded that these amounts were not properly recorded as revenue. Accordingly, revenue was reduced by an equivalent amount for the period that the rebate was estimated to have been affected. A corresponding liability for the same amount was recorded in that period (referred to as accrued pricing liabilities). The Company believes that it may not ultimately be required to pay all or any of the accrued pricing liabilities based upon the expiration of statutes of limitations, and due in part to the nature of the interactions with its clients. The remaining accrued pricing liabilities as of October 31, ~~2021~~2022 will be derecognized when there is sufficient information for the Company to conclude that such liabilities are not subject to escheatment and have been extinguished, which may occur through payment, legal release, or other legal or factual determination. The Company has not provided for any provision for interest and or penalties related to escheatment as it has concluded that such is not probable to occur, and any potential interest and penalties cannot be reasonably estimated.

~~(7)RESTRUCTURING~~

~~IWCO Direct Restructuring Activities~~

On June 2, 2021, the Board approved a Competitive Improvement Plan (“CIP”) for IWCO Direct, which addresses the changing requirements of its customers and markets it serves, as well as the current competitive landscape. The CIP seeks to expand IWCO Direct’s marketing services capabilities, and upgrade its production platform to new digital and inserting technology, while reducing its overall production costs to enhance its competitive pricing capabilities. The CIP contemplates a total investment of approximately $54 million primarily over a 24-month period. The Company estimates the CIP cost will consist of approximately: (1) $38 million for digital press and insertion equipment, and technology build out cost (of which approximately $34 million in lease/purchase agreements were entered into subsequent to the year ended July 31, 2021), and (2) $16 million for severance, employee retention, facilities optimization, and other implementation costs. In addition, the Company expects to incur approximately $12 million for non-cash accelerated depreciation expense. The cost estimates do not include amounts for potential non-cash asset impairment charges relating to facilities and equipment optimization. The timing and amount of the future costs incurred will depend on a number of factors.

Accelerated depreciation costs primarily relate to operating facilities and equipment to be sold or closed as part of the programs. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the

revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions.

As part of the CIP, the Company announced on August 23, 2021 that it will be optimizing its manufacturing footprint by closing IWCO Direct’s Little Falls, Minnesota facility. The facility is expected to close in January of 2022. The Company recognized approximately $6.6 million of cost during the three months ended October 31, 2021 and did not incur any material costs during the fiscal year ended July 31, 2021 associated with these restructuring activities.RESTRUCTURING

ModusLink Restructuring Activities

During the fiscal year ended July 31, 2021, ModusLink implemented a strategic plan to reorganize its sales function and the e-Business operations. The restructuring charges associated with this plan were ~~incurred~~primarily composed of employee termination costs. In November 2021, ModusLink amended its strategic plan to include reorganizing its supply chain operations and recorded a restructuring charge of approximately $0.9 million during the three months ended January 31, 2022. In July 2022, ModusLink reorganized its supply chain operations in Ireland and recorded a restructuring charge of approximately $0.6 million during the three months ended July 31, 2022. The restructuring charges recorded in fiscal year ended July 31, ~~2021 and~~2022 were primarily composed of employee termination costs. ModusLink did not incur any restructuring charges during the three months ended October 31, ~~2021. In November 2021, ModusLink amended its strategic plan to include reorganizing its supply chain operations~~2022 and ~~expects to record a restructuring charge of approximately $1.0 million in the three months ending January 31, 2022.~~

~~The tables below present restructuring charges by type of cost for the three months ended~~ October 31, ~~2021:~~

~~(in thousands)~~

~~Direct Marketing~~

~~Accelerated depreciation~~

~~4,395~~

~~Impairment of long-lived assets~~

~~Employee termination costs~~

~~1,985~~

~~Contractual obligations~~

~~195~~

~~Total restructuring charges~~

~~6,645~~

~~(in thousands)~~

~~Direct Marketing~~

~~Cost of revenue~~

~~6,343~~

~~Selling, general and administrative~~

~~302~~

~~6,645~~

2021.

Changes to the restructuring liability during the three months ended October 31, ~~2021~~2022 were as follows:


	(in thousands)
Balance as of July 31, 2022	$	892
Costs incurred	—
Cash payments	(551)
Non-cash relief of accrual	—
Change in estimates	(25)
Balance as of October 31, 2022	$	316

(in thousands) Employee Termination Costs Contractual Obligations Asset Impairment Restructuring Liability
Balance as of July 31, 2021 $ 1,055 $ — $ — $ 1,055
Costs incurred 1,985 195 4,465 6,645
Non-cash relief of accrual — — (4,465) (4,465)
Change in estimates (14) — — (14)
Balance as of October 31, 2021 $ 3,026 $ 195 $ — $ 3,221
The restructuring liability is recorded as a component of accrued expenses in the condensed consolidated balance sheets.

The table below presents the components of the Company's lease expense:

Supplemental Cash Flow Information

Supplemental cash flow information related to the Company's leases was as follows:

The components of debt and a reconciliation to the carrying amount of long-term debt is presented in the table below:

Less: unamortized discounts and issuance costs(a)

7.50% Convertible Senior Note

On February 28, 2019, the Company entered into a 7.50% Convertible Senior Note Due 2024 Purchase Agreement (the "SPHG Note Purchase Agreement") with SPH Group Holdings LLC ("SPHG Holdings"), whereby SPHG Holdings agreed to loan the Company $14.9 million in exchange for a 7.50% Convertible Senior Note due 2024 (the "SPHG Note"). SPHG Holdings has the right, at its option, prior to the close of business on the business day immediately preceding March 1, 2024, the maturity date of the SPHG Note, ~~Maturity Date,~~ to convert the SPHG Note or a portion thereof that is $1,000 or an integral multiple thereof, into shares of common stock (if the Company has not received a required stockholder approval) or cash, shares of common stock or a combination of cash and shares of common stock, as applicable (if the Company has received a required stockholder approval), at an initial conversion rate of 421.2655 shares of common stock, which is equivalent to an initial conversion price of approximately $2.37 per share (subject to adjustment as provided in the SPHG Note) per $1,000 principal amount of the SPHG Note, subject to, and in accordance with, the settlement provisions of the SPHG Note. As of October 31, ~~2021,~~2022, the if-converted value of the SPHG Note did not exceed the

principal value of the SPHG Note. As of October 31, ~~2021,~~2022, the remaining period over which the unamortized discount will be amortized is 2816 months. As of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, the net carrying value of the SPHG Note was ~~$9.7~~$11.6 million and ~~$9.3~~$11.0 million, respectively. The effective interest rate on the SPHG Note, including accretion of the discount, is 27.8%. The following tables reflect the components of the SPHG Note:

On March 16, 2022, ModusLink, as borrower, entered into a new credit agreement with Umpqua Bank as lender and as agent. The Umpqua Revolver provides for a maximum credit commitment of $12.5 million and a sublimit of $5.0 million for letters of credit and expires on March 16, 2024. Concurrent with signing the Umpqua Revolver ModusLink submitted a notice of termination to MidCap Financial Trust for its $12.5 million revolving credit facility (the “MidCap Credit Facility”), which was set

to expire on December 31, 2022. There was no balance outstanding on the Midcap Credit Facility at the time of its termination. As of October 31, 2022, ModusLink was in compliance with the Umpqua Revolver's covenants, and believes it will remain in compliance with the Umpqua Revolver’s covenants for the next twelve months. As of October 31, 2022, ModusLink had available borrowing capacity of $11.9 million and there was $0.6 million available for letters of credit.

On April 13, 2018, a purported shareholder, Donald Reith, filed a verified complaint, Reith v. Lichtenstein, et al., 2018-277 (Del. Ch.) in the Delaware Court of Chancery. The complaint alleges class and derivative claims for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duty and unjust enrichment against the Board of Directors, Warren G. Lichtenstein, Glen M. Kassan, William T. Fejes, Jack L. Howard, Jeffrey J. Fenton, Philip E. Lengyel and Jeffrey S. Wald; and stockholders Steel Holdings, Steel Partners, Ltd., SPHG Holdings, Handy & Harman Ltd. ~~("Handy & Harman")~~ and WHX CS Corp. (collectively, the "Steel Parties") in connection with the acquisition of $35.0 million of the Series C Convertible Preferred Stock by SPHG Holdings and equity grants made to Messrs. Lichtenstein, Howard and Fejes on December 15, 2017 (collectively, the "Challenged Transactions"). The Company is named as a nominal defendant. The complaint alleges that although the Challenged Transactions were approved by a Special Committee consisting of the independent members of the Board of Directors (Messrs. Fenton, Lengyel and Wald), the Steel Parties dominated and controlled the Special Committee, who approved the Challenged Transactions in breach of their fiduciary duty. Plaintiff alleges that the Challenged Transactions unfairly diluted ~~shareholders~~stockholders and therefore unjustly enriched Steel Holdings, SPHG Holdings and Messrs. Lichtenstein, Howard and Fejes. The complaint also alleges that the Board of Directors made misleading disclosures in the Company's proxy statement for the 2017 Annual Meeting of Stockholders in connection with seeking approval to amend the 2010 Incentive Award Plan to authorize the issuance of additional shares to accommodate certain shares underlying the equity grants. Remedies requested include rescission of the Series C Convertible Preferred Stock and equity grants, disgorgement of any unjustly obtained property or compensation and monetary damages. On June 8, 2018, defendants moved to dismiss the complaint for failure to plead demand futility and failure to state a claim. On June 28, 2019, the Court denied most of the motion to dismiss allowing the matter to proceed. The defendants answered the complaint on September 6, 2019, denying all liability.

On August 13, 2021, the Company, together with certain of its current and former directors of the Board, Warren Lichtenstein, Glen Kassan, William Fejes, Jr., Jack Howard, Jeffrey Fenton and Jeffrey Wald, as well as other named defendants (collectively, the “Defendants”), entered into a memorandum of understanding (the “MOU”) with Donald Reith (the “Plaintiff”) in connection with the settlement of the Reith v. Lichtenstein, et al., C.A. No. 2018-0277-MTZ (Del. Ch. 2018) class and derivative action. A definitive Stipulation of Settlement (the “Stipulation”) incorporating the terms of the MOU was filed with the Court on February 18, 2022. Pursuant to the MOU and Stipulation, and contingent on approval of the terms by the court, the Defendants agreed to cause their directors’ and officers’ liability insurance carriers to pay to the Company $2.75 million in cash. The payment shall be paid into an escrow account within 14 business days of the later of (i) the entry of the scheduling order in connection with the stipulation of the settlement; or (ii) the date on which Plaintiff’s counsel provides to the Defendants’ counsel written payment and wire instructions.

Additionally, under the MOU and separate letter agreements between the Company and such individuals (the “Surrender Agreements”), Messrs. Lichtenstein, Howard and Fejes agreed to surrender to the Company an aggregate 3.3 million shares ~~which~~that they had initially received in December 2017 in consideration for services to the Company. The surrenders and cancellations are in the following amounts: for Mr. Lichtenstein, 1,833,333 vested shares and 300,000 unvested ~~shares;~~shares; for Mr. Howard, 916,667

vested shares and 150,000 unvested ~~shares;~~shares; and for Mr. Fejes, 100,000 vested shares. Such amounts are to be adjusted to give effect to the one-for-ten reverse stock split voted on by the Company’s shareholders at the annual meeting on July 26, 2021 (if such reverse stock split is effected prior to the surrender of such shares). The surrenders and cancellations shall be completed no later than seven calendar days following final approval of the settlement by the court and the exhaustion of any appeals therefrom or the expiration of time to appeal. On August 17, 2021, Mr. Lichtenstein and Mr. Howard surrendered the shares required under the MOU, the Stipulation and their respective Surrender Agreements, and ~~all~~in December 2021 Mr. Fejes did the same. All such shares were subsequently cancelled. Pursuant to the MOU and Stipulation, the Company has also agreed to pay the Plaintiff’s counsel legal fees for this ~~matter. The settlement requires~~matter in an amount up to $2.05 million, if approved by the court.

After the parties filed papers in support of court approval of the settlement, and ~~there can~~an objector filed papers in opposition to approval of the settlement, and after hearings held on August 12 and August 18, 2022, the parties submitted an amendment to the Stipulation: (i) increasing the proposed total contribution of the insurers to $3.0 million, (ii) reducing Plaintiff’s counsel’s fee request to $1.6 million, and (iii) providing that if the then pending proposed Merger was consummated, the $3 million, minus fees awarded to Plaintiff’s counsel and costs of distribution of up to $125,000, would be distributed to the holders of eligible shares of Common Stock (as defined in the Merger Agreement governing the Merger), other than the Defendants; provided, however, that no ~~assurances~~distribution is required to be made to any holder whose proportionate share of the distribution would be less than $1.00. On September 23, 2022, the court ruled that it was denying approval of the settlement. At the court’s instruction, the parties provided a status report on October 24, 2022, reporting that the vote on the proposed Merger had been postponed to October 28, 2022, and proposing to file a revised status report on November 23, 2022. The parties filed the status report on November 23, 2022, reporting that due to the termination of the proposed Merger on November 15, 2022, the parties were conferring on the next steps, and therefore proposed providing another status report within 30 days, or on other such ~~approval will~~date as the court may order. On November 28, 2022, the court issued a minute order advising that no further status updates were required to be ~~granted.~~filed in the matter and noting that the court would remain available to hear requests for relief as needed. The possible recovery, if any, with respect to this dispute cannot be determined as of the date of this Quarterly Report on Form 10-Q.

(11)REVENUE RECOGNITION

Disaggregation of Revenue

The following table presents the Company's revenues from contracts with customers disaggregated by major good or service line and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the reportable segments.

Three Months Ended October 31, 2021 Three Months Ended October 31, 2020
Direct
Marketing Supply Chain Consolidated
Total Direct
Marketing Supply Chain Consolidated
Total
(In thousands)
Major Goods/Service Lines
Marketing solutions offerings $ 81,059 $ — $ 81,059 $ 105,708 $ — $ 105,708
Supply chain management services — 43,942 43,942 — 63,787 63,787
Other — 412 412 — 439 439
$ 81,059 $ 44,354 $ 125,413 $ 105,708 $ 64,226 $ 169,934
Timing of Revenue Recognition
Goods transferred over time $ 81,059 $ — $ 81,059 $ 105,708 $ — $ 105,708
Services transferred over time — 44,354 44,354 — 64,226 64,226
$ 81,059 $ 44,354 $ 125,413 $ 105,708 $ 64,226 $ 169,934

IWCO's revenue is generated through the provision of data-driven marketing solutions, primarily through providing direct mail products to customers. Revenue related to the majority of IWCO's marketing solutions contracts, which typically consist of a single integrated performance obligation, is recognized over time as the Company performs because the products have no alternative use to the Company.


	Three Months Ended October 31,
	2022		2021
	(In thousands)
Major Goods/Service Lines
Supply chain management services	$	50,931	$	43,942
Other	428		412
	$	51,359	$	44,354
Timing of Revenue Recognition
Services transferred over time	$	51,359	$	44,354
	$	51,359	$	44,354

Supply Chain Management Services

ModusLink's revenue primarily comes from the sale of supply chain management services to its clients. Amounts billed to customers under these arrangements include revenue attributable to the services performed as well as for materials procured on the customer's behalf as part of its service to them. The majority of these arrangements consist of two distinct performance obligations (i.e., warehousing/inventory management service and a separate kitting/packaging/assembly service), revenue related to each of which is recognized over time as services are performed using an input method based on the level of efforts expended.

Other revenue consists of cloud-based software subscriptions, software maintenance and support service contracts, and fees for professional services. Revenue related to these arrangements is recognized on a straight-line basis over the term of the agreement or over the term of the agreement in proportion to the costs incurred in satisfying the obligations under the contract.

Timing of revenue recognition may differ from timing of invoicing to customers. The Company records contract assets and liabilities related to its contracts with customers as follows:

•Accounts receivable when revenue is recognized prior to receipt of cash payments and if the right to such amounts is unconditional and solely based on the passage of time.

•Contract asset when the Company recognizes revenue based on efforts expended but the right to such amount is conditional upon satisfaction of another performance obligation. Contract assets are primarily comprised of fees related to marketing solutions offerings and supply chain management services. The Company's contract assets are all short-term in nature and are included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

•Deferred revenue when cash payments are received or due in advance of performance. Deferred revenue is primarily comprised of fees related to supply chain management services, cloud-based software subscriptions and software maintenance and support service contracts, which are generally billed in advance. Deferred revenue also includes other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service. The deferred revenue balance is classified as a component of other current liabilities and other long-term liabilities on the Company's condensed consolidated balance sheets.

The table below presents information for the Company's contract balances:


		October 31, 2021		July 31, 2021			October 31, 2022		July 31, 2022
		(In thousands)					(In thousands)
Accounts receivable, trade, net	Accounts receivable, trade, net	$	74,841	$	69,805	Accounts receivable, trade, net	$	35,680	$	40,083
Contract assets	Contract assets	$	11,657	$	14,458	Contract assets	358		369

Deferred revenue - current	Deferred revenue - current	$	2,735	$	2,562	Deferred revenue - current	$	2,357	$	2,705
Deferred revenue - long-term	Deferred revenue - long-term	126		108		Deferred revenue - long-term	112		134
Total deferred revenue	Total deferred revenue	$	2,861	$	2,670	Total deferred revenue	$	2,469	$	2,839

Remaining Performance Obligations

Remaining performance obligations are comprised of deferred revenue. Changes in deferred revenue during the three months ended October 31, ~~2021~~2022 and October 31, ~~2020,~~2021, were as follows:

~~We expect~~The Company expects to recognize approximately ~~$2.7~~$2.4 million of the deferred revenue over the next twelve months and the remaining $0.1 million beyond that time period.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The Company operates in multiple taxing jurisdictions, both within and outside of the United States. For the three months ended October 31, ~~2021,~~2022, the Company was profitable in certain jurisdictions, resulting in an income tax expense using enacted rates in those jurisdictions. As of both October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, the total amount of the liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately ~~$2.5~~$0.8 million.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. Among other provisions, the IRA includes a 15.0% corporate minimum tax rate applied to certain large corporations and a 1.0% excise tax on corporate stock repurchases made after December 31, 2022. We do not expect the IRA to have a material impact on our consolidated financial statements.

On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act into law, which is intended to respond to the COVID-19 pandemic and its impact on the economy, public health,

state and local governments, individuals and businesses. The CARES Act contains numerous tax provisions, including temporary changes to the future limitations on interest deductions related to Section 163(j) of the U.S. Internal Revenue Code (the “IRC”).

As of October 31, 2022, the Company elected to defer the employer-paid portion of social security taxes, which is expected to provide the Company with approximately ~~$5.3~~$0.3 million of additional ~~liquidity during the current calendar year, with 50% of the~~liquidity. The remaining deferral is due ~~December 31, 2021 and the remaining 50% due~~by December 31, 2022. The Company does not expect the provisions of the CARES Act to have a significant impact on the income tax provision, income tax payable or deferred income tax positions of the Company.

Uncertain Tax Positions

In accordance with the Company's accounting policy, interest related to unrecognized tax benefits is included in the income tax expense line of the condensed consolidated statements of operations. As of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, the liabilities

for interest expense related to uncertain tax positions were ~~$0.4~~$0.01 million and ~~$0.3~~$0.10 million, respectively. The Company ~~has accrued $0.4 million for penalties related to income tax positions. The Company~~ expects ~~$0.7~~$0.2 million of unrecognized tax benefits and related interest to reverse in the next twelve months. The Company is subject to U.S. federal income tax and various state, local and international income taxes in numerous jurisdictions. The federal and state tax returns are generally subject to tax examinations for the tax years ended July 31, ~~2018~~2019 through July 31, ~~2021.~~2022. To the extent the Company has tax attribute carryforwards, the tax year in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period. In addition, a number of tax years remain subject to examination by the appropriate government agencies for certain countries in the Europe and Asia regions. In Europe, the Company's ~~2013~~2014 through ~~2020~~2021 tax years remain subject to examination in most locations, while the Company's ~~2009~~2010 through ~~2020~~2021 tax years remain subject to examination in most Asia locations.

(13)~~LOSS~~EARNINGS (LOSS) PER SHARE

The following table reconciles net earnings (loss) ~~earnings~~ per share for the three ~~and three~~ months ended October 31, ~~2021~~2022 and ~~2020:~~2021:

Basic net ~~loss~~income (loss) per common share is calculated using the weighted average number of common shares outstanding during the period. Diluted net ~~earnings~~income (loss) per common share, if any, gives effect to diluted stock options (calculated based on the treasury stock method), non-vested restricted stock shares purchased under the employee stock purchase plan and shares issuable upon debt or preferred stock conversion (calculated using an as-if converted method).

For the three months ended October 31, 2022, $0.8 million of interest expense, net of tax related to convertible debt was excluded from the numerator in the calculation of diluted net income per share as their inclusion would have been antidilutive. For the three months ended October 31, 2021, $0.7 million of interest expense, net of tax impact related to convertible debt and ~~2020, approximately 24.2~~ $0.5

million ~~and 24.3~~of preferred dividends were excluded from the numerator in the calculation of diluted net loss per share as their inclusion would have been antidilutive.

For the three months ended October 31, 2022, 6.3 million ~~respectively,~~ common stock equivalent shares (including those related to convertible debt) were excluded from the denominator in the calculation of diluted net income per share as their inclusion would have been antidilutive. For the three months ended October 31, 2021, 24.2 million common stock equivalent shares (including those related to convertible debt and convertible debt and preferred stock) were excluded from the denominator in the calculation of diluted net loss per share as their inclusion would have been antidilutive.

(14)COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) combines net income (loss) and other comprehensive items. Other comprehensive items represent certain amounts that are reported as components of stockholders' equity in the accompanying condensed consolidated balance sheets. Accumulated other comprehensive items consist of the following:


	Foreign Currency Items		Pension Items		Total
	(In thousands)
Accumulated other comprehensive income (loss) as of July 31, 2022	$	6,063	$	(1,923)	$	4,140
Foreign currency translation adjustment	(2,837)		—		(2,837)

Pension liability adjustments	—		(1,078)		(1,078)
Net current-period other comprehensive income	(2,837)		(1,078)		(3,915)
Accumulated other comprehensive income (loss) as of October 31, 2022	$	3,226	$	(3,001)	$	225


	Foreign Currency Items		Pension Items		Total
	(In thousands)
Accumulated other comprehensive income (loss) as of July 31, 2021	$	9,762	$	(2,600)	$	7,162
Foreign currency translation adjustment	198		—		198


Net current-period other comprehensive income	198		—		198
Accumulated other comprehensive income (loss) as of October 31, 2021	$	9,960	$	(2,600)	$	7,360

During the year ended July 31, 2020, a Netherlands defined benefit pension plan was amended, so that active participants no longer accrued benefits as of January 1, 2020, which resulted in a pre-tax curtailment gain of $2.4 million recognized in accumulated other comprehensive income (loss). At that time, the active plan participants were moved into a new defined benefit contribution pension plan. During the three months ended October 31, 2022, the Company recorded an increase of approximately $1.1 million to accrued pension liabilities for the defined benefit pension plan as it was determined plan participants are entitled to unconditional indexation of benefits for as long as they remain in active service with the Company.

~~Table of Contents~~

Foreign
Currency
Items Pension
Items Total
(In thousands)
Accumulated other comprehensive income (loss) as of July 31, 2021 $ 9,762 $ (2,600) $ 7,162
Foreign currency translation adjustment 198 — 198
Net current-period other comprehensive income 198 — 198
Accumulated other comprehensive income (loss) as of October 31, 2021 $ 9,960 $ (2,600) $ 7,360
Foreign
Currency
Items Pension
Items Total
(In thousands)
Accumulated other comprehensive income (loss) as of July 31, 2020 $ 5,025 $ (1,182) $ 3,843
Foreign currency translation adjustment 2,973 — 2,973
Net current-period other comprehensive income 2,973 — 2,973
Accumulated other comprehensive income (loss) as of October 31, 2020 $ 7,998 $ (1,182) $ 6,816

(15)SEGMENT INFORMATION

~~The~~Subsequent to the Company’s disposition of the Direct Marketing reportable segment in the IWCO Direct Disposal, the Company has ~~2 operating segments which are the same as its~~one reportable ~~segments: Direct Marketing and~~segment: Supply Chain. The Company also has Corporate-level activity, which consists primarily of costs associated with certain corporate administrative functions such as legal, finance and share-based compensation, which are not allocated to the Company's reportable ~~segments.~~segment. The Corporate-level balance sheet information includes cash and cash equivalents, debt and other assets and liabilities which are not ~~identifiable~~allocated to the operations of the Company's operating ~~segments.~~segment. All significant intra-segment amounts have been eliminated. Management evaluates segment performance based on segment net revenue and operating income (loss).

Management evaluates segment performance based on segment net revenue, operating income (loss) and "adjusted operating income (loss)," which is defined as the operating income (loss) excluding net charges related to depreciation, amortization of long-lived asset impairment, share-based compensation and restructuring. These items are excluded because they may be considered to be of a non-operational or non-cash nature. Historically, the Company has recorded significant impairment and restructuring charges, and therefore management uses adjusted operating income (loss) to assist in evaluating the performance of the Company's core operations.

Summarized financial information of the Company's continuing operations by operating segment is as follows:
Three Months Ended
October 31,
2021 2020
(In thousands)
Net revenue:
Direct Marketing $ 81,059 $ 105,708
Supply Chain 44,354 64,226
$ 125,413 $ 169,934
Operating (loss) income:
Direct Marketing $ (11,478) $ 4,937
Supply Chain 1,973 5,151
Total segment operating (loss) income (9,505) 10,088
Corporate-level activity (1,402) (3,013)
Total operating (loss) income (10,907) 7,075
Total other expense, net (8,272) (9,822)
Loss before income taxes $ (19,179) $ (2,747)

2022

Table of Contents

October 31,
2021 July 31,
2021
(In thousands)
Total assets:
Direct Marketing $ 514,997 $ 530,944
Supply Chain 93,395 101,159
Sub-total—segment assets 608,392 632,103
Corporate 44,762 44,278
$ 653,154 $ 676,381


	Three Months Ended October 31,
	2022		2021
	(In thousands)
Net revenue:
Supply Chain	$	51,359	$	44,354
Total segment net revenue	51,359		44,354
Operating income:
Supply Chain	5,851		1,973
Total segment operating income	5,851		1,973
Corporate-level activity	(1,972)		(1,402)
Total operating (loss) income	3,879		571
Total other income (expense), net	2,204		(1,239)
Income (loss) before income taxes	$	6,083	$	(668)


	October 31, 2022		July 31, 2022
	(In thousands)
Total assets:
Supply Chain	$	105,849	$	101,637
Corporate	32,085		36,112
Total assets	$	137,934	$	137,749

Summarized financial information of the Company's ~~net revenue from external customers by group of services~~capital expenditures and depreciation expense for the Supply Chain reportable segment is as follows:

Three Months Ended
October 31,
2021 2020
(In thousands)
Products:
Direct Marketing $ 81,059 $ 105,708
Services:
Supply Chain 44,354 64,226
$ 125,413 $ 169,934


	Three Months Ended October 31,
	2022		2021
	(In thousands)
Capital expenditures	$	548	$	363
Depreciation expense	459		630

Summarized financial information of the Company's net revenue by geographic location is as follows:


		Three Months Ended October 31,					Three Months Ended October 31,
		2021		2020					2022		2021
		(In thousands)				(In thousands)
China								China	$	17,965	$	15,966
United States	United States	$	91,506	$	121,483			United States	12,172		10,446
China		15,966		19,640
Czech								Czech	5,760		2,767
Netherlands	Netherlands	5,649		7,795				Netherlands	5,351		5,649
Singapore								Singapore	5,132		5,164
Other	Other	12,292		21,016				Other	4,979		4,362
		$	125,413	$	169,934				$	51,359	$	44,354

(16)RELATED PARTY TRANSACTIONS

As of October 31, ~~2021,~~2022, SPHG Holdings and its affiliates, including Steel Holdings, Handy & Harman Ltd. and Steel Partners Ltd., beneficially owned approximately ~~53.4%~~49.9% of our outstanding capital stock, including the if-converted value of the

Table of Contents

SPHG Note and shares of Series C Convertible Preferred Stock that vote on an as-converted basis together with our common stock. Warren G. Lichtenstein, our Interim Chief Executive Officer and the Executive Chairman of our Board, is also the Executive Chairman of Steel Holdings ~~GP Inc. ("Steel Holdings GP"),~~GP. Glen Kassan, our Vice Chairman of the ~~manager~~Board of Directors and former Chief Administrative Officer, is an employee of Steel ~~Holdings.~~Services. Jack L. Howard, the President and a director of Steel Holdings GP, ~~was appointed to the Board upon the closing of the Preferred Stock Transaction described below.~~is also a director.

SPHG Note Transaction

On February 28, 2019, the Company entered into a SPHG Note Purchase Agreement with SPHG Holdings, whereby SPHG Holdings agreed to loan the Company $14.9 million in exchange for the SPHG Note. As of both October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, SPHG Holdings held $14.9 million principal amount of the SPHG Note. As of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, the net carrying value of the SPHG Note was ~~$9.7~~$11.6 million and ~~$9.3~~$11.0 million, respectively. During the three months ended October 31, 2022 and 2021, the Company recognized interest expense of $0.8 million and $0.7 million, respectively, associated with the SPHG Note.

Preferred Stock Transaction

~~Table of Contents~~

On December 15, 2017, the Company entered into a Preferred Stock Purchase Agreement with SPHG Holdings, pursuant to which the Company issued 35,000 shares of the Company's newly created Series C Convertible Preferred Stock to SPHG Holdings at a price of $1,000 per share, for an aggregate purchase consideration of $35.0 million. The terms, rights, obligations and preferences of the Series C Convertible Preferred Stock are set forth in the Series C Certificate of Designations, which has been filed with the Secretary of State of the State of Delaware. During each of the three months ended October 31, 2022 and 2021, the Company paid dividends of $0.5 million associated with the Series C Convertible Preferred Stock.

On or after December 15, 2022, each holder of Preferred Stock can also require the Company to redeem its Preferred Stock in cash at a price equal to the Liquidation Preference (as defined in Series C Certificate of Designations).

STCN Management Services Agreement

On June 14, 2019, the Company entered into an agreement (the ~~"Management~~"STCN Management Services Agreement") with Steel Services Ltd. ("Steel Services"), an indirect wholly-owned subsidiary of Steel Holdings. The Management Services Agreement was effective as of June 1, 2019. Pursuant to the STCN Management Services Agreement, Steel Services provides the Company and its subsidiaries with the non-exclusive services of certain employees, including certain executive officers and other corporate services. In connection with the IWCO Direct Disposal, the monthly fee under the STCN Management Services Agreement was reduced effective on the Disposal Date primarily for the portion of the fee attributable to IWCO Direct. Total expenses incurred related to the STCN Management Services Agreement for the three months ended October 31, 2022 and 2021 ~~and 2020~~ were ~~$0.8~~$0.6 million and $0.8 million, respectively. As of ~~both~~ October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, amounts due to Steel Services was ~~$0.9 million.~~$0.8 million and $1.0 million, respectively.

Termination of Proposed Merger with Steel Holdings

On November 15, 2022, Steel Holdings terminated the Merger Agreement with Steel Holdings. See Note 1 - "Nature of Operations" for further discussion.

(17)FAIR VALUE MEASUREMENTS

ASC 820,Fair Value Measurement, provides that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs

Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants would price the assets or liabilities

Table of Contents

The carrying value of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, current liabilities and the revolving line of credit under the Umpqua Revolver approximate fair value because of the short maturity of these instruments. We believe that the carrying value of our long-term debt approximates fair value because the stated interest rates of this debt is consistent with current market rates. The carrying value of capital lease obligations approximates fair value, as estimated by using discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following tables present the Company's financial assets measured at fair value on a recurring basis as of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, classified by fair value hierarchy:
Fair Value Measurements at Reporting Date Using
(In thousands) October 31, 2021 Level 1 Level 2 Level 3
Assets:
Money market funds $ 42,327 $ 42,327 $ — $ —
Fair Value Measurements at Reporting Date Using
(In thousands) July 31, 2021 Level 1 Level 2 Level 3
Assets:
Money market funds $ 42,327 $ 42,327 $ — $ —


			Fair Value Measurements at Reporting Date Using
(In thousands)	October 31, 2022		Level 1		Level 2		Level 3
Assets:
Money market funds	$	28,300	$	28,300	$	—	$	—


			Fair Value Measurements at Reporting Date Using
(In thousands)	July 31, 2022		Level 1		Level 2		Level 3
Assets:
Money market funds	$	31,756	$	31,756	$	—	$	—

There were no transfers between Levels 1, 2 or 3 during any of the periods presented.

When available, quoted prices are used to determine fair value. When quoted prices in active markets are available, investments are classified within Level 1 of the fair value hierarchy. When quoted prices in active markets are not available, fair values are determined using pricing models, and the inputs to those pricing models are based on observable market inputs. The inputs to the pricing models are typically benchmark yields, reported trades, broker-dealer quotes, issuer spreads and benchmark securities, among others.

~~Table of Contents~~

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

The Company reviews the carrying amounts of these assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognized when the carrying amount of the asset group or reporting unit is not recoverable and exceeds its fair value. The Company estimates the fair values of assets subject to impairment based on the Company's own judgments about the assumptions that market participants would use in pricing the assets and on observable market data, when available.

Fair Value of Financial Instruments

The Company's financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, customer deposits, accounts payable, restricted cash and debt, and are reflected in the consolidated financial statements at carrying value. With the exception of the SPHG Note and long-term debt, carrying value approximates fair value for these items due to their short-term nature. The Company believes that the carrying value of the liability component of the SPHG Note and our long-term debt approximates fair value because the stated interest rates of this debt is consistent with current market rates. Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets are money market funds. These are valued at quoted market prices in active markets.

2325

Table of Contents

(18) SUBSEQUENT EVENT

The Company evaluated all events and transactions that occurred after October 31, 2022 up through the date the Company issued these consolidated financial statements. The Company owns 9.8% of a privately-held software company (the "Investee"), which was acquired in the early 2000s and whose book value was written down to zero in prior years. The Company was not required to account for this Investee as an equity method investment.

On November 11, 2022, the Investee entered into an asset purchase agreement to sell substantially all of its assets for $40.8 million (the "Purchase Price"). The sale is subject to a shareholder vote scheduled to be held on December 15, 2022. If approved, the sale is expected to be completed early in the first quarter of calendar 2023 after which the Company expects to receive an aggregate of approximately $4.0 million of cash proceeds. The first receipt of approximately $3.2 million is expected to occur before the end of the third quarter of the fiscal year ending July 31, 2023, with approximately $0.4 million expected to be received during each of the fiscal years ending July 31, 2024 and 2025. When received, the Company will recognize the cash proceeds as other income on the condensed consolidated statement of operations.

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The matters discussed in this report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. All statements other than statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those risks discussed elsewhere in this ~~report~~Quarterly Report on Form 10-Q and the risks discussed in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on ~~October 29, 2021,~~November 9, 2022, and other subsequent reports filed with or furnished to the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis, judgment, belief or expectation only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as required by law.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this ~~quarterly report.~~Quarterly Report on Form 10-Q.

Overview

Steel Connect, Inc. (the "Company") is a ~~diversified~~ holding company ~~with two~~which operates through its wholly-owned ~~subsidiaries, IWCO Direct Holdings, Inc. ("IWCO Direct" or "Direct Marketing") and~~subsidiary, ModusLink Corporation ("ModusLink" or "Supply Chain"),which ~~serve~~serves the ~~direct marketing and~~ supply chain management ~~markets, respectively.~~market.

IWCO Direct is a provider of data-driven marketing solutions, driving response across all marketing channels and measurable improvements to its customers’ return on marketing investment. With a more than 50-year legacy of printing and mailing services, IWCO Direct's full range of expanded marketing services includes strategy, creative services, and execution for omnichannel marketing campaigns, along with one of the industry's most sophisticated postal logistics strategies for direct mail. Through Mail-Gard®, IWCO Direct offers business continuity and disaster recovery services to protect against unexpected business interruptions, along with providing print and mail outsourcing services. IWCO Direct's services include: (a) development of direct mail and omnichannel marketing strategies, (b) creative services to design direct mail, email, and online marketing, (c) printing and compiling of direct mail pieces into envelopes ready for mailing, (d) commingling services to sort mail produced for various customers by destination to achieve optimized postal savings, and (e) business continuity and disaster recovery services for critical communications to protect against unexpected business interruptions. The major markets served by IWCO Direct include financial services, multiple-system operators (cable or direct-broadcast satellite TV systems), insurance, as well as subscription/services, healthcare, travel/hospitality, retail, not-for-profit, and others. Direct mail is a critical piece of marketing for most of IWCO Direct’s clients, who use direct mail to acquire new customers, deepen the sales cycle, and maintain customer loyalty. Management believes that direct mail will remain an important part of its customers' strategy for the foreseeable future, based on its proven ability to enhance results when used as part of an omnichannel marketing strategy.

ModusLink ~~is an end-to-end global~~provides digital and physical supply chain solutions ~~and e-commerce provider serving clients in markets such as~~to many of the world's leading brands across a diverse range of industries, including consumer electronics, ~~communications,~~telecommunications, computing and storage, software and content, consumer packaged goods, medical devices, ~~software~~retail and ~~retail. ModusLink designs~~luxury and ~~executes critical elements in its clients' global supply chains to improve speed to market, product customization, flexibility, cost, quality and service.~~connected devices. These ~~benefits~~solutions are delivered through a combination of industry expertise, innovative service solutions, and integrated operations, proven business processes, an expansive global footprint and world-class technology. ~~ModusLink also produces and licenses an entitlement management solution powered by its enterprise-class Poetic software, which offers~~With a complete solution for activation, provisioning, entitlement subscription, and data collection from physical goods (connected products) and digital products. ModusLink has an integrated network of strategically located facilities in various countries, including numerous sites throughoutglobal footprint spanning North America, Europe and ~~Asia.~~the Asia Pacific region, the Company's solutions and services are designed to improve end-to-end supply chains in order to drive growth, lower costs, and improve profitability.

Disposition of IWCO Direct Holdings, Inc. ("IWCO Direct" or "Direct Marketing")

Beginning in the second quarter of 2020, with the shutdown of the U.S. economy due to the COVID-19 pandemic, IWCO Direct’s business was significantly and adversely affected by a material reduction in customer mailing activities. Against this backdrop, the Company held, on behalf of IWCO Direct, extensive discussions with Cerberus about amending and extending IWCO Direct’s credit facility with Cerberus under which there was approximately $361 million outstanding as of January 31, 2022 that was to mature in December 2022. In addition, the Company’s Board of Directors considered a range of strategic options to address the impending maturity. In mid-January 2022, it became apparent that it would not be possible to extend or refinance the credit facility prior to its maturity. In addition, short-term funding under the revolving credit facility became unavailable. IWCO Direct was in the process of implementing the competitive improvement plan (“CIP”) intended to address the changing requirements of its customers and markets. Despite initial favorable outcomes and improving prospects from the CIP, the Company was unable to amend IWCO Direct's credit facility or identify alternatives to refinance IWCO Direct’s indebtedness given the magnitude of that indebtedness relative to the performance of IWCO Direct’s business.

In light of these developments, the Board of Directors determined that it was in the best interests of the Company’s stockholders to pursue an orderly and consensual disposition of IWCO Direct to the Cerberus-led investor group. Although the Board of Directors considered other alternatives for IWCO Direct, the Board of Directors concluded that such alternatives would not be viable and on February 25, 2022, the Company completed the disposition of IWCO Direct to the Cerberus-led investor group (the entire transaction being referred to as the “IWCO Direct Disposal”). The Company did not receive any cash consideration from the Cerberus-led investor group in exchange for the disposition of IWCO Direct.

The Company deconsolidated IWCO Direct as of February 25, 2022 as it no longer held a controlling financial interest as of that date. The results of IWCO Direct are presented as a discontinued operation in all periods reported. Refer to Note 1 - "Nature of Operations" and Note 4 - "Discontinued Operations" to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the IWCO Direct Disposal.

Customers

Table of Contents

Historically, a limited number of key clients have accounted for a significant percentage of the Company's revenue. For the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, the Company's ten largest clients accounted for approximately ~~47%~~79.7% and ~~55%~~75.3% of consolidated net revenue, respectively. NoTwo clients accounted for 36.2% and 14.9% of the Company's consolidated net revenue for three months ended October 31, 2022. One client accounted for ~~more than 10%~~25.5% of the Company's consolidated net revenue for three months ended October 31, 2021. ~~One client from the computing market~~No other clients accounted for ~~15%~~more than 10.0% of the Company's consolidated net revenue for the three months ended October 31, ~~2020.~~ 2022 or 2021.

In general, the Company does not have any agreements which obligate any client to buy a minimum amount of services from it or designate it as an exclusive service provider. Consequently, the Company's net revenue is subject to demand variability by our clients. The level and timing of orders placed by the Company's clients vary for a variety of reasons, including seasonal buying by end-users, the introduction of new technologies and general economic

~~Table of Contents~~

conditions. By diversifying into new markets and improving the operational support structure for its clients, the Company expects to offset the adverse financial impact such factors may bring about.

Impact of COVID-19

We continue ~~our focus on cash management and liquidity, which includes aggressive working capital management.~~

~~In addition, we aim~~ to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including its impact on our clients, employees, suppliers, vendors, business partners and distribution channels. We believe that such impacts could include ~~but are not limited to, the extent and severity of the impact on our customers and suppliers;~~ the continued disruption to the demand for our businesses' products and services; disruptions in or closures of our business operations or those of our customers or suppliers; the impact of the global business and economic environment on liquidity and the availability of capital; increased costs and delays in payments of outstanding receivables beyond normal payment terms; supply chain disruptions; uncertain demand; and the effect of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers. ~~The full extent to which~~Despite indications of economic recovery, the severity of the impact of the COVID-19 pandemic ~~will directly or indirectly impact our~~on the Company’s business ~~results of operations and financial condition,~~in the future is difficult to predict and will depend on a number of uncertain factors and trends. Such factors and trends include, but are not limited to: the duration and ~~spread~~severity of the ~~ongoing COVID-19 pandemic (including~~virus and its current variants; the emergence of new ~~variants~~variant strains; the widespread use of ~~COVID-19), its~~vaccines; the impact of the global business and economic environment on liquidity and the availability of capital; the extent and severity of the ~~actions to contain the virus or address its~~ impact ~~the timing, distribution,~~on our customers and ~~efficacy of vaccines~~suppliers; and ~~other treatments,~~ U.S. and foreign government actions that have been taken, or may be taken in the future, to ~~respond~~mitigate adverse economic or other impacts or to mitigate the ~~reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. As~~spread of the ~~filing~~virus and its variants. The Company continues to monitor for any developments or updates to COVID-19 guidelines from public health and governmental authorities, as well as the protection of ~~this Form 10-Q, all~~the health and safety of ~~our facilities were open~~its personnel, and ~~able~~is continuously working to ~~operate at normal capacities. We will evaluate further actions if circumstances warrant while continuing~~ensure that its health and safety protocols, business continuity plans and crisis management protocols are in place to ~~strategically support~~help mitigate any negative impacts of the COVID-19 pandemic on the Company’s ~~future growth initiatives (including its Competitive Improvement Plan for IWCO Direct), sales and marketing activities and supply chain solutions and services.~~employees, business or operations.

Recent Developments

Proposed Merger with Steel Holdings ~~Expression of Interest~~

On ~~November 19, 2020,~~June 12, 2022, the ~~Company's Board of Directors (the "Board") received a preliminary, non-binding expression of interest (the "Expression of Interest") from~~Company, Steel Partners Holdings L.P. ("(“Steel ~~Holdings"~~Holdings”) ~~to acquire all~~and SP Merger Sub, Inc., a wholly owned subsidiary of ~~the outstanding shares of common stock not already owned by~~ Steel Holdings ~~or its affiliates for a combination~~(“Merger Sub”), entered into an agreement and plan of cash and Steel Holdings 6% Series A Preferred Units, which would imply a value per share of common stock in the range of $0.65 to $0.72 per share. The Board has established a special committee comprised solely of independent directorsmerger (the ~~"Acquisition Proposal Special Committee"~~“Merger Agreement”) authorized to retain independent legal and financial advisors and to review, evaluate, negotiate and approve or disapprove the Expression of Interest, and to explore alternative strategies or transactions. The Acquisition Proposal Special Committee announced on January 11, 2021 that it had retained financial advisors and legal counsel. As set forth in the Expression of Interest, the proposed transaction will be subject to the approval of the Acquisition Proposal Special Committee, as well as a non-waivable condition requiring approval of a majority of the shares outstanding of the Company not owned by Steel Holdings and its affiliates and related parties. The Board resolutions establishing the Acquisition Proposal Special Committee expressly provide that the Board will not approve the proposed transaction contemplated by the Expression of Interest or any alternative thereto without a prior favorable recommendation by the Acquisition Proposal Special Committee.

The Board has only received a proposal, which it continues to negotiate with Steel Holdings. The proposal under negotiation does not constitute a definitive offer capable of acceptance, and may be withdrawn at any time and in any manner., pursuant

2528

Table of Contents

~~There can be no assurance~~to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Steel Holdings. The Merger Agreement provided that each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the Merger (other than dissenting shares and shares owned by the Company, Steel Holdings or any ~~definitive offer will be made, that any agreement will be executed or that~~of their respective subsidiaries) would, subject to the ~~transaction proposed~~terms and conditions set forth in the ~~Expression~~Merger Agreement, be converted into the right to receive (i) $1.35 in cash, without interest and (ii) one contingent value right to receive a pro rata share of ~~Interest~~the proceeds received by the Company, Steel Holdings or any of their affiliates with respect to the sale, transfer or other ~~transaction will be approved~~disposition of all or ~~completed. The Company is not obligated to disclose~~ any ~~further developments or updates on the progress~~portion of the ~~proposed transaction until either~~assets currently owned by ModusLink within two years of the ~~Company enters into a definitive agreement or~~Merger’s closing date, to the ~~Acquisition Proposal Special Committee determines no~~extent such ~~transaction will be approved.~~proceeds exceed $80 million plus certain related costs and expenses.

Steel Holdings and certain of its affiliates also entered into a Voting and Support Agreement, dated as of June 12, 2022 (the “Voting and Support Agreement”), pursuant to which, among other things, they agreed to vote all shares of common stock and Series C Preferred Stock beneficially owned by them in favor of the adoption of the Merger Agreement and the Merger and any alternative acquisition agreement approved by the Company's Board of Directors (acting on the recommendation of the special committee (the “Special Committee”) of independent and disinterested directors formed to consider and negotiate the terms and conditions of the Merger and to make a recommendation to our Board of Directors).

~~IWCO Direct~~
'~~s Competitive Improvement Plan~~

On November 15, 2022, Steel Holdings terminated the Merger Agreement. The Merger Agreement was terminated following the 2021 Annual Meeting of Stockholders of the Company at which the proposal to adopt the Merger Agreement was (a) approved by the affirmative vote of the holders of (i) a majority of the outstanding shares of Series C Preferred Stock, par value $0.01 per share, of the Company and (ii) a majority in voting power of the issued and outstanding shares of common stock and Series C Preferred Stock (voting on an as converted to shares of common stock basis), voting together as a single class, but (b) not approved by a majority of the outstanding shares of common stock not owned, directly or indirectly, by Steel Holdings, and Merger Sub, any other officer or director of the Company or any other person having any equity interest in, or any right to acquire any equity interest in, Merger Sub or any person of which Merger Sub is a direct or indirect subsidiary as required under the Merger Agreement. As a result of the termination of the Merger Agreement, the Voting and Support Agreement, dated as of June ~~2, 2021,~~12, 2022, by and among the ~~Board approved a Competitive Improvement Plan (“CIP”) for IWCO Direct, which addresses the changing requirements~~Company, Steel Holdings and certain of its ~~customers and markets it serves, as well as the current competitive landscape. The CIP seeks~~affiliates, automatically terminated pursuant to ~~expand IWCO Direct’s marketing services capabilities, and upgrade~~ its production platform to new digital and inserting technology, while reducing its overall production costs to enhance its competitive pricing capabilities. The CIP contemplates a total investment of approximately $54 million primarily over a 24-month period. The Company estimates the CIP cost will consist of approximately: (1) $38 million for digital press and insertion equipment, and technology build out cost (of which approximately $34 million in lease/purchase agreements were entered into subsequent to the year ended July 31, 2021), and (2) $16 million for severance, employee retention, facilities optimization, and other implementation costs. In addition, the Company expects to incur approximately $12 million for non-cash accelerated depreciation expense. The cost estimates do not include amounts for potential non-cash asset impairment charges relating to facilities and equipment optimization. The timing and amount of the future costs incurred will depend on a number of factors. Refer to Note 7 for further details of costs recognized in the three months ended October 31, 2021.terms.

Basis of Presentation

The Company has ~~two~~one operating ~~segments~~segment which ~~are~~is the same as its reportable ~~segments: Direct Marketing and~~segment: Supply Chain. The Company also has Corporate-level activity, which consists primarily of costs associated with certain corporate administrative functions such as legal, finance and share-based compensation, which are not allocated to the Company's reportable ~~segments.~~segment. The Corporate-level balance sheet information includes cash and cash equivalents, debt and other assets and liabilities which are not ~~identifiable~~allocated to the operations of the Company's operating ~~segments.~~segment. All significant intra-segment amounts have been eliminated.

Results of Operations

Table of Contents


	Three Months Ended October 31,
	(unaudited in thousands)
	2022	2021	$ Change1	% Change1
Net revenue	$51,359	$44,354	$7,005	15.8%
Cost of revenue	(37,094)	(34,948)	(2,146)	(6.1)%
Gross profit	14,265	9,406	4,859	51.7%
Gross profit percentage	27.8%	21.2%	—	6.6%
Selling, general and administrative	(10,386)	(8,835)	(1,551)	(17.6)%
Interest expense, net	(826)	(761)	(65)	(8.5)%
Other gains (losses), net	3,030	(478)	3,508	733.9%
Income (loss) from continuing operations before income taxes	6,083	(668)	6,751	1010.6%
Income tax expense	(1,126)	(315)	(811)	(257.5)%
Net income (loss) from continuing operations	$4,957	$(983)	$5,940	604.3%

1 Favorable (unfavorable) change

Three months ended October 31, ~~2021~~2022 compared to the three months ended October 31, ~~2020~~2021

Net Revenue:
Three Months Ended October 31, 2021 As a %
of Total
Net
Revenue Three Months Ended October 31, 2020 As a %
of Total
Net
Revenue $ Change % Change
(In thousands)
Direct Marketing $ 81,059 64.6 % $ 105,708 62.2 % $ (24,649) (23.3) %
Supply Chain 44,354 35.4 % 64,226 37.8 % (19,872) (30.9) %
Total $ 125,413 100.0 % $ 169,934 100.0 % $ (44,521) (26.2) %

Net revenue decreased by approximately $44.5 million during the three months ended October 31, 2021, as compared to the same period in the prior year. During the three months ended October 31, 2021, net revenue for the Direct Marketing segment decreased by approximately $24.6 million primarily due: (1) approximately $18.5 million of lower sales volume from clients who will be exiting and (2) approximately $10.1 million for reduced volume from a client in the insurance industry. These decreases were partially offset by approximately $4.0 million of higher sales volume across all other clients. The client exits in the year ended July 31, 2021 are expected to result in further decreases of Direct Marketing’s net revenue for the remainder of the fiscal year ending July 31, 2022.

During the three months ended October 31, ~~2021,~~2022, net revenue for the Supply Chain segment ~~net revenues decreased~~increased by approximately ~~$19.9~~$7.0 million. This ~~decrease~~increase in net revenue was primarily driven by ~~lower~~higher volume associated with clients in the computing and consumer electronics ~~markets which have been negatively impacted by global market shortage of semiconductor and other electrical component supplies.~~markets. Fluctuations in foreign currency exchange rates had an insignificant impact on the Supply Chain segment's net revenues for the three months ended October 31, ~~2021,~~2022, as compared to the same period in the prior year.

~~Table of Contents~~

Cost of Revenue:
Three Months Ended October 31, 2021 As a %
of Segment
Net
Revenue Three Months Ended October 31, 2020 As a %
of Segment
Net
Revenue $ Change % Change
(In thousands)
Direct Marketing $ 75,185 92.8 % $ 81,192 76.8 % $ (6,007) (7.4) %
Supply Chain 34,948 78.8 % 48,274 75.2 % (13,326) (27.6) %
Total $ 110,133 87.8 % $ 129,466 76.2 % $ (19,333) (14.9) %

Cost of revenue consists primarily of expenses related to the cost of materials purchased in connection with the provision of ~~direct marketing and~~ supply chain management services, as well as costs for salaries and benefits, depreciation expense, severance, contract labor, consulting, ~~paper for direct mailing,~~ fulfillment and shipping, and applicable facilities costs. Cost of revenue for the three months ended October 31, ~~2021~~2022 included materials procured on behalf of our Supply Chain clients of ~~$19.1~~$19.3 million, as compared to ~~$30.4~~$19.1 million for the same period in the prior year, ~~a decrease~~an increase of ~~$11.3~~$0.2 million. Total cost of revenue ~~decreased~~increased by ~~$19.3 million~~$2.1 for the three months ended October 31, ~~2021,~~2022, as compared to the same period in the prior year, primarily due to ~~decreased~~an increase in material and labor costs in both segments, partially offset by restructuring costs in Direct Marketing. Gross margin percentage for the current quarter decreased to 12.2%, as compared to 23.8% in the prior year quarter.

Direct Marketing’s cost of revenue decreased by $6.0 million during the three months ended October 31, 2021, as compared to the same period in the prior year. The decrease was primarily due to decreased material costs due to lower volume, partially offset by $6.6 million of restructuring charges associated with the CIP. The Direct Marketing segment's gross margin percentage decreased by 1600 basis points to 7.2% for the three months ended October 31, 2021, as compared to 23.2% for the same period in the prior year. The decrease in Direct Marketing segment’s gross margin percentage is primarily due to: (1) restructuring charges for the CIP and (2) decreased revenues associated with lower average price-per-package.

Supply Chain’s cost of revenue decreased by $13.3 million during the three months ended October 31, 2021, as compared to the same period in the prior year. The decreased was primarily due to lower materials and labor costs as a result of ~~lower sales volume associated with clients in~~higher revenue.

Gross Profit:

Gross profit percentage for the ~~computing and consumer electronics markets. The Supply Chain segment's gross margin percentage decreased by 360~~current quarter increased 700 basis points, to ~~21.2% for the three months ended October 31, 2021,~~27.8% as compared to ~~24.8% for the same period~~21.2% in the prior year ~~primarily due lower~~quarter, driven by higher net revenues ~~not completely offset by the decreased materials~~ and ~~labor costs.~~favorable sales mix. Fluctuations in foreign currency exchange rates had an insignificant impact on Supply Chain's gross margin for the three months ended October 31, ~~2021.~~2022.

Selling, General and Administrative Expenses:

Three Months Ended October 31, 2021 As a %
of Segment
Net
Revenue Three Months Ended October 31, 2020 As a %
of Segment
Net
Revenue $ Change % Change
(In thousands)
Direct Marketing $ 13,170 16.2 % $ 13,044 12.3 % $ 126 1.0 %
Supply Chain 7,433 16.8 % 10,801 16.8 % (3,368) (31.2) %
Sub-total 20,603 16.4 % 23,845 14.0 % (3,242) (13.6) %
Corporate-level activity 1,402 3,013 (1,611) (53.5) %
Total $ 22,005 17.5 % $ 26,858 15.8 % $ (4,853) (18.1) %

Selling, general and administrative expenses consist primarily of compensation and employee-related costs, sales commissions and incentive plans, information technology expenses, travel expenses, facilities costs, consulting fees, fees for professional services, depreciation expense, marketing expenses, share-based compensation expense, transaction costs, restructuring and public reporting costs. Selling, general and administrative expenses during the three months ended October 31, ~~2021 decreased~~2022 increased by approximately ~~$4.9~~$1.6 million ~~as compared to the same period in the prior year.~~

~~Selling, general and administrative expenses for the Direct Marketing segment did not change significantly~~ as compared to the same period in the prior year.

Selling, general and administrative expenses for the Supply Chain segment ~~decreased~~increased $1.0 million primarily due to bad debt expense recorded for a ~~decrease in restructuring and professional expenses that were incurred~~client in the ~~prior year period.~~consumer products industry. Corporate-level activity ~~decreased~~increased $0.6 million, primarily due to ~~a decrease~~an increase in professional fees. Fluctuations in foreign currency exchange rates ~~had an insignificant~~did not have a significant impact on selling, general and administrative expenses for the three months ended October 31, ~~2021.~~2022.

Interest Expense:

2730

Table of Contents

~~Amortization of Intangible Assets:~~

During the three months ended October 31, 2021 and 2020, intangible asset amortization expense totaled $4.2 million and $6.5 million, respectively. Intangible asset amortization expense decreased $2.4 million primarily due to trademarks and tradenames being fully amortized during the prior year.

~~Interest Expense:~~

Total interest expense during the three months ended October 31, ~~2021~~2022 did not change significantly as compared to the same period in the prior year.

Other ~~Losses,~~Gains (Losses), Net:

Other ~~losses,~~gains (losses), net are primarily composed of foreign exchange ~~losses.~~gains (losses). The Company recorded ~~$0.5~~$2.5 million ~~and $1.7~~of foreign exchange gains, compared to $0.5 million of foreign exchange losses during the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Income Tax Expense:

During the three months ended October 31, ~~2021,~~2022, the Company recorded income tax expense of approximately ~~$0.3~~$1.1 million as compared to ~~income tax expense of $0.8~~$0.3 million for the same period in the prior fiscal year. The ~~decrease~~increase in income tax expense is primarily due to ~~lower~~higher taxable income in foreign jurisdictions, as compared to the prior year.

The Company provides for income tax expense related to federal, state and foreign income taxes. The Company continues to maintain a full valuation allowance against its deferred tax assets in the U.S. and certain of its foreign subsidiaries due to the uncertainty of realizing such benefits.

Income (Loss) from Continuing Operations:

Net income from continuing operations for the three months ended October 31, 2022 increased $5.9 million, as compared to the same period in the prior year. The increase in net income from continuing operations is primarily due an increase in foreign exchange gains and gross profit partially offset by an increase in SG&A expenses.

Loss from Discontinued Operations:

Net loss from discontinued operations for the three months ended October 31, 2021 was $18.5 million, and reflects the net loss for IWCO Direct. IWCO Direct was deconsolidated in February 2022, and as such, there was no activity from discontinued operations for the three months ended October 31, 2022. See Note 4 - "Discontinued Operations" to the consolidated financial statements in Part I, Item 1 included of this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

Anticipated Sources and Uses of Cash Flow

Historically, the Company has financed its operations and met its capital requirements primarily through funds generated from operations, the sale of it securities, borrowings from lending institutions and sale of facilities that were not fully utilized. The following table summarizes our liquidity:


	October 31, ~~2021~~2022
	(In thousands)
Cash and cash equivalents	$	~~81,330~~59,948
Readily available borrowing capacity under ~~Cerberus Credit Facility~~Umpqua Revolver	~~25,000~~
~~Readily available borrowing capacity under Midcap Credit Facility~~	~~8,474~~11,890
	$	~~114,804~~71,838

Certain of IWCO Direct’s lease agreements contain financial covenants that would require IWCO Direct to issue a letter of credit (“LOC”) to the landlord in the event that IWCO Direct incurs debt that on a pro forma basis would result in IWCO Direct's net leverage exceeding 6.00x IWCO Direct's adjusted EBITDA. As of October 31, 2021, and through the date of this filing, IWCO Direct was in compliance with the net leverage ratio such that no LOC issuance is currently required. However, based on IWCO Direct's covenant compliance as of the most recent balance sheet date, if IWCO Direct incurs additional debt, it would be required to issue an LOC of approximately $3.2 million.

Due to the changes reflected in the U.S. Tax Cuts and Jobs Act in December 2017 ("U.S. Tax Reform"), there is no U.S. tax payable upon repatriating the undistributed earnings of foreign subsidiaries considered not subject to permanent investment. Foreign withholding taxes would range from 0% to 10% on any repatriated funds. For the Company, earnings and profits have been calculated at each subsidiary. The Company's foreign subsidiaries are in an overall net deficit for earnings and profits purposes. As such, no adjustment was made to U.S. taxable income in the three months ended October 31, ~~2021~~2022 relating to this aspect of the U.S. Tax Reform. In future years, the Company will be able to repatriate its foreign earnings without incurring additional U.S. tax as a result of a 100% dividends received deduction. The Company believes that any future withholding taxes or state taxes associated with such a repatriation would not be ~~minor.~~material.

Consolidated excess working capital ~~deficit~~ was ~~$16.7~~$30.2 million as of October 31, ~~2021,~~2022, as compared to ~~$4.6~~$26.0 million at July 31, ~~2021.~~2022. Included in ~~the~~excess working capital ~~deficit~~ were cash and cash equivalents of ~~$81.3~~$59.9 million as of October 31, ~~2021~~2022 and ~~$96.9~~$53.1 million at July 31, 2022. The increase in excess working capital was primarily driven by higher cash and cash equivalents as a

2831

Table of Contents

~~million at July 31, 2021. The increase in the working capital deficit was primarily driven by lower cash and cash equivalents, due to its usage in operating activities and capital expenditures.~~result of increased collections on accounts receivable. Sources and uses of cash for the three months ended October 31, ~~2021,~~2022, as compared to the same period in the prior year, are as follows:


		Three Months Ended October 31,					Three Months Ended October 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Net cash (used in) provided by operating activities		$	(10,425)	$	25,727
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	$	8,252	$	(3,820)
Net cash used in investing activities	Net cash used in investing activities	$	(4,681)	$	(1,059)	Net cash used in investing activities	$	(532)	$	(363)
Net cash used in financing activities	Net cash used in financing activities	$	(2,055)	$	(2,051)	Net cash used in financing activities	$	(556)	$	(554)

Operating Activities: We ~~used~~generated cash of ~~$10.4~~$8.3 million from operating activities during the three months ended October 31, ~~2021, a decrease~~2022, an improvement of ~~$36.2~~$12.1 million compared with ~~$25.7~~$3.8 million ~~generated~~used in operating activities during the three months ended October 31, ~~2020.~~2021. The ~~decrease was primarily due lower gross profits and a reduction in working capital. The~~ Company's future cash flows related to operating activities are dependent on several factors, including profitability, accounts receivable collections, effective inventory management practices and optimization of the credit terms of certain vendors of the Company, ~~the market for outsourcing services,~~and overall performance of the technology sector impacting the Supply Chain ~~segment~~segment. The change in cash provided by operating activities as compared to cash used in operating activities the prior fiscal year was primarily due to an increase in net income of $5.9 million and ~~the strength~~an increase in working capital of ~~the Direct Marketing segment.~~$4.1 million.

Investing Activities: Net cash used in investing activities was ~~$4.7~~$0.5 million and ~~$1.1~~$0.4 million during the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and was primarily related to capital expenditures. The slight increase was primarily due to ~~reduced~~lower capital spending in the prior year as the result of the COVID-19 pandemic.

Financing Activities: Net cash used in financing activities was ~~$2.1~~$0.6 million during both the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, and primarily consisted of ~~$1.5 million in long-term debt payments and~~ $0.5 million of preferred dividend payments in both periods.

~~IWCO Direct’s Competitive Improvement Plan~~

Debt and Financing Arrangements

Following is a summary of Company’s outstanding debt and financing agreements and preferred stock. Refer to Note 9 – “Debt” and Note 16 – “Related Party Transactions” to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

7.50% Convertible Senior Note

On February 28, 2019, the Company entered into that certain 7.50% Convertible Senior Note Due 2024 Purchase Agreement with SPHG Holdings whereby SPHG Holdings loaned the Company $14.9 million in exchange for a 7.50% Convertible Senior Note due 2024 (the "SPHG Note"). The SPHG Note bears interest at the fixed rate of 7.50% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019. The SPHG Note will mature on March 1, 2024 (the "SPHG Note Maturity Date"), unless earlier repurchased by the Company or converted by the holder in accordance with its terms prior to such maturity date.

At its election, the Company may pay some or all of the interest due on each interest payment date by increasing the principal amount of the SPHG Note in the amount of such interest due or any portion thereof (such payment of interest by increasing the principal amount of the SPHG Note referred to as "PIK Interest"), with the remaining portion of the interest due on such interest payment date (or, at the Company's election, the entire amount of interest then due) to be paid in cash by the Company. Following an increase in the principal amount of the SPHG Note as a result of a payment of PIK Interest, the SPHG Note will bear interest on such increased principal amount from and after the date of such payment of PIK Interest. SPHG Holdings has the right to require the Company to repurchase the SPHG Note upon the occurrence of certain fundamental changes, subject to certain conditions, at a repurchase price equal to 100% of the principal amount of the SPHG Note plus accrued and unpaid interest. The Company will have the right to elect to cause the mandatory conversion of the SPHG Note in whole, and not in part, at any time on or after March 6, 2022, subject to certain conditions including that the stock price of the Company exceeds a certain threshold. SPHG Holdings has the right, at its option, prior to the close of business on the business day immediately preceding the SPHG Note Maturity Date, to convert the SPHG Note or a portion thereof that is $1,000 or an integral multiple thereof, into shares of common stock (if the Company has not received a required stockholder approval) or cash, shares of common stock or a combination of cash and shares of common stock, as applicable (if the Company has received a required stockholder approval), at an initial conversion rate of 421.2655 shares of common stock, which is equivalent to an initial conversion price of approximately $2.37 per share (subject to adjustment as provided in the SPHG Note) per $1,000 principal amount of the SPHG Note (the "Conversion Rate"), subject to, and in accordance with, the settlement provisions of the SPHG Note. For any conversion of the SPHG Note, if the Company is required to obtain and has not received approval from its

stockholders in accordance with Nasdaq Stock Market Rule 5635 to issue 20% or more of the total shares of common stock outstanding upon conversion (including upon any mandatory conversion) of the SPHG Note prior to the relevant conversion date (or, if earlier, the 45th scheduled trading day immediately preceding the SPHG Note Maturity Date), the Company shall deliver to the converting holder, in respect of each $1,000 principal amount of the SPHG Note being converted, a number of shares of common stock determined by reference to the Conversion Rate, together with a cash payment, if applicable, in lieu of delivering any fractional share of common stock based on the volume weighted average price (VWAP) of its common stock on the relevant conversion date, on the third business day immediately following the relevant conversion date. As of October 31, ~~2021~~2022 and July 31, 2022, outstanding debt in both periods consisted of the ~~following:~~$14.9 million 7.50% Convertible Senior Note due March 1, 2024. As of October 31, 2022 and July 31, 2022, the net carrying value of the SPHG Note was $11.6 million, and $11.0 million, respectively.


	October 31, 2021
	~~(In thousands)~~
~~Cerberus Term Loan due December 15, 2022~~	$	~~362,830~~
~~7.50% Convertible Note due March 1, 2024~~	~~14,940~~
	$	~~377,770~~

On March 16, 2022, ModusLink, as borrower, submitted a notice of termination to MidCap Financial Trust for its $12.5 million revolving credit facility and entered into a new credit agreement with Umpqua Bank as lender and as agent. There was no balance outstanding on the Midcap Credit Facility of at the time of its termination. The Umpqua Revolver provides for a maximum credit commitment of $12.5 million and a sublimit of $5.0 million for letters of credit and expires on March 16, 2024. Steel Connect, Inc. (“Parent”) is not a borrower or a guarantor under the Umpqua Revolver. Under the Umpqua Revolver, ModusLink is permitted to make distributions to the Parent, in an aggregate amount not to exceed $10.0 million in any fiscal year.

Cerberus Credit Facility

The Cerberus Credit Facility ~~consists~~consisted of a term loan facility (the “Cerberus Term Loan”) and a $25 million revolving credit facility (the “Revolving Facility”) (together the “Cerberus Credit Facility”) which ~~matures~~was to mature on December 15, 2022. On February 25, 2022, the Company transferred all of its interests in IWCO Direct ~~intends to refinance~~and the financial obligations of the Cerberus Credit Facility ~~however its ability to refinance this debt is not guaranteed. IWCO Direct's ability to refinance this debt will depend on~~as part of the ~~capital and credit markets and our financial condition at such time.~~ IWCO Direct ~~may not~~Disposal. As a result, the Company has no debt or access to future borrowings under the Cerberus Credit Facility.

On December 15, 2017, the Company entered into a Preferred Stock Purchase Agreement (the "Purchase Agreement") with SPHG Holdings, pursuant to which the Company issued 35,000 shares of the Company's newly created Series C Convertible Preferred Stock, par value $0.01 per shares, or the Preferred Stock, to SPHG Holdings at a price of $1,000 per share, for an aggregate purchase consideration of $35.0 million (the "Preferred Stock Transaction"). The terms, rights, obligations and preferences of the Preferred Stock are set forth in a Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock of the Company (the "Series C Certificate of Designations"), which has been filed with the Secretary of State of the State of Delaware.

Under the Series C Certificate of Designations, each share of Preferred Stock can be converted into shares of the Company's common stock at an initial conversion price equal to $1.96 per share, subject to appropriate adjustments for any stock dividend, stock split, stock combination, reclassification or similar transaction. Holders of the Preferred Stock will also receive dividends at 6% per annum payable, at the Company's option, in cash or common stock. If at any time the closing bid price of the Company's common stock exceeds 170% of the conversion price for at least five consecutive trading days (subject to appropriate adjustments for any stock dividend, stock split, stock combination, reclassification or similar transaction), the Company has the right to require each holder of Preferred Stock to convert all, or any whole number, of shares of the Preferred Stock into common stock.

Upon the occurrence of certain triggering events such as a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or the merger or consolidation of the Company or significant subsidiary, or the sale of substantially all of the assets or capital stock of the Company or a significant subsidiary, the holders of the Preferred Stock are entitled to receive, prior and in preference to any distribution of any of the assets or funds of the Company to the holders of other equity or equity equivalent securities of the Company other than the Preferred Stock by reason of their ownership thereof, an amount per share in cash equal to the sum of (i) 100% of the stated value per share of Preferred Stock (initially $1,000 per share) then held by them (as adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transactions with respect to the Preferred Stock), plus (ii) 100% of all declared but unpaid dividends, and all accrued but unpaid dividends on each such share of Preferred Stock, in each case as the date of the triggering event.

be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on its debt obligations and have a material adverse effect on the Company's financial condition and liquidity.

~~During the three months ended October 31, 2021, IWCO Direct did not trigger any~~$35.2 million. If holders of the ~~financial covenants in the Cerberus Credit Facility. In order~~Preferred Stock exercise this right to ~~maintain compliance with the Cerberus Credit Facility’s required liquidity covenant for the next twelve months,~~require the Company ~~has~~to redeem all the ~~ability and wherewithal~~Preferred Stock, the Company may have insufficient liquidity to ~~execute certain actions that may include, but are not limited to, reducing~~pay the redemption price, or ~~delaying capital and strategic investments, and deferral of certain operating and capital expenditures. While IWCO Direct currently expects to be in compliance in~~ the ~~next twelve months with all~~Company’s payment of the ~~financial covenants, there can be no assurance that these covenants will continue to be met if~~redemption price would likely adversely impact the ~~Company does not achieve its earnings~~Company’s liquidity and ~~operating cash flow projections.~~

~~MidCap Credit Facility~~

ModusLink’s revolving credit and security agreement with MidCap Financial Trust which expires on December 31, 2022, provides for a maximum credit commitment of $12.5 million and a sublimit of $5.0 million for letters of credit. ModusLink intends to refinance this revolving credit agreement. ModusLink's ability to refinance this revolving credit agreement will depend on the capital and credit markets and our financial condition at such time. As of and during the fiscal year ended July 31, 2021, ModusLink was in compliance with all financial covenants in the MidCap Credit Agreement. ModusLink believes it will remain in compliance with the MidCap CreditAgreement’s covenants for the next twelve months.finance its operations.

Steel Connect, Inc. (as parent company, the “Parent”)

The ~~Company~~Parent believes it has access to adequate resources to meet its needs for normal operating costs, debt obligations and working capital for at least the next twelve ~~months; however,~~months. Upon a redemption request of the holder of the Preferred Stock (as discussed above), the Parent believes it is probable that it has access to adequate resources, including cash on hand and potential dividends from ModusLink, to pay the redemption price and continue its operations.

ModusLink believes that if dividends to the Parent are required, it would have access to adequate resources to meet its operating needs while remaining in compliance with the Umpqua Revolver's covenants over the next twelve months. However, there can be no assurances that ~~the Company and its operating businesses~~ModusLink will continue to have access to ~~their lines~~its line of credit under the Umpqua Revolver if ~~their~~its financial performance does not satisfy the financial covenants set forth in ~~their respective~~its financing ~~agreements,~~agreement, which could also result in the acceleration of ~~their~~its debt obligations by ~~their respective lenders,~~its lender, adversely affecting liquidity.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet financing arrangements.

~~Contractual Obligations~~

~~Consistent with the rules applicable to "Smaller Reporting Companies," we have omitted information required by this disclosure.~~

Critical Accounting Policies Update

During the three months ended October 31, ~~2021,~~2022, other than the adoption of accounting standards updates discussed in the Condensed Consolidated Financial Statements, there have been no significant changes to the items that we disclosed as our critical accounting policies and estimates in the "Critical Accounting Policies" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended July 31, ~~2021.~~2022.

The Company's Condensed Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. The critical accounting policies and estimates that we believe are most critical to the portrayal of our financial condition and results of operations are reported in the "Critical Accounting Policies" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended July 31, ~~2021.~~

~~Accounting for Impairment of Long-Lived Assets, Goodwill and Other Intangible Assets~~

The carrying value of goodwill is not amortized, but is tested for impairment annually as of June 30, and, additionally on an interim basis, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As of October 31, 2021, the Company did not identify any indicators of impairment of its goodwill, other intangible assets and long-lived assets. During the three months ended April 30, 2021, IWCO was informed by two significant customers that they would be transitioning their direct marketing services to other providers by the end of the fiscal year ending July 31, 2021 and another customer that it would have significantly lower volumes of sales in at least the fiscal quarter ending July 31, 2021. In connection with its quarterly close procedures, the Company assessed the anticipated negative impact on revenue and earnings from these


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


		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	2427
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3134
Item 4.	Controls and Procedures	3134
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3135
Item 1A.	Risk Factors	3135
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3235
Item 3.	Defaults Upon Senior Securities	3335
Item 4.	Mine Safety Disclosures	3335
Item 5.	Other Information	3335
Item 6.	Exhibits	3436


		October 31, 2021		July 31, 2021			October 31, 2022		July 31, 2022
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	81,330	$	96,931	Cash and cash equivalents	$	59,948	$	53,142
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
Accounts receivable, trade, net of allowance for doubtful accounts of $1,004 and $44 at October 31, 2022 and July 31, 2022, respectively						Accounts receivable, trade, net of allowance for doubtful accounts of $1,004 and $44 at October 31, 2022 and July 31, 2022, respectively	35,680		40,083
Inventories, net	Inventories, net	18,166		16,228		Inventories, net	8,991		8,151
Funds held for clients	Funds held for clients	6,531		8,212		Funds held for clients	4,856		4,903
Prepaid expenses and other current assets	Prepaid expenses and other current assets	18,491		22,222		Prepaid expenses and other current assets	3,692		3,551
Total current assets	Total current assets	199,359		213,398		Total current assets	113,167		109,830
Property and equipment, net	Property and equipment, net	54,710		58,862		Property and equipment, net	3,504		3,534
Goodwill		231,470		231,470
Other intangible assets, net		110,823		115,005
Operating lease right-of-use assets	Operating lease right-of-use assets	49,941		50,836		Operating lease right-of-use assets	17,491		19,655
Other assets	Other assets	6,851		6,810		Other assets	3,772		4,730
Total assets	Total assets	$	653,154	$	676,381	Total assets	$	137,934	$	137,749
LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT						LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Accounts payable	Accounts payable	$	51,920	$	55,517	Accounts payable	$	31,633	$	30,553
Accrued expenses	Accrued expenses	109,382		106,871		Accrued expenses	27,285		28,396
Funds held for clients	Funds held for clients	6,531		8,212		Funds held for clients	4,856		4,903
Current portion of long-term debt		5,611		5,602
Current lease obligations	Current lease obligations	13,259		13,690		Current lease obligations	5,581		6,466
Other current liabilities	Other current liabilities	29,366		28,101		Other current liabilities	13,643		13,482
Total current liabilities	Total current liabilities	216,069		217,993		Total current liabilities	82,998		83,800
Convertible note payable	Convertible note payable	9,729		9,343		Convertible note payable	11,557		11,047
Long-term debt, excluding current portion		356,783		358,189
Long-term lease obligations	Long-term lease obligations	38,338		38,927		Long-term lease obligations	11,754		12,945
Other long-term liabilities	Other long-term liabilities	10,486		10,537		Other long-term liabilities	4,969		3,983
Total long-term liabilities	Total long-term liabilities	415,336		416,996		Total long-term liabilities	28,280		27,975
Total liabilities	Total liabilities	631,405		634,989		Total liabilities	111,278		111,775
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
Contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at October 31, 2022 and July 31, 2022						Contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at October 31, 2022 and July 31, 2022	35,180		35,180
Stockholders' deficit:						Stockholders' deficit:
Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at October 31, 2022 and July 31, 2022; zero shares issued and outstanding at October 31, 2022 and July 31, 2022						Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at October 31, 2022 and July 31, 2022; zero shares issued and outstanding at October 31, 2022 and July 31, 2022	—		—
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 60,657,539 issued and outstanding shares at October 31, 2022; 60,529,558 issued and outstanding shares at July 31, 2022						Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 60,657,539 issued and outstanding shares at October 31, 2022; 60,529,558 issued and outstanding shares at July 31, 2022	606		605
Additional paid-in capital	Additional paid-in capital	7,478,855		7,478,638		Additional paid-in capital	7,479,542		7,479,366
Accumulated deficit	Accumulated deficit	(7,500,251)		(7,480,220)		Accumulated deficit	(7,488,897)		(7,493,317)
Accumulated other comprehensive income	Accumulated other comprehensive income	7,360		7,162		Accumulated other comprehensive income	225		4,140
Total stockholders' (deficit) equity		(13,431)		6,212
Total liabilities, contingently redeemable preferred stock and stockholders' (deficit) equity		$	653,154	$	676,381
Total stockholders' deficit						Total stockholders' deficit	(8,524)		(9,206)
Total liabilities, contingently redeemable preferred stock and stockholders' deficit						Total liabilities, contingently redeemable preferred stock and stockholders' deficit	$	137,934	$	137,749


		Three Months Ended October 31,					Three Months Ended October 31,
		2021		2020					2022		2021
		(In thousands)				(In thousands)
Operating lease cost	Operating lease cost	$	4,001	$	4,228			Operating lease cost	$	2,405	$	2,510
Short-term lease expense	Short-term lease expense	349		407				Short-term lease expense	438		287
Variable lease cost	Variable lease cost	11		8				Variable lease cost	4		11

Interest on finance lease liabilities	Interest on finance lease liabilities	1		2				Interest on finance lease liabilities	—		1
		$	4,362	$	4,645				$	2,847	$	2,809


		Three Months Ended October 31,					Three Months Ended October 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Cash paid for amounts included in measurement of lease liabilities:	Cash paid for amounts included in measurement of lease liabilities:					Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	3,930	$	4,239	Operating cash flows from operating leases	$	2,207	$	2,498
Operating cash flows from finance leases	Operating cash flows from finance leases	$	1	$	2	Operating cash flows from finance leases	$	—	$	1
Financing cash flows from finance leases	Financing cash flows from finance leases	$	18	$	17	Financing cash flows from finance leases	$	19	$	18


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


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


														Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Deficit
Balance at July 31, 2022													Balance at July 31, 2022	60,529,558	$	605	$	7,479,366	$	(7,493,317)	$	4,140	$	(9,206)
Net income													Net income	—	—		—		4,957		—		4,957
Preferred dividends													Preferred dividends	—	—		—		(537)		—		(537)

Restricted stock grants													Restricted stock grants	127,981	1		(1)		—		—		—

Share-based compensation													Share-based compensation	—	—		177		—		—		177
Other comprehensive items													Other comprehensive items	—	—		—		—		(3,915)		(3,915)
Balance at October 31, 2022													Balance at October 31, 2022	60,657,539	$	606	$	7,479,542	$	(7,488,897)	$	225	$	(8,524)

		Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity (Deficit)			Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity (Deficit)
Balance at July 31, 2021	Balance at July 31, 2021	63,099,496	$	632	$	7,478,638	$	(7,480,220)	$	7,162	$	6,212	Balance at July 31, 2021	63,099,496	$	632	$	7,478,638	$	(7,480,220)	$	7,162	$	6,212
Net loss	Net loss	—	—		—		(19,494)		—		(19,494)		Net loss	—	—		—		(19,494)		—		(19,494)
Preferred dividends	Preferred dividends	—	—		—		(537)		—		(537)		Preferred dividends	—	—		—		(537)		—		(537)
Issuance of common stock pursuant to employee stock purchase plan	Issuance of common stock pursuant to employee stock purchase plan	168	—		—		—		—		—		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		—		—		—
Restricted stock grants, net of forfeitures													Restricted stock grants, net of forfeitures	(2,662,010)	(27)		27		—		—		—
Share-based compensation	Share-based compensation	—	—		190		—		—		190		Share-based compensation	—	—		190		—		—		190
Other comprehensive items	Other comprehensive items	—	—		—		—		198		198		Other comprehensive items	—	—		—		—		198		198
Balance at October 31, 2021	Balance at October 31, 2021	60,437,654	$	605	$	7,478,855	$	(7,500,251)	$	7,360	$	(13,431)	Balance at October 31, 2021	60,437,654	$	605	$	7,478,855	$	(7,500,251)	$	7,360	$	(13,431)

		Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
Balance at July 31, 2020		62,787,919	$	628	$	7,478,047	$	(7,433,700)	$	3,843	$	48,818
Net loss		—	—		—		(3,551)		—		(3,551)
Preferred dividends		—	—		—		(537)		—		(537)
Issuance of common stock pursuant to employee stock purchase plan		6,982	—		3		—		—		3

Restricted stock forfeitures		(932)	—		—		—		—		—
Share-based compensation		—	—		188		—		—		188
Other comprehensive items		—	—		—		—		2,973		2,973
Balance at October 31, 2020		62,793,969	$	628	$	7,478,238	$	(7,437,788)	$	6,816	$	47,894


		October 31, 2021						July 31, 2021
	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in years)	(In thousands)
Customer relationships	15	$	192,730	$	81,907	$	110,823	$	192,730	$	77,725	$	115,005
Trademarks and tradenames	3	20,520		20,520		—		20,520		20,520		—
Total		$	213,250	$	102,427	$	110,823	$	213,250	$	98,245	$	115,005


(in thousands)	Employee Termination Costs		Contractual Obligations		Asset Impairment		Restructuring Liability
Balance as of July 31, 2021	$	1,055	$	—	$	—	$	1,055
Costs incurred	1,985		195		4,465		6,645

Non-cash relief of accrual	—		—		(4,465)		(4,465)
Change in estimates	(14)		—		—		(14)
Balance as of October 31, 2021	$	3,026	$	195	$	—	$	3,221


	Three Months Ended October 31, 2021						Three Months Ended October 31, 2020
	Direct Marketing		Supply Chain		Consolidated Total		Direct Marketing		Supply Chain		Consolidated Total
	(In thousands)
Major Goods/Service Lines
Marketing solutions offerings	$	81,059	$	—	$	81,059	$	105,708	$	—	$	105,708
Supply chain management services	—		43,942		43,942		—		63,787		63,787
Other	—		412		412		—		439		439
	$	81,059	$	44,354	$	125,413	$	105,708	$	64,226	$	169,934
Timing of Revenue Recognition
Goods transferred over time	$	81,059	$	—	$	81,059	$	105,708	$	—	$	105,708
Services transferred over time	—		44,354		44,354		—		64,226		64,226
	$	81,059	$	44,354	$	125,413	$	105,708	$	64,226	$	169,934


	Three Months Ended October 31, 2021		As a % of Total Net Revenue		Three Months Ended October 31, 2020		As a % of Total Net Revenue		$ Change		% Change
	(In thousands)
Direct Marketing	$	81,059	64.6	%	$	105,708	62.2	%	$	(24,649)	(23.3)	%
Supply Chain	44,354		35.4	%	64,226		37.8	%	(19,872)		(30.9)	%
Total	$	125,413	100.0	%	$	169,934	100.0	%	$	(44,521)	(26.2)	%


	Three Months Ended October 31, 2021		As a % of Segment Net Revenue		Three Months Ended October 31, 2020		As a % of Segment Net Revenue		$ Change		% Change
	(In thousands)
Direct Marketing	$	75,185	92.8	%	$	81,192	76.8	%	$	(6,007)	(7.4)	%
Supply Chain	34,948		78.8	%	48,274		75.2	%	(13,326)		(27.6)	%
Total	$	110,133	87.8	%	$	129,466	76.2	%	$	(19,333)	(14.9)	%


Exhibit Number						Description

10.1*						Form of Equity Grant Surrender and Cancellation Agreement, between the Registrant and each of Messrs. Lichtenstein and Howard (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed August 19, 2021).

10.2*						~~Form of Indemnification Agreement by and between the Company and its directors and officers.~~

31.1*						Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1±						Certification of the Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2±						Certification of the Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*						The following financial information from Steel Connect, Inc.'s Quarterly Report Form 10-Q for the quarter ended October 31, ~~2021~~20221 formatted in Inline XBRL: (i) Unaudited Condensed Consolidated Balance Sheets as of October 31, ~~2021~~20221 and July 31, ~~2021,~~20221, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended October 31, ~~2021~~20221 and ~~2020~~2021,0 (iii) Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended October 31, ~~2021~~20221 and ~~2020,~~20210, (iv) Unaudited Condensed Consolidated Statements of Stockholders' (Deficit) Equity for the three months ended October 31, ~~2021~~20221 and ~~2020,~~20210, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended October 31, ~~2021~~20221 and ~~2020~~20210 and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

104*						Cover Page Interactive Data File (embedded within the Inline XBRL document)


	STEEL CONNECT, INC.

Date: December ~~13, 2021~~14, 2022	By:	/S/ JASON WONG
		Jason Wong
		Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)