UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

FORM 10-Q

________________________

(Mark One)



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

For the quarterly period ended ~~April 30,~~October 31, 2020



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

For the transition period from to

Commission File Number 001-35319

_______________________

Steel Connect, Inc.

(Exact name of registrant as specified in its charter)

_______________________



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



~~1601 Trapelo Road, Suite 170~~2000 Midway Ln ~~Waltham, Massachusetts~~Smyrna, Tennessee (Address of principal executive offices)						~~02451~~37167 (Zip Code)

~~(781) 663-5000~~(914) 461-1276

(Registrant's telephone number, including area code)

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

_______________________

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	STCN	~~NASDAQ~~Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☒☐

Non-accelerated filer

☐☒

Smaller reporting company

☒

Emerging growth company

☐

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

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

As of ~~June~~December 1, 2020, there were ~~62,383,678~~62,793,969 shares issued and outstanding of the registrant's Common Stock, $0.01 par value per share.

Table of Contents

STEEL CONNECT, INC.

FORM 10-Q

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	April 30, 2020			July 31, 2019				October 31, 2020		July 31, 2020
	(unaudited)							(unaudited)
ASSETS	ASSETS						ASSETS
Cash and cash equivalents	$	90,189		$	32,548		Cash and cash equivalents	$	104,522	$	75,887
Accounts receivable, trade, net of allowance for doubtful accounts of $424 and $1,804 at April 30, 2020 and July 31, 2019, respectively	83,000			112,141
Accounts receivable, trade, net of allowance for doubtful accounts of $54 and $134 at October 31, 2020 and July 31, 2020, respectively							Accounts receivable, trade, net of allowance for doubtful accounts of $54 and $134 at October 31, 2020 and July 31, 2020, respectively	79,898		93,072
Inventories, net	19,522			23,674			Inventories, net	14,829		15,354
Funds held for clients	17,198			13,516			Funds held for clients	12,468		18,755
Prepaid expenses and other current assets	24,341			31,445			Prepaid expenses and other current assets	24,683		20,475
Total current assets	234,250			213,324			Total current assets	236,400		223,543
Property and equipment, net	85,102			91,268			Property and equipment, net	74,871		79,678
Goodwill	257,128			257,128			Goodwill	257,128		257,128
Other intangible assets, net	141,799			162,518			Other intangible assets, net	128,728		135,263
Operating right-of-use assets	58,487			—
Operating lease right-of-use assets							Operating lease right-of-use assets	52,165		56,140
Other assets	7,900			7,325			Other assets	7,065		7,420
Total assets	$	784,666		$	731,563		Total assets	$	756,357	$	759,172
LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY	LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY						LIABILITIES, CONTINGENTLY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Accounts payable	$	74,269		$	85,898		Accounts payable	$	70,539	$	70,002
Accrued expenses	107,918			112,658			Accrued expenses	116,994		111,380
Funds held for clients	17,198			13,516			Funds held for clients	12,468		18,755
Current portion of long-term debt	4,016			5,732			Current portion of long-term debt	5,572		5,527
Current lease obligations	14,104			127			Current lease obligations	13,960		14,318
Other current liabilities	56,925			38,919			Other current liabilities	29,188		29,950
Total current liabilities	274,430			256,850			Total current liabilities	248,721		249,932
Convertible note payable	8,672			7,432			Convertible note payable	8,346		8,054
Long-term debt, excluding current portion	366,939			368,505			Long-term debt, excluding current portion	364,037		365,468
Long-term lease obligations	45,835			—			Long-term lease obligations	39,976		43,211
Other long-term liabilities	9,464			10,898			Other long-term liabilities	12,203		8,509
Total long-term liabilities	430,910			386,835			Total long-term liabilities	424,562		425,242
Total liabilities	705,340			643,685			Total liabilities	673,283		675,174
Contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at April 30, 2020 and July 31, 2019	35,175			35,186
Contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at October 31, 2020 and July 31, 2020							Contingently redeemable preferred stock, $0.01 par value per share. 35,000 shares authorized, issued and outstanding at October 31, 2020 and July 31, 2020	35,180		35,180
Stockholders' equity:							Stockholders' equity:
Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at April 30, 2020 and July 31, 2019; zero shares issued and outstanding at April 30, 2020 and July 31, 2019	—			—
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 62,383,678 issued and outstanding shares at April 30, 2020; 61,805,856 issued and outstanding shares at July 31, 2019	624			618
Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at October 31, 2020 and July 31, 2020; 0 shares issued and outstanding at October 31, 2020 and July 31, 2020							Preferred stock, $0.01 par value per share. 4,965,000 shares authorized at October 31, 2020 and July 31, 2020; 0 shares issued and outstanding at October 31, 2020 and July 31, 2020	0		0
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 62,793,969 issued and outstanding shares at October 31, 2020; 62,787,919 issued and outstanding shares at July 31, 2020							Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 62,793,969 issued and outstanding shares at October 31, 2020; 62,787,919 issued and outstanding shares at July 31, 2020	628		628
Additional paid-in capital	7,477,910			7,477,327			Additional paid-in capital	7,478,238		7,478,047
Accumulated deficit	(7,432,803		)	(7,426,287		)	Accumulated deficit	(7,437,788)		(7,433,700)
Accumulated other comprehensive income (loss)	(1,580		)	1,034
Accumulated other comprehensive income							Accumulated other comprehensive income	6,816		3,843
Total stockholders' equity	44,151			52,692			Total stockholders' equity	47,894		48,818
Total liabilities, contingently redeemable preferred stock and stockholders' equity	$	784,666		$	731,563		Total liabilities, contingently redeemable preferred stock and stockholders' equity	$	756,357	$	759,172

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended April 30,						Nine Months Ended April 30,							Three Months Ended October 31,
	2020			2019			2020			2019				2020		2019
Net revenue:													Net revenue:
Products	$	98,284		$	116,006		$	354,404		$	362,547		Products	$	105,708	$	133,003
Services	79,067			77,997			263,552			252,812			Services	64,226		92,150
Total net revenue	177,351			194,003			617,956			615,359			Total net revenue	169,934		225,153
Cost of revenue	143,881			157,142			494,991			502,755			Cost of revenue	129,466		180,907
Gross profit	33,470			36,861			122,965			112,604			Gross profit	40,468		44,246
Operating expenses:													Operating expenses:
Selling, general and administrative	25,872			27,426			79,264			81,617			Selling, general and administrative	26,858		22,227
Amortization of intangible assets	6,531			7,278			20,719			23,168			Amortization of intangible assets	6,535		7,277
Total operating expenses	32,403			34,704			99,983			104,785			Total operating expenses	33,393		29,504
Operating income	1,067			2,157			22,982			7,819			Operating income	7,075		14,742
Other income (expense):													Other income (expense):
Interest income	8			22			38			517			Interest income	20		16
Interest expense	(8,523		)	(10,294		)	(26,425		)	(32,335		)	Interest expense	(7,823)		(9,169)
Other gains (losses), net	2,774			(114		)	2,509			(832		)
Other (losses) gains, net													Other (losses) gains, net	(2,019)		558
Total other expense	(5,741		)	(10,386		)	(23,878		)	(32,650		)	Total other expense	(9,822)		(8,595)
Loss before income taxes	(4,674		)	(8,229		)	(896		)	(24,831		)
(Loss) income before income taxes													(Loss) income before income taxes	(2,747)		6,147
Income tax expense	1,485			1,420			4,028			3,956			Income tax expense	804		1,355
Gains on investments in affiliates, net of tax	—			(22		)	—			(42		)
Net loss	(6,159		)	(9,627		)	(4,924		)	(28,745		)

Net (loss) income													Net (loss) income	(3,551)		4,792
Less: Preferred dividends on redeemable preferred stock	(525		)	(525		)	(1,592		)	(1,598		)	Less: Preferred dividends on redeemable preferred stock	(537)		(536)
Net loss attributable to common stockholders	$	(6,684	)	$	(10,152	)	$	(6,516	)	$	(30,343	)
Net (loss) income attributable to common stockholders													Net (loss) income attributable to common stockholders	$	(4,088)	$	4,256

Basic net loss per share attributable to common stockholders	$	(0.11	)	$	(0.17	)	$	(0.11	)	$	(0.50	)
Diluted net loss per share attributable to common stockholders	$	(0.11	)	$	(0.17	)	$	(0.11	)	$	(0.50	)
Basic net (loss) earnings per share attributable to common stockholders													Basic net (loss) earnings per share attributable to common stockholders	$	(0.07)	$	0.07
Diluted net (loss) earnings per share attributable to common stockholders													Diluted net (loss) earnings per share attributable to common stockholders	$	(0.07)	$	0.06
Weighted average common shares used in:													Weighted average common shares used in:
Basic loss per share	61,815			61,393			61,583			61,111
Diluted loss per share	61,815			61,393			61,583			61,111
Basic (loss) earnings per share													Basic (loss) earnings per share	61,893		61,401
Diluted (loss) earnings per share													Diluted (loss) earnings per share	61,893		86,006

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended
April 30, Nine Months Ended
April 30,
2020 2019 2020 2019
Net loss $ (6,159 ) $ (9,627 ) $ (4,924 ) $ (28,745 )
Other comprehensive loss:
Foreign currency translation adjustment (3,064 ) (608 ) (2,387 ) (276 )
Net unrealized holding gain (loss) on securities, net of tax —
3
(96 ) (86 )
Pension liability adjustments, net of tax (129 ) —
(131 ) (64 )
Other comprehensive loss (3,193 ) (605 ) (2,614 ) (426 )
Comprehensive loss $ (9,352 ) $ (10,232 ) $ (7,538 ) $ (29,171 )


	Three Months Ended October 31,
	2020		2019
Net (loss) income	$	(3,551)	$	4,792
Other comprehensive income (loss):
Foreign currency translation adjustment	2,973		13
Pension liability adjustments, net of tax	0		(2)
Other comprehensive income	2,973		11
Comprehensive (loss) income	$	(578)	$	4,803

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

(unaudited)


																Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
Balance at July 31, 2020															Balance at July 31, 2020	62,787,919	$	628	$	7,478,047	$	(7,433,700)	$	3,843	$	48,818
Net loss															Net loss	—	—		—		(3,551)		—		(3,551)
Preferred dividends															Preferred dividends	—	—		—		(537)		—		(537)
Issuance of common stock pursuant to employee stock purchase plan															Issuance of common stock pursuant to employee stock purchase plan	6,982	—		3		—		—		3
Restricted stock forfeitures, net of issuance															Restricted stock forfeitures, net of issuance	(932)	—		—		—		—		—
Share-based compensation															Share-based compensation	—	—		188		—		—		188
Other comprehensive items															Other comprehensive items	—	—		—		—		2,973		2,973
Balance at October 31, 2020															Balance at October 31, 2020	62,793,969	$	628	$	7,478,238	$	(7,437,788)	$	6,816	$	47,894

	Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity				Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
Balance at January 31, 2020	62,375,558	$	624	$	7,477,697	$	(7,426,119	)	$	1,613		$	53,815
Net loss	—	—		—		(6,159		)	—			(6,159		)
Balance at July 31, 2019															Balance at July 31, 2019	61,805,856	$	618	$	7,477,327	$	(7,426,287)	$	1,034	$	52,692
Net income															Net income	—	—		—		4,792		—		4,792
Preferred dividends	—	—		—		(525		)	—			(525		)	Preferred dividends	—	—		—		(536)		—		(536)
Issuance of common stock pursuant to employee stock purchase plan	8,120	—		4		—			—			4			Issuance of common stock pursuant to employee stock purchase plan	4,397	—		2		—		—		2

Share-based compensation	—	—		209		—			—			209			Share-based compensation	—	—		176		—		—		176
Other comprehensive items	—	—		—		—			(3,193		)	(3,193		)	Other comprehensive items	—	—		—		—		11		11
Balance at April 30, 2020	62,383,678	$	624	$	7,477,910	$	(7,432,803	)	$	(1,580	)	$	44,151
	Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance at January 31, 2019	61,797,807	$	618	$	7,468,628	$	(7,377,622	)	$	2,913		$	94,537
Net loss	—	—		—		(9,627		)	—			(9,627		)
Equity portion of convertible note	—	—		8,200		—			—			8,200
Preferred dividends	—	—		—		(525		)	—			(525		)
Issuance of common stock pursuant to employee stock purchase plan	4,389	—		2		—			—			2
Share-based compensation	—	—		404		—			—			404
Other comprehensive items	—	—		—		—			(605		)	(605		)
Balance at April 30, 2019	61,802,196	$	618	$	7,477,234	$	(7,387,774	)	$	2,308		$	92,386
Balance at October 31, 2019															Balance at October 31, 2019	61,810,253	$	618	$	7,477,505	$	(7,422,031)	$	1,045	$	57,137

See accompanying notes to unaudited condensed consolidated financial statements

Table of Contents

~~STEEL CONNECT, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY~~

~~(in thousands, except share amounts)~~

~~(unaudited)~~

Number of
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
Equity
Balance at July 31, 2019 61,805,856
$ 618
$ 7,477,327
$ (7,426,287 ) $ 1,034
$ 52,692
Net loss —
—
—
(4,924 ) —
(4,924 )
Preferred dividends —
—
—
(1,592 ) —
(1,592 )
Issuance of common stock pursuant to employee stock purchase plan 17,299
—
8
—
—
8
Restricted stock grants 560,523
6
(6 ) —
—
—
Share-based compensation —
—
581
—
—
581
Other comprehensive items —
—
—
—
(2,614 ) (2,614 )
Balance at April 30, 2020 62,383,678
$ 624
$ 7,477,910
$ (7,432,803 ) $ (1,580 ) $ 44,151

Number of
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
Equity
Balance at July 31, 2018 60,742,859
$ 608
$ 7,467,855
$ (7,363,569 ) $ 2,734
$ 107,628
Net loss —
—
—
(28,745 ) —
(28,745 )
Effect of adoption of ASC 606 on August 1, 2018, net of taxes —
—
—
6,138
—
6,138
Equity portion of convertible note —
—
8,200
—
—
8,200
Preferred dividends —
—
—
(1,598 ) —
(1,598 )
Issuance of common stock pursuant to employee stock purchase plan 13,794
—
15
—
—
15
Restricted stock grants 1,045,543
10
(10 ) —
—
—
Share-based compensation —
—
1,174
—
—
1,174
Other comprehensive items —
—
—
—
(426 ) (426 )
Balance at April 30, 2019 61,802,196
$ 618
$ 7,477,234
$ (7,387,774 ) $ 2,308
$ 92,386

~~See accompanying notes to unaudited condensed consolidated financial statements~~

~~Table of Contents~~

STEEL CONNECT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in ~~thousands, unaudited)~~thousands)

(unaudited)


	Nine Months Ended April 30,							Three Months Ended October 31,
	2020			2019				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net loss	$	(4,924	)	$	(28,745	)
Adjustments to reconcile net loss to cash flows from operating activities:
Net (loss) income							Net (loss) income	$	(3,551)	$	4,792
Adjustments to reconcile net (loss) income to cash flows from operating activities:							Adjustments to reconcile net (loss) income to cash flows from operating activities:
Depreciation	17,240			16,331			Depreciation	5,780		5,589
Amortization of intangible assets	20,719			23,168			Amortization of intangible assets	6,535		7,277
Amortization of deferred financing costs	285			703			Amortization of deferred financing costs	148		68
Accretion of debt discount	1,240			2,741			Accretion of debt discount	292		409
Impairment of long-lived assets	—			469

Share-based compensation	581			1,174			Share-based compensation	188		176
Other (gains) losses, net	(2,509		)	832
Gains on investments in affiliates	—			(42		)
Changes in operating assets and liabilities
Other losses (gains), net							Other losses (gains), net	3,622		(558)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable, net	28,492			(15,111		)	Accounts receivable, net	12,839		(1,564)
Inventories, net	3,847			859			Inventories, net	514		(2,165)
Prepaid expenses and other current assets	7,538			3,548			Prepaid expenses and other current assets	(4,473)		(3,342)
Accounts payable and accrued expenses	(14,547		)	(2,795		)	Accounts payable and accrued expenses	6,416		4,625
Refundable and accrued income taxes, net	(793		)	(2,059		)	Refundable and accrued income taxes, net	503		639
Other assets and liabilities	2,882			(4,689		)	Other assets and liabilities	(3,086)		6,464
Net cash provided by (used in) operating activities	60,051			(3,616		)
Net cash provided by operating activities							Net cash provided by operating activities	25,727		22,410
Cash flows from investing activities:							Cash flows from investing activities:
Additions of property and equipment	(11,477		)	(11,840		)	Additions of property and equipment	(1,059)		(4,072)
Proceeds from the disposition of property and equipment	12			19
Proceeds from the sale of available-for-sale securities	163			—
Proceeds from investments in affiliates	—			42

Net cash used in investing activities	(11,302		)	(11,779		)	Net cash used in investing activities	(1,059)		(4,072)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuance of convertible note	—			14,940
Proceeds from revolving lines of credit, net	19,000			10,000
Payments on maturity of convertible notes	—			(63,925		)

Payments towards revolving lines of credit, net							Payments towards revolving lines of credit, net	0		(4,000)

Payment of long-term debt	(3,076		)	(13,376		)	Payment of long-term debt	(1,500)		(1,500)
Payment of preferred dividends	(1,563		)	(1,598		)	Payment of preferred dividends	(537)		(536)
Payment of debt financing and amendment costs	(914		)	—
Purchase of the Company's convertible notes	—			(3,700		)

Repayments on capital lease obligations	(83		)	(114		)	Repayments on capital lease obligations	(17)		(33)
Proceeds from issuance of common stock	8			15			Proceeds from issuance of common stock	3		6
Net cash provided by (used in) financing activities	13,372			(57,758		)
Net cash used in financing activities							Net cash used in financing activities	(2,051)		(6,063)
Net effect of exchange rate changes on cash, cash equivalents and restricted cash	(798		)	(239		)	Net effect of exchange rate changes on cash, cash equivalents and restricted cash	(269)		41
Net increase (decrease) in cash, cash equivalents and restricted cash	61,323			(73,392		)
Net increase in cash, cash equivalents and restricted cash							Net increase in cash, cash equivalents and restricted cash	22,348		12,316
Cash, cash equivalents and restricted cash, beginning of period	46,064			103,826			Cash, cash equivalents and restricted cash, beginning of period	94,642		46,064
Cash, cash equivalents and restricted cash, end of period	$	107,387		$	30,434		Cash, cash equivalents and restricted cash, end of period	$	116,990	$	58,380

Cash and cash equivalents, end of period	$	90,189		$	20,364		Cash and cash equivalents, end of period	$	104,522	$	41,214
Funds held for clients, end of period	17,198			10,070			Funds held for clients, end of period	12,468		17,166
Cash, cash equivalents and restricted cash, end of period	$	107,387		$	30,434		Cash, cash equivalents and restricted cash, end of period	$	116,990	$	58,380

See accompanying notes to unaudited condensed consolidated financial statements

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STEEL CONNECT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


~~(1)~~	~~NATURE OF OPERATIONS~~

(1)NATURE OF OPERATIONS

Steel Connect, Inc. (the "Company") together with its consolidated subsidiaries, operates through its wholly-owned subsidiaries, IWCO Direct Holdings, Inc. ("IWCO ~~Direct"~~Direct," "IWCO" or ~~"IWCO"~~"Direct Marketing") and 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.

Historically, the Company has 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 of facilities that were not fully utilized. The Company believes it has access to adequate resources to meet its needs for normal operating costs, capital expenditures, mandatory debt redemptions and working capital for its existing business for at least twelve months from the date of this filing. These resources include current cash and cash equivalents, ModusLink's credit agreement with MidCap Financial Trust ("MidCap"), IWCO's revolving credit facility with Cerberus Business Finance, LLC ("Cerberus"), and cash, if any, provided by operating activities. The Company's expectations regarding its ability to use its existing cash 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.

As of ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, the Company had cash and cash equivalents of ~~$90.2~~$104.5 million and ~~$32.5~~$75.9 million, respectively. As of ~~April 30,~~October 31, 2020, the Company had a working capital deficit of ~~$40.2~~$12.3 million, which includes accrued pricing liabilities and certain tax related liabilities which the Company believes will not require a cash outlay in the next twelve months. As of ~~April 30,~~October 31, 2020, ModusLink had a readily available borrowing capacity under its revolving credit facility of ~~$5.7~~$1.2 million. As of ~~April 30,~~October 31, 2020, IWCO Direct had no$25.0 million available borrowing capacity under its revolving facility as it had fully borrowed the $25.0 million under the facility as part of a comprehensive precautionary approach to increase the Company's cash position and maximize its financial flexibility in light of the current volatility in global markets resulting from the novel Coronavirus ("COVID-19") outbreak.facility. 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.

Impact of COVID-19

In March 2020, the World Health Organization categorized the novel Coronavirus ("COVID-19") as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The spread of the outbreak has caused significant disruptions in the U.S. and global economies, and economists expect the impact will be significant during the remainder of ~~2020.~~2020 and beyond. The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The Company continues to evaluate the global risks and the slowdown in business activity related to COVID-19, including the potential impacts on its employees, customers, suppliers and financial results. The effects of COVID-19 required temporary closures of certain of ModusLink's facilities for short periods of ~~time.~~time during the fiscal year ended July 31, 2020. Additionally, although IWCO ~~is operating~~operated and continues to operate as an essential business, it ~~has~~had reduced operating levels and labor shifts due to lower sales ~~volume.~~volume during the prior fiscal year. As of the filing of this quarterly report on Form 10-Q, all of the Company's facilities were open and able to operate at normal capacities.

~~Additionally, to~~

To help mitigate the financial impact of the COVID-19 pandemic, the Company ~~has~~ initiated cost reduction actions, including ~~deferral~~waiver of board fees, hiring freezes, staffing 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 the current fiscal year. The Company continues its focus on cash management and liquidity, which includes ~~elimination~~reduction of discretionary spending, aggressive working capital management, strict approvals for capital expenditures and ~~borrowing from its revolving credit facilities as a precautionary measure to preserve financial flexibility (as~~

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~~further discussed above in this Note 1 and in Note 8 - "Debt").~~other actions. The Company will evaluate further actions if circumstances warrant.

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Currently, the Company anticipates that the impact of the ~~rapid~~ deterioration of the U.S and global economies will most likely continue and may have an adverse impact on the Company's business. However, as the situation surrounding COVID-19 remains fluid, it is difficult to predict the duration of the pandemic and the impact on the Company's business, operations, financial condition and cash flows. The severity of the impact on the Company's business for the remainder of ~~fiscal~~calendar 2020 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to the demand for our businesses' products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could also be adversely impacted by delays in payments of outstanding receivables beyond normal payment terms, supply chain disruptions and uncertain demand, and the effect of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. There is also no certainty that federal, state or local regulations regarding safety measures to address the spread of COVID-19 will not adversely impact the Company's operations.


~~(2)~~	~~BASIS OF PRESENTATION~~

(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 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 ("U.S. GAAP") 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, ~~2019,~~2020 (Fiscal Year 2020), which are contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on ~~October 15, 2019, as amended by Amendment No. 1 filed on November 26, 2019.~~September 30, 2020. The results for the three ~~and nine~~ months ended ~~April 30,~~October 31, 2020 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 accounting principles generally accepted in the United States of America.

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 ~~nine~~three months ended ~~April 30,~~October 31, 2020, the Company evaluated subsequent events for potential recognition and disclosure through the date these financial statements were filed.

During the three months ended October 31, 2019, the Company recorded a $6.4 million adjustment to correct an out-of-period misstatement related to the Company's estimate for certain tax related liabilities. Had this correction been recorded for the fiscal year ended July 31, 2019 (Fiscal Year 2019), the Company's selling, general and administrative expenses and net loss for that period would have been reduced to $137.7 million and $60.3 million, respectively. ~~The Company's accrued expenses as of July 31, 2019 would have been reduced to $106.3 million.~~

~~Certain reclassifications have been made to conform prior-period amounts to the current-period presentation.~~

(3)RECENT ACCOUNTING PRONOUNCEMENTS


~~(3)~~	~~RECENT ACCOUNTING PRONOUNCEMENTS~~

Adoption of New Accounting Standards

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-02,~~ ~~Leases (Topic 842), which supersedes the previous guidance for lease accounting,~~ ~~Leases (Topic 840)~~. ASC 842 requires lessees to recognize leases on their balance sheets (through right-of-use ("ROU") assets and lease liabilities). The Company adopted the provisions of ASC 842 on August 1, 2019, using the modified retrospective approach and the option presented under ASU 2018-11, ~~Leases (Topic 842),~~ to transition only active leases as of the August 1, 2019 adoption date, with a cumulative effect adjustment recorded as of that date. All comparative periods prior to August 1, 2019 retain the financial reporting and disclosure requirements of ASC 840.

The Company elected to utilize the transition package of practical expedients permitted under ASC 842, which, among other things, allowed the Company to carry forward the historical lease classification. Additionally, the Company made an

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accounting policy election to exempt short-term leases (with an initial term of 12 months or less) from the provisions of ASC 842, which resulted in recognition of the related lease payments on a straight-line basis over the lease term, consistent with prior treatment under ASC 840. The Company did not elect the "hindsight" practical expedient when determining the lease terms under ASC 842.

Adoption of ASC 842 resulted in the recording of ROU operating lease assets and corresponding operating lease liabilities of $51.1 million and $53.1 million, respectively, as of August 1, 2019. The difference between the ROU assets and the lease liabilities represents the existing deferred rent balance (under ASC 840), which was reduced to zero, net of prepaids, upon adoption of ASC 842 on August 1, 2019. The adoption of ASC 842 did not materially impact the Company's net earnings and had no impact on its cash flows. The Company's current lease arrangements expire through 2030.

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~. This standard was created to simplify the accounting for share-based payments to nonemployees and provides guidance on how to account for share-based payment awards issued in transactions in which a grantor acquires goods or services to be used or consumed in the grantor's own operations. The amendments in ASU 2018-07 are effective for the Company's 2020 fiscal year. The adoption of the accounting standard did not have a material impact on the Company's financial statements.

~~Accounting Standards Issued and Not Yet Implemented~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Loses on Financial Instruments~~, an accounting standard update 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 accounting standard update will be effective for the Company beginning in the first quarter of fiscal year 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 the impact of this accounting standard update on its consolidated financial statements.

~~In August 2018, the FASB issued ASU~~ 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements. The amendments in ASU 2018-13 are effective ~~for~~in the first quarter of the Company's fiscal year ending July 31, 2021 ~~except that the standard permits an entity to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay~~(Fiscal Year 2021). The adoption of the ~~additional disclosures until the effective date. The Company does~~accounting standard did not ~~expect that the full adoption of this standard will~~ have a material impact on the Company's ~~consolidated~~ financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension and other post-retirement plans. The amendments in ASU 2018-14 ~~are~~became effective ~~for~~in the first quarter of the Company's ~~fiscal year~~Fiscal Year 2021. The ~~Company does not expect that the~~ adoption of ~~this~~the accounting standard ~~will~~did not have a material impact on the Company's ~~consolidated~~ financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, (a consensus of the FASB Emerging Issues Task Force) to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments

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in ASU 2018-15 ~~are~~became effective for the Company's first quarter of Fiscal Year 2021. The adoption of the accounting standard 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 issued 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 ~~2021.~~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 ~~potential~~ impact ~~of this new guidance.~~it may have on its consolidated financial statements.

In December 2019, the FASB issued 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 is effective for the Company's first quarter of the fiscal year ending July 31, 2022. The Company does not expect that the adoption of this new guidance will have a material impact 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

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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 ~~this guidance~~it may have on its consolidated financial statements.


~~(4)~~	~~INVENTORIES~~

~~Inventories, net consisted~~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 ~~following:~~if-converted method for calculating diluted earnings per share. The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity's financial statements, and information about events, conditions and circumstances that can affect how to assess the amount or timing of an entity's future cash flows related to those instruments. The guidance is effective for interim and annual periods beginning in our fiscal year ending July 31, 2025, with early adoption permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

(4)INVENTORIES

The table below presents the components of Inventories, net:


	October 31, 2020		July 31, 2020
	(In thousands)
Raw materials	$	13,554	$	14,216
Work-in-process	337		253
Finished goods	938		885
	$	14,829	$	15,354

(5)GOODWILL AND INTANGIBLE ASSETS

April 30,
2020 July 31,
2019
(In thousands)
Raw materials $ 18,060
$ 21,322
Work-in-process 309
587
Finished goods 1,153
1,765
$ 19,522
$ 23,674


~~(5)~~	~~GOODWILL AND INTANGIBLE ASSETS~~

The Company's goodwill of $257.1 million as of ~~April 30,~~October 31, 2020 relates to the Company's Direct Marketing reporting unit, which is the only reporting unit in the Direct Marketing reportable segment. The Company has not previously recognized any impairment losses for this reporting unit.

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Other intangible assets, net, as of ~~April 30,~~October 31, 2020, include trademarks and tradenames, and customer relationships. The trademarks and tradenames intangible assets are being amortized on a straight-line basis and the customer relationship intangible assets are being amortized on a double-declining basis over their estimated useful lives.

The table below presents information for the Company's intangible assets:


		October 31, 2020						July 31, 2020
	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	$	64,857	$	127,873	$	192,730	$	60,032	$	132,698
Trademarks and trade names	3	20,520		19,665		855		20,520		17,955		2,565
Total		$	213,250	$	84,522	$	128,728	$	213,250	$	77,987	$	135,263

April 30, 2020 July 31, 2019
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
$ 55,206
$ 137,524
$ 192,730
$ 39,617
$ 153,113
Trademarks and trade names 3 20,520
16,245
4,275
20,520
11,115
9,405
Total $ 213,250
$ 71,451
$ 141,799
$ 213,250
$ 50,732
$ 162,518

The table below presents amortization expense recorded by the Company for other intangible assets:


	Three Months Ended October 31,
	2020		2019
	(In thousands)
Customer relationships	$	4,825	$	5,567
Trademarks and trade names	1,710		1,710
Total	$	6,535	$	7,277

Three Months Ended
April 30, Nine Months Ended
April 30,
2020 2019 2020 2019
(In thousands)
Customer relationships $ 4,825
$ 5,564
$ 15,589
$ 18,038
Trademarks and trade names 1,706
1,714
5,130
5,130
Total $ 6,531
$ 7,278
$ 20,719
$ 23,168

As of ~~April 30,~~October 31, 2020, the Company reviewed its goodwill and other intangible assets for indicators of impairment as a result of the continued impact of the COVID-19 pandemic. Although the Company's performance has improved since the beginning of the pandemic, ~~and as a result,~~ the Company believes that indicators of impairment were present for all these asset classes due to a general deterioration in macroeconomic conditions ~~reduced cash flow projections~~ and a significant decline in the Company's market capitalization. The Company performed a quantitative impairment test of goodwill. The Company calculated the fair value of the Direct Marketing reporting unit using a discounted cash flow ("DCF") valuation approach, which indicated the fair value of the reporting unit exceeded its carrying value by greater than $30.0 million and therefore, as of April 30, 2020, there was no goodwill impairment. The DCF calculation was dependent on estimates for future sales, operating income, depreciation and amortization, income tax payments, working capital changes and capital expenditures, as well as expected long-term growth rates for cash flows. All of these factors are affected by economic conditions related to the industries in which the Company and its customers operate, as well as in conditions in the global capital markets. The discount

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rates utilized in the DCF valuation are based upon our weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital adjusted as appropriate to consider the risk inherent in future cash flows of the reporting unit.

The Company performed a qualitative assessment of whether it was more likely than not that its goodwill and other intangibles assets were impaired as of ~~April 30,~~October 31, 2020. The Company reviewed its previous forecasts and assumptions based on the Company's current projections, ~~that~~which are subject to various risks and uncertainties ~~including~~associated with forecasted revenues, expenses and cash flows, ~~including~~as well as the duration and extent of impact to our businesses from the COVID-19 pandemic. Based upon that assessment, the Company concluded it was ~~not~~ more likely than not that ~~the~~goodwill and other intangible assets were not impaired as of ~~April 30,~~October 31, 2020.

~~However, as a result of the COVID-19 pandemic, it~~ It is possible that in future periods ~~that further declines~~decreases in ~~market conditions,~~ customer demand or volumes or other potential changes in operations may increase the risk that goodwill and other intangible assets, which are only associated with the Direct Marketing segment, may become impaired.


~~(6)~~	~~ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES~~

(6)ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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


	October 31, 2020		July 31, 2020
Accrued Expenses	(In thousands)
Accrued taxes	$	62,207	$	60,744
Accrued compensation	25,791		25,439
Accrued worker's compensation	3,949		3,949
Accrued audit, tax and legal	2,917		3,399
Accrued contract labor	1,105		981
Accrued interest	2,516		476
Accrued other	18,509		16,392
	$	116,994	$	111,380

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April 30,
2020 July 31,
2019
Accrued Expenses (In thousands)
Accrued taxes $ 56,722
$ 59,057
Accrued compensation 21,526
22,584
Accrued worker's compensation 4,698
4,549
Accrued audit, tax and legal 3,918
3,148
Accrued contract labor 826
1,650
Accrued interest 180
467
Accrued other 20,048
21,203
$ 107,918
$ 112,658


	October 31, 2020		July 31, 2020
Other Current Liabilities	(In thousands)
Accrued pricing liabilities	$	13,499	$	13,499
Customer postage deposits	9,160		8,551

Other	6,529		7,900
	$	29,188	$	29,950

April 30,
2020 July 31,
2019
Other Current Liabilities (In thousands)
Accrued pricing liabilities $ 14,309
$ 14,309
Customer postage deposits 7,697
11,816
Revolving credit facility 25,000
6,000
Other 9,919
6,794
$ 56,925
$ 38,919

As of ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, the Company had accrued taxes of ~~$56.7~~$62.2 million and ~~$59.1~~$60.7 million, respectively, which reflected the Company's estimate for certain tax related liabilities. During the three months ended October 31, 2019, the Company recorded a $6.4 million adjustment to correct an out-of-period misstatement related to the Company's estimate for certain tax related liabilities. As of both ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, the Company had accrued pricing liabilities of approximately ~~$14.3~~$13.5 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 ~~April 30,~~October 31, 2020 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.

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~~(7)~~	~~LEASES~~

The Company has operating and finance leases for office space, office equipment, warehouse space and automobiles. The leases have remaining terms of up to 11 years, some of which include options to purchase, extend or terminate the leases, and management has assessed such terms when determining the lease term for accounting purposes. The Company's current lease arrangements expire through 2030.(7)LEASES

The ~~Company's leases do not include any residual value guarantees, and therefore none were considered in~~table below presents the calculation of the operating ROU and operating lease liability balances. The Company has leases that contain variable payments, most commonly in the form of common area maintenance charges, which are based on actual costs incurred. These variable payments were excluded from the calculation of the operating ROU asset and operating lease liability balances since they are not fixed or in-substance fixed payments.

For leases with terms greater than 12 months, the Company records the related operating ROU assets and operating lease liabilities at the present value of lease payments over the lease terms. For leases with an initial term of 12 months or less (with purchase options or extension options that are not reasonably certain to be exercised), the Company does not record them on the balance sheet, but instead recognizes lease expense on a straight-line basis over the terms of the leases.

~~Lease Expense~~

~~The~~ components of the Company's lease ~~expense are presented below:~~

expense:

Three Months Ended April 30, 2020 Nine Months Ended April 30, 2020
(In thousands)
Operating lease cost $ 2,837
$ 12,469
Short-term lease expense 1,802
2,254
Variable lease cost 4
50
Amortization of finance lease assets 2
38
Interest on finance lease liabilities 1
9
$ 4,646
$ 14,820

~~Lease Commitments~~

~~The Company's future minimum lease payments required under operating and finance leases that have commenced as of April 30, 2020 were as follows:~~

Operating Leases Finance Leases
(In thousands)
2020 $ 4,054
$ 19
2021 15,644
76
2022 12,426
76
2023 7,786
37
2024 5,482
—
Thereafter 23,622
—
Total lease payments 69,014
208
Less: imputed interest 9,268
15
Present value of lease payments 59,746
193
Less: current maturities of lease obligations 14,034
70
Long-term lease obligations $ 45,712
$ 123

In order to calculate the operating ROU asset and operating lease liability for a lease, ASC 842 requires that a lessee apply a discount rate equal to the rate implicit in the lease whenever that rate is readily determinable. The Company's lease

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agreements do not provide a readily determinable implicit rate, nor is the rate available to the Company from its lessors. Therefore, we use an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value.

~~Additional Lease Information~~

~~Additional information related to the Company's leases as of April 30, 2020 was as follows:~~



~~Weighted average remaining lease term:~~
~~Operating leases~~	~~6.3~~	~~years~~
~~Finance leases~~	~~2.7~~	~~years~~

~~Weighted average discount rate:~~
~~Operating leases~~		~~4.4%~~
~~Finance leases~~		~~3.8%~~


	Three Months Ended October 31, 2020		Three Months Ended October 31, 2019
	(In thousands)
Operating lease cost	$	4,228	$	4,816
Short-term lease expense	407		226
Variable lease cost	8		40
Amortization of finance lease assets	0		18
Interest on finance lease liabilities	2		4
	$	4,645	$	5,104

Supplemental Cash Flow Information

Supplemental cash flow information related to the Company's leases ~~during the nine months ended April 30, 2020~~ was as ~~follows (in thousands):~~follows:


	Three Months Ended October 31, 2020		Three Months Ended October 31, 2019
	(In thousands)
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	4,239	$	4,372
Operating cash flows from finance leases	$	2	$	4
Financing cash flows from finance leases	$	17	$	33

(8)DEBT

Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases $ 11,677
Operating cash flows from finance leases $ 7
Financing cash flows from finance leases $ 83


~~(8)~~	~~DEBT~~

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

April 30,
2020 July 31,
2019
(In thousands)
Cerberus term loan $ 372,049
$ 375,125
7.50% Convertible senior note 14,940
14,940
Principal amount of long-term debt 386,989
390,065
Unamortized debt discount (6,268 ) (7,508 )
Unamortized debt issuance costs (1,094 ) (888 )
Carrying amount of long-term debt $ 379,627
$ 381,669

~~Cerberus Credit Facility~~

On December 15, 2017, MLGS Merger Company, Inc. ("MLGS"), a wholly-owned subsidiary of the Company, entered into a Financing Agreement (the "Financing Agreement"), by and among the MLGS (as the initial borrower), Instant Web, LLC, a Delaware corporation and wholly-owned subsidiary of IWCO (as "Borrower"), IWCO, and certain of IWCO's subsidiaries (together with IWCO, the "Guarantors"), the lenders from time to time party thereto, and Cerberus Business Finance, LLC, as collateral agent and administrative agent for the lenders. MLGS was the initial borrower under the Financing Agreement, but immediately upon the consummation of the acquisition of IWCO Direct (the "IWCO Acquisition"), Borrower became the borrower under the Financing Agreement. Steel Connect, Inc. is not a borrower or a guarantor under the Financing Agreement.

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The Cerberus Credit Facility has a maturity of five years. Borrowings under the Cerberus Credit Facility bear interest, at the Borrower's option, at a Reference Rate plus 3.75% or a LIBOR Rate plus 6.5%, each as defined the Financing Agreement. The initial interest rate under the Cerberus Credit Facility is at the LIBOR Rate option.

The Term Loan under the Cerberus Credit Facility is repayable in consecutive quarterly installments, each of which will be in an amount equal per quarter of $1.5 million and each such installment to be due and payable, in arrears, on the last day of each calendar quarter, which commenced on March 31, 2018 and ending on the earlier of (a) December 15, 2022 and (b) upon the payment in full of all obligations under the Financing Agreement and the termination of all commitments under the Financing Agreement. Further, the Term Loan would be permanently reduced pursuant to certain mandatory prepayment events including an annual "excess cash flow sweep" of 50% of the consolidated excess cash flow, with a step-down to 25% when the Leverage Ratio (as defined in the Financing Agreement) is below 3.50:1.00; provided that, in any calendar year, any voluntary prepayments of the Term Loan shall be credited against the Borrower's "excess cash flow" prepayment obligations on a dollar-for-dollar basis for such calendar year.

On March 30, 2020, IWCO entered into Amendment No. 2 to Financing Agreement ("Amendment No. 2"). Amendment No. 2 amends the Financing Agreement to permit Borrower to defer approximately $3.0 million in principal payments, due between March 31, 2020 and June 30, 2020, until loan maturity and to forgo the payment of approximately $4.3 million in principal payments pursuant to the excess cash flow sweep in the Financing Agreement. In addition, while Amendment No. 2 limits the total amount Borrower may distribute to the Company for management fees and tax sharing to $5.0 million during the calendar year ending December 31, 2020, Amendment No. 2 also amends the calculation of the excess cash flow defined in the Financing Agreement, for the same period, to eliminate any adverse impact to Borrower from the distribution limit or from the deferral of principal payments. Borrower is required to continue to make all interest payments. In addition, Amendment No. 2 amends the liquidity requirement from $15.0 million to $14.5 million.

Borrowings under the Financing Agreement are fully guaranteed by the Guarantors and are collateralized by substantially all the assets of the Borrower and the Guarantors and a pledge of all of the issued and outstanding equity interests of each of IWCO's subsidiaries.

The Financing Agreement contains certain representations, warranties, events of default, mandatory prepayment requirements, as well as certain affirmative and negative covenants customary for financing agreements of this type. These covenants include restrictions on borrowings, investments and dispositions, as well as limitations on the ability of the Borrower and the Guarantors to make certain capital expenditures and pay dividends. Upon the occurrence and during the continuation of an event of default under the Financing Agreement, the lenders under the Financing Agreement may, among other things, terminate all commitments and declare all or a portion of the loans under the Financing Agreement immediately due and payable and increase the interest rate at which loans and obligations under the Financing Agreement bear interest.

During the three months ended April 30, 2020, the Company borrowed on the remaining availability under the Revolving Facility as part of a comprehensive precautionary approach to increase the Company's cash position and maximize its financial flexibility in light of the current volatility in the global markets resulting from the COVID-19 pandemic.

As of April 30, 2020, IWCO Direct had no available borrowing capacity under its Revolving Facility. As of April 30, 2020 and July 31, 2019, the balance outstanding on the Revolving Facility was $25.0 million and $6.0 million, respectively. The following table reflects the components of the Term Loan:

April 30,
2020 July 31,
2019
(In thousands)
Principal amount outstanding on the Term Loan $ 372,049
$ 375,125
Unamortized debt issuance costs (1,094 ) (888 )
Net carrying value of the Term Loan $ 370,955
$ 374,237


	October 31, 2020		July 31, 2020
	(In thousands)
Secured
Cerberus Term Loan due December 15, 2022	$	370,472	$	371,972
Unsecured
7.50% Convertible Senior Note due March 1, 2024	14,940		14,940
Credit Facilities
Cerberus Bank Credit Facility	0		0
MidCap Credit Facility	0		0
Less: unamortized discounts and issuance costs	(7,457)		(7,863)
Total debt, net	377,955		379,049
Less: current portion of debt, net	(5,572)		(5,527)
Total long-term debt, net	$	372,383	$	373,522

7.50% Convertible Senior Note

On February 28, 2019, the Company entered into that certain 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") ~~(the "SPHG Note Transaction")~~. The SPHG Note bears interest at the 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,

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~~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.~~

The Company has the right to prepay the SPHG Note at any time, upon 10 days' prior written notice, in whole or in part, without penalty or premium, at a price equal to 100% of the then outstanding principal amount of the SPHG Note plus accrued and unpaid interest. The SPHG Note is an unsecured and unsubordinated obligation of the Company, and will rank equal in right of payment with the Company's other unsecured and unsubordinated indebtedness, but will be effectively subordinated in right of payment to any existing and future secured indebtedness and liabilities to the extent of the value of the collateral securing those obligations, and structurally subordinated to the indebtedness and other liabilities of the Company's subsidiaries. The SPHG Note contains other customary terms and conditions, including customary events of default.

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.

The Company's Board of Directors (the "Board") established a special committee (the "Special Committee"), consisting solely of independent directors not affiliated with SPHG Holdings, to review and consider a financing transaction, including a transaction with SPHG Holdings. The terms and conditions of the SPHG Note Transaction were determined by the Special Committee to be fair and in the best interests of the Company, and the Special Committee recommended that the Board approve the SPHG Note Transaction and the transactions contemplated thereby. The Board approved such transactions. Warren G. Lichtenstein, our Interim Chief Executive Officer and the Executive Chairman of our Board, is also the Executive Chairman of Steel Partners Holdings GP Inc. ("Steel Holdings GP"), the manager of SPHG Holdings. Additionally, Jack L. Howard and William T. Fejes, Jr., directors of the Company, are or previously were affiliated with Steel Holdings GP. Glen Kassan, a director and our Vice Chairman of the Board and former Chief Administrative Officer, is also affiliated with Steel Holdings GP.

The Company assessed the features of the SPHG Note and determined that the conversion features should not be bifurcated as a derivative liability, but should be accounted for under the cash conversion subsections of ASC 470.

The Company has valued the debt using similar nonconvertible debt as of the original issuance date of the SPHG Note and bifurcated the conversion option associated with the SPHG Note from the host debt instrument and recorded the conversion option of $8.2 million in stockholders' equity. The initial value of the equity component, which reflected the equity conversion feature, was equal to the initial debt discount. The resulting debt discount on the SPHG Note is being accreted to interest expense at the effective interest rate over the estimated life of the SPHG Note. The equity component is included in the additional paid-in capital portion of stockholders' equity on the Company's condensed consolidated balance sheets. The debt issuance costs were not

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~~material.~~ As of ~~April 30,~~October 31, 2020, the if-converted value of the SPHG Note did not exceed the principal value of the SPHG Note. As of ~~April 30,~~October 31, 2020, the remaining period over which the unamortized discount will be amortized is 4640 months. As of ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, the net carrying value of the SPHG Note was ~~$8.7~~$8.3 million and ~~$7.4~~$8.1 million, respectively.

April 30,
2020 July 31,
2019
(In thousands)
Carrying amount of equity component $ 8,200
$ 8,200

Principal amount of note $ 14,940
$ 14,940
Unamortized debt discount (6,268 ) (7,508 )
Net carrying amount $ 8,672
$ 7,432

Three Months Ended April 30, 2020 Nine Months Ended April 30, 2020
(In thousands)
Interest expense related to contractual interest coupon $ 280
$ 840
Interest expense related to accretion of the discount 410
1,240
$ 690
$ 2,080

The effective interest rate on the SPHG Note, including accretion of the discount, is ~~18.47%~~27.8%.

~~MidCap Credit Facility~~

On December 31, 2019, ModusLink, as borrower, and certain of its subsidiaries as guarantors (the "MidCap Guarantors"), entered into a revolving credit and security agreement (the "MidCap Credit Agreement"), with MidCap, as lender and as agent.

The MidCap Credit Agreement, which has a three year term, provides for a maximum credit commitment of $12.5 million and a sublimit of $5.0 million for letters of credit. The actual maximum credit available underfollowing tables reflect the ~~MidCap Credit Agreement varies from time to time and is determined by calculating the applicable borrowing base, which is based upon applicable percentages~~components of the values of (a) eligible accounts receivable; plus (b) the least of (i) the orderly liquidation value of eligible inventory, (ii) the value of eligible inventory based on first-in-first-out cost or market cost and other adjustments, and (iii) $4.5 million; minus (c) reserves; all as specified in the MidCap Credit Agreement. Amounts borrowed under the MidCap Credit Agreement are due and payable, together with all unpaid interest, fees and other obligations, on December 31, 2022.SPHG Note:

Generally, borrowings under the MidCap Credit Agreement bear interest at a rate per annum equal to the LIBOR Rate (as defined in the MidCap Credit Agreement), which is subject to adjustment by MidCap, plus a margin of 4% per annum. In addition to paying interest on outstanding principal under the MidCap Credit Agreement, ModusLink is required to pay an unused line fee of 0.50% per annum. ModusLink is also required to pay a customary letter of credit fee equal to the applicable margin on loans bearing interest at the LIBOR Rate.


	October 31, 2020		July 31, 2020
	(In thousands)
Carrying amount of equity component	$	8,200	$	8,200

Principal amount of note	$	14,940	$	14,940
Unamortized debt discount	(6,594)		(6,886)
Net carrying amount	$	8,346	$	8,054

	Three Months Ended October 31, 2020		Three Months Ended October 31, 2019
	(In thousands)
Interest expense related to contractual interest coupon	$	286	$	280
Interest expense related to accretion of the discount	292		409
	$	578	$	689

The MidCap Credit Agreement includes certain representations and warranties of ModusLink, as well as events of default and certain affirmative and negative covenants that are customary for credit agreements of this type. These covenants include restrictions on borrowings, investments and dispositions by ModusLink, as well as limitations on ModusLink's ability to make certain distributions and to enter into transactions with affiliates. The MidCap Credit Agreement requires compliance with certain financial covenants providing for the maintenance of a minimum fixed charge coverage ratio, all as more fully described in the MidCap Credit Agreement.(9)CONTINGENCIES

Upon the occurrence and during the continuation of an event of default under the MidCap Credit Agreement, MidCap may, among other things, declare all obligations under the MidCap Credit Agreement immediately due and payable and increase the interest rate at which loans and other obligations under the MidCap Credit Agreement bear interest. At April 30, 2020, the

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Company had a readily available borrowing capacity under its MidCap Credit Facility of $5.7 million. As of April 30, 2020, the Company did not have any balance outstanding on the MidCap Credit Facility.


~~(9)~~	~~CONTINGENCIES~~

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 Company's Board of Directors (the "Board"), Warren Lichtenstein, Glen Kassan, William T. Fejes, Jack L. Howard, Jeffrey J. Fenton, Philip E. Lengyel and Jeffrey S. Wald; and stockholders Steel Partners Holdings L.P. ("Steel Holdings"), Steel Partners, Ltd., SPHG Holdings, Handy & Harman Ltd. 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 Lichtenstein, Howard and Fejes on December 15, 2017 (collectively, the "Challenged Transactions"). The Company is named as a nominal defendant. The complaint alleges that

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although the Challenged Transactions were approved by a Special Committee consisting of the independent members of the Board (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 and therefore unjustly enriched Steel Holdings, SPHG Holdings and Messrs. Lichtenstein, Howard and Fejes. The complaint also alleges that the Board 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. Discovery is proceeding. Based on information currently available, the Company is unable to reasonably estimate a possible loss or range of possible losses, if any, with regard to the lawsuit; therefore, no litigation reserve has been recorded in the Company's condensed consolidated balance sheets. Although there can be no assurance as to the ultimate outcome, the Company believes it has meritorious defenses, continues to deny liability and intends to defend this litigation vigorously.


~~(10)~~	~~STOCKHOLDERS' EQUITY~~

~~Preferred Stock~~

The Company's Board has the authority, subject to any limitations prescribed by Delaware law, to issue shares of preferred stock in one or more series and to fix and determine the designation, privileges, preferences and rights and the qualifications, limitations and restrictions of those shares, including dividend rights, conversion rights, voting rights, redemption rights, terms of sinking funds, liquidation preferences and the number of shares constituting any series or the designation of the series, without any further vote or action by stockholders. Any shares of the Company's preferred stock so issued may have priority over its common stock with respect to dividend, liquidation and other rights. The Board may authorize the issuance of preferred stock with voting rights or conversion features that could adversely affect the voting power or other rights of the holders of its common stock. Although the issuance of preferred stock could provide us with flexibility in connection with possible acquisitions and other corporate purposes, under some circumstances, it could have the effect of delaying, deferring or preventing a change of control.(10)REVENUE RECOGNITION

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 share ("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, par value $0.01 per share ("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.

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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) one hundred percent (100%) of the stated value per share of Preferred Stock (initially $1,000 per share) then held by them (as adjusted for any stock split, stock dividend, stock combination 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. 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).

Each holder of Preferred Stock has a vote equal to the number of shares of Common Stock into which its Preferred Stock would be convertible as of the record date, provided that the number of shares voted is based upon a conversion price which is no less than the greater of the book or market value of the Common Stock on the closing date of the purchase of the Preferred Stock. In addition, for so long as the Preferred Stock remains outstanding, the Company will not, directly or indirectly, and including in each case with respect to any significant subsidiary, without the affirmative vote of the holders of a majority of the Preferred Stock (i) liquidate, dissolve or wind up the Company or any significant subsidiary; (ii) consummate any transaction that would constitute or result in a Liquidation Event (as defined in the Series C Certificate of Designations); (iii) effect or consummate any Prohibited Issuance (as defined in the Series C Certificate of Designations); or (iv) create, incur, assume or suffer to exist any Indebtedness (as defined in the Series C Certificate of Designations) of any kind, other than certain existing Indebtedness of the Company and any replacement financing thereto, unless any such replacement financing be on substantially similar terms as such existing Indebtedness.

The Purchase Agreement provides that the Company will use its commercially reasonable efforts to effect the piggyback registration of the Common Stock issuable on the conversion of the Preferred Stock and any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing, with the Securities and Exchange Commission in the manner reasonably requested by the holder and the qualification of the securities in all states reasonably requested by the holder, in each case, in accordance with certain enumerated conditions. The Purchase Agreement also contains other representations, warranties and covenants, customary for an issuance of Preferred Stock in a private placement of this nature.

The Preferred Stock Transaction was approved and recommended to the Board by the Special Committee consisting of independent directors not affiliated with Steel Holdings GP, which controls the power to vote and dispose of the securities held by SPHG Holdings and its affiliates.


~~(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 April 30, 2020 Three Months Ended April 30, 2019

Direct
Marketing
Supply Chain
Consolidated
Total

Direct
Marketing
Supply Chain
Consolidated
Total
(In thousands)
Major Goods/Service Lines
Marketing solutions offerings $ 98,284
$ —
$ 98,284
$ 116,006
$ —
$ 116,006
Supply chain management services —
78,626
78,626
—
77,508
77,508
Other —
441
441
—
489
489
$ 98,284
$ 79,067
$ 177,351
$ 116,006
$ 77,997
$ 194,003
Timing of Revenue Recognition
Goods transferred over time $ 98,284
$ —
$ 98,284
$ 116,006
$ —
$ 116,006
Services transferred over time —
79,067
79,067
—
77,997
77,997
$ 98,284
$ 79,067
$ 177,351
$ 116,006
$ 77,997
$ 194,003

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	Nine Months Ended April 30, 2020						Nine Months Ended April 30, 2019							Three Months Ended October 31, 2020						Three Months Ended October 31, 2019
	Direct Marketing		Supply Chain		Consolidated Total		Direct Marketing		Supply Chain		Consolidated Total			Direct Marketing		Supply Chain		Consolidated Total		Direct Marketing		Supply Chain		Consolidated Total
	(In thousands)													(In thousands)
Major Goods/Service Lines													Major Goods/Service Lines
Marketing solutions offerings	$	354,404	$	—	$	354,404	$	362,547	$	—	$	362,547	Marketing solutions offerings	$	105,708	$	0	$	105,708	$	133,003	$	0	$	133,003
Supply chain management services	—		262,242		262,242		—		251,300		251,300		Supply chain management services	0		63,787		63,787		0		91,705		91,705
Other	—		1,310		1,310		—		1,512		1,512		Other	0		439		439		0		445		445
	$	354,404	$	263,552	$	617,956	$	362,547	$	252,812	$	615,359		$	105,708	$	64,226	$	169,934	$	133,003	$	92,150	$	225,153
Timing of Revenue Recognition													Timing of Revenue Recognition
Goods transferred over time	$	354,404	$	—	$	354,404	$	362,547	$	—	$	362,547	Goods transferred over time	$	105,708	$	0	$	105,708	$	133,003	$	0	$	133,003
Services transferred over time	—		263,552		263,552		—		252,812		252,812		Services transferred over time	0		64,226		64,226		0		92,150		92,150
	$	354,404	$	263,552	$	617,956	$	362,547	$	252,812	$	615,359		$	105,708	$	64,226	$	169,934	$	133,003	$	92,150	$	225,153

Marketing Solutions Offerings

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.

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

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.

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Contract Balances

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 notes that its contract assets are all short-term in nature and are included in prepaid expenses and other current assets in the Company's 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.

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

April 30,
2020 July 31,
2019
(In thousands)
Accounts receivable, trade, net $ 83,000
$ 112,141
Contract assets $ 14,305
$ 21,473

Deferred revenue - current $ 3,810
$ 2,967
Deferred revenue - long-term 69
62
Total deferred revenue $ 3,879
$ 3,029


	October 31, 2020		July 31, 2020
	(In thousands)
Accounts receivable, trade, net	$	79,898	$	93,072
Contract assets	$	18,128	$	13,016

Deferred revenue - current	$	2,933	$	2,860
Deferred revenue - long-term	255		85
Total deferred revenue	$	3,188	$	2,945

Remaining Performance Obligations

Remaining performance obligations are comprised of deferred revenue. Changes in deferred revenue during the ~~nine~~three months ended ~~April 30,~~October 31, 2020 and October 31, 2019, were as follows:


	Nine Months Ended April 30, 2020				Three Months Ended October 31, 2020		Three Months Ended October 31, 2019
	(In thousands)				(In thousands)
Balance at beginning of period	$	3,029		Balance at beginning of period	$	2,945	$	3,029
Deferral of revenue	3,804			Deferral of revenue	1,096		1,216
Recognition of deferred amounts upon satisfaction of performance obligation	(2,954		)	Recognition of deferred amounts upon satisfaction of performance obligation	(853)		(855)
Balance at end of period	$	3,879		Balance at end of period	$	3,188	$	3,390

We expect to recognize approximately ~~$3.8~~$2.9 million of the deferred revenue over the next twelve months and the remaining ~~$0.1~~$0.3 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.


~~(12)~~	~~INCOME TAXES~~

(11)INCOME TAXES

The Company operates in multiple taxing jurisdictions, both within and outside of the United States. For the ~~nine~~three months ended ~~April 30,~~October 31, 2020, the Company was profitable in certain jurisdictions, resulting in an income tax expense using enacted

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rates in those jurisdictions. As of ~~April 30,~~October 31, 2020 and July 31, 2020, the total amount of the liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately ~~$2.0 million. As of July 31, 2019, the total amount of the liability for unrecognized tax benefits related to federal, state~~$2.8 million and ~~foreign taxes was approximately $2.4 million.~~$2.8 million, respectively.

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, ~~such as temporary changes regarding the prior and future utilization of net operating losses,~~including temporary changes to the ~~prior and~~ future limitations on interest deductions related to section 163j and deferral of payment of the employer portion of social security taxes through the end of calendar year ~~2020, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property and the creation of certain refundable employee retention credits.~~2020.

~~As of April 30, 2020, the~~The Company has elected to defer the employer-paid portion of social security taxes, which is expected to provide the Company with approximately ~~$4.0~~$5.2 million of additional liquidity during the current calendar year, with 50% of the deferral due December 31, 2021 and the remaining 50% due 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.

In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. The Company is also currently evaluating the potential tax related incentives offered in certain foreign countries, where our operations have also been impacted by COVID-19.

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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 ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, the liabilities for interest expense related to uncertain tax positions were ~~$0.2~~$0.4 million and ~~$0.2~~$0.3 million, respectively. The Company has accrued ~~$0.2~~$0.4 million for penalties related to income tax positions. The Company ~~does not expect any~~expects $0.3 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, ~~2014~~2016 through July 31, ~~2018.~~2020. 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~~2012 through ~~2018~~2019 tax years remain subject to examination in most locations, while the Company's ~~2006~~2008 through ~~2018~~2019 tax years remain subject to examination in most Asia locations.

~~Net Operating Loss~~

The Company has certain deferred tax benefits, including those generated by net operating losses and certain other tax attributes (collectively, the "Tax Benefits"). The Company's ability to use these Tax Benefits could be substantially limited if it were to experience an "ownership change," as defined under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change would occur if there is a greater than 50-percentage point change in ownership of securities by stockholders owning (or deemed to own under Section 382 of the Code) five percent or more of a corporation's securities over a rolling three-year period.(12)(LOSS) EARNINGS PER SHARE

~~Tax Benefits Preservation Plan~~

On March 6, 2018, the Board, subject to approval by the Company's stockholders, approved an amendment to the Company's Restated Certificate of Incorporation designed to protect the tax benefits of the Company's net operating loss carryforwards by preventing certain transfers of our securities that could result in an "ownership change" (as defined under Section 382 of the Code) (the "Protective Amendment" or "Tax Plan"). The Protective Amendment was approved and adopted by the Company's stockholders at the 2017 Meeting and was filed with the Secretary of State of the State of Delaware on April 12, 2018.

The Company had net operating loss carryforwards for federal and state tax purposes of approximately $2.1 billion and $160.0 million, respectively, as of July 31, 2019. The federal net operating losses will expire from fiscal year 2022 through 2038, and the state net operating losses will expire from fiscal year 2019 through 2039. The Company's ability to use its Tax Benefits would be substantially limited if the Company undergoes an Ownership Change. The Tax Plan is intended to prevent an Ownership Change of the Company that would impair the Company's ability to utilize its Tax Benefits.

As part of the Tax Plan, the Board declared a dividend of one right (a "Right") for each share of Common Stock then outstanding. The dividend was payable to holders of record as of the close of business on January 29, 2018. Any shares of Common Stock issued after January 29, 2018, will be issued together with the Rights. Each Right initially represents the right to purchase one one-thousandth of a share of newly created Series D Junior Participating Preferred Stock.

Initially, the Rights will be attached to all certificates representing shares of Common Stock then outstanding, and no separate rights certificates will be distributed. In the case of book entry shares, the Rights will be evidenced by notations in the book entry accounts. Subject to certain exceptions specified in the Tax Plan, the Rights will separate from the Common Stock and a distribution date (the "Distribution Date") will occur upon the earlier of (i) ten (10) business days following a public announcement that a stockholder (or group) has become a beneficial owner of 4.99-percent or more of the shares of Common Stock then outstanding or (ii) ten (10) business days (or such later date as the Board determines) following the commencement of a tender offer or exchange offer that would result in a person or group becoming a 4.99 percent stockholder.

Pursuant to the Tax Plan and subject to certain exceptions, if a stockholder (or group) becomes a 4.99-percent stockholder after adoption of the Tax Plan, the Rights would generally become exercisable and entitle stockholders (other than the 4.99-percent stockholder or group) to purchase additional shares of the Company at a significant discount, resulting in substantial dilution in the economic interest and voting power of the 4.99-percent stockholder (or group). In addition, under certain circumstances in which the Company is acquired in a merger or other business combination after an non-exempt stockholder (or group) becomes a 4.99-percent stockholder, each holder of the Right (other than the 4.99-percent stockholder or group) would then be entitled to purchase shares of the acquiring company's common stock at a discount.

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The Rights are not exercisable until the Distribution Date and will expire at the earliest of (i) 11:59 p.m., on January 18, 2021; (ii) the time at which the Rights are redeemed or exchanged as provided in the Tax Plan; and (iii) the time at which the Board determines that the Tax Plan is no longer necessary or desirable for the preservation of Tax Benefits.


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

The following table reconciles (loss) earnings ~~(loss)~~ per share for the three ~~and nine~~ months ended ~~months ended April 30,~~October 31, 2020 and 2019:

Three Months Ended
April 30, Nine Months Ended
April 30,
2020 2019 2020 2019
(In thousands, except per share data)
Net loss $ (6,159 ) $ (9,627 ) $ (4,924 ) $ (28,745 )
Less: Preferred dividends on redeemable preferred stock (525 ) (525 ) (1,592 ) (1,598 )
Net loss attributable to common stockholders $ (6,684 ) $ (10,152 ) $ (6,516 ) $ (30,343 )

Weighted average common shares outstanding 61,815
61,393
61,583
61,111
Weighted average common equivalent shares arising from restricted stock —
—
—
—
Weighted average number of common and potential common shares 61,815
61,393
61,583
61,111
Basic net loss per share attributable to common stockholders $ (0.11 ) $ (0.17 ) $ (0.11 ) $ (0.50 )
Diluted net loss per share attributable to common stockholders $ (0.11 ) $ (0.17 ) $ (0.11 ) $ (0.50 )


	Three Months Ended October 31,
	2020		2019
	(In thousands, except per share data)
Net (loss) income	$	(3,551)	$	4,792
Less: Preferred dividends on redeemable preferred stock	(537)		(536)
Net (loss) income attributable to common stockholders	(4,088)		4,256
7.50% Convertible Senior Note	0		592
Redeemable preferred stock	0		536
Net (loss) income attributable to common stockholders after assumed conversions	$	(4,088)	$	5,384

Weighted average common shares outstanding	61,893		61,401
Weighted average common equivalent shares arising from dilutive stock options, restricted stock, convertible note and convertible preferred stock	0		24,605
Weighted average number of common and potential common shares	61,893		86,006
Basic net (loss) income per share attributable to common stockholders	$	(0.07)	$	0.07
Diluted net (loss) income per share attributable to common stockholders	$	(0.07)	$	0.06

Basic net (loss) earnings ~~(loss)~~ per common share is calculated using the ~~weighted-average~~weighted average number of common shares outstanding during the period. Diluted net earnings 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).

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For the three months ended ~~April 30,~~October 31, 2020, ~~and 2019,~~ approximately ~~25.0~~24.3 million ~~and 22.5 million, respectively,~~ common stock equivalent shares (including those related to convertible debt and preferred stock) were excluded from the denominator in the calculation of diluted net ~~earnings (loss)~~loss per share as their inclusion would have been antidilutive. For the ~~nine~~three months ended ~~April 30, 2020 and~~October 31, 2019 approximately ~~24.5~~0.3 million ~~and 19.6 million, respectively, common stock equivalent shares (including those related to convertible debt and preferred stock)~~ were excluded from the denominator in the calculation of diluted net earnings ~~(loss)~~ per share as their inclusion would have been antidilutive.


~~(14)~~	~~COMPREHENSIVE INCOME (LOSS)~~

(13)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, 2020	$	5,025	$	(1,182)	$	3,843
Foreign currency translation adjustment	2,973		0		2,973


Net current-period other comprehensive income (loss)	2,973		0		2,973
Accumulated other comprehensive income (loss) as of October 31, 2020	$	7,998	$	(1,182)	$	6,816


	Foreign Currency Items		Pension Items		Unrealized Gains on Securities		Total
	(In thousands)
Accumulated other comprehensive income (loss) as of July 31, 2019	$	5,017	$	(4,079)	$	96	$	1,034
Foreign currency translation adjustment	13		0		0		13

Pension liability adjustments	0		(2)		0		(2)
Net current-period other comprehensive income (loss)	13		(2)		0		11
Accumulated other comprehensive income (loss) as of October 31, 2019	$	5,030	$	(4,081)	$	96	$	1,045

(14)SEGMENT INFORMATION

Foreign
Currency
Items

Pension
Items

Unrealized
Gains
(Losses) on
Securities
Total
(In thousands)
Accumulated other comprehensive income (loss) at July 31, 2019 $ 5,017
$ (4,079 ) $ 96
$ 1,034
Foreign currency translation adjustment (2,387 ) —
—
(2,387 )
Net unrealized holding loss on securities —
—
(96 ) (96 )
Pension liability adjustments —
(131 ) —
(131 )
Net current-period other comprehensive income (loss) (2,387 ) (131 ) (96 ) (2,614 )
Accumulated other comprehensive income (loss) at April 30, 2020 $ 2,630
$ (4,210 ) $ —
$ (1,580 )

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Foreign
Currency
Items

Pension
Items

Unrealized
Gains
(Losses) on
Securities
Total
(In thousands)
Accumulated other comprehensive income (loss) at July 31, 2018 $ 6,348
$ (3,795 ) $ 181
$ 2,734
Foreign currency translation adjustment (276 ) —
—
(276 )
Net unrealized holding loss on securities —
—
(86 ) (86 )
Pension liability adjustments —
(64 ) —
(64 )
Net current-period other comprehensive income (loss) (276 ) (64 ) (86 ) (426 )
Accumulated other comprehensive income (loss) at April 30, 2019 $ 6,072
$ (3,859 ) $ 95
$ 2,308


~~(15)~~	~~SEGMENT INFORMATION~~

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

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Summarized financial information by operating segment is as follows:


	Three Months Ended October 31,
	2020		2019
	(In thousands)
Net revenue:
Direct Marketing	$	105,708	$	133,003
Supply Chain	64,226		92,150
	$	169,934	$	225,153
Operating income:
Direct Marketing	$	4,937	$	11,203
Supply Chain	5,151		6,510
Total segment operating income	10,088		17,713
Corporate-level activity	(3,013)		(2,971)
Total operating income	7,075		14,742
Total other expense	(9,822)		(8,595)
(Loss) income before income taxes	$	(2,747)	$	6,147

Three Months Ended
April 30, Nine Months Ended
April 30,
2020 2019 2020 2019
(In thousands)
Net revenue:
Direct Marketing $ 98,284
$ 116,006
$ 354,404
$ 362,547
Supply Chain 79,067
77,997
263,552
252,812
$ 177,351
$ 194,003
$ 617,956
$ 615,359
Operating income (loss):
Direct Marketing $ (3,041 ) $ 5,308
$ 12,379
$ 16,770
Supply Chain 6,535
(716 ) 18,808
825
Total segment operating income 3,494
4,592
31,187
17,595
Corporate-level activity (2,427 ) (2,435 ) (8,205 ) (9,776 )
Total operating income 1,067
2,157
22,982
7,819
Total other expense (5,741 ) (10,386 ) (23,878 ) (32,650 )
Loss before income taxes $ (4,674 ) $ (8,229 ) $ (896 ) $ (24,831 )


	October 31, 2020		July 31, 2020
	(In thousands)
Total assets:
Direct Marketing	$	590,449	$	584,477
Supply Chain	114,386		138,773
Sub-total—segment assets	704,835		723,250
Corporate	51,522		35,922
	$	756,357	$	759,172

April 30,
2020 July 31,
2019
(In thousands)
Total assets:
Direct Marketing $ 615,579
$ 600,390
Supply Chain 134,718
112,712
Sub-total—segment assets 750,297
713,102
Corporate 34,369
18,461
$ 784,666
$ 731,563

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Summarized financial information of the Company's net revenue from external customers by group of services is as follows:


	Three Months Ended October 31,
	2020		2019
	(In thousands)
Products:
Direct Marketing	$	105,708	$	133,003
Services:
Supply Chain	64,226		92,150
	$	169,934	$	225,153

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Three Months Ended
April 30, Nine Months Ended
April 30,
2020 2019 2020 2019
(In thousands)
Products:
Direct Marketing $ 98,284
$ 116,006
$ 354,404
$ 362,547
Services:
Supply Chain 79,067
77,997
263,552
252,812
$ 177,351
$ 194,003
$ 617,956
$ 615,359

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


	Three Months Ended October 31,
	2020		2019
	(In thousands)
United States	$	121,483	$	153,046
China	19,640		39,389
Netherlands	7,795		10,648
Other	21,016		22,070
	$	169,934	$	225,153

(15)RELATED PARTY TRANSACTIONS

Three Months Ended
April 30, Nine Months Ended
April 30,
2020 2019 2020 2019
(In thousands)
United States $ 117,315
$ 133,790
$ 417,028
$ 416,228
China 28,100
32,257
99,898
106,762
Netherlands 9,467
11,534
31,185
40,881
Other 22,469
16,422
69,845
51,488
$ 177,351
$ 194,003
$ 617,956
$ 615,359


~~(16)~~	~~RELATED PARTY TRANSACTIONS~~

As of ~~April 30,~~October 31, 2020, SPHG Holdings and its affiliates, including Steel Holdings, Handy & Harman Ltd., and Steel Partners, Ltd., beneficially owned approximately ~~55.9%~~54.8% of our outstanding capital stock, including the if-converted value of the SPHG Note and shares of Series C Convertible Preferred Stock that vote on an as-converted basis together with our ~~Common Stock.~~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. Glen Kassan, our Vice Chairman of~~GP Inc. ("Steel Holdings GP"), the ~~Board and former Chief Administrative Officer, is an employee~~manager of Steel ~~Services Ltd. ("Steel Services").~~Holdings. 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. ~~William T. Fejes, Jr., the former Chief Operating Officer of Steel Holdings, was also appointed to the Board upon the closing of the Preferred Stock Transaction described below.~~

SPHGNote Transaction

On February 28, 2019, the Company entered into that certain SPHG Note Purchase Agreement with 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. As of ~~April 30,~~both October 31, 2020 and July 31, ~~2019,~~2020, SPHG Holdings held $14.9 million principal amount of the ~~Company's 7.50% Convertible Senior~~SPHG Note. As of ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, the net carrying value of the SPHG Note was ~~$8.7~~$8.3 million and ~~$7.4~~$8.1 million, respectively.

Preferred Stock Transaction

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.

Management Services Agreement

On December 24, 2014, the Company entered into a Management Services Agreement with SP Corporate Services LLC ("SP Corporate"), effective as of January 1, 2015 (the "2015 Management Services Agreement"). SP Corporate, and its successor, is an indirect wholly-owned subsidiary of Steel Holdings and is a related party. Pursuant to this agreement, SP Corporate provided

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~~the Company and its subsidiaries with the services of certain employees, including certain executive officers and other corporate services. On~~ June 14, 2019, the Company entered into ~~a new~~an agreement (the "2019 Management Services Agreement") with Steel Services Ltd., an indirect wholly-owned subsidiary of Steel Holdings. The 2019 Management Services Agreement was effective as of June 1, 2019. ~~The 2019 Management Services Agreement supersedes all prior agreements between the Company and Steel Services, including the 2015 Management Services Agreement.~~ Total expenses incurred related to ~~the 2015 Management Services Agreement and~~ the 2019 Management Services Agreement for the three months ended ~~April 30,~~October 31, 2020 and 2019 were ~~$0.9~~$0.8 million and $0.3 million, respectively. Total expenses incurred related to the 2015 Management Services Agreement and the 2019 Management Services Agreement for the nine months ended April 30, 2020 and 2019 were $2.6 million and $1.0$0.9 million, respectively. As of ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, amounts due to Steel Services Ltd. were ~~$0.3~~$2.3 million and ~~$0.5~~$0.8 million, respectively.


~~(17)~~	~~FAIR VALUE MEASUREMENTS~~

(16)FAIR VALUE MEASUREMENTS

ASC 820 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

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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

The carrying value of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, current liabilities and the revolving line of credit 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 ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, classified by fair value hierarchy:

Fair Value Measurements at Reporting Date Using
(In thousands) April 30, 2020 Level 1 Level 2 Level 3
Assets:
Money market funds $ 513
$ 513
$ —
$ —

Fair Value Measurements at Reporting Date Using
(In thousands) July 31, 2019 Level 1 Level 2 Level 3
Assets:
Money market funds $ 365
$ 365
$ —
$ —


			Fair Value Measurements at Reporting Date Using
(In thousands)	October 31, 2020		Level 1		Level 2		Level 3
Assets:
Money market funds	$	45,119	$	45,119	$	0	$	0


			Fair Value Measurements at Reporting Date Using
(In thousands)	July 31, 2020		Level 1		Level 2		Level 3
Assets:
Money market funds	$	5,117	$	5,117	$	0	$	0

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.

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

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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. ~~We believe~~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.

(17)SUBSEQUENT EVENT

Steel Holdings Expression of Interest

On November 19, 2020, the Board received a preliminary, non-binding expression of interest (the "Expression of Interest") from Steel Holdings to acquire all of the outstanding shares of common stock not already owned by Steel Holdings 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,

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evaluate, negotiate and approve or disapprove the Expression of Interest, and to explore alternative strategies or transactions. 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.

No decision has yet been made with respect to the Company's response to the Expression of Interest or any alternatives thereto. The Board has only received a proposal, which does not constitute an offer or proposal 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 progress of the proposed transaction until either the Company enters into a definitive agreement or the Acquisition Proposal Special Committee determines no such transaction will be approved.

Amendment to MidCap Credit Facility

On December 9, 2020, ModusLink entered into a First Amendment to the MidCap credit agreement (“Amendment No. 1”) by and among ModusLink, certain of ModusLink's subsidiaries identified on the signature pages thereto, and MidCap as lender and agent.

Amendment No. 1 amends the MidCap credit agreement to permit special cash dividends to be made on or prior to July 31, 2021 in an aggregate amount not to exceed $50.0 million (the “Special Distributions”). Payment of the Special Distributions will eliminate the availability of the general dividend basket for the fiscal year ending July 31, 2021. In addition, Amendment No. 1 incorporates a new minimum liquidity financial covenant, which requires that the sum of excess availability under the MidCap credit agreement and the amount of qualified cash and cash equivalents of the borrower is not less than $3.0 million until the earlier of July 31, 2021 or the date on which the borrower has either distributed the maximum amount of the Special Distributions or waived the ability to make further Special Distributions. Among other things, Amendment No. 1 also increases the percentage of eligible accounts included in the borrowing base from 50% to 75% and amends the condition for borrowing of revolving loans after the effective date of Amendment No. 1 to require evidence that specified availability (the sum of excess availability and the difference between the borrowing base and the aggregate revolving loan commitments) is not less than $3.0 million prior to giving effect to any such borrowing.

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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 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 15, 2019, as amended by Amendment No. 1 filed on November 26, 2019,~~September 30, 2020, 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.

Overview

Steel Connect, Inc. (the "Company") is a diversified holding company with two wholly-owned subsidiaries, IWCO Direct Holdings, Inc. ("IWCO ~~Direct"~~Direct," "IWCO" or ~~"IWCO"~~"Direct Marketing") and ModusLink Corporation ("ModusLink" or "Supply Chain"), that have market-leading positions in direct marketing and supply chain management, respectively.

IWCO Direct

As a leading provider of data-driven direct marketing solutions, IWCO Direct's products and services help clients create more effective marketing offers and communications across all marketing channels to create new and more loyal customers. With a nearly 50-year legacy of printing and mailing services, IWCO Direct's full range of expanded marketing services includes strategy, creative 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 ("MSO") (cable or direct-broadcast satellite TV systems), insurance and to a lesser extent subscription/services, healthcare, travel/hospitality and other. Direct mail is a critical piece of marketing for most of its current customers who use direct mail to acquire new customers. 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.

It is possible that in future periods decreases in customer demand or volumes or other potential changes in operations may increase the risk that goodwill and other intangible assets, which are only associated with the Direct Marketing segment, may become impaired.

Supply Chain

Historically, a significant portion of our revenue from our Supply Chain business has been generated from clients in the computer and software markets. These markets, while large in size, are mature and, as a result, gross margins in these markets tend to be lower than other markets ModusLink operates in. To address this, in addition to the computer and software markets, ModusLink has expanded its sales focus to include additional markets such as communications and consumer electronics, with a long-term focus on expanding in growth industries, such as the connected home and connected healthcare, among others. ModusLink believes these markets, and other verticals it operates in, may experience faster growth than its historical markets and represent opportunities to realize higher gross margins on the services it offers. Companies in these markets often have significant need for a supply chain partner who will be an extension to their business models. ModusLink believes the scope of its service offerings, including value-added warehousing and distribution, repair and recovery, aftersales, returns management, financial management, entitlement management, contact center support, material planning and factory supply, and e-Business will increase the overall value of the supply chain solutions it delivers to its existing clients and to new clients.

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As a large portion of the Supply Chain revenue comes from outsourcing services provided to clients such as retail products and consumer electronics companies, our operating performance has been and may continue to be adversely affected by declines in the overall performance within these sectors and uncertainty affecting the world economy. In addition, the drop in consumer

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demand for products of certain clients has had and may continue to have the effect of reducing our volumes and adversely affecting revenue, gross margin and overall operating performance. Additionally, the markets for the Supply Chain services are generally very competitive, though we believe we have a compelling and differentiated offering due to the value-added services we provide, our commitment to client management and our global reach. We also face pressure from our clients to continually realize efficiency gains in order to help our clients maintain their profitability objectives. Increased competition and client demands for efficiency improvements may result in price reductions, reduced gross margins and, in some cases, loss of market share. In addition, our profitability varies based on the types of services we provide and the regions in which we perform them. Therefore, the mix of revenue derived from our various services and locations can impact our gross margin results. Also, form factor changes, which we describe as the reduction in the amount of materials and product components used in our clients' completed packaged product, can also have the effect of reducing our revenue and gross margin opportunities. As a result of these competitive and client pressures, the gross margins in our Supply Chain business are low.

Many of the Supply Chain business' clients products are subject to seasonal consumer buying patterns. As a result, the services ModusLink provides to its clients are also subject to seasonality, with higher revenue and operating income typically being realized from handling its clients' products during the first half of our fiscal year, which includes the holiday selling season.

We have developed plans and will continue to monitor plans to address process improvements and realize other efficiencies throughout our global footprint with a goal to reduce cost, remove waste and improve our overall gross margins. There can be no assurance that these actions will improve gross margins. Increased competition as well as industry consolidation and/or low demand for our clients' products and services may hinder our ability to maintain or improve our gross margins, profitability and cash flows. We must continue to focus on margin improvement, through implementation of our strategic initiatives, cost reductions and asset and employee productivity gains in order to improve the profitability of our businesses and maintain our competitive position. We generally manage margin and pricing pressures in several ways, including efforts to target new markets, expand and enhance our service offerings, improve the efficiency of our processes and to lower our infrastructure costs. We seek to lower our cost to service clients by moving work to lower-cost venues, consolidating and leveraging our global facility footprint, drive process and efficiency reforms and other actions designed to improve the productivity of our operations.

Historically, a limited number of key clients had accounted for a significant percentage of the Company's revenue. For the three ~~and nine~~ months ended ~~April 30,~~October 31, 2020 and 2019, the Company's ten largest clients accounted for approximately ~~61%~~55% and ~~56%~~52% of consolidated net revenue, respectively. One client from the computing market accounted for ~~more than 10%~~15% of the Company's consolidated net revenue for ~~both~~three months ended October 31, 2020. One client from the computing market accounted for 15% of the Company's consolidated net revenue for the three ~~and nine~~ months ended ~~April 30, 2020.~~October 31, 2019. 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 conditions. By diversifying into new markets and improving the operational support structure for the Company's clients, it expects to offset the adverse financial impact such factors may bring about.

Impact of COVID-19

~~Additionally, to~~

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financial condition and cash flows. The severity of the impact on the Company's business for the remainder of ~~fiscal~~calendar 2020 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to the demand for our businesses' products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could also be adversely impacted by delays in payments of outstanding receivables beyond normal payment terms, supply chain disruptions and uncertain demand, and the effect of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. There is also no certainty that federal, state or local regulations regarding safety measures to address the spread of COVID-19 will not adversely impact the Company's operations.

Recent Developments

Non-binding Expression of Interest

On November 19, 2020, the Company's Board of Directors (the "Board") received a preliminary, non-binding expression of interest (the "Expression of Interest") from Steel Partners Holdings L.P. ("Steel Holdings") to acquire all of the outstanding shares of common stock not already owned by Steel Holdings 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 Expression of Interest was filed as an exhibit to a Schedule 13D/A filed with the SEC by Steel Holdings and certain of its affiliates on November 19, 2020. 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. 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.

No decision has yet been made with respect to the Company's response to the Expression of Interest or any alternatives thereto. The Board cautions that it has only received a proposal, which does not constitute an offer or proposal 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 progress of the proposed transaction until either the Company enters into a definitive agreement or the Acquisition Proposal Special Committee determines no such transaction will be approved.

MidCap Credit Facility

On December 9, 2020, ModusLink entered into a First Amendment (“Amendment No. 1”) to its credit agreement with MidCap Financial Trust ("MidCap") by and among ModusLink, certain of ModusLink's subsidiaries identified on the signature pages thereto, and MidCap as lender and agent.

Basis of Presentation

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

During the three months ended October 31, 2019, the Company recorded a $6.4 million adjustment to correct an out-of-period misstatement related to the Company's estimate for certain tax related liabilities. Had this correction been recorded for the fiscal year ended July 31, 2019, the Company's selling, general and administrative expenses and net loss for that period would have been reduced to $137.7 million and $60.3 million, respectively. ~~The Company's accrued expenses as of July 31, 2019 would have been reduced to $106.3 million.~~

~~Certain reclassifications have been made to conform prior-period amounts to the current-period presentation.~~

Results of Operations

Three months ended ~~April 30,~~October 31, 2020 compared to the three months ended ~~April 30,~~October 31, 2019

Net Revenue:

Three Months Ended April 30, 2020
As a %
of Total
Net
Revenue
Three Months Ended April 30, 2019
As a %
of Total
Net
Revenue
$ Change % Change
(In thousands)
Direct Marketing $ 98,284
55.4 % $ 116,006
59.8 % $ (17,722 ) (15.3 )%
Supply Chain 79,067
44.6 % 77,997
40.2 % 1,070
1.4 %
Total $ 177,351
100.0 % $ 194,003
100.0 % $ (16,652 ) (8.6 )%


	Three Months Ended October 31, 2020		As a % of Total Net Revenue		Three Months Ended October 31, 2019		As a % of Total Net Revenue		$ Change		% Change
	(In thousands)
Direct Marketing	$	105,708	62.2	%	$	133,003	59.1	%	$	(27,295)	(20.5)	%
Supply Chain	64,226		37.8	%	92,150		40.9	%	(27,924)		(30.3)	%
Total	$	169,934	100.0	%	$	225,153	100.0	%	$	(55,219)	(24.5)	%

Net revenue decreased by approximately ~~$16.7~~$55.2 million during the three months ended ~~April 30,~~October 31, 2020, as compared to the same period in the prior year. During the three months ended ~~April 30,~~October 31, 2020, net revenue for the Direct Marketing segment decreased by approximately ~~$17.7~~$27.3 million primarily driven by lower volume due to the COVID-19 pandemic, partially offset by a higher average price per package mailed. ~~The~~Within the Direct Marketing segment, the decrease in net revenue was primarily associated with customers in the financial, MSO and ~~MSO industries, partially offset by increases in the subscription services and healthcare~~insurance industries. Within the Supply Chain segment, net revenues ~~increased~~decreased by approximately ~~$1.1~~$27.9 million. This ~~increase~~decrease in net revenue was primarily driven ~~by an increase in revenue~~by: (1) lower volume associated with clients exiting in the computing and consumer electronics markets and (2) lower volume with the Company's largest client in the computing market, ~~partially offset by decreased revenues from clients~~which is expected to shift later in the ~~consumer electronics and consumer products industries.~~current fiscal year. Fluctuations in foreign currency exchange rates had an insignificant impact on the Supply Chain segment's net revenues for the three months ended ~~April 30,~~October 31, 2020, as compared to the same period in the prior year.

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Cost of Revenue:

Three Months Ended April 30, 2020 As a %
of Segment
Net
Revenue Three Months Ended April 30, 2019 As a %
of Segment
Net
Revenue $ Change % Change
(In thousands)
Direct Marketing $ 79,476
80.9 % $ 87,777
75.7 % $ (8,301 ) (9.5 )%
Supply Chain 64,405
81.5 % 69,365
88.9 % (4,960 ) (7.2 )%
Total $ 143,881
81.1 % $ 157,142
81.0 % $ (13,261 ) (8.4 )%


	Three Months Ended October 31, 2020		As a % of Segment Net Revenue		Three Months Ended October 31, 2019		As a % of Segment Net Revenue		$ Change		% Change
	(In thousands)
Direct Marketing	$	81,192	76.8	%	$	104,590	78.6	%	$	(23,398)	(22.4)	%
Supply Chain	48,274		75.2	%	76,317		82.8	%	(28,043)		(36.7)	%
Total	$	129,466	76.2	%	$	180,907	80.3	%	$	(51,441)	(28.4)	%

Cost of revenue consists primarily of expenses related to the cost of materials purchased in connection with the provision of direct marketing ~~services~~ and supply chain management services, as well as costs for salaries and benefits, contract labor, consulting, paper for direct mailing, fulfillment and shipping, and applicable facilities costs. Cost of revenue for the three months ended ~~April 30,~~October 31, 2020 included materials procured on behalf of our ~~supply-chain~~supply chain clients of ~~$44.9~~$30.4 million, as compared to ~~$45.3~~$52.9 million for the same period in the prior year, a decrease of ~~$0.4~~$22.5 million. Total cost of revenue decreased by ~~$13.3~~$51.4 million for the three months ended ~~April 30,~~October 31, 2020, as compared to the same period in the prior year, primarily due to decreased material and labor costs. Gross margin percentage for the current quarter ~~remained fairly consistent at 18.9%~~increased to 23.8%, as compared to ~~19.0%~~19.7% in the prior year quarter, primarily due to ~~a decline~~customer mix, our focus on customer rationalization to improve profitability, as well as cost reduction initiatives in both ~~net revenues and cost~~segments to offset the impact of ~~revenues.~~COVID-19.

The Direct Marketing segment's gross margin percentage ~~decreased~~increased by ~~520~~180 basis points to ~~19.1%~~23.2% for the three months ended ~~April 30,~~October 31, 2020, as compared to ~~24.3%~~21.4% for the same period in the prior year, primarily due to favorable changes in customer mix, lower ~~volumes associated with~~employee related costs and the Company's aggressive measures to manage labor and reduce discretionary

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spend as a result of the COVID-19 ~~impact and associated lower overhead absorption caused by a decline in sales volume.~~pandemic. The Supply Chain segment's gross margin percentage increased by ~~740~~760 basis points to ~~18.5%~~24.8% for the three months ended ~~April 30,~~October 31, 2020, as compared to ~~11.1%~~17.2% for the same period in the prior year, primarily due to improved customer mix and decreased labor costs. Fluctuations in foreign currency exchange rates had an insignificant impact on Supply Chain's gross margin for the three months ended ~~April 30,~~October 31, 2020.

Selling, General and Administrative Expenses:


	Three Months Ended April 30, 2020		As a % of Segment Net Revenue		Three Months Ended April 30, 2019		As a % of Segment Net Revenue		$ Change			% Change			Three Months Ended October 31, 2020		As a % of Segment Net Revenue		Three Months Ended October 31, 2019		As a % of Segment Net Revenue		$ Change		% Change
	(In thousands)														(In thousands)
Direct Marketing	$	15,318	15.6	%	$	15,643	13.5	%	$	(325	)	(2.1	)%	Direct Marketing	$	13,044	12.3	%	$	9,933	7.5	%	$	3,111	31.3	%
Supply Chain	8,127		10.3	%	9,348		12.0	%	(1,221		)	(13.1	)%	Supply Chain	10,801		16.8	%	9,323		10.1	%	1,478		15.9	%
Sub-total	23,445		13.2	%	24,991		12.9	%	(1,546		)	(6.2	)%	Sub-total	23,845		14.0	%	19,256		8.6	%	4,589		23.8	%
Corporate-level activity	2,427				2,435				(8		)	(0.3	)%	Corporate-level activity	3,013				2,971				42		1.4	%
Total	$	25,872	14.6	%	$	27,426	14.1	%	$	(1,554	)	(5.7	)%	Total	$	26,858	15.8	%	$	22,227	9.9	%	$	4,631	20.8	%

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 and public reporting costs. Selling, general and administrative expenses during the three months ended ~~April 30,~~October 31, 2020 ~~decreased~~increased by approximately ~~$1.6~~$4.6 million, as compared to the same period in the prior year. Selling, general and administrative expenses for the Direct Marketing segment ~~decreased slightly,~~increased as compared to the same period in the prior year, primarily due ~~lower employee-related~~to an increase in accrued taxes, partially offset by a decrease in employee related costs, sales and marketing, and other expenses as a result of the COVID-19 ~~pandemic, offset by a change in accrued taxes.~~pandemic. Selling, general and administrative expenses for the Supply Chain segment ~~decreased~~increased primarily due to ~~a reduction in professional fees.~~restructuring costs, primarily associated with the sales and marketing functions. Corporate-level activity remained relatively flat, as compared to the same period in the prior year. Fluctuations in foreign currency exchange rates had an insignificant impact on selling, general and administrative expenses for the three months ended ~~April 30,~~October 31, 2020.

Amortization of Intangible Assets:

The intangible asset amortization expense of $6.5 million and $7.3 million, during the three months ended ~~April 30,~~October 31, 2020 and 2019, respectively, relates to trademarks, tradenames and customer relationships acquired by the Company in connection with its acquisition of IWCO. The ~~trademarks and tradenames~~decrease is due to lower amortization expense with respect to the customer relationship intangible ~~assets are being amortized on a straight-line basis over a 3~~

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~~year estimated useful life.~~assets. The customer relationship intangible assets are ~~being~~ amortized ~~on a double-declining basis over~~using an ~~estimated useful life~~accelerated method, which reflects the pattern in which we receive the economic benefit of ~~15 years.~~the asset.

Interest Expense:

During the three months ended ~~April 30,~~October 31, 2020 and 2019, interest expense totaled approximately ~~$8.5~~$7.8 million and ~~$10.3 million, respectively.~~$9.2 million. The ~~decrease in~~lower interest expense is primarily due to ~~the maturity and settlement of the Company's 5.25% Convertible Senior Notes~~lower variable interest rates on ~~March 1, 2019.~~outstanding debt.

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

Other (losses) gains, net are primarily composed of foreign exchange ~~gains.~~gains and losses. The Company recorded ~~$2.7~~$1.7 million of foreign exchange ~~gains~~losses during the three months ended ~~April 30,~~October 31, 2020, as compared to ~~an immaterial amount~~$0.5 million of foreign exchange gains in the same period in the prior year.

Income Tax Expense:

During the three months ended ~~April 30,~~October 31, 2020, the Company recorded income tax expense of approximately ~~$1.5~~$0.8 million, as compared to income tax expense of $1.4 million for the same period in the prior fiscal year. The decrease in income tax expense is primarily due to lower 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.

~~Results of Operations~~

~~Nine months ended April 30, 2020 compared to the nine months ended April 30, 2019~~

~~Net Revenue:~~

Nine Months Ended April 30, 2020
As a %
of Total
Net
Revenue
Nine Months Ended April 30, 2019
As a %
of Total
Net
Revenue
$ Change % Change
(In thousands)
Direct Marketing $ 354,404
57.4 % $ 362,547
58.9 % $ (8,143 ) (2.2 )%
Supply Chain 263,552
42.6 % 252,812
41.1 % 10,740
4.2 %
Total $ 617,956
100.0 % $ 615,359
100.0 % $ 2,597
0.4 %

Net revenue increased by approximately $2.6 million during the nine months ended April 30, 2020, as compared to the same period in the prior year. During the nine months ended April 30, 2020, net revenue for the Direct Marketing segment decreased by approximately $8.1 million primarily driven by lower volumes associated with the COVID-19 pandemic, partially offset by a higher average price per package mailed. The decrease in net revenue was primarily associated with customers in the financial and MSO industries, partially offset by increases in the subscription services and healthcare industries. Within the Supply Chain segment, net revenues increased by approximately $10.7 million primarily driven by an increase in revenue associated with clients in the computing market, partially offset by decreased revenues from clients in the consumer electronics and consumer products industries. Fluctuations in foreign currency exchange rates had an insignificant impact on the Supply Chain segment's net revenues for the nine months ended April 30, 2020, as compared to the same period in the prior year.

~~Cost of Revenue:~~

Nine Months Ended April 30, 2020 As a %
of Segment
Net
Revenue Nine Months Ended April 30, 2019 As a %
of Segment
Net
Revenue $ Change % Change
(In thousands)
Direct Marketing $ 278,696
78.6 % $ 278,388
76.8 % $ 308
0.1 %
Supply Chain 216,295
82.1 % 224,367
88.7 % (8,072 ) (3.6 )%
Total $ 494,991
80.1 % $ 502,755
81.7 % $ (7,764 ) (1.5 )%

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Cost of revenue for the nine months ended April 30, 2020 included materials procured on behalf of our supply-chain clients of $151.6 million, as compared to $144.7 million for the same period in the prior year, an increase of $6.9 million. Total cost of revenue decreased by $7.8 million for the nine months ended April 30, 2020, as compared to the same period in the prior year, primarily due to a decline in labor costs, partially offset by increased material costs. Gross margin percentage for the nine months ended April 30, 2020 increased to 19.9% from 18.3% in the prior year quarter primarily due to improved customer mix and lower labor costs, partially offset by an increase in material costs.

The Direct Marketing segment's gross margin percentage decreased by 180 basis points to 21.4% for the nine months ended April 30, 2020, as compared to 23.2% for the same period of the prior year primarily due to changes in sales mix, higher material costs and lower overhead absorption caused by a decline in sales volume related to the COVID-19 pandemic. The Supply Chain segment's gross margin percentage increased by 660 basis points to 17.9% for the nine months ended April 30, 2020, as compared to 11.3% for the same period of the prior year primarily due to improved customer mix and decreased labor costs. Fluctuations in foreign currency exchange rates had an insignificant impact on the Supply Chain segment's gross margin for the nine months ended April 30, 2020.

~~Selling, General and Administrative Expenses:~~

Nine Months Ended April 30, 2020 As a %
of Segment
Net
Revenue Nine Months Ended April 30, 2019 As a %
of Segment
Net
Revenue $ Change % Change
(In thousands)
Direct Marketing $ 42,610
12.0 % $ 44,221
12.2 % $ (1,611 ) (3.6 )%
Supply Chain 28,449
10.8 % 27,620
10.9 % 829
3.0 %
Sub-total 71,059
11.5 % 71,841
11.7 % (782 ) (1.1 )%
Corporate-level activity 8,205
9,776
(1,571 ) (16.1 )%
Total $ 79,264
12.8 % $ 81,617
13.3 % $ (2,353 ) (2.9 )%

Selling, general and administrative expenses during the nine months ended April 30, 2020 decreased by approximately $2.4 million, as compared to the same period in the prior year. Selling, general and administrative expenses for the Direct Marketing segment decreased primarily due to a change in accrued taxes of $2.0 million, as well as a decrease in wages of $1.9 million, partially offset by an increase in sales and marketing, and other expenses. Selling, general and administrative expenses for the Supply Chain segment increased primarily to due to an increase in severance and employee-related costs, partially offset by a decrease in other costs. Corporate-level activity decreased primarily due to a reduction in employee-related costs, share-based compensation expense and other expenses. Fluctuations in foreign currency exchange rates had an insignificant impact on selling, general and administrative expenses for the nine months ended April 30, 2020.

~~Amortization of Intangible Assets:~~

The intangible asset amortization expense of $20.7 million and $23.2 million, respectively, during the nine months ended April 30, 2020 and 2019, relates to amortizable intangible assets acquired by the Company in connection with its acquisition of IWCO.

~~Interest Expense:~~

During the nine months ended April 30, 2020 and 2019, interest expense totaled approximately $26.4 million and $32.3 million, respectively. The decrease in interest expense is primarily due to the maturity and settlement of the Company's 5.25% Convertible Senior Notes on March 1, 2019.

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

Other gains (losses), net are primarily composed of foreign exchange gains and losses. The Company recorded $2.4 million and $(0.6) million of foreign exchange gains (losses) during the nine months ended April 30, 2020 and 2019, respectively.

~~Income Tax Expense:~~

During the nine months ended April 30, 2020, the Company recorded income tax expense of approximately $4.0 million, as compared to income tax expense of $4.0 million for the same period in the prior fiscal year.

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Liquidity and Capital Resources

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Historically, the Company has financed its operations and met its capital requirements primarily through funds generated from operations, the sale of ~~our~~its securities, borrowings from lending institutions and sale of facilities that were not fully utilized. As of ~~April 30,~~October 31, 2020, the Company's primary source of liquidity consisted of cash and cash equivalents of ~~$90.2~~$104.5 million, which include balances held in certain foreign jurisdictions. 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 2019 relating to this aspect of the U.S. Tax Reform. In future years, under the U.S. Tax Reform, 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 be minor.

~~Cerberus Credit Facility~~

On December 15, 2017, MLGS Merger Company, Inc. ("MLGS"), a wholly-owned subsidiary of the Company, entered into a Financing Agreement (the "Financing Agreement"), by and among the MLGS (as the initial borrower), Instant Web, LLC, a Delaware corporation and wholly-owned subsidiary of IWCO (as "Borrower"), IWCO, and certain of IWCO's subsidiaries (together with IWCO, the "Guarantors"), the lenders from time to time party thereto, and Cerberus Business Finance, LLC, as collateral agent and administrative agent for the lenders. MLGS was the initial borrower under the Financing Agreement, but immediately upon the consummation of the Company's acquisition of IWCO (the "IWCO Acquisition"), Borrower became the borrower under the Financing Agreement. Steel Connect, Inc. is not a borrower or a guarantor under the Financing Agreement.

The Financing Agreement provides for a $393.0 million term loan facility (the "Term Loan") and a $25.0 million revolving credit facility (the "Revolving Facility") (together, the "Cerberus Credit Facility"). Proceeds of the Cerberus Credit Facility were used (i) to finance a portion of the IWCO Acquisition, (ii) to repay certain existing indebtedness of the Borrower and its subsidiaries, (iii) for working capital and general corporate purposes and (iv) to pay fees and expenses related to the Financing Agreement and the IWCO Acquisition. The Cerberus Credit Facility has a maturity of five years. Borrowings under the Cerberus Credit Facility bear interest, at the Borrower's option, at a Reference Rate plus 3.75% or a LIBOR Rate plus 6.5%, each as defined the Financing Agreement. The initial interest rate under the Cerberus Credit Facility is at the LIBOR Rate option. The Term Loan under the Cerberus Credit Facility is repayable in consecutive quarterly installments, each of which will be in an amount equal per quarter of $1.5 million and each such installment to be due and payable, in arrears, on the last day of each calendar quarter, which commenced on March 31, 2018 and ending on the earlier of (a) December 15, 2022 and (b) upon the payment in full of all obligations under the Financing Agreement and the termination of all commitments under the Financing Agreement. Further, the Term Loan would be permanently reduced pursuant to certain mandatory prepayment events including an annual "excess cash flow sweep" of 50% of the consolidated excess cash flow, with a step-down to 25% when the Leverage Ratio (as defined in the Financing Agreement) is below 3.50:1.00; provided that, in any calendar year, any voluntary prepayments of the Term Loan shall be credited against the Borrower's "excess cash flow" prepayment obligations on a dollar-for-dollar basis for such calendar year. Borrowings under the Financing Agreement are fully guaranteed by the Guarantors and are collateralized by substantially all the assets of the Borrower and the Guarantors and a pledge of all of the issued and outstanding equity interests of each of IWCO's subsidiaries.

On March 30, 2020, IWCO entered into Amendment No. 2 to the Financing Agreement ("Amendment No. 2"). Amendment No. 2 amends the Financing Agreement to permit Borrower to defer approximately $3.0 million in principal payments, due between MarchAs October 31, 2020, and June 30, 2020, until loan maturity and to forgo the payment of approximately $4.3 million in principal payments pursuant to the excess cash flow sweep in the Financing Agreement. In addition, while Amendment No. 2 limits the total amount Borrower may distribute to the Company for management fees and tax sharing to $5.0 million during the calendar year ending December 31, 2020, Amendment No. 2 also amends the calculation of the excess cash flow defined in the Financing Agreement, for the same period, to eliminate any adverse impact to Borrower from the distribution limit or from the deferral of principal payments. Borrower is required to continue to make all interest payments. In addition, Amendment No. 2 amends the liquidity requirement from $15.0 million to $14.5 million. Amendment No. 2 was part of a comprehensive precautionary approach to increase the Company's cash position and maximize its financial flexibility in light of the current volatility in the global markets resulting from the COVID-19 outbreak.

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covenants include restrictions on borrowings, investments and dispositions, as well as limitations on the ability of the Borrower and the Guarantors to make certain capital expenditures and pay dividends. Upon the occurrence and during the continuation of an event of default under the Financing Agreement, the lenders under the Financing Agreement may, among other things, terminate all commitments and declare all or a portion of the loans under the Financing Agreement immediately due and payable and increase the interest rate at which loans and obligations under the Financing Agreement bear interest. During the three month ended April 30, 2020, the Company did not trigger any of these covenants. As of April 30, 2020 and July 31, 2019, the Companywe had ~~a balance outstanding on the Revolving Facility of~~ $25.0 million and ~~$6.0~~$1.2 million of borrowing capacity available under our Direct Marketing and Supply Chain credit facilities, respectively. AsThere were no outstanding borrowings under either credit facility as of ~~April 30, 2020 and July~~October 31, ~~2019, the principal amount outstanding on the Term Loan was $372.0 million and $375.1 million, respectively.~~

~~7.25% Convertible Senior Note~~

On February 28, 2019, the Company entered into that certain 7.50% Convertible Senior Note Due 2024 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"). The SPHG Note bears interest at the 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.2020. The Company ~~will have the right to elect to cause the mandatory conversion of the SPHG Note~~was in ~~whole, and not~~compliance with all financial covenants 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.

~~MidCap Credit Facility~~

~~On December 31, 2019, ModusLink, as borrower, and certain of its subsidiaries as guarantors (the "MidCap Guarantors"), entered into a revolving~~ credit and security agreement (the "MidCap Credit Agreement"), with MidCap Financial Trust, as lender and as agent ("MidCap"). The MidCap Credit Agreement, which has a three year term, provides for a maximum credit commitment of $12.5 million and a sublimit of $5.0 million for letters of credit. The actual maximum credit available under the MidCap Credit Agreement varies from time to time and is determined by calculating the applicable borrowing base, which is based upon applicable percentages of the values of (a) eligible accounts receivable; plus (b) the least of (i) the orderly liquidation value of eligible inventory, (ii) the value of eligible inventory based on first-in-first-out cost or market costfacilities and other ~~adjustments, and (iii) $4.5 million; minus (c) reserves; all~~debt agreements as ~~specified in the MidCap Credit Agreement. Amounts borrowed under the MidCap Credit Agreement are due and payable, together with all unpaid interest, fees and other obligations, on December~~of October 31, 2022. Generally, borrowings under the MidCap Credit Agreement bear interest at a rate per annum equal to the LIBOR Rate (as defined in the MidCap Credit Agreement), which is subject to adjustment by MidCap, plus a margin of 4% per annum. In addition to paying interest on outstanding principal under the MidCap Credit Agreement, ModusLink is required to pay an unused line fee of

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~~0.50% per annum. ModusLink is also required to pay a customary letter of credit fee equal to the applicable margin on loans bearing interest at the LIBOR Rate.~~

Obligations under the MidCap Credit Agreement are guaranteed by the MidCap Guarantors, and the MidCap Credit Agreement is secured by security interests in substantially all of the assets of ModusLink and the MidCap Guarantors, including a pledge of all of the equity interests of each subsidiary of ModusLink that is a domestic entity (subject to certain limited exceptions). Steel Connect, Inc. is not a borrower or a guarantor under the MidCap Credit Agreement. The MidCap Credit Agreement includes certain representations and warranties of ModusLink, as well as events of default and certain affirmative and negative covenants that are customary for credit agreements of this type. These covenants include restrictions on borrowings, investments and dispositions by ModusLink, as well as limitations on ModusLink's ability to make certain distributions and to enter into transactions with affiliates. The MidCap Credit Agreement requires compliance with certain financial covenants providing for the maintenance of a minimum fixed charge coverage ratio, all as more fully described in the MidCap Credit Agreement. Upon the occurrence and during the continuation of an event of default under the MidCap Credit Agreement, MidCap may, among other things, declare all obligations under the MidCap Credit Agreement immediately due and payable and increase the interest rate at which loans and other obligations under the MidCap Credit Agreement bear interest. At April 30, 2020, the Company had a readily available borrowing capacity under its MidCap Credit Facility of $5.7 million. As of April 30, 2020, the Company did not have any balance outstanding on the MidCap Credit Facility.2020.

Cash Flows Information

Consolidated working capital deficit was ~~$40.2~~$12.3 million ~~at April 30,~~as of October 31, 2020, as compared to ~~$43.5~~$26.4 million at July 31, ~~2019.~~2020. Included in the working capital deficit were cash and cash equivalents of ~~$90.2~~$104.5 million ~~at April 30,~~as of October 31, 2020 and ~~$32.5~~$75.9 million at July 31, ~~2019.~~2020. The decrease in the working capital deficit was primarily driven by higher cash and cash equivalents, ~~and lower accounts payable, largely~~partially offset by lower accounts receivable ~~due to earlier customer cash receipts, increased revolving credit facility borrowings~~ and ~~increased lease liabilities recognized due to the adoption of new accounting standards.~~higher accrued expenses.

Net cash provided by operating activities was ~~$60.1~~$25.7 million for the ~~nine~~three months ended ~~April 30,~~October 31, 2020, as compared to net cash ~~used in~~provided by operating activities of ~~$3.6~~$22.4 million for the ~~nine~~three months ended ~~April 30,~~October 31, 2019. The ~~$63.7~~$3.3 million increase in net cash provided by operating activities, as compared to the same period in the prior year, was primarily due to the ~~change in net loss and the~~ timing of accounts receivable ~~accounts payable~~collections and higher accrued ~~expenses due to cost reduction and cash management activities initiated by the Company to help mitigate the financial impact of the COVID-19 pandemic.~~expenses.

The ~~Company believes that its~~Company's 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. Our cash flows from operations are also dependent on several factors, including~~Company, the market for outsourcing services, overall performance of the technology sector impacting the ~~market for outsourcing services~~Supply Chain segment and the strength of the Direct Marketing segment. ~~See also Item 1A. Risk Factors, for the additional risks associated with the COVID-19 pandemic and its impact on our business, results of operations, financial condition and cash flows.~~

Investing activities used cash of ~~$11.3~~$1.1 million and ~~$11.8~~$4.1 million during the ~~nine~~three months ended ~~April 30,~~October 31, 2020 and 2019, respectively, ~~was~~ primarily related to capital expenditures. The decrease in capital expenditures during the ~~nine~~three months ended ~~April 30,~~October 31, 2020, as compared to the same period in the prior year, is primarily due to reduced spending as the result of the COVID-19 pandemic.

Financing activities ~~provided~~used cash of ~~$13.4~~$2.1 million ~~as compared to cash used in financing activities of $57.8~~and $6.1 million during the ~~nine~~three months ended ~~April 30,~~October 31, 2020 and 2019, respectively. The $13.4 million of cash provided by financing activities during the nine months ended April 30, 2020 was primarily due to $19.0 million of net borrowings under revolving credit facilities, partially offset by $3.1 million in payments of long-term debt, $1.6 million in payment of preferred dividends and $0.9 million in payments for financing the MidCap Credit Agreement and amending the Cerberus Credit Facility. The $57.8$2.1 million of cash used in financing activities during the ~~nine~~three months ended ~~April 30, 2019~~October 31, 2020 was primarily ~~comprised of $63.9 million in payments on maturity of convertible notes and $13.4~~due to $1.5 million in payments of long-term debt ~~partially offset by $14.9~~and $0.5 million in payment of preferred dividends. The $6.1 million of ~~proceeds from issuance~~cash used in financing activities during the three months ended October 31, 2019 was primarily comprised of ~~a convertible note and $10.0~~$4.0 million in net ~~borrowings under~~payments towards Direct Marketing's revolving credit ~~facilities.~~facility with Cerberus Business Finance, LLC, $1.5 million in payments of long-term debt and $0.5 million in payment of preferred dividends.

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.

Off-Balance Sheet Arrangements

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

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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, 2020, other than the adoption of accounting standards updates discussed in the Condensed Consolidated Financial Statements, we believe that 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, 2020.

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The Company's Condensed Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles, ~~("U.S. GAAP"),~~ 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, ~~2019.~~2020.

As of ~~April 30,~~October 31, 2020, the Company reviewed its goodwill and other intangible assets for indicators of impairment as a result of the impact of the COVID-19 ~~pandemic, and~~pandemic. Although the Company’s performance has improved since the beginning as ~~a result,~~of the pandemic, the Company believes that indicators of impairment were present for all these asset classes due to a general deterioration in macroeconomic conditions ~~reduced cash flow projections~~ and a significant decline in the Company's market capitalization. The Company performed a quantitative impairment test of goodwill. The Company calculated the fair value of the Direct Marketing reporting unit using a discounted cash flow ("DCF") valuation approach, which indicated the fair value of the reporting unit exceeded its carrying value by greater than $30.0 million, and therefore, as of April 30, 2020, there was no goodwill impairment. The DCF calculation was dependent on estimates for future sales, operating income, depreciation and amortization, income tax payments, working capital changes and capital expenditures, as well as expected long-term growth rates for cash flows. The discount rates utilized in the DCF valuation are based upon on our weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital adjusted as appropriate to consider the risk inherent in future cash flows of the reporting unit.

The Company performed a qualitative assessment of whether it was more likely than not that its goodwill and other intangibles assets were impaired as of ~~April 30,~~October 31, 2020. The Company reviewed its previous forecasts and assumptions based on the Company's current projections, that are subject to various risks and uncertainties ~~including~~associated with forecasted revenues, expenses and cash flows, ~~including~~as well as the duration and extent of impact to our businesses from the COVID-19 pandemic. Based upon that assessment, the Company concluded it was ~~not~~ more likely than not ~~that the other intangible assets were impaired as of April 30, 2020.~~

However, as a result of the COVID-19 pandemic, it is possible in future periods that further declines in market conditions, customer demand or other potential changes in operations may increase the risk that goodwill and other intangible assets ~~may become impaired.~~were not impaired as of October 31, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. "Disclosure controls and procedures" means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their ~~objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.~~objectives. Based upon that evaluation, management, including the Interim Chief Executive Officer and Chief Financial Officer, concluded that ~~due to the material weakness described below as well as previously disclosed in management's report on internal controls over financial reporting as reported in~~ the Company's ~~Annual Report on Form 10-K for the fiscal year ended July 31, 2019, as filed with the SEC on October 15, 2019, our~~ disclosure controls ~~and procedures~~ were ~~not~~ effective as of July 31, ~~2019~~2020 and ~~April 30,~~October 31, 2020.

A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement to the annual or interim financial statements will not be prevented or detected on a timely basis. In its evaluation of the effectiveness of its internal control over financial reporting as of April 30, 2020, management concluded that there was a material weakness in our controls over financial reporting with respect to the Company's information technology general controls; specifically, it was identified that there was a lack of segregation of duties due to the number of users who maintain administrative access and super user access rights and lack of controls related to change management and monitoring program changes related to the enterprise resource planning system at IWCO.

Notwithstanding the identified material weakness, management has concluded that the consolidated financial statements included in this quarterly report present fairly, in all material respects, our financial position, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

~~Remediation of the Material Weakness in Internal Control Over Financial Reporting~~

Management has restricted "administrative" access, has improved its controls for user account provisioning and has implemented controls to monitor segregation of duties conflicts within the enterprise resource planning system at IWCO. In addition, management has enhanced the design and precision level of monitoring controls over program changes, which include systematic logging and testing of all changes within the I.T. environment.

Management believes the measures described above will remediate the control deficiencies the Company has identified and strengthen its internal control over financial reporting. The material weakness in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management concludes, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

~~Beginning August 1, 2019, the Company adopted the new accounting standards associated with ASC 842,~~ ~~Leases~~. The Company implemented changes to our processes related to the accounting for leases and the control activities within them. These included the development of new policies, new training, ongoing review requirements and the gathering of information necessary for expanded disclosures.

Despite the fact that many of our employees are working remotely due to the COVID-19 pandemic, ~~and except as described~~these remote work arrangements have not resulted in ~~the preceding paragraph, there have been no~~ changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) ~~during the three months ended April 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We~~; however, we are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

There have been no changes in our internal control over financial reporting during the quarter ended October 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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Item 1. Legal Proceedings.

The information set forth under Note 9 - "Contingencies" to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, also see Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended July 31, ~~2019.~~2020.

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Item 1A. Risk Factors.

In addition to the risks and uncertainties discussed in this quarterly report on Form 10-Q, particularly those disclosed in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, see "Risk Factors" in the Company's ~~annual report~~Annual Report on Form 10-K for fiscal year ended July 31, ~~2019.~~2020. There have been no material changes from the risk factors previously disclosed ~~other than~~under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020, except as set forth ~~below,~~below:

There can be no assurance that the proposed transaction between us and ~~investors are encouraged~~Steel Holdings will be agreed upon, approved and ultimately consummated, and the terms of any such transaction may differ materially from those originally proposed by Steel Holdings.

On November 19, 2020, the Company's Board received a preliminary, non-binding expression of interest from Steel Holdings to ~~review such risk factors~~acquire all of the outstanding shares of common stock not already owned by Steel Holdings 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 ~~Annual Report and below, prior~~range of $0.65 to ~~making an investment in the Company.~~$0.72 per share.

The ~~COVID-19 pandemic has adversely affected,~~transaction, as proposed, is subject to negotiation. Any definitive agreement with respect to such transaction is subject to approval by the board of directors of Steel Holdings, the Board and isshareholder approvals. Such definitive agreement would be expected to ~~continue~~contain customary closing conditions, including standard regulatory notifications and approvals.

As a result, we cannot predict whether the terms of such transaction will be agreed upon by Steel Holdings and the Board's special committee for recommendation to ~~pose risks to~~their respective boards of directors, for approval of the transaction or whether any such transactions would be approved by the requisite votes of our ~~business, results~~shareholders.

We also cannot predict the timing, final structure or other terms of ~~operations, financial condition~~any potential transaction, and ~~cash flows, and other epidemics or outbreaks~~the terms of ~~infectious diseases~~any such transaction may differ materially from those originally proposed by Steel Holdings. The pendency of any such proposed transaction may have ~~a similar impact.~~

~~The Company faces risks~~had, and ~~uncertainties related~~may continue to ~~public health crisis or epidemics, including the ongoing COVID-19 pandemic. The Company conducts operations and depends on suppliers in both domestic and international markets.~~

COVID-19 has caused disruption and volatility in the global capital markets and has created an economic slowdown. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, quarantines, curfews, shelter-in-place orders, recommendations to practice social distancing and other mandates that have substantially restricted individuals' daily activities and curtailed or ceased many businesses' normal operations. As the Company follows the COVID-19 guidelines from the Centers for Disease Control and Prevention and other public health and governmental authorities concerning the health and safety of the Company's personnel, these measures have resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, and has reduced our operating levels and labor shifts for periods of time, among other impacts. For more information on the effect to date of COVID-19, see Part I, Item 2, "Management's Discussion and Analysis of Results of Operations and Financial Condition-Impact of COVID-19," Part I, Item 2, "Management's Discussion and Analysis of Results of Operations and Financial Condition-Results of Operations" and Part I, Item 2, "Management's Discussion and Analysis of Results of Operations and Financial Condition-Liquidity and Capital Resources." The duration of these measures is unknown, may be extended and additional measures may be imposed.

The Company's results of operations, including sales volume, were adversely affected by COVID-19 during the third quarter of fiscal 2020, and the Company currently anticipates that the impact of the rapid deterioration of the U.S and global economies will most likely continue and have, an adverse impact on the Company's business. The COVID-19 pandemic or other epidemics or outbreaks of infectious diseases could materially adversely impact the Company's results of operations, financial condition and liquidity in several ways. In particular, the continued spread of COVID-19 and efforts to contain the virus could:

•~~impair the Company's ability to manage day-to-day service and product delivery;~~

•~~continue to impact customer demand of our businesses' products and services;~~

•~~cause disruptions in or closures of the Company's operations or those of its customers and suppliers;~~

•~~cause the Company to experience an increase in costs as a result of the Company's emergency measures, delayed payments from customers and uncollectable accounts;~~

•~~cause delays and disruptions in the supply chain resulting in disruptions in the commercial operation of our businesses;~~

•~~cause limitations on the Company's employees' ability to work and travel;~~

•~~impact availability of qualified personnel;~~

•increase cybersecurity risks as remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic; and

•~~cause other unpredictable events.~~

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As the situation surrounding COVID-19 remains fluid, it is difficult to predict the duration of the pandemic and the impact on the Company's business, operations, financial condition and cash flows. The severity of the impact on the Company's business in fiscal 2021 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to the manufacturing of and demand for our businesses' products and services, the effect of federal, state or local regulations regarding safety measures to address the spread of COVID-19, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. Due to the evolving and uncertain nature of this event, the Company cannot predict at this time the full extent to which the COVID-19 pandemic will adversely impact the Company's business, results and financial condition, which will depend on many factors that are not known at this time. The Company is staying in close communication with its employees, customers and suppliers, and acting to mitigate the impact of this dynamic and evolving situation (as further discussed in Part I, Item 2, "Management's Discussion and Analysis of Results of Operations and Financial Condition-Impact of COVID-19"), but there is no guarantee the Company will be able to do so.

~~The interest rates of the Company's credit facilities are principally priced using a spread over LIBOR.~~

LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. The Company typically uses LIBOR as a reference rate in the Company's credit facilities such that the interest due to our lenders is calculated using LIBOR.

In 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time whether or not LIBOR will cease to exist, if new methods of calculating LIBOR will be established such that it continues to exist after 2021 or if replacement conventions will be developed. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities ("SOFR"). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR is uncertain. At this time, due to a lack of consensus existing as to what rate or rates may become accepted alternatives to LIBOR, it is impossible to predict the effect of any such alternatives on the Company's liquidity or interest expense. If LIBOR ceases to exist, the Company may need to renegotiate its credit agreements that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established.

~~Our failure to maintain compliance with Nasdaq's continued listing requirements could result in the delisting of our common stock.~~

Our common stock is currently listed on the Nasdaq Global Select Market. In order to maintain this listing, we must satisfy minimum financial and other requirements. On April 28, 2020, we received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that, for the last 30 consecutive business days, the closing bid price of the Company's common stock has not been maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on the Nasdaq Global Select Market pursuant to Listing Rule 5450(a)(1) (the "Minimum Bid Price Rule"). The Nasdaq letter is a notice of deficiency, not delisting, and has no immediate effect on the Nasdaq listing or trading of the Company's common stock.

Given the extraordinary market conditions due to the COVID-19 pandemic, Nasdaq has determined to toll the compliance periods for the Minimum Bid Price Rule and the market value of publicly held shares requirement through June 30, 2020 (the "Tolling Period").

The Company may regain compliance with the Minimum Bid Price Rule during the Tolling Period, or in accordance with Nasdaq Listing Rules, during the 180 calendar day period from July 1, 2020 to December 28, 2020. If at any time through December 28, 2020, the closing bid price of the Company's common stock is at least $1.00 for a minimum of ten consecutive business days, Nasdaq will provide written notification to the Company that it complies with the Minimum Bid Price Rule. In the event the Company does not regain compliance by December 28, 2020, the Company may be eligible for additional time to regain compliance of up to an additional 180 calendar days.

The Company intends to monitor the closing bid price of its common stock between now and December 28, 2020, and take reasonable measures to regain compliance under the Nasdaq Listing Rules and to maintain the listing of its common stock on the Nasdaq Global Select Market. While the Company plans to review all available options, there can be no assurance that it will

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be able to regain compliance with the Nasdaq Listing Rules. We would be permitted to appeal any delisting determination to a Nasdaq Hearings Panel, and our common stock would remain listed on the Nasdaq Global Select Market pending the panel's decision after the hearing. If we do not appeal the delisting determination or do not succeed in such an appeal, our common stock would be removed from trading on the Nasdaq Global Select Market.

~~The perception among investors that the Company is at heightened risk of delisting could negatively affect the~~ market price of our ~~securities and trading volume of the Company's~~ common stock. ~~Additionally, any delisting determination could seriously decrease or eliminate~~In addition, we expect to incur a number of non-recurring transaction-related costs associated with negotiating the value of an investment in the Company's common stock. While an alternative listing on an over-the-counter exchange could maintain some degree of a market in the Company's common stock, we could face substantial material adverse consequences, including, but not limited to, among other things: limited availability for market quotations for the Company's common stock; reduced liquidity with respect to the Company's common stock; a determination that the Company's common stock is a "penny stock" under SEC rules, subjecting brokers trading the Company's common stock to more stringent rules on disclosure and the class of investors to which the broker may sell the common stock; and limited news and analyst coverage.proposed transaction.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Note applicable.

Item 5. Other Information.

~~None.~~

We are providing the following disclosure in lieu of filing a Current Report on Form 8-K relating to "Item 1.01 Entry into a Material Definitive Agreement" and "Item 2.03 Creation of Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant" of Form 8-K. On December 9, 2020, the ModusLink entered into a First Amendment to the MidCap credit agreement by and among ModusLink, certain of ModusLink's subsidiaries identified on the signature pages thereto, and MidCap as lender and agent. For a description of that amendment, please see “Note 17 - Subsequent Events - Amendment to MidCap Credit Facility" above, which is incorporated herein by reference. The description of such amendment is qualified in its entirety by reference to the amendment, a copy of which is attached hereto as Exhibit 10.1 and is incorporated into this "Item 5. Other Information" by reference.

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Item 6. Exhibits.


Exhibit Number		Description

~~Exhibit~~ ~~Number~~ 10.1*		~~Description~~

~~10.1~~	First Amendment ~~No. 2~~ to ~~Financing~~Credit and Security Agreement dated as of ~~March 30, 2020 (incorporated by reference to Steel Connect, Inc.'s Current Report on Form 8-K filed with the SEC on April 1, 2020).~~December 9, 2020.

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 ~~April 30,~~October 31, 2020 formatted in XBRL: (i) Unaudited Condensed Consolidated Balance Sheets as of ~~April 30,~~October 31, 2020 and July 31, ~~2019,~~2020, (ii) Unaudited Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~April 30,~~October 31, 2020 and 2019, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~April 30,~~October 31, 2020 and 2019, (iv) Unaudited Condensed Consolidated Statements of Stockholders' Equity for the three ~~and nine~~ months ended ~~April 30,~~October 31, 2020 and 2019, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~April 30,~~October 31, 2020 and 2019 and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.


*	~~Filed herewith.~~


±	*Filed herewith. ± Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			STEEL CONNECT, INC.

Date: December 11, 2020			~~STEEL CONNECT, INC.~~
By:
~~Date: June 8, 2020~~	~~By:~~	/S/ DOUGLAS B. WOODWORTH
				Douglas B. Woodworth
				Chief Financial Officer
				(Principal Financial Officer and Authorized Signatory)



	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	3023
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	3929
Item 4.		Controls and Procedures	4029
Part II.		OTHER INFORMATION
Item 1.		Legal Proceedings	4129
Item 1A.		Risk Factors	4130
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	4330
Item 3.		Defaults Upon Senior Securities	4330
Item 4.		Mine Safety Disclosures	4330
Item 5.		Other Information	4330
Item 6.		Exhibits	4431



		April 30, 2020						July 31, 2019
	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	$	55,206	$	137,524	$	192,730	$	39,617	$	153,113
Trademarks and trade names	3	20,520		16,245		4,275		20,520		11,115		9,405
Total		$	213,250	$	71,451	$	141,799	$	213,250	$	50,732	$	162,518



	Operating Leases		Finance Leases
	(In thousands)
2020	$	4,054	$	19
2021	15,644		76
2022	12,426		76
2023	7,786		37
2024	5,482		—
Thereafter	23,622		—
Total lease payments	69,014		208
Less: imputed interest	9,268		15
Present value of lease payments	59,746		193
Less: current maturities of lease obligations	14,034		70
Long-term lease obligations	$	45,712	$	123



Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	11,677
Operating cash flows from finance leases	$	7
Financing cash flows from finance leases	$	83



	Foreign Currency Items			Pension Items			Unrealized Gains (Losses) on Securities			Total
	(In thousands)
Accumulated other comprehensive income (loss) at July 31, 2019	$	5,017		$	(4,079	)	$	96		$	1,034
Foreign currency translation adjustment	(2,387		)	—			—			(2,387		)
Net unrealized holding loss on securities	—			—			(96		)	(96		)
Pension liability adjustments	—			(131		)	—			(131		)
Net current-period other comprehensive income (loss)	(2,387		)	(131		)	(96		)	(2,614		)
Accumulated other comprehensive income (loss) at April 30, 2020	$	2,630		$	(4,210	)	$	—		$	(1,580	)