$STCN
Steel Connect, Inc.

2018 Q4 Form 10-Q Financial Statement

#000119312518356473 Filed on December 21, 2018

View on sec.gov

Income Statement

Concept 2018 Q4 2017 Q4
Revenue $215.1M $102.5M
YoY Change 109.84% -15.5%
Cost Of Revenue $176.9M $93.45M
YoY Change 89.34% -16.56%
Gross Profit $38.20M $9.074M
YoY Change 320.98% -2.78%
Gross Profit Margin 17.76% 8.85%
Selling, General & Admin $26.57M $12.90M
YoY Change 105.87% -5.12%
% of Gross Profit 69.54% 142.21%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $5.533M $1.892M
YoY Change 192.44% -6.43%
% of Gross Profit 14.48% 20.85%
Operating Expenses $34.66M $12.90M
YoY Change 168.63% -13.83%
Operating Profit $3.536M -$3.830M
YoY Change -192.32% -32.12%
Interest Expense $11.06M $2.107M
YoY Change 424.77% 3.84%
% of Operating Profit 312.7%
Other Income/Expense, Net -$9.790M -$521.0K
YoY Change 1779.08% -77.85%
Pretax Income -$6.254M -$4.351M
YoY Change 43.74% -45.57%
Income Tax $1.131M $1.087M
% Of Pretax Income
Net Earnings -$7.365M -$5.237M
YoY Change 40.63% -38.7%
Net Earnings / Revenue -3.42% -5.11%
Basic Earnings Per Share -$0.13 -$0.09
Diluted Earnings Per Share -$0.13 -$0.09
COMMON SHARES
Basic Shares Outstanding 60.71M shares 55.26M shares
Diluted Shares Outstanding 60.71M shares 55.26M shares

Balance Sheet

Concept 2018 Q4 2017 Q4
SHORT-TERM ASSETS
Cash & Short-Term Investments $83.40M $119.8M
YoY Change -30.38% -0.33%
Cash & Equivalents $83.37M $119.8M
Short-Term Investments $0.00 $0.00
Other Short-Term Assets $47.00M $19.80M
YoY Change 137.37% -9.59%
Inventory $29.97M $31.54M
Prepaid Expenses
Receivables $115.7M $85.09M
Other Receivables $0.00 $0.00
Total Short-Term Assets $276.1M $256.2M
YoY Change 7.75% -19.18%
LONG-TERM ASSETS
Property, Plant & Equipment $104.7M $15.45M
YoY Change 577.57% -29.23%
Goodwill $254.4M
YoY Change
Intangibles
YoY Change
Long-Term Investments
YoY Change
Other Assets $7.798M $4.604M
YoY Change 69.37% -27.42%
Total Long-Term Assets $551.7M $20.05M
YoY Change 2651.49% -28.82%
TOTAL ASSETS
Total Short-Term Assets $276.1M $256.2M
Total Long-Term Assets $551.7M $20.05M
Total Assets $827.7M $276.3M
YoY Change 199.62% -19.97%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $90.77M $74.51M
YoY Change 21.83% -31.78%
Accrued Expenses $84.93M $34.59M
YoY Change 145.54% -18.44%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00
YoY Change -100.0%
Long-Term Debt Due $5.727M
YoY Change
Total Short-Term Liabilities $280.2M $147.0M
YoY Change 90.61% -26.85%
LONG-TERM LIABILITIES
Long-Term Debt $381.7M $60.90M
YoY Change 526.73% 4.64%
Other Long-Term Liabilities $10.71M $10.06M
YoY Change 6.52% 9.35%
Total Long-Term Liabilities $406.9M $70.95M
YoY Change 473.53% 5.13%
TOTAL LIABILITIES
Total Short-Term Liabilities $280.2M $147.0M
Total Long-Term Liabilities $406.9M $70.95M
Total Liabilities $687.1M $217.9M
YoY Change 215.26% -18.81%
SHAREHOLDERS EQUITY
Retained Earnings -$7.365B -$7.404B
YoY Change -0.52% 0.31%
Common Stock $614.0K $556.0K
YoY Change 10.43% 0.54%
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $105.4M $58.31M
YoY Change
Total Liabilities & Shareholders Equity $827.7M $276.3M
YoY Change 199.62% -19.97%

Cashflow Statement

Concept 2018 Q4 2017 Q4
OPERATING ACTIVITIES
Net Income -$7.365M -$5.237M
YoY Change 40.63% -38.7%
Depreciation, Depletion And Amortization $5.533M $1.892M
YoY Change 192.44% -6.43%
Cash From Operating Activities $2.533M -$7.674M
YoY Change -133.01% -74.23%
INVESTING ACTIVITIES
Capital Expenditures $4.006M $2.464M
YoY Change 62.58% 34.79%
Acquisitions
YoY Change
Other Investing Activities $30.00K $18.22M
YoY Change -99.84% 1192.2%
Cash From Investing Activities -$3.972M $15.76M
YoY Change -125.2% -3852.14%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net $6.000K $3.000K
YoY Change 100.0% -57.14%
Debt Paid & Issued, Net $1.500M
YoY Change
Cash From Financing Activities -$5.878M -76.00K
YoY Change 7634.21% -101.54%
NET CHANGE
Cash From Operating Activities $2.533M -7.674M
Cash From Investing Activities -$3.972M 15.76M
Cash From Financing Activities -$5.878M -76.00K
Net Change In Cash -$7.675M 7.977M
YoY Change -196.21% -131.55%
FREE CASH FLOW
Cash From Operating Activities $2.533M -$7.674M
Capital Expenditures $4.006M $2.464M
Free Cash Flow -$1.473M -$10.14M
YoY Change -85.47% -67.93%

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<div> <p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> <b>(2) BASIS OF PRESENTATION</b></p> <p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman"> 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 (&#x201C;U.S. GAAP&#x201D;) for interim financial information and with the instructions to Form <font style="white-space:nowrap">10-Q</font> and Article 10 of Regulation <font style="white-space:nowrap">S-X.</font> Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes for the year ended July&#xA0;31, 2018, which are contained in the Company&#x2019;s Annual Report on Form <font style="white-space:nowrap">10-K</font> filed with the Securities and Exchange Commission (&#x201C;SEC&#x201D;) on December&#xA0;4, 2018. The results for the three months ended October&#xA0;31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year. The <font style="white-space:nowrap">year-end</font> condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.</p> <p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman"> All significant intercompany transactions and balances have been eliminated in consolidation.</p> <p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman"> 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 period ended October&#xA0;31, 2018, the Company evaluated subsequent events for potential recognition and disclosure through the date these financial statements were filed.</p> </div>
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STEEL CONNECT, INC.
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CY2018Q4 us-gaap Nature Of Operations
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<div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> <b>(1) NATURE OF OPERATIONS</b></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> Steel Connect, Inc. (&#x201C;Steel Connect&#x201D; or the &#x201C;Company&#x201D;) together with its consolidated subsidiaries, operates through its wholly owned subsidiaries, ModusLink Corporation and ModusLink PTS, Inc. (together &#x201C;ModusLink&#x201D; or &#x201C;Supply Chain&#x201C;), and IWCO Direct Holdings, Inc. (&#x201C;IWCO Direct&#x201D; or &#x201C;IWCO&#x201D;). The Company was formerly known as ModusLink Global Solutions, Inc. until it changed its name to Steel Connect, Inc. effective February&#xA0;27, 2018.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> 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&#x2019; 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.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> ModusLink has an integrated network of strategically located facilities with 20 sites operating in 21 languages in various countries, including numerous sites throughout North America, Europe and Asia. The Company previously operated under the names ModusLink Global Solutions, Inc., CMGI, Inc. and CMG Information Services, Inc. and was incorporated in Delaware in 1986.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> 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<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">&#xAE;</sup>&#xA0;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.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> IWCO has administrative offices in Chanhassen, MN. and has three facilities in Chanhassen, MN., one facility in Little Falls, MN., one facility in Warminster, PA. and two facilities in Hamburg PA.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> Historically, the Company has financed its operations and met its capital requirements primarily through funds generated from operations, the sale of our 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 cash and cash equivalents, a credit agreement with PNC Bank (the &#x201C;Credit Agreement&#x201D;) the securitization of trade receivables and the revolving credit facility and cash, if any, provided by operating activities.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: &quot;Times New Roman&quot;; WHITE-SPACE: normal; WORD-SPACING: 0px; TEXT-TRANSFORM: none; FONT-WEIGHT: 400; COLOR: rgb(0,0,0); FONT-STYLE: normal; ORPHANS: 2; WIDOWS: 2; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; font-variant-ligatures: normal; font-variant-caps: normal; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial"> At October 31, 2018 and July 31, 2018, the Company had cash and cash equivalents of $83.4 million and $92.1 million, respectively. As of October 31, 2018, the Company had a deficiency in working capital which was primarily driven by the partial reclassification of the Company&#x2019;s convertible notes from long-term to current and the additional liabilities assumed as a result of the IWCO acquisition. At October 31, 2018, the Company had a readily available borrowing capacity under its revolving credit and security agreement with PNC Bank and National Association of $9.0 million. At October 31, 2018, IWCO had a readily available borrowing capacity under its revolving credit facility by and among MLGS Merger Company, Inc. (&#x201C;MLGS&#x201D;), Instant Web, LLC and Cerberus Business Finance, LLC of $25.0 million. Per that certain financing agreement by and among MLGS, Instant Web, LLC, IWCO and Cerberus Business Finance, LLC (the &#x201C;Financing Agreement&#x201D;) and the credit facilities provided thereunder, IWCO is permitted to make distributions to Steel Connect, an aggregate amount not to exceed $5.0 million in any fiscal year and pay reasonable documented expenses incurred by Steel Connect. Steel Connect is entitled to receive additional cash remittances under a &#x201C;U.S. Federal Income Tax Sharing Agreement.&#x201D; As of October 31, 2018, SPHG Group Holdings LLC (&#x201C;SPHG Holdings&#x201D;) held $14.9 million principal amount of the Company&#x2019;s 5.25% Convertible Senior Notes (the &#x201C;Notes&#x201D;). SPHG Holdings has confirmed to the Company that it will not require a cash payment on Notes when they mature and for a period of greater than twelve months from the date of this filing. The Company believes it will generate sufficient cash to meet its debt covenants under the Credit Agreement and the Financing Agreement to which certain of its subsidiaries are a party, to repay or restructure its the Notes, and that it will be able to obtain cash through its current credit facilities and through securitization of certain trade receivables. The Company&#x2019;s historical operating results and working capital deficit indicate substantial doubt exists related to the Company&#x2019;s ability to continue as a going concern. The Company believes that the actions discussed above are probable of occurring and mitigating the substantial doubt raised by the Company&#x2019;s historical operating results and satisfying the Company&#x2019;s estimated liquidity needs 12 months from the issuance of the financial statements. However, the Company cannot predict, with certainty, the outcome of its actions to generate liquidity, including the availability of additional debt refinancing or factoring of receivables, or whether such actions would generate the expected liquidity as currently planned. Our conclusion on going concern is predicated upon the factoring of certain accounts receivable balances, which has not yet occurred.</p> </div>
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CY2018Q4 dei Trading Symbol
TradingSymbol
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OwnershipPercentage
0.05 pure

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