FAIR VALUE MEASUREMENTS

6 Months Ended

Jan. 31, 2024

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

The following tables present the Company's financial assets and liability measured at fair value on a recurring basis as of January 31, 2024 and July 31, 2023, classified by fair value hierarchy:


	Successor		Fair Value Measurements at Reporting Date Using
(in thousands)	January 31, 2024		Level 1		Level 2		Level 3
Assets:
Money market funds	$	263,903	$	263,903	$	—	$	—
Convertible loan note investment	$	1,227	$	—	$	—	$	1,227
Other investments	$	1,947	$	1,947	$	—	$	—

Liabilities:
SPHG Note	$	12,903	$	—	$	—	$	12,903


	Successor		Fair Value Measurements at Reporting Date Using
(in thousands)	July 31, 2023		Level 1		Level 2		Level 3
Assets:
Money market funds	$	85,269	$	85,269	$	—	$	—

Liabilities:
SPHG Note	$	12,461	$	—	$	—	$	12,461

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

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

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

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

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

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

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, and restricted cash, and are reflected in the consolidated financial

statements at carrying value. Carrying value approximates fair value for these items due to their short-term nature. 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.

Subsequent to the issuance of fiscal year 2023 financial statements, the Company determined that the money market funds balance as of July 31, 2023 in the above table, was understated by $54.2 million. The Company corrected this immaterial error in the table above as of July 31, 2023. This disclosure change did not have any impact to amounts recognized in the consolidated balance sheets.

Following is a summary of changes in financial assets and liabilities measured using Level 3 inputs:


(in thousands)	SPHG Note (a)		Convertible Loan Note Investment (a)
Balance as of July 31, 2023 (Successor)	$	12,461	$	—
Purchases	—		1,227
Change in fair value	442		—
Balance as of January 31, 2024 (Successor)	$	12,903	$	1,227

(a) Unrealized losses are recorded in Other gains (losses), net within the consolidated statements of operations.

Valuation Techniques

Prior to the date of the Exchange Transaction, the Company did not measure the fair value of the SPHG Note on a recurring basis, as the assumption was that the carrying value of the liability component of the SPHG Note approximated fair value because the stated interest rate of this debt was consistent with current market rates. In conjunction with the application of pushdown accounting, the Company now measures the fair value of the SPHG on a recurring basis. Refer to Note 10 - "Debt" for further details. The Company estimates the value of the SPHG Note using a Binomial Lattice Model. Key inputs in the valuation include the trading price and volatility of Steel Connect's common stock, the risk-free rate of return, as well as the dividend rate, conversion price, and maturity date. The Company recognized $0.6 million and $0.4 million in unrealized losses in Other gains (losses), net within the consolidated statements of operations for the three and six months ended January 31, 2024 as a result of the fair value measurement performed at January 31, 2024.

As discussed in Note 7 - "Investments", the Company elected the fair value option to account for their convertible loan note investment. The Company believes the cost basis of the investment to approximate its fair value as of January 31, 2024. As such, there were no unrealized gains or losses recorded to the consolidated statement of operations for the Successor Period. There were no unrealized gains or losses recorded to the consolidated statement of operations for the Predecessor Period, as the convertible loan note investment was a new investment in October 2023.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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