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What changed in LGL GROUP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LGL GROUP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+144 added−403 removedSource: 10-K (2024-04-01) vs 10-K (2023-04-17)

Top changes in LGL GROUP INC's 2023 10-K

144 paragraphs added · 403 removed · 90 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

59 edited+19 added−273 removed11 unchanged
Biggest changeIn 1928, Lynch Corporation was incorporated in the State of Indiana • In 1946, Lynch was listed on the “New York Curb Exchange” the predecessor to the American Stock Exchange. • In 1964, Curtiss-Wright Corporation purchased a controlling interest in Lynch. • In 1976, M-tron Industries, Inc., a manufacturer of quartz crystals was acquired. • In 1985, companies affiliated with Gabelli Funds, Inc. acquired a majority interest in Lynch’s Common Stock, including the entire interest of Curtiss-Wright Corporation. • In July 1986, Lynch issued $23 million of 8% Convertible Subordinated Debentures as the first step in an acquisition program designed to broaden Lynch’s business base. • In 1987, Lynch expanded the scope of its operations into the financial services and entertainment industries with the start-up of Lynch Capital Corporation, a securities broker dealer, and Lynch Entertainment Corporation, a joint venture partner with a 20% interest in WHBF-TV, the CBS television network affiliate in Rock Island, Illinois.
Biggest changeFinancial Statements and Supplementary Data of this Report for further information. 2 Table of Contents An anthology of the Company’s activities underscores the path ahead: 1917 Lynch Glass Machinery, predecessor of Lynch Corporation, was organized, which became a successful manufacturer of glass-forming machinery in the late 1920s. 1928 Lynch Corporation was incorporated in the State of Indiana 1946 Lynch was listed on the 'New York Curb Exchange'. 1964 Curtiss-Wright Corporation purchased a controlling interest in Lynch. 1976 M-tron Industries, Inc., a manufacturer of quartz crystals, was acquired. 1985 Companies affiliated with Gabelli Funds, Inc. acquired a majority interest in Lynch's common stock, including the entire interest of Curtiss-Wright Corporation. 1986 Lynch issued $23 million of 8% convertible subordinated debentures as the first step in an acquisition program designated to broaden Lynch's business base. 1987 • Lynch expanded the scope of its operations into the financial services and entertainment industries with the start-up of Lynch Capital Corporation, a securities broker dealer, and Lynch Entertainment Corporation, a joint venture partner with a 20% interest in WHBF-TV, the CBS television network affiliate in Rock Island, Illinois. • The Company acquired Tremont Partners, Inc., a Connecticut-based investment management consulting firm. • Lynch acquired an 83% interest in Safety Railway Service Corporation. 1988 Lynch entered the service sector with the acquisition of Morgan Drive Away, Inc., a portable shelter and commodity transportation company. 1989 Lynch entered into the telecommunications industry with the acquisition of Western New Mexico Telephone Company. 1991 • Lynch completed its second telecommunications acquisition by acquiring Inter-Community Telephone Company, based in Nome, North Dakota. • Lynch acquired Cuba City Telephone Exchange Company and Belmont Telephone Company, telecommunication companies based in Wisconsin. 1992 • Lynch acquired Bretton Woods Telephone Company, based in New Hampshire. • Lynch completed a rights offering to its shareholders, which resulted in Tremont Advisors, Inc.
PTF's range of GNS Time and Frequency References and Network Time Servers deliver a high level of performance that allows customers to synchronize to Universal Time Coordinated (UTC), in several cost-effective forms to meet a multitude of time and frequency reference requirements.
PTF's range of GNS Time and Frequency References and Network Time Servers deliver a high level of performance that allows customers to synchronize to Coordinated Universal Time ("UTC"), in several cost-effective forms to meet a multitude of time and frequency reference requirements.
The acquisition of PTI, like our other operating subsidiaries, reflects our opportunistic approach to value creation, through which returns may be obtained by, among other things, promoting change through minority positions at targeted companies in our Investment segment or by acquiring control of those target companies that we believe we could run more profitably ourselves.
The acquisition of PTI, like our other operating subsidiaries, reflects our opportunistic approach to value creation, through which returns may be obtained by, among other things, promoting change through minority positions at targeted companies in our Merchant Investment segment or by acquiring control of those target companies that we believe we could run more profitably ourselves.
From time to time, we may also be subject to U.S. Government investigations relating to our or our customers' operations. In particular, for international business, we are required to submit a request for Automated Export System (AES) validation used by US Government agencies to measure the compliance of U.S. exports with U.S export control laws.
From time to time, we may also be subject to U.S. Government investigations relating to our or our customers' operations. In particular, for international business, we are required to submit a request for Automated Export System ("AES") validation used by U.S. Government agencies to measure the compliance of U.S. exports with U.S. export control laws.
LGL Systems Acquisition Holding Company, LLC, a partially owned subsidiary of the Company, serves as the sponsor (the “SponsorCo”) of certain direct investing efforts.
LGL Systems Acquisition Holding Company, LLC ("LGL Systems"), a partially owned subsidiary of the Company, serves as the sponsor of certain direct investing efforts.
We conduct and plan to continue to conduct our activities in such a manner as not to be deemed an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Therefore, no more than 40% of our total assets can be invested in investment securities, as such term is defined in the Investment Company Act.
We conduct and plan to continue to conduct our activities in such a manner as not to be deemed an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Therefore, no more than 40% of our total assets can be invested in investment securities, as such term is defined in the Investment Company Act.
As shareholder or partner, LGL will provide advisory and certain administrative and back-office services to such Investment Funds but will not provide such services to any other entities, individuals or accounts. To the extent possible, interests in the Investment Funds are generally not offered to outside investors.
As shareholder or partner, LGL will provide advisory and certain administrative and back-office services to such investment vehicles but will not provide such services to any other entities, individuals or accounts. To the extent possible, interests in the investment vehicles are generally not offered to outside investors.
As a small business we obtain preferential treatment for awards from tier one Government contractors however to maintain this position we are required to submit annually “Representation and Certification” documents attesting to our size, revenue, and internal controls for anti-discrimination, avoidance of counterfeit components, and a number of other federally mandated issues.
As a small business we obtain preferential treatment for awards from tier one Government contractors however to maintain this position we are required to submit annually "Representation and Certification" documents attesting to our size, revenue, and internal controls for anti-discrimination, avoidance of counterfeit components, and a number of other federally mandated issues.
A key driver of value is the direct investing business which utilizes various structures and vehicles to build shareholder value, including certain Special Purpose Vehicles which may be syndicated for investment, and involve certain fee generating activities.
A key driver of value is the Merchant Investment business, which utilizes various structures and vehicles to build shareholder value, including certain special purpose vehicles, which may be syndicated for investment, and involve certain fee generating activities.
PTF's portfolio of distribution amplifiers covers multiple signal types including HF, RF, digital, time code, optical, and custom configured units.
PTF's portfolio of distribution amplifiers covers multiple signal types including high frequency ("HF"), RF, digital, time code, optical, and custom configured units.
Government defense contractors, we must comply with certain procurement regulations and other requirements. Maintaining registration under the System for Award Management (SAM) is critical in order to receive US Government contracts.
Government defense contractors, we must comply with certain procurement regulations and other requirements. Maintaining registration under the System for Award Management ("SAM") is critical in order to receive U.S. Government contracts.
LGL core strengths include identifying and acquiring undervalued assets and businesses, often through the purchase of securities, increasing value through management, financial or other operational changes, and managing complex legal, regulatory or financial issues, which may include technical, engineering, environmental, zoning, permitting and licensing issues among others.
Our core strengths include identifying and acquiring undervalued assets and businesses, often through the purchase of securities, increasing value through management, financial or other operational changes, and managing complex legal, regulatory or financial issues, which may include technical engineering, environmental, zoning, permitted, and licensing issues, among others.
Business Description As a diversified holding company, we believe that the cash flow and asset coverage from our operating subsidiaries will allow us to maintain a strong balance sheet and ample liquidity over time.
As a holding company, we believe that the cash flow and asset coverage from our subsidiaries will allow us to maintain a strong balance sheet and ample liquidity over time.
Applications range from low phase noise, highly stable and accurate system frequency references for Sat-Com and Digital Broadcasting applications, to computer networks, shipboard time code references and e-commerce time stamping applications. With respect to Universal Coordinated Time, the Company has developed long-term real time synchronization capability of less than 10 nanoseconds of which to date multiple systems have been delivered.
Applications range from low phase noise, highly stable and accurate system frequency references for satellite communications ("SATCOM") and Digital Broadcasting applications, to computer networks, shipboard time code references and e-commerce time stamping applications. With respect to UTC, the Company has developed long-term real time synchronization capability of less than 10 nanoseconds of which to date multiple systems have been delivered.
On occasion, one or more of the components used in our products have become unavailable, resulting in unanticipated redesign and related delays in shipments. Changes in global economic and geopolitical conditions and the ongoing COVID-19 pandemic have disrupted supply chains and the ability to obtain components and raw materials around the world for all companies, including us.
Changes in global economic and geopolitical conditions has caused disrupted supply chains and the ability to obtain components and raw materials around the world for most companies, including us. On occasion, one or more of the components used in our products have become unavailable resulting in unanticipated redesign and/or delays in shipments.
SponsorCo’s first vehicle, LGL Systems Acquisition Corp., was a special purpose acquisition company, commonly referred to as a “SPAC” or blank check company, formed for the purpose of effecting a business combination in the aerospace, defense and communications industries (the “SPAC”).
LGL Systems' first vehicle, LGL Systems Acquisition Corporation, was a special purpose acquisition company, commonly referred to as a "SPAC" or blank check company, formed for the purpose of effecting a business combination in the aerospace, defense and communications industries ("LGL I").
Products include NTP Servers, broadband amplifiers, RF distribution, 1PPS distribution, and fiber optic distribution. PTF has developed a comprehensive portfolio of time and frequency instrumentation including frequency standards, time standards, and time code generators, complemented by a wide range of ancillary products such as RF distribution amplifiers, Digital distribution amplifiers, Time Code distribution amplifiers, and redundancy switches.
PTF has developed a comprehensive portfolio of time and frequency instrumentation including frequency standards, time standards, and time code generators, complemented by a wide range of ancillary products such as RF distribution amplifiers, Digital distribution amplifiers, Time Code distribution amplifiers, and redundancy switches.
PTF's products include Frequency and Time Reference Standards, RF, digital, and optical time code distribution amplifiers, redundancy auto switches and NTP servers, all of which are used in a wide range of applications worldwide. PTF's Frequency and Time Reference Standards include quartz Frequency Standards, GPS/GNS Frequency and Time Standards and rubidium atomic Frequency Standards.
PTF's products include Frequency and Time Reference Standards; radio frequency ("RF"), digital, and optical time code distribution amplifiers; redundancy auto switches; and network time protocol ("NTP") servers, all of which are used in a wide range of applications worldwide.
In 1946, Lynch was listed on the “New York Curb Exchange,” the predecessor to the NYSE American. The company has had a long history of owning and operating various businesses in the precision engineering, manufacturing and services sectors.
The Company was then renamed Lynch Corporation ("Lynch") and was incorporated in 1928 under the laws of the State of Indiana. In 1946, Lynch was listed on the 'New York Curb Exchange,' the predecessor to the NYSE American. The Company has had a long history of owning and operating various businesses in the precision engineering, manufacturing and services sectors.
This became part of the Lynch Interactive spin-off (see below). • In 1999, Spinnaker refocused its efforts in the adhesive-backed paper industry and sold its industrial tape operations, also significantly deleveraging itself. • On September 1, 1999, Lynch Interactive Corporation was born via a tax-free spin-off from Lynch Corporation.
Central Scott Telephone Company later became part of the Lynch Interactive Corporation spin-off (see below). • Spinnaker refocused its efforts in the adhesive-backed paper industry and sold its industrial tape operations while also deleveraging itself. • Lynch Interactive Corporation ("Lynch Interactive") was born via a tax-free spin-off from Lynch.
We seek to invest available cash and cash equivalents and marketable securities in liquid investments with a view to enhancing returns as we continue to assess further acquisitions of, or investments in, operating businesses.
We seek to invest available cash and cash equivalents and marketable securities in liquid investments with a view to enhancing returns as we continue to assess further acquisitions of, or investments in, operating businesses. As of December 31, 2023, we had Cash and cash equivalents and Marketable securities with a fair market value of approximately $40,733.
Interactive consists of Lynch Corporation’s cable, telecommunications, PCS and broad casting operations as well as The Morgan Group, Inc. • In the latter part of 1999, and early 2000, Spinnaker continued deleveraging by buying back a significant amount of its senior debt at a gain. • In 2000 MTron Industries was preparing for an IPO, but was held back due to changing stock market conditions. • In 2001 Company spins off The Morgan Group and Tremont Advisors to shareholders.
Lynch Interactive owned all of Lynch's cable, telecommunications, PCS, and broadcasting operations as well as a 55% interest in The Morgan Group, Inc. • Spinnaker continued deleveraging itself by buying back a significant amount of its senior debt at a gain. 2000 M-tron Industries, Inc. was preparing for an IPO, but was held back due to changing market conditions. 2001 Lynch spins off The Morgan Group, Inc. and Tremont Advisors to shareholders.
In appropriate circumstances, we or our subsidiaries may become the buyer of target companies, adding them to our portfolio of operating subsidiaries, thereby expanding our operations through such opportunistic acquisitions.
In appropriate circumstances, we or our subsidiaries may become the buyer of target companies, adding them to our portfolio of operating subsidiaries, thereby expanding our operations through such opportunistic acquisitions. It is our belief that our strategy will continue to produce strong results into the future.
This SPAC was a publicly traded company on the NYSE American under the ticker symbol “DFNS.” The Company invested $3.35 million for its partial ownership in the Sponsor, holding 20% of the total common shares (Class A and Class B) in the SPAC along with 5,200,000 private warrants.
LGL I was a publicly traded company on the NYSE American under the ticker symbol "DFNS." In 2019, the Company invested $3.35 million in LGL Systems. LGL Systems held 20% of the total common shares (Class A and Class B) in LGL I along with 5,200,000 private warrants.
Order backlog is adjusted quarterly to reflect project cancellations, deferrals, revised project scope and cost. We expect to fill substantially all of our 2022 order backlog in 2023, but cannot provide assurances as to what portion of the order backlog will be fulfilled in a given year.
We expect to fill substantially all of our 2023 order backlog in 2024, but cannot provide assurances as to what portion of the order backlog will be fulfilled in a given year.
PTF's series of redundancy auto switches range from simple level detection to highly sophisticated sensing capability, extremely fast switching options and full Ethernet connectivity, to provide remote monitoring/control, and including integration with SNMP management systems. The most recent model includes multi-channel input capability as well as the ability to switch up to three input types of signals.
PTF's series of redundancy auto switches range from simple level detection to highly sophisticated sensing capability, extremely fast switching options and full Ethernet connectivity, to provide remote monitoring/control, and including integration with simple network management protocol ("SNMP") management systems.
Several of our operating businesses started out as investment positions in debt or equity securities, held directly by us. Those positions ultimately resulted in control or complete ownership of the target company. For example, in 2004, we acquired a controlling interest in PTI which started out as an investment position and ultimately became an operating subsidiary before the Spin-off.
Today, we are a holding company owning subsidiaries engaged in manufacturing and investments. Several of our former operating businesses started out as investment positions in debt or equity securities, held directly by us. Those positions ultimately resulted in control or complete ownership of the target company. For example, in 2004, we acquired a controlling interest in Piezo Technology, Inc.
Business Strategy Across all of our businesses, our success is based on a simple formula: we seek to find undervalued companies in the Graham & Dodd tradition, a methodology for valuing companies that primarily looks for deeply depressed prices. Today, we are a diversified holding company owning subsidiaries engaged in manufacturing and investments.
The Separation is described further below under Our Strategy - MtronPTI Separation . 1 Table of Contents Business Strategy Across all of our businesses, our success is based on a simple formula: we seek to find undervalued companies in the Graham & Dodd tradition, a methodology for valuing companies that primarily looks for deeply depressed prices.
Military applications include synchronization of mobile Satcom terminals, high performance sources for calibration, a unique SAASM solution, and test equipment providing the ultimate in frequency stability and phase noise performance. Investment Business Our Investment business is comprised of various private investment funds (“Investment Funds”) in which we have shareholding, or partner interests, and through which we invest our proprietary capital.
Military applications include synchronization of mobile Satcom terminals, high performance sources for calibration, and test equipment providing the ultimate in frequency stability and phase noise performance. Merchant Investment The Merchant Investment segment is comprised of various investment vehicles in which we have a shareholder, partner, or general partner interest, and through which LGL Group invests its capital.
Manufacturing Business We operate our manufacturing business currently through our subsidiary, Precise Time and Frequency, LLC ("PTF"), a globally-positioned producer of industrial Electronic Instruments and commercial products and services. Founded in 2002, PTF operates from our design and manufacturing facility in Wakefield, Massachusetts. In addition, we operated an Electronic Components segment, M-tron Industries, Inc.
Electronic Instruments The Electronic Instruments segment is operated through our wholly owned subsidiary, PTF, a globally positioned producer of industrial electronic instruments and commercial products and services. Founded in 2002, PTF operates from our design and manufacturing facility in Wakefield, Massachusetts.
The distribution range is designed to complement the high quality of the frequency and time references and provide the most effective cost/performance solution for the application, including options for full remote monitoring/control (including RF analog signal monitoring) and optional level control. 5 The distribution product range includes standard units with either 12 or 16 channels together with more flexible units that allow the user to define specific configurations including different types of input/output signals combined into a convenient 1U or 2U package with up to 36 output channels.
The distribution product range includes standard units with either 12 or 16 channels together with more flexible units that allow the user to define specific configurations including different types of input/output signals combined into a convenient 1U or 2U package with up to 36 output channels.
Intellectual Property We have no patents, trademarks or licenses that are considered to be significant to our business or operations.
Continued identification of alternative supply sources or other mitigations are important in minimizing disruption to our supply chain. Intellectual Property We have no patents, trademarks or licenses that are considered to be significant to our business or operations.
It is our belief that our strategy will continue to produce strong results into the future. 2 Our manufacturing business , PTF, employs a market-based approach of designing and offering new products to our customers through both organic research and development, and through strategic partnerships, joint ventures, acquisitions or mergers.
Our Electronic Instruments business, Precise Time and Frequency, LLC ("PTF"), employs a market-based approach of designing and offering new products to our customers through both organic research and development, and through strategic partnerships, joint ventures, acquisitions or mergers.
Rather, we believe that our technological position depends primarily on the technical competence and creative ability of our engineering and technical staff in areas of product design and manufacturing processes, including our staff’s ability to customize products to meet difficult specifications, as well as proprietary know-how and information. Government Regulations As a supplier to certain U.S.
Rather, we believe that our technological position depends primarily on the technical competence and creative ability of our engineering and technical staff in areas of product design and manufacturing processes, including our staff’s ability to customize products to meet difficult specifications, as well as proprietary know-how and information. 6 Table of Contents Merchant Investment Segment Overview The Merchant Investment segment is comprised of various investment vehicles in which we have a shareholder, partner, or general partner interest, and through which LGL Group invests its capital.
Financial Statements and Supplementary Data of this Report . 1 PTF is our sole wholly owned manufacturing operation following the Spin-off of MtronPTI, PTF is focused on the design and manufacture of high-performance Frequency and Time reference standards that form the basis for timing and synchronization in various applications including satellite communication, time transfer systems, network synchronization, electricity distribution and metrology.
PTF is focused on the design and manufacture of high-performance Frequency and Time reference standards that form the basis for timing and synchronization in various applications including satellite communication, time transfer systems, network synchronization, electricity distribution and metrology. PTF offers customers frequency reference and time standard synchronization solutions tailored to meeting performance requirements.
The de facto standard for many highly demanding applications, such as satellite communications, is PTF's range of GPS/GNS disciplined quartz frequency and time standards. The MtronPTI high-quality quartz oscillators utilized within the PTF instruments deliver outstanding phase noise and short-term stability performance for applications where low noise is paramount.
The MtronPTI high-quality quartz oscillators utilized within the PTF instruments deliver outstanding phase noise and short-term stability performance for applications where low noise is paramount.
PTF was originally founded in 2002 and its assets were acquired by LGL in September 2016 through a business acquisition, reinforcing our position as a broad-based supplier of highly engineered products for the generation of time and frequency references for synchronization and control.
The industries PTF serves include computer networking, satellite ground stations, electric utilities, broadcasting, telecommunication systems, and metrology. LGL Group PTF's assets in September 2016 through a business acquisition, reinforcing our position as a broad-based supplier of highly engineered products for the generation of time and frequency references for synchronization and control.
Our franchised representatives/distributors have highly skilled sales engineers who work directly with designers and program managers providing a high-level of engineering support at all points within the process. In 2022, our largest customer, accounted for 18.9%, of the Company's total revenues. The Company’s second largest customer in 2022 accounted for 11.8%, of the Company's total revenues.
Sales of products may be directly to the OEM, through franchised representatives or distributors, or direct to end customers. Our franchised representatives/distributors have highly skilled sales engineers who work directly with designers and program managers providing a high-level of engineering support at all points within the process.
Order Backlog Our order backlog was $360,000 and $358,000 as of December 31, 2022 and 2021, respectively. The backlog of unfilled orders includes amounts based on purchase orders. Although backlog represents only firm orders that are considered likely to be fulfilled primarily within the 12 months following receipt of the order, cancellations or scope adjustments may and do occur.
Although backlog represents only firm orders that are considered likely to be fulfilled primarily within the 12 months following receipt of the order, cancellations or scope adjustments may and do occur. Order backlog is adjusted quarterly to reflect project cancellations, deferrals, revised project scope and cost.
The Company seeks to invest available cash and cash equivalents in liquid investments with a view to enhancing returns as we continue to assess further acquisitions of, or investments in, operating businesses broadly. LGL may provide consulting, advisory, and certain administrative and back-office services to the investment vehicles in which LGL is invested.
As the Company continues to assess further acquisitions of, or investments in, operating businesses broadly, we seek to invest currently available cash and cash equivalents with a view to enhancing returns.
M-tron Industries purchases assets of Champion Technologies (formerly Motorola), expanding their product line to include VCXO, TCXO and timing solutions. • In 2004 Venator Merchant Fund LLC., funds affiliated with Marc Gabelli the LGL Chairman, financed the acquisition of Piezo Technologies PTI, based in Orlando FL, to re-direct M-tron Industries strategic direction.
(spun-off from Motorola in the mid-1980s), expanding its product line to include voltage-controlled crystal oscillators ("VCXO"), temperature compensated crystal oscillators ("TCXO"), and timing solutions. 2004 Venator Merchant Fund LLC, an affiliate of Marc Gabelli, LGL Group Chairman, financed the acquisition of Piezo Technology, Inc., based in Orlando, Florida, to re-direct M-tron Industries, Inc.'s strategic direction.
Employees As of December 31, 2022, the Company’s executives were based in Orlando Florida, and Greenwich Connecticut. We employed five full-time manufacturing and engineering employees located in Wakefield, Massachusetts and one investment employee located in Greenwich, Connecticut. The company’s Co-Chief Executives, Chief Accounting Officer, and Vice President are employed through certain service level agreements in place.
Human Capital Management As of December 31, 2023, the Company’s executives were based in Orlando, Florida; Greenwich, Connecticut; and Chicago, Illinois. We employed seven full-time manufacturing and engineering employees located in Wakefield, Massachusetts, two corporate and investment employees located in Greenwich, Connecticut, and one corporate and investment employee in Chicago, Ilinois.
Tremont later acquired by Oppenheimer. • In 2002 company sells remaining stake in Spinnaker Industries.
Tremont later acquired by Oppenheimer. 2002 • The Company sold its remaining stake in Spinnaker. • M-tron Industries, Inc. acquired the assets of Champion Technologies, Inc.
This spread of revenue over a broad customer base reduces the vulnerability of the company to any customer suffering from a market downturn, or other debilitating issue including insolvency. Competition We design, manufacture and market products for the generation, synchronization and control of time and frequency in many cases insuring optimal utilization of allocated spectrum.
The table below presents the concentration of the Company's customers for the year ended December 31, 2023: Revenue (in thousands) $ % Customer 1 $ 399 23.1 % Customer 2 236 13.7 % Customer 3 128 7.4 % Customer 4 103 6.0 % Top 4 largest customers 866 50.2 % All other (a) 862 49.8 % Total sales $ 1,728 100.0 % (a) Comprised of approximately 36 customers This spread of revenue over a broad customer base reduces the vulnerability of the company to any customer suffering from a market downturn, or other debilitating issue including insolvency. 5 Table of Contents Competition We design, manufacture and market products for the generation, synchronization and control of time and frequency in many cases insuring optimal utilization of allocated spectrum.
Our common stock and warrants are traded on the NYSE American (“NYSE”) under the symbols "LGL" and “LGL WS”, respectively. LGL’s business strategy is primarily focused on growth through expanding new and existing operations across diversified industries. The LGL Group Inc.'s engineering and design origins date back to the early part of the last century.
LGL’s business strategy is primarily focused on growth through expanding new and existing operations across diversified industries. The LGL Group Inc.'s engineering and design origins date back to the early part of the last century. In 1917, Lynch Glass Machinery Company, the predecessor of LGL, was formed, and emerged in the late 1920s as a successful manufacturer of glass-forming machinery.
The Company was incorporated in 1928 under the laws of the State of Indiana, and in 2007, the Company was reincorporated under the laws of the State of Delaware as The LGL Group, Inc. We maintain our executive offices at 2525 Shader Road, Orlando, Florida 32804. Our telephone number is (407) 298-2000. Our Internet address is www.lglgroup.com.
We maintain our executive offices at 2525 Shader Road, Orlando, Florida 32804. Our telephone number is (407) 298-2000. Our Internet address is www.lglgroup.com . Our common stock and warrants are traded on the NYSE American ("NYSE") under the symbols "LGL" and "LGL WS," respectively.
Since its inception, PTF has developed a comprehensive portfolio of time and frequency instruments complemented by a wide range of ancillary products such as distribution amplifiers and redundancy auto switches. PTF Products PTF's products range from simple, low-cost time and frequency solutions to premium products designed to deliver maximum performance for the most demanding applications.
Products PTF's products range from simple, low-cost time and frequency solutions to premium products designed to deliver maximum performance for the most demanding applications.
This approach allows for LGL to be creative and nimble with no pre-determined exit time table. We focus on businesses with existing growth potential which through helping improve their capabilities, teaming up portfolio companies for strategic expansions and trans forming the businesses through merger and acquisition opportunities.
We focus on businesses with existing growth potential which through helping improve their capabilities, teaming up portfolio companies for strategic expansions and transforming the businesses through merger and acquisition opportunities. The Company’s objective is to deliver long-term investment growth to our shareholders, maximizing shareholder value.
As of December 31, 2022, we had cash and cash equivalents and marketable securities with a fair market value of approximately $38.1 million. 4 The LGL approach is to establish long term partnerships utilizing the resources of our organization to facilitate a full cycle of advice and investment to augment investments in conjunction with broader capital syndication.
Our approach is to establish long term partnerships utilizing the resources of our organization to facilitate a full cycle of advice and investment to augment investments in conjunction with broader capital syndication. This approach allows for LGL Group to be creative and nimble with no pre-determined exit time table.
Customers PTF primarily works directly with original equipment manufacturers (“OEMs”) to define the right solutions for their unique applications, including the design of custom parts with unique part numbers. Sales of products may be directly to the OEM, through franchised representatives or distributors, or direct to end customers.
The most recent model includes multi-channel input capability as well as the ability to switch up to three input types of signals. Customers PTF primarily works directly with original equipment manufacturers ("OEMs") to define the right solutions for their unique applications, including the design of custom parts with unique part numbers.
We avoid significant currency exchange risk by transacting and settling substantially all of our international sales in United States dollars. 6 Seasonality Our business is not seasonal, although shipment schedules may be affected by the production schedules of our customers, or their contract manufacturers based on regional practices or customs.
Seasonality Our business is not seasonal, although shipment schedules may be affected by the production schedules of our customers, or their contract manufacturers based on regional practices or customs. Order Backlog Our order backlog was $143 and $360 as of December 31, 2023 and 2022, respectively. The backlog of unfilled orders includes amounts based on purchase orders.
Item 1. Business. General The LGL Group, Inc. (the "Company," "LGL," "we," "us," or "our") is a holding company engaged in services, investment and manufacturing business activities. Since 1985, the Company has acquired 32 businesses, sold 11, and spun off 3, culminating this year with the spin-off of M-tron Industries, Inc.
Since 1985, the Company has acquired 32 businesses, sold 11, and spun off 3, culminating with the spin-off of M-tron Industries, Inc. in October 2022. The Company was incorporated in 1928 under the laws of the State of Indiana, and in 2007, the Company was reincorporated under the laws of the State of Delaware as The LGL Group, Inc.
International Revenues Our international revenues were $460,000 in 2022, or 27.8% of total consolidated revenues, compared to $308,000, or 21.3% of total consolidated revenues, in 2021. In each of 2022 and 2021, these revenues were derived mainly from customers in Europe and Asia, with significant sales in Canada.
International Revenues In 2023, our international revenues were $675, or 39.1%, of total sales compared to $460, or 27.8%, of total sales in 2022. In both 2023 and 2022, these revenues were derived primarily from customers in Europe and Canada. We avoid significant currency exchange risk by transacting and settling substantially all of our international sales in United States dollars.
The SponsorCo and any related activity was accounted for under the equity method of accounting in the Company’s financial statements. The Company through SponsorCo offered a SPAC related franchise to investors and formed LGL Systems Acquisition Corp II and LGL Systems Acquisition Corp III with the purpose of enhancing the Company’s investment business through acquisitions.
LGL Systems and any related activity was accounted for under the equity method of accounting in the Company’s financial statements for the year ending December 31, 2022. However, beginning in June 2023, the Company consolidated LGL Systems as it was deemed to be the primary beneficiary.
As of December 31, 2022, LGL had investments (currently classified as Cash and Cash Equivalents and Marketable securities) with a fair value of approximately $38.1 million. The Company accounts for its Marketable securities under ASC 321 and as such, its Marketable securities are reported at fair value on its consolidated balance sheets.
As of December 31, 2023, LGL had investments (currently classified as Cash and cash equivalents and Marketable securities) with a fair value of $40,733, of which $23,513 was held within the Merchant Investment business.
Telephone Company in Kansas from GTE Corporation. • 1994 saw the rebirth of Safety Railway Service Corporation into Spinnaker Industries • In 1995 in multimedia, we partnered with CLR Video, a cable operator in Kansas, bought 340 telephone lines from Sprint and commercialized DirectTV. • In 1996 on the telephony front, we consummated the affiliation with the Maytum family and Dunkirk & Fredonia and completed the purchase of 1,400 lines from U.S.
("Spinnaker"). • Lynch acquired a 50% interest in WOI-TV, the ABC television network affiliate in Ames, Iowa. 1995 Lynch partnered with CLR Video LLC, a cable operator in Kansas, to buy 340 telephone lines from Sprint and commercialized DirectTV. 1996 • Inter-Community Telephone Company acquired 1,400 access lines in North Dakota from U.S.
LGL's stockholders of record received one-half share of MtronPTI's common stock for every share of LGL's common stock For more information regarding the Spin-off of MtronPTI, please see Note A – Basis of Presentation Transactions to the Consolidated Financial Statements included in Item 8.
LGL's stockholders of record received one-half share of MtronPTI's common stock for every share of LGL's common stock. LGL retained no ownership interest in the MtronPTI business following the Separation. The historical financial results of the MtronPTI business for periods prior to the distribution date are reflected in the Company's consolidated financial statements as discontinued operations.
PTF offers customers frequency reference and time standard synchronization solutions tailored to meeting performance requirements. PTF is housed in a well-equipped, modern, facility and staffed by a highly dedicated and experienced team of time and frequency professionals. Although the company offers a wide range of standard instruments and options, new requirements are enthusiastically embraced, resulting in an ever expanding capability.
Since its inception, PTF has developed a comprehensive portfolio of time and frequency instruments complemented by a wide range of ancillary products such as distribution amplifiers and redundancy auto switches. PTF is housed in a well-equipped, modern, facility and staffed by a highly dedicated and experienced team of time and frequency professionals.
Spun-off East/West Communications, Inc., a F-Block PCS licensee with 20 million “POPs.” • In 1999, Lynch acquired Central Scott Telephone Company, a 6,000 ILEC in Iowa, an area where we would like to grow significantly.
West Communications, Inc. • Lynch acquired the stock of Dunkirk & Fredonia Telephone Company, located in Fredonia, New York, from the Maytum family. • Morgan acquired Transit Homes of America, Inc., a national outsourcing company located in Boise, Idaho. • Lynch organized and bid on personal communications services ("PCS") licenses in the Federal Communications Commission's ("FCC") C-block and F-block auctions. 1997 • Lynch acquired Upper Peninsula Telephone Company, a telecommunications company based in Michigan's Upper Peninsula. • Lynch completed the spin-off of East/West Communications, an F-block PCS licensee with 20 million points of presence ("POPs"). 1999 • Lynch acquired Central Scott Telephone Company, a 6,000 incumbent local exchange carrier ("ILEC") in Iowa, an area the Company sought to grow significantly.
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In 1917, Lynch Glass Machinery Company, the predecessor of LGL, was formed, and emerged in the late twenties as a successful manufacturer of glass-forming machinery. The company was then renamed Lynch Corporation and was incorporated in 1928 under the laws of the State of Indiana.
Added
Item 1. Business For the purposes of this discussion, the terms "LGL," "LGL Group," the "Company," "we," "our," and "us" refer collectively to The LGL Group, Inc. and its subsidiaries. Unless otherwise stated, all dollar amounts are in thousands. General The LGL Group, Inc. is a holding company engaged in services, merchant investment and manufacturing business activities.
Removed
(“MtronPTI”) , until its Spin-off to all shareholders on October 7, 2022 when Mtron became an independent, publicly traded company trading on the NYSE American under the stock symbol ”MPTI”.
Added
This includes developing businesses and positioning them as independent entities to enhance shareholder value and alignment. We provide our products and services through our Electronic Instruments and Merchant Investment businesses. Activities not related to our business segments such as our corporate operations, corporate-level assets and financial obligations are included in Corporate.
Removed
The Separation was achieved through LGL’s distribution (the “Distribution”) of 100% of the shares of MtronPTI's common stock to holders of LGL's common stock as of the close of business on the record date of September 30, 2022.
Added
Our Electronic Instruments segment derives revenues principally from net sales of various products. Our Merchant Investment business derives revenues from investment income and gains and losses from investment transactions as well as fee income on any syndicated investments. On October 7, 2022, we completed the spin-off of M-tron Industries, Inc. ("MtronPTI") (the "Spin-off" or the "Separation").
Removed
The LGL investment business is comprised of various investment vehicles in which LGL is either shareholder, partner, or has general partner interests, and through which LGL invests its capital.
Added
("PTI"), which started out as an investment position and ultimately became an operating subsidiary before the Separation.
Removed
The Company and several of its management and directors are, or have been, partners in SponsorCo. SponsorCo’s activities include broad investments and acquisitions, the development of additional special purpose vehicles or funds to serve as the base for the growth of the investment business. An anthology of the Company’s activities underscores the path ahead.
Added
Refer to Note 7 - Variable Interest Entities in the accompanying Notes to the Consolidated Financial Statements included in Item 8.
Removed
LGL history of Investments and reorganization • Lynch Glass Machinery Company, predecessor of Lynch Corporation, was organized in 1917. The Company emerged in the late twenties as a successful manufacturer of glass-forming machinery.
Added
(formerly Tremont Partners, Inc.) becoming a publicly traded company. 1993 • The Morgan Group, Inc. ("Morgan"), newly formed parent company of Morgan Drive Away, Inc., was launched via a public company with an initial public offering of 1.1 million Class A common shares. • Lynch acquired J.B.N.
Removed
Later in the year, the Company acquired Tremont Partners, Inc., a Connecticut-based investment management-consulting firm.
Added
Telephone Company, based in Kansas, from GTE Corporation. 1994 • Safety Railway Service Corporation was reborn as Spinnaker Industries, Inc.
Removed
In December, Lynch added to its manufacturing sector with the acquisition of an 83% interest in Safety Railway Service Corporation. • In 1988, Lynch entered the service sector with the acquisition of Morgan Drive Away. • 1989 was highlighted by Lynch’s entry into the telecommunications industry with the acquisition of Western New Mexico Telephone Company. 3 • Lynch’s second telecommunications acquisition, Inter-Community Telephone Company of Nome, North Dakota, was completed in April 1991, followed in October of that year with the acquisitions of Cuba City Telephone Exchange Company and Belmont Telephone Company. • During 1992, Lynch acquired Bretton Woods Telephone Company of New Hampshire; and completed a rights offering to its shareholders, which resulted in the Tremont investment advisory firm becoming a publicly traded company. • 1993 saw the launching of The Morgan Group, Inc., as a public company with an initial public offering of 1.1 million Class A Common Shares.
Added
This acquisition set the stage for the development of M-tron Industries, Inc.'s orientation toward the avionics, space, and defense industries. 2007 The Company sold the assets of Lynch Systems, Inc. to Olivotto Glass Technologies, S.P.A., a glassware machinery manufacturer based in Milan, Italy. 2014 M-tron Industries, Inc. purchased filter product line assets from Trilithic, Inc. 2016 The Company acquired the assets of Precise Time and Frequency, LLC. 2019 The direct investing business was launched (renamed the Merchant Investment segment in 2023) 2021 LGL Systems Acquisition Corporation completed its business combination with IronNet Cybersecurity, Inc. 2022 The Company completed the tax-free spin-off M-tron Industries, Inc. to shareholders. 2023 The Company launched Lynch Capital International, LLC to facilitate the Merchant Investment business. 3 Table of Contents MtronPTI Separation On October 7, 2022, the separation of MtronPTI was completed and MtronPTI became an independent, publicly traded company trading on the NYSE American under the stock symbol "MPTI." The Separation was achieved through LGL’s distribution (the "Distribution") of 100% of the shares of MtronPTI's common stock to holders of LGL's common stock as of the close of business on the record date of September 30, 2022.
Removed
West. Morgan closed on Transit Homes of America, Inc. We organized and bid on Personal Communications Services licenses in the so-called “C” block and “F” block auctions. • In 1997, acquired Upper Peninsula Telephone Company.
Added
For further information on the Separation, refer to Note 3 – Discontinued Operations in the accompanying notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Report. Our Segments We report our financial results in two segments: Electronic Instruments and Merchant Investment.
Removed
This acquisition set the stage for the development of the company’s orientation toward avionics, space, and defense industries. • In 2007 the business assets of Lynch Systems were sold. • In 2008 the company develops and expands its Delhi India facilities. • In 2014 assets of Trilithic are acquired. • In 2016 establishes PTF, by acquiring the assets of Precise Time and Frequency, Inc. • In 2019 the LGL direct investing segment started. • In 2021 the LGL SPAC completes its business combination. • In 2022 M-tron Industries is spun off.
Added
The Company accounts for its Marketable securities under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 321, Investments - Equity Securities ("ASC 321"), and as such, its Marketable securities are reported at fair value on its Consolidated Balance Sheets. 4 Table of Contents Our Businesses Electronic Instruments Segment Overview Our Electronics Instruments segment is comprised of PTF, which designs, manufactures, and markets for sale time and frequency instruments.
Removed
The Company’s objective is to deliver long-term investment growth to our shareholders, maximizing shareholder value. This includes developing businesses and positioning them as independent entities to enhance shareholder value and alignment.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePTF leases approximately 3,600 square feet of office and manufacturing space in Wakefield, Massachusetts. Item 3. Legal Proceedings. None. Item 4. Mine Safety Disclosures. Not applicable. 27 PART II
Biggest changePTF leases approximately 3,600 square feet of office and manufacturing space in Wakefield, Massachusetts.
Item 2. Properties. The Company’s principal executive offices are located in Orlando, Florida and services are provided to LGL by MtronPTI staff under the Amended and Restated Transitional Administrative and Management Services Agreement with MtronPTI. PTF’s operations, which make up our electronic instruments segment, are located in Wakefield, Massachusetts.
Item 2. Properties The Company’s principal executive offices are located in Orlando, Florida and services are provided to LGL by MtronPTI staff under the Amended and Restated Transitional Administrative and Management Services Agreement with MtronPTI. PTF’s operations, which comprise our Electronic Instruments segment, are located in Wakefield, Massachusetts.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+3 added−1 removed4 unchanged
Biggest changeBased upon information furnished by our transfer agent, at March 31, 2023, we had in excess of 800 holders of record of our common stock and in excess of 800 holders of record of our common stock warrants.
Biggest changeHolders of Common Stock and Warrants As of March 15, 2023, we had approximately 1,300 holders of record of our common stock and approximately 800 holders of record of our warrants.
The Company intends to use the net proceeds from the exercise of the warrants for general corporate purposes, which may include working capital, general and administrative expenses, capital expenditures and implementation of our strategic priorities. Pending the application of the net proceeds, we may invest the proceeds in short-term, interest bearing, investment-grade marketable securities or money market obligations. Item 6.
The Company intends to use the net proceeds from the exercise of the warrants for general corporate purposes, which may include working capital, general and administrative expenses, capital expenditures and implementation of our strategic priorities. Pending the application of the net proceeds, we may invest the proceeds in short-term, interest bearing, investment-grade marketable securities or money market obligations.
Warrants LGL has approximately 5.25 million “European Style” warrants outstanding, exercisable at a 5 for 1 ratio into LGL shares only at the earlier of (i) the expiration of the warrant term, which is November 16, 2025, or (ii) subject to a date acceleration if triggered only after the average volume weighted average price (“VWAP”) of LGL common stock for 30 consecutive trading days is greater than or equal to the acceleration trigger price.
Warrants LGL has approximately 5.25 million "European Style" warrants outstanding, exercisable at a 5 for 1 ratio into LGL shares only at the earlier of (i) the expiration of the warrant term, which is November 16, 2025, or (ii) subject to a date acceleration if triggered only after the average volume weighted average price ("VWAP") of LGL common stock for 30 consecutive trading days is greater than or equal to the acceleration trigger price.
The exercise price was adjusted from $12.50 to $4.75 and the trigger price was adjusted from $17.50 to $6.65. Assuming that all warrants are exercised, the net proceeds from the exercise of the warrants will be approximately $5.0 million.
The exercise price was adjusted from $12.50 to $4.75 and the trigger price was adjusted from $17.50 to $6.65. Assuming that all warrants are exercised, the net proceeds from the exercise of the warrants will be $4,995.
The warrants are publicly listed on the NYSE American under the symbol LGL.WS. The distribution of MtronPTI shares was a qualifying dilutive event that required an adjustment, with the exercise price of the warrants and the trigger price for the potential acceleration of the exercise date for its warrants adjusted using the calculation provided within the warrant agreement.
The distribution of MtronPTI shares was a qualifying dilutive event that required an adjustment, with the exercise price of the warrants and the trigger price for the potential acceleration of the exercise date for its warrants adjusted using the calculation provided within the warrant agreement.
During the years ended of December 31, 2022 and 2021 the Company did not repurchase any shares. To date, the Company has repurchased a total of 81,584 shares of common stock under this program at a cost of $580,000, which shares are currently held in treasury.
The share repurchase program has no time limits and may be suspended or discontinued at any time. To date, the Company has repurchased a total of 81,584 shares of common stock under this program at a cost of $580, which shares are currently held in treasury.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Common Equity Our common stock and warrants are traded on the NYSE, under the symbols “LGL” and “LGL WS”, respectively.
Item 5. Market for the Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Unless otherwise stated, all dollar amounts are in thousands. Market for Common Equity Our common stock and warrants are traded on the NYSE, under the symbols "LGL" and "LGL WS," respectively.
Removed
Stock Repurchase Program On August 29, 2011, our Board authorized the Company to repurchase up to 100,000 shares of its common stock in accordance with applicable securities laws.
Added
The actual number of holders of common stock and warrants is greater than this number of record holders, and includes holders who are beneficial owners, but whose shares or warrants are held in street name by brokers and other nominees.
Added
This number of holders of record also does not include holders whose shares or warrants may be held in trust by other entities. Recent Sales of Unregistered Securities The Company did not sell any equity securities during the three months and year ended December 31, 2023 that were not registered under the Securities Act.
Added
Purchases of Equity Securities by the Issuer or Affiliated Purchaser The following table sets forth information with respective to shares of common equity purchased by the Company during the three months ended December 31, 2023: Total Number of Shares Purchased (1) Weighted Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Program (1) Maximum Number (or Approximate Dollar Value) of Shares that May Yet to be Purchased Under the Plan or Programs October 1, 2023 - October 31, 2023 — $ — — 458,416 November 1, 2023 - November 30, 2023 — — — 458,416 December 1, 2023 - December 31, 2023 — — — 458,416 Total — — (1) On August 29, 2011, our Board authorized an expansion of its previously announced share repurchase program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

22 edited+32 added−39 removed12 unchanged
Biggest changeAs of December 31, 2021, we had current assets of $55,836,000, current liabilities of $4,426,000 and a ratio of current assets to current liabilities of 12.62 to 1.00. Management continues to focus on efficiently managing working capital requirements to match operating activity levels and will seek to deploy the Company’s working capital where it will generate the greatest returns.
Biggest changeThe increase was partially offset by: • Deferred income tax expense (benefit) decreased $1,598 from ($1,516) in 2022 to $82 in 2023. 26 Table of Contents Our working capital metrics and ratios were as follows: As of December 31, (in thousands) 2023 2022 Current assets $ 41,566 $ 39,340 Less: Current liabilities 474 587 Working capital $ 41,092 $ 38,753 Current ratio 87.7 67.0 Management continues to focus on efficiently managing working capital requirements to match operating activity levels and will seek to deploy the Company’s working capital where it will generate the greatest returns.
In connection with the Separation, Mtron entered into several agreements with LGL that, among other things, effect the Separation and provide a framework for its relationship with LGL after the Separation, including (i) an Amended and Restated Separation and Distribution Agreement which provides for, among other things, the mechanics for effecting the Distribution as well as certain ongoing responsibilities of Mtron and LGL subsequent to the Distribution, (ii) an Amended and Restated Transitional Administrative and Management Services Agreement with Mtron, which, among other things, specifies that LGL will provide Mtron, and Mtron will provide LGL, with certain administrative and management services for up to a twelve-month period after the Distribution, and (iii) an Amended and Restated Tax Indemnity and Sharing Agreement, which, among other things, contains certain agreements and covenants related to tax matters involving LGL and Mtron and covers time periods before and after the Distribution.
In connection with the Separation, MtronPTI entered into several agreements with LGL that, among other things, effect the Separation and provide a framework for its relationship with LGL after the Separation, including (i) an Amended and Restated Separation and Distribution Agreement which provides for, among other things, the mechanics for effecting the Distribution as well as certain ongoing responsibilities of MtronPTI and LGL subsequent to the Distribution, (ii) an Amended and Restated Transitional Administrative and Management Services Agreement with MtronPTI, which, among other things, specifies that LGL will provide MtronPTI, and MtronPTI will provide LGL, with certain administrative and management services for up to a twelve-month period after the Distribution, and (iii) an Amended and Restated Tax Indemnity and Sharing Agreement, which, among other things, contains certain agreements and covenants related to tax matters involving LGL and MtronPTI and covers time periods before and after the Distribution.
Our projections of future taxable income include 33 estimates and assumptions regarding our income and costs, as well as the timing and amount of reversals of taxable temporary differences. The Company follows a two-step approach to recognize and measure uncertain tax positions.
Our projections of future taxable income include estimates and assumptions regarding our income and costs, as well as the timing and amount of reversals of taxable temporary differences. The Company follows a two-step approach to recognize and measure uncertain tax positions.
For more information regarding the agreements entered into in connection with the Distribution, please refer to Mtron’s registration statement on Form 10, as amended, and filed on August 19, 2022 with the SEC, and the Information Statement contained therein.
For more information regarding the agreements entered into in connection with the Distribution, please refer to MtronPTI's registration statement on Form 10, as amended, and filed on August 19, 2022 with the SEC, and the Information Statement contained therein.
We expect to fill a substantial portion of our order backlog as of December 31, 2022 in 2023, but cannot provide assurances as to what portion of the order backlog will be fulfilled in a given year.
We expect to fill a substantial portion of our order backlog as of December 31, 2023 in 2024, but cannot provide assurances as to what portion of the order backlog will be fulfilled in a given year.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes. This discussion contains forward-looking statements, including statements regarding our expected financial position, business and financing plans. These statements involve risks and uncertainties.
Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes. This discussion contains forward-looking statements, including statements regarding our expected financial position, business and financing plans. These statements involve risks and uncertainties.
Discussion of Operating Results from Continuing Operations Factors Which May Influence Results of Operations We are not aware of any material trends or uncertainties, other than the global economic conditions affecting our industry generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on our revenues or income other than those listed in Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
Trends and Uncertainties We are not aware of any material trends or uncertainties, other than the global economic conditions affecting our industry generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on our revenues or income other than those listed in Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
We believe that existing cash and cash equivalents, marketable securities and cash generated from operations will provide sufficient liquidity to meet our ongoing working capital and capital expenditure requirements for the next 12 months from the date of this filing. The Company’s management continues to strive for profitability both internally and through acquisition.
Capital Resources We believe that existing cash and cash equivalents, marketable securities and cash generated from operations will provide sufficient liquidity to meet our ongoing working capital and capital expenditure requirements for the next 12 months and for the foreseeable future. The Company’s management continues to strive for profitability both internally and through acquisition.
Income Taxes We account for income taxes in accordance with Accounting Standards Codification Topic 740 “Income Taxes”, which requires an asset and liability approach for the financial accounting and reporting of income taxes.
Income Taxes We account for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"), which requires an asset and liability approach for the financial accounting and reporting of income taxes.
The Company reports financial results for discontinued operations separately from continuing operations in order to distinguish the financial impact of the potential disposal transaction from ongoing operations. Prior financial information has been updated to reflect the required presentation for discontinued operations under ASC 205-20. See Note C –Discontinued Operations to the Consolidated Financial Statements included in Item 8.
The Company reports financial results for discontinued operations separately from continuing operations in order to distinguish the financial impact of the potential disposal transaction from ongoing operations. Prior financial information has been updated to reflect the required presentation for discontinued operations under ASC 205-20.
In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the Company determined that MtronPTI met the conditions for a discontinued operation and it has been recorded as such in the consolidated financial statements.
Discontinued Operations In accordance with FASB ASC Topic 205, Presentation of Financial Statements ("ASC 205"), Subtopic 20 - Discontinued Operations, the Company determined that MtronPTI met the conditions for a discontinued operation and was recorded as such in the consolidated financial statements.
Please see the full text of the Agreements, filed as Exhibits 2.2, 10.4, and 10.5, respectively, to this Report on Form 10-K. See Note C –Discontinued Operations in the accompanying Notes to Consolidated Financial Statements to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Report. for further details of the transaction.
Please see the full text of the Agreements, filed as Exhibits 2.1, 10.3, and 10.4, respectively, to this Report on Form 10-K. See Note 3 – Discontinued Operations in the accompanying Notes to the Consolidated Financial Statements included in Item 8.
Rising inflation may have an adverse impact on our manufacturing cost of sales along with engineering, selling and administrative expenses, as these costs could increase at a rate 29 higher than our revenue. The U.S.
Although inflation is expected to continue to decrease in 2024, the continued higher inflationary conditions may have an adverse impact on our manufacturing cost of sales along with engineering, selling and administrative expenses, as these costs could increase at a rate higher than our revenue. The U.S.
The Company, through its manufacturing business subsidiary, is engaged in the designing, manufacturing and marketing of high-performance Frequency and Time Reference Standards that form the basis for timing and synchronization in various applications. The Company’s primary markets are aerospace and defense.
Overview The Company is a holding company engaged in services, merchant investment and manufacturing business activities. The Company, through its manufacturing business subsidiary, is engaged in the designing, manufacturing and marketing of high-performance Frequency and Time Reference Standards that form the basis for timing and synchronization in various applications.
LGL stockholders of record received one-half share of Mtron common stock for every share of LGL common stock. Following the Distribution, Mtron became an independent, publicly traded company with its common stock listed under the symbol “MPTI” on the NYSE American, and LGL retained no ownership interest in Mtron.
Following the Distribution, MtronPTI became an independent, publicly traded company with its common stock listed under the symbol "MPTI" on the NYSE American, and LGL retained no ownership interest in MtronPTI.
(“LGL”) was completed. The Spin-Off of Mtron was achieved through LGL’s distribution (the “Distribution”) of 100% of the shares of Mtron common stock to holders of LGL common stock as of the close of business on the record date of September 30, 2022.
The Separation of MtronPTI was achieved through LGL’s distribution of 100% of the shares of MtronPTI common stock to holders of LGL common stock as of the close of business on the record date of September 30, 2022. LGL stockholders of record received one-half share of Mtron common stock for every share of LGL common stock.
Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are more fully described Note B – Summary of Significant Accounting Policies, in the accompanying Notes to Consolidated Financial Statements.
Our significant accounting policies are more fully described Note 2 – Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.
Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, particularly under the headings “Caution Concerning Forward-Looking Statements” and “Risk Factors”. Overview The Company is a diversified holding company engaged in investment and manufacturing business activities.
Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, particularly under the headings " Cautionary Statement Concerning Forward-Looking Statements " and " Risk Factors. " Unless otherwise stated, all dollar amounts are in thousands.
Federal Reserve raised the federal funds rate a total of seven times throughout 2022, resulting in a range from 4.25% to 4.50% as of December 31, 2022.
Federal Reserve raised the federal funds rate a total of four times throughout 2023, resulting in a range from 5.25% to 5.50% as of December 31, 2023. However, it is expected that the U.S. Federal Reserve will hold the federal funds rate steady or start to decrease it during 2024 to, among other things, control inflation.
No cash dividends have been paid to the Company’s stockholders since January 30, 1989, and none are expected to be paid for the foreseeable future. 32 Completion of Spin-Off of MtronPTI from LGL On October 7, 2022 (the “Distribution Date”), at 12:01 a.m. Eastern Time, the spin-off (the “Spin-Off”) of M-tron Industries, Inc. (“Mtron”) from The LGL Group, Inc.
No cash dividends have been paid to the Company’s stockholders since January 30, 1989, and none are expected to be paid for the foreseeable future.
See Note E – Marketable Securities to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Report. Investment gains and losses have caused significant volatility in our earnings, particularly with respect to our IRNT securities position.
Refer to Note 3 – Discontinued Operations in the accompanying Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Report for further details.
The accompanying consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries except its sole variable interest entity (“VIE”), LGL Systems Acquisition Holding Company, LLC (the “Sponsor”).
The Company’s primary markets are communications, networking, aerospace, defense, instrumentation and industrial markets. The accompanying consolidated financial statements include the accounts of The LGL Group, Inc., its majority-owned subsidiaries, and variable interest entities ("VIEs") of which we are the primary beneficiary.
Removed
Financial Statements and Supplementary Data of this Report for further details. COVID-19 The COVID-19 pandemic (“COVID”) has had and may continue to have an adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve.
Added
Inflation and Changing Interest Rates Inflation in the United States decreased from 6.5% as of December 31, 2022 to 3.4% as of December 31, 2023, which is still above the U.S. Federal Reserve's long-term target of 2.0%.
Removed
The COVID pandemic continues to present business challenges, and we continue to experience impacts related to COVID, primarily in higher raw material prices, disruptions in global supply chains, delays in supplier deliveries, delays in deliveries to customers, labor shortages and employee absences.
Added
As a result, we have increased the prices we charge our customers. 23 Table of Contents Results of Operations - Consolidated The following table presents our Consolidated Statements of Operations for the periods indicated: Year Ended December 31, (in thousands, except share data) 2023 2022 $ Change % Change Revenues: Net sales $ 1,728 $ 1,655 $ 73 4.4 % Net investment income 1,566 413 1,153 279.0 % Net gains (losses) 384 (4,747 ) 5,131 108.1 % Total revenues 3,678 (2,679 ) 6,357 237.3 % Expenses: Manufacturing cost of sales 796 837 (41 ) -4.9 % Engineering, selling and administrative 2,236 2,890 (654 ) -22.6 % Total expenses 3,032 3,727 (695 ) -18.6 % Income (loss) from continuing operations before income tax expense 646 (6,406 ) 7,052 110.1 % Income tax expense (benefit) 301 (1,529 ) 1,830 119.7 % Net income (loss) from continuing operations 345 (4,877 ) 5,222 107.1 % (Loss) income from discontinued operations, net of tax (28 ) 1,885 (1,913 ) -101.5 % Net income (loss) 317 (2,992 ) 3,309 110.6 % Less: Net income attributable to non-controlling interests 48 — 48 n/m Net income (loss) attributable to LGL Group common stockholders $ 269 $ (2,992 ) $ 3,357 112.2 % 2023 Compared to 2022 Total Revenues Total revenues increased $6,357, or 237.3%, from ($2,679) in 2022 to $3,678 in 2023.
Removed
The ultimate impact of COVID on our operations and financial performance depends on many factors that are not within our control, including, but not limited to, potential subsequent waves of COVID infection or potential new variants and the possible resistance of new variants to currently available vaccines, the effectiveness and adoption of COVID vaccines and therapeutics, governmental, business and individuals’ actions that have been and may in the future be taken in response to the pandemic (including shutdown orders, border closings, restrictions on travel and transport and workplace restrictions) and resulting supplier impacts.
Added
The following items contributed to the overall increase: • a $73, or 4.4%, increase in Net sales from $1,655 in 2022 to $1,728 in 2023 primarily due to additional contracts won within the Electronic Instruments segment; • a $1,153, or 279.0%, increase in Net investment income from $413 in 2022 to $1,566 in 2023 primarily due to the redeployment of capital from investments in mutual funds into higher yielding U.S.
Removed
In addition, to the extent global vaccination programs do not achieve intended results and a longer period of economic and global supply chain and related disruption continues, the more adverse the impact will be on our business operations, financial performance and results of operations.
Added
Treasury money market funds within the Merchant Investment and Corporate segments; and • a $5,131, or 108.1%, increase in Net gains (losses) from ($4,747) in 2022 to $384 in 2023 primarily due to realized gains on the related sales of mutual fund investments in 2023 versus realized losses on the sale of IronNet, Inc. in 2022 within the Corporate segment.
Removed
Inflation and Rising Interest Rates During 2022, inflation in the United States accelerated and, as of the date of this Report, is currently expected to continue at an elevated level in the near-term.
Added
Total Expenses Total expenses decreased $695, or 18.6%, from $3,727 in 2022 to $3,032 in 2023.
Removed
It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. 2022 Compared to 2021 Consolidated Revenues, Gross Margin and Backlog Total revenues were $1,655,000, an increase of $209,000, or 14.5%, from $1,446,000 in 2021. The increase in revenue reflects strong performance in our defense and communication markets.
Added
The following items contributed to the overall decrease: • a $41, or 4.9%, decrease in Manufacturing cost of sales from $837 in 2022 to $796 in 2023 primarily due to several contracts for lower cost distribution products within the Electronic Instruments segment; and • a $654, or 22.6%, decrease in Engineering, selling and administrative from $2,890 in 2022 to $2,236 in 2023 primarily due to lower salaries and wages, share-based compensation expenses, and professional services and other consulting fees within the Corporate segment in 2023 compared to 2022.
Removed
Consolidated gross margin, which is consolidated revenues less manufacturing cost of sales as a percentage of revenues, were 49.4% compared to 50.8% for the prior year. Volume based gross margin improvements were muted by inflationary cost pressures. As of December 31, 2022, our order backlog was $360,000, an increase of 0.6% compared to $358,000 as of December 31, 2021.
Added
Gross Margin Gross margin (Net sales less Manufacturing cost of sales as a percentage of Net sales) increased 450 basis points from 49.4% in 2022 to 53.9% in 2023 primarily due to shift in product mix within the Electronic Instruments segment that had lower costs (and higher margins).
Removed
Operating (Loss) Income The Company reported an operating loss of $2,047,000 compared to an operating loss of $3,521,000 for the year ended December 31, 2021. This decrease largely relates to a donation of IRNT stock in 2021 totaling $1,318,000 which did not occur in 2022.
Added
Backlog As of December 31, 2023, our order backlog was $143, a decrease of $217, compared to $360 as of December 31, 2022 primarily due a large contract received in Q4 2022 that did not recur in Q4 2023.
Removed
This charge is recorded in Engineering, selling and administrative expense (“ES&A expense”) on the Consolidated Statement of Operations. ES&A also includes selling, general and administrative expenses of PTF totaling $716,000 compared to $627,000 for the year ended December 31, 2021. ES&A also includes corporate salary and benefits of $791,000 compared to $705,000 for the year ended December 31, 2021.
Added
Income Tax Expense (Benefit) Income tax expense (benefit) increased $1,830, or 119.7%, from ($1,529) in 2022 to $301 in 2023 primarily due to the increase in Net gains in 2023 compared Net losses in 2022.
Removed
These expenses are primarily related to compensation paid to four executive officers. Beginning at Separation, the compensation for three of these executives will be handled through a shared agreement between the Company and MtronPTI. ES&A also includes insurance costs of $377,000 as compared to $255,000 for the year ended December 31, 2021.
Added
Income from Discontinued Operations, Net of Tax Income from discontinued operations decreased $1,913, or 101.5%, from $1,885 in 2022 to $28 in 2023 primarily due to the Separation of MtronPTI in October 2022 while remaining Separation costs were included in 2023.
Removed
Also included in ES&A expense are audit fees of $283,000 compared to $276,000 for the year ended December 31, 2021.
Added
Net Income Attributable to Non-Controlling Interests Net income attributable to non-controlling interests increased $48 from $0 in 2022 to $48 in 2023 primarily due to the consolidation of LGL Systems in June 2023, which has minority shareholders. 24 Table of Contents Results of Operations - Operating Segments Electronic Instruments The following table presents income from continuing operations of our Electronic Instruments segment for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 Revenues: Net sales $ 1,728 $ 1,655 Total revenues 1,728 1,655 Expenses: Manufacturing cost of sales 796 837 Engineering, selling and administrative 780 715 Total expenses 1,576 1,552 Income from continuing operations before income taxes $ 152 $ 103 2023 Compared to 2022 Income from Continuing Operations Before Income Taxes Income from continuing operations before income taxes increased $49, or 47.6%, from $103 in 2022 to $152 in 2023.
Removed
Interest Income, net Interest income, net was $194,000 compared to $1,000 for the year ended December 31, 2021 due to the general increase in interest rates late in 2022 coupled with a cash proceeds from the sale of IRNT stock in late 2021 which was available for investment for the full year in 2022.
Added
The following items contributed to the overall increase: • a $73, or 4.4%, increase in Net sales from $1,655 in 2022 to $1,728 in 2023 primarily due to additional contracts won in 2023; and • a $41, or 4.9%, decrease in Manufacturing cost of sales from $837 in 2022 to $796 in 2023 primarily due to several contracts for lower cost distribution products.
Removed
Gain (Loss) on Equity Investment in Unconsolidated Subsidiary The Company recognized a gain on equity investment in unconsolidated subsidiary of $59,453,000 for the year ended December 31, 2021. As more fully described below in the Non-Recurring Items: Equity Investment in Unconsolidated Subsidiary section, the balance reflects the impact of the IronNet Business Combination and subsequent Sponsor distribution of IRNT securities.
Added
The increase was partially offset by: • a $65, or 9.1%, increase in Engineering, selling and administrative from $715 in 2022 to $780 in 2023 primarily due to salary increases and bonuses accruals in 2023 partially offset by a temporary staff reduction.
Removed
The fair value of IRNT securities determined at the date of distribution represents the basis of these securities in determining realized and unrealized (losses) and gains. Realized (Loss) Income on Marketable Securities During the year ended December 31, 2022, the realized loss on marketable securities was $22,649,000 compared to $16,962,000 of realized loss for the year ended December 31, 2021.
Added
Merchant Investment The following table presents income from continuing operations of our Merchant Investment segment for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 Revenues: Net investment income $ 869 $ — Total revenues 869 — Expenses: Engineering, selling and administrative 216 — Total expenses 216 — Income from continuing operations before income taxes $ 653 $ — 2023 Compared to 2022 Income from Continuing Operations Before Income Taxes Income from continuing operations increased $653 from $0 in 2022 to $653 in 2023 due to the commencement of operations of Lynch Capital International, LLC in June 2023. 25 Table of Contents Corporate The following table presents income from continuing operations of Corporate for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 Revenues: Net investment income $ 697 $ 413 Net gains (losses) 384 (4,747 ) Total revenues 1,081 (4,334 ) Expenses: Engineering, selling and administrative 1,240 2,175 Total expenses 1,240 2,175 Loss from continuing operations before income taxes $ (159 ) $ (6,509 ) 2023 Compared to 2022 Loss from Continuing Operations Before Income Taxes Loss from continuing operations before income taxes decreased $6,350, or 97.6%, from $6,509 in 2022 to $159 in 2023.
Removed
Excluding the realized loss related to the disposition of IRNT common stock and related derivative positions of $22,869,000, investment income from dividends was $220,000 compared to $415,000 for the year ended December 31, 2021.
Added
The following items contributed to the overall decrease: • a $284, or 68.7%, increase in Net investment income from $413 in 2022 to $697 in 2023 primarily due to the redeployment of capital from investments in mutual funds into money market mutual funds invested in U.S.
Removed
See Note E – Marketable Securities in the accompanying Notes to Consolidated Financial Statements for additional details. 30 Unrealized (Loss) Gain on Marketable Securities During the year ended December 31, 2022, the unrealized gain on marketable securities was $18,121,000 compared to a $22,949,000 unrealized loss for the year ended December 31, 2021.
Added
Treasuries with higher yields; and • a $5,131, or 108.1%, increase in Net gains (losses) from ($4,747) in 2022 to $384 in 2023 primarily due to realized gains on the sales of related party mutual fund investments in 2023 versus realized losses on the sales of IronNet, Inc. in 2022. • a $935, or 43.0%, decrease in Engineering, selling and administrative from $2,175 in 2022 to $1,240 in 2023 primarily due to lower salaries and wages, share-based compensation expenses, and professional services and other consulting fees in 2023 compared to 2022.
Removed
Excluding the unrealized gains of $18,607,000 and unrealized loss of $22,834,000 from the changes in fair value of the Company’s IRNT common stock and derivative positions held at December 31, 2022 and 2021, respectively, the unrealized loss of $486,000 for the year ended December 31, 2022 compared to an unrealized loss of $115,000 for the year ended December 31, 2021.
Added
Liquidity and Capital Resources Overview Liquidity refers to our ability to access sufficient sources of cash to meet the requirements of our operating, investing and financing activities. Capital refers to our long-term financial resources available to support business operations and future growth.
Removed
Other Expense, Net Other expense, net was $25,000 compared to less than $1,000 for the year ended December 31, 2021 . Income Tax Provision We must make certain estimates and judgments in determining income tax expense for financial statement purposes.
Added
Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows, general economic conditions and access to the capital markets and the other sources of liquidity and capital described herein. As of December 31, 2023 and 2022, Cash and cash equivalents were $40,711 and $21,507, respectively.
Removed
These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Added
Cash Flow Activity The following table presents the cash flow activity for the periods indicated: As of December 31, (in thousands) 2023 2022 Cash and cash equivalents, beginning of year $ 21,507 $ 29,016 Cash provided by (used in) operating activities 385 (817 ) Cash provided by (used in) investing activities 18,819 (5,833 ) Cash used in financing activities — (859 ) Net change in cash and cash equivalents 19,204 (7,509 ) Cash and cash equivalents, end of year $ 40,711 $ 21,507 Operating Activities Cash provided by operating activities was $385 in 2023 compared to cash used in operating activities of $817 in 2022, an increase of $1,202 primarily due to the following: • Net income (loss) increased $3,309 from ($2,992) in 2022 to $317 in 2023; • Net gains (losses) increased $5,131 from ($4,747) in 2022 to $384 in 2023 related to the sale of IronNet, Inc. at a loss in 2022 and the sales of related party mutual fund investments in 2023; and • Net change in operating assets and liabilities increased $2,347 from ($2,002) in 2022 to $345 in 2023.
Removed
Significant changes to these estimates may result in an increase or decrease to the tax provision in a subsequent period. The Company follows a two-step approach to recognize and measure uncertain tax positions.
Added
Investing Activities Cash provided by investing activities was $18,819 in 2023 compared to cash used in investing activities of $5,833 in 2022, an increase of $24,652 primarily due to the sale of the Company's investments in marketable securities, including IrontNet, Inc. and mutual fund investments during Q1 and Q2 2023 at a gain as well as the consolidation of non-controlling interests related to LGL Systems Acquisition Holding Company, LLC.
Removed
The Company's policy is to include interest and penalties related to uncertain tax positions in income tax expense. We recorded a tax benefit of $1,529,000 and expense of $3,472,000 for the years ended December 31, 2022 and 2021, respectively.
Added
Financing Activities Cash provided by financing activities was $0 in 2023 compared to cash used in financing activities of $859 in 2022, an increase of $859 primarily due to the Separation of MtronPTI and the payment of taxes related to the net share settlement of equity awards partially offset by the exercise of stock options during 2022, which did not occur in 2023.
Removed
This significant difference was largely driven by the $19,543,000 of other income resulting from our Sponsor investment in 2021 and the realized and unrealized losses from the IRNT position which was reversed for the year ended December 31, 2022 with $4,528,000 of net investment losses from marketable securities for the year ended December 31, 2022.
Added
Contractual Obligations The following table summarizes contractual obligations in total, and by remaining maturity: Payments due by Period (in thousands) Total Payments 2024 2025 Leases $ 79 $ 64 $ 15 Total $ 79 $ 64 $ 15 Leases Leases relate to our Electronic Instruments business and represent the future minimum lease payments under our operating leases.
Removed
Income from Discontinued Operations, Net of Tax Income from discontinued operations, net of tax was $1,885,000 and $2,088,000 for the years ended December 31, 2022 and 2021, respectively. These amounts represent the income which was formerly earned by the discontinued operation less the costs directly related to the spin-off and is presented net of the related tax effect.
Added
We believe that the Electronic Instruments business maintain adequate financial resources to meet the actual required payments under these obligations. Completion of Spin-Off of MtronPTI from LGL On October 7, 2022 (the "Distribution Date"), at 12:01 a.m. Eastern Time, the spin-off of MtronPTI was completed (the "Spin-off" or the "Separation").
Removed
Net (Loss) Income Net loss was $2,992,000 compared to net income of $14,638,000 for the year ended December 31, 2021. The comparative decline in net (loss) income was largely from the aforementioned realized and unrealized gains (losses) on marketable securities. Basic net (loss) income per share for the years ended December 31, 2022 and 2021 was $(0.91) and $2.38, respectively.
Added
Financial Statements and Supplementary Data of this Report. for further details of the transaction. 27 Table of Contents Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.
Removed
Diluted net (loss) income per share for the years ended December 31, 2022 and 2021 was $(0.91) and $2.35, respectively. 31 Non-Recurring Items: Equity Investment in Unconsolidated Subsidiary In total, the Company invested $6.1 million in LGL Systems Acquisition Holdings, LLC, the Sponsor of LGL Systems Acquisition Corp., a NYSE-listed SPAC trading under the symbol “DFNS” which later completed a business combination with IronNet Cybersecurity, Inc. and began trading on the NYSE under the symbol “IRNT”.
Added
Variable Interest Entities In accordance with the provisions of the FASB ASC Topic 810, Consolidation ("ASC 810"), we evaluate entities for which control is achieved through means other than voting rights to determine if we are the primary beneficiary of a variable interest entity ("VIE").
Removed
On September 14, 2021, the Company received 1,572,529 shares of IRNT common stock and 2,065,000 IRNT private warrants, as part of the Sponsor’s distribution to certain of its members, with an aggregate fair value of $65.3 million on the date of distribution.
Added
An entity is a VIE if it has any of the following characteristics: (1) the entity has insufficient equity to permit it to finance its activities without additional subordinated financial support; (2) equity holders, as a group, lack the characteristics of a controlling financial interest; or (3) the entity is structured with non-substantive voting rights.
Removed
In an effort to continue its stakeholder responsibilities in the context of global corporate citizenship, the Company made a charitable gift on September 28, 2021 of 50,000 restricted shares of IRNT stock. In October 2021, the Company received 1,271,406 shares of IRNT common stock from a cashless exercise of its private warrants.
Added
The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
Removed
Prior to the distribution on September 14, 2021, the Company reported its original $6.1 million investment in the Sponsor under the equity method of accounting, recognizing a cumulative Sponsor gain of $59.5 million since its initial 2019 investment which included the $65.3 million investment value increase from the Sponsor’s receipt of IRNT securities.
Added
We consolidate our investment in a VIE when we determine that we are the primary beneficiary of such entity.
Removed
After the Sponsor’s distribution, the Company’s IRNT securities were classified as marketable securities, with the change in fair value reported as realized and unrealized losses. As of December 31, 2021, the Company sold 1,455,315 shares of its IRNT common stock partially monetizing its $6.1 million Sponsor investment.
Added
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to, which activities most significantly impact the VIE’s economic performance and which party controls such activities and the significance of our investment and other means of participation in the VIE’s expected profits/losses.

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