Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 20222023

OR

For the transition period from ____________ to ____________

Commission File No. 001-00106

THE LGL GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

(407) 298-2000

(Registrant’sRegistrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No  ☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐    No  ☒

As of November 11, 2022,6, 2023, the registrant had 5,349,1875,352,937 shares of common stock, $0.01 par value per share, outstanding.

THE LGL GROUP, INC.

Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 20222023

INDEX

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q.10-Q. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 20222023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.2023. The information included in this Form 10-Q10-Q should be read in conjunction with theinformation included in The LGL Group, Inc. (the “Company”, “LGL Group”, “LGL”, “we”, “our” or “us”)Annual Report on Form 10-K10-K for the year ended December 31, 20212022 filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2022.April 17, 2023.

Spin-Off of M-tron Industries, Inc.

On August 3, 2022, LGL announced that its Board of Directors approvedThe Company was incorporated in 1928 under the previously announced separationlaws of the M-tron Industries, Inc. (“MtronPTI”)State of Indiana and reincorporated under the laws of the State of Delaware in 2007, and is a diversified holding company engaged in services, investment and manufacturing business into an independent, publicly traded company (the "Separation" or “Spin-Off”). Prior toactivities with subsidiaries engaged in the Separation, LGL Groupdesign, manufacturing and marketing of highly-engineered, high performance Frequency and Time Reference Standards that form the basis for timing and synchronization in various applications.

The Company’s manufacturing business is operated its electronic instruments business segment through its wholly-owned subsidiary Precise Time and Frequency, (“PTF”LLC ("PTF"). The Company has operations in Wakefield, Massachusetts.

As part of our ongoing efforts developing our merchant investment segment, the Company took additional steps and solidified its electronic components business segmentrole as the Managing Partner of a syndicated investment partnership. We have pursued opportunities for direct investing for control, direct investing as a minority with the ability to influence such as through MtronPTI.Board representation and direct investing to build an industry platform to acquire and build along an industry vertical.

Certain prior period balances were reclassified to conform with the current financial statement presentation, including a reclassification of the income statement line items for interest income and investment (loss) income to be classified and included within revenues.

Spin-Off of M-tron Industries, Inc.

On October 7, 2022 the Separationtax-free spin-off of the MtronPTI business was completed and MtronPTI became an independent, publicly-tradedpublicly traded company trading on the NYSE American under the stock symbol "MPTI."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. LGL's stockholders of record received one-halfone-half share of MtronPTI's common stock for every share of LGL's common stock. In connection with the Separation, MtronPTI wrote off $4,439,000 of intercompany receivables due from LGL, which brought intercompany balances to zero. LGL retained no ownership interest in the MtronPTI business following the Separation. During the first quarter of 2023, MtronPTI agreed to share excess Separation costs of $28,000 with LGL Group, which has been recorded as a reduction of Spin-Off costs, which were $55,000 for the nine months ended September 30, 2023, and $232,000 and $575,000 for the three and nine months ended September 30, 2022 respectively. Beginning, respectively, and are included in income from discontinued operations, net in the fourth quarterCompany’s consolidated statements of 2022, theoperations.

The historical financial results of the MtronPTI business for periods prior to the distribution date along with the related direct costs of the Spin-Off will beare reflected in the Company’s condensed consolidated financial statements as discontinued operations. Unless otherwise noted, discussion in these Notes to Consolidated Financial Statements refers to our continuing operations. Refer to Note C – Discontinued Operations, for additional information regarding the discontinued operations.

LGL believes that the spin-off of MtronPTI would enable shareholders to more clearly evaluate the performance and future potential of each entity on a standalone basis, while allowing each to pursue its own distinct business strategy and capital allocation policy. Separating MtronPTI as an independent, publicly owned company positions the business to increase value to both MtronPTI and LGL Group. The spin-off permits each company to tailor its strategic plans and growth opportunities, more efficiently raise and allocate resources, including capital raised through debt or equity offerings, flexibly use its own stock as currency for teammate incentive compensation and potential acquisitions and provide investors a more targeted investment opportunity.

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries except its solealong with any variable interest entity (“VIE”), for which it has been determined to be the primary beneficiary. During June 2023, the Company determined it was the primary beneficiary of LGL Systems Acquisition Holding Company, LLC (the “Sponsor”("LGL Systems")., disclosing the non-controlling interest relating to the minority shareholders within its consolidated financial statements. The Company does not consolidate its VIE, LGL Systems Nevada Management Partners, LLC (“LGL Nevada”), as the Company had determined it is not the primary beneficiary, and its economic interest is immaterial. Intercompany transactions and accounts have been eliminated in consolidation. These consolidated financial statements and accompanying notes have been prepared in accordance with GAAP.

As of September 30, 2023, the subsidiaries of the Company are as follows:

The VIE served asCompany consolidates entities in which the Sponsor toCompany has a special purpose acquisition company, LGL Systems Acquisition Corp. (the “SPAC” or “DFNS”).controlling financial interest. The SPAC completedCompany determines whether it has a merger with its target company, IronNet Cybersecurity, Inc., on August 26, 2021 and changed its name to IronNet, Inc. (“IronNet” or “IRNT”) (the “IronNet Business Combination”). IronNetcontrolling financial interest in an entity by first evaluating whether the entity is a publicly-traded company on the NYSE American (“NYSE”) under the ticker symbol “IRNT.”variable interest entity (VIE).

VIE: Our sole

A variable interest in a VIE is an investment that will absorb portions of the Sponsor, was accounted for underVIE’s expected losses and/or receive portions of the equity method of accountingVIE’s expected residual returns. The Company’s variable interests in VIEs include limited membership interests and not consolidated.  Determining whether to consolidatecommon equity.

VIE Consolidation Analysis

The enterprise with a controlling financial interest in a VIE requires judgement in assessingis known as the primary beneficiary and consolidates the VIE. The Company determines whether it is the primary beneficiary of a VIE by performing an analysis that principally considers:

The Company reassesses its evaluation of whether an entity is a VIE and if we are the entity’s primary beneficiary. If we arewhen certain reconsideration events occur. The Company reassesses its determination of whether it is the primary beneficiary of a VIE we are required to consolidate on an ongoing basis based on current facts and circumstances. During June 2023, the entity. To determine if we areCompany reassessed its determination for LGL Systems and determined it was the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation included identification of significant activities and an assessment of our ability to direct those activities, based on operating and other legal agreements as well as governance provisions. As a result of our review, we concluded that we were not the primary beneficiary of the VIE and that consolidation was not warranted.beneficiary.

The Sponsor is managed by LGL Systems Nevada Management Partners LLC (“Nevada GP”), an affiliated entity deemed to be under the significant influence of Marc Gabelli, the Company’s non-executive Chairman of the Board, who is also a greater than 10% stockholder of the Company. The Company has determined that it is not the primary beneficiary of the Sponsor, as Nevada GP has the power to direct the activities of the Sponsor that most significantly impact the Sponsor’s economic performance through an operating agreement. The Company, therefore, accounts for the Sponsor under the equity method of accounting.

Equity-Method Investments:When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under GAAP.U.S. generally accepted accounting principles (“GAAP”). Significant influence generally exists when the Company owns 20% to 50% of the entity’s common stock or in-substance common stock.In applying the equity method, we record the investment at cost and subsequently increase or decrease the carrying amount

Revenue Recognition

The Company recognizes revenue from the sale of its products in accordance with the criteria in Accounting Standards Codification (“ASC”) 606,Revenue from Contracts with Customers, which are:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company meets these conditions upon the Company’s satisfaction of the performance obligation, usually at the time of shipment to the customer, because control passes to the customer at that time. Our standard terms for customers are net due within 30 days, with a few exceptions, none regularly exceeding 60 days.

The Company’s two product groupings, Frequency Control and Spectrum Control, have identical characteristics for revenue recognition. Both are recognized upon shipment to the customer.
 

The Company provides disaggregated revenue details by segment in Note L – Segment Information, and geographic markets in Note MK – Domestic and Foreign Revenues.

The Company offers a limited right of return and/or authorized price protection provisions in its agreements with certain electronic component distributors who resell the Company's products to original equipment manufacturers or electronic manufacturing services companies. As a result, the Company estimates and records a reserve for future returns and other charges against revenue at the time of shipment consistent with the terms of sale. The reserve is estimated based on historical experience with each respective distributor. These reserves and charges are immaterial as the Company does not have a history of significant price protection adjustments or returns. The Company provides a standard assurance warranty that does not create a performance obligation.

Practical Expedients:

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Long-lived assets are grouped with other assets to the lowest level to which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Management assesses the recoverability of the carrying cost of the assets based on a review of projected undiscounted cash flows. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or broker's estimates, and/or projected discounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.

We performed an assessment to determine if there were any indicators of impairment as a result of the operating conditions resulting from the coronavirus (“COVID-19”) pandemic at the end of the fiscal quarter ended September 30, 2022.2023. We concluded that, while there were events and circumstances in the macro-environment that did impact us, we did not experience any entity-specific indicators of asset impairment and no triggering events occurred.

Concentration Risks

Our cash and cash equivalents are invested primarily in two U.S. Treasury money market funds, and the Company believes that there is minimal risk relative to its fund holdings. At September 30, 2023, there were no cash balances in any financial institution exceeding the FDIC insurance limit of $250,000.

Recent Accounting Pronouncements

In JuneJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-13,2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments,” which changes the impairment model for most financial assets. The standard replaces the incurred loss model with the current expected credit loss (“CECL”) model to estimate credit losses for financial assets. The Company adopted the provisions of thethis standard are effective for on January 1, 2023, with minimal effect on its financial statements.

During June 2023, the Company on January 1, 2023; early adoptionwas appointed as sole managing member of LGL Nevada and invested approximately $4,000 into LGL Nevada representing its 1% general partnership interest. In conjunction with this transaction, Lynch Capital International, LLC ("Lynch Capital"), the Company's wholly owned subsidiary, invested $1 million into LGL Systems, which is permitted. The Company does not expect a material impact to its consolidated financial statements upon adopting this standard.

In November 2019, the Company made its initial investment of $3,350,000 in the Sponsor of the SPAC and subscribed to an additional investment of $2,725,000 in March 2021, which was funded in May 2021. The incremental investment was part of the Sponsor syndication to participate in a private placement in connection with the IronNet Business Combination.controlled by LGL Nevada. As previously discussed, the SPAC completeda merger with its target company on August 26, 2021 and the combined company began trading its common stock on the NYSE under the symbol “IRNT.”

On September 14, 2021, as a result of its Sponsor investment,the subsequent determination that LGL was the primary beneficiary of LGL Systems and was therefore required to consolidate LGL Systems, the Company received 1,572,529 sharesrecorded $1,872,000 related to the consolidation of IRNT common stock and 2,065,000 IRNT warrants exchangeable into sharesits non-controlling interests in LGL Systems. This is discussed further in Note E - Related Party Transactions.  

On October 7, 2022, the Separation of IRNT common stock. On October 1, 2021,MtronPTI was completed. In accordance with ASC 205-20,Presentation of Financial Statements - Discontinued Operations, the Company exercised its 2,065,000 warrants ondetermined that MTronPTI’s business line met the conditions for a cashless basisdiscontinued operation and received 1,271,406 sharesis recorded as such in the consolidated financial statements. The Company reports financial results for discontinued operations separately from continuing operations in order to distinguish the financial impact of IRNT common stock. To date, the Company has disposeddisposal transaction from ongoing operations.

The following table summarizes the significant line items included in Income from Discontinued Operations, Net of 1,555,315Tax in the Consolidated Statements of its 2,843,935 shares of IRNT common stockOperations for three and derivatives purchased as part of its plan to minimize the economic risk of IRNT share price volatility and received related proceeds of approximately $20,200,000, with 1,288,620 shares of IRNT common stock remaining in our portfolio at nine months ended September 30, 2022 valued at $887,859. Subsequent (in thousands):

The cash flows related to the September 14, 2021 Sponsor distribution, the Company’s IRNT common stockdiscontinued operations have not been segregated and warrants were classified as marketable securities under ASC 321, Investments – Equity Securities (“ASC 321”), with any change in fair value reported as an unrealized gain or loss. See Note D - Marketable Securities. Subsequent to the September 14, 2021 Sponsor distribution, LGL’s interestare included in the Sponsor is immaterial.Condensed Consolidated Statements of Cash Flows for all periods presented. The following table summarizes depreciation and other significant operating noncash items, capital expenditures and financing activities of discontinued operations for each period presented (in thousands):

D.

The Company accounts for equity securities under ASC 321. Such securities are reported at fair value on the consolidated balance sheets, and the related unrealized gains and losses are reported in the consolidated statements of cash flows as non-cash adjustments to income. Any realized and unrealized gains or losses on investmentmarketable securities are reported in the consolidated statements of operations as investment income or (loss). Investment loss was $2,121,000 and $18,867,000 for the three months ended September 30, 2022 and 2021, respectively. Investment loss was $4,449,000 and $18,665,000 for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, the Company recorded realized gains on marketable securities of $112,000 related to a realized gain of $856,000 on the sale of 250,000 IRNT put options, offset by a realized loss of $744,000 for the delivery of 50,000 shares of IRNT common stock against the related derivative position. There were no realized gains or losses for the prior year quarter or year-to-date period.

Details of marketable securities held at September 30, 20222023 and December 31, 20212022 are as follows (in thousands):

The shares of IRNT common stock were received by the Company as a result of the previously discussed Sponsor distribution. The fair value of these shares determined at the date ofa distribution, representswith the basis of these securities.

At December 31, 2021,securities being determined using the Company held 1,250,000 shares of IRNT common stock that were restricted from sale until early 2022. The fair value on the date of these shares of restricted common stock was determined by applying a discount for lack of marketability to the publicly quoted market price of IRNT common stock at December 31, 2021. During the first quarter of 2022, the sale restrictions were released. The fair value of our IRNT securities at September 30, 2022 was determined based on their publicly quoted market price.

The Company executed derivatives transactions as part of its plan to minimize the economic risk of IRNT share price volatility to its IRNT holdings. The Company held put options, covering shares of IRNT common stock with a May 2022 expiration date, for 300,000 shares of IRNT common stock at December 31, 2021. During the first quarter of 2022, the Company delivered 50,000 shares against its IRNT put options. On May 5, 2022, the Company sold put options held at March 31, 2022 covering 250,000 shares of IRNTdistribution.   

common stock for $1,263,000. At September 30, 2022, the Company held put options, covering shares of IRNT common stock with a fourth quarter 2022 expiration date, for 100,500 IRNT shares.

Certain balances held and invested in various mutual funds are managed by a relatedan entity (the "Fund Manager"). Marc Gabelli,, which is related to the Company’s non-executive Chairmancompany through certain of our shareholders.  All investments including those in related party mutual funds are overseen by the Independent Investment Committee of the Board, who is alsoBoard. The Investment Committee meets regularly to review the alternatives and has determined that the current investments most reflect the company’s objective of lower cost, market return and adherence to having a greater than 10% stockholder, serves as an executive officerlarger proportion of the Fund Manager. The brokerage and fund transactionsunderlying investments directly in 2022 and 2021 were directed solely at the discretion of the Company’s management. See Note F – Fair Value Measurements for further discussion of the investments in mutual funds that are managed by the Fund Manager.US treasuries.

As of September 30, 20222023, the balance with the Fund Manager totaled $21,990,000,$32,121,000, all of which is classified within cash and cash equivalents on the accompanying condensed consolidated balance sheets. The fund has an expense ratio of approximately .08% on an annual basis, including $5,857,000a management fee of .08%, which is paid to the Fund Manager.

As of December 31, 2022, the balance with the Fund Manager totaled $26,811,000, including $10,295,000 which is classified within cash and cash equivalents on the accompanying condensed consolidated balance sheets and $16,133,000 which is classified within marketable securities on the accompanying condensed consolidated balance sheets. Amounts invested generated ($168,000) and ($29,000) of investment (loss) income during the three months ended September 30, 2022 and 2021, respectively. Amounts invested generated ($638,000) and $174,000 of investment (loss) income during the nine months ended September 30, 2022 and 2021, respectively. Fund management fees are anticipated to average approximately 0.60% or $133,000 for the nine months ended September 30, 2022 and 0.35% or $54,000 for the nine months ended September 30, 2021 of the asset balances under management on an annual basis, as calculated by management using publicly available information for portfolio management fees.

As of December 31, 2021, the balance with the Fund Manager totaled $15,595,000, including $5,823,000 which is classified within cash and cash equivalents on the accompanying condensed consolidated balance sheets and $9,772,000$16,516,000 which is classified as marketable securities on the accompanying condensed consolidated balance sheets.

Certain members of our board of directors (the “Board”), including Marc Gabelli, John Mega, Timothy Foufas, Manjit Kalha and Michael Ferrantino, and twothree members of our management, team,Marc Gabelli, Patrick Huvane and Michael Ferrantino,Timothy Foufas, are members of LGL Systems.

Transactions with M-tron Industries, Inc.

LGL Group and MtronPTI entered into an Amended and Restated Transitional Administrative and Management Services Agreement, which sets out the Sponsor. Robert LaPenta joined IronNet asterms for services to be provided between the two companies post-separation. The current terms result in a board member uponnet monthly payment of $4,000 per month to MtronPTI from LGL Group.

MtronPTI and LGL Group have agreed to share any excess Separation costs. Included in discontinued operations is an amount of $28,000 which represents 50% of the IronNet Business Combinationexcess Separation costs incurred for the quarter ended March 31, 2023.

At September 30, 2023 andDecember 31, 2022, there was a memberbalance due to LGL Group from MtronPTI of our Board until his resignation$0 and $6,000, respectively, which is included within prepaid expenses and other current assets on September 27, 2021. Mr. LaPenta remains a passive memberthe Condensed Consolidated Balance Sheets.

Transactions with LGL Systems Acquisition Holding Company, LLC.

LGL Group invested $1 million into LGL Systems during June 2023 through Lynch Capital. LGL Group's $1 million in membership interests represents approximately 35% of the Sponsor. All except Mr. Kalha also served in various capacitiesmembership interests, with approximately $929,000 of the SPAC but have all since resigned from the SPAC upon completionaffiliated membership interests and a further $961,000 of the IronNet Business Combination on August 26, 2021. Prior to their resignations, John Mega was Presidentunaffiliated membership interests. The affiliated members of the SPAC, TimothyLGL Systems include Venator Merchant Fund L.P., which is wholly owned by Marc Gabelli. Other affiliated members include Patrick Huvane, LGL's EVP, Tim Foufas, was Chief Operating Officer of the SPAC, Robert LaPenta was Co-Chief Executive OfficerLGL's Co-CEO and Chief Financial Officer of the SPAC, Mr. Gabelli was the Chairman and Co-Chief Executive Officer of the SPAC,LGL Director, Michael Ferrantino, was a SPAC board memberan LGL Director and Patrick Huvane was a SPAC officer. Mr. Foufas, Mr. Huvaneits former Co-CEO, and Mr. Gabelli are managing membersManjit Kalha, an LGL Director and its current audit committee chairman. For the third quarter of 2023,the Sponsor. Mr. Huvane became a managing member of the Sponsor on September 27, 2021.Company recorded $22,000 in net income attributable to non-controlling interests.