Lgl Group Inc 10-Q for FY2023 Q3
Lgl Group Inc (LGL)
About this 10-Q
Lgl Group Inc filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $978K
- compared with -$1.73M a year earlier
- Net income
- $108K
- compared with a net loss of $1.46M a year earlier
- Diluted EPS
- $0.02
- compared with -$0.27 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ____________ to ____________
Commission File No.
THE LGL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of November 6, 2023, the registrant had
Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 2023
INDEX
| PAGE |
||
| PART I. |
||
| Item 1. |
||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| Item 3. |
||
| Item 4. |
||
| PART II. |
||
| Item 1. |
||
| Item 5. |
||
| Item 6. |
||
FINANCIAL INFORMATION
| Financial Statements. |
Condensed Consolidated Balance Sheets
(In thousands, except par value and share amounts)
|
|
| |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable, net of reserves of $ and $, respectively | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Net property, plant, and equipment | ||||||||
| Right-of-use lease assets | ||||||||
| Intangible assets, net | ||||||||
| Deferred income tax assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued compensation and commissions | ||||||||
| Income taxes payable | ||||||||
| Other accrued expenses | ||||||||
| Total Current Liabilities | ||||||||
| Other liabilities | ||||||||
| Total Liabilities | ||||||||
| Contingencies (Note M) | ||||||||
| Equity: | ||||||||
| Common stock, $ par value - shares authorized; shares issued and shares outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ( | ) | ( | ) | ||||
| Treasury stock, shares held in treasury at cost at September 30, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| Stockholders' Equity | ||||||||
| Non-controlling interests | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share amounts)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| Interest income |
||||||||||||||||
| Investment (loss) income |
( |
) | ( |
) | ( |
) | ||||||||||
| Total revenues, net of investment (loss) income |
( |
) | ( |
) | ||||||||||||
| Expenses: |
||||||||||||||||
| Manufacturing cost of sales |
||||||||||||||||
| Engineering, selling and administrative |
||||||||||||||||
| Total Expenses |
||||||||||||||||
| Income (loss) from continuing operations before income taxes |
( |
) | ( |
) | ||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | ||||||||||||
| Net income (loss) from continuing operations |
( |
) | ( |
) | ||||||||||||
| Income from discontinued operations, net of tax |
||||||||||||||||
| Net income (loss) |
( |
) | ( |
) | ||||||||||||
| Less: net income attributable to non-controlling interests |
||||||||||||||||
| Net income (loss) attributable to LGL Group |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Net Income (Loss) per Basic Share: |
||||||||||||||||
| Continuing operations |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Discontinued operations |
||||||||||||||||
| Total Net Income (Loss) per Basic Share |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Net Income (Loss) per Diluted Share: |
||||||||||||||||
| Continuing operations |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Discontinued operations |
||||||||||||||||
| Total Net Income (Loss) per Diluted Share |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Dilutive |
||||||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)
| Shares of Common Stock Outstanding |
Common Stock |
Additional Paid-In Capital |
Retained Earnings (Accumulated Deficit) |
Treasury Stock |
Non- Controlling Interests |
Total |
||||||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Net income, Q1 2023 |
— | |||||||||||||||||||||||||||
| Stock-based compensation |
||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Net loss, Q2 2023 |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Consolidation of non-controlling interests |
— | |||||||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Net income, Q3 2023 |
— | |||||||||||||||||||||||||||
| Balance at September 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Balance at December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Net income, Q1 2022 |
— | |||||||||||||||||||||||||||
| Stock-based compensation |
||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Net loss, Q2 2022 |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Stock-based compensation |
||||||||||||||||||||||||||||
| Shares withheld to pay taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Net loss, Q3 2022 |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Exercise of stock options |
||||||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||||||
| Balance at September 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Nine Months Ended September 30, |
||||||||
| 2023 |
2022 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Depreciation |
||||||||
| Amortization of finite-lived intangible assets |
||||||||
| Stock-based compensation |
||||||||
| Realized loss (gain) on sale of marketable securities |
( |
) | ||||||
| Unrealized (gain) loss on marketable securities |
( |
) | ||||||
| Deferred income taxes |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Decrease (increase) in accounts receivable, net |
( |
) | ||||||
| Decrease (increase) in inventories, net |
( |
) | ||||||
| Decrease in prepaid expenses and other assets |
||||||||
| Increase in accounts payable, accrued compensation, income taxes and commissions and other |
||||||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| INVESTING ACTIVITIES |
||||||||
| Capital expenditures |
( |
) | ||||||
| Cash from consolidation of LGL Systems |
||||||||
| Proceeds from sale of marketable securities |
||||||||
| Purchase of marketable securities |
( |
) | ||||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| FINANCING ACTIVITIES |
||||||||
| Payment for taxes related to net share settlement of equity awards |
( |
) | ||||||
| Exercise of stock options |
||||||||
| Prepaid financing costs |
( |
) | ||||||
| Net cash provided by financing activities |
||||||||
| Increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental Disclosure: |
||||||||
| Income taxes paid |
$ | $ | ||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| A. | Basis of Presentation |
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. 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, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023. The information included in this Form 10-Q should be read in conjunction with the information included in The LGL Group, Inc. (the “Company”, “LGL Group”, “LGL”, “we”, “our” or “us”) Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2023.
The Company was incorporated in 1928 under the laws of the 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 activities with subsidiaries engaged in the design, 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 through its subsidiary Precise Time and Frequency, 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 role 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 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 tax-free spin-off of the MtronPTI business 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
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 are 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 along 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 ("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:
| Subsidiary Name | State or Country of Organization | The LGL Group Investment | ||
| Precise Time and Frequency, LLC | Delaware | | ||
| P3 Logistic Solutions LLC | Delaware | | ||
| Lynch Capital International, LLC | Delaware | | ||
| LGL Systems Acquisition Holding Company, LLC | Delaware | * | | |
| Lynch Systems Acquisition Holding Company, LLC | Delaware | | ||
| * VIE - Consolidated | ||||
The Company consolidates entities in which the Company has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a variable interest entity (VIE).
A variable interest in a VIE is an investment that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns. The Company’s variable interests in VIEs include limited membership interests and common equity.
VIE Consolidation Analysis
The enterprise with a controlling financial interest in a VIE is 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:
| • | Which variable interest holder has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; |
| • | Which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE; |
| • | The VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders; |
| • | The VIE’s capital structure; |
| • | The terms between the VIE and its variable interest holders and other parties involved with the VIE; and |
| • | Related-party relationships. |
The Company reassesses its evaluation of whether an entity is a VIE when certain reconsideration events occur. The Company reassesses its determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances. During June 2023, the Company reassessed its determination for LGL Systems and determined it was the primary beneficiary.
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 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.
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 provides disaggregated revenue details by geographic markets in Note K – 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:
| - | The Company applies the practical expedient for shipping and handling as fulfillment costs. |
| - | The Company expenses sales commissions as sales and marketing expenses in the period they are incurred. |
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 at the end of the fiscal quarter ended September 30, 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 June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 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 this standard on January 1, 2023, with minimal effect on its financial statements.
| B. | Non-Controlling Interests |
During June 2023, the Company was appointed as sole managing member of LGL Nevada and invested approximately $
| C. | Discontinued Operations |
On October 7, 2022, the Separation of MtronPTI was completed. In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the Company determined that MTronPTI’s business line met the conditions for a discontinued operation and is 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 the disposal transaction from ongoing operations.
The following table summarizes the significant line items included in Income from Discontinued Operations, Net of Tax in the Consolidated Statements of Operations for three and nine months ended September 30, 2022 (in thousands):
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2022 | September 30, 2022 | |||||||
| Revenues | $ | $ | ||||||
| Manufacturing cost of sales | ||||||||
| Engineering, selling and administrative | ||||||||
| Interest expense, net | ||||||||
| Other expense, net | ||||||||
| Income from discontinued operations before income taxes | ||||||||
| Income tax provision | ||||||||
| Income from discontinued operations, net of tax | $ | $ | ||||||
The cash flows related to discontinued operations have not been segregated and are included in the 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):
| Nine Months Ended | ||||
| September 30, 2022 | ||||
| Depreciation | $ | |||
| Amortization of finite-lived intangible assets | $ | |||
| Stock-based compensation expense | $ | |||
| Capital expenditures | $ | |||
| D. | Marketable Securities |
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 marketable securities are reported in the consolidated statements of operations as investment income or (loss). Details of marketable securities held at September 30, 2023 and December 31, 2022 are as follows (in thousands):
| Cumulative Unrealized | ||||||||||||
| Fair Value | Basis | Loss | ||||||||||
| September 30, 2023 | ||||||||||||
| Equity security | ( | ) | ||||||||||
| $ | $ | $ | ( | ) | ||||||||
| December 31, 2022 | ||||||||||||
| shares of IronNet common stock | $ | $ | $ | ( | ) | |||||||
| Equity funds and other securities | ( | ) | ||||||||||
| $ | $ | $ | ) | |||||||||
The shares of IRNT common stock were received by the Company as a result of a distribution, with the basis of these securities being determined using the fair value on the date of distribution.
| E. | Related Party Transactions |
Certain balances held and invested in various mutual funds are managed by an entity (the "Fund Manager"), which is related to the company through certain of our shareholders. All investments including those in related party mutual funds are overseen by the Independent Investment Committee of the Board. 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 larger proportion of underlying investments directly in US treasuries.
As of September 30, 2023, the balance with the Fund Manager totaled $
As of December 31, 2022, the balance with the Fund Manager totaled $
Certain members of our board of directors (the “Board”), including Marc Gabelli, Timothy Foufas, Manjit Kalha and Michael Ferrantino, and three members of our management, Marc Gabelli, Patrick Huvane and 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 terms for services to be provided between the two companies post-separation. The current terms result in a net monthly payment of $
MtronPTI and LGL Group have agreed to share any excess Separation costs. Included in discontinued operations is an amount of $
At September 30, 2023 and December 31, 2022, there was a balance due to LGL Group from MtronPTI of $
Transactions with LGL Systems Acquisition Holding Company, LLC.
LGL Group invested $
| F. | Fair Value Measurements |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value guidance identifies three primary valuation techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required.
Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Company's own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies as well as instruments for which the fair value determination requires significant management judgment.
Assets
To estimate the market value of its cash and cash equivalents and marketable securities, the Company obtains current market pricing from quoted market sources or uses pricing for identical securities adjusted for liquidity, when applicable. Assets measured at fair value on a recurring basis are summarized below (in thousands).
| Level 1 | Level 2 | Level 3 | Total at September 30, 2023 | |||||||||||||
| Equity Securities | $ | $ | — | $ | — | $ | ||||||||||
| U.S. Treasury Money Market Funds | $ | $ | $ | $ | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total at December 31, 2022 | |||||||||||||
| Equity Securities | $ | $ | — | $ | — | $ | ||||||||||
| Equity Mutual Fund | $ | — | $ | $ | — | $ | ||||||||||
| Commodity Mutual Fund | $ | — | $ | $ | — | $ | ||||||||||
| U.S. Treasury Money Market Funds | $ | $ | — | $ | — | $ | ||||||||||
As of September 30, 2023 and December 31, 2022, the Company had investments in
| G. | Inventories |
Inventories are valued at the lower of cost or net realizable value using the FIFO (first-in, first-out) method. The Company reduces the value of its inventories to net realizable value when the net realizable value is believed to be less than the cost of the item. The reserve for excess and obsolete inventory as of September 30, 2023 and December 31, 2022 was $
Inventories are comprised of the following (in thousands):
| September 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Total Inventories, net | $ | $ | ||||||
| H. | Stock-Based Compensation |
Under the Company’s 2021 Incentive Plan, and the prior 2011 Incentive Plan, as amended, restricted stock and stock options have been awarded to certain employees as stock-based compensation. Compensation expense is based on the grant-date fair value and recognized over the requisite service period.
In January 2023,
| I. | Earnings Per Share |
The Company computes earnings per share in accordance with ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share adjusts basic earnings per share for the effects of warrants, restricted stock, stock options and other potentially dilutive financial instruments, only in the periods in which the effects are dilutive.
For the nine months ended September 30, 2023, there were warrants to purchase
The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding for the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Effect of diluted securities | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
| J. | Income Taxes |
The Company’s quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented. To determine the annual effective tax rate, the Company estimates both the total income (loss) before income taxes for the full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective tax rate for the full year may differ from these estimates if income (loss) before income taxes is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions in which it is taxed is different from the estimated allocations.
The effective tax rate on continuing operations for the nine months ended September 30, 2023 and 2022 was
| K. | Domestic and Foreign Revenues |
The Company allocates its foreign revenue based on the customer's ship-to location. Significant foreign revenues from operations (10% or more of foreign sales) follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Canada | $ | $ | $ | $ | ||||||||||||
| Spain | ||||||||||||||||
| India | ||||||||||||||||
| France | ||||||||||||||||
| Romania | ||||||||||||||||
| All other foreign countries | ||||||||||||||||
| Total foreign revenues | $ | $ | $ | $ | ||||||||||||
| Total domestic revenue | $ | $ | $ | $ | ||||||||||||
| L. | Segment Information |
The Company has identified two reportable business segments: electronic instruments, which includes all products manufactured and sold by PTF, and merchant investment, which includes all the income and expenses through its subsidiary Lynch Capital.
Income (loss) from continuing operations before income taxes is equal to revenues, interest income, and investment income (loss) less the manufacturing cost of sales and engineering, selling and administrative expenses. Identifiable assets of the segments are those used in each of their respective operations. Total assets of $
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenues | ||||||||||||
| Electronic instruments | $ | $ | $ | $ | ||||||||
| Merchant investment | ||||||||||||
| Corporate | ( | ) | ( | ) | ||||||||
| Total revenues, net of investment (loss) income | $ | $ | ( | ) | $ | $ | ( | ) | ||||
| Income (loss) from continuing operations before income taxes | ||||||||||||
| Electronic instruments | $ | $ | ( | ) | $ | $ | ( | ) | ||||
| Merchant investment | ||||||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||
| Income (loss) from continuing operations before income taxes | ( | ) | ( | ) | ||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ||||||||
| Income from discontinued operations, net of tax | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||
| Less: net income attributable to non-controlling interests | ||||||||||||
| Net income (loss) attributable to LGL Group | $ | $ | ( | ) | $ | $ | ( | ) | ||||
| M. |
Contingencies |
In the ordinary course of business, the Company and its subsidiaries may become defendants in certain product liability, patent infringement, worker claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The Company's insurance coverage is reviewed periodically to ensure it is adequate to cover potential exposures.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, the notes thereto and the other unaudited financial data included in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the audited consolidated financial statements and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on April 17, 2023. The terms the “Company”, “LGL Group”, “LGL”, “we”, “our” or “us” refer to The LGL Group, Inc. and unless otherwise defined herein, capitalized terms used herein shall have the same meanings as set forth in our condensed consolidated financial statements and the notes thereto.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q of the Company and the Company's other communications and statements, other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about the Company's beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. These statements are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond the Company's control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "target," "goal" and similar expressions are intended to identify forward-looking statements. All forward-looking statements, by their nature, are subject to risks and uncertainties. Therefore, such statements are not intended to be a guarantee of the Company's performance in future periods. The Company's actual future results may differ materially from those set forth in the Company's forward-looking statements. For information concerning these factors and related matters, see "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on April 17, 2023, this Quarterly Report on Form 10-Q and our other filings with the SEC. However, other factors besides those referenced could adversely affect the Company's results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Quarterly Report on Form 10-Q. The Company does not undertake to update any forward-looking statement, except as required by law. As a result, you should not place undue reliance on these forward-looking statements.
OVERVIEW
The Company is a holding company engaged in services, investment and manufacturing business activities. 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. Our common stock and warrants are traded on the NYSE American (“NYSE”) under the symbols "LGL" and “LGL WS”, respectively.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries along 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 ("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.
Electronic Instruments Business
We operate our electronic instruments 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.
PTF is our sole wholly owned manufacturing operation and 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.
Merchant Investment Business
The LGL merchant 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. 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 in liquid investments with a view to enhancing returns. 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.
During June 2023, LGL Group transferred approximately $21.0 million of cash and cash equivalents to its wholly owned subsidiary, Lynch Capital International, LLC ("Lynch Capital"), for its use within the merchant investment business. During June 2023, Lynch Capital was 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 invested $1 million into LGL Systems, which is controlled by LGL Nevada. As a result of the subsequent determination that LGL was the primary beneficiary of LGL Systems and was therefore required to consolidate LGL Systems, the Company has recorded $1,872,000 related to non-controlling interests in LGL Systems on its consolidated balance sheets.
LGL Group invested $1 million into LGL Systems during June 2023 through Lynch Capital, with its $1 million in membership interests representing approximately 35% of all membership interests, including approximately $929,000 of affiliated membership interests and a further $961,000 of unaffiliated membership interests. The affiliated members of LGL 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, CO-CEO of LGL and an LGL Director, Michael Ferrantino, an LGL Director and its former Co-CEO, and Manjit Kalha, an LGL Director and its current audit committee chairman.
As of September 30, 2023, LGL had investments (classified within Cash and cash equivalents and Marketable securities) with a fair value of approximately $37.8 million, of which $22.9 million was held directly by Lynch Capital for the merchant investment business. 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.
Impact of MtronPTI’s Separation
On October 7, 2022, the separation of M-tron Industries, Inc. (“MtronPTI”) was completed (the “Separation”) 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 the 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-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.
See Note A – Basis of Presentation in the accompanying notes to the condensed consolidated financial statements for further details of the Separation.
Results of Continuing Operations
Backlog
As of September 30, 2023, our order backlog, which relates to our electronic instruments segment, was $313,000, a decrease of 13.1% from $360,000 at December 31, 2022 and an increase of 144.5% compared to the backlog of $128,000 as of September 30, 2022. The backlog of unfilled orders includes amounts based on signed contracts likely to be fulfilled in the next 12 months but most of the backlog will usually ship within the next 90 days. Order backlog is adjusted quarterly to reflect project cancellations, deferrals, and revised project scope and cost, if any.
Three months ended September 30, 2023 compared to three months ended September 30, 2022 and Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Electronic Instruments:
Total revenues for the electronic instruments segment were $438,000 for the three months ended September 30, 2023, or 27.3% above revenues of $344,000 for the three months ended September 30, 2022. Total revenues were $1,282,000 for the nine months ended September 30, 2023, or 13.4% above revenues of $1,131,000 for the nine months ended September 30, 2022.
Consolidated gross margin, which is consolidated revenues less manufacturing cost of sales as a percentage of revenues, increased to 55.5% for the three months ended September 30, 2023, from 41.0% for the three months ended September 30, 2022 reflecting the effects of product mix changes. Consolidated gross margin increased to 53.6% for the nine months ended September 30, 2023, from 40.6% for the nine months ended September 30, 2022 reflecting the effects of product mix changes.
Engineering, selling and administrative expense (“ES&A”) costs for the electronic instruments segment were $173,000 for the three months ended September 30, 2023 compared to ES&A costs of $180,000 for the three months ended September 30, 2022 and were $523,000 for the nine months ended September 30, 2023, compared to $512,000 for the nine months ended September 30, 2022.
The electronic instruments segment reported an operating income of $70,000 for the three months ended September 30, 2023, compared to an operating loss of $39,000 for the three months ended September 30, 2022 and an operating income of $164,000 for the nine months ended September 30, 2023, compared to an operating loss of $53,000 for the nine months ended September 30, 2022. The improvement for the three months reflects the impact from higher revenues and improved margins and a slight reduction in administrative costs. For the nine months, the improvement was primarily due to the increased margins.
Merchant Investment:
The Company's merchant investment segment reported $287,000 of interest income during the three months ended September 30, 2023 and $542,000 of interest income during the nine months ended September 30, 2023. The merchant investment segment's assets are primarily invested in highly liquid U.S. Treasury money market funds.
The merchant investment segment reported an operating income of $223,000 and $390,000 for the three and nine months ended September 30, 2023, respectively.
Corporate:
The Company reported $257,000 of corporate interest income during the three months ended September 30, 2023, compared to $52,000 during the three months ended September 30, 2022. For the nine months ended September 30, 2023, corporate interest income was $475,000 and was $57,000 for the nine months ended September 30, 2022, all of which was related to the Company's investments in U.S. Treasury money market funds. The increase in interest income is primarily related to the increase in interest rates experienced beginning in late 2022 and during 2023 and the change in investments out of mutual funds and into U.S. Treasury money market funds.
The Company reported $4,000 of investment loss during the three months ended September 30, 2023 compared to an investment loss of $2,121,000 during the three months ended September 30, 2022. For the nine months ended September 30, 2023 the Company recorded investment income of $384,000 and a loss of $4,449,000 during the nine months ended September 30, 2022. The loss during the three months and income for the nine months ended September 30, 2023 along with the prior year losses for the three and nine months ended September 30, 2022 were related almost entirely to the Company's investment in IronNet.
Corporate ES&A costs totaled $347,000 and $1,124,000 for the three and nine months ended September 30, 2023, respectively, and $487,000 and $1,498,000 for the three and nine months ended September 30, 2022, respectively. Corporate ES&A represents the costs of managing the Company and its business segments along with the costs of being a public company.
Income Tax (Benefit) Expense
We recorded a tax expense of $69,000 and $132,000 for the three and nine months ended September 30, 2023 and a tax benefit of $648,000 and $1,402,000 for the three and nine months ended September 30, 2022, respectively. The tax expense or benefit is based on an estimated annual effective tax rate across the jurisdictions in which we operate.
Income from Discontinued Operations, net
Income from discontinued operations, net of tax was $488,000 and $1,753,000 for the three and nine months ended September 30, 2022. 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.
Net Income Attributed to Noncontrolling Interest
Net income attributed to noncontrolling interest was $22,000 for the three and nine months ended September 30, 2023. Net income from noncontrolling interest relates to the income from LGL Systems, which is managed within our merchant investment business.
Net Income (Loss) Attributable to LGL Group
Net income (loss) attributable to LGL Group was income of $108,000 and $135,000 for the three and nine months ended September 30, 2023, respectively, compared to losses of $1,459,000 and $3,088,000 for the three and nine months ended September 30, 2022, respectively. The income in 2023 relates primarily due to an increase in interest income due to higher interest rates, impacted by investment loss and gain, as noted above. For 2022, the net loss resulted from the investment performance. Basic and diluted net income per share for the nine months ended September 30, 2023 and 2022 was income of $0.03 and loss of $0.58, respectively.
Liquidity and Capital Resources
As of September 30, 2023 and December 31, 2022, cash and cash equivalents were $40,777,000 and $21,507,000, respectively.
Cash provided by (used in) operating activities for the nine months ended September 30, 2023 and 2022 was $454,000 provided by operations and $831,000 used by operations, respectively.
Cash provided by (used in) investing activities for the nine months ended September 30, 2023 and 2022 was $18,816,000 provided by investing activities and $6,015,000 used in investing activities, respectively. The amount shown for the nine months ended September 30, 2023 reflects the sale of 198,500 IRNT shares for $61,000. During the second quarter of 2023, we sold substantially all of our investments and placed them into U.S. Treasury money market funds.
As of September 30, 2023, our consolidated working capital was $40,891,000 compared to $38,753,000 as of December 31, 2022. As of September 30, 2023, we had current assets of $41,502,000, current liabilities of $611,000 and a ratio of current assets to current liabilities of 67.92 to 1.00. As of December 31, 2022, we had current assets of $39,340,000, current liabilities of $587,000 and a ratio of current assets to current liabilities of 67.02 to 1.00. 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 in liquid investments with a view to enhancing returns. 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.
Our Board has adhered to a practice of not paying cash dividends. This policy takes into account our long-term growth objectives, including our anticipated investments for organic growth, potential acquisitions and stockholders' desire for capital appreciation of their holdings. 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.
Critical Accounting Estimates
Our accompanying condensed consolidated financial statements are prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying footnotes. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions. For a discussion of the Company’s critical accounting estimates, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022.
Factors Which May Influence Results of Operations
We are not aware of any material trends or uncertainties, other than national 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 below and those listed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on April 17, 2023.
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. 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 higher than our revenue. The U.S. Federal Reserve raised the federal funds rate a total of seven times throughout 2022, and four times in 2023, resulting in a current range from 5.25% to 5.50% as of the filing date of this Quarterly Report on Form 10-Q. The Federal Reserve may continue to increase the federal funds rate throughout 2023 to, among other things, control inflation. Rising interest rates are expected to benefit LGL due to a significant portion of its portfolio currently being invested in U.S. Treasury money market funds.
| Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
| Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our co-chief executive officers and chief accounting officer, as appropriate, to allow timely decisions regarding required disclosure. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of September 30, 2023 was conducted under the supervision and with the participation of our management, including our co-chief executive officers and chief accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our co-chief executive officer and chief accounting officer concluded that our disclosure controls and procedures, as of September 30, 2023, were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
OTHER INFORMATION
| Legal Proceedings. |
In the ordinary course of business, we may become subject to litigation or claims. We are not aware of any material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we or our subsidiaries are a party or to which our properties are subject.
| Risk Factors. |
We are not aware of any material trends or uncertainties, other than national 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 Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2022.
| Other Information. |
THE LGL GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE COMPANY
On October 7, 2022 the tax-free spin-off (“Spin-Off”) of the MtronPTI business was completed and MtronPTI became an independent, publicly traded company trading on the NYSE American under the stock symbol "MPTI. Following the Spin-Off, the Company retains no ownership interest in MtronPTI.
The following unaudited pro forma consolidated statements of operations for the three and nine months ended September 30, 2022 reflects the results of operations as if the Spin-Off had occurred on January 1, 2022. The unaudited pro forma consolidated financial information should be read together with the Company’s historical consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in its annual report on Form 10-K for the fiscal year ended December 31, 2022, and in its quarterly report on Form 10-Q for the nine months ended September 30, 2023.
The unaudited pro forma consolidated financial statement is for illustrative and informational purposes only and is not intended to represent what the Company’s results of operations would have been had the Spin-Off and related transactions occurred on the date assumed. In addition, the unaudited pro forma consolidated financial statement also should not be considered indicative of the Company’s future results of operations following the Spin-Off.
The “Historical LGL (as reported)” column in the unaudited pro forma consolidated financial statement reflects the Company’s historical consolidated financial statement for the period presented and does not reflect any adjustments related to the Spin-Off and related transactions.
The information in the “Discontinued Operations” column in the unaudited pro forma consolidated statement of operations was derived from the Company’s consolidated financial statements and related accounting records for the three and nine months ended September 30, 2022, and reflects the operating results of MtronPTI. The Company has historically provided many corporate functions on MtronPTI’s behalf, including executive services, tax, accounting, public and investor relations, general management, and has shared information technology systems, corporate governance activities, and centrally managed employee benefit arrangements. The expense allocation is based on the allocation methodology used to prepare the carve-out financial statements of MtronPTI included in the Information Statement included as Exhibit 99.1 to MtronPTI’s Registration Statement on Form 10, as amended on August 19, 2022 (the “Information Statement”) and is considered to be a reasonable estimate of the costs of services provided to MtronPTI by the Company during the periods presented. However, the allocation may not reflect the Company’s actual expenses following the Spin-Off or the actual costs to be incurred by MtronPTI following the Spin-Off, which may be impacted by multiple factors, including the organizational structure and strategic direction of these companies in the future. Discontinued Operations does not reflect what MtronPTI’s results of operations would have been on a stand-alone basis and are not necessarily indicative of future results of operations. MtronPTI’s historical financial results for periods prior to the Spin-Off are reflected in the Company’s consolidated financial statements as discontinued operations.
The information in the “Pro Forma Adjustments” column in the unaudited pro forma consolidated financial statements was based on available information and assumptions that the Company’s management believes are reasonable, that reflect the impacts of events directly attributable to the Spin-Off and related transactions that are factually supportable, and for purposes of the consolidated statements of income (loss), are not expected to have a continuing impact on the Company. Costs directly related to the Spin-Off prior to its completion are reflected in the Company’s pro forma statement of operations below and are included within the pro forma adjustments column. The pro forma adjustments do not reflect future events that may occur after the Spin-Off, including potential selling, general and administrative dis-synergies and the expected charges, the expected realization of any cost savings and other synergies in connection with the Spin-Off.
The “Pro Forma LGL” column is not necessarily indicative of future results nor does it reflect what the Company’s financial position and results of operations would have been as an independent public company during the period presented.
THE LGL GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2022
(In thousands, except per share amounts)
| Historical LGL (as reported) |
Discontinued Operations (A) |
Pro Forma Adjustments |
Pro Forma LGL |
||||||||||||||
| REVENUES |
$ | 8,761 | $ | (8,417 | ) | $ | — | $ | 344 | ||||||||
| Costs and expenses: |
|||||||||||||||||
| Manufacturing cost of sales |
5,891 | (5,688 | ) | — | 203 | ||||||||||||
| Engineering, selling and administrative |
2,749 | (2,099 | ) | (232 | ) | (B) |
418 | ||||||||||
| OPERATING INCOME (LOSS) |
121 | (630 | ) | 232 | (277 | ) | |||||||||||
| Other income (expense): |
|||||||||||||||||
| Interest income, net |
51 | 1 | — | 52 | |||||||||||||
| Investment loss |
(2,121 | ) | — | — | (2,121 | ) | |||||||||||
| Other expense, net |
(13 | ) | 15 | — | 2 | ||||||||||||
| Total other expense, net |
(2,083 | ) | 16 | — | (2,067 | ) | |||||||||||
| LOSS BEFORE INCOME TAXES |
(1,962 | ) | (614 | ) | 232 | (2,344 | ) | ||||||||||
| Income tax (benefit) expense |
(503 | ) | (111 | ) | 55 | (C) |
(559 | ) | |||||||||
| NET LOSS |
$ | (1,459 | ) | $ | (503 | ) | $ | 177 | $ | (1,785 | ) | ||||||
| Basic per share information: |
|||||||||||||||||
| Weighted average number of shares used in basic earnings per share calculation |
5,346,043 | 5,346,043 | 5,346,043 | 5,346,043 | |||||||||||||
| Basic net loss per share |
$ | (0.27 | ) | $ | (0.09 | ) | $ | 0.03 | $ | (0.33 | ) | ||||||
| Diluted per share information: |
|||||||||||||||||
| Weighted average number of shares used in diluted earnings per share calculation |
5,346,043 | 5,346,043 | 5,346,043 | 5,346,043 | |||||||||||||
| Diluted net loss per share |
$ | (0.27 | ) | $ | (0.09 | ) | $ | 0.03 | $ | (0.33 | ) | ||||||
| THE LGL GROUP, INC. |
|||||||||||||||
| UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||||||||||
|
|
|||||||||||||||
| nine months ended September 30, 2022 | |||||||||||||||
| (In thousands, except per share amounts) |
| Historical LGL (as reported) |
Discontinued Operations (A) |
Pro Forma Adjustments |
Pro Forma LGL |
|||||||||||||
| REVENUES |
$ | 24,303 | $ | (23,172 | ) | $ | — | $ | 1,131 | |||||||
| Costs and expenses: |
||||||||||||||||
| Manufacturing cost of sales |
15,591 | (14,919 | ) | — | 672 | |||||||||||
| Engineering, selling and administrative |
8,246 | (6,206 | ) | (575) | (B) |
1,465 | ||||||||||
| OPERATING INCOME (LOSS) |
466 | (2,047 | ) | 575 | (1,006 | ) | ||||||||||
| Other income (expense): |
||||||||||||||||
| Interest income, net |
51 | 6 | — | 57 | ||||||||||||
| Investment loss |
(4,449 | ) | — | — | (4,449 | ) | ||||||||||
| Other expense, net |
(37 | ) | 41 | — | 4 | |||||||||||
| Total other expense, net |
(4,435 | ) | 47 | — | (4,388 | ) | ||||||||||
| LOSS BEFORE INCOME TAXES |
(3,969 | ) | (2,000 | ) | 575 | (5,394 | ) | |||||||||
| Income tax (benefit) expense |
(881 | ) | (392 | ) | 123 | (C) |
(1,150 | ) | ||||||||
| NET LOSS |
$ | (3,088 | ) | $ | (1,608 | ) | $ | 452 | $ | (4,244 | ) | |||||
| Basic per share information: |
||||||||||||||||
| Weighted average number of shares used in basic earnings per share calculation |
5,334,774 | 5,334,774 | 5,334,774 | 5,334,774 | ||||||||||||
| Basic net loss per share |
$ | (0.58 | ) | $ | (0.30 | ) | $ | 0.08 | $ | (0.80 | ) | |||||
| Diluted per share information: |
||||||||||||||||
| Weighted average number of shares used in diluted earnings per share calculation |
5,334,774 | 5,334,774 | 5,334,774 | 5,334,774 | ||||||||||||
| Diluted net loss per share |
$ | (0.58 | ) | $ | (0.30 | ) | $ | 0.08 | $ | (0.80 | ) | |||||
THE LGL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated statements of income (loss) for the three and nine months ended September 30, 2022 includes the following adjustments:
| (A) |
Reflects the discontinued operations of MtronPTI, including the associated assets, liabilities, equity and results of operations, that are directly related to the Spin-Off. |
| (B) |
Reflects one-time non-recurring costs related directly to the Spin-Off that were recorded in the historical numbers for LGL. |
| (C) |
Reflects the tax impact of pro forma adjustments. |
| Exhibits. |
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (and are numbered in accordance with Item 601 of Regulation S-K):
| Exhibit No. |
Description |
|
| 3.1 |
||
| 3.2 |
||
| 3.3 |
||
| 3.4 |
||
| 3.5 |
||
| 3.6 |
||
| 31.1* |
||
| 31.2* |
||
| 32.1** |
||
| 32.2** |
||
| 101.INS* |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
| 101.SCH* |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| 101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104* |
The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
____________
* Filed herewith
** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| THE LGL GROUP, INC.
|
||
| Date: November 14, 2023 |
By: | /s/ Timothy Foufas |
| Timothy Foufas |
||
| Co-Chief Executive Officer (Principal Executive Officer)
|
||
| Date: November 14, 2023 |
By: | /s/ James W. Tivy |
| James W. Tivy |
||
| Chief Accounting Officer (Principal Financial Officer) |
||
EXHIBIT 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy Foufas, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of The LGL Group, Inc. for the quarterly period ended September 30, 2023; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
/s/ Timothy Foufas
|
||
|
Name: |
Timothy Foufas |
|
|
Title: |
Co-Chief Executive Officer (Principal Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James W. Tivy, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of The LGL Group, Inc. for the quarterly period ended September 30, 2023; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
/s/James W. Tivy
|
||
|
Name: |
James W. Tivy |
|
|
Title: |
Chief Accounting Officer (Principal Financial Officer) |
|
EXHIBIT 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The LGL Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy Foufas, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ Timothy Foufas
|
|||
|
Name: |
Timothy Foufas | ||
|
Title: |
Co-Chief Executive Officer (Principal Executive Officer) |
||
EXHIBIT 32.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The LGL Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James W. Tivy, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ James W. Tivy
|
|||
|
Name: |
James W. Tivy |
||
|
Title: |
Chief Accounting Officer (Principal Financial Officer) |
||