The LGL (US:LGL)2023-04-17 21:16Financial Position - As of December 31, 2022, LGL had cash and cash equivalents and marketable securities with a fair market value of approximately $38.1 million[18]. - As of December 31, 2022, the company had investments in cash and marketable securities with a fair market value of approximately $38.1 million[84]. - The company reported a net loss of approximately $2,992,000 for the year ended December 31, 2022, compared to a net income of $14,638,000 for 2021, indicating significant fluctuations in financial performance[122]. - The company recorded a tax benefit of $1,529,000 for 2022, compared to an expense of $3,472,000 for 2021, largely influenced by investment losses from marketable securities[207]. - Interest income, net for 2022 was $194,000, significantly higher than $1,000 for 2021, due to increased interest rates and cash proceeds from prior stock sales[198]. - The company has not paid cash dividends since January 30, 1989, and none are expected to be paid for the foreseeable future[179]. - The company has repurchased a total of 81,584 shares of common stock at a cost of $580,000 under its share repurchase program[178]. Business Operations - LGL's manufacturing subsidiary, PTF, focuses on high-performance frequency and time reference standards for applications including satellite communication and network synchronization[15]. - PTF offers a comprehensive portfolio of time and frequency instrumentation, including NTP servers and RF distribution amplifiers[15]. - The company aims to expand operations through opportunistic acquisitions and strategic partnerships[21]. - The company is currently dependent on a single line of manufacturing business following the Spin-Off of MtronPTI on October 7, 2022, which increases vulnerability to market demand changes[119]. - The company’s business is not seasonal, although shipment schedules may be affected by customer production schedules[47]. - The company has developed long-term real-time synchronization capability of less than 10 nanoseconds, with multiple systems delivered to date[34]. - The latest product developments target the rapidly growing Precision Time Protocol (PTP) market, utilizing Ethernet networks for accurate time and frequency reference signals[43]. - The company’s distribution amplifiers cover multiple signal types and are designed for cost-effective performance solutions, including options for remote monitoring[35]. Investment Strategy - LGL's investment strategy includes identifying undervalued companies and enhancing returns through management and operational changes[19]. - The company has a history of acquiring businesses, having acquired 32 companies and sold 11 since 1985[11]. - LGL's investment business includes various private investment funds, primarily not offered to outside investors[16]. - The company invested $3.35 million for a 20% ownership stake in LGL Systems Acquisition Holding Company, a SPAC focused on aerospace and defense[23]. - The company invested $6.1 million in LGL Systems Acquisition Holdings, LLC, which later completed a business combination with IronNet Cybersecurity, Inc.[86]. - The company plans to form new direct investment vehicles to replace SPACs, focusing on the manufacturing sector for growth opportunities[60]. Revenue and Customer Concentration - In 2022, the largest customer accounted for 18.9% and the second largest for 11.8% of total revenues, with the top seven customers contributing approximately 65% of total revenue[40]. - International revenues reached $460,000 in 2022, representing 27.8% of total consolidated revenues, an increase from $308,000 or 21.3% in 2021[45]. - The order backlog was $360,000 as of December 31, 2022, slightly up from $358,000 in 2021, indicating stable demand[48]. - The company's order backlog may not be indicative of future revenues, creating uncertainty in revenue projections[10]. - The majority of the company's revenues in 2022 and 2021 were derived from sales to manufacturers in the defense, aerospace, instrumentation, and industrial markets, which are cyclical and subject to fluctuations in demand[124]. Market and Economic Risks - The company may experience adverse effects from macroeconomic fluctuations, inflation, and rising interest rates[10]. - The company is subject to procurement regulations as a supplier to U.S. Government defense contractors, which could impact operations[10]. - The company may face significant risks related to its investment business, including potential losses from investments in special purpose acquisition companies (SPACs)[89]. - The company’s markets are highly competitive, and it may lose business to larger and better-financed competitors[10]. - The company may face substantial tax liabilities if the spin-off is determined to be taxable, affecting both the company and its stockholders[164]. - The spin-off may not achieve the expected strategic and financial benefits, potentially leading to adverse effects on the company's business and financial condition[163]. - The company faces challenges related to the COVID-19 pandemic, including higher raw material prices and disruptions in global supply chains, which may adversely affect operations and financial performance[118]. Financial Performance - Total revenues for 2022 were $1,655,000, an increase of $209,000, or 14.5%, from $1,446,000 in 2021, driven by strong performance in defense and communication markets[194]. - Consolidated gross margin for 2022 was 49.4%, down from 50.8% in 2021, impacted by inflationary cost pressures[194]. - The company reported an operating loss of $2,047,000 for 2022, an improvement from an operating loss of $3,521,000 in 2021[197]. - Net loss for 2022 was $2,992,000, compared to net income of $14,638,000 for 2021, primarily due to realized and unrealized losses on marketable securities[209]. - Unrealized gain on marketable securities for 2022 was $18,121,000, compared to a $22,949,000 unrealized loss in 2021[202]. Regulatory and Compliance - The company is required to comply with the Sarbanes-Oxley Act, which mandates effective internal control over financial reporting[146]. - The company is subject to environmental regulations that may increase costs and affect profitability, requiring potential changes in manufacturing processes[142]. - Cybersecurity risks could disrupt operations and negatively impact financial results, highlighting the importance of robust information security measures[145]. - The regulatory environment is subject to changes that could adversely affect the Investment business's operations and profitability[105]. Shareholder and Stock Information - As of March 31, 2023, officers, directors, and 10% or greater stockholders control approximately 37.5% of the voting power of the outstanding shares[150]. - The common stock price fluctuated significantly, with a high of $15.00 and a low of $3.94 from January 1, 2022, to December 31, 2022[149]. - The market for the common stock is limited, making it difficult for holders to sell shares without impacting the market price[149]. - The warrants to purchase shares of common stock have an adjusted exercise price of $4.75, with a trigger price for potential acceleration set at $6.65[155]. - The company has not opted out of the restrictions under Section 203 of the Delaware General Corporation Law, which could affect future mergers or acquisitions[154]. Risks Related to Investments - The Investment business may leverage capital to achieve higher returns, but this also increases the risk of significant losses[99]. - The use of short-term margin borrowings can lead to margin calls if the value of pledged securities declines[100]. - The Investment business may invest in distressed securities, which carry substantial financial and legal risks, potentially leading to total losses[108]. - Investments in non-U.S. securities expose the Investment business to additional risks, including currency exchange risks and political instability[110]. - The ability to hedge investments successfully is subject to numerous risks, including market fluctuations and the effectiveness of hedging strategies[106][107]. - The Investment business may engage in short-selling, which carries theoretically unlimited risk of loss due to price appreciation of the underlying security[112].