Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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, 2025 as filed with the SEC on March 30, 2026. The terms "LGL," "LGL Group," "we," "our," "us," or the "Company" refer to The LGL Group, Inc. and its consolidated subsidiaries 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.

Unless otherwise stated, all dollar amounts are in thousands.

In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Actual results may differ materially from those discussed in the forward-looking statements as a result of various factors. See the Cautionary Statement Concerning Forward-Looking Statements included in this Quarterly Report on Form 10-Q.

Overview

The Company is a holding company engaged in services, merchant investment, and manufacturing business activities. The Company, through its manufacturing business subsidiary, is engaged in the designing, manufacturing, and marketing of high-performance Frequency and Time Reference Standards that form the basis for timing and synchronization in various applications. The Company's primary markets are communications, networking, aerospace, defense, instrumentation, and industrial markets.

The accompanying unaudited condensed consolidated financial statements include the accounts of The LGL Group, Inc., its majority-owned subsidiaries, and variable interest entities ("VIE") of which we are the primary beneficiary.

We provide our products and services through our Electronic Instruments and Merchant Investment businesses. Activities not related to our business segments, such as our corporate operations and corporate-level assets and financial obligations, are included in Corporate.

Electronic Instruments Business

We operate our manufacturing business currently through our subsidiary, Precise Time and Frequency, LLC ("PTF"), a globally positioned producer of industrial Electronic Instruments and commercial products and services. Founded in 2002, PTF operates from our design and manufacturing facility in Wakefield, Massachusetts.

Merchant Investment Business

The LGL Group investment business is comprised of various investment vehicles in which LGL Group is either shareholder, partner, or has general partner interests, and through which LGL Group invests its capital. The Company seeks to invest available cash and cash equivalents in liquid investments with a view to enhancing returns as we continue to assess further acquisitions of, or investments in, operating businesses broadly. LGL Group 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.

As of June 30, 2026, LGL Group had investments (classified within Cash and cash equivalents and Marketable securities) with a fair value of approximately $45.2 million, of which $26.2 million was held within the Merchant Investment business. The Company accounts for its Marketable securities under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 321, Investments - Equity Securities ("ASC 321") and as such, its Marketable securities are reported at fair value on its Condensed Consolidated Balance Sheets.

Recent Developments

At the Company's 2026 Annual Meeting of Stockholders held on May 12, 2026, stockholders approved an amendment to The LGL Group, Inc. 2021 Incentive Plan (the "Plan") to increase the number of shares of common stock authorized for issuance thereunder by 1,500,000 shares. Following this amendment, 2,276,512 shares remain available for future grant under the Plan as of June 30, 2026. The increase in the share reserve was made to (i) reward long-term Company performance; (ii) link employees' interests to long-term stockholder value creation; and (iii) enable the Company to attract and retain top-tier talent in a competitive marketplace.

The Company intends to file a Registration Statement on Form S-8 to register the additional shares. See Note 9 - Stock-Based Compensation to the Condensed Consolidated Financial Statements for further information.

Trends and Uncertainties

We are not aware of any material trends or uncertainties, other than global macroeconomic 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, 2025, as filed with the SEC on March 30, 2026.

Demand and Capacity for Precision Timing and Frequency Products

We believe several long-term trends in the defense and aerospace markets are increasing the strategic importance of precision timing and frequency technologies. Modern defense systems increasingly depend on accurate and resilient timing for communications, radar, electronic warfare, autonomous systems, distributed sensing and secure networks. The increasing complexity of distributed and networked defense architectures, together with greater awareness of the vulnerability of GPS- and GNSS-dependent systems in contested environments, is driving demand for more resilient positioning, navigation and timing ("PNT") capabilities, including high-performance timing references and synchronization products capable of maintaining accuracy and reliability in GPS-denied, degraded or disrupted environments. Continued investment in defense modernization, space-based systems, autonomous platforms and advanced communications may create additional opportunities for suppliers of precision timing technologies.

Consistent with these trends, we have experienced increasing demand for our frequency and timing products, reflected in growth in customer orders and order backlog over recent periods. We seek to position our precision timing business and related investments to benefit from this demand through continued product development, investment in security and resiliency capabilities, and selective investments and acquisitions. The extent to which this demand converts into shipments and revenue is uncertain, however, and depends on factors including customer procurement decisions, government spending priorities, program and production schedules, the availability and lead times of key components and raw materials, and our available manufacturing capacity.

A higher and more concentrated volume of orders may require us to expand or accelerate production capacity, add personnel, and increase purchases of materials and components in advance of shipment. These actions could increase our working capital requirements and affect the timing of our operating cash flows, as expenditures to fulfill orders may precede the related customer collections. We continue to monitor demand against our capacity and liquidity, but we cannot provide assurances as to the timing or extent to which this demand will result in revenue, or as to its impact on our operating results, cash flows or working capital in any given period.

Changing Interest Rates

The U.S. Federal Reserve decreased the federal funds rate a total of three times throughout 2025, resulting in a range from 3.50% to 3.75% as of December 31, 2025. Through the date of filing of this Quarterly Report on Form 10-Q, the Federal Reserve has maintained the federal funds rate in the same range as of December 31, 2025. If interest rates continue to decline, the returns generated by our investments in U.S. Treasuries could be adversely impacted.

Tariffs

The current U.S. federal administration has imposed tariffs on certain products and materials entering the United States imported from other countries. Additionally, foreign governments have imposed retaliatory tariffs on products and materials exported from the United States. Following the U.S. Supreme Court's February 2026 decision striking down certain tariffs, the Trump Administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business.

Results of Operations - Consolidated

Three months ended June 30, 2026 compared to three months ended June 30, 2025

The following table presents our Condensed Statements of Operations for the periods indicated:

		Three Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net sales		$	750			$	491			$	259				52.7	%
Net investment income			412				428				(16	)			(3.7	%)
Net (losses) gains			(9	)			5				(14	)			(280.0	%)
Total revenues			1,153				924				229				24.8	%
Expenses:
Manufacturing cost of sales			381				211				170				80.6	%
Engineering, selling and administrative			1,219				744				475				63.8	%
Total expenses			1,600				955				645				67.5	%
Loss before income taxes			(447	)			(31	)			(416	)			1,341.9	%
Income tax (benefit) expense			(95	)			14				(109	)			(778.6	%)
Net loss			(352	)			(45	)			(307	)			682.2	%
Less: Net income attributable to non-controlling interests			1				6				(5	)			(83.3	%)
Net loss attributable to LGL Group common stockholders		$	(353	)		$	(51	)		$	(302	)			592.2	%

Total Revenues

Total revenues increased $229, or 24.8%, from $924 for the three months ended June 30, 2025 to $1,153 for the three months ended June 30, 2026. The increase was primarily due to a $259, or 52.7%, increase in Net sales from $491 for the three months ended June 30, 2025 to $750 for the three months ended June 30, 2026 driven by higher product shipments as orders in backlog as of March 31, 2026 converted to revenue.

Total Expenses

Total expenses increased $645, or 67.5%, from $955 for the three months ended June 30, 2025 to $1,600 for the three months ended June 30, 2026. The following items contributed to the overall increase:

•

a $170, or 80.6%, increase in Manufacturing cost of sales from $211 for the three months ended June 30, 2025 to $381 for the three months ended June 30, 2026 driven by the growth in revenues and changes in product and pricing mix; and

•

a $475, or 63.8%, increase in Engineering, selling and administrative from $744 for the three months ended June 30, 2025 to $1,219 for the three months ended June 30, 2026 driven by a $143 increase in stock-based compensation due to grants made to key employees in January and May 2026, a $100 increase in professional service fees, a $37 increase in salaries and wages, and a $78 increase in other corporate expenses.

Gross Margin

Gross margin (Net sales less Manufacturing cost of sales as a percentage of Net sales) decreased 780 basis points from 57.0% for the three months ended June 30, 2025 to 49.2% for the three months ended June 30, 2026 reflecting changes in product and pricing mix associated with volume-based pricing extended to a single customer in connection with increased order volume.

Income Tax Expense

Income tax expense (benefit) decreased $109, or 778.6%, from $14 for the three months ended June 30, 2025 to ($95) for the three months ended June 30, 2026 primarily due to the increase in Loss before income taxes.

Net Income Attributable to Non-Controlling Interests

Net income attributable to non-controlling interests decreased $5 from $6 for the three months ended June 30, 2025 to $1 for the three months ended June 30, 2026 primarily due to lower yields on United States Treasury money market funds and formation and other costs related to investment in Skyline SPV.

Six months ended June 30, 2026 compared to six months ended June 30, 2025

The following table presents our Condensed Statements of Operations for the periods indicated:

		Six Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net sales		$	1,432			$	989			$	443				44.8	%
Net investment income			801				845				(44	)			(5.2	%)
Net gains			5				8				(3	)			(37.5	%)
Total revenues			2,238				1,842				396				21.5	%
Expenses:
Manufacturing cost of sales			715				448				267				59.6	%
Engineering, selling and administrative			2,755				1,384				1,371				99.1	%
Total expenses			3,470				1,832				1,638				89.4	%
(Loss) income before income taxes			(1,232	)			10				(1,242	)			(12,420.0	%)
Income tax (benefit) expense			(275	)			42				(317	)			(754.8	%)
Net loss			(957	)			(32	)			(925	)			2,890.6	%
Less: Net income attributable to non-controlling interests			18				25				(7	)			(28.0	%)
Net loss attributable to LGL Group common stockholders		$	(975	)		$	(57	)		$	(918	)			1,610.5	%

Total Revenues

Total revenues increased $396, or 21.5%, from $1,842 for the six months ended June 30, 2025 to $2,238 for the six months ended June 30, 2026. The increase was primarily due to a $443, or 44.8%, increase in Net sales from $989 for the six months ended June 30, 2025 to $1,432 for the six months ended June 30, 2026 primarily due to higher product shipments as orders in backlog converted to revenues.

The increase was partially offset by a $44, or 5.2%, decrease in Net investment income from $845 for the six months ended June 30, 2025 to $801 for the six months ended June 30, 2026 driven by lower yields on investments in United States Treasury money market funds.

Total Expenses

Total expenses increased $1,638, or 89.4%, from $1,832 for the six months ended June 30, 2025 to $3,470 for the six months ended June 30, 2026. The following items contributed to the overall increase:

•

a $267, or 59.6%, increase in Manufacturing cost of sales from $448 for the six months ended June 30, 2025 to $715 for the six months ended June 30, 2026 driven by the growth in revenues and changes in product and pricing mix; and

•

a $1,371, or 99.1%, increase in Engineering, selling and administrative from $1,384 for the six months ended June 30, 2025 to $2,755 for the six months ended June 30, 2026 driven by $822 higher stock-based compensation due to grants made to key employees in January and May 2026, a $300 increase in professional service fees, a $85 increase in salaries and wages and related benefits, and a $100 increase in other corporate expenses.

Gross Margin

Gross margin (Net sales less Manufacturing cost of sales as a percentage of Net sales) decreased 460 basis points from 54.7% for the six months ended June 30, 2025 to 50.1% for the six months ended June 30, 2026 reflecting changes in product and pricing mix associated volume-based pricing extended to a single customer in connection with increased order volume.

Income Tax Expense

Income tax expense (benefit) decreased $317, or 754.8%, from $42 for the six months ended June 30, 2025 to ($275) for the six months ended June 30, 2026 primarily due to the decrease in Income before income taxes.

Net Income Attributable to Non-Controlling Interests

Net income attributable to non-controlling interests decreased $7 from $25 for the six months ended June 30, 2025 to $18 for the six months ended June 30, 2026 primarily due to lower yields on United States Treasury money market funds.

Backlog

As of June 30, 2026, our order backlog was $3,628, an increase of $3,003, or 480.5%, from $625 as of December 31, 2025 and an increase of $3,101, or 588.4%, from $527 as of June 30, 2025. The backlog of unfilled orders includes amounts based on signed contracts likely to be fulfilled largely in the next 12 months but usually will ship within the next 90 days. Order backlog is adjusted quarterly to reflect project cancellations, deferrals, and revised project scope and cost, if any.

Results of Operations - Operating Segments

Electronic Instruments

Three months ended June 30, 2026 compared to three months ended June 30, 2025

The following table presents income from operations of our Electronic Instruments segment for the periods indicated:

		Three Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net sales		$	750			$	491			$	259				52.7	%
Total revenues			750				491				259				52.7	%
Expenses:
Manufacturing cost of sales			381				211				170				80.6	%
Engineering, selling and administrative			341				212				129				60.8	%
Total expenses			722				423				299				70.7	%
Income before income taxes		$	28			$	68			$	(40	)			(58.8	%)

Income Before Income Taxes

Income before income taxes decreased $40, or 58.8%, from $68 for the three months ended June 30, 2025 to $28 for the three months ended June 30, 2026. The decrease was primarily due to the following:

•

a $170, or 80.6%, increase in Manufacturing cost of sales driven by the growth in revenues and changes in product and pricing mix; and

•

a $129, or 60.8%, increase in Engineering, selling and administrative driven by higher professional services and information technology-related fees and higher salaries and wages and related benefits associated with the growth in the business.

The decrease was partially offset by a $259, or 52.7%, increase in Net sales reflecting higher product shipments as orders in backlog as of March 31, 2026 converted to revenue.

Six months ended June 30, 2026 compared to six months ended June 30, 2025

The following table presents income from operations of our Electronic Instruments segment for the periods indicated:

		Six Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net sales		$	1,432			$	989			$	443				44.8	%
Total revenues			1,432				989				443				44.8	%
Expenses:
Manufacturing cost of sales			715				448				267				59.6	%
Engineering, selling and administrative			672				454				218				48.0	%
Total expenses			1,387				902				485				53.8	%
Income before income taxes		$	45			$	87			$	(42	)			(48.3	%)

Income Before Income Taxes

Income before income taxes decreased $42, or 48.3%, from $87 for the six months ended June 30, 2025 to $45 for the six months ended June 30, 2026. The decrease was primarily due to the following:

•

a $267, or 59.6%, increase in Manufacturing cost of sales driven by the growth in revenues and changes in product and pricing mix; and

•

a $218, or 48.0%, increase in Engineering, selling and administrative driven by higher professional services and information technology-related fees and higher salaries and wages and related benefits associated with the growth in the business.

The decrease was partially offset by a $443, or 44.8%, increase in Net sales driven by higher product shipments as orders in backlog converted to revenues.

Merchant Investment

Three months ended June 30, 2026 compared to three months ended June 30, 2025

The following table presents income from operations of our Merchant Investment segment for the periods indicated:

		Three Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net investment income		$	239			$	262			$	(23	)		(8.8%)
Total revenues			239				262				(23	)		(8.8%)
Expenses:
Engineering, selling and administrative			202				114				88			77.2%
Total expenses			202				114				88			77.2%
Income before income taxes		$	37			$	148			$	(111	)		(75.0%)

Income Before Income Taxes

Income before income taxes decreased $111 from $148 for the three months ended June 30, 2025 to $37 for the three months ended June 30, 2026. The following items contributed to the overall decrease:

•

a $23, or 8.8%, decrease in Net investment income driven by lower yields on investments in United States Treasury money market funds; and

•

a $88, or 77.2%, increase in Engineering, selling and administrative driven by higher corporate allocations and formation costs related to Skyline SPV.

Six months ended June 30, 2026 compared to six months ended June 30, 2025

The following table presents income from operations of our Merchant Investment segment for the periods indicated:

		Six Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net investment income		$	462			$	509			$	(47	)		(9.2%)
Total revenues			462				509				(47	)		(9.2%)
Expenses:
Engineering, selling and administrative			327				208				119			57.2%
Total expenses			327				208				119			57.2%
Income before income taxes		$	135			$	301			$	(166	)		(55.1%)

Income Before Income Taxes

Income before income taxes decreased $166 from $301 for the six months ended June 30, 2025 to $135 for the six months ended June 30, 2026. The following items contributed to the overall decrease:

•

a $47, or 9.2%, decrease in Net investment income driven by lower yields on investments in United States Treasury money market funds; and

•

a $119, or 57.2%, increase in Engineering, selling and administrative driven by higher corporate allocations and formation costs related to Skyline SPV.

Corporate

Three months ended June 30, 2026 compared to three months ended June 30, 2025

The following table presents income from operations of our Corporate segment for the periods indicated:

		Three Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net investment income		$	173			$	166			$	7				4.2	%
Net (losses) gains			(9	)			5				(14	)			(280.0	%)
Total revenues			164				171				(7	)			(4.1	%)
Expenses:
Engineering, selling and administrative			676				418				258				61.7	%
Total expenses			676				418				258				61.7	%
Loss before income taxes		$	(512	)		$	(247	)		$	(265	)			107.3	%

Loss Before Income Taxes

Loss before income taxes increased $265, or 107.3%, from $247 for the three months ended June 30, 2025 to $512 for the three months ended June 30, 2026. The increase: was primarily due to a $258, or 61.7%, increase in Engineering, selling and administrative driven by higher stock-based compensation, higher salaries and wages and related benefits, and higher professional services fees.

Six months ended June 30, 2026 compared to six months ended June 30, 2025

The following table presents income from operations of our Corporate segment for the periods indicated:

		Six Months Ended June 30,
(in thousands)		2026				2025				$ Change				% Change
Revenues:
Net investment income		$	339			$	336			$	3				0.9	%
Net gains			5				8				(3	)			(37.5	%)
Total revenues			344				344				-				0.0	%
Expenses:
Engineering, selling and administrative			1,756				722				1,034				143.2	%
Total expenses			1,756				722				1,034				143.2	%
Loss before income taxes		$	(1,412	)		$	(378	)		$	(1,034	)			273.5	%

Loss Before Income Taxes

Loss before income taxes increased $1,034, or 273.5%, from ($378) for the six months ended June 30, 2025 to ($1,412) for the six months ended June 30, 2026. The increase: was primarily due to a $1,034, or 143.2%, increase in Engineering, selling and administrative driven by higher stock-based compensation, higher salaries and wages and related benefits, and higher professional services fees.

Liquidity and Capital Resources

Overview

Liquidity refers to our ability to access sufficient sources of cash to meet the requirements of our operating, investing and financing activities.

Capital refers to our long-term financial resources available to support business operations and future growth.

Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows, general economic conditions and access to the capital markets and the other sources of liquidity and capital described herein.

As of June 30, 2026 and December 31, 2025, Cash and cash equivalents were $45.1 million and $41.5 million, respectively.

On July 24, 2026, the Company completed the Rights Offering. Rightsholders exercised 3,419,215, or 52.1%, of the Rights, in a net share settlement of 3,419,215 shares of Common Stock. The remaining 3,131,220 Rights expired unexercised in accordance with their terms. The Company distributed 2,643,499 shares of the 3,131,220 unallocated shares of Common Stock to Rightsholders who elected to participate in the over-subscription privilege. The gross proceeds to the Company were $41.8 million.

Cash Flow Activity

The following table presents the cash flow activity for the periods indicated:

		Six Months Ended June 30,
(in thousands)		2026				2025
Cash, cash equivalents, and restricted cash, beginning of period		$	41,514			$	41,585
Cash provided by operating activities			108				150
Cash used in investing activities			(1,968	)			-
Cash provided by financing activities			5,781				-
Net change in cash, cash equivalents, and restricted cash			3,921				150
Cash, cash equivalents, and restricted cash, end of period		$	45,435			$	41,735

Operating Activities

Cash provided by operating activities was $108 for the six months ended June 30, 2026 compared to $150 for the six months ended June 30, 2025, a decrease of $42, primarily due to the following:

•

Higher net loss;

•

Higher non-cash adjustments, including:

•

Stock based compensation increased $822 from $26 for the six months ended June 30, 2025 to $848 for the six months ended June 30, 2026;

•

Working capital movements, including:

•

Accounts receivable, which decreased $34 for the six months ended June 30, 2026 compared to a decrease of $230 for the six months ended June 30, 2025, due to timing of collection of receivables;

•

Inventories, net, which increased $331 for the six months ended June 30, 2026 compared to a decrease of $13 for the six months ended June 30, 2025, due to purchases of materials to meet increased demand; and

•

Accounts payable, accrued compensation and commissions, other accrued expenses and liabilities, and other liabilities, which increased $762 for the six months ended June 30, 2026 compared to a decrease of $99 for the six months ended June 30, 2025, due to higher expenses incurred and the timing of payments.

Our working capital metrics and ratios were as follows:

(in thousands)		June 30, 2026				December 31, 2025
Current assets		$	47,006			$	46,324
Less: Current liabilities			1,811				915
Working capital		$	45,195			$	45,409
Current ratio			26.0				50.6

Management continues to focus on efficiently managing working capital requirements to match operating activity levels and will seek to deploy the Company's working capital where it will generate the greatest returns.

Investing Activities

Cash used in investing activities was $1,968 for the six months ended June 30, 2026 compared to $0 for the six months ended June 30, 2025, an increase of $1,968 primarily due to investment in the Skyline Note in June 2026.

Financing Activities

Cash provided by financing activities was $5,781 for the six months ended June 30, 2026 compared to $0 for the six months ended June 30, 2025, an increase of $5,781 primarily due to $4.6 million from the settlement of warrants in January 2026 and $1.2 million in capital contributions from non-controlling interests in Skyline SPV in June 2026.

Capital Resources

We believe that existing cash and cash equivalents, marketable securities and cash generated from operations will provide sufficient liquidity to meet our ongoing working capital and capital expenditure requirements for the next 12 months from the date of this filing and for the foreseeable future.

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.

Contractual Obligations

As of June 30, 2026, there have been no material changes in our contractual obligations from December 31, 2025, a description of which may be found in Part II, Item 7. Management Discussion and Analysis - Liquidity and Capital Resources - Contractual Obligations in the 2025 Annual Report.

Critical Accounting Estimates

Our accompanying Condensed Consolidated Financial Statements are prepared in conformity with U.S. 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, other than those described below, 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, 2025.

Fair Value of the Skyline Note

Through our consolidated variable interest entity, Skyline Instruments May 2026, a Series of CGF2021 LLC ("Skyline SPV"), we hold a note receivable from Skyline Instruments Corporation ("Skyline") (the "Skyline Note"), for which we have elected the fair value option under FASB ASC Topic 825, Financial Instruments "ASC 825"). Because the Skyline Note is an obligation of an early-stage, privately held company for which there is no active market and no observable market prices, its fair value is measured using unobservable inputs and is classified within Level 3 of the fair value hierarchy.

We determined the fair value of the Skyline Note based on the transaction price in the arm's-length financing in which it was issued, which we concluded represented its fair value at the date of issuance and as of June 30, 2026. At each subsequent measurement date, we assess whether events or changes in circumstances indicate that the transaction price no longer approximates fair value, including Skyline's financial condition and operating results, its progress against development milestones, the terms of any subsequent financing transactions, and changes in market conditions. Determining whether such events have occurred, and whether they would result in a change in fair value, requires significant management judgment given the limited financial and market information available for an early-stage company.

If we determine in a future period that the transaction price no longer represents fair value, we would estimate fair value using other unobservable inputs and valuation techniques, which could result in a materially different measurement. Because we consolidate Skyline SPV, the full carrying amount of the Skyline Note is reflected in our Condensed Consolidated Financial Statements, and our maximum exposure to loss with respect to Skyline is the carrying amount of our investment in Skyline SPV. As a result, changes in this estimate could have a material effect on our reported financial position and results of operations.