LGL LGL Group Inc

Notes to Condensed Consolidated Financial Statements (Unaudited)

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, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021. 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”, “we”, “our” or “us”) Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2021.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries except its sole variable interest entity (“VIE”), LGL Systems Acquisition Holding Company, LLC (the “Sponsor”). The VIE served as the sponsor to a special purpose acquisition company, LGL Systems Acquisition Corp. (the “SPAC” or “DFNS”). The SPAC completed a merger with its target company, IronNet Cybersecurity, Inc., on August 26, 2021 and changed its name to Iron Net, Inc. (“IronNet” or “IRNT”) (the “IronNet Business Combination”). IronNet is a publicly-traded company on the New York Stock Exchange (“NYSE”) under the ticker symbol “IRNT.” Intercompany transactions and accounts have been eliminated in consolidation.

VIE: Our sole interest in a VIE, the Sponsor, has been accounted for under the equity method of accounting and not consolidated.  Determining whether to consolidate a VIE requires judgement in assessing whether an entity is a VIE and if we are the entity’s primary beneficiary. If we are the primary beneficiary of a VIE, we are required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation included identification of significant activities and an assessment of our ability to direct those activities, based on operating and other legal agreements as well as governance provisions. As a result of our review, we concluded that we were not the primary beneficiary of the VIE and that consolidation was not warranted.

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

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

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 segment in Note M – Segment Information, and geographic markets in Note N – Domestic and Foreign Revenues.

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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:

Income Taxes

The Company periodically undertakes a review of its valuation allowance, and it evaluates all positive and negative factors that may affect whether it is more likely than not that the Company would realize its future tax benefits from its deferred tax balances.

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.

During the three and nine months ended September 30, 2021, we performed an assessment to determine if there were any indicators of impairment as a result of the operating conditions resulting from the coronavirus (“COVID-19”) pandemic. 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. While we do not anticipate any material impairment of our assets in the future as a result of COVID-19, future changes in our projected results could alter that view.

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 provisions of the standard are effective for the Company on January 1, 2023; early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its financial statements.

The Company invested $6.1 million in a partnership LGL Systems Acquisition Holdings, LLC that served as the Sponsor of a NYSE listed special purpose acquisition company (“SPAC”). On September 14, 2021, as a result of this investment, the Company received 1,572,529 IRNT common shares and 2,065,000 IRNT private warrants exchangeable into IRNT common stock, representing an aggregate fair value of $65.3 million. While LGL continues to hold a partnership interest in LGL Systems Acquisition Holding Company, LLC, it is expected to be immaterial. See Note D - Marketable Securities for the basis of determining the fair value of the securities received.

For the nine months ended September 30, 2021 and 2020, the Company recognized a gain (loss) on equity investment in unconsolidated subsidiary of $59,453,000 and ($200,000), respectively, for its share of the Sponsor’s gains and losses through the September 14, 2021 distribution of IRNT common shares and private warrants. The Company’s cumulative Sponsor gain recognized as of September 30, 2021 amounted to $59,175,000.

Subsequent to the September 14, 2021 Sponsor distribution, the Company’s IRNT common stock and warrants have been classified as marketable securities, under ASC 321, Investments – Equity Securities (“ASC 321”), with the change in fair value from the date of distribution reported as an unrealized gain or loss. The IRNT common stock is marked to market at September 30, 2021 based on its publicly quoted market price adjusted for liquidity, when applicable. A Monte Carlo simulation model was used to estimate the market price of the IRNT private warrants.

On April 12, 2021, the SEC’s Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (the “Staff Statement”) was released. The SPAC evaluated the applicability and impact of the Staff Statement on its historical financial statements that have been filed with the SEC and determined that restatement was required. In the first quarter of 2021, the SPAC changed its accounting treatment for both its public and private warrants outstanding using liability classification instead of equity classification resulting in a mark to market warrant liability adjustment for each reporting period since

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issuance in 2019. As previously discussed, prior to the IronNet Business Combination, the Company reported its investment in the Sponsor under the equity method of accounting using HLBV. The SPAC’s mark to market accounting adjustments for the warrant liability did not change the Company’s HLBV due to the warrants requiring no cash settlement as of December 31, 2020 under a hypothetical liquidation; therefore, the SPAC’s restatement did not impact the Company’s carrying amount of its equity investment in the Sponsor.

D. Marketable Securities

The Company accounts for equity securities under ASC 321. Such securities are reported at fair value on the condensed consolidated balance sheets, and the related unrealized gains and losses are reported in the condensed consolidated statements of cash flows as a non-cash activity. Any unrealized appreciation or depreciation on investment securities is reported in the condensed consolidated statements of operations as an unrealized gain or loss on marketable securities. During the nine months ended September 30, 2021 and 2020, unrealized (loss) gain on marketable securities was ($18,665,000) and $15,000, respectively.

Details of marketable securities held at September 30, 2021 are as follows (in thousands):

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

As a result of the IronNet Business Combination and LGL’s investment in the SPAC sponsor, LGL Systems Acquisition Holding Company, LLC, LGL was distributed 2,065,000 IRNT private warrants and 1,572,529 common shares on September 14, 2021. Of these common shares, 1,300,000 shares are restricted from sale for at least six months from the date of closing and are subject to the applicable shareholder lock-up agreements. In an effort to continue its stakeholder responsibilities in the context of global corporate citizenship, the Company made a charitable gift on September 28, 2021 of 50,000 of these IRNT shares (see Note Q - Donation), leaving 1,250,000 IRNT restricted common shares outstanding at September 30, 2021. The fair value of these shares was determined by applying a discount for lack of marketability to the publicly quoted market price of IRNT common stock. The 272,529 PIPE related IRNT common shares and 2,065,000 private warrants were subject to trading restrictions upon distribution until the registration statement became effective on September 30, 2021. In determining the fair value of the PIPE related shares, the publicly quoted market price was used at September 30, 2021.

The 2,065,000 IRNT private warrants are exercisable to purchase one share of IRNT common stock at an exercise price of $11.50 per share and have a contractual term of five years from the date of the IronNet Business Combination along with other terms and conditions including a cashless exercise alternative which LGL elected to pursue on October 1, 2021, receiving 1,271,406 IRNT freely-tradable common shares as a result of such exercise (see Note R – Subsequent Events).  The Company utilized a Monte Carlo simulation model to determine the fair value of the private warrants at September 30, 2021. Key assumptions used in the Monte Carlo model are assumptions related to expected stock-price volatility, risk-free interest rate and dividend yield. The estimated stock-price volatility of IRNT common stock was based on the historical volatility of select peer companies. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

Certain balances held and invested in various mutual funds are managed by a related entity (the "Fund Manager"). The brokerage and fund transactions in 2021 and 2020 were directed solely at the discretion of the Company’s management.

As of September 30, 2021, the balance with the Fund Manager totaled $15,511,000, including $9,557,000 which is classified within cash and cash equivalents on the accompanying condensed consolidated balance sheets and $5,954,000 which is classified within marketable securities on the accompanying condensed consolidated balance sheets. Amounts invested generated $174,000 and $15,000 of unrealized investment income during the nine months ended September 30, 2021 and 2020, respectively. Fund management fees are anticipated to average less than 0.25% of the asset balances under management on an annual basis.

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As of December 31, 2020, the balance with the Fund Manager totaled $19,062,000, including $13,282,000 which is classified within cash and cash equivalents on the accompanying condensed consolidated balance sheets, and $5,780,000 which is classified as marketable securities on the accompanying condensed consolidated balance sheets.

Members of our board of directors including Marc Gabelli, John Mega, Timothy Foufas, Manjit Kalha and Michael Ferrantino, and members of our management Patrick Huvane and Michael Ferrantino, are members of the Sponsor. Robert LaPenta was a member of our board of directors until his resignation on September 27, 2021, as he joined IronNet as a board member upon the IRNT Business Combination. Robert LaPenta remains a passive member of the SPAC Sponsor. All except Mr. Kalha also served in various capacities of the SPAC but have all since resigned from the SPAC as of September 29, 2021. Prior to resignation, John Mega was President of the SPAC; Timothy Foufas was Chief Operating Officer of the SPAC; Robert LaPenta was Co-Chief Executive Officer and Chief Financial Officer of the SPAC; Mr. Gabelli was the Chairman and Co-Chief Executive Officer of the SPAC, Michael Ferrantino was a SPAC board member and Patrick Huvane was a SPAC officer. Mr. Foufas, Mr. Huvane and Mr. Gabelli are managing members of the Sponsor. Mr. Huvane became a managing member on September 27, 2021.

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. The Company uses a Monte Carlo simulation model to estimate the market price of its private warrants. Assets measured at fair value on a recurring basis are summarized below (in thousands).

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There were no transfers from Level 3 during the periods presented. The Company also has assets that may be subject to measurement at fair value on a non-recurring basis, including goodwill and intangible assets and other long-lived assets. There were no liabilities subject to fair value on a non-recurring or recurring basis as of September 30, 2021 or December 31, 2020.

As of September 30, 2021 and December 31, 2020, the Company had investments in two mutual funds. The Equity Mutual Fund noted above is invested in the Gabelli ABC Fund, and the U.S. Treasury Mutual Fund is invested in the Gabelli US Treasury Money Market Fund.

The Company utilizes a Level 2 category fair value measurement to value its investment in certain IronNet common stock holdings. Although IronNet common stock has a quoted price in active markets, a portion of it related to our 1,250,000 restricted IRNT shares is classified as a Level 2 asset as there is a discount associated with its lack of marketability. The 272,529 PIPE related IRNT shares are not subject to selling restrictions as of September 30, 2021, the date on which the IronNet registration statement became effective, and are included in the Level 1 category.

The 2,065,000 IronNet warrants received as part of the Sponsor’s distribution are classified as Level 3 assets since the warrants are valued using a Monte Carlo fair value pricing model.

See Note D – Marketable Securities for additional details of the valuation methodology for these securities.

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, 2021 and December 31, 2020 was $1,384,000 and $1,219,000, respectively.

Inventories are comprised of the following (in thousands):

Intangible assets are recorded at cost less accumulated amortization which is included in engineering, selling and administrative expenses on the accompanying condensed consolidated statements of operations. Amortization is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range up to 10 years. The intangible assets consist of intellectual property and goodwill. The net carrying value of the amortizable intangible assets was $231,000 and $287,000 as of September 30, 2021 and December 31, 2020, respectively. Goodwill, which is not amortizable, was $40,000 as of both September 30, 2021 and December 31, 2020.

Under the Company’s 2011 Incentive Plan, as amended, restricted stock and stock options have been awarded to certain employees as share-based compensation. Compensation expense is based on the grant-date fair value and recognized over the requisite service period.

As of December 31, 2020, there was approximately $415,000 of total unrecognized compensation expense related to unvested share-based compensation arrangements, primarily related to restricted stock awards. In March 2021, 26,250 unvested restricted shares were forfeited; total unrecognized compensation expense amounted to $127,000 at September 30, 2021. This cost will be recognized over the weighted average remaining service period of these awards, 2.25 years for restricted stock and 1.1 years for stock options.

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 common shares outstanding during the period. Diluted earnings per share

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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 both the three and nine months ended September 30, 2021, there were warrants to purchase 1,051,664 shares of common stock and options to purchase 25,000 shares of common stock excluded from the diluted earnings per share computation. For both the three and nine months ended September 30, 2020, there were options to purchase 25,000 shares of common stock excluded from the diluted earnings per share computation. The warrants and stock options were excluded because the impact of the assumed exercise of such warrants and stock options would have been anti-dilutive.

The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding for the three and nine months ended September 30, 2021 and 2020:

On January 22, 2020, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, in what is deemed to be an “at the market offering” (“ATM Offering”) through Jefferies, shares of the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $15,000,000. Shares sold under the Sales Agreement are issued pursuant to the shelf registration statement on Form S-3 (File No. 333-235767), filed by the Company with the SEC on December 31, 2019, which was declared effective on January 8, 2020. The Company filed a prospectus supplement with the SEC on January 23, 2020 in connection with the offer and sale of the shares pursuant to the Sales Agreement. During February and March of 2020, 263,725 shares were sold under the Sales Agreement, at an average price per share of $13.65, generating net proceeds of approximately $3,492,000, after brokerage charges of $108,000 were deducted and paid to Jefferies. Form S-3 and at-the-market registration costs were approximately $238,000 and were charged to additional paid-in capital. The Sales Agreement and ATM Offering remain in effect in accordance with their terms.

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.

During the third quarter, the Company released its valuation allowance over a portion of its deferred tax assets as the deferred tax assets became more likely than not to be realized from expected gains on IRNT share sales which occurred subsequent to the quarter-end.

We recognize tax benefits related to uncertain tax positions only if it is more likely than not that the tax position will be sustained upon examination by taxing authorities. For those positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. In the ordinary course of business, we are examined by various federal, state, and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes.

The effective tax rate for the nine months ended September 30, 2021 and September 30, 2020 was 22.2% and 20.9%, respectively. Differences between the Company’s effective income tax rate and the U.S. federal statutory rate are primarily the impact of state taxes, foreign taxes, non-deductible expenses, excess tax benefits or expense on share-based compensation and research and development credits.

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The Company has two reportable business segments, electronic components and electronic instruments. The electronic components segment is focused on the design, manufacture and marketing of highly-engineered, high reliability frequency and spectrum control products. These electronic components ensure reliability and security in aerospace and defense communications, low noise and base accuracy for laboratory instruments, and synchronous data transfers throughout the wireless and Internet infrastructure. The electronic instruments segment 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. 

Business segment information follows (in thousands):

Operating income is equal to revenues less cost of sales and operating expenses (engineering, selling and administrative expenses).

The Company allocates its foreign revenue based on the customer's ship-to location.

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 leases certain manufacturing and office space and equipment. The Company determines if an arrangement is a lease at inception. A contract is, or contains, a lease if the contract conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. Amounts associated with operating leases, which are not short-term, are included in right-of-use lease assets, and other accrued expenses and long-term lease liabilities on the Company’s condensed consolidated balance sheets. Right-of-use lease assets represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-

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of-use lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the expected lease term. The Company uses its incremental borrowing rate at the lease commencement date in determining the present value of lease payments. Short-term leases with an initial term of 12 months or less are not recorded in the Company’s condensed consolidated balance sheets; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company leases certain property under operating leases with terms that range from one to five years. Certain of these leases have one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more, and the exercise of lease renewal options under these leases is at our sole discretion. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Future minimum lease payment obligations under operating leases at September 30, 2021 are as follows (in thousands):

Q.Donation

In an effort to continue our stakeholder responsibilities in the context of global corporate citizenship, on September 28, 2021, the Company made a charitable gift of 50,000 IRNT shares recognizing the fair value of $1,318,000 as expense at the date of donation. 

R.Subsequent Events

On October 1, 2021, the Company’s board of directors approved a spin-off of the MTron/PTI subsidiary. The Company had previously announced its exploration of this potential spin-off transaction and will now proceed with the spin-off, which will be submitted to a shareholder vote for approval. Substantially all the cash and investments will remain in LGL. Our electronic components segment consists entirely of the operations of MTron/PTI. See Note M - Segment Information.

The IRNT S-1 registration statement became effective with the SEC on September 30, 2021 and as a result certain IRNT shares and the warrants held became tradeable in the market. On October 1, 2021, the Company sold 220,000 IRNT common shares received as a result of its investment in a private placement in the SPAC public equity (“PIPE”). Furthermore, on October 1, 2021, the Company pursued its alternative to exercise its 2,065,000 IRNT private warrants on a cashless basis and received 1,271,406 IRNT common shares upon such exercise, in two tranches on October 4 and 5. As of October 31, 2021, the Company had sold 1,405,315 shares of our IRNT common stock in a variety of transactions resulting in approximately $16.9 million of gross pre-tax proceeds. The Company held 138,620 shares of unrestricted IRNT common stock and 1,250,000 IRNT common shares that are restricted from sale for at least six months from the date of the IronNet Business Combination. These restricted shares are subject to the applicable shareholder lock-up agreements. The Company has executed and may continue to execute derivatives transactions as part of its plan to minimize the economic risk of IRNT share price volatility to its IRNT holdings. The Company’s deferred tax assets related to net operating loss and tax credit carryforwards of approximately $2.5 million can be utilized to reduce our taxes payable on our gains realized on IRNT share sales.

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