What changed in this filing

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Item 1. Financial Statements

2022-02-11 compared with 2021-08-13 · 88 added, 231 removed, 386 unchanged (45% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Restricted Cash

Accounts receivable

2 unchanged sentences

Property and equipment, net

Non-current deferred income taxes

Deferred income taxes

LIABILITIES AND SHAREHOLDERS' EQUITY

1 unchanged sentence

Accounts payable

Dividends payable

Accrued expenses

1 unchanged sentence

Total current liabilities

Non-current deferred income taxes

Other liabilities

Total liabilities

2 unchanged sentences

Preferred stock, 10,000,000 shares authorized, $ .001 par value, of which 200,000 shares are authorized as Class A Convertible stock.

No shares issued and outstanding at June 30, 2021 and September 30, 2020

No shares issued and outstanding at December 31, 2021 and September 30, 2021

Common stock, $ .001 par value:

75,000,000 shares authorized, 19,342,823 and 19,310,835 issued at June 30, 2021 and September 30, 2020

75,000,000 shares authorized, 19,342,823 issued at December 31, 2021 and September 30, 2021

Additional paid-in capital

2 unchanged sentences

( 5,882,820 )

Treasury stock, at cost, 2,096,451 shares at June 30, 2021 and September 30, 2020

Treasury stock, at cost, 2,096,451 shares at December 31, 2021 and September 30, 2021

( 21,368,537 )

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Engineering development contracts

10 unchanged sentences

Income before income taxes

Income tax (benefit) expense

( 1,473,014 )

( 1,443,352 )

Income tax expense

Net income per common share:

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Nine Months Ended June 30, 2021

Three Months Ended December 31, 2021

Balance, September 30, 2021

2 unchanged sentences

Share-based compensation

Dividends declared

( 8,607,192 )

Balance, December 31, 2021

1 unchanged sentence

( 21,368,537 )

Issuance of stock to directors

Share-based compensation

Balance, March 31, 2021

( 10,099,000 )

( 21,368,537 )

Share-based compensation

Exercise of stock options

Balance, June 30, 2021

( 7,413,079 )

( 21,368,537 )

The accompanying notes are an integral part of these statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Nine Months Ended June 30, 2020

Three Months Ended December 31, 2020

Balance, September 30, 2020

( 2,340,530 )

Balance, December 31, 2019

( 21,368,537 )

Issuance of stock to directors

Exercise of stock options

Balance, March 31, 2020

Share-based compensation

Dividends declared

( 8,607,192 )

Balance, June 30, 2020

( 8,607,192 )

Balance, December 31, 2020

( 10,707,577 )

( 21,368,537 )

The accompanying notes are an integral part of these statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30,

For the Three Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Stock options

Excess and obsolete inventory cost

Deferred income taxes

( 1,461,617 )

(Increase) decrease in:

Accounts receivable

( 1,516,119 )

Contract asset

Prepaid expenses and other current assets

Income taxes receivable

Increase (decrease) in:

8 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Dividend paid

( 19,788,092 )

Net cash (used in) provided by financing activities

Net cash used in financing activities

( 19,788,092 )

Net (decrease) increase in cash and cash equivalents and restricted cash

Net increase (decrease) in cash and cash equivalents

( 18,176,612 )

Cash and cash equivalents and restricted cash, beginning of year

Cash and cash equivalents and restricted cash, end of year

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for income taxes

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

The accompanying notes are an integral part of these statements.

9 unchanged sentences

This strategy, as both a manufacturer and integrator, is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation, commercial air transport, United States Department of Defense (“DoD”)/governmental and foreign military markets.

This approach, combined with the Company’s industry experience, is designed to enable IS&S to develop highquality products and systems, to reduce product time to market, and to achieve cost advantages over products offered by its competitors.

This approach, combined with the Company’s industry experience, is designed to enable IS&S to develop high-quality products and systems, to reduce product time to market, and to achieve cost advantages over products offered by its competitors.

Basis of Presentation

2 unchanged sentences

The condensed consolidated balance sheet as of September 30, 2021 is derived from the audited financial statements of the Company.

Operating results for the three-and nine-month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021, including in terms of the impact of the coronavirus pandemic (the “COVID-19 pandemic”), which cannot be determined at this time.

Operating results for the three-month period ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2022, including in terms of the impact of the coronavirus pandemic (the “COVID-19 pandemic”), which cannot be determined at this time.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

15 unchanged sentences

Highly liquid investments, purchased with an original maturity of three months or less, are classified as cash equivalents.

Cash equivalents at June 30, 2021 and September 30, 2020 consist of cash on deposit and cash invested in money market funds with financial institutions.

Restricted Cash

On September 4, 2020, the Company’s Board of Directors declared a special cash dividend in the amount of $ 0.65 per share, payable on October 1, 2020 to shareholders of record as of the close of business on September 15, 2020.

The total dividend payment was approximately $ 11.2 million and is included in restricted cash on the accompanying condensed consolidated balance sheet as of September 30, 2020.

On December 10, 2020, the Company's Board of Directors declared a special cash dividend in the amount of $ 0.50 per share, payable on December 30, 2020 to shareholders of record as of the close of business on December 21, 2020.

The total dividend payment was approximately $ 8.6 million.

The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors.

The Company did not pay dividends in the three- and nine-month periods ended June 30, 2020.

As of June 30, 2021, the Company had $ 7.5 million in cash and cash equivalents and $ 0 in restricted cash.

Total cash and cash equivalents and restricted cash as of June 30, 2021 was $ 7.5 million.

As of September 30, 2020, the Company had $ 12.6 million in cash and cash equivalents and $ 11.2 million in restricted cash.

Total cash and cash equivalents and restricted cash as of September 30, 2020 was $ 23.8 million.

Cash equivalents at December 31, 2021 and September 30, 2021 consist of cash on deposit and cash invested in money market funds with financial institutions.

Inventory Valuation

10 unchanged sentences

The estimation of fair value is generally measured by discounting expected future cash flows.

No impairment charges were recorded during the three-and nine-month periods ended June 30, 2021 or 2020.

No impairment charges were recorded during the three-month periods ended December 31, 2021 or 2020.

Fair Value of Financial Instruments

10 unchanged sentences

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2021 and September 30, 2020, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on June 30, 2021

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2021 and September 30, 2021, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on December 31, 2021

Quoted Price in

14 unchanged sentences

Revenue from Contracts with Customers

The Company adopted ASC 606 on October 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

The reported results for fiscal years ended September 30, 2021 and 2020 reflect the application of ASC 606 guidance.

The adoption of ASC 606 represents a change in accounting principles.

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services.

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle of ASC 606 is that an entity recognizes revenue when a customer obtains control of promised goods or services.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services.

14 unchanged sentences

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

None of the Company's contracts for all periods presented included variable consideration.

Allocate the transaction price to performance obligations in the contract

5 unchanged sentences

Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.

Revenue from products transferred to customers at a point in time accounted for 100 percent and 93 percent of our revenue for the three months ended June 30, 2021 and 2020, respectively, and is typically recognized at the time of shipment of products to the customer.

Revenue from products transferred to customers at a point in time accounted for 100 percent and 95 percent of our revenue for the nine months ended June 30, 2021 and 2020, respectively.

Revenue from products transferred to customers at a point in time accounted for 100 percent of our revenue for the three-month periods ended December 31, 2021 and 2020, respectively, and is typically recognized at the time of shipment of products to the customer.

The remaining revenue results from EDC contracts and is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.

11 unchanged sentences

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.

The aggregate impact of adjustments in contract estimates did not change our revenue and operating earnings (and diluted earnings per share) for the three- and nine-month periods ended June 30, 2021 and 2020, respectively.

Therefore, no adjustment on any contract was material to our unaudited consolidated financial statements for the three-and nine-month periods ended June 30, 2021 and 2020, respectively.

The aggregate impact of adjustments in contract estimates did not change our revenue and operating earnings (and diluted earnings per share) for the three-month periods ended December 31, 2021 and 2020, respectively.

Therefore, no adjustment on any contract was material to our unaudited consolidated financial statements for the three-month periods ended December 31, 2021 and 2020, respectively.

Contract Balances

1 unchanged sentence

Contract liabilities primarily relate to consideration received in advance of performance under the contract.

As of June 30, 2021, approximately $ 1,456,000 of contract liabilities is from one customer.

The following table reflects the Company’s contract assets and contract liabilities:

4 unchanged sentences

Increases due to invoicing prior to satisfaction of performance obligations

June 30, 2021

December 31, 2021

Customer Service Revenue

1 unchanged sentence

The Company’s customer service revenue and cost of sales are included in product sales and product cost of sales, respectively, on the accompanying consolidated statements of operations.

The Company’s customer service revenue and cost of sales for the three-and nine-month periods ended June 30, 2021 and 2020 respectively are as follows:

For the Three Months Ended June 30,

For the Nine Months Ended June 30,

The Company’s customer service revenue and cost of sales for the three-month periods ended December 31, 2021 and 2020 respectively are as follows:

For the Three Months Ended December 31,

Customer Service Sales

1 unchanged sentence

Lease Recognition

On October 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02 using the required modified retrospective approach.

This pronouncement requires lessees to record “right-of-use” assets and corresponding lease liabilities on the balance sheet for most leases.

We adopted this pronouncement utilizing the transition practical expedient which eliminated the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption.

See Note 7, “Leases,” to the unaudited condensed consolidated financial statements for a discussion of the impact resulting from the adoption of this guidance.

The Company accounts for leases in accordance with ASU 2016-02, Leases (Topic 842).

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.

Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable.

The Company does not have any financing leases that are material in nature.

Income taxes are recorded in accordance with ASC Topic 740, “ Income Taxes ” (“ASC Topic 740”), which utilizes a balance sheet approach to provide for income taxes.

Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets, liabilities, and expected benefits of utilizing net operating losses (“NOLs”) and tax credit carry-forwards.

The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment.

7 unchanged sentences

The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and credit carryforwards, taxable income in carry-back years, and tax planning strategies which are both prudent and feasible.

For the quarter ended June 30, 2021, the valuation allowance was released for all federal and state deferred tax assets with the exception of certain state net operating losses for jurisdictions in which the Company does not believe these net operating losses are more likely than not to be realized.

The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets.

If the Company were to determine that it would be able to realize additional state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

12 unchanged sentences

Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material effect on the Company’s consolidated financial position but could possibly be material to its consolidated results of operations or cash flow of any one period.

On December 22, 2017, the U.S.

government enacted the Tax Act, which made broad and complex changes to the U.S.

tax code, including, but not limited to, (1) reducing the U.S.

federal corporate tax rate from 34 percent to 21 percent;

(2) bonus depreciation that will allow for full expensing of qualified property;

(3) elimination of the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized;

(4) a new limitation on deductible interest expense;

(5) the repeal of the domestic production activity deduction;

and (6) limitations on NOLs generated after December 31, 2017, to 80 percent of taxable income.

The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018.

Consequently, we recorded a provisional adjustment to decrease related to deferred tax assets and liabilities with a corresponding net adjustment to deferred income tax expense of $ 321,038 for the period ended December 31, 2017.

This expense is offset fully by a change in the valuation allowance.

In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law to provide emergency assistance to affected individuals, families, and businesses.

The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of NOLs.

The CARES Act amended the NOL provisions of the Tax Act, allowing for the carryback of losses arising in tax years beginning before December 31, 2017, to each of the two taxable years preceding the taxable year of loss.

Approximately $ 1,500,000 of pre-tax NOL was carried back two years to fully offset taxable income.

This carryback frees up previously utilized R&D credits, resulting in an estimated increase in R&D credit carryforward of $ 196,000 .

The carryback created approximately $ 16,000 of AMT tax, which was refunded.

The cash impact of this carryback was $ 309,412 .

A receivable was setup for this amount as of March 31, 2020 and the cash has since been received.

On December 27, 2020, the Consolidations Appropriations Act of 2020 (the “CAA") was enacted as a supplement to the CARES legislation providing additional financial relief to taxpayers adversely impacted by restrictions put into place in response to the COVID-19 pandemic.

In addition, the CCA provides funding for public health initiatives in response to the pandemic.

This legislation does not have a material impact on the Company's tax position.

On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”), which includes certain business tax provisions, was signed into law.

The Company does not expect the ARPA to have a material impact on Company’s effective tax rate or income for fiscal year ending on September 30, 2021.

Engineering Development

The Company invests a significant percentage of its sales on engineering development, both Research & Development (“R&D”) and EDC.

At June 30, 2021, approximately 21 % of the Company’s employees were engineers engaged in various engineering development projects.

At December 31, 2021, approximately 18 % of the Company’s employees were engineers engaged in various engineering development projects.

Total engineering development expense comprises both internally funded R&D and product development and design charges related to specific customer contracts.

7 unchanged sentences

Pursuant to FASB ASC Topic 220, “Comprehensive Income,” the Company is required to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of its condensed consolidated balance sheets.

For the three-and nine-month periods ended June 30, 2021 and 2020, comprehensive income consisted of net income only, and there were no items of other comprehensive income for any of the periods presented.

For the three-month periods ended December 31, 2021 and 2020, comprehensive income consisted of net income only, and there were no items of other comprehensive income for any of the periods presented.

Share-Based Compensation

The Company accounts for share-based compensation under ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which requires the Company to measure the cost of employee or non-employee director services received in exchange for an award of equity

instruments based on the grant-date fair value of the award using an option pricing model.

The Company recognizes such cost over the period during which an employee or non-employee director is required to provide service in exchange for the award.

Accordingly, adoption of ASC Topic 718’s fair value method results in recording compensation costs under the Company’s stockbased compensation plans.

The Company determined the fair value of its stock option awards at the date of grant using the BlackScholes option pricing model.

Accordingly, adoption of ASC Topic 718’s fair value method results in recording compensation costs under the Company’s stock-based compensation plans.

The Company determined the fair value of its stock option awards at the date of grant using the Black-Scholes option pricing model.

Option pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of its awards.

16 unchanged sentences

Liabilities associated with the risks that are retained by the Company are estimated based upon actuarial assumptions such as historical claims experience and demographic factors.

The Company estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at June 30, 2021 and September 30, 2020, respectively.

The Company estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at December 31, 2021 and September 30, 2021, respectively.

However, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions.

At June 30, 2021 and September 30, 2020, the estimated liability for medical claims incurred but not reported was approximately $ 46,700 and $ 48,200 , respectively.

The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of approximately $ 180,200 and $ 225,200 as a current asset in the accompanying condensed consolidated balance sheets as of June 30, 2021 and September 30, 2020, respectively.

At December 31, 2021 and September 30, 2021, the estimated liability for medical claims incurred but not reported was $ 56,580 and $ 55,934 , respectively.

The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of $ 162,706 and $ 208,651 as a current asset in the accompanying condensed consolidated balance sheets as of December 31, 2021 and September 30, 2021, respectively.

Concentrations

Major Customers and Products

In the three-month period ended June 30, 2021, two customers, Pilatus Aircraft Ltd (“Pilatus”), and Textron Aviation, Inc.

(“Textron”), accounted for 25 %, and 21 % of net sales, respectively.

In the nine-month period ended June 30, 2021, two customers, Pilatus and Textron, accounted for 20 % and 17 % of net sales, respectively.

In the three-month period ended June 30, 2020, two customers, Pilatus, and Kalitta Air (“Kalitta”), accounted for 37 % and 11 % of net sales, respectively.

In the nine-month period ended June 30, 2020, two customers, Pilatus, and Kalitta accounted for 36 % and 13 %, respectively, of net sales.

In the three-month period ended December 31, 2021, two customers, Air Transport Services Group, and Pilatus Aircraft Ltd (“Pilatus”), accounted for 25 %, and 24 % of net sales, respectively.

In the three-month period ended December 31, 2020, three customers, Sierra Nevada Corporation, Amazon.com, Inc.

and Textron Aviation,Inc, accounted for 17 %, 12 % and 11 % of net sales, respectively.

Major Suppliers

1 unchanged sentence

Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms.

For the three- and nine-month periods ended June 30, 2021, the Company had three and one suppliers, respectively that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three- and nine-month periods ended June 30, 2020, the Company had four and three suppliers, respectively, that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three-month period ended December 31, 2021, the Company had two suppliers that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three-month period ended December 31, 2020, the Company had two suppliers that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

Concentration of Credit Risk

6 unchanged sentences

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) as modified, which replaces existing leasing rules with a comprehensive lease measurement and recognition standard and expanded disclosure requirements.

ASU 2016-02 will require lessees to recognize most leases on their balance sheets as liabilities, with corresponding “right-of-use” assets and is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption.

For income statement recognition purposes, leases will be classified as either a finance or an operating lease without relying upon the bright-line tests under current GAAP.

In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.

The modified retrospective approach includes a number of optional practical expedients that we may elect to apply.

These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset.

An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.

We adopted ASU 2016-02 effective October 1, 2019 using the required modified retrospective approach.

See Note 18, “ Lease Recognition ,” to the consolidated financial statements for a discussion of the impact resulting from the adoption of this guidance.

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

4 unchanged sentences

Management is currently assessing the impact ASU 2016-13 will have on the Company.

In August 2018, the FASB issued ASU 2018-13, “ Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ,” (“ASU 2018-13”) which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers.

The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income.

We adopted this update effective October 1, 2020.

The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “ Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ” (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), and clarifies certain aspects of ASC 740 to promote consistency among reporting entities.

ASU 2019-12 is effective for us beginning October 1, 2021, with early adoption permitted.

Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

We adopted this update effective October 1, 2021.

The adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures.

As new accounting pronouncements are issued, we will adopt those that are applicable.

19 unchanged sentences

( 13,193,599 )

Depreciation and amortization related to property and equipment was approximately $ 90,061 and $ 92,330 for the three-month periods ended June 30, 2021 and 2020, respectively.

Depreciation and amortization related to property and equipment was $ 92,372 and $ 93,051 for the three-month periods ended December 31, 2021 and 2020, respectively.

The corporate airplanes are utilized primarily in support of product development.

The Pilatus PC-12 airplane, one of the Company’s two corporate airplanes, has been depreciated to its estimated salvage value.

Depreciation and amortization related to property and equipment was approximately $ 278,956 and $ 286,584 for the nine-month periods ended June 30, 2021 and 2020, respectively.

Other assets consist of the following:

September 30,

Intangible assets, net of accumulated amortization of $ 632,969 and $ 583,655 at June 30, 2021 and September 30, 2020, respectively

Intangible assets, net of accumulated amortization of $ 634,032 at December 31, 2021 and September 30, 2021

Operating lease right-of-use asset

1 unchanged sentence

Intangible assets consist of licensing and certification rights which are amortized over a defined number of units.

No impairment charges were recorded in the nine-month periods ended June 30, 2021 and 2020.

Intangible asset amortization expense was approximately $ 16,841 and $ 0 for the three-month periods ended June 30, 2021 and 2020, respectively.

Intangible asset amortization expense was approximately $ 49,314 and $ 4,800 for the nine-month periods ended June 30, 2021 and 2020, respectively.

No impairment charges were recorded in the three-month periods ended December 31, 2021 and 2020.

Intangible asset amortization expense was $ 0 and $ 19,914 for the three-month periods ended December 31, 2021 and 2020, respectively.

The timing of future amortization expense is not determinable because the intangible assets are being amortized over a defined number of units.

Other non-current assets as of June 30, 2021 and September 30, 2020 include the security deposit for an airplane hangar and a deposit for medical claims required under the Company’s medical plan.

In addition, other non-current assets as of June 30, 2021 and September 30, 2020 includes $ 10,286 and $ 16,266 , respectively, of prepaid software licenses that will be earned upon the shipment of a certain product to a customer.

Other non-current assets amortization expense was approximately $ 2,870 and $ 4,067 for the threemonth periods ended June 30, 2021 and 2020, respectively.

Other non-current assets amortization expense was approximately $ 5,980 and $ 10,166 for the nine-month periods ended June 30, 2021 and 2020, respectively.

Other non-current assets as of December 31, 2021 and September 30, 2021 include the security deposit for an airplane hangar and a deposit for medical claims required under the Company’s medical plan.

In addition, other non-current assets as of December 31, 2021 and September 30, 2021 includes $ 4,545 and $ 7,535 , respectively, of prepaid software licenses that will be earned upon the shipment of a certain product to a customer.

Other non-current assets amortization expense was $ 2,990 and $ 717 for the three-month periods ended December 31, 2021 and 2020, respectively.

Accrued expenses

4 unchanged sentences

Operating lease

Warranty cost and accrual information for the three- and nine-month periods ended June 30, 2021 is highlighted below:

Warranty cost and accrual information for the three-month period ended December 31, 2021 is highlighted below:

Three Months Ending

Nine Months Ending

June 30, 2021

December 31, 2021

Warranty accrual, beginning of period

2 unchanged sentences

Warranty accrual, end of period

In March 2020, the CARES Act was signed into law providing numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of NOLs.

Approximately $ 1,500,000 of pre-tax NOL was carried back two years to fully offset taxable income.

This carryback frees up previously utilized R&D credits, resulting in an estimated increase in R&D credit carryforward of $ 196,000 .

The carryback created approximately $ 16,000 of AMT tax, which was refunded.

The cash impact of this carryback was $ 309,412 .

A receivable was setup for this amount as of March 31, 2020 and the cash has since been received.

On December 27, 2020, the CAA was enacted as a supplement to the CARES legislation providing additional financial relief to taxpayers adversely impacted by restrictions put into place in response to the COVID-19 pandemic.

In addition, the CCA provides funding for public health initiatives in response to the pandemic.

This legislation does not have a material impact on the Company's tax position.

On March 11, 2021, the ARPA, which includes certain business tax provisions, was signed into law.

The Company does not expect the ARPA to have a material impact on Company’s effective tax rate or income for fiscal year ending on September 30, 2021.

The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets.

The income tax benefit for the three-month period ended June 30, 2021 was $ 1,473,014 as compared to an income tax expense of $ 8,616 for the three-month period ended June 30, 2020.

The effective tax benefit rate for the three-month period ended June 30, 2021 was 121.4 % and differs from the statutory tax rate primarily due to the release of the valuation allowance for deferred tax assets.

This release both increased the deferred tax asset and removed the valuation allowance.

The effective tax benefit rate for the three-month period ended June 30, 2020, was 0.7 % and differs from the statutory tax rate primarily due to the utilization of NOL’s against the increase in pretax book income.

The utilization of this NOL results in a reduction to the corresponding valuation allowance.

Prior to the NOL utilization, this deferred tax asset was fully reserved as its benefit was previously uncertain.

For the three months ended June 30, 2020, the valuation allowance decreased by approximately $ 243,000 .

The income tax benefit for the nine-month period ended June 30, 2021 was $ 1,443,352 as compared to an income tax benefit of $ 300,786 for the nine-month period ended June 30, 2020.

The effective tax benefit rate for the nine-month period ended June 30, 2021 was 69.0 % and differs from the statutory tax rate primarily due to the release of the valuation allowance for deferred tax assets.

This release both increased the deferred tax asset and removed the valuation allowance.

The effective tax benefit rate for the nine-month period ended June 30, 2020 was 17.4 % and differs from the statutory tax rate primarily due to the income tax benefit associated with the NOL carryback provisions under the CARES Act.

The utilization of this NOL results in a reduction to the corresponding valuation allowance.

Prior to the NOL utilization, this deferred tax asset was fully reserved as its benefit was previously uncertain.

For the nine-month period ended June 30, 2020, the valuation allowance decreased by approximately $ 437,000 .

The income tax expense for the three-month period ended December 31, 2021 was $ 307,490 as compared to an income tax expense of $ 9,497 for the three-month period ended December 31, 2020.

The effective tax rate for the three-month period ended December 31, 2021 was 21.3 % and differs from the statutory tax rate primarily due to permanent items and state taxes.

The effective tax rate for the three-month period ended December 31, 2020 was 3.8 % and differs from the statutory tax rate primarily due to net operating loss realization due to an increase in pretax book income and the release of the valuation allowance.

This loss utilization both decreased the deferred tax asset and the valuation allowance.

For the three-month period ended December 31, 2020, the valuation allowance decreased by approximately $ 40,000 .

Shareholders’ Equity and Share-Based Payments

At June 30, 2021, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue 75,000,000 shares of common stock and 10,000,000 shares of preferred stock.

At December 31, 2021, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue 75,000,000 shares of common stock and 10,000,000 shares of preferred stock.

Share-Based compensation

The Company accounts for share-based compensation under the provisions of ASC Topic 718 by using the fair value method for expensing stock options and stock awards.

Total share-based compensation expense was $ 45,084 and $ 0 for the three-month periods ended June 30, 2021 and 2020, respectively.

Total share-based compensation expense was $ 295,249 and $ 159,992 for the nine-month periods ended June 30, 2021 and 2020, respectively.

Compensation expense related to share-based awards is recorded as a component of selling, general and administrative expenses.

The Company has two share-based compensation plans:

(1) the 2009 Stock-Based Incentive Compensation Plan (the “2009 Plan”), which terminated with respect to the grant of any new awards on January 20, 2019, and (2) the 2019 Stock-Based Incentive Compensation Plan (the “2019 Plan”).

The 2009 Plan and the 2019 Plan were approved by the shareholders on March 12, 2009 and April 2, 2019, respectively.

2009 Stock-Based Incentive Compensation Plan

The 2009 Plan authorized the grant of stock appreciation rights, restricted stock, options, RSUs and other equity-based awards.

Options granted under the 2009 Plan may be either “incentive stock options” as defined in section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options, as determined by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”).

Subject to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution, or other similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2009 Plan was 1,200,000 , all of which could be issued pursuant to awards of incentive stock options.

In addition, the 2009 Plan provided that no more than 300,000 shares of common stock per year may be awarded to any employee as a performance-based award under Section 162(m) of the Code.

The 2009 Plan terminated on January 20, 2019 with respect to the grant of any new awards.

If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and type of shares of common stock covered by awards then outstanding under the 2009 Plan, the number and type of shares of common stock available under the 2009 Plan, the exercise or grant price of any award, or if deemed appropriate, make provision for a cash payment with respect to any outstanding award, provided that no adjustment may be made that would adversely affect the status of any award that is intended to be a performance-based award under Section 162(m) of the Code, unless otherwise determined by the Compensation Committee.

In addition, the Compensation Committee may make adjustments in the terms and conditions of any awards, including any performance goals, in recognition of unusual or nonrecurring events affecting the Company or any subsidiary, or in response to changes in applicable laws, regulations or accounting principles, provided that no adjustment may be made that would adversely affect the status of any award that is intended to be a performance-based award under Section 162(m) of the Code, unless otherwise determined by the Compensation Committee.

The compensation expense related to options issued to employees under the 2009 Plan was $ 0 for each of the three- and nine-month periods ended June 30, 2021 and 2020.

The compensation expense under the 2009 Plan related to shares issued to non-employee members of the Company’s Board of Directors (the “Board”) was $ 0 for each of the three- and nine-month periods ended June 30, 2021 and 2020, respectively.

Total compensation expense associated with the 2009 Plan was $ 0 for each of the three- and nine-month periods ended June 30, 2021 and 2020, respectively.

At June 30, 2021, no unrecognized compensation expense, net of forfeitures, related to non-vested stock options under the 2009 Plan, will be recognized.

Total share-based compensation expense was $ 45,591 for the three-month periods ended December 31, 2021 and 2020, respectively.

2019 Stock-Based Incentive Compensation Plan

The 2019 Plan was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders held on April 2, 2019.

The 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options and other equity-based awards.

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In addition, the 2019 Plan provides that no more than 300,000 shares may be awarded in any calendar year to any employee.

On August 27, 2020, 100,000 stock options were granted to Relland M.

On August 27, 2020, 100,000 stock options have been granted to Relland M.

Winand, the Company’s Chief Financial Officer, under the 2019 Plan.

As of June 30, 2021, there were 689,147 shares of common stock available for awards under the 2019 Plan.

As of December 31, 2021, there were 689,147 shares of common stock available for awards under the 2019 Plan.

If any award is forfeited, terminates or otherwise is settled for any reason without an actual distribution of shares to the participant, the related shares of common stock subject to such award will again be available for future grant.

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The compensation expense related to options issued to employees under the 2019 Plan was $ 45,084 and $ 135,269 for the three-and nine-month periods ended June 30, 2021, respectively.

The compensation expense related to options issued to employees under the 2019 Plan was $ 0 for each of the three- and nine-month periods ended June 30, 2020, respectively.

The compensation expense under the 2019 Plan related to shares issued to non-employee members of the Board was $ 0 for the three-month periods ended June 30, 2021 and 2020, and $ 159,980 and $ 159,992 for the nine-month periods ended June 30, 2021 and 2020, respectively.

Total compensation expense associated with the 2019 Plan was $ 45,084 and $ 295,249 for the three-and nine-month periods ended June 30, 2021, respectively.

Total compensation expense associated with the 2019 Plan was $ 0 and $ 159,992 for each of the three-and nine-month periods ended June 30, 2020, respectively.

At June 30, 2021, unrecognized compensation expense of approximately $ 210,094 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized.

The compensation expense under the 2019 Plan related to options issued to employees was $ 45,591 and $ 45,591 for the three-month periods ended December 31, 2021 and 2020, respectively.

The compensation expense under the 2019 Plan related to shares issued to non-employee members of the Board was $ 0 for the three-month periods ended December 31, 2021 and 2020, respectively.

Total compensation expense associated with the 2019 Plan was $ 45,591 and $ 45,591 for the three-month periods ended December 31, 2021 and 2020, respectively.

At December 31, 2021, unrecognized compensation expense of approximately $ 118,422 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized.

Earnings Per Share

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Basic weighted average shares

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The number of incremental shares from the assumed exercise of stock options and RSUs is calculated by using the treasury stock method.

As of June 30, 2021 and 2020, there were 100,000 and 548,500 options to purchase common stock outstanding, respectively, and no shares subject to vesting of restricted stock units outstanding, respectively.

As of December 31, 2021 and 2020, there were 100,000 and 104,500 options to purchase common stock outstanding, respectively, and no shares subject to vesting of restricted stock units outstanding, respectively.

The average outstanding diluted shares calculation excludes options with an exercise price that exceeds the average market price of shares during the period.

For the three-month period ended June 30, 2021 and 2020, respectively, 100,000 and 0 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

For the nine-month period ended June 30, 2021 and 2020, respectively, 100,000 and 0 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

For the three-month periods ended December 31, 2021 and 2020, respectively, 100,000 and 100,000 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

Contingencies

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The Company does not believe any such matters that are currently pending will, individually or in the aggregate, have a material effect on the results of operations or financial position.

On October 1, 2019, we adopted ASU 2016-02.

This pronouncement requires lessees to record "right-of-use"

assets and corresponding lease liabilities on the balance sheet for most leases.

As part of our adoption, we elected to utilize the package of practical expedients permitted under the new standard, which allowed us to not reassess:

(a) whether an existing contract is or contains a lease, (b) the classification for existing leases and (c) initial direct costs.

Further, as permitted by the standard, we made an accounting policy election not to record right-of-use assets or lease liabilities for leases with an initial term of 12 months or less.

Instead, consistent with previous accounting guidance, we will recognize payments for such leases in the statement of operations on a straight-line basis over the lease term.

The Company accounts for leases in accordance with ASU 2016-02 and records “right-of-use” assets and corresponding lease liabilities on the balance sheet for most leases with an initial term of greater than one year.

Consistent with previous accounting guidance, we will recognize payments for leases with a term of less than one year in the statement of operations on a straight-line basis over the lease term.

We lease real estate and equipment under various operating leases.

A lease exists when a contract or part of a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

In determining whether a lease exists,

we consider whether a contract provides us with both:

In determining whether a lease exists, we consider whether a contract provides us with both:

(a) the right to obtain substantially all of the economic benefits from the use of the identified asset and (b) the right to direct the use of the identified asset.

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This election has been made for each of our asset classes.

The measurement of "right-of-use"

assets and lease liabilities requires us to estimate appropriate discount rates.

The measurement of “right-of-use” assets and lease liabilities requires us to estimate appropriate discount rates.

To the extent the rate implicit in the lease is readily determinable, such rate is utilized.

1 unchanged sentence

In these instances, we utilize an incremental borrowing rate, which represents the rate of interest that we would pay to borrow on a collateralized basis over a similar term.

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheet as of June 30, 2021:

Classification on the Consolidated Balance Sheet on June 30, 2021

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheet as of December 31, 2021:

Classification on the Consolidated Balance Sheet on December 31, 2021

Operating leases

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Total lease liabilities

Rent expense and cash paid for various operating leases in aggregate are $ 3,669 and $ 45,542 for the three- and nine-month periods ended June 30, 2021.

The weighted average remaining lease term is 0.2 years and the weighted average discount rate is 5.0 % as of June 30, 2021.

Future minimum lease payments under operating leases are as follows at June 30, 2021:

Rent expense and cash paid for various operating leases in aggregate are $ 3,669 for the three-month period ended December 31, 2021.

The weighted average remaining lease term is 2.9 years and the weighted average discount rate is 5.0 % as of December 31, 2021.

Future minimum lease payments under operating leases are as follows at December 31, 2021:

Twelve Months

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements