What changed in this filing

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Item 1. Business

2022-12-16 compared with 2021-12-22 · 48 added, 57 removed, 326 unchanged (24% of the section changed)

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The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles and cockpit display systems for retrofit applications and original equipment manufacturers (“OEMs”).

The Company supplies integrated Flight Management Systems (“FMS”), Flat Panel Display Systems (“FPDS”), FPDS with Autothrottle, air data equipment, Integrated Standby Units (“ISU”), ISU with Autothrottle and advanced Global Positioning System (“GPS”) receivers that enable reduced carbon footprint navigation.

The Company supplies integrated Flight Management Systems (“FMS”), Flat Panel Display Systems (“FPDS”), FPDS with Autothrottle, air data equipment, Integrated Standby Units (“ISU”), Standby ISU with Autothrottle Systems and advanced GPS receivers that enable reduced carbon footprint navigation.

The Company has continued to position itself as a system integrator, which capability provides the Company with the potential to generate more substantive orders over a broader product base.

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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.

For several years the Company has been working with advances in technology to provide pilots with more information to enhance both the safety and efficiency of flying, and has developed its COCKPIT/IP® Cockpit Information Portal (“CIP”) product line, that incorporates proprietary technology, low cost, reduced power consumption, decreased weight, and increased functionality.

For several years the Company has been working with advances in technology to provide pilots with more information to enhance both the safety and efficiency of flying and has developed its COCKPIT/IP® Cockpit Information Portal (“CIP”) product line, that incorporates proprietary technology, lower cost relative to the competition, reduced power consumption, decreased weight, and increased functionality.

The Company has incorporated Electronic Flight Bag (“EFB”) functionality, such as charting and mapping systems, into its FPDS product line.

The Company has developed an FMS that combines the savings long associated with in-flight fuel optimization in enroute flight management combined with the precision of satellite-based navigation required to comply with the regulatory environments of both domestic and international markets.

The Company believes that the FMS, alongside its FPDS and CIP product lines, is well suited to address market demand driven by certain regulatory mandates, new technologies, and the high cost of maintaining aging and obsolete equipment on aircraft that will be in service for up to fifty years.

The shift in the regulatory and technological environment is illustrated by the dramatic increase in the number of Space Based Augmentation System (“SBAS”) or Wide Area Augmentation System (“WAAS”) approach qualified airports, particularly as realized through Localizer Performance with Vertical guidance (“LPV”) navigation procedures.

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The NextGen enhanced avionics suite is available for integration into other business aircraft with Non-FADEC and FADEC engines.

The Company has developed, and in April 2019 received certification from the FAA for, its ThrustSense® Autothrottle for retrofit in the King Air, dual turbo prop PT6 powered aircraft.

The Company has developed its FAA-certified ThrustSense® Autothrottle for retrofit in the King Air, dual turbo prop PT6 powered aircraft.

The autothrottle is designed to automate the power management for speed and power control including go-around.

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ThrustSense® is also available for retrofit on King Airs through Textron service centers and third-party service centers.

More recently, on December 9, 2019, the Company received certification from the FAA for a safety mode feature during an engine-out condition for its King Air ThrustSense® Autothrottle.

LifeGuard™ provides critical Vmc a protection that proportionally reduces engine power to maintain directional control.

The Company has also developed an FAA-certified safety mode feature for its King Air ThrustSense® Autothrottle, LifeGuard™, which provides critical Vmc a protection that proportionally reduces engine power to maintain directional control during an engine-out condition.

We believe the ThrustSense® Autothrottle is innovative in that it is the first autothrottle developed for a turbo prop that allows a pilot to automatically control the power setting of the engine.

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The Company believes that aircraft cockpits will become more complete information centers, capable of delivering additional information that is either mandated by regulation or demanded by pilots to assist in the safe and efficient operation of aircraft.

The flight deck will continue to adapt technologies which are stepping-stones for complete autonomy.

The Company believes that the market will continue to embrace the initial phases of autonomous flight.

The Company classifies flight data into four general types:

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Flight critical aircraft control information includes engine data, such as fuel and oil quantity, and other engine measurements.

Navigation data includes radio position, flight management, GPS, and alternative source information (i.e.

information not originating on the aircraft, including weather depiction maps, GPS navigation, and surface terrain maps).

Maintenance and aircraft health data includes on-board sensors and programs to measure parameters related to the health of a system

on the aircraft.

Navigation data includes radio position, flight management, GPS, and alternative source information (i.e., information not originating on the aircraft, including weather depiction maps, GPS navigation, and surface terrain maps).

Maintenance and aircraft health data includes on-board sensors and programs to measure parameters related to the health of a system on the aircraft.

Air data calculations are based primarily on air pressure measurements derived from sensors on the aircraft.

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Key elements of the Company’s strategy include:

● Introduction of Autothrottle to General Aviation Market.

● Continue to drive the market toward the performance, situational awareness and safety advantages of equipping the ThrustSense ® autothrottles on both aftermarket and OEM aircraft .

IS&S saw the lack of an available autothrottle system on turboprop aircrafts as an unmet need in the marketplace and has invested in the development of a sophisticated turboprop autothrottle.

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IS&S intends to continue to capitalize on being the first to market and introduce the product to owners and operators of turboprop aircraft.

● Introduction of Autothrottle STC Installations :

IS&S supplemented the ThrustSense ® Autothrottle offering by seeking FAA approval to perform autothrottle installations.

The FAA approved IS&S to perform PC-12 and King Air STC installations in June 2022 as the date certified to perform installations.

IS&S can now go directly to an autothrottle customer location and perform the STC installation on site.

● Focusing on retrofits.

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● Expand presence in the flat panel display market.

Due to recent demand from cargo operators, IS&S expects that many aircraft will be retrofitted with flat panel displays over the next several years.

Due to recent demand from cargo operators, IS&S believes that many aircraft will be retrofitted with flat panel displays over the next several years.

Given the versatility, visual appeal, and lower cost of displaying a series of instruments and other flight relevant information on a single flat panel, the Company believes that flat panel displays will increasingly replace individual analog and digital instrument LCDs and CRTs.

believes that the COCKPIT/IP ® has significant benefits over competitive flat panel displays, including lower cost, larger size, reduced weight, enhanced viewing angles, and a broader array of functions.

The Company believes that the COCKPIT/IP ® has significant benefits over competitive flat panel displays, including lower cost, larger size, reduced weight, enhanced viewing angles, and a broader array of functions.

The Company’s patented and proprietary Integrity Checking Processor and Zooming features provide increased situational awareness, reliability, performance, and utility to the owner/operator.

Accordingly, the Company believes that these advantages will allow IS&S to generate significant revenues from the COCKPIT/IP ® product, and to increase market share.

In addition, demand for new aircraft, FAA mandates and obsolescence issues on older aircraft will contribute to this growth.

In addition, the Company believes that demand for new aircraft, FAA mandates and obsolescence issues on older aircraft will contribute to this growth.

● Continuing engineering and product development successes.

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IS&S obtained approval from the European Union Aviation Safety Agency (“EASA”) for installing the FPDS in Europe for the B757/B767 aircraft and expects to obtain EASA approvals for other European aircraft types.

In addition, the King Air ThrustSense ® Autothrottle system is currently certified by most foreign civil aviation authorities;

including EASA, TCCA, UK-CAA, and CAAC

Current lines of products include:

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The flat panel product line offers numerous advantages for presentation of engine performance data.

During fiscal years 2021, 2020 and 2019, revenues related to FPDS accounted for 88%, 80% and 90%, respectively, of total sales.

The Company’s FPDS can replace conventional analog and digital displays and can display additional information which is not commonly displayed in the cockpit with conventional analog and digital displays.

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These air data products utilize advanced sensors to gather air pressure data and customized algorithms to interpret data, thus allowing the system to calculate altitude more accurately.

During fiscal 2021, 2020, and 2019, sales of air data systems and components accounted for 12%, 20% and 10%, respectively, of total sales.

IS&S sells individual components and partial and complete air data systems.

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Engine and fuel displays tend to be replaced more frequently than other displays and have been slow to incorporate new technology since their introduction because of their low cost, standard design and universal use.

IS&S believes that its air data engine and fuel displays are extremely reliable, have been designed to be programmable, and are adaptable easily without major modification to most modern aircraft.

IS&S believes that its air data engine and fuel displays are extremely reliable, have been designed to be programmable, and are easily adaptable without major modification to most modern aircraft.

These products have been installed on B727, B737, C-130H, DC-9, DC-10, P-3, F-16 and A-10 aircraft.

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In addition the ISU calculates, processes and displays altitude, attitude, airspeed, slip/skid, and navigation display information, which IS&S believes is presented in a logical and concise single instrument display.

It features a high

resolution LCD display with full LED backlighting, thereby improving reliability and full sunlight readability to the pilot, and fully anti-aliased graphics.

IS&S believes the autothrottle retrofit and standby are easily installed, and typical installation can take less than a day with minimum modifications to the existing flight deck.

It features a high- resolution LCD display with full LED backlighting, thereby improving reliability and full sunlight readability to the pilot, and fully anti-aliased graphics.

IS&S believes the autothrottle retrofit and standby are easily installed, and typical installation can take less than a week with minimum modifications to the existing flight deck.

Other potential benefits of the ThrustSense® Autothrottle include:

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The system provides a significant power and weight saving over the use of federated boxes and utilizes the latest IS&S technological advancements in avionics circuit design.

The Company’s customers include the United States government (including DoD, the Department of Interior and the Department of Homeland Security), American Airlines, Inc.

(“AAL”), Boeing, Deutsche Post DHL Group (“DHL”), FedEx Corporation (“FedEx”), Icelandair, Amazon.com, Inc., L3Harris Technologies, Inc., Lockheed Martin Corporation, Pilatus, Sierra Nevada Corporation (“Sierra Nevada”), and the Department of National Defense (Canada), among others.

The Company’s customers include the United States government (including DoD, the Department of Interior and the Department of Homeland Security), Air Transport Services Group Inc.

(“ATSG”), Amazon.com, Inc., American Airlines, Inc.

(“AAL”), Boeing, Deutsche Post DHL Group (“DHL”), FedEx Corporation (“FedEx”), Icelandair, L3Harris Technologies, Inc., Lockheed Martin Corporation, Pilatus, Sierra Nevada Corporation (“Sierra Nevada”), Textron, and the Department of National Defense (Canada), among others.

The Company’s revenue is concentrated with a limited number of customers.

In fiscal year 2022, the three largest customers, Pilatus, ATSG and Textron accounted for 22%, 11% and 11% of total revenue, respectively.

In fiscal year 2021, the two largest customers, Pilatus and Textron accounted for 20% and 17% of total revenue, respectively.

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Brown, Inc., and Kalitta Air accounted for 33%, 12% and 10% of total revenue, respectively.

In fiscal year 2019, the two largest customers, Pilatus and Air Transport Services Group Inc.

accounted for 25% and 14% of total revenue, respectively.

Retrofit Market

Historically, a majority of the Company’s sales have come from the retrofit market, which IS&S has pursued because of its continued growth in response to the need to support the world’s aging fleet of aircraft.

Historically, most of the Company’s sales have come from the retrofit market, which IS&S has pursued because of its continued growth in response to the need to support the world’s aging fleet of aircraft.

The design and airframe structure of many types of older aircraft generally exceeds the technology and technical capabilities of the original cockpit instruments and avionics.

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The Company sells its products to aircraft operators, including commercial airlines, cargo carriers, and business and general aviation aircraft owners or suppliers, primarily for retrofitting of aircraft owned or operated by these customers.

The Company’s commercial fleet customers include or have included, among others, AAL, ABX Air, FedEx and Icelandair.

The Company’s commercial fleet customers include or have included, among others, AAL, ATSG, FedEx and Icelandair.

IS&S sells these customers a range of products from FPDS to air data systems.

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Aircraft modification centers, which repair and retrofit private aircraft, represent the primary retrofit market for private and corporate jets.

IS&S has established relationships with a number of aircraft modification centers throughout the United States, which act as distribution outlets and installation centers for the Company’s products.

IS&S has established relationships with a several aircraft modification centers throughout the United States, which act as distribution outlets and installation centers for the Company’s products.

Original Equipment Manufacturers

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Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders.

The year over year increase of $5.5 million was the result of booking of $28.5 million in net new business, offset by $23.0 million in recognized revenue.

FPDS backlog as of September 30, 2021, increased $5.5 million from September 30, 2020, and air data product backlog as of September 30, 2021, increased by $0.0 million from September 30, 2020.

The backlog excludes potential future sole-source production orders from products developed under the Company’s EDC programs, including the Pilatus PC-24, the KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs.

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R&D charges incurred for product design, product enhancements, and future product development are expensed as incurred.

Product development and design charges related to specific customer contracts are charged to cost of sales-EDC based on the method of contract accounting (either percentage-of-completion or completed contract) applicable to such contracts.

Product development and design charges related to specific customer contracts are charged to cost of sales-EDC based on the method of contract accounting (either recognized over time or at a point in time) applicable to such contracts.

Sales and Marketing

IS&S focuses its sales efforts on passenger and cargo carrying aircraft operators, general aviation operators, aircraft modification centers, the DoD, DoD contractors, and OEMs.

IS&S focuses its sales efforts on passenger and cargo carrying aircraft operators, general aviation owner/operators, MRO/dealer networks, distributors, avionics integrators, aircraft modification centers, the DoD, DoD contractors, and OEMs.

Periodically, the Company evaluates its sales and marketing efforts with respect to these focus areas and, where appropriate, makes use of third-party sales representatives who receive compensation through commissions based on performance.

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We have established a dealer network for ThrustSense®, and we are in the process of exploring adding more MRO dealerships in the United States and internationally.

Our marketing efforts have focused on applicable markets using email campaigns, advertisements, trade shows, web casts, direct mailers, digital and social media.

Our marketing efforts have focused on applicable markets establishing and maintaining key customer rapport using email campaigns, key market influencers, advertisements, trade shows, web casts, direct mailers, digital and social media.

Our Autothrottle offering on the Pilatus PC-12 and King Air have been favorably featured in multiple articles in major publications over the past several years.

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The Company offers customers extended warranties of varying lengths beyond the two years for additional fees.

The majority of the Company’s sales, personnel and assets are within the United States.

The Company believes its ability to provide an installation service is critical to its marketing efforts.

The Company’s Repair Station provides a mobile STC Installation Team to install the PC-12 and King Air ThrustSense® Autothrottle systems beginning in June 2022.

Most of the Company’s sales, personnel and assets are located within the United States.

In fiscal years 2022, 2021 and 2020 net sales outside the United States amounted to $11.1 million, $8.4 million and $9.4 million, respectively.

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Both the IS&S manufacturing facility and the IS&S repair station are FAA-certified.

The most significant product and installation regulations are Technical Standard Orders (“TSOs”) and STCs, which establish the minimum operational performance standards.

The most significant product and installation regulations are Technical Standard Orders (“TSOs”), Parts Manufacturer Approvals (“PMA”), and STCs, which establish the minimum operational performance standards.

For example, in April 2019, the FAA issued its TSO authorization and STC for the Company’s ThrustSense® Autothrottle for retrofit in the King Air dual prop PT6 powered aircraft.

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The Company’s manufacturing activities consist primarily of assembling and testing components and subassemblies and integrating them into finished systems.

Typically, the Company purchases components for products, including any necessary raw materials, from third-party suppliers, a number of which are sole source, and assembles them in a clean room environment.

Typically, the Company purchases components for products, including any necessary raw materials, from third-party suppliers, several of which are sole source, and assembles them in a clean room environment.

Many of the components purchased are standard products, although certain parts are made to the Company’s specifications.

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The market for the Company’s products is highly competitive.

Competitors vary in size and resources, and substantially all of the Company’s competitors are much larger than IS&S and have substantially greater resources.

Competitors vary in size and resources, and substantially all the Company’s competitors are much larger than IS&S and have substantially greater resources.

With respect to air data systems and related products, the Company’s principal competitors include Honeywell International Inc., Collins Aerospace, Thales Defense & Security, Inc., and Garmin Ltd.

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We also offer competitive salaries and generous benefits, including vacation, a 401(k) savings and retirement plan, health, dental, life, long-term disability insurance, an Employee Assistance Program (“EAP”), and health and dependent Flexible Spending Account programs.

Additionally, we regularly review and reevaluate our recruitment strategies in order to ensure our practices align with our mission, purpose, and values.

Additionally, we regularly review and reevaluate our recruitment strategies to ensure our practices align with our mission, purpose, and values.

Nevertheless, competition for such qualified personnel is intense, and the Company may not be able to attract, train, and retain highly qualified personnel in the future.

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The following is a list of the Company’s executive officers, their ages and their positions in each case.

Chairman of the Board and Chief Executive Officer

Shahram Askarpour

Director and Chief Executive Officer

Michael Linacre

Chief Financial Officer

Hedrick was the Chief Executive Officer from the time he founded the Company in February 1988 through June 4, 2007 and was reappointed as Chief Executive Officer on September 8, 2008.

He has been Chairman of the Board since 1997.

Prior to founding IS&S, Mr.

Hedrick served as President and Chief Executive Officer of Smiths Industries North American Aerospace

He founded Harowe Systems, Inc.

in 1971, which was subsequently acquired by Smiths Industries.

Hedrick has over 40 years of experience in the avionics industry, and he holds a number of patents in the electronics, optoelectric, electromagnetic, aerospace, and contamination control fields.

Shahram Askarpour has been President since April 2012.

Shahram Askarpour has been the CEO since April of 2022.

Askarpour joined the Company as a Director of Engineering in 2003, was promoted to Vice President of Engineering in 2005, and was promoted to President on April 2, 2012.

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In addition, he has completed management courses at Carnegie Mellon University and finance courses at the Wharton Business School.

Winand has been the Company’s Chief Financial Officer since December 15, 2014.

Winand has served in a number of executive financial capacities with public companies including Chief Financial Officer of ECC International, Corp, a manufacturer of computer controlled maintenance simulators primarily for the Department of Defense, and Vice President Finance and Administration of Traffic.com, Inc.

a leading provider of accurate, real-time traffic information in the United States.

Prior to joining Innovative Solutions and Support, Inc., from 2008 to 2013, Mr.

Winand was Chief Financial Officer of Orbit/FR, Inc., an international developer and manufacturer of sophisticated microwave test and measurement systems for aerospace/defense, wireless, satellite and automotive industries.

From January 2014 until August 2014, Mr.

Winand served as a consultant for Solomon Edwards Group LLC.

He has over 30 years’ experience in financial management and reporting for both public domestic and international manufacturing companies.

Winand received a B.S.

in Accounting from Drexel University and an M.B.A.

in Finance from Widener University.

Michael Linacre has been the CFO since July of 2022.

Prior to joining IS&S in 2022, Mr.

Linacre, worked as a public accountant and auditor at KPMG LLP.

He also held finance leadership positions at Genpak, LLC, a food service packaging company, and SI Group, Inc., a chemical manufacturing company, before serving as the Chief Financial Officer of Sysco Albany, LLC, a subsidiary of Sysco Corporation, a public multinational seller, marketer, and distributor of food products, Mr.

Linacre is a licensed CPA and a member of the American Institute of CPAs and the New York State Society of CPAs.

He received his Bachelor’s degree in Accounting from the State University of New York at Albany.

The SEC maintains a website that contains annual, quarterly, and current reports, proxy statements and information statements, and other information about issuers, including IS&S, that file electronically with the SEC.

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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-K

Item 1. Business