What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-12-16 compared with 2021-12-22 · 75 added, 136 removed, 618 unchanged (25% of the section changed)

4 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm PCAOB ID Number 248

Consolidated Balance Sheets

21 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

14 unchanged sentences

Cash and cash equivalents

Restricted cash

Accounts receivable

Contract asset

Prepaid expenses and other current assets

5 unchanged sentences

Accounts payable

Dividends payable

Accrued expenses

Contract liability

Contract liability - related party

Total current liabilities

Deferred income taxes

Other liabilities

9 unchanged sentences

( 5,882,820 )

( 2,340,530 )

Treasury stock, at cost, 2,096,451 shares at September 30, 2022 and at September 30, 2021

3 unchanged sentences

Total liabilities and shareholders’ equity

Working Capital

The accompanying notes are an integral part of these statements.

23 unchanged sentences

( 21,368,537 )

Issuance of stock to directors

Balance, September 30, 2019

( 21,368,537 )

Share-based compensation

17 unchanged sentences

( 21,368,537 )

Share-based compensation

Exercise of stock options

Issuance of stock to directors

Balance, September 30, 2022

( 21,368,537 )

The accompanying notes are an integral part of these statements.

7 unchanged sentences

Stock options

Gain on disposal of property and equipment

( 1,191,743 )

Excess and obsolete inventory cost

11 unchanged sentences

Contract liability

Contract liability - related party

Net cash provided by operating activities

1 unchanged sentence

Purchases of property and equipment

Net cash (used in) investing activities

Proceeds from the sale of property and equipment

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

6 unchanged sentences

( 19,788,092 )

Net cash (used in) financing activities

Net cash provided by (used in) financing activities

( 19,771,082 )

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

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

( 15,519,261 )

13 unchanged sentences

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 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”), ISU with Autothrottle and advanced GPS receivers that enable reduced carbon footprint navigation.

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

6 unchanged sentences

Accounts receivable and contract assets related to those top five customers was $ 3.3 million, $ 2.1 million and $ 3.4 million as of September 30, 2022, 2021 and 2020, respectively.

The largest customer, Pilatus, accounted for 20 % of total revenue in fiscal year 2021, 33 % of total revenue in fiscal year 2020, and 25 % of total revenue in fiscal year 2019.

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.

In fiscal year 2020, the three largest customers, Pilatus, Dayton T.

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

Flat panel sales were 98 %, 88 % and 80 % of total sales in the years ended September 30, 2022, 2021 and 2020, respectively.

7 unchanged sentences

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

During fiscal 2022 the Company had three suppliers that accounted for 33.7 % of the Company’s total inventory related purchases.

During fiscal 2021 the Company had one supplier that accounted for 14.9 % of the Company’s total inventory related purchases.

During fiscal 2020 the Company had two suppliers that accounted for 32.8 % of the Company’s total inventory related purchases.

Concentration of Credit Risk

2 unchanged sentences

Cash balances are maintained with two major banks.

Balances on deposit with certain money market accounts and operating accounts may exceed

the Federal Deposit Insurance Corporation limits.

Balances on deposit with certain money market accounts and operating accounts may exceed the Federal Deposit Insurance Corporation limits.

The Company’s customer base consists principally of companies within the aviation industry.

2 unchanged sentences

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.

All inter-company balances and transactions have been eliminated in consolidation.

The Company’s condensed consolidated financial statements include the accounts of its wholly-owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

Impact of the COVID-19 Pandemic

The ongoing global outbreak of coronavirus, which was declared a pandemic by the World Health Organization on March 11, 2020 and a national emergency by the President of the United States on March 13, 2020, has caused and is continuing to cause business slowdowns and shutdowns and turmoil in the financial markets both in the United States and abroad.

IS&S is monitoring the impact of the COVID-19 pandemic on its business, including how it has impacted and will impact the Company's employees, customers, suppliers and distribution channels.

The Company has not yet seen a material impact from the COVID-19 pandemic on its business, financial position, liquidity, or ability to service customers or maintain critical operations.

However, some parts of the world are continuing to see a rise in COVID-19 cases and hospitalizations, and it is possible that new, more virulent strains or variants of COVID-19 may emerge and lead governments and private sectors to re-institute quarantine and trade restrictions, which could adversely impact market conditions.

IS&S will continue to monitor the impact of the COVID-19 pandemic on its business, including how it has impacted and will impact the Company’s employees, customers, suppliers and distribution channels.

The Company could face liquidity shortages, weaker product demand from its customers, disruptions in its supply chain, and/or staffing shortages in its workforce in the future due to the direct and indirect effects of the COVID-19 pandemic.

Use of Estimates

6 unchanged sentences

Cash equivalents at September 30, 2022 and 2021 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 consolidated balance sheets.

The Company did not pay dividends in fiscal 2019.

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.

As of September 30, 2021, the Company had $ 8.3 million in cash and cash equivalents and $ 0 in restricted cash.

Total cash and cash equivalents and restricted cash as of September 30, 2021, was $ 8.3 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.

Inventory Valuation

19 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, September 30, 2020 and September 30, 2019 reflect the application of ASC 606 guidance while the reported results for the fiscal years ended September 30, 2018 and September 30, 2017 were prepared under the guidance of ASC 605, “Revenue Recognition” (“ASC 605”), which is also referred to herein as “legacy GAAP” or the “previous 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.

2 unchanged sentences

The Company’s contract with its customers typically is the form of a purchase order issued to the Company by its customers and, to a lesser degree, in the form of a purchase order issued in connection with a formal contract executed with a customer.

For the purpose of accounting for revenue under ASC 606, a contract with a customer exists when (i) the Company enters into an enforceable contract

with a customer that defines each party's rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer's intent and ability to pay the promised consideration.

For the purpose of accounting for revenue under ASC 606, a contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

16 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 of our revenue for the fiscal year ended September 30, 2021 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.

Historically, the Company has also recognized revenue 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.

Contract costs include material, components and third-party avionics purchased from suppliers, direct labor, and overhead costs.

12 unchanged sentences

Therefore, no adjustment on any contract was material to our consolidated financial statements for the fiscal years ended September 30, 2022 and 2021.

Financial Statement Impact of Adopting ASC 606

The Company adopted ASC 606 using the modified retrospective method.

The adoption resulted in no adjustment to the Company’s retained earnings as of the adoption date, and there were no significant changes in the Company’s consolidated statements of operations for the fiscal year ended September 30, 2019 as a result of the adoption of ASC 606 on October 1, 2018 compared to if the Company had continued to recognize revenues under previous guidance.

Additionally, there was no change to the Company’s assets or liabilities as of September 30, 2019 as a result of the adoption of ASC 606 on October 1, 2018 compared to if the Company had continued to recognize revenues under previous guidance.

The adoption of ASC 606 had no impact on the Company’s cash flows from operations.

Contract Balances

1 unchanged sentence

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

The following table reflects the Company's contract liabilities:

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

September 30, 2021

Amount transferred to receivables from contract assets

Contract asset additions

Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period

9 unchanged sentences

Lease Recognition

On October 1, 2019, we adopted 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 16, "

Lease Recognition ,"

to the 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.

110 unchanged sentences

ASU 2016-13 is effective for SEC small business filers for fiscal years beginning after December 15, 2022.

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.

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

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

13 unchanged sentences

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

As of September 30, 2021, 2020 and 2019, there were 100,000 , 104,500 and 550,834 options to purchase common stock outstanding, respectively, and no shares subject to vesting of restricted stock units outstanding, respectively.

As of September 30, 2022, 2021 and 2020, there were 57,584 , 100,000 and 104,500 options to purchase common stock outstanding, respectively.

As of September 30, 2022, 2021 and 2020 , there were 7,886 , 0 and 0 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 fiscal year 2022, no options to purchase common stock were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.

For fiscal years 2021 and 2020, 100,000 shares, respectively were excluded from the calculation of earnings per share as their effect would be anti-dilutive.

For fiscal year 2019, all options to purchase common stock were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.

Prepaid Expenses and Other Current Assets

15 unchanged sentences

Depreciation related to property and equipment was approximately $ 358,837 , $ 373,068 and $ 387,617 in fiscal years 2022, 2021 and 2020, respectively.

The Pilatus PC-12 airplane, one of the Company’s two corporate airplanes, was sold during the quarter ended September 30, 2022 and the Company recognized a gain on sale of the aircraft of approximately $ 1,192,000 .

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.

Noncash investing activities involving property, plant and equipment comprise the abandonment of fully depreciated assets with an original cost and accumulated amortization of $ 34,656 , $ 416,626 and $ 15,430 in fiscal years 2022, 2021 and 2020, respectively.

35 unchanged sentences

In December 2020, the CAA was enacted as a supplement to the CARES Act 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.

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

This legislation did not have a material impact on the Company’s tax position.

20 unchanged sentences

Change in unrecognized tax benefits

123R cancellations and forfeitures

Tax Law Changes:

10 unchanged sentences

( 3,471,164 )

( 3,922,620 )

Total deferred tax assets

4 unchanged sentences

Net deferred tax asset (liability)

At September 30, 2021 and 2020, the Company had state NOL carryforwards of approximately $ 22,221,000 and $ 24,392,000 , respectively, which begin to expire in varying amounts after the fiscal year ending September 30, 2026.

The Company has federal R&D Tax Credit carryforwards of approximately $ 1,327,000 and $ 1,589,000 in fiscal 2021 and 2020, respectively, which begin to expire in varying amounts after fiscal year ending September 30, 2033.

At September 30, 2022 and 2021, the Company had state NOL carryforwards of approximately $ 19.7 and $ 22.2 million, respectively, which begin to expire in varying amounts after the fiscal year ending September 30, 2026.

The Company has federal R&D Tax Credit carryforwards of approximately $ 0 and $ 1.3 million in fiscal 2022 and 2021, respectively.

Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized.

3 unchanged sentences

Significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets.

The change in the valuation allowance for the period ended September 30, 2021 and September 30, 2020 was approximately $ 2,022,000 and $ 451,000 , respectively.

For the year ended September 30, 2021, the valuation allowance was released against all federal and state deferred tax assets with the exception of certain state net operating losses due to positive evidence that the assets are more likely than not to be realized in future years.

21 unchanged sentences

The Company sponsors a voluntary defined contribution savings plan covering all employees.

The Company made contributions of $ 123,000 , $ 112,000 and $ 96,000 for the fiscal years ended September 30, 2021, 2020 and 2019, respectively.

The Company made contributions of approximately $ 126,000 , $ 123,000 and $ 112,000 for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

Share-Based Compensation

1 unchanged sentence

Total share-based compensation expense was approximately $ 345,000 , $ 341,000 , and $ 177,000 for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

The income tax impact recognized as a credit to additional paid in capital in the statement of shareholders’ equity related to share-based compensation arrangements was approximately $ 181,000 , $ 17,000 and $ 0 for the fiscal years ended September 30, 2021, 2020 and 2019, respectively.

The income tax impact recognized as a credit to additional paid in capital in the statement of shareholders’ equity related to share-based compensation arrangements was $ 166,617 , $ 181,350 and $ 17,337 for the fiscal years ended September 30, 2022, 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.

2019 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.

Following is a summary of option activity under the 2009 Plan for the fiscal years ended September 30, 2021, 2020 and 2019, and changes during the periods then ended:

Outstanding at September 30, 2018

Outstanding at September 30, 2019

Outstanding at September 30, 2020

Outstanding at September 30, 2021

Vested and expected to vest

Options exercisable at September 30, 2021

The following table summarizes information about stock options under the 2009 Plan at September 30, 2021:

Options Outstanding

Options Exercisable

Range of Exercise

September 30,

As of September

Contractual Life

Exercise Price

$ 0.00 - $ 5.00

Fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.

Options are exercisable over a maximum term of ten years from date of grant and vest typically over periods of three to five years from the grant date.

The expected term of options represents the period of time that options granted are expected to be outstanding and is based on historical experience and the expected turnover rate of the employees receiving the options.

Expected volatility is based on historical volatility of the Company’s stock.

The risk free interest rate is based on U.S.

Treasuries with maturities consistent with the expected life of the options in effect at the time of grant.

Compensation expense for employee stock options includes an estimate for forfeitures and is recognized ratably over the vesting term.

The Company did not grant any options under the 2009 Plan in fiscal years 2021, 2020 and 2019.

Total compensation expense associated with stock option awards to employees under the 2009 Plan was $ 0 for each of the fiscal years ended September 30, 2021, 2020 and 2019, respectively.

Total share-based compensation expense associated with the annual grant of stock awards to non-employee directors under the 2009 Plan was approximately $ 0 , $ 0 and $ 173,000 for the fiscal years ended September 30, 2021, 2020 and 2019, respectively.

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

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.

2 unchanged sentences

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 have been granted to Relland M.

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

As of September 30, 2022, there were 653,836 shares of common stock available for awards under the 2019 Plan.

14 unchanged sentences

September 30,

As of September

September 30,

Contractual Life

18 unchanged sentences

Total compensation expense associated with stock option awards to employees under the 2019 Plan was approximately $ 164,000 , $ 181,000 and $ 17,000 for fiscal years ended September 30, 2022, 2021 and 2020, respectively.

At September 30, 2022, unrecognized compensation expense of $ 0 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized.

Restricted Stock Units

During fiscal 2021, the Company’s Board of Directors (the “Board”) approved grants of RSUs to the non-employee directors on the Board as compensation for their services during calendar year 2021.

Under the terms of the awards, at the conclusion of the vesting period on January 3, 2022, the grants of RSUs were settled in shares of the Company’s common stock at a rate of one share of stock for each unit, provided that if a director resigns from the Board prior to January 1, 2022, such director shall only receive a pro rata portion of such award for time served.

As of September 30, 2021, there were 25,396 unvested restricted stock units outstanding under the 2019 Plan, all of which were issued during the fiscal year ended September 30, 2022.

As of September 30, 2022, there were 32,897 unvested restricted stock units outstanding under the 2019 Plan.

Weighted Average

Balance at September 30, 2020

Balance at September 30, 2021

Balance at September 30, 2022

Total share-based compensation expense associated with the annual grant of stock awards to non-employee directors under the 2019 Plan was approximately $ 178,000 , $ 160,000 and $ 160,000 for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

At September 30, 2021, unrecognized compensation expense of approximately $ 164,013 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized.

Total share-based compensation expense associated with the annual grant of stock awards to employees under the 2019 Plan was approximately $ 3,000 , $ 0 and $ 0 for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

At September 30, 2022, unrecognized compensation expense of $ 97,954 , net of forfeitures, related to non-vested stock awards under the 2019 Plan, will be recognized.

Commitments and Contingencies

2 unchanged sentences

These amounts primarily comprise of open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the Company’s current order backlog.

The purchase obligations on open purchase orders were $ 2,115,971 , $ 853,123 and $ 1,082,928 as of September 30, 2021, 2020 and 2019, respectively.

The purchase obligations on open purchase orders were $ 2.6 million, $ 2.1 million and $ 0.9 million as of September 30, 2022, 2021 and 2020, respectively.

Product Liability

5 unchanged sentences

Related Party Transactions

The Company incurred legal fees of $ 0 , $ 15,000 and $ 8,000 for the fiscal years ended September 30, 2021, 2020 and 2019, respectively with a lawyer who is a shareholder of the Company.

In recent years, the Company has had sales to AML Global Eclipse, LLC, (“Eclipse”), whose principal shareholder is also a principal shareholder in the Company.

Eclipse is a new related party for fiscal year 2022 due to their president acquiring more than 10 % in shares on the company.

Prior balances are disclosed below for comparability.

Sales to Eclipse amounted to $ 0.6 million, $ 1.6 million and $ 0.1 million for the years ended September 30, 2022, 2021 and 2020, respectively.

As of September 30, 2022 and 2021, a contract liability to Eclipse was $ 0.1 million and $ 0.4 million, respectively.

Business Segments

8 unchanged sentences

Lease Recognition

On October 1, 2019, we adopted 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.

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.

We 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.

12 unchanged sentences

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 impact of the adoption of ASU 2016-02 on the balance sheet as of October 1, 2019 was:

September 30, 2019

October 1, 2019

Operating lease right-of-use assets

Operating lease liabilities

Total current liabilities

Operating lease liabilities non-current

Total liabilities

Total liabilities and equity

Rent expense and cash paid for various operating leases in aggregate are $ 103,000 for the periods ended September 30, 2021.

Rent expense and cash paid for various operating leases in aggregate are approximately $ 115,000 for the period ended September 30, 2022.

The weighted average remaining lease term is 2.2 years, and the weighted average discount rate is 5.0 % as of September 30, 2022.

Related assets and liabilities resulting from lease obligations are deemed to be immaterial.

Future minimum lease payments under operating leases are as follows at September 30, 2022:

8 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-K

Item 8. Financial Statements and Supplementary Data