What changed in this filing

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Item 1. Financial Statements

2023-02-14 compared with 2022-08-12 · 97 added, 171 removed, 374 unchanged (42% of the section changed)

1 unchanged sentence

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

September 30,

1 unchanged sentence

Cash and cash equivalents

Accounts receivable

Accounts receivables

Contract assets

Prepaid expenses and other current assets

Assets held for sale

Total current assets

6 unchanged sentences

Contract liability

Contract liability - related party

Total current liabilities

4 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, 2022 and September 30, 2021

No shares issued and outstanding at December 31, 2022 and September 30, 2022

Common stock, $ .001 par value:

75,000,000 shares authorized, 19,372,664 and 19,342,823 issued at June 30, 2022 and September 30, 2021

75,000,000 shares authorized, 19,470,248 and 19,412,664 issued at December 31, 2022 and September 30, 2022

Additional paid-in capital

(Accumulated deficit)

( 1,961,018 )

( 5,882,820 )

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

Retained Earnings (accumulated deficit)

Treasury stock, at cost, 2,096,451 shares at December 31, 2022 and September 30, 2022

( 21,368,537 )

4 unchanged sentences

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Nine Months Ended June 30,

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended December 31,

Engineering development contracts

10 unchanged sentences

Income before income taxes

Income tax expense (benefit)

( 1,473,014 )

( 1,443,352 )

Income tax expense

Net income per common share:

2 unchanged sentences

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Nine Months Ended June 30, 2022

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Three Months Ended December 31, 2022

Balance, September 30, 2022

( 21,368,537 )

Share-based compensation

Balance, December 31, 2021

( 4,749,762 )

( 21,368,537 )

Issuance of stock to directors

Share-based compensation

Balance, March 31, 2022

( 3,320,192 )

( 21,368,537 )

Issuance of stock to directors

Share-based compensation

Exercise of stock options

Balance, June 30, 2022

( 1,961,018 )

Balance, December 31, 2022

( 21,368,537 )

1 unchanged sentence

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Nine Months Ended June 30, 2021

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

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.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30,

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Stock options

Loss on disposal of property and equipment

Excess and obsolete inventory cost

Deferred income taxes

( 1,461,617 )

(Increase) decrease in:

Accounts receivable

Prepaid expenses and other current assets

Prepaid expenses and other assets

Increase (decrease) in:

9 unchanged sentences

Proceeds from exercise of stock options

Dividend paid

( 19,788,092 )

Net cash provided by (used in) financing activities

( 19,771,082 )

Net increase (decrease) in cash and cash equivalents

( 16,302,004 )

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for income taxes

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

The accompanying notes are an integral part of these statements.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

8 unchanged sentences

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements.

In the opinion of Company management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the results for the interim periods presented.

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, 2022 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.

The accompanying unaudited consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements.

In the opinion of Company management, the unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the results for the interim periods presented.

The consolidated balance sheet as of September 30, 2022 is derived from the audited financial statements of the Company.

Operating results for the three-month period ended December 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023.

These unaudited 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, 2022.

Principles of Consolidation

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

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

All intercompany balances and transactions have been eliminated in consolidation.

Impact of the Russia and Ukraine War

The war between Russia and Ukraine and the global response to this war could have an adverse impact on our business and results of operations.

Although the war has not had, and is not expected to have, a material impact on our operating results, it is not possible to predict the broader or long-term consequences of the war between Russia and Ukraine, which may include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, cybersecurity conditions, financial markets and energy markets.

Such geopolitical instability and uncertainty could have a negative impact on our ability to sell and ship products, collect payments from and support customers in certain regions, and could increase the costs, risks and adverse impacts from supply chain and logistics disruptions.

Another potential impact could also be an adjustment to accounting estimates related to asset valuation.

Impact of the COVID-19 Pandemic

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.

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

5 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, 2022 and September 30, 2021 consist of cash on deposit and cash invested in money market funds with financial institutions.

Cash equivalents at December 31, 2022 and September 30, 2022 consist of cash on deposit and cash invested in money market funds with financial institutions.

Inventory Valuation

15 unchanged sentences

The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to estimated future cash flows expected to result from use of the asset.

If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the

impairment by comparing the carrying amount of the asset to its fair value.

If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value.

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, 2022 or 2021.

No impairment charges were recorded during the three-month periods ended December 31, 2022 or 2021.

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, 2022 and September 30, 2021, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on June 30, 2022

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, 2022 and September 30, 2022, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on December 31, 2022

Quoted Price in

12 unchanged sentences

Revenue Recognition

that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude, and engine and fuel data measurements.

The Company enters into sales arrangements with customers that, in general, provide for the Company to design, develop, manufacture and deliver large flat-panel display systems, flight information computers, autothrottles and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude, and engine and fuel data measurements.

Revenue from Contracts with Customers

35 unchanged sentences

Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified.

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter in which it is identified.

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, 2022 and 2021, 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, 2022 and 2021, 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, 2022 and 2021, respectively.

Contract Balances

7 unchanged sentences

Increases due to invoicing prior to satisfaction of performance obligations

June 30, 2022

December 31, 2022

Customer Service Revenue

The Company enters into sales arrangements with customers for the repair or upgrade of its various products that are not under warranty.

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, 2022 and 2021 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 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-month periods ended December 31, 2022 and 2021 respectively are as follows:

For the Three Months Ended December 31,

Customer Service Sales

15 unchanged sentences

Deferred tax assets are recognized when expected future taxable income is sufficient to allow the related tax benefits to reduce taxes that would otherwise be payable.

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.

both prudent and feasible.

For the quarter ended June 30, 2021, the valuation allowance was released for all federal and some state deferred tax assets.

11 unchanged sentences

The Company adjusts the estimates periodically as a result of ongoing examinations by and settlements with the various taxing authorities, and changes in tax laws, regulations and precedent.

The consolidated tax provision of any given year includes

adjustments to prior years’ income tax accruals that are considered appropriate, and any related estimated interest.

The consolidated tax provision of any given year includes adjustments to prior years’ income tax accruals that are considered appropriate, and any related estimated interest.

Management believes that it has made adequate accruals for income taxes.

2 unchanged sentences

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

At June 30, 2022, approximately 19 % of the Company’s employees were engineers engaged in various engineering development projects.

At December 31, 2022, approximately 21 % 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.

6 unchanged sentences

Comprehensive Income

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, 2022 and 2021, 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, 2022 and 2021, 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

1 unchanged sentence

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.

Our policy is to recognize forfeitures as incurred.

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

12 unchanged sentences

Warranty cost is recorded as cost of sales, and the reserve balance recorded as an accrued expense.

While the Company maintains product quality programs and processes, its

warranty obligation is affected by product failure rates and the related corrective costs.

While the Company maintains product quality programs and processes, its warranty obligation is affected by product failure rates and the related corrective costs.

If actual product failure rates and/or corrective costs differ from the estimates, the Company revises the estimated warranty liability accordingly.

3 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, 2022 and September 30, 2021, 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, 2022 and September 30, 2022, respectively.

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

At June 30, 2022 and September 30, 2021, the estimated liability for medical claims incurred but not reported was $ 57,274 and $ 55,934 , respectively.

The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of $ 347,287 and $ 208,651 as a current asset in the accompanying condensed consolidated balance sheets as of June 30, 2022 and September 30, 2021, respectively.

At December 31, 2022 and September 30, 2022, the estimated liability for medical claims incurred but not reported was $ 48,146 and $ 51,590 , respectively.

The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of $ 505,776 and $ 424,155 as a current asset in the accompanying consolidated balance sheets as of December 31, 2022 and September 30, 2022, respectively.

Concentrations

Major Customers and Products

In the three-month period ended June 30, 2022, three customers, Pilatus Aircraft Ltd (“Pilatus”), Textron Aviation, Inc.

(“Textron”) and Cargojet Inc., accounted for 27 %, 16 % and 14 % of net sales, respectively.

In the nine-month period ended June 30, 2022, three customers, Pilatus, Textron and Air Transport Services Group, accounted for 27 %, 11 % and 10 % of net sales, respectively.

In the three-month period ended June 30, 2021, two customers, Pilatus, and 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 December 31, 2022, three customers, Pilatus Aircraft Ltd (“Pilatus”), Air Transport Services Group, and Textron Aviation, Inc.

(“Textron”), accounted for 38 %, 13 % and 11 % of net sales, respectively.

In the three-month period ended December 31, 2021, two customers, Air Transport Services Group, and Pilatus, accounted for 25 %, and 24 % 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, 2022, the Company had zero and two 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, 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-month period ended December 31, 2022, the Company had two 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.

Concentration of Credit Risk

11 unchanged sentences

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

The impact ASU 2016-13 is not expected to be material for the Company.

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

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

1 unchanged sentence

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.

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

Supplemental Balance Sheet Disclosures

8 unchanged sentences

Prepaid insurance

Assets held for sale

The asset classified as held for sale, net consists of the following:

September 30,

Corporate airplane (Pilatus PC-12)

accumulated depreciation

( 1,584,025 )

As of June 30, 2022, the Company classified $ 1.6 million of net property and equipment as “assets held for sale” on the consolidated balance sheet.

During the quarter ended June 30, 2022, management of the Company implemented a plan to sell a Company-owned aircraft and commenced efforts to locate a buyer for the aircraft.

In June 2022, the Company entered into an agreement to sell the aircraft for $ 2,900,000 , and management expects to complete the sale during the quarter ended September 30, 2022 at which time, the Company will recognize a gain on the sale of the aircraft.

Property and equipment

8 unchanged sentences

( 11,934,113 )

Depreciation and amortization related to property and equipment was $ 89,072 and $ 90,061 for the three-month periods ended June 30, 2022 and 2021, 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 $ 269,567 and $ 278,956 for the nine-month periods ended June 30, 2022 and 2021, respectively.

Depreciation and amortization related to property and equipment was $ 85,409 and $ 92,372 for the three-month periods ended December 31, 2022 and 2021, respectively.

The corporate airplane is utilized primarily in support of product development.

Other assets consist of the following:

September 30,

Intangible assets, net of accumulated amortization of $ 635,095 and $ 634,032 at June 30, 2022 and September 30, 2021

Intangible assets, net of accumulated amortization of $ 636,158 at December 31, 2022 and September 30, 2022

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, 2022 and 2021.

Intangible asset amortization expense was $ 0 and $ 16,841 for the three-month periods ended June 30, 2022 and 2021, respectively.

Intangible asset amortization expense was $ 1,063 and $ 49,314 for the nine-month periods ended June 30, 2022 and 2021, respectively.

No impairment charges were recorded in the three-month periods ended December 31, 2022 and 2021.

Intangible asset amortization expense was $ 0 for the three-month periods ended December 31, 2022 and 2021, 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, 2022 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 June 30, 2022 and September 30, 2021 includes $ 0 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 $ 2,021 and $ 2,870 for the three-month periods ended June 30, 2022 and 2021, respectively.

Other non-current assets amortization expense was $ 7,534 and $ 5,980 for the nine-month periods ended June 30, 2022 and 2021, respectively.

Other non-current assets as of December 31, 2022 and September 30, 2022 include the security deposit for an airplane hangar and a deposit for medical claims required under the Company’s medical plan.

Accrued expenses

4 unchanged sentences

Operating lease

Warranty cost and accrual information for the three-month period ended June 30, 2022 is highlighted below:

Warranty cost and accrual information for the three-month period ended December 31, 2022 is highlighted below:

Three Months Ending

Nine Months Ending

June 30, 2022

December 31, 2022

Warranty accrual, beginning of period

4 unchanged sentences

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.

The income tax expense for the three-month period ended June 30, 2022 was $ 358,763 as compared to an income tax benefit of $ 1,473,014 for the three-month period ended June 30, 2021.

The effective tax rate for the three-month period ended June 30, 2022 was 20.9 % and differs from the statutory tax rate primarily due to permanent items and state taxes.

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 income tax expense for the nine-month period ended June 30, 2022 was $ 1,056,363 as compared to an income tax benefit of $ 1,443,352 for the nine-month period ended June 30, 2021.

The effective tax rate for the nine-month period ended June 30, 2022 was 21.2 % and differs from the statutory tax rate primarily due to permanent items and state taxes.

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 2017 Tax Cuts and Jobs Act amended IRC §174 to require that amounts paid or incurred for specified research or experimental expenditures, including software development expenses, be amortized ratably over 60 months for tax years beginning after 2021.

Under the law change, research and experimental expenditures may no longer be deducted.

The Company may no longer elect an amortization period 60 months or greater beginning when benefits are first realized.

The Company must now amortize these expenses beginning at the mid-point of the tax year in which the expenditures are paid or incurred.

The effective tax rate for the three-month period ended December 31, 2022 was 24.5 % and differs from the statutory tax rate primarily due to permanent items, first quarter discrete adjustments related to stock compensation, and state taxes.

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.

Shareholders’ Equity and Share-Based Payments

At June 30, 2022, 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, 2022, 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 $ 58,419 and $ 45,084 for the three-month periods ended June 30, 2022 and 2021, respectively.

Total share-based compensation expense was $ 308,599 and $ 295,249 for the nine-month periods ended June 30, 2022 and 2021, respectively.

2019 Stock-Based Incentive Compensation Plan

4 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.

As of June 30, 2022, there were 661,722 shares of common stock available for awards under the 2019 Plan.

As of December 31, 2022, there were 628,825 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.

Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an award (including, in any case, shares withheld from any such award) will not be available for future grant under the 2019 Plan.

Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an award (including, in any case, shares withheld from

any such award) will not be available for future grant under the 2019 Plan.

If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and kind of shares of common stock which may be issued in connection with future awards, the number and kind of shares of common stock covered by awards then outstanding under the 2019 Plan, the aggregate number and kind of shares of common stock available under the 2019 Plan, any applicable individual limits on the number of shares of common stock available for awards under the 2019 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.

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.

The compensation expense related to options issued to employees under the 2019 Plan was $ 45,088 and $ 135,273 for the three- and nine-month periods ended June 30, 2022, respectively.

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 under the 2019 Plan related to shares issued to non-employee members of the Board was $ 13,331 and $ 173,326 for the three- and nine-month periods ended June 30, 2022, 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 period ended June 30, 2021and $ 159,980 for the nine-month period ended June 30, 2021.

Total compensation expense associated with the 2019 Plan was $ 58,419 and $ 45,084 for the three-month periods ended June 30, 2022 and 2021, respectively.

Total compensation expense associated with the 2019 Plan was $ 308,599 and $ 295,249 for the nine-month periods ended June 30, 2022 and 2021, respectively.

At June 30, 2022, unrecognized compensation expense of approximately $ 28,739 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized.

The compensation expense related to stock options and awards issued to employees under the 2019 Plan was $ 233,125 and $ 45,591 for the three-month periods ended December 31, 2022 and 2021, respectively.

The compensation expense under the 2019 Plan related to stock awards issued to non-employee members of the Board was $ 50,070 and $ 40,018 for the three-month periods ended December 31, 2022 and 2021, respectively.

Total compensation expense associated with the 2019 Plan was $ 283,195 and $ 85,609 for the three-month periods ended December 31, 2022 and 2021, respectively.

At December 31, 2022, unrecognized compensation expense of $ 0 , 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

6 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 June 30, 2022 and 2021, there were 100,000 options to purchase common stock outstanding, respectively, and no shares subject to vesting of restricted stock units outstanding, respectively.

As of December 31, 2022 and 2021, there were 0 and 100,000 options to purchase common stock outstanding, respectively, and 7,886 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 the three-month periods ended June 30, 2022 and 2021, respectively, 0 and 100,000 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

For the nine-month periods ended June 30, 2022 and 2021, respectively, 66,667 and 100,000 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

Contingencies

For the three-month periods ended December 31, 2022 and 2021, respectively, 0 and 100,000 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

Commitments and Contingencies

In the ordinary course of business, the Company is at times subject to various legal proceedings and claims.

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.

Related Party Transactions

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 that 10 % in shares on the company.

Prior balances are disclosed below for comparability.

Sales to Eclipse amounted to $ 0.03 million , $ 0.3 million and $ 0.03 million for the first quarters ended December 31 2022, 2021 and 2020, respectively.

As of December 31, 2022 and 2021, a contract liability to Eclipse was $ 0.01 million and $ 0.3 million, respectively.

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.

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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, 2022:

Classification on the Consolidated Balance Sheet on June 30, 2022

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheet as of December 31, 2022:

Classification on the Consolidated Balance Sheet on December 31, 2022

Operating leases

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Total lease liabilities

Rent expense and cash paid for various operating leases in aggregate are $ 3,669 and $ 11,007 for the three- and nine-month periods ended June 30, 2022.

The weighted average remaining lease term is 2.4 years and the weighted average discount rate is 5.0 % as of June 30, 2022.

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

Rent expense and cash paid for various operating leases in aggregate are $ 3,669 for the three-month period ended December 31, 2022.

The weighted average remaining lease term is 1.9 years and the weighted average discount rate is 5.0 % as of December 31, 2022.

Future minimum lease payments under operating leases are as follows at December 31, 2022:

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