What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-12-23 compared with 2024-12-30 · 104 added, 89 removed, 195 unchanged (50% of the section changed)

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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.

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

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

This strategy, as both a manufacturer and integrator, has positioned the company to deliver cost-effective solutions for the general aviation, commercial air transport, the DoD/governmental and foreign military markets.

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

The Company sells to both the OEM and the retrofit markets.

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The Company’s retrofit projects are generally pursuant to either a direct contract with a customer or a subcontract with a general contractor to a customer (including government agencies).

In June 2023, the Company entered into the June 2023 Honeywell Agreement with Honeywell pursuant to which Honeywell sold, assigned or licensed certain assets related to its inertial, communication and navigation product lines, including a sale of certain inventory, equipment and customer-related documents, an assignment of certain contracts and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for cash consideration of $35.9 million.

In July 2024, the Company entered into the July 2024 Honeywell Asset Acquisition, an exclusive license agreement and acquired additional key assets for certain communication and navigation product lines from Honeywell.

This transaction complements the previous Honeywell license and asset acquisition completed in June 2023.

In June 2023, the Company entered into an agreement with Honeywell (“The June 2023 Honeywell Agreement”) pursuant to which Honeywell sold, assigned or licensed certain assets related to its inertial, communication and navigation product lines, including a sale of certain inventory, equipment and customer-related documents, an assignment of certain contracts and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for cash consideration of $35.9 million.

In July 2024, the Company entered into an exclusive license agreement and acquired additional key assets for certain communication and navigation product lines from Honeywell (the “July 2024 Honeywell Asset Acquisition”).

This transaction complemented the previous Honeywell license and asset acquisition completed in June 2023.

Total consideration was $4.2 million in cash.

On September 27, 2024, the Company entered into the September 2024 Honeywell Agreement with Honeywell, pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents;

On September 27, 2024, the Company entered into a further agreement with Honeywell (the “September 2024 Honeywell Agreement”), pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents;

an assignment of certain contracts;

and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its various generations of military display generators and flight control computers to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for consideration of $14.2 million in cash.

The exclusive licensing of these product lines from Honeywell is a unique opportunity for the Company to enhance its current offerings in the air transport, military and business aviation markets.

In addition, there are potential cost synergies from better utilization of the Company’s skilled engineering team and its existing operational capacity.

The Company believes that each of the June 2023 Honeywell Agreement, the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement will

help to accelerate the Company’s growth and enhance its global reputation for delivering some of the industry’s best price-for-performance product and service solutions.

Following the acquisition of Honeywell’s military display generators and flight control computers business, Honeywell has continued to manufacture these products and maintain related inventory at its facilities under the September 2024 Honeywell Agreement.

Revenue, and costs from this production are attributed to and reported by the Company;

however, the Company relies on Honeywell

for access to the operational and financial data needed to prepare its financial statements.

The Company has limited ability to oversee the operations or verify the data received from Honeywell, making it difficult to predict revenues and gross margins.

Over the coming months, the production of the military display generators and flight control computers business will cease at Honeywell facilities and transition to the Company’s facilities.

During this transition process, production will be temporarily halted while the Company ramps up its production and inventory at its facilities.

In anticipation of the transition, Honeywell is expected to accelerate its production of these products in the short term.

We anticipate this will lead to a spike in revenues in the short term followed by a temporary dip in revenues before revenues are normalized.

As a result, the Company anticipates revenues related to the September 2024 Honeywell Agreement will continue to fluctuate significantly over the next few quarters.

The transition from Honeywell to Company facilities will involve certain risks that may impact operational performance and reported results.

While the Company cannot assure that the transition will not adversely affect operations and reported results, it is committed to closely monitoring the integration process.

The Company remains confident in the long-term benefits of the Honeywell acquisitions.

Cost of sales related to product and service sales comprises materials, components and third-party avionics purchased from suppliers, direct labor and overhead costs.

Many of the components are standard, although certain parts are manufactured to meet the Company’s specifications.

The overhead portion of Cost of sales primarily comprises salaries and benefits, building occupancy costs, supplies and outside service costs related to production, purchasing, material control and quality control.

The overhead portion of Cost of sales are primarily comprised of salaries and benefits, building occupancy costs, supplies and outside service costs related to production, purchasing, material control and quality control.

Cost of sales also includes warranty costs.

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Such changes may cause customers to curtail or delay their spending on both new and existing aircraft.

Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, general levels of consumer spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, inflation, public health crises and pandemics, including the COVID-19 pandemic, and other macroeconomic factors that affect spending behavior.

Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, general levels of consumer spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, inflation, public health crises and pandemics and other macroeconomic factors that affect spending behavior.

Furthermore, spending by government agencies may be reduced in the future.

If customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions, the Company’s revenues and results of operations would be affected adversely.

For example, in the 2020 fiscal year, certain of the Company’s customers temporarily suspended product deliveries as a result of the COVID-19 pandemic, and while these deliveries subsequently resumed, there is a possibility that the COVID-19 or similar pandemics will result in other suspensions, delays or order cancellations by the Company’s customers or suppliers.

For example, in the fiscal year ended September 30, 2025, changes in U.S.

administrative tariff policy, have led to increases in tariffs for imported goods.

Thus far, the impact to Company has been nominal.

Results of Operations

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Historically, the Company presented Customer service and Engineering and development contracts Net Sales and Cost of sales separately on the Consolidated Statements of Operations.

For the fiscal year ended September 30, 2024, the Company has aggregated these items into one category, “Services” and reclassified Customer service and Engineering and development contracts revenues as well as Cost of sales to conform the presentation of the Consolidated Statements of Operations for fiscal years ended September 30, 2023, and 2022.

Consequently, Services revenues and cost of sales primarily comprise Customer Service, EDC and Royalties.

See Footnote 3.

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Net sales in fiscal year 2025 increased $37.1 million, or 78.6%, to $84.3 million from $47.2 million in fiscal year 2024.

Net sales of $84.3 million for fiscal year 2025 comprised $53.3 million in organic Net sales and $31.0 million in Net sales related to the September 2024 Honeywell Agreement.

The increase in Net sales was driven primarily by a $29.8 million, or 122.7 %, increase in Product sales derived from the September 2024 Honeywell Agreement, an increase in commercial air transport sales of $10.5 million, partially offset by a decrease of $3.7 million in sales in business aviation.

Services sales for fiscal year 2025 increased $7.3 million, or 31.8%, compared to Services sales for fiscal year 2024 of $22.9 million.

The increase in Services sales primarily reflects increases in engineering development services of $3.4 million and an increase in customer service sales from the product lines acquired from Honeywell of $1.4 million, partially offset by a decrease in legacy customer service revenue of $0.6 million.

Cost of sales .

Cost of sales was $43.8 million, or 51.9 % of Net sales, for fiscal year 2025 compared to $21.2 million, or 45.0 % of Net sales, for fiscal year 2024.

The increase in Cost of sales was primarily the result of a significant increase in overall sales volume.

The Company’s overall gross margin for fiscal year 2025 was 48.1 % compared to 55.0% for fiscal year 2024.

The decrease in overall gross margin percentage for fiscal year 2025 compared to fiscal year 2024, was primarily the result of unfavorable changes in product mix, increased depreciation and cost inefficiencies due to hiring and training of additional personnel and other integration costs associated with the September 2024 Honeywell Agreement.

The factors that have affected and will continue to affect the Company’s gross margin include depreciation resulting from recent product line acquisitions and the increased proportion of military sales in the Company’s sales mix.

Research and development .

R&D expense decreased $0.1 million, or 3.5 %, to $4.0 million for fiscal year 2025 from $4.1 million for fiscal year 2024.

As a percentage of net sales, R&D expenses decreased to 4.7% of net sales for fiscal year 2025 from 8.8% of net sales for fiscal year, 2024.

The decrease in R&D expenses as a percentage of revenues in the quarter was primarily the result of additional revenues for fiscal year 2025 compared to the same period last year.

In fiscal 2025 $2.6 million of R&D expense was recharacterized as Cost of sales related to the EDC sales as compared to $1.3 million in fiscal year 2024, which was offset by $1.2 million in additional engineering staffing to support the Company’s development programs.

Selling, general, and administrative.

SG&A expenses increased $4.3 million or 35.8 %, to $16.4 million for fiscal year 2025 from $12.1 million for fiscal year 2024.

The increase in SG&A expense for fiscal year 2025 was primarily the result of increases in professional services fees and other related fees of $0.8 million primarily due to corporate initiatives.

In addition, the Company incurred increased depreciation and amortization expenses of $1.1 million related to the customer relationships and intangible assets resulting from the combined acquisitions and $2.0 million due to employee related expenses and benefits resulting from increased headcount, and $0.4 million increase in other operating expenses.

As a percentage of Net sales, SG&A expenses were 19.4% for fiscal year 2025 compared to 25.6% for fiscal year 2024.

Interest income.

Interest income was $0.1 million for fiscal year 2025 and fiscal 2024.

Other income.

Other income was $1.5 million in fiscal year 2025, which was primarily from monies received of $1.9 million with respect to the Employee Retention Tax Credits (“ERTC”), offset by a $0.4 million one-time ERTC related settlement fee.

The Company did not have any other income for fiscal year 2024.

Income taxes.

Income tax expense was $4.3 million in fiscal year 2025 as compared to income tax expense of $1.9 million in fiscal year 2024.

The effective tax rate in fiscal year 2025 was 21.7% as compared to 20.9% in fiscal year 2024.

The increase in income tax expense was primarily due to an increase in earnings in fiscal year 2025.

As a result of the factors described above, the Company’s net income in fiscal year 2025 was $15.6 million compared to net income of $7.0 million in fiscal year 2024.

On a fully diluted basis, net income per share was $0.88 in fiscal year 2025, compared to a net income of $0.40 per share in fiscal year 2024.

Fiscal Year Ended September 30, 2024 Compared to Fiscal Year Ended September 30, 2023

Net sales in fiscal year 2024 increased $12.4 million, or 36.0%, to $47.2 million from $34.8 million in fiscal year 2023.

The increase in Net sales was driven by a 7% increase or $1.7 million in product sales.

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The increase in SG&A expense in fiscal year 2024 was primarily the result of increases in consulting and legal fees of $0.9 million primarily due to acquisition related expenses and increased costs of $0.6 million as a result of the recruitment of a new CFO and other corporate initiatives.

In addition, the Company incurred amortization expense of $1,191,361 related to the customer relationships intangible asset resulting from the combined acquisitions.

These increases were partially offset by a $162,000 gain from the sale of the Company’s King Air aircraft.

In addition, the Company incurred amortization expense of $1.2 million related to the customer relationships intangible asset resulting from the combined acquisitions.

These increases were partially offset by a $0.2 million gain from the sale of the Company’s King Air aircraft.

As a percentage of Net sales, selling, general and administrative expenses were 25.6% in fiscal year 2024 compared to 31.1% for fiscal year 2023.

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Other income.

Other income was $0.2 million in fiscal year 2023.

The Company did not have any other income for fiscal year 2024.

Other income was $0.2 million in fiscal year 2023.

Income taxes.

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On a fully diluted basis, net income per share was $0.40 in fiscal year 2024, compared to a net income of $0.35 per share in fiscal year 2023.

Fiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 30, 2022

Net sales in fiscal year 2023 increased $7.1 million, or 25.5%, to $34.8 million from $27.7 million in fiscal year 2022.

Product sales in fiscal year 2023 increased $0.2 million compared to fiscal year 2022.

Services sales in fiscal year 2023 increased $6.9 million, or 128.8%, compared to fiscal year 2022.

EDC sales increased $0.7 million, or 146.8% compared to fiscal year 2022, reflecting increased EDC business.

Customer service sales increased $6.2 million, or 127.2% from fiscal year 2022.

The increase in customer service sales primarily reflects customer service sales of $5.8 million due to the Honeywell Agreement.

The increase in product sales primarily reflects increased shipments of displays to general aviation customers and commercial transport customers of $0.7 million and $0.6 million, respectively.

Military product sales decreased $1.1 million due to reduced business volume.

Cost of sales.

Cost of sales was $13.5 million, or 38.7% of Net sales, in fiscal year 2023 compared to $11.1 million, or 39.9% of Net sales, in fiscal year 2022.

The increase in Cost of sales was primarily the result of an increase in customer service sales volume.

The Company’s overall gross margin in fiscal year 2023 was 61.3% compared to 60.1% in fiscal year 2022.

The fiscal year 2023 gross margin percentage increase was primarily attributable to increased customer service sales that typically generate higher gross margins than manufactured products.

Research and development .

R&D expenses were $3.1 million in fiscal year 2023 and $2.7 million in fiscal year 2022.

R&D expense decreased to 9.0% of Net sales in fiscal year 2023 compared to 9.8% of net sales in fiscal year 2022.

The increase in R&D expense resulted primarily from increased personnel and related benefits, offset by the increase of EDC contract activity whose costs are reflected in cost of sales rather than R&D expense.

Selling, general , and administrative .

SG&A expenses increased $4.0 million or 60.2%, to $10.8 million from $6.8 million in fiscal year 2022.

SG&A expenses in fiscal year 2022 were reduced by inclusion of a gain of $1.2 million from the sale of the PC-12 aircraft.

The increase in SG&A expense in fiscal year 2023 was primarily the result of increased stock-based compensation expense and legal fees, professional fees, audit fees and amortization expense primarily related to the June 2023 Honeywell Agreement and increased board of director fees.

Interest income .

Interest income of $0.5 million in fiscal year 2023 increased by $0.4 million as compared to interest income in fiscal year 2022 of $0.1 million.

The increase in interest income was primarily the result of the increase in the average cash balance in fiscal year 2023 and a general increase in interest rates as compared to fiscal year 2022.

Other income.

Other income was $0.2 million in fiscal year 2023, an increase of $0.1 million from fiscal year 2022.

Income taxes.

Income tax expense was $1.6 million in fiscal year 2023 as compared to income tax expense of $1.8 million in fiscal year 2022.

The effective tax rate in fiscal year 2023 was 21.1% as compared to 24.8% in fiscal year 2022.

The higher tax and effective tax rate in fiscal year 2022 as compared to fiscal year 2023 primarily reflects higher state tax due to tax on the gain from the sale of the PC-12 aircraft.

As a result of the factors described above, the Company’s net income for fiscal year 2023 was $6.0 million compared to net income of $5.5 million for fiscal year 2022.

On a fully diluted basis, net income per share was $0.35 for fiscal year 2023, compared to a net income of $0.32 per share for fiscal year 2022.

Liquidity and Capital Resources

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Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Net cash (used in) investing activities

Net cash (used in) provided by financing activities

(1) Calculated as:

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The Company’s principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years’ operations, supplemented with our revolving credit facility.

Cash is used principally to finance inventory, accounts receivable, contract assets, payroll, debt service and acquisitions, as well as the Company’s known contractual and other commitments (including those described in Note 19, “Leases”).

The Company’s existing cash balances and anticipated cash flows from operations, together with borrowings under our revolving credit facility, are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months.

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

Debt Facility

In connection with the June 2023 Honeywell Agreement, the Company entered into a term loan with PNC Bank, National Association for $20.0 million to fund a portion of the June 2023 Honeywell Agreement.

Refer to Note 20, “Loan Agreement” for further details.

In addition to providing for the Term Loan, The Loan Agreement, together with a corresponding Line of Credit Note in favor of PNC, executed on May 11, 2023, provides for the senior secured Revolving Line of Credit in an aggregate principal amount of $10,000,000, with an expiration date of May 11, 2028.

On December 19, 2023, the Company and PNC entered into an Amendment to the Loan (the “Restated Loan Amendment”) and a corresponding Amended and Restated Revolving Line of Credit Note (“Restated Line of Credit Note”) and Amended and Restated Line of Credit and Investment Sweep Rider (the “Restated Rider”), to increase the aggregate principal amount available under the Company’s senior secured revolving line of credit from $10,000,000 to $30,000,000 and extend the maturity date until December 19, 2028.

The proceeds of the Restated Line of Credit Note will be used for working capital and other general corporate purposes, for acquisitions as permitted under the Restated Loan Amendments and to pay off and close the loan evidenced by that certain Term Note executed in favor of PNC, dated June 28, 2023, which provided for a senior secured term loan in aggregate principal amount of $20,000,000, with a maturity date of June 28, 2028.

On September 30, 2024, in connection with the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement, the Company and one of its subsidiaries, Innovative Solutions and Support, LLC, entered into an Amendment to Loan Documents (the “2024 Loan Amendment”) with PNC, which amends certain terms of the Loan Agreement to increase the line of credit with PNC.

Concurrently with the 2024 Loan Amendment, the Company entered into (i) an Amended and Restated Revolving Line of Credit Note in favor of PNC (the “A&R Revolving Line of Credit Note”), and (ii) an Amended and Restated Line of Credit and Investment Sweep Rider with PNC (the “A&R Rider”).

The A&R Revolving Line of Credit Note provides for a senior secured revolving line of credit in an aggregate principal amount of $35,000,000, with an expiration date of December 19, 2028 (the “Revolving Line of Credit”).

The interest rate applicable to loans outstanding under the Revolving Line of Credit is a rate per annum equal to the sum of (A) Daily SOFR (as defined in the A&R Revolving Line of Credit Note) plus (B) an unadjusted spread of the Applicable SOFR Margin plus (C) a SOFR adjustment of ten basis points.

The Applicable SOFR Margin ranges from 1.5% to 2.5% depending on the Company’s funded debt to EBITDA ratio, as defined in the A&R Revolving Line of Credit Note.

The A&R Rider provides for how PNC will make advances to the Company under the Revolving Line of Credit.

2025 Credit Agreement

On July 18, 2025, the Company, its wholly-owned subsidiary Innovative Solutions and Support, LLC (“Borrower”) and certain domestic subsidiaries entered into a Credit Agreement (the “2025 Credit Agreement”) with J.P.

Morgan Chase Bank, N.A.

(the “Bank”) and the other lender parties thereto, which Credit Agreement provides for the Bank to extend to the Borrower credit facilities in an aggregate principal amount of up to $100.0 million (the “JPM Facility”), consisting of the following:

1) a $25,000,000 initial term loan facility (the “Initial Term Loan”);

2) a $30,000,000 revolving credit facility (the “Revolving Facility”);

3) a $45,000,000 delayed draw term loan facility (the “Delayed Draw Term Loan”).

The JPM Facility replaced the A&R Revolving Line of Credit with PNC described below under the heading “Prior Debt Facility.”

See footnote 20.

Loan Agreement, for additional disclosures related the 2025 Credit Agreement.

Stifel Sales Agreement

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Sales of the shares of the Company’s common stock, if any, under the ATM Sales Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on or through Nasdaq or any other existing trading market for the Company’s common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices and/or any other method permitted by law.

During the fiscal year ended September 30, 2024, we did not sell any shares of common stock under the ATM Sales Agreement.

During the fiscal years ended September 30, 2024 and September 30,2025, we did not sell any shares of common stock under the ATM Sales Agreement.

Prior Debt Facility

In connection with the June 2023 Honeywell Agreement, the Company entered into a term loan with PNC Bank for $20.0 million to fund a portion of the June 2023 Honeywell Agreement.

In addition to providing for the Term Loan, the Loan Agreement, together with a corresponding Line of Credit Note in favor of PNC, executed on May 11, 2023, provided for a senior secured Revolving Line of Credit in an aggregate principal amount of $10,000,000, with an expiration date of May 11, 2028.

On December 19, 2023, the Company and PNC entered into the Restated Loan Amendment and the corresponding Restated Line of Credit Note and Restated Rider, to increase the aggregate principal amount available under the Company’s senior secured revolving line of credit from $10 million to $30 million and extend the maturity date until December 19, 2028.

The proceeds of the Restated Line of Credit Note was used for working capital and other general corporate purposes, for acquisitions as permitted under the Restated Loan Amendments and to pay off and close the loan evidenced by that certain Term Note executed in favor of PNC, dated June 28, 2023, which provided for a senior secured term loan in aggregate principal amount of $20 million, with a maturity date of June 28, 2028.

On September 30, 2024, in connection with the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement, the Company entered into the Loan 2024 Amendment with PNC, which amended certain terms of the Loan Agreement to increase the line of credit with PNC.

Concurrently with the Loan 2024 Amendment, the Company entered into (i) A&R Revolving Line of Credit Note, and (ii) A&R Rider.

The A&R Revolving Line of Credit Note provided for a senior secured revolving line of credit in an aggregate principal amount of $35 million, with an expiration date of December 19, 2028 (the “Revolving Line of Credit”).

The interest rate applicable to loans outstanding under the Revolving Line of Credit was a rate per annum equal to the sum of (A) Daily SOFR (as defined in the A&R Revolving Line of Credit Note) plus (B) an unadjusted spread of the Applicable SOFR Margin plus (C) a SOFR adjustment of ten basis points.

The Applicable SOFR Margin ranges from 1.5% to 2.5% depending on the Company’s funded debt to EBITDA ratio, as defined in the A&R Revolving Line of Credit Note.

The A&R Rider provided for how PNC will make advances to the Company under the Revolving Line of Credit.

On July 18th, 2025, the outstanding balance drawn on the A&R Revolving Line of Credit of $25,342,529 was fully paid.

Future Funding Requirements

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The Company generated $13.3 million of cash from operating activities during fiscal year 2025, as compared to cash generated of $5.8 million during fiscal year 2024.

The cash generated by operating activities for the year ended September 30, 2025 was primarily generated by net income of $15.6 million, including $1.5 million of net ERTC funds received in fiscal year 2025, non-cash compensation expenses for traditional and market-based stock options and traditional and market-based stock awards of $0.3 million and $2.0 million, respectively, and depreciation and amortization expense of $3.8 million.

Changes in certain other working capital accounts drove the remainder of the increase for fiscal year 2025.

The Company generated $5.8 million of cash from operating activities during fiscal year 2024, as compared to cash generated of $2.1 million during fiscal year 2023.

The cash generated by operating activities for the year ended September 30, 2024 was primarily generated by net income of $7.0 million, an increase in non-cash compensation expenses for stock options and stock awards of $0.3 million and $0.7 million, respectively, and depreciation and amortization expense of $2.1 million.

Changes is certain other working capital accounts drove the remainder of the increase for fiscal year 2024.

The Company generated $2.1 million of cash in operating activities during fiscal year 2023, as compared to cash generated of $6.1 million during fiscal year 2022.

The cash generated by operating activities for the year ended September 30, 2023 was primarily generated by net income of $6.0 million, increase in non-cash compensation expenses for stock options and stock awards of $0.8 million and $0.7 million, respectively, and depreciation and amortization expense of $0.7 million, partially offset by increases to accounts receivable of $5.4 million and inventories of $0.8 million.

Changes in certain other working capital accounts drove the remainder of the increase for fiscal year 2024.

Investing Activities

Cash used in investing activities was $16.8 million for fiscal year 2024 and was primarily due to the $14.2 million acquisition of various generations of military display generators and flight control computers in September 2024 and the $4.2 million acquisitions of certain additional assets related to the Company’s communication and navigation product lines in July of 2024.

Cash used in investing activities was $6.5 million for the fiscal year ended September 30, 2025 and was primarily due to expenditures related to additions and improvements in the Company’s facilities, purchases of equipment and computer software investment related to the Company’s ERP (“Enterprise Resource Planning”) implementation.

Cash used in investing activities was $16.8 million for the fiscal year ended September 30, 2024 and was primarily due to the $14.2 million acquisition of various generations of military display generators and flight control computers in September 2024 and the $4.2 million acquisitions of certain additional assets related to the Company’s communication and navigation product lines in July of 2024.

In addition, the Company spent $0.7 million for the purchases of property and equipment, partially offset by proceeds of $2.2 million from the sale of the Company’s King Air aircraft.

The Company plans to continue investing in capital equipment to support engineering development efforts and operations.

Cash used in investing activities was $36.2 million for fiscal year 2023.

On June 30, 2023, the Company entered into the Honeywell Agreement with Honeywell for cash consideration of $35.9 million whereby Honeywell sold the Company certain assets and granted perpetual license rights to manufacture and sell licensed products related to its inertial, communication and navigation product lines to the Company.

The 2023 Transaction involved a sale of certain inventory, equipment and customer-related documents;

an assignment of certain customer contracts;

and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company.

The 2023 Transaction enhances the Company’s current offerings in the air transport, military and business aviation markets.

In addition, there are potential cost synergies from better utilization of the Company’s skilled engineering team and its existing operational capacity.

The Company believes this agreement can help to accelerate the Company’s growth and enhance its global reputation for delivering some of the industry’s best price-for-performance value propositions.

In addition, the Company spent $0.3 million for the purchase of test equipment and computer hardware.

Financing Activities

Net cash provided by financing activities was $8.5 million for the fiscal year 2024 and consisted of $43.8 million in payments against the Company’s line of credit offset by $52.3 million in additional borrowings used to fund the Company’s fiscal year 2024 acquisitions.

Cash provided by financing activities was $19.9 million for fiscal year 2023 and primarily consisted of proceeds from the Term Loan with PNC for $20.0 million to fund a portion of the June 2023 Honeywell Agreement, proceeds from the exercise of stock options for $0.4 million and the paydown of the Term Loan for $0.5 million.

Net cash used in financing activities was $4.6 million for the fiscal year ended September 30, 2025 and primarily consisted of approximately $27.0 million in borrowings against the 2025 Initial term loan, partially offset by the payoff of the previous revolving line of credit under the PNC Facility of approximately $25.3 million, the payoff of $2.0 million under the Revolving facility, a $0.6 million principal payment on the Initial Term Loan and the payment of approximately $1.0 million in initial borrowing fees.

Net cash provided by financing activities was $8.5 million for the fiscal year ended September 30, 2024 and consisted of $43.8 million in payments against the Company’s line of credit offset by $52.3 million in additional borrowings used to fund the Company’s fiscal year ended September 30, 2024 acquisitions.

Future capital requirements depend upon numerous factors, including market acceptance of the Company’s products, the timing and rate of expansion of business, acquisitions, joint ventures and other factors.

IS&S has experienced increases in expenditures since its inception and anticipates that increases in expenditures will continue in the foreseeable future.

IA has experienced increases in expenditures since its inception and anticipates that increases in expenditures will continue in the foreseeable future.

The Company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months.

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Environmental, Social and Governance Considerations

In recent years, environmental, social and governance (“ESG”) issues have become an increasing area of focus for some of our shareholders, customers and suppliers.

Management and the Board are committed to identifying, assessing and understanding the potential impact of ESG issues and related risks on the Company’s business model, as well as potential areas for ESG related improvements.

We are committed to recruiting, motivating and developing a diversity of talent.

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All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability status, protected veteran status or any other characteristic protected by law.

The nature of our business also supports long-term sustainability.

Historically, a majority of the Company’s sales have come from the retrofit market, in which the Company, by making upgrades to improve the functionality and safety of existing machinery, facilitates the re-use and recycling of aircraft and equipment that might otherwise be scrapped as obsolete.

The Company’s GPS receivers also facilitate reduced carbon footprint navigation.

The Company also plans to enhance its focus on the environmental impact of its operations.

The nature of the Company’s business also supports long-term sustainability.

Historically, a majority of the Company’s sales have been generated from the retrofit market, in which the Company upgrades existing aircraft and equipment to improve functionality, safety, and regulatory compliance.

These retrofit activities extend the useful life of in-service assets and reduce the likelihood that aircraft and related equipment will be retired or scrapped, thereby supporting reuse and waste reduction within the aviation industry.

In addition, the Company’s GPS receivers enable more efficient navigation practices that may reduce fuel consumption and associated carbon emissions.

The Company is committed to further advancing its sustainability efforts and intends to strengthen its focus on managing and reducing the environmental impact of its operations.

This includes evaluating opportunities to improve energy efficiency, minimize waste, and adopt environmentally responsible practices across its manufacturing and administrative functions.

Critical Accounting Policies and Estimates

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Most of the Company’s sales, operating results and identifiable assets are generated in the United States.

In fiscal years 2024, 2023 and 2022 Net sales outside the United States amounted to $22.8 million, $15.5 million and $11.1 million, respectively.

In fiscal years ended September 30, 2025, 2024 and 2023 Net sales outside the United States amounted to $16.4 million, $22.8 million and $15.5 million, respectively.

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 7. Management’s Discussion and Analysis