Item 1. Business
Item 1. Business .
INTRODUCTION
As used in this Annual Report on Form 10-K, unless expressly stated otherwise or the context otherwise requires, the terms “IA” or “the Company”, “we”, “us” and “our”, refers to Innovative Solutions & Support, Inc. dba Innovative Aerosystems and its subsidiaries.
Incorporated in Pennsylvania in 1988, IA is a vertically integrated provider of flight solutions and equipment to commercial air transport, general aviation markets, the United States Department of Defense (“DoD”) and allied foreign militaries.
On October 6, 2025, the Company rebranded and adopted our new trade name, Innovative Aerosystems.
We operate in one business segment that designs, develops, manufactures, sells and services avionics products and systems for retrofit applications and Original Equipment Manufacturers (“OEMs”).
In the fiscal year ended September 30, 2025, we reported net sales of $84.3 million, an increase of 78.6% on a year-over-year basis from $47.2 million in the fiscal year ended September 30, 2024, and net income of $15.6 million, an increase of 123.3% on a year-over-year basis from $7.0 million in the fiscal year ended September 30, 2024.
At September 30, 2025, our backlog was $77.4 million compared with $89.2 million at September 30, 2024. Backlog at September 30, 2024 included $74.3 million of acquired backlog as a result of the September 27, 2024 acquisition. Backlog is converted into sales in future periods as work is performed or deliveries are made. Our backlog does not include additional future orders that may be received under our current OEM contracts. We expect to recognize approximately 44 % of our backlog over the next 12 months and approximately 92% over the next 24 months as revenue, with the remainder recognized thereafter.
During the fiscal year ended September 30, 2025, we made important progress on our commercial growth strategy, highlighted by several key awards and contract wins across our commercial, military and business aviation markets. In October 2024, we announced our ThrustSense® Autothrottle system was selected by the US Army to be installed on their C-12 (B200) aircraft equipped with ProLine21 avionics suites®. Deliveries of the ThrustSense® Autothrottle system for this application began in September 2024, with ongoing installations anticipated. In August 2024, we received a multi-million dollar production contract from a major aerospace company to supply our 19” Multifunction Display (MFD) with Integrated Mission Computer. This order marks our latest OEM contract and builds on existing programs with Pilatus for the PC-24, Textron for the King Air 260/360 and Boeing for the KC-46A, KC-767 and the T-7A
OUR BUSINESS MODEL
We specialize in providing systems integrations capabilities that include the design, manufacture, sale and servicing of high-performance avionics products and systems used in both commercial and military aircraft platforms.
As a systems integrator, we leverage our proven expertise in developing end-to-end systems that combine mechanical, electrical, software, and avionics components into an integrated solution. Our activities as an integrator include system design and analysis; integration and testing; regulatory compliance and documentation; and lifecycle support.
Our systems integration activities leverage our owned intellectual property and our products and service capabilities, together with third-party technologies that, in combination, provide our customers with advanced solutions on an on-demand basis.
We believe that our ability to source and integrate advanced componentry provides our customers with a unique value proposition, one that helps to reduce cost and optimize fleet utilization.
Currently, we support multiple OEM platforms, including those with the Boeing Company, Eclipse Aerospace, Lockheed Martin, and Pilatus Aircraft.
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Products
We manufacture, market, and sell a wide range of high-value, advanced avionics solutions for commercial air transport, business aviation, and military customers. We source our products through internal research and development, as well as through the opportunistic licensing and acquisition of mature product lines that complement our existing business.
We believe that acquiring additional product lines creates opportunities to leverage cost synergies through better utilization of our skilled engineering team and existing operational capacity, while also expanding our customer base. These acquisitions also enable us to market our internally developed products to newly acquired customers.
As our product offerings focus on individual avionics components and systems, we are able to market our products to both original equipment manufacturers that are building new aircraft and customers participating in the retrofit market.
Our product portfolio consists of the following five categories:
Integrated Flight Deck Systems COCKPIT/IP® that include primary flight/navigation displays, crew alerting and engine displays, integrated standby instruments and mission displays;
Navigation Systems that include flight management systems, mission computers, navigation radios and transponders;
Communication Systems that include communication radios, audio panels and radio management units;
Sensors and Control Systems that include air data computers, attitude and heading reference systems, magnetometers, inertial reference units, GPS receivers, utility management systems and flight control computers; and
Advanced Flight Actuators that include an array of linear and rotary smart-actuators for movement of aircraft levers and surfaces.
Manufacturing Engineering & Design
We believe that our customers value our history of technological innovation, new product development and technical expertise across multiple platforms. As of September 30, 2025, we held 171 U.S. and international patents relating to our products and systems. We invest heavily in engineering and development, with approximately 37 % of our full-time employees serving in engineering-related roles as of September 30, 2025.
We operate an 85,000-square-foot design, manufacturing, and office facility in Exton, Pennsylvania. We are certified to both ISO 9001 and AS9100D, internationally recognized standards that define effective quality management practices. These certifications demonstrate our rigorous processes for employee training, product design, and manufacturing, ensuring that products and related services consistently meet or exceed customer quality requirements. All of our products also undergo extensive, fully documented quality-control testing before shipment.
In the quarter ended June 30, 2025, the Company completed construction of an additional 40,000 square feet of capacity at the Exton facility, expanding it to a total of 85,000 square feet. This expansion is expected to increase IA’s manufacturing capacity by more than 300%, supporting our commercial growth strategy and enabling IA to capitalize on recent transactions with Honeywell. We expect to leverage this more than three-fold increase in capacity to meet growing demand and scale production efficiently.
Sales & Marketing
Our multi-channel sales strategy targets passenger and cargo carrying aircraft operators, general aviation owner/operators, maintenance, repair and overhaul (“MRO”) dealer networks, distributors, avionics integrators, aircraft modification centers, the Department of Defense (the “DoD”), DoD contractors and OEMs.
Periodically, the Company evaluates our sales and marketing efforts with respect to these focus areas and, where appropriate, makes use of third-party sales representatives who receive compensation through commissions based on performance.
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Raw Materials
We require the use of various raw materials in our manufacturing processes. We purchase a variety of manufactured component parts from various suppliers. We also purchase replacement parts, which are utilized in our various repair and overhaul operations. At times, we concentrate our orders among a few suppliers in order to strengthen our supplier relationships. Most of our raw materials and component parts are generally available from multiple suppliers at competitive prices.
Disruptions in the global supply chain have resulted in delays in the availability of certain raw materials and increased raw material prices, among other costs, including labor. As the fiscal year ended September 30, 2025 progressed, raw material price escalation moderated, although our ability to obtain raw materials and components in a timely and cost-efficient manner remains a strategic focus entering fiscal year 2026. Although we continue to evaluate various opportunities to expand our procurement network, OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part.
Suppliers
The Company’s manufacturing activities consist primarily of assembling and testing components and subassemblies and integrating them into finished systems. Typically, the Company purchases components for products, including any necessary raw materials, from third-party suppliers, several of which are sole source, and assembles them in a clean room environment. Many of the components purchased are standard products, although certain parts are made to the Company’s specifications. Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms.
When appropriate, the Company enters into long-term supply agreements and uses its relationships with long-term suppliers to improve product quality and availability and reduce delivery times and product costs. In addition, the Company identifies alternative suppliers for important component parts. Generally, the introduction of component parts from new suppliers into existing products requires FAA certification of the entire finished product if the newly sourced component varies significantly from the original drawings and specifications.
OUR CUSTOMERS AND PRODUCT DISTRIBUTION
The Company’s customers include the U.S. federal government (including the DoD, the Department of Interior and the Department of Homeland Security), Air Transport Services Group Inc. (“ATSG”), Amazon.com, Inc., American Airlines, Inc., Boeing, Deutsche Post DHL Group, FedEx Corporation (“FedEx”), Icelandair, L3Harris Technologies, Inc. (“L3 Harris Technologies”), Lockheed Martin Corporation (“Lockheed Martin”), Pilatus, Sierra Nevada Corporation, Textron, and the Department of National Defense (Canada), among others.
The Company’s revenue is concentrated with a limited number of customers. In the fiscal year ended September 30, 2025, our three largest customers, Lockheed Martin, Pilatus, and Boeing accounted for 36%, 8% and 5% of total revenue, respectively. In the fiscal year ended September 30, 2024, our three largest customers, Pilatus, Textron and Honeywell accounted for 23%, 7% and 7% of total revenue, respectively. In fiscal year ended September 30, 2023, the three largest customers, Pilatus, ATSG and Textron accounted for 23%, 12% and 10% of total revenue, respectively.
Retrofit Market
The aviation retrofit market involves the modification, refurbishment, or upgrade of existing aircraft to improve performance, safety, fuel efficiency, passenger experience, or regulatory compliance. This market has been growing, especially as airlines and operators seek to extend the lifetime of existing fleets, reduce operational costs, and meet new environmental standards. Historically, most of the Company’s sales have come from the retrofit market, which the Company has pursued because of the growing need to support the world’s aging fleet of aircraft. The design and airframes of many types of older aircraft generally exceed the technology and technical capabilities of the original cockpit instruments and avionics. The Company has developed products that enable owners and operators to upgrade their aircraft by retrofitting them with the Company’s products at a competitive cost with equipment that provides instruments with capabilities and technology equivalent to newer aircraft.
We expect our main customers in the retrofit market will continue to be the DoD and defense contractors, aircraft operators and aircraft modification centers.
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U.S. Department of Defense and Defense Contractors. The Company markets its products directly to the DoD and to domestic and international defense contractors for end use in military aircraft retrofit programs. DoD programs generally take one of two forms: a subcontract with a prime government contractor, such as Boeing, Lockheed Martin, or L3 Harris Technologies, or a direct contract with the appropriate government entity, such as the U.S. Air Force. The government’s desire for cost-effective retrofit of its aircraft has led it to purchase commercial off-the-shelf equipment rather than to develop specially designed products, which are usually more costly and take longer to implement. These retrofit contracts tend to be on arms-length commercial terms, although some termination and other provisions of typical government contracts may be incorporated as described below under “Government Regulation.” Each government agency or general contractor usually retains the right to modify or terminate a contract at any time at its convenience. Upon such alteration or termination, the Company is typically entitled to compensation for items already delivered and reimbursement for allowable costs incurred.
Aircraft Operators. The Company markets its products to aircraft operators, including commercial airlines, cargo carriers and business and general aviation aircraft owners or suppliers, primarily for retrofitting of aircraft owned or operated by these customers. The Company’s commercial fleet customers include or have included, among others, American Airlines, Inc., ATSG, FedEx and Icelandair. The Company sells these customers a range of products and services.
Aircraft Modification Centers. Aircraft modification centers, which repair and retrofit private aircraft, represent the primary retrofit market for private and corporate jets. The Company has established relationships with a several aircraft modification centers throughout the United States which act as distribution outlets and installation centers for the Company’s products.
Original Equipment Manufacturers
The Company sells components to OEMs for use in original construction of aircraft. The Company has signed a multi-year agreement with Textron to supply ThrustSense® Autothrottles for their King Air 360 and King Air 260 production aircraft. The Company has also developed and manufactures the utilities management system for the Pilatus’ PC-24 aircraft under a multi-year production contract. The Company also markets its products to other OEMs including, among others, Boeing and Lockheed Martin.
COMPETITIVE CONDITIONS
We experience competition in our aerospace and defense markets across suppliers of competitive products and services as well as with vertically integrated primes. We believe that the principal points of competition in our markets are product quality, reliability, price, design and engineering capabilities, product development, conformity to customer specifications, timeliness of delivery, effectiveness of the distribution organization and quality of support after the sale. We believe IA has demonstrated a track record of performance excellence across each of these areas that has resulted in long-standing customer relationships, often characterized by recurring contractual relationships.
With respect to our products, the Company’s principal competitors include Honeywell Aerospace, Collins Aerospace, GE Aerospace, Thales Defense & Security, Inc., Elbit Systems and Garmin Ltd.
OUR COMPETITIVE STRENGTHS
• Vertically integrated model. IA can reduce its time-to-market through in-house design, manufacturing and testing capabilities; full-service integration and repair capabilities; and deep technical expertise.
• Systems integration expertise. IA’s extensive system integration expertise is a key differentiator within the market and provides a compelling value to its Company’s customer base. We believe this expertise enhances ease of installation, reduces aircraft downtime and reduces system complexity.
• Retrofit application expertise. The average age of the global commercial airline fleet has been increasing over the last 20 years and reached a record level of 14.8 years in late 2024, according to the International Air Transport Association. Extending an aircraft’s lifespan increases maintenance demands, since age brings wear and tear that requires more frequent and thorough inspections and replacement of parts that fail or reach their lifetime limits. IA specializes in retrofitting older aircraft with state-of-the-art avionics, such as Flat Panel Display Systems and Autothrottles that significantly improve functionality and compliance with current aviation standards.
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• Strong Product and IP Portfolio. As of September 30, 2025, the Company held 46 U.S. patents. The Company also holds 125 international patents and has 17 trademarks. Certain of these patents cover technology relating to air data measurement systems, and others cover technology relating to flat panel display systems and other aspects of the COCKPIT/IP® product.
• Depth of experience in serving global customers. IA has experience serving both commercial and military customers with global reach, including, among others, Amazon, American Airlines, BAE Systems, Boeing, DHL, Eclipse Aviation, FedEx, Lockheed Martin, Pilatus, and Textron.
INDUSTRY OUTLOOK
We operate in highly competitive markets. Since our inception more than 35 years ago, our markets have experienced significant growth, leading to new entrants with considerable financial resources and scale. During this time, IA has built a strong position with a portfolio of established, long-term customers that value our ability to deliver reliable, high-quality products that incorporate advanced technologies together with expert technical support, and a competitive, value-centric approach to product pricing.
We believe that, in times of adverse economic conditions, customers that may have otherwise elected to purchase newly manufactured aircraft may be interested instead in retrofitting existing aircraft as a cost-effective alternative, thereby enhancing the retrofit market opportunity for the Company.
A wide range of information is critical for the proper and safe operation of aircraft. With advances in technology, new types of information to assist pilots are becoming available for display in cockpits, such as satellite-based weather, ground terrain maps and Automatic Dependent Surveillance-Broadcast (“ADS-B”) navigation. We believe that aircraft cockpits will continue evolving into comprehensive information centers, delivering an expanding range of data, whether mandated by regulation or demanded by pilots, to support the safe and efficient operation of aircraft. We further expect the market to progress toward increasingly autonomous flight, with the flight deck integrating additional transitional technologies as the industry advances along the path to full autonomy.
Historically, equipment data, such as engine and fuel-related information, were displayed on analog mechanical instruments. Engine and fuel instruments provide information on engine activity, including oil and hydraulic pressures and temperature. These instruments are clustered throughout an aircraft’s cockpit. Individual instruments tend to be replaced more frequently than the aircraft itself due to obsolescence and normal wear-and-tear. Increasingly, operators are replacing their clusters of analog mechanical instruments with integrated display systems, such as IA’s panel displays.
As airspace and airport environments become increasingly congested, the aviation industry and its regulators are placing greater emphasis on technologies, procedures and regulatory frameworks designed to enable higher traffic capacity while maintaining or improving safety, operational efficiency and environmental performance. Emerging technologies and procedures, including traffic-avoidance systems, ground-awareness tools, enhanced navigation and vertical-position accuracy, runway-incursion prevention technologies and expanded digital communication capabilities, are expected to require new and intuitive methods for presenting situational-awareness information to pilots. The Company believes that its flat-panel display and other products are well suited to address these evolving requirements and to support the industry’s ongoing demand for improved cockpit information systems.
STRATEGY
The foundation of our value creation framework is our focused business strategy which seeks to deliver stable commercial growth, including both organic and inorganic growth, operational excellence and disciplined capital allocation. Key elements of the strategy include the following:
Targeted Growth
• Expand product line portfolio.
The Company believes that its new Liberty Flight Deck (LFD) will be a key driver of its next phase of growth. The Liberty Flight Deck is a customer-centric, fully customizable design that can be tailored for most aircraft types, including large passenger and cargo, business aviation, and military applications. Unique features within the LFD facilitate significant pilot workload reduction that we believe will eventually to lead to single operations in air transport (part 25) aircraft and full flight autonomy over time.
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The Company develops innovative products by integrating its avionics, engineering, and design expertise with commercially available technologies, components, and products originating from non-aviation industries, including the personal computer and telecommunications sectors. The Company’s COCKPIT/IP® system components illustrate its capability to incorporate selected non-avionic technologies into aviation applications. For example, the Company identified an unmet need in the turboprop aircraft market arising from the absence of an available autothrottle system. In response, the Company invested in the development of a turboprop autothrottle and subsequently introduced its ThrustSense® Autothrottle, which incorporates patented technologies. The Company believes that its turboprop autothrottle offers an effective and comparatively less complex solution relative to other available systems and includes multiple sensing and safety features. The Company intends to continue to pursue opportunities associated with its position as the first provider of an autothrottle system for turboprop aircraft.
• Focus on retrofit opportunity.
Given an aging global aircraft fleet, cockpit avionics upgrades for existing aircraft continue to be a significant opportunity for the Company. We believe that retrofit of an aircraft with the COCKPIT/IP® FPDS, FMS and integrated standby unit system components is cost effective compared to the acquisition of a new aircraft and can provide similar functionality to that of new aircraft.
• Expand presence in flat panel display market.
Given the versatility, visual appeal, and lower cost of displaying a series of instruments and other flight relevant information on a single flat panel, the Company anticipates that flat panel displays will continue to increasingly replace individual analog and digital instrument LCDs and cathode ray tubes. The Company anticipates that its COCKPIT/IP® has significant benefits over competitive flat panel displays, including lower cost, larger size, reduced weight, enhanced viewing angles, and a broader array of functions.
The Company’s patented and proprietary Integrity Checking Processor and Zooming features provide increased situational awareness, reliability, performance and utility to the owner/operator. Accordingly, we believe that these advantages will allow the Company to generate increased revenues from the COCKPIT/IP® product and increase our market share. In addition, the Company expects that demand for new aircraft, FAA mandates and obsolescence issues on older aircraft will contribute to this growth.
• Evaluate potential acquisitions and strategic partnerships.
As a part of the Company’s growth strategy, we continuously evaluate acquisition opportunities and opportunities to make investments in complementary businesses, technologies, services or products. In addition, we may enter into strategic partnerships with parties who can provide access to assets, additional product or services offerings, additional distribution or marketing synergies or additional industry expertise in order to enhance and expand the Company’s product offerings, technology and capabilities in its current and future products. Any newly acquired products and technology may enable the Company to sell to a new group of buyers and introduce them to our broader range of products, particularly newly acquired product lines.
• Increase Military diversification.
The U.S. military is actively moving away from excessive reliance on the traditional top five prime contractors (Boeing, General Dynamics, Lockheed Martin, Northrop Grumman, and RTX) through a strategic push for diversification, rapid acquisition of innovative technologies, and a concerted effort to leverage non-traditional suppliers and small businesses. Consequently, the Company is expanding its presence in the military market by focusing on winning contracts for key domestic and FMS defense programs, such as the C130 avionics upgrades, which the Company believes will increase the potential for even greater military market penetration.
Improve Operational Efficiency
• Leverage insourcing initiatives.
The Company works to build on its legacy of strong operational execution to generate attractive margins through both increased operating leverage from greater revenues and internal margin initiatives. The Company believes it can realize efficiencies in the manufacturing and repair of the acquired Honeywell products by insourcing the production of product sub-assemblies. We also expect to benefit from greater fixed cost leverage as we utilize the manufacturing capacity at our Exton facility more effectively. We intend to realize additional efficiencies through sourcing and procurement initiatives in an effort to drive cost savings.
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Return-Focused Capital Allocation Strategy
Employ a disciplined, return-focused capital allocation strategy. Our primary focus will be on capital deployment in support of our growth initiatives. The Company remains committed to maintaining strong financial flexibility.
Recent Acquisitions
In June 2023, the Company entered into an Asset Purchase and License Agreement (the “June 2023 Honeywell Agreement”) with Honeywell International, Inc. (“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 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 a second Asset Purchase and License Agreement (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; 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 that enhances 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 the September 2024 Honeywell Agreement will help to accelerate the Company’s growth and enhance its global reputation for delivering best price-for-performance product and service solutions.
INTELLECTUAL PROPERTY
We have various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights, which we believe, in the aggregate but not individually, are important to our business. The Company's products are manufactured, marketed and sold using a portfolio of patents, trademarks, licenses, and other forms of intellectual property, some of which expire in the future. The Company develops and acquires new intellectual property on an ongoing basis. As of September 30, 2025, the Company held 46 U.S. patents. The Company also holds 125 international patents and has 17 trademarks. Based on the broad scope of the Company’s product lines, management believes that the loss or expiration of any single intellectual property right would not have a material effect on our consolidated financial statements.
HUMAN CAPITAL RESOURCES
Our ability to attract, develop and retain top talent across all of our business functions, and particularly in highly technical areas, has a significant impact on organizational success. Accordingly, our human capital management strategy places a significant focus on both attracting a diverse, highly skilled workforce and engaging and developing talent from within by creating a work environment that promotes inclusion and equitability. By providing our valued employees the opportunity to enhance their skillsets, develop their careers and pursue excellence through numerous training and development opportunities, we consistently emphasize the importance of innovation and continuous improvement throughout our organization.
We attract and compensate our employees by offering a competitive total compensation package which includes benefits, resources, and programs that support health, physical, mental, and financial wellness. The benefits package we offer, coupled with employee recognition opportunities and employee engagement activities help create a comprehensive employee experience.
As of September 30, 2025, we had 147 full-time employees as compared to 133 full-time employees as of September 30, 2024. On an as-needed basis, we employ temporary personnel with specialized disciplines to fill staffing gaps. We do not have any employees represented by a union, and we believe that our relations with our employees are good. We provide our team members with ongoing
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opportunities to share thoughts and perspectives on company and employment-related matters through surveys, all-hands meetings, and management open door policies. Our management, with oversight from the Compensation and Nominating & Corporate Governance Committee of our board of directors, monitors the hiring, retention, and management of our employees.
GOVERNMENT REGULATION
Environmental Regulation
We are subject to regulations administered by the U.S. Environmental Protection Agency, the U.S. Occupational Safety and Health Administration, various state, county, and local agencies acting in cooperation with federal and state authorities. Among other things, these regulatory bodies impose restrictions to control air, soil, and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use, and release of certain hazardous chemicals and substances. The extensive regulatory framework imposes compliance burdens and risks on us. Governmental authorities have the power to enforce compliance with these regulations and to obtain injunctions or impose civil and criminal fines in the case of violations.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) imposes strict, joint and several liability on the present and former owners and operators of facilities that release hazardous substances into the environment. The Resource Conservation and Recovery Act of 1976 (“RCRA”) regulates the generation, transportation, treatment, storage, and disposal of hazardous waste. In addition, the Occupational Safety and Health Act, which requires employers to provide a place of employment that is free from recognized and preventable hazards that are likely to cause serious physical harm to employees, obligates employers to provide notice to employees regarding the presence of hazardous chemicals and to train employees in the use of such substances.
Our operations require the use of a limited amount of chemicals and other materials, which are classified under applicable laws as hazardous chemicals and substances. We follow all federal, state and local rules and regulations regarding the disposal of these chemicals and associated waste.
Federal Aviation Administration Regulation
We are subject to regulation by the Federal Aviation Administration (“FAA”) under the provisions of the Federal Aviation Act of 1958, as amended. The FAA prescribes standards and licensing requirements for aircraft and aircraft components. We are subject to inspections by the FAA and may be subjected to fines and other penalties (including orders to cease production) for noncompliance with FAA regulations. Our failure to comply with applicable regulations could result in the termination of or our disqualification from some of our contracts, which could have a material adverse effect on our operations.
GOVERNMENT CONTRACT COMPLIANCE
Our government contracts and sub-contracts are subject to the procurement rules and regulations of the U.S. Government. Many of the contract terms are dictated by these rules and regulations. Specifically, cost-based pricing is determined under the Federal Acquisition Regulation (“FAR”), which provide guidance on the types of costs that are allowable in establishing prices for goods and services under U.S. Government contracts. For example, costs such as those related to charitable contributions, advertising, interest expense, and public relations are unallowable, and therefore not recoverable through sales. During and after the fulfillment of a government contract, we may be audited in respect of the direct and allocated indirect costs attributed thereto. These audits may result in adjustments to our contract costs. Additionally, we may be subject to U.S. Government inquiries and investigations because of our participation in government procurement. Any inquiry or investigation can result in fines or limitations on our ability to continue to bid for government contracts and fulfill existing contracts. We believe that we are in compliance with all federal, state, and local laws and regulations governing our operations and have obtained all material licenses and permits required for the operation of our business.
The U.S. Government generally has the ability to terminate our contracts, in whole or in part, without prior notice, for convenience or for default based on performance. If a U.S. Government contract were to be terminated for convenience, we generally would be protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs, but not the anticipated profit that would have been earned had the contract been completed. In the unusual circumstance where a U.S. Government contract does not have such termination protection, we attempt to mitigate the termination risk through other means. Termination resulting from our default may expose us to liability and could have a material adverse effect on our ability to compete for other contracts. The U.S. Government also has the ability to stop work under a contract for a limited period of time for its convenience. In the event of a stop work order, we generally would be protected by provisions covering reimbursement for costs incurred on the contract to date and
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for costs associated with the temporary stoppage of work on the contract. However, such temporary stoppages and delays could introduce inefficiencies for which we may not be able to negotiate full recovery from the U.S. Government and could ultimately result in termination for convenience or reduced future orders on certain contracts. Additionally, we may be required to continue to perform for some period of time on certain of our U.S. Government contracts, even if the U.S. Government is unable to make timely payments.
Backlog
September 30
2025
2024
Backlog, beginning of period
$
89,232,576
$
13,450,881
Plus: bookings during period, net
72,493,211
48,672,715
Plus: acquired through acquisition
—
74,307,000
Less: sales recognized during period
(84,296,889)
(47,198,020)
Backlog, end of period
$
77,428,898
$
89,232,576
Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders. The backlog excludes potential future sole-source production orders from products developed under the Company’s engineering development contracts (“EDC”) programs, including the Pilatus PC-24, the KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs. Although the Company believes that the orders included in backlog are firm, most of the backlog involves orders that can be modified or terminated by the customer.
At September 30, 2025, our backlog was $77.4 million compared with $89.2 million at September 30, 2024. Backlog is converted into sales in future periods as work is performed or deliveries are made. We expect to recognize approximately 44% of our backlog over the next 12 months and approximately 92% over the next 24 months as revenue, with the remainder recognized thereafter.