What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-01-12 compared with 2022-12-16 · 309 added, 107 removed, 586 unchanged (42% of the section changed)

Financial Statements and Supplementary Data.

The financial statements of Innovative Solutions and Support, Inc.

listed in the index appearing under Item 8 herein are filed as part of this Report.

The financial statements of the Company listed in the index appearing under Item 8 herein are filed as part of this Annual Report on Form 10-K.

Innovative Solutions and Support, Inc.

28 unchanged sentences

Critical audit matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair Value of Acquired License Agreements and Customer Relationships

As described further in Note 4 to the financial statements, on June 30, 2023, the Company entered into an Asset Purchase and License Agreement with Honeywell International, Inc., whereby Honeywell sold 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 acquisition was accounted for as a business combination.

The Company accounts for acquisitions of entities or asset groups that qualify as businesses using the acquisition method of accounting.

Accordingly, the purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date, which are measured in accordance with fair value measurement principles.

The allocation of the total purchase consideration to the estimated fair values of the acquired license agreements and customer relationships were $5.7 million and $10.7 million, respectively.

Management estimated the fair value of the acquired license agreements using the relief from royalty method, and estimated the fair value of the acquired customer relationships using the multi-period excess earnings method.

The significant assumptions include:

future expected cash flows from customer contracts and license agreements, (ii) historical and expected customer attrition rates, and (iii) discount rates.

We identified the fair value of the acquired license agreements and customer relationships intangible assets as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of these assets.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.

Our audit procedures related to the fair value of the acquired license agreements and customer relationships intangible assets included the following, among others.

• Evaluated the design and implementation of key controls relating to the fair valuations performed on the acquired license agreements and customer relationships intangible assets.

These procedures included, among others, understanding management’s processes over the development of the fair value estimate and related key inputs and assumptions, and over the evaluation of the competency and objectivity of management's third-party valuation specialist.

Tested the mathematical accuracy of the valuation models utilized by the Company and the completeness, accuracy and relevance of underlying data used in the model.

• Assessed the reasonableness of management’s estimated net cash flows by inquiring of management regarding its processes for developing projected financial information and comparing the projections to historical results achieved by Honeywell and evaluating available evidence from after the transaction.

Evaluated the reasonableness of management’s revenue attrition assumptions and tested the source information, including the number of existing customers through inspection of customer contracts.

• Utilized valuation specialists to evaluate the reasonableness of the discount rates used in the valuation.

• Conducted sensitivity analysis around the discount rate and revenue attrition assumptions utilized by management.

/s/ GRANT THORNTON LLP

1 unchanged sentence

Philadelphia, Pennsylvania

December 16, 2022

January 12, 2024

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

5 unchanged sentences

Accounts receivable

Contract asset

Contract assets

Prepaid inventory

Prepaid expenses and other current assets

Assets held for sale

Total current assets

Intangible assets, net

Property and equipment, net

2 unchanged sentences

Current liabilities

Current portion of long-term debt

Accounts payable

Accrued expenses

Contract liability

Contract liability - related party

Contract liabilities

Total current liabilities

Long-term debt

Other liabilities

7 unchanged sentences

Additional paid-in capital

Accumulated deficit

( 5,882,820 )

Retained earnings (accumulated deficit)

Treasury stock, at cost, 2,096,451 shares at September 30, 2023 and at September 30, 2022

7 unchanged sentences

For the Fiscal Year Ended September 30,

Customer service

Engineering development contracts

1 unchanged sentence

Cost of sales:

Customer service

Engineering development contracts

5 unchanged sentences

Operating income

Interest expense

Interest income

Income before income taxes

Income tax (benefit) expense

Income tax expense (benefit)

( 1,087,783 )

6 unchanged sentences

( 2,340,530 )

( 21,368,537 )

Share-based compensation

1 unchanged sentence

Issuance of stock to directors

Tax withholding related to cashless exercise of stock options

Dividends declared

7 unchanged sentences

Issuance of stock to directors

Dividends declared

( 8,607,192 )

Balance, September 30, 2022

( 21,368,537 )

Share-based compensation

12 unchanged sentences

Stock options

Impairment of long-lived assets

Gain on disposal of property and equipment

( 1,191,743 )

Excess and obsolete inventory cost

Excess and obsolete inventory cost (recovery)

Deferred income taxes

3 unchanged sentences

( 5,446,257 )

Contract asset

Contract assets

Prepaid expenses and other current assets

3 unchanged sentences

Accrued expenses

Contract liability

Contract liability - related party

Contract liabilities

Net cash provided by operating activities

2 unchanged sentences

Proceeds from the sale of property and equipment

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from paycheck protection program

Repayment of paycheck protection program

Acquisition of a business

( 35,860,000 )

Net cash (used in) provided by investing activities

( 36,158,373 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Tax withholding related to cashless exercise of stock options

Debt payments

Debt proceeds

Dividend paid

2 unchanged sentences

( 19,771,082 )

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

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

( 14,153,353 )

( 15,519,261 )

Cash and cash equivalents and restricted cash, beginning of year

2 unchanged sentences

Cash paid for income taxes

Cash received from income tax refund

SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION

Cashless exercise of stock options

Accrual of dividends payable

The accompanying notes are an integral part of these statements.

4 unchanged sentences

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

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

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

2 unchanged sentences

Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies and foreign militaries.

On June 30, 2023 (the “Acquisition Date”), the Company entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc.

(“Honeywell”) whereby Honeywell sold certain assets and granted perpetual license rights to manufacture and sell licensed products related to its inertial, communication and navigation product lines (the “Product Lines”) to the Company (the “Transaction”).

The 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.

See Note 4, “Acquisition” for more details.

On September 22, 2023, the Company entered into an at-the-market equity offering Sales Agreement (the “ATM Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (the “Sales Agent”), pursuant to which the Company may offer and sell from time to time through the Sales Agent up to $ 40 million of shares of its common stock.

The shares will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No.

333-267595), which was declared effective by the SEC on October 14, 2022.

The Company filed a prospectus supplement, dated September 22, 2023, with the SEC in connection with the offer and sale of the shares.

Subject to the terms and conditions of the ATM Sales Agreement, the Sales Agent will use commercially reasonable efforts to sell shares of the Company’s common stock from time to time, based upon the Company’s instructions.

The Company is not obligated to sell any shares under the ATM Sales Agreement, and the Company or the Sales Agent may at any time suspend solicitation and offers under the ATM Sales Agreement or terminate the ATM Sales Agreement.

The Company has provided the Sales Agent with customary indemnification rights, and the Sales Agent will be entitled to compensation for its services of up to 3.0 % of the gross sales price per share of the shares of the Company’s common stock sold through the Sales Agent.

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 fiscal 2023, we did not sell any shares of common stock under the ATM Sales Agreement.

Concentrations

3 unchanged sentences

In fiscal year 2023, the three largest customers, Pilatus, ATSG and Textron accounted for 23 %, 12 % and 10 % of total revenue, respectively.

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

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

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

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

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

Sales of air data systems and components were 2 %, 12 % and 20 % of total sales for the years ended September 30, 2022, 2021 and 2020, respectively.

Sales to government contractors and agencies accounted for approximately 21 %, 18 % and 32 % of total sales during fiscal years 2022, 2021 and 2020, respectively.

Flat panel product sales were 99 %, 98 % and 88 % of total product sales in the years ended September 30, 2023, 2022 and 2021, respectively.

Product sales of air data systems and components were 1 %, 2 % and 12 % of total product sales for the years ended September 30, 2023, 2022 and 2021, respectively.

Product sales to government contractors and agencies accounted for approximately 9 %, 14 % and 18 % of total product sales during fiscal years 2023, 2022 and 2021, respectively.

The government agency or general contractor typically retains the right to terminate the contract at any time at its convenience.

4 unchanged sentences

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

During fiscal 2023, the Company had four suppliers that accounted for 49.0 % of the Company’s total inventory related purchases.

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

6 unchanged sentences

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

The Company requests advance payments and/or letters of credit from customers that it considers to be credit risks.

The Company requests advance payments and/or letters of credit from customers that it considers to be significant credit risks.

Summary of Significant Accounting Policies

2 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

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.

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

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

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

Reclassification

The Company presented intangible assets, net, separately in the consolidated balance sheet as of September 30, 2023.

In order to conform to the presentation of the consolidated balance sheet as of September 30, 2023, the Company reclassified $ 60,348 from other assets to intangible assets, net, in the consolidated balance sheet as of September 30, 2022.

This reclassification has no impact on the Company’s net income for the years ended September 30, 2023 and 2022.

Use of Estimates

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the amounts reported in the financial statements.

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the amounts reported in the financial statements.

Actual results could differ from those estimates.

Estimates are used in accounting for, among other items, long term contracts, allowances for doubtful accounts, inventory obsolescence, product warranty cost liabilities, income taxes, engineering and material costs on EDC programs, percentage of completion on EDC contracts, recoverability of long-lived assets and contingencies.

Estimates are used in accounting for, among other items, valuation of tangible and intangible assets acquired, long term contracts, evaluation of allowances for doubtful accounts, inventory obsolescence, product warranty cost liabilities, income taxes, engineering and material costs on EDC programs, percentage of completion on EDC contracts, the useful lives of long-lived assets for depreciation and amortization, the recoverability of long-lived assets, evaluation of goodwill impairment and contingencies.

Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the consolidated statements of operations in the period they are determined.

The Company evaluates each of its acquisitions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), to determine whether the transaction is a business combination or an asset acquisition.

In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first performs a screening test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

If this is the case, the acquired set is not deemed to be a business and is instead accounted for as an asset acquisition.

If this is not the case, the Company then further evaluates whether the acquired set includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.

If so, the Company concludes that the acquired set is a business.

The Company accounts for business acquisitions using the acquisition method of accounting.

Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition.

When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions.

The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but these assumptions are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill.

During the measurement period, which may be up to one year from the Acquisition Date, the Company adjusts the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the Acquisition Date that, if known, would have affected the measurement of the amounts recognized as of that date.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s consolidated statements of operations.

Intangible Assets

The Company’s identifiable intangible assets primarily consist of license agreements and customer relationships.

Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired and are reported separately from any goodwill recognized.

Intangible assets with a finite life are amortized over their estimated useful life and are reported net of accumulated amortization.

They are assessed for impairment in accordance with the Company’s policy on assessing long-lived assets for impairment described below.

Indefinite-lived intangible assets are not amortized, but are subject to an annual impairment test, or when events or circumstances dictate, more frequently.

The impairment review for indefinite-lived intangible assets can be performed using a qualitative or quantitative impairment assessment.

The quantitative assessment consists of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount.

If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

If the fair value exceeds its carrying amount, the indefinite-lived intangible asset is not considered impaired.

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized.

The recorded amounts of goodwill from business combinations are based on management’s best estimates of the fair values of assets acquired and liabilities assumed at the date of acquisition.

Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the business combination that generated the goodwill.

The Company’s goodwill impairment test is performed at the reporting unit level.

Reporting units are determined based on an evaluation of the Company’s operating segments and the components making up those operating segments.

Goodwill is tested for impairment annually or in an interim period if certain changes in circumstances indicate a possibility that an impairment may exist.

Factors to consider that may indicate an impairment may exist are:

the macroeconomic conditions, industry and market considerations such as a significant adverse change in the business climate, cost factors, overall financial performance such as current-period operating results or cash flow declines combined with a history of operating results or cash flow declines or a projection/forecast that demonstrates continuing declines in the cash flow or the inability to improve the operations to forecasted levels, and any entity-specific events.

If the Company determines that it is more likely than not that the fair value of the reporting unit is below the carrying amount as part of its qualitative assessment, a quantitative assessment of goodwill is required.

In the quantitative evaluation, the fair value of the reporting unit is determined and compared to the carrying value.

If the fair value is greater than the carrying value, then the goodwill is deemed not to be impaired and no further action is required.

If the fair value is less than the carrying value, goodwill is considered impaired and a charge is reported as impairment of goodwill in the consolidated statements of operations.

Cash and Cash Equivalents

1 unchanged sentence

Cash equivalents at September 30, 2023 and 2022 consist of cash on deposit and cash invested in money market funds with financial institutions.

Due to the short maturity of these instruments, the carrying values on our consolidated balance sheets approximate fair value.

Inventory Valuation

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory, and consist of the following:

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory, and consists of the following:

September 30,

3 unchanged sentences

Finished goods

Assets Held for Sale

Asset to be disposed of by sale (“disposal groups”) are reclassified into “assets held for sale” if their carrying amounts are principally expected to be recovered through a sale transaction rather than through continuing use.

The reclassification occurs when the disposal group is available for immediate sale and the sale is probable.

These criteria are generally met when an agreement to sell exists, or management has committed to a plan to sell the assets within one year.

Disposal groups are measured at the lower of carrying amount or fair value less costs to sell and are not depreciated or amortized.

When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale.

The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group.

Property and Equipment

3 unchanged sentences

Long-Lived Assets

The Company assesses the impairment of long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360-10, “ Property, Plant and Equipment.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

The Company assesses the impairment of long-lived assets in accordance with FASB ASC Topic 360-10, “ Property, Plant and Equipment.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

In addition, long-lived assets to be disposed of should be reported at the lower of the carrying amount or fair value less cost to sell.

2 unchanged sentences

The estimation of fair value is generally measured by discounting expected future cash flows.

No impairment charges were recorded in fiscal years 2022, 2021 or 2020.

Revenue Recognition

6 unchanged sentences

1) Identify the contract with a customer

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

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

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

42 unchanged sentences

September 30, 2023

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 fiscal years ended 2022, 2021 and 2020 are as follows:

For the Fiscal Year Ended September 30,

Customer Service Sales

Customer Service Cost of Sales

Lease Recognition

2 unchanged sentences

Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable.

The Company does not have any financing leases that are material in nature.

The Company does not have any financing leases that are material.

Income taxes are recorded in accordance with ASC Topic 740, “ Income Taxes ” (“ASC Topic 740”), which utilizes a balance sheet approach to provide for income taxes.

Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets, liabilities and expected benefits of utilizing net operating losses (“NOL”) and tax credit carry-forwards.

The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled, and are reflected in the consolidated financial statements in the period of enactment.

The impact on deferred taxes of changes in tax rates and laws, if

any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment.

At the end of each interim reporting period, the Company prepares an estimate of the annual effective income tax rate and applies that annual effective income tax rate to ordinary year-to-date pre-tax income for the interim period.

22 unchanged sentences

Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material effect on the Company’s consolidated financial position but could possibly be material to its consolidated results of operations or cash flow of any one period.

In March 2020, in response to the COVID-19 pandemic, the CARES Act was signed into law to provide emergency assistance to affected individuals, families, and businesses.

In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law to provide emergency assistance to affected individuals, families and businesses.

The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of NOLs.

The CARES Act amends the NOL provisions of the Tax Act, allowing for the carryback of losses arising in tax years beginning before December 31, 2017, to each of the two taxable years preceding the taxable year of loss.

The CARES Act amends the NOL provisions of the Tax Cuts and Jobs Act of 2017, thereby allowing for the carryback of losses arising in tax years beginning before December 31, 2017 to each of the two taxable years preceding the taxable year of loss.

Approximately $ 1,500,000 of pre-tax NOL was carried back two years to fully offset taxable income.

This carryback frees up previously utilized R&D credits, resulting in an estimated increase in R&D credit carryforward of $ 196,000 .

This carryback freed up previously utilized R&D credits which resulted in an estimated increase in the R&D credit carryforward of $ 196,000 .

The carryback created approximately $ 16,000 of AMT tax, which was refunded.

1 unchanged sentence

A receivable was setup for this amount as of March 31, 2020, and the cash has since been received.

In December 2020, the CAA was enacted as a supplement to the CARES Act legislation providing additional financial relief to taxpayers adversely impacted by restrictions put into place in response to the COVID-19 pandemic.

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

In December 2020, the Consolidations Appropriations Act of 2020 (“CAA”) was enacted as a supplement to the CARES Act legislation and provided additional financial relief to taxpayers adversely impacted by restrictions put into place in response to the COVID-19 pandemic.

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

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

On March 11, 2021, the ARPA, which includes certain business tax provisions, was signed into law.

In March, 2021, American Rescue Plan Act of 2021 (the “ARPA”), which includes certain business tax provisions, was signed into law.

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

In August 2022, the U.S.

government enacted the Inflation Reduction Act (the “IRA”).

The IRA makes the following changes to the U.S tax code:

imposes a corporate alternative minimum tax of 15% on corporations with an average annual Adjusted Financial Statement Income over a three year period in excess of $1 billion, increases the amount of R&D credit that qualified businesses can apply against payroll taxes to $500,000 and imposes an excise tax equal to one percent of the fair market value of stock of a publicly traded U.S.

corporation that is repurchased by the company.

These changes predominately apply to tax years beginning after December 31, 2022.

It does not appear that this legislation will have a material impact on the Company’s tax position.

Engineering Development

Total engineering development expense comprises both internally funded R&D and product development and design charges related to specific customer contracts.

Total engineering development expense comprises both internally funded R&D, which is expensed in research and development, and product development and design charges related to specific customer contracts.

Engineering development expense consists primarily of payroll-related expenses of employees engaged in EDC projects, engineering related product materials and equipment, and subcontracting costs.

1 unchanged sentence

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

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 fiscal years 2022, 2021 and 2020 comprehensive income consisted of net income only, and there were no items of other comprehensive income for any of the periods presented.

Fair Value of Financial Instruments

The net carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate their fair value because of the short-term nature of these instruments.

The net carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value because of the short-term nature of these instruments.

The carrying value of our debt approximates fair value as the interest rate is variable and approximates current market levels.

For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date.

23 unchanged sentences

Money market funds

The fiscal 2023 money market funds balance differs from the cash and cash equivalents balance on the consolidated balance sheet due to the timing of sweep transactions within the PNC cash investment accounts.

Share-Based Compensation

27 unchanged sentences

Treasury Stock

We account for treasury stock purchased under the cost method and include treasury stock as a component of stockholders’ equity.

We account for treasury stock purchased under the cost method and include treasury stock as a component of shareholders’ equity.

Treasury stock purchased with intent to retire (whether or not the retirement is actually accomplished) is charged to common stock.

6 unchanged sentences

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

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

Simplifying the Accounting for Income Taxes ” (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), and clarifies certain aspects of ASC 740 to promote consistency among reporting entities.

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.

On June 30, 2023, the Company entered into the Honeywell Agreement with Honeywell whereby Honeywell sold 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 “Transaction”).

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

an assignment of certain customer contracts;

The Transaction allows the Company to diversify its product offerings in the aerospace industry.

The Company determined that the Transaction met the definition of a business under ASC 805;

therefore, the Company accounted for the Transaction as a business combination and applied the acquisition method of accounting.

In connection with the Transaction, the Company entered into a term loan with PNC Bank, National Association for $ 20.0 million to fund a portion of the Transaction (the “Term Loan”) – refer to Note 20, “Loan Agreement” for further details.

The purchase consideration transferred at the Acquisition Date was $ 35.9 million, which was entirely cash.

The allocation of the purchase price is based upon certain preliminary valuations and other analyses.

The allocation of the purchase price has not been finalized as of the date of this filing due to fact that while legal control has occurred, the Company has not received physical possession of the prepaid inventory, equipment and construction in progress, and thus these assets will be subject to settlement adjustments upon transfer as outlined in the Honeywell Agreement.

The transfer of the prepaid inventory, equipment and construction in progress is expected to occur within the measurement period.

As a result, the purchase price amount for the Transaction and the allocation of the preliminary purchase consideration for prepaid inventory, equipment, construction in progress and goodwill are preliminary estimates, which may be subject to change within the measurement period.

The allocation of the preliminary purchase consideration as of the Acquisition Date is as follows:

Amounts Recognized as of

Acquisition Date

Purchase Price

(as previously reported)

Period Adjustments

Cash consideration

Total consideration

Prepaid inventory (a)

Construction in progress

Intangible assets (b)

( 4,460,000 )

( 1,050,155 )

Assets acquired

( 3,531,201 )

Accrued expenses

( 3,531,201 )

Liabilities assumed

( 3,531,201 )

Net assets acquired

(a) Prepaid inventory consists of raw materials and finished goods acquired by the Company but not in the Company’s physical possession as of the Acquisition Date.

The fair value of raw materials was estimated to equal the replacement cost.

The fair value of finished goods was determined based on the estimated selling price, net of selling costs and a margin on the selling activities, which resulted in a step-up in the value of the finished goods.

(b) Intangible assets consist of license agreements related to the license rights to use certain Honeywell intellectual property and customer relationships and are recorded at estimated fair values.

The estimated fair value of the license agreement is based on a variation of the income valuation approach and is determined using the relief from royalty method.

The estimated fair value of the customer relationships is based on a variation of the income valuation approach known as the multi-period excess earnings method.

Refer to Note 5, “Intangible assets” for further details.

(c) Goodwill represents the excess of the purchase consideration over the preliminary fair value of the net assets acquired.

The goodwill recognized is primarily attributable to the expected synergies from the Transaction.

Goodwill resulting from the Transaction has been assigned to the Company’s one reporting unit.

The goodwill is not expected to be deductible for income tax purposes.

Further, the Company determined that the goodwill was not impaired as of September 30, 2023 and as such, no impairment charges have been recorded for the year ended September 30, 2023.

(1) During the fiscal fourth quarter of 2023, the Company identified measurement period adjustments related to fair value estimates.

The measurement period adjustments resulted from the refinement of inputs used to calculate the fair value of the prepaid inventory, equipment, license agreement, and customer relationships based on facts and circumstances that existed as of the Acquisition Date.

The adjustments resulted in an overall increase to goodwill of $ 2.5 million.

Additionally, the change to the fair value estimates did not have a material impact to the consolidated statements of operations for the year ended September 30, 2023.

(2) During the fourth quarter of fiscal year 2023, the Company identified measurement period adjustments related to the preliminary fair value estimates for accrued expenses.

While the Honeywell Agreement indicated an amount of liabilities related to open supplier purchase orders to be assumed by the Company as of the Acquisition Date, it was determined that there were no actual liabilities outstanding as relates to these open supplier purchase orders as of the Acquisition Date;

therefore, the $ 3.5 million assumed liabilities preliminarily recorded were reversed.

The adjustments resulted in an overall decrease to goodwill of $ 3.5 million;

the adjustments have no impact to the consolidated statements of operations for the year ended September 30, 2023.

Transition services agreement

Concurrent with the Transaction, the Company entered into a transition services agreement (the “TSA”) with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period.

The Company accounted for the TSA separate from the business combination and has recognized $ 140,000 in prepaid expenses and other current assets within the consolidated balance sheet as of the Acquisition Date for the services to be received in the future from Honeywell.

The prepaid expense related to the TSA was determined using the with and without method.

Acquisition and related costs

For the year ended September 30, 2023, the Company incurred acquisition costs of $ 408,961 , which were expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations;

the debt issuance costs related to the Term Loan were not material.

Unaudited actual and pro forma information

For the year ended September 30, 2023, the Company recognized $ 5.8 million of revenues and $ 3.0 million of net income related to the Product Lines in the consolidated statements of operations.

The following unaudited pro forma summary presents consolidated information of the Company, including the Product Lines, as if the Transaction had occurred on October 1, 2021:

Year Ended September 30,

These pro forma results are for illustrative purposes and are not indicative of the actual results of operations that would have been achieved, nor are they indicative of future results of operations.

The unaudited pro forma information for all periods presented was adjusted to give effect to pro forma events that are directly attributable to the Transaction and are factually supportable.

The adjustments are based on information available to the Company at this time.

Accordingly, the adjustments are subject to change, and the impact of such changes may be material.

The unaudited pro forma results do not include any incremental cost savings that may result from the integration.

Intangible assets

The Company’s intangible assets other than goodwill are as follows:

As of September 30, 2023

Gross Carrying

License agreement acquired from the Transaction (a)

Customer relationships acquired from the Transaction (a)

Licensing and certification rights (b)

As of September 30, 2022

Gross Carrying

Licensing and certification rights (b)

(a) As part of the Transaction, the Company acquired intangible assets related to the license agreement for the license rights to use certain Honeywell intellectual property and customer relationships.

The license agreement has an indefinite life and is not subject to amortization;

the customer relationships have an estimated weighted average life of ten years .

The Company determined that the intangible assets were not impaired as of September 30, 2023 and, as such, no impairment charges have been recorded for the year ended September 30, 2023.

(b) The licensing and certification rights are amortized over a defined number of units.

An impairment charge of $ 44,400 was recorded during the year ended September 30, 2023.

No impairment charges were recorded during the years ended September 30, 2022 or 2021.

Intangible asset amortization expense was $ 270,627 , $ 2,126 and $ 50,377 for the years ended September 30, 2023, 2022 and 2021, respectively.

The timing of future amortization expense is not determinable for the licensing and certification rights because they are amortized over a defined number of units.

The expected future amortization expense related to the customer relationships as of September 30, 2023 is as follows:

Net Income Per Share

11 unchanged sentences

The average outstanding diluted shares calculation excludes options with an exercise price that exceeds the average market price of shares during the period.

For fiscal year 2022, no options to purchase common stock were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.

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

For fiscal year 2023 and 2022, 203,000 options and 0 options to purchase common stock were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.

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

Prepaid Expenses and Other Current Assets

3 unchanged sentences

Prepaid insurance

Assets Held for Sale

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

September 30,

Corporate airplane

accumulated depreciation and amortization

As of September 30, 2023, the Company classified $ 2.1 million of net property and equipment as “assets held for sale” on the consolidated balance sheet.

During the quarter ended September 30, 2023, management of the Company implemented a plan to sell a Company-owned aircraft and commenced efforts to locate a buyer for the aircraft.

On November 20, 2023 the Company-owned aircraft was sold for $ 2.3 million, see Note 21, “Subsequent Events” for further details.

Property and Equipment

3 unchanged sentences

Computer equipment

Corporate airplanes

Corporate airplane

Furniture and office equipment

3 unchanged sentences

( 11,934,113 )

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

Depreciation related to property and equipment was $ 427,317 , $ 358,837 and $ 373,068 in fiscal years 2023, 2022 and 2021, respectively.

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

The corporate airplanes are utilized primarily in support of product development.

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

Non-cash investing activities involving property, plant and equipment comprise the abandonment of fully depreciated assets with an original cost and accumulated amortization of $ 94,954 , $ 34,656 and $ 416,626 in fiscal years 2023, 2022 and 2021, respectively.

Other assets consist of the following:

1 unchanged sentence

September 30,

Intangible assets, net of accumulated amortization of $ 636,158 at September 30, 2022 and $ 634,032 at September 30, 2021

Operating lease right-of-use assets

Other non-current assets

Intangible assets consist of licensing and certification rights which are amortized over a defined number of units.

No impairment charges were recorded in fiscal 2022, 2021 or 2020.

Total intangible amortization expense was $ 2,126 , $ 50,377 and $ 32,618 in fiscal years 2022, 2021 and 2020, 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 September 30, 2023 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.

17 unchanged sentences

In March 2020, the CARES Act was signed into law providing numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of NOLs.

The CARES Act amends the NOL provisions of the Tax Cuts and Jobs Act of 2017, thereby allowing for the carryback of losses arising in tax years beginning before December 31, 2017, to each of the two taxable years preceding the taxable year of loss.

Approximately $ 1,500,000 of pre-tax NOL was carried back two years to fully offset taxable income.

This carryback frees up previously utilized R&D credits, resulting in an estimated increase in R&D credit carryforward of $ 196,000 .

This carryback freed up previously utilized R&D credits which resulted in an estimated increase in the R&D credit carryforward of $ 196,000 .

The carryback created approximately $ 16,000 of AMT tax, which was refunded.

The cash impact of this carryback was $ 309,412 .

A receivable was setup for this amount as of March 31, 2020 and the cash has since been received.

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

A receivable was set up for this amount as of March 31, 2020, and the cash has since been received.

In December 2020, the CAA was enacted as a supplement to the CARES Act legislation and provided additional financial relief to taxpayers adversely impacted by restrictions put into place in response to the COVID-19 pandemic.

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

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

2 unchanged sentences

material impact on the Company’s tax position.

In August 2022, the U.S.

government enacted the Inflation Reduction Act (the “IRA”).

The IRA makes the following changes to the U.S tax code:

corporation that is repurchased by the company.

These changes predominately apply to tax years beginning after December 31, 2022.

It does not appear that this legislation will have a material impact on the Company’s tax position.

The components of income taxes are as follows:

10 unchanged sentences

Federal statutory tax rate

Rate change due to tax reform

State income taxes, net of federal benefit

4 unchanged sentences

123R cancellations and forfeitures

Tax Law Changes:

Effective income tax rate

8 unchanged sentences

( 1,449,204 )

( 3,471,164 )

Total deferred tax assets

1 unchanged sentence

( 1,087,653 )

( 1,122,455 )

Total deferred tax liabilities

( 1,087,653 )

Net deferred tax asset (liability)

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

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

( 1,122,455 )

Net deferred tax asset

At September 30, 2023 and 2022, the Company had state NOL carryforwards of approximately $ 19.5 million and $ 19.7 million, respectively, which begin to expire in varying amounts after the fiscal year ending September 30, 2027.

The Company does not have federal R&D Tax Credit carryforwards in fiscal 2023 and 2022.

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

33 unchanged sentences

2019 Stock-Based Incentive Compensation Plan

The 2019 Plan was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders held on April 2, 2019.

The 2019 Stock-Based Incentive Compensation Plan (the “2019 Plan”) was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders held on April 2, 2019.

The 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options and other equity-based awards.

1 unchanged sentence

Subject to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution, or similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2019 Plan is 750,000 , plus 139,691 shares of common stock that were authorized but unissued under the 2009 Plan as of the effective date of the 2019 Plan (i.e., April 2, 2019), all of which may be issued pursuant to awards of incentive stock options.

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 September 30, 2023, there were 262,000 shares of common stock available for awards under the 2019 Plan.

26 unchanged sentences

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

Below are the fair value assumptions used to record compensation expense, related to the 2019 Plan, for the following periods identified:

Below are the fair value assumptions used to record stock option compensation expense, related to the 2019 Plan, for the following periods identified:

Fiscal Year Ended September 30,

4 unchanged sentences

(1) The Company did not grant any options in fiscal 2022 and 2021.

The Company granted 100,000 options in fiscal year 2020.

Total compensation expense associated with stock option awards to employees under the 2019 Plan was approximately $ 756,000 , $ 164,000 and $ 181,000 for fiscal years ended September 30, 2023, 2022 and 2021, respectively.

1 unchanged sentence

Restricted Stock Units

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

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

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

During fiscal 2023, the Company’s Board of Directors (the “Board”) approved grants of RSUs to the non-employee directors on the Board as compensation for their services from the beginning of calendar year 2023 to vest on the date of the Company’s 2023 Annual Meeting of Shareholders.

After the 2023Annual Meeting of Shareholders, the Board approved grants of RSUs to the non-employee directors on the Board as compensation for their services.

Under the terms of the awards, the RSUs will vest on the first anniversary of the grant date.

At the time of vesting, the RSUs will be settled in shares of the Company’s common stock at a rate of one share of stock for each unit, provided that, if a director resigns from the Board prior to the vesting date, such director shall only receive a pro rata portion of such award for time served.

During fiscal 2023, the Board approved grants of RSUs to both the Chief Executive Officer and the former Chief Financial Officer.

Certain RSUs to the Chief Executive Officer vested immediately, and the remainder will vest quarterly over a three-year period.

The approved grants of the RSUs to the former Chief Financial Officer will vest over a four-year period.

On November 8, 2023, Michael Linacre, Chief Financial Officer of Innovative Solutions and Support, Inc., notified the Company of his resignation from all of his positions with the Company, effective immediately, which resulted in the forfeiture of 11,503 RSUs.

As of September 30, 2023, there were 101,968 unvested restricted stock units outstanding under the 2019 Plan.

As of September 30, 2022, and September 30, 2021 there were 32,897 and 25,396 respectively, unvested restricted stock units outstanding under the 2019 Plan.

Weighted Average

21 unchanged sentences

Sales to Eclipse amounted to $ 0.3 million, $ 0.6 million and $ 1.6 million for the years ended September 30, 2023, 2022 and 2021, respectively.

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

As of September 30, 2023 and 2022, contract liability to Eclipse was approximately $ 0.0 million and $ 0.1 million, respectively.

Business Segments

5 unchanged sentences

The Company’s current product line includes FPDS, flight management systems and air data systems and components.

During fiscal years 2022, 2021 and 2020, the Company derived 98 %, 88 % and 80 %, respectively, of its total product revenue from sales of FPDS.

The remaining revenue for each of the fiscal years was from sales of air data systems and components.

During fiscal years 2023, 2022 and 2021, the Company derived 99 %, 98 % and 88 %, respectively, of its total product sales of FPDS.

The remaining product sales for each of the fiscal years was from sales of air data systems and components.

Lease Recognition

The Company accounts for leases in accordance with ASU 2016-02 and records “right-of-use” assets and corresponding lease liabilities on the balance sheet for most leases with an initial term of greater than one year.

We recognize payments for leases with a term of less than one year in the statement of operations on a straight-line basis over the lease term.

We recognize payments for leases with a term of less than one year in the statements of operations on a straight-line basis over the lease term.

We lease real estate and equipment under various operating leases.

10 unchanged sentences

In addition, certain of our lease arrangements may contain a lease coupled with an arrangement to provide other services, such as maintenance, or may require us to make other payments on behalf of the lessor related to the leased asset, such as payments for taxes or insurance.

As permitted by ASU 2016-02, we have elected to account for these non-lease components together with the associated lease component if included in the lease payments.

As permitted by ASU 2016-02, we have

elected to account for these non-lease components together with the associated lease component if included in the lease payments.

This election has been made for each of our asset classes.

14 unchanged sentences

Long-term portion of lease obligations

Loan Agreement

On June 28, 2023, the Company and one of its subsidiaries entered into an Amendment to Loan Documents (the “Loan Amendment”) with PNC Bank, National Association (the “PNC”), which amends certain terms of that certain Loan Agreement entered into by the parties on May 11, 2023 (the “Loan Agreement” and, as amended, the “Amended Loan Agreement”) and (ii) a corresponding Term Note in favor of PNC (the “Term Note”), which together provide for a senior secured term loan in an aggregate principal amount of $ 20.0 million, with a maturity date of June 28, 2028.

Availability of funds under the Term Loan was conditioned upon the closing of the transactions contemplated by the Amended Loan Agreement and was used to fund a portion of the Transaction.

Under the agreement, the Company has the right to prepay any amounts outstanding at any time and from time to time, whole or in part;

subject to payment of any break funding indemnification amounts.

Future interest payments on the Term Loan, based on current interest rates, are expected to approximate $ 1.5 million in fiscal 2024, $ 1.3 million in fiscal 2025, $ 1.2 million in fiscal 2026, $ 1.0 million in fiscal 2027, and $ 0.7 million thereafter.

The interest rate applicable to loans outstanding under the Term Loan is a floating interest rate equal to the sum of (A) the Term SOFR Rate (as defined in the Term 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 Amended Loan Agreement.

Commencing on June 30, 2023, the Term Loan will consist of sixty equal monthly principal installments, over a period of ten years , with the balance payable on the maturity date of the Term Loan.

In addition to providing for the Term Loan, the Loan Agreement, together with a corresponding Revolving Line of Credit Note in favor of PNC, executed May 11, 2023 (“Line of Credit Note”), provides 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 (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 Line of Credit Note) plus (B) an unadjusted spread of 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.

The Company will pay an annual commitment fee of 0.15 % on the amount available for borrowing under the revolving credit facility.

The Company was in compliance with all applicable covenants throughout and at September 30, 2023.

As of September 30, 2023, the term loan balance amounted to $ 19,500,000 .

There was no balance drawn on the Revolving Line of Credit as of September 30, 2023.

Fixed mandatory principal repayments due on the outstanding Term Loan are as follows:

$ 2.0 million in fiscal 2024, $ 2.0 million in fiscal 2025, $ 2.0 million in fiscal 2026, $ 2.0 million in fiscal 2027, and $ 11.5 million in fiscal 2028.

On December 19, 2023, the Company and PNC entered into an Amendment to Loan Documents and a corresponding Amended and Restated Revolving Line of Credit Note and Amended and Restated Line of Credit and Investment Sweep Rider.

See Note 21, “Subsequent Events”.

Subsequent Events

On December 19, 2023, the Company and PNC entered into an Amendment to Loan Documents (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 Amendment, and to pay off and close the loan evidenced by that certain Term Note executed in favor of PNC, dated June 28, 2023, which provides for a senior secured term loan in an aggregate principal amount of $ 20,000,000 , with a maturity date of June 28, 2023.

The interest rate applicable to loans outstanding under the Restated Line of Credit is a rate per annum equal to the sum of (A) Daily SOFR (as defined in the Restated Line of Credit Note) plus (B) an unadjusted spread of Applicable SOFR Margin (as defined in the Restated Line of Credit Note) 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 Restated Line of Credit Note.

The foregoing descriptions of the Restated Loan Amendment, Restated Line of Credit Note and Restated Rider do not purport to be complete and are qualified in their entirety by reference to the full text of the Restated Loan Amendment, Restated Line of Credit Note and Restated Rider, which are filed as Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3, respectively, to the Current Report on Form 8-K filed December 22, 2023 and are incorporated therein by reference .

On November 20, 2023, the Company sold its assets held for sale, the King Air aircraft, for $ 2.3 million.

The resultant gain on sale will be a reduction to selling, general and administrative expense in the quarter ended December 31, 2023.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data