What changed in this filing

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Item 1. Financial Statements

2024-02-14 compared with 2023-08-11 · 188 added, 177 removed, 461 unchanged (44% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Accounts receivables

Accounts receivable

Contract assets

1 unchanged sentence

Prepaid expenses and other current assets

Assets held for sale

Total current assets

4 unchanged sentences

Current liabilities

Current portion of long-terrm debt

Current portion of long-term debt

Accounts payable

8 unchanged sentences

Preferred stock, 10,000,000 shares authorized, $ .001 par value, of which 200,000 shares are authorized as Class A Convertible stock.

No shares issued and outstanding at June 30, 2023 and September 30, 2022

No shares issued and outstanding at December 31, 2023 and September 30, 2023

Common stock, $ .001 par value:

75,000,000 shares authorized, 19,535,219 and 19,412,664 issued at June 30, 2023 and September 30, 2022

75,000,000 shares authorized, 19,550,184 and 19,543,441 issued at December 31, 2023 and September 30, 2023, respectively

Additional paid-in capital

Retained earnings (accumulated deficit)

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

Treasury stock, at cost, 2,096,451 shares at December 31, 2023 and at September 30, 2023

( 21,368,537 )

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

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 expense

Income tax expense (benefit)

Net income per common share:

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Three Months Ended June 30, 2023 and 2022

Three Months Ended December 31, 2023

shareholders’

Balance, March 31, 2023

( 21,368,537 )

Share-based compensation

Balance, June 30, 2023

( 21,368,537 )

Balance, March 31, 2022

( 3,320,192 )

Balance, September 30, 2023

( 21,368,537 )

Share-based compensation

Exercise of stock options

Balance, June 30, 2022

( 1,961,018 )

Balance, December 31, 2023

( 21,368,537 )

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Nine Months Ended June 30, 2023 and 2022

Three Months Ended December 31, 2022

shareholders’

3 unchanged sentences

Exercise of stock options

Balance, June 30, 2023

( 21,368,537 )

Balance, September 30, 2021

( 5,882,820 )

( 21,368,537 )

Share-based compensation

Exercise of stock options

Balance, June 30, 2022

( 1,961,018 )

Balance, December 31, 2022

( 21,368,537 )

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30,

For the Three Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Stock options

Impairment of long-lived assets

Loss on disposal of property and equipment

Gain on disposal of property and equipment

Deferred income taxes

(Increase) decrease in:

Accounts receivables

Accounts receivable

Contract assets

( 1,660,222 )

Contract asset

Prepaid expenses and other assets

Prepaid inventories

Prepaid expenses and other current assets

Other non-current assets

Increase (decrease) in:

Accounts payables

Accounts payable

Accrued expenses

Income taxes payable/receivable

Contract liability

Contract liabilities

Net cash provided by operating activities

1 unchanged sentence

Purchases of property and equipment

Acquisition of a business

Proceeds from the sale of property and equipment

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of term note

( 19,500,000 )

Net cash used in investing activities

Proceeds from line of credit note

Repayments of line of credit note

( 8,791,046 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Debt proceeds

Proceeds from exercise of stock options

Net cash provided by financing activities

Net cash (used in) provided by financing activities

( 8,888,486 )

Net (decrease) increase in cash and cash equivalents

( 2,629,859 )

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Cash and cash equivalents, beginning of year

Cash and cash equivalents and restricted cash, end of year

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

8 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, autothrottles and cockpit display systems for retrofit applications and original equipment manufacturers (“OEMs”).

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

The Company supplies integrated flight management systems (“FMS”), flat panel display systems (“FPDS”), FPDS with autothrottle, air data equipment, integrated standby units, integrated standby units with autothrottle and advanced Global Positioning System (“GPS”) receivers that enable reduced carbon footprint navigation, communication and navigation products and inertial reference units.

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

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

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

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

1 unchanged sentence

(“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 involves a sale of certain inventory, equipment and customer-related documents;

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, “Acquisition” in the Supplemental Balance Sheet Disclosures section below for more details.

See Acquisition within Note 2, “Supplemental Balance Sheet Disclosures” below for more details.

Basis of Presentation

2 unchanged sentences

The consolidated balance sheet as of September 30, 2023 is derived from the audited financial statements of the Company.

Operating results for the three-and nine-month periods ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023 which cannot be determined at this time.

Operating results for the three-month period ended December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024 which cannot be determined at this time.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Reclassification

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

In order to conform to the presentation of the consolidated balance sheet as of June 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 three months ended June 30, 2023 and 2022 and the nine months ended June 30, 2023 and 2022.

Principles of Consolidation

2 unchanged sentences

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 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, valuation of tangible and intangible assets acquired, long term contracts, evaluation of allowances for doubtful accounts, product warranty cost liabilities, income taxes, engineering and material costs on Engineering Development Contract (“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.

engineering and material costs on Engineering Development Contract (“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.

Principles of Acquisitions

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.

23 unchanged sentences

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.

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.

Goodwill is tested for impairment at fiscal year-end September 30 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.

● 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;

● a projection or forecast that demonstrates continuing declines in the cash flow or the inability to improve the operations to forecasted levels;

● 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.

4 unchanged sentences

Highly liquid investments, purchased with an original maturity of three months or less, are classified as cash equivalents.

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

Cash equivalents at December 31, 2023 and September 30, 2023 consist of cash on deposit and cash invested in money market funds with financial institutions.

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.

Assets Held for Sale

Assets 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

7 unchanged sentences

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

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

If the carrying amount of the asset exceeds the estimated expected undiscounted future cash

flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value.

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

No impairment charges were recorded during the three-month periods ended December 31, 2023 or 2022.

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.

8 unchanged sentences

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2023 and September 30, 2022, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on June 30, 2023

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2023 and September 30, 2023, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on December 31, 2023

Quoted Price in

11 unchanged sentences

Money market funds

The December 31, 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.

Revenue Recognition

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

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

Revenue from Contracts with Customers

5 unchanged sentences

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

related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

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

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

11 unchanged sentences

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

The Company determines standalone selling price based on the price at which the performance obligation is sold separately.

If the contract contains multiple performance obligation, the Company determines standalone selling price based on the price at which each performance obligation is sold separately.

If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price by taking into account available information such as market conditions as well as the cost of the goods or services and the Company’s normal margins for similar performance obligations.

2 unchanged sentences

Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.

Historically, the Company has also recognized revenue from EDC contracts and is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.

The Company has also recognized revenue from EDC contracts and is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.

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

10 unchanged sentences

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.

The aggregate impact of adjustments in contract estimates did not change our revenue and operating earnings (and diluted earnings per share) for the three-and nine-month periods ended June 30, 2023 and 2022, respectively.

The aggregate impact of adjustments in contract estimates did not change our revenue and operating earnings (and diluted earnings per share) for the three-month periods ended December 31, 2023 and 2022.

Therefore, no adjustment on any contract was material to our consolidated financial statements for the three-month periods ended December 31, 2023 and 2022.

Contract Balances

7 unchanged sentences

Increases due to invoicing prior to satisfaction of performance obligations

June 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 three-and nine-month periods ended June 30, 2023 and 2022 respectively are as follows:

For the Three Months Ended June 30,

For the Nine Months Ended June 30,

Customer Service Sales

Customer Service Cost of Sales

December 31, 2023

Lease Recognition

4 unchanged sentences

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 NOLs and tax credit carryforwards.

utilizing NOLs and tax credit carryforwards.

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.

23 unchanged sentences

Engineering Development

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

At June 30, 2023, approximately 23 % of the Company’s employees were engineers engaged in various engineering development projects.

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

Total engineering development expense comprises both internally funded research and development (“R&D”) 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.

5 unchanged sentences

Share-Based Compensation

The Company accounts for share-based compensation under ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which requires the Company to measure the cost of employee or non-employee director services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model.

instruments based on the grant-date fair value of the award using an option pricing model.

The Company recognizes such cost over the period during which an employee or non-employee director is required to provide service in exchange for the award.

20 unchanged sentences

Liabilities associated with the risks that are retained by the Company are estimated based upon actuarial assumptions such as historical claims experience and demographic factors.

The Company estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at June 30, 2023 and September 30, 2022, respectively.

The Company estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at December 31, 2023 and September 30, 2023, respectively.

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

At June 30, 2023 and September 30, 2022, the estimated liability for medical claims incurred but not reported was $ 53,419 and $ 51,590 , respectively.

The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of $ 432,703 and $ 424,155 as a current asset in the accompanying consolidated balance sheets as of June 30, 2023 and September 30, 2022, respectively.

At December 31, 2023 and September 30, 2023, the estimated liability for medical claims incurred but not reported was $ 75,000 and $ 62,300 , respectively.

The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of $ 205,000 and $ 382,000 as a current asset in the accompanying consolidated balance sheets as of December 31, 2023 and September 30, 2023, respectively.

Concentrations

Major Customers and Products

In the three-month period ended June 30, 2023, three customers, Pilatus Aircraft Ltd (“Pilatus”), Air Transport Services Group (“ATSG”) and Textron Aviation, Inc.

In the three-month period ended December 31, 2023, one customer, Pilatus Aircraft Ltd (“Pilatus”) accounted for 29 % of net sales.

In the three-month period ended December 31, 2022, three customers, Pilatus, Air Transport Services Group and Textron Aviation, Inc.

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

In the nine-month period ended June 30, 2023, three customers, Pilatus, ATSG and Textron, accounted for 27 %, 18 % and 10 % of net sales, respectively.

In the three-month period ended June 30, 2022, three customers, Pilatus, Textron and Cargojet Inc., accounted for 27 %, 16 % and 14 % of net sales, respectively.

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

Major Suppliers

1 unchanged sentence

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

For the three- and nine-month periods ended June 30, 2023, the Company had four suppliers, respectively, that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three- and nine-month periods ended June 30, 2022, the Company had zero and two suppliers, respectively, that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three-month period ended December 31, 2023, the Company had three suppliers that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three-month period ended December 31, 2022, the Company had two suppliers that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

Concentration of Credit Risk

11 unchanged sentences

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

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

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

Supplemental Balance Sheet Disclosures

8 unchanged sentences

The preliminary 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 that have not been finalized as of the date of this filing.

Specifically, the purchase price amount for the Transaction and the allocation of the purchase consideration for

prepaid inventory, equipment, construction in progress, intangible assets, and goodwill are preliminary estimates, which may be subject to change within the measurement period.

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 the fact that, while legal control has been transferred, the Company has not received physical possession of all 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 Asset Purchase and License 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 preliminary allocation of the 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

Prepaid inventory (a)

Construction in progress

Intangible assets (a)

Intangible assets (b)

( 4,460,000 )

( 1,050,155 )

Assets acquired

( 3,531,201 )

Accrued expenses

3 unchanged sentences

Net assets acquired

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

(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 agreement related to the license rights to use certain Honeywell intellectual property and customer relationships and are recorded at provisional estimated fair values.

The provisional 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 provisional 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, “Intangible assets” for further details.

(b) Goodwill represents the excess of the preliminary purchase consideration over the provisional fair value of the assets acquired and liabilities assumed.

Refer to Intangible assets within Note 2, “Supplemental Balance Sheet Disclosures” for further details.

(c) Goodwill represents the excess of the preliminary purchase consideration over the provisional fair value of the assets acquired and liabilities assumed.

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

Goodwill resulting from the Transaction has been provisionally assigned to the Company’s one operating segment;

the assignment of goodwill to reporting units is not complete.

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

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

Further, the Company determined that the preliminary goodwill was not impaired as of June 30, 2023 and as such, no impairment charges have been recorded for the three-and nine-month periods ended June 30, 2023.

Further, the Company determined that the preliminary goodwill was not impaired as of December 31, 2023 and as such, no impairment charges have been recorded for the three months ended December 31, 2023;

the Company also determined that the preliminary goodwill was not impaired as of September 30, 2023.

During the fourth quarter of 2023, the Company identified measurement period adjustments related to preliminary fair value estimates.

The measurement period adjustments were due to the refinement of inputs used to calculate the fair value of the prepaid inventory, equipment, license agreement and customer relationships, with the assistance of an independent third-party valuation firm 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 preliminary fair value estimates did not have a material impact to the consolidated statement of operations.

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

While the Asset Purchase and License 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 related 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 statement of operations.

Transition services agreement

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

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

The Company accounted for the TSA separate from business combination and have recognized $ 140,000 in prepaid expenses and other current assets at September 30, 2023 within the consolidated balance sheets 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 three and nine months ended June 30, 2023, the Company incurred acquisition costs of $ 262,099 , which were expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations;

In connection with the Transaction, the Company incurred acquisition costs of $ 408,961 , which were expensed as incurred and included in selling, general and administrative expenses in the consolidated statement of operations for the year ended September 30, 2023;

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

For the three months ended December 31, 2023, the Company incurred no acquisition costs.

Unaudited actual and pro forma information

Since the acquisition date of the Transaction was on June 30, 2023, the Company did not recognize any revenues and 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, the earliest period presented herein:

Three Months Ended June 30,

Nine Months Ended June 30,

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:

Three Months Ended December 31,

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.

3 unchanged sentences

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

Significant adjustments to the pro forma information above include recognition of non-recurring direct incremental acquisition costs in the nine months ended June 30, 2022 and exclusion of those costs from all other periods presented;

increase in interest expense related to the Term Loan;

increase in amortization expense associated with the estimate of the acquired intangible assets;

increase in depreciation expense related to the fair value adjustment of the acquired equipment;

and increase in cost of sales related to the fair value adjustment of the acquired inventory.

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:

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

As of June 30, 2023

As of December 31, 2023

Gross Carrying

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Licensing and certification rights (b)

( 1,175,285 )

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 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 gross carrying values are preliminary estimates and may be subject to change within the measurement period – refer to Note, “Acquisition” for further details.

The gross carrying values are preliminary estimates and may be subject to change within the measurement period – refer to Acquisition within Note 2, “Supplemental Balance Sheet Disclosures” for further details.

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 preliminary intangible assets were not impaired as of June 30, 2023 and as such, no impairment charges have been recorded for the three-and nine-month periods ended June 30, 2023.

the customer relationships have an estimated weighted average life of nine years and six months.

The Company determined that the preliminary intangible assets were not impaired as of December 31, 2023 and September 30, 2023;

no impairment charges have been recorded for the three months ended December 31, 2023.

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

An impairment charge of $ 44,400 was recorded during the three-and nine-month periods ended June 30, 2023.

No impairment charges were recorded during the three-and nine-month periods ended June 30, 2022.

Intangible asset amortization expense was $ 1,063 and $ 0 for the three-month periods ended June 30, 2023 and 2022, respectively.

Intangible asset amortization expense was $ 1,063 and $ 1,063 for the nine-month periods ended June 30, 2023 and 2022, respectively.

No impairment charges were recorded during the three-month periods ended December 31, 2023 and 2022.

Intangible asset amortization expense was $ 268,500 and $ 0 for the three-month periods ended December 31, 2023 and 2022, respectively.

Intangible asset amortization expense was charged to selling, general and administrative expense.

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 June 30, 2023 is as follows:

2023 (three months remaining)

The expected future amortization expense related to the customer relationships as of December 31, 2023 is as follows:

2024 (nine months remaining)

Assets Held for Sale

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

During the fourth quarter 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 sold its

assets held for sale, the King Air aircraft, for $ 2.3 million.

The resultant gain on the sale of $ 162,000 is a reduction to selling, general and administrative expense in the quarter ended December 31, 2023.

Property and equipment

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Computer equipment

Corporate airplanes

Corporate airplane

Furniture and office equipment

Manufacturing facility

Construction in progress

accumulated depreciation and amortization

Less accumulated depreciation and amortization

( 11,646,202 )

( 11,923,825 )

Depreciation and amortization related to property and equipment was $ 86,439 and $ 89,072 for the three-month periods ended June 30, 2023 and 2022, respectively.

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

Depreciation and amortization related to property and equipment was approximately $ 257,829 and $ 269,567 for the nine-month periods ended June 30, 2023 and 2022, respectively.

Depreciation and amortization related to property and equipment was $ 142,921 and $ 85,409 for the three-month periods ended December 31, 2023 and 2022, respectively.

Other assets consist of the following:

September 30,

Operating lease right-of-use asset

Operating lease right-of-use assets

Other non-current assets

Other non-current assets as of June 30, 2023 and September 30, 2022 include the security deposit for an airplane hangar, supplier credit from one of our suppliers and a deposit for medical claims required under the Company’s medical plan.

In addition, other non-current assets as of June 30, 2023 and September 30, 2022 includes $ 56,855 and $ 0 , respectively, of prepaid software licenses that will be earned upon the shipment of a certain product to a customer.

Other non-current assets amortization expense was $ 2,601 and $ 2,021 for the three-month periods ended June 30, 2023 and 2022, respectively.

Other non-current assets amortization expense was $ 2,601 and $ 7,534 for the nine-month periods ended June 30, 2023 and 2022, respectively.

Other non-current assets as of December 31, 2023 includes a deposit for medical claims required under the Company’s medical plan.

Other non-current assets as of September 30, 2023 includes a deposit for medical claims required under the Company’s medical plan and an airplane hanger deposit.

In addition, other non-current assets as of December 31, 2023 and September 30, 2023 includes $ 140,657 and $ 101,357 , respectively, of prepaid software licenses that will be earned upon the shipment of a certain product to a customer.

Other non-current assets amortization expense was $ 39,300 and zero for the three-month periods ended December 31, 2023 and 2022, respectively.

Accrued expenses

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Operating lease

Supplier purchase orders

Warranty cost and accrual information for the three-and nine-month periods ended June 30, 2023 is highlighted below:

Income tax Payable

Warranty cost and accrual information for the three-month period ended December 31, 2023 is highlighted below:

Three Months Ending

Nine Months Ending

June 30, 2023

December 31, 2023

Warranty accrual, beginning of period

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As a result of the 2017 Tax Cuts and Jobs Act, the Company must amortize amounts paid or incurred for specified research and development expenditures, including software development expenses, ratably over 60 months, beginning at the mid-point of the tax year in which the expenditures are paid or incurred.

The effective tax rate for the three-month and nine-month periods ended June 30, 2023 was 19.3 % and 20.5 %, respectively, and differs from the statutory tax rate primarily due to an increased R&D credit, as well as permanent items and state taxes.

The effective tax rate for the three-month and nine -month periods ended June 30, 2022 was 20.9 % and 21.2 %, respectively.

and differs from the statutory tax rate primarily due to permanent items and state taxes.

The effective tax rate for the three-month period ended December 31, 2023 was 21.8 % and differs from the statutory tax rate primarily due to higher state taxes due to a taxable gain from the sale of the Company’s King Air aircraft.

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

Shareholders’ Equity and Share-Based Payments

At June 30, 2023, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue 75,000,000 shares of common stock and 10,000,000 shares of preferred stock.

At December 31, 2023, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue 75,000,000 shares of common stock and 10,000,000 shares of preferred stock.

Share-Based Compensation

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In addition, the Compensation Committee may make adjustments in the terms and conditions of any awards, including any performance goals, in recognition of unusual or nonrecurring events affecting the Company or any subsidiary, or in response to changes in applicable laws, regulations, or accounting principles.

The compensation expense related to stock options and awards issued to employees under the 2019 Plan was $ 164,342 and $ 954,140 for the three- and nine-month periods ended June 30, 2023, respectively.

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

The compensation expense under the 2019 Plan related to stock awards issued to non-employee members of the Board was $ 49,742 and $ 276,515 for the three- and nine-month periods ended June 30, 2023, respectively.

The compensation expense under the 2019 Plan related to stock awards issued to non-employee members of the Board was $ 13,331 and $ 173,326 for the three- and nine-month periods ended June 30, 2022, respectively.

Total compensation expense associated with the 2019 Plan was $ 214,084 and $ 58,419 for the three-month periods ended June 30, 2023 and 2022, respectively.

Total compensation expense associated with the 2019 Plan was $ 1,230,655 and $ 308,599 for the nine-month periods ended June 30, 2023 and 2022, respectively.

At June 30, 2023, unrecognized compensation expense of approximately $ 260,398 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized.

The compensation expense related to stock options and awards issued to employees under the 2019 Plan was $ 155,581 for the three-month period ended December 31, 2023.

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

The compensation expense under the 2019 Plan related to stock awards issued to non-employee members of the Board was $ 50,135 for the three-month period ended December 31, 2023.

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

Total compensation expense associated with the 2019 Plan was $ 205,716 and $ 283,195 for the three-month periods ended December 31, 2023 and 2022, respectively.

At December 31, 2023, unrecognized compensation expense of approximately $ 554,185 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized.

Earnings Per Share

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Basic weighted average shares

1 unchanged sentence

Diluted weighted average shares

Earnings per common share:

Net income per common share:

Net income per share is calculated pursuant to ASC Topic 260, “ Earnings per Share” (“ASC Topic 260”).

2 unchanged sentences

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

As of June 30, 2023 and 2022, there were 128,815 and 100,000 options to purchase common stock outstanding, respectively, and 76,636 and 0 shares subject to vesting of restricted stock units outstanding, respectively.

As of December 31, 2023 and 2022, there were 224,374 and 0 options to purchase common stock outstanding, respectively, and 101,968 and 7,886 shares subject to vesting of restricted stock units outstanding, respectively.

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

For the three-month periods ended June 30, 2023 and 2022, respectively, 312,210 and 0 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

For the nine-month periods ended June 30, 2023 and 2022, respectively, 196,577 and 66,667 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

Contingencies

For the three-month periods ended December 31, 2023 and 2022, respectively, 213,409 and 0 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

Commitments and Contingencies

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

2 unchanged sentences

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

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

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

Prior balances are disclosed below for comparability.

Sales to Eclipse amounted to approximately $ 155,000 and $ 57,000 for the three-month periods ended June 30, 2023 and 2022, respectively.

Sales to Eclipse amounted to approximately $ 231,000 and $ 574,000 for the nine-month periods ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and September 30, 2022, contract liability to Eclipse was approximately $ 25,000 and $ 123,000 , respectively.

Sales to Eclipse amounted to approximately $ 84,500 and $ 34,300 for the three-month periods ended December 31, 2023 and 2022, respectively.

A company in which Parizad Olver (Parchi), a member of the Board of Directors, is the managing partner and has an ownership interest, received a consulting fee of $ 72,990 in November 2023 for services provided in connection with the sale of the Company’s 2008 Super King Air B200GT SN BY-50.

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

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The measurement of “right-of-use” assets and lease liabilities requires us to estimate appropriate discount rates.

To the extent the rate implicit in the lease is readily determinable, such rate is utilized.

To the extent the rate implicit in the lease is readily determinable, such a rate is utilized.

However, based on information available at lease commencement for our leases, the rate implicit in the lease is not known.

In these instances, we utilize an incremental borrowing rate, which represents the rate of interest that we would pay to borrow on a collateralized basis over a similar term.

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheet as of June 30, 2023:

Classification on the Consolidated Balance Sheet on June 30, 2023

The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheet as of December 31, 2023:

Classification on the Consolidated Balance Sheet on December 31, 2023

Operating leases

4 unchanged sentences

Total lease liabilities

Rent expense and cash paid for various operating leases in aggregate are $ 3,669 and $ 11,007 for the three- and nine-month periods ended June 30, 2023.

The weighted average remaining lease term is 1.4 years and the weighted average discount rate is 5.0 % as of June 30, 2023.

Future minimum lease payments under operating leases are as follows at June 30, 2023:

Rent expense and cash paid for various operating leases in aggregate are $ 3,669 for the three-month period ended December 31, 2023.

The weighted average remaining lease term is 0.9 years and the weighted average discount rate is 5.0 % as of December 31, 2023.

Future minimum lease payments under operating leases are as follows at December 31, 2023:

Twelve Months

14 unchanged sentences

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 interest rate applicable to loans outstanding under the Revolving Line of Credit was a rate per annum equal to the sum of (A) Daily SOFR (as defined in the 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 June 30, 2023.

As of June 30, 2023, the term loan balance amounted to $ 20,000,000 .

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

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

Twelve Months

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

Under the terms of the Restated Rider, at the end of each business day any cash balance will be applied by PNC to the outstanding principal balance under the terms of the Restated Line of Credit Note.

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 the Term Note.

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 herein by reference.

The Company was in compliance with all applicable covenants throughout the year and at December 31, 2023.

The outstanding balance drawn on the Line of Credit was $ 10,611,514 at December 31, 2023.

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

What changed 10-Q

Item 1. Financial Statements