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Item 1. Business

2024-12-30 compared with 2024-01-12 · 228 added, 360 removed, 27 unchanged (96% of the section changed)

The Company was incorporated in Pennsylvania on February 12, 1988.

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, integrated standby units with autothrottle, advanced Global Positions 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 provides the Company with the capability and potential to generate more substantive orders over a broader product base.

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

Department of Defense (the “DoD”)/governmental and foreign military markets.

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

The Company has been working with advances in technology to provide pilots with more information to enhance both the safety and efficiency of flying and has developed its COCKPIT/IP® Cockpit Information Portal product line, which incorporates proprietary technology, lower cost relative to the competition, reduced power consumption, decreased weight, and increased functionality.

The Company has incorporated electronic flight bag functionality, such as charting and mapping systems, into its FPDS product line.

The Company has developed an FMS that combines the savings long associated with in-flight fuel optimization in enroute flight management with the precision of satellite-based navigation required to comply with the regulatory environments of both domestic and international markets.

The Company believes that its FMS, alongside its FPDS and Cockpit Information Portal product lines, is well suited to address market demand driven by certain regulatory mandates, new technologies, and the high cost of maintaining aging and obsolete equipment on aircraft that may be in service for up to fifty-years.

The shift in the regulatory and technological environment is illustrated by the dramatic increase in the number of Space Based Augmentation System (“SBAS”) or Wide Area Augmentation System (“WAAS”) approach qualified airports, particularly as realized through Localizer Performance with Vertical guidance (“LPV”) navigation procedures.

Aircraft equipped with the Company’s FMS, FPDS and SBAS/WAAS/LPV enabled navigator, will be qualified to land at such airports and will comply with Federal Aviation Administration (“FAA”) mandates for Required Navigation Performance, and Automatic Dependent Surveillance-Broadcast navigation.

We believe this will further increase the demand for the Company’s products.

The Company’s FMS/FPDS product line is designed for new production and retrofit applications in general aviation, commercial air transport and military transport aircraft.

In addition, the Company offers what we believe to be a state-of-the-art integrated standby unit, integrating the full functionality of the primary and navigation displays into a small backup-powered unit.

This integrated standby unit builds on the Company’s legacy air data computer to form a complete next-generation cockpit display and navigation upgrade offering to the commercial and military markets.

The Company has developed and received certification from the FAA on its NextGen Flight Deck featuring its ThrustSense® Integrated PT6 Autothrottle (“ThrustSense® Autothrottle”) for retrofit in the Pilatus PC-12.

The NextGen Flight Deck features Primary Flight and Multi-Function Displays and integrated standby units, as well as an integrated FMS and electronic flight bag system.

The innovative avionics suite includes dual flight management systems, autothrottles, synthetic vision and enhanced vision.

The NextGen Flight Deck enhanced avionics suite is available for integration into other business aircraft with full-authority digital engine control (“FADEC”) and non-FADEC engines.

The Company has developed its FAA-certified ThrustSense® Autothrottle for retrofit in the King Air, dual turbo prop PT6 powered aircraft.

The ThrustSense® Autothrottle is designed to automate power management for speed and power control including go-around.

ThrustSense® Autothrottle also ensures aircraft envelope protection and engine protection during all phases of flight, thereby reducing pilot workload and increasing safety.

The Company has signed a multi-year agreement with Textron Aviation, Inc.

(“Textron”) to supply ThrustSense® Autothrottle on the King Air 360 and King Air 260.

ThrustSense® Autothrottle is also available for retrofit on King Air aircraft through Textron service centers and third-party service centers.

The Company has also developed an FAA-certified

safety mode feature for its King Air ThrustSense® Autothrottle, LifeGuard™, which provides critical Vmca protection that proportionally reduces engine power to maintain directional control during an engine-out condition.

We believe the ThrustSense® Autothrottle is innovative in that it is the first autothrottle developed for a turbo prop that allows a pilot to automatically control the power setting of the engine.

The ThrustSense® Autothrottle computes and controls appropriate power levels thereby reducing overall pilot workload.

The system computes thrust, holds selected speed/torque, and implements appropriate speed and engine limit protections.

When engaged by the pilot, the ThrustSense® Autothrottle system adjusts the throttles automatically to achieve and hold the selected airspeed while guarding the engines via a torque/temperature limit mode.

The autothrottle system takes full advantage of the integrated cockpit utilizing weight and balance information for optimal control settings and enables safety functions such as a turbulence control mode.

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

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

Occasionally, the Company sells its products directly to the DoD;

however, the Company sells its products primarily to commercial customers for end use in DoD programs.

Sales to defense contractors are generally made on commercial terms, although some of the termination and other provisions of government contracts are applicable to these contracts.

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

Customers have been and may continue to be affected by changes in economic conditions both in the United States and abroad.

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

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

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

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

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

On the other hand, we believe that in adverse economic conditions, customers that may have otherwise elected to purchase newly manufactured aircraft may be interested instead in retrofitting existing aircraft as a cost-effective alternative, thereby enhancing the retrofit market opportunity for the Company.

A wide range of information is critical for the proper and safe operation of aircraft.

With advances in technology, new types of information to assist pilots are becoming available for display in cockpits, such as satellite-based weather, ground terrain maps and Automatic Dependent Surveillance-Broadcast navigation.

The Company believes that aircraft cockpits will become more complete information centers, capable of delivering additional information that is either mandated by regulation or demanded by pilots to assist in the safe and efficient operation of aircraft.

The flight deck will continue to incorporate technologies that are stepping-stones for complete autonomy.

We believe that the market will continue to embrace the initial phases of autonomous flight.

The Company classifies flight data into four general types:

aircraft heading and altitude information, flight critical aircraft control data, navigation data, and maintenance and aircraft health data.

Aircraft heading and altitude information includes aircraft speed, altitude, and rates of ascent and descent.

Flight critical aircraft control data includes engine data, such as fuel and oil quantity, and other engine measurements.

Navigation data includes radio position, flight management, GPS and alternative source information (i.e., information not originating on the aircraft, including weather depiction maps, GPS navigation and surface terrain maps).

Maintenance and aircraft health data includes on-board sensors and programs to measure parameters related to the health of a system on the aircraft.

Air data calculations are based primarily on air pressure measurements derived from sensors on the aircraft.

Engine data are determined by measuring various indices such as temperature, volume, revolutions per minute and pressure within an aircraft’s engines and other mechanical equipment.

GPS and alternative source information are derived typically from satellites or equipment located on land and transmitted by satellite or radio signals to the aircraft.

Maintenance and aircraft health data measure multiple parameters on various products and interface with various components to manage, measure, and report on the health, reliability and usability of a system.

This information is displayed in the cockpit for reference, enhanced position awareness and reduced support logistics on properly equipped aircraft.

Traditionally, flight data and other cockpit information were displayed on a series of separate analog mechanical instruments.

In the early 1980s, cathode ray tubes and digital displays using monochromatic Liquid Crystal Displays (“LCD”) began to replace some individual analog instruments.

Presently, the industry offers high resolution color flat panels using active matrix liquid crystal displays to replace traditional analog instruments, cathode ray tubes or monochromatic LCD displays.

We expect that the ability to display more information in an efficient space and custom platform will become increasingly important if additional information, such as weather depiction maps, traffic information, surface terrain maps, datalink messaging and surveillance displays, becomes mandated by regulation or demanded by pilots.

Accordingly, we believe flat panel displays, which can integrate and display a “suite” of information, will replace individual instrument cathode ray tubes and monochromatic LCDs on legacy aircraft.

In the past, equipment data, such as engine and fuel-related information, were displayed on analog mechanical instruments.

Engine and fuel instruments provide information on engine activity, including oil and hydraulic pressures and temperature.

These instruments are clustered throughout an aircraft’s cockpit.

Engine and fuel instruments tend to be replaced more frequently than other instruments due to obsolescence and normal wear-and-tear.

Aircraft operators continue to purchase individual conventional engine and fuel instruments as replacements because the information that these instruments display is vital for safe and efficient flight.

Increasingly, operators are replacing their clusters of analog mechanical instruments with integrated engine instrument display systems or FPDS packages.

As the skies and airports become more crowded, the aviation industry and its regulators are concentrating on new technologies, procedures, and regulations that allow more aircraft to operate in the skies and on the ground safely, efficiently, and with less impact on the environment.

These new technologies and procedures, such as traffic avoidance, ground awareness, increased precision of navigation and vertical position, runway incursion prevention, and increased digital communication, will require innovation and intuitive methods to display situational awareness information for the pilots.

We believe that flat panel displays provide an attractive solution to the growing need for innovation and new methods in this area.

The Company’s objective is to become a leading supplier and integrator of cockpit information, and we believe that our industry experience and reputation, technology and products and business strategy provide the basis to achieve this objective.

Key elements of the Company’s strategy include:

● Continue to drive the market toward the performance, situational awareness and safety advantages of equipping the ThrustSense® Autothrottle on both aftermarket and OEM aircraft .

The Company saw the lack of an available autothrottle system on turboprop aircraft as an unmet need in the marketplace and has invested in the development of a sophisticated turboprop autothrottle.

We believe that ThrustSense® Autothrottle, the Company’s turboprop autothrottle with patented technology, is highly effective, is less complex and less costly than other available products and offers sophisticated sensing and multiple safety features that even exceeds those of much more expensive jet autothrottle systems.

The Company received the first supplemental type certificate (“STC”) ever granted by the FAA for a turboprop autothrottle in June 2017.

The Company intends to continue to capitalize on being the first to market an autothrottle to owners and operators of turboprop aircraft.

● Continuation of ThrustSense® Autothrottle STC Installations .

The Company supplemented the ThrustSense® Autothrottle offering by obtaining FAA approval to perform autothrottle installations.

In June 2022, the FAA approved and certified the Company to perform PC-12 and King Air STC installations.

The Company is now able to go directly to an autothrottle customer location and perform the STC installation on site.

● Focusing on retrofits.

Cockpit avionics upgrades for existing aircraft are of great interest in the present environment.

We believe that retrofit of an aircraft with the COCKPIT/IP® FPDS, FMS and integrated standby unit system components is cost effective compared to the acquisition of a new aircraft and can provide equivalent functionality to that of new aircraft.

● Expand presence in the flat panel display market.

Due to recent demand from cargo operators, we believe that many aircraft will be retrofitted with flat panel displays over the next several years.

Given the versatility, visual appeal, and lower cost of displaying a series of instruments and other flight relevant information on a single flat panel, the Company believes that flat panel displays will increasingly replace individual analog and digital instrument LCDs and cathode ray tubes.

The Company believes that its COCKPIT/IP ® has significant benefits over competitive flat panel displays, including lower cost, larger size, reduced weight, enhanced viewing angles, and a broader array of functions.

The Company’s patented and proprietary Integrity Checking Processor and Zooming features provide increased situational awareness, reliability, performance and utility to the owner/operator.

Accordingly, we believe that these advantages will allow the Company to generate increased revenues from the COCKPIT/IP® product and increase our market share.

In addition, the Company believes that demand for new aircraft, FAA mandates and obsolescence issues on older aircraft will contribute to this growth.

● Continuing development of innovative products.

The Company develops innovative products by combining its avionics, engineering, and design expertise with commercially available technologies, components and products from non-aviation applications, including the personal computer and telecommunications industries.

The Company’s COCKPIT/IP® system components present examples of its ability to engineer products through the selective application of non-avionic technology.

In addition, as permitted by law, the Company applies for and registers its patents and trademarks for the technology and products it develops in the United States and various countries around the world to protect its intellectual property.

● Maintaining focus on air data markets.

The Company believes that it is one of the largest suppliers of air data products to the U.S.

retrofit market.

The pressures on the DoD procurement budget make the retrofit of aging military aircraft with newer, more advanced, and more supportable air data systems attractive.

In addition, higher performance engines in business aircraft are creating a need for the sophisticated air data products which the Company supplies.

● Increasing sales to DoD, other government agencies, defense contractors, commercial air transport carriers and corporate/general aviation markets.

The Company has extended its efforts to diversify sales to include all aviation end user markets, especially legacy military programs and commercial air transport aircraft.

In the commercial air transport market, the Company has addressed national carriers, regional carriers, and other fleet operators.

The Company has targeted the corporate/general aviation market, both for retrofits and original equipment, and has ongoing retrofit programs and an OEM program with Pilatus Aircraft Limited (“Pilatus”).

● Expanding international presence.

The Company plans to increase its international sales by adding sales and marketing personnel.

The Company believes that European and other international aircraft operators and aircraft modification centers will retrofit legacy in-service aircraft with large flat panel displays.

In 2011, the Company obtained approval from the European Union Aviation Safety Agency (“EASA”) for installing its FPDS in Europe for the B757/B767 aircraft and anticipates obtaining EASA approvals for other European aircraft types.

In addition, the King Air ThrustSense® Autothrottle system is currently certified by most foreign civil aviation authorities, including the EASA, Transport Canada Civil Aviation, UK Civil Aviation Authority and Civil Aviation Administration of China.

● Acquisitions, investments, strategic partnerships or other ventures .

As a part of the Company’s growth strategy, we continuously evaluate acquisition opportunities and opportunities to make investments in complementary businesses, technologies, services or products, or to enter into strategic partnerships with parties who can provide access to those assets, additional product or services offerings, additional distribution or marketing synergies or additional industry expertise in order to enhance and expand the Company’s product offerings, technology and capabilities in its current products and in future products.

The new products and technology will enable the Company to sell to a new group of buyers and introduce them to our broader range of products.

The Company’s current product lines include:

Flat Panel Display Systems

Flat panel displays are active matrix liquid crystal display screens that can replicate the display of one or a suite of analog or digital displays on one screen.

Flat panel displays can replace existing displays in legacy aircraft.

Active matrix liquid crystal display are used also for security monitoring on-board aircraft and as tactical workstations on military aircraft.

The FPDS product line also offers numerous advantages for the presentation of engine performance data.

The Company’s FPDS can replace conventional analog and digital displays and can display additional information that is not commonly displayed in the cockpit with conventional analog and digital displays.

The COCKPIT/IP® is capable of displaying nearly all types of air data, engine and fuel data, altitude, heading and navigational data, maintenance and aircraft health data and alternative source information.

As technology and information delivery systems develop further, additional information will be displayed in the cockpit, such as surface terrain maps and data link messaging.

The Company designed the COCKPIT/IP® to be capable of displaying information from a variety of sources, including its Reduced Vertical Separation Minimum air data system, engine and fuel instrumentation and third-party data and information products.

From time to time, customers may order one or more FPDSs customized to their particular requirements.

Typically, the Company charges for the added development cost.

This revenue is reported as Engineering Development Contracts (“EDC”) on the consolidated statements of operations.

Engineering costs incurred in customizing FPDSs are included in cost of sales.

Flight Management Systems

The Company’s NextGen Flight Deck management system is an easily installed navigation and performance computer that complements the Company’s FPDS upgrade for commercial air transport aircraft.

The FMS interfaces with the Company’s SBAS GPS receiver to provide a GPS-based navigation solution.

The GPS receiver is located remotely depending on space availability.

To minimize use of cockpit space and ease installation efforts, the FMS is housed in an ARINC 739B compliant Multifunction and Control Display Unit (“MCDU”).

Each FMS/MCDU has an LCD display, keyboard, mode and function keys, line select keys and annunciator lights, and supports ethernet data loading.

The flight crew can manually or datalink waypoint flight plans, routes or user-defined waypoints on the Company’s FMS and modify and update these plans via the FMS/MCDU screen.

Once the flight plan data is entered, the MCDU computes the most efficient flight profiles and provides steering commands for use by the aircraft control system to fly the airplane along the desired route.

The FMS/MCDU package incorporates a robust navigation database capable of storing today’s global database, with ample growth for the future.

Flight crews can utilize the data in the navigation database to create, edit and modify flight plans for display on the FPDS.

The navigation data includes airways, jet routes, Standard Instrument Departure, Standard Terminal Arrival Route and Company-stored routes.

The FMS/MCDU is ARINC 739B compliant, which provides an interface option for other cockpit equipment such as satellite communications, ACARS, Communications Management Unit, HUD and a printer.

The interface to the Company’s FPDS is provided via ethernet.

The Company’s electronic flight bag system is integrated with the FMS/MCDU and FPDS where the control selection of the electronic flight bag features and applications are handled via the FMS/MCDU.

The display is a five-inch LCD with VGA resolution.

The touchscreen display uses LED backlighting and is sunlight readable.

Integrated Standby Unit

The Company’s integrated standby unit incorporates the measurement and display of attitude, altitude, airspeed, and navigation data into a single standby/backup navigation instrument for military, commercial air transport and corporate/general aviation applications.

The integrated standby unit has an integral Inertial Measurement Unit that includes accelerometer, gyro and magnetometer triads.

The integrated standby unit also includes an integral air data measurement module for measurement of static and total pressure for display of altitude, airspeed and mach number.

The Company’s integrated standby unit is a highly reliable and accurate standby navigation system that is based on the Company’s merger of COCKPIT/IP® display technology and Reduced Vertical Separation Minimum air data products, coupled with the modern technology in MEMS Gyros that have exceptional stability.

The Company’s proprietary algorithm provides for accurate computation of attitude, heading and air data parameters.

The integrated standby unit includes a triaxial magnetometer that is designed to be tolerant to the local soft iron effects.

The display uses a familiar Primary Flight Display format to reduce pilot workload.

Logistics and maintenance savings are realized due to increased reliability and a reduction in line-replaceable units.

The integrated standby unit is also equipped with built-in test and display of navigational aid and maintenance data.

Air Data Systems and Components

The Company’s air data products calculate and display various measures such as aircraft speed, altitude and vertical rate of change.

These air data products utilize advanced sensors to gather air pressure data and customized algorithms to interpret data, thus allowing the system to calculate altitude more accurately.

The Company sells individual components and partial and complete air data systems.

The components and systems include:

● digital air data computers, which calculate various air data parameters such as altitude, airspeed, vertical speed, angle of attack and other information derived from the measure of air pressure;

● integrated air data computers and display units, which calculate and convey air data information;

● altitude displays, which convey aircraft altitude measurements;

● airspeed displays, which convey various airspeed measurements including vertical airspeed and rates of ascent and descent;

● altitude alerters, which allow pilots to select a desired cruising altitude and which provide warnings to pilots when an unacceptable deviation occurs.

Engine and Fuel Displays

The Company develops, manufactures and markets engine and fuel displays.

These solid-state multifunction displays convey information with respect to fuel and oil levels and engine activity, such as oil and hydraulic pressure and temperature.

They include individual and multiple displays installed throughout the cockpit.

The displays can be used in conjunction with the Company’s engine and fuel data equipment or that of other manufacturers.

Engine and fuel displays are vital to safe flight.

In addition, accurate conveyance of engine and fuel information is critical for monitoring engine stress and parts maintenance.

Engine and fuel displays tend to be replaced more frequently than other displays and have been slow to incorporate new technology since their introduction because of their low cost, standard design and universal use.

We believe that our air data engine and fuel displays are extremely reliable, designed to be programmable and are easily adaptable without major modification to most modern aircraft.

These products have been installed on B727, B737, C-130H, DC-9, DC-10, P-3, F-16 and A-10 aircraft.

Integrated Global Navigation System

The Company’s Integrated Global Navigation System product is an alternative for adding GPS navigation capability to legacy aircraft through an OEM FMS without incurring the high cost of upgrading the current FMS.

This product includes required navigation performance and RNAV approaches via the Company’s certified Beta 3 GPS and leverages components of the Company’s FPDS to provide annunciation to the pilot during GPS procedures.

ThrustSense® Autothrottle

The Company’s ThrustSense® Autothrottle is a full regime autothrottle that can operate from takeoff to landing phases of flight including go around.

ThrustSense® Autothrottle combines FADEC functionality with low and high-speed protection for the Pilatus PC-12 and Beechcraft King Air series aircraft.

We believe ThrustSense® Autothrottle improves safety and performance for Pratt and Whitney PT6 powered single and multi-engine aircraft.

In the case of multi-engine aircraft, such as the Beechcraft King Air, ThrustSense® Autothrottle provides Vmca protection during an engine out condition.

The system is lightweight, installs with minimal downtime and provides the user with high value for performance.

We believe ThrustSense® Autothrottle can attain fuel savings of 3%, and when flying constant angle-of-attack, the fuel savings can be as much as 10%.

In April 2019, the Company received certification from the FAA for its ThrustSense® Autothrottle for retrofit in the King Air dual turboprop PT6 powered aircraft.

The Company has signed a multi-year agreement with Textron to supply ThrustSense® Autothrottle on their new production aircraft, the King Air 360 and King Air 260.

The ThrustSense® Autothrottle is also available for retrofit on King Airs through Textron service centers and third-party service centers.

The ThrustSense® Autothrottle is designed to ensure stabilized approaches by controlling speeds during descent.

During high pilot workload, the ThrustSense® Autothrottle is designed to prevent the airplane from becoming dangerously slow or fast and protects against overtorque and overtempt conditions, thereby enhancing the safety and capability of the aircraft.

Control of the ThrustSense® Autothrottle is housed in an easy-to-install integrated standby unit that provides standby functionality on a high-resolution LCD display.

The ThrustSense® Autothrottle is designed to avoid structural modifications to the existing throttle quadrant.

ThrustSense® Autothrottle has Minimum Equipment List Relief and on-condition maintenance.

We believe the ThrustSense® Autothrottle can be adapted to virtually all PT6 powered aircraft by installing the Company’s integrated standby unit.

The integrated standby unit executes software to control the autothrottle actuator.

In addition, the Company’s integrated standby unit calculates, processes and displays altitude, attitude, airspeed, slip/skid, and navigation display information, which we believe is presented in a logical and concise single instrument display.

It features a high- resolution LCD display with full LED backlighting, thereby improving reliability and providing full sunlight readability to the pilot and fully anti-aliased graphics.

We believe the autothrottle retrofit and standby are easily installed, and typical installation can take less than a week with minimum modifications to the existing flight deck.

Other potential benefits of the ThrustSense® Autothrottle include:

● safety enhancements and pilot workload reduction;

● life-saving enhancements in multi-engine aircraft;

● FADEC-like engine protection;

● No required replacement of the existing throttle quadrant (major cockpit modification) due to the patented compact and safe actuation mechanism;

● broader applications for retrofit in FADEC or non-FADEC turbofan and turboprop aircraft.

Utilities Management System

The Company provides its utilities management system for the Pilatus PC-24 aircraft.

The Company’s utilities management system integrates a wide range of aircraft functions that are commonly supported by multiple individual controllers.

The Company’s utilities management system for the Pilatus PC-24 monitors aircraft sensors and aircraft control systems as required to achieve system functionality.

This open architecture system allows Pilatus to design and/or refine control and monitoring algorithms in-house.

We believe there is interest in the Company’s utilities management system from other aircraft manufacturers as well.

The Company’s utilities management system is an innovative design that controls more than 20 aircraft systems such as navigation, auto-flight, landing gear, surface positions, fire protection, ice/rain protection, electrical loads, lighting, environmental conditions, cabin pressurization and oxygen systems based on OEM custom configuration.

The Company’s utilities management system is a Data Concentrator and Processing Unit that allows manufacturers to configure and program specific applications on a ARINC 653 operating system in an open architecture platform.

The Company’s utilities management system acts as the aircraft central maintenance computer allowing for a maximum of six Data Concentrator and Processing Units to be included in the communication ring.

The system provides a significant power and weight savings over the use of federated boxes and utilizes the Company’s latest technological advancements in avionics circuit design.

Communications and Navigation, Inertial Reference Products

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

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

As used in this Annual Report on Form 10-K, unless expressly stated otherwise or the context otherwise requires, the terms “ISSC” or “the Company”, “we”, “us” and “our”, refers to Innovative Solutions & Support and its subsidiaries.

Incorporated in Pennsylvania in 1988, ISSC is a vertically integrated provider of flight solutions and equipment to commercial air transport, general aviation markets, the United States Department of Defense (“DoD”) and allied foreign militaries.

We operate in one business segment that designs, develops, manufactures, sells and services avionics products and systems for retrofit applications and Original Equipment Manufacturers (“OEMs”).

In the fiscal year 2024 ended September 30, 2024, we reported net sales of $47.2 million, an increase of 35.6% on a year-over-year basis from $34.8 million in the fiscal year ended 2023, and net income of $7.0 increased 16.1% from $6.0 million in fiscal 2023.

At September 30, 2024, our backlog was $89.2 million compared with $13.5 million at September 30, 2023.

Backlog at September 30, 2024 included $74.3 million of acquired backlog as a result of the September 27, 2024 acquisition.

Backlog is converted into sales in future periods as work is performed or deliveries are made.

We expect to recognize approximately 65% of our backlog over the next 12 months and approximately 98% over the next 24 months as revenue, with the remainder recognized thereafter.

During fiscal 2024, we made important progress on our commercial growth strategy highlighted by several key awards and contract wins across our commercial, military and business aviation markets.

In October 2024, we announced our ThrustSense® Autothrottle system was selected by the US Army to be installed on their C-12 (B200) aircraft equipped with ProLine21 avionics suites.

Deliveries of the IS&S ThrustSense Autothrottle system for this application began in September 2024, with ongoing installations anticipated.

In August 2024, we received a multi-million dollar production contract from a major aerospace company to supply our 19’’ Multifunction Display (MFD) with Integrated Mission Computer.

This order marks our latest OEM contract and builds on existing programs with Pilatus Aircraft (“Pilatus”) for the PC-24, Textron Aviation (“Textron”) for the King Air 260/360 and The Boeing Company (“Boeing”) for the KC-46A, KC-767 and the T-7A.

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

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

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

Total consideration was $4.2 million in cash.

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

an assignment of certain contracts;

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

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

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

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

The Company believes the September 2024 Honeywell Agreement will help to accelerate the Company’s growth and enhance its global reputation for delivering best price-for-performance product and service solutions.

OUR BUSINESS MODEL

We specialize in providing systems integrations capabilities that include the design, manufacture, sale and servicing of high-performance avionics products and systems used in both commercial and military aircraft platforms.

As a systems integrator, we leverage our proven expertise in developing end-to-end systems that combine mechanical, electrical, software, and avionics components into an integrated solution.

Our activities as an integrator includes system design and analysis;

integration and testing;

regulatory compliance and documentation;

and lifecycle support.

Our systems integration activities leverage our owned intellectual property and our products and service capabilities, together with third-party technologies that, in combination, provide our customers with advanced solutions on an on-demand basis.

We believe that our ability to source and integrate advanced componentry provides our customers with a unique value proposition, one that helps to reduce cost and optimize fleet utilization.

Currently, we support multiple OEM platforms, including those with the Boeing Company, Eclipse Aerospace, Lockheed Martin, and Pilatus Aircraft.

The Company manufactures, markets and sells a wide variety of high-value, advanced avionics solutions for commercial air transport, business aviation and military customers.

It sources its products through internal research and development efforts, in addition to opportunistic licensing and acquisition of mature product lines that complement the Company’s existing business.

The Company believes that the acquisition of additional product lines presents the opportunity for the Company to leverage potential cost synergies from better utilization of the Company’s skill engineering team and its existing operational capacity while expanding the Company’s customer base and providing opportunities for the Company to market its internally developed products to acquired Customers.

As the Company’s product offerings focus on individual avionics components and systems, it is able to market its products to both customers building new aircraft and customers engaged in the retrofit market.

Our product portfolio consists of the following five categories:

Integrated Flight Deck Systems COCKPIT/IP® that include primary flight/navigation displays, crew alerting and engine displays, integrated standby instruments and mission displays.

Navigation Systems that includes flight management systems, mission computers, navigation radios and transponders.

Communication Systems that includes communication radios, audio panels and radio management units.

Sensors and Control Systems that includes air data computers, attitude and heading reference systems, magnetometers, inertial reference units, GPS receivers, utility management systems and flight control computers.

Advanced Flight Actuators that includes an array of linear and rotary smart-actuators for movement of aircraft levers and surfaces.

Manufacturing Engineering & Design

We believe that our customers value our history of technological innovation, new product development and technical expertise across multiple platforms.

As of September 30, 2024, we held more than 120 U.S.

and international patents relating to our products and systems.

We invest heavily in engineering and development, with approximately 27% of our full-time employees serving in engineering-related roles as of September 30, 2024.

We currently operate a 45,000 square foot design, manufacturing, and office facility in Exton, Pennsylvania.

ISSC is ISO 9001 and AS9100D certified.

These standards represent an international consensus on effective management practices with the goal of ensuring that a company can deliver its products and related services consistently in a manner that meets or exceeds customer quality requirements.

The Company’s certification to these standards allows ISSC to represent to customers that it maintains high-quality industry standards in the education of its employees and in the design and manufacture of its products.

In addition, the Company’s products undergo extensive and documented quality control testing prior to being delivered to customers.

We are currently expanding our Exton facility to add 40,000 square feet of capacity.

The additional capacity will be used to support our commercial growth strategy, including opportunities to capitalize on our recent transactions with Honeywell.

The capacity expansion is expected to cost approximately $6 million.

Sales & Marketing

Our multi-channel sales strategy targets passenger and cargo carrying aircraft operators, general aviation owner/operators, maintenance, repair and overhaul (“MRO”) dealer networks, distributors, avionics integrators, aircraft modification centers, the Department of Defense (“the DoD”), DoD contractors and OEMs.

Periodically, the Company evaluates our sales and marketing efforts with respect to these focus areas and, where appropriate, makes use of third-party sales representatives who receive compensation through commissions based on performance.

Raw Materials

We require the use of various raw materials in our manufacturing processes.

We purchase a variety of manufactured component parts from various suppliers.

We also purchase replacement parts, which are utilized in our various repair and overhaul operations.

At times, we concentrate our orders among a few suppliers in order to strengthen our supplier relationships.

Most of our raw materials and component parts are generally available from multiple suppliers at competitive prices.

Disruptions in the global supply chain has resulted in delays in the availability of certain raw materials and increased raw material costs, among other costs such as labor, though the disruptions somewhat improved in fiscal 2024, resulting in a higher stabilization of costs, as fiscal 2024 progressed.

Our business has been adversely affected, though not materially, and could continue to be adversely affected in fiscal 2025 by disruptions in our ability to timely obtain raw materials and components from our suppliers in the quantities we require or on favorable terms.

Although we believe in most cases that we could identify alternative suppliers, or alternative raw materials or component parts, the lengthy and expensive aviation authority and OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part.

The Company’s manufacturing activities consist primarily of assembling and testing components and subassemblies and integrating them into finished systems.

Typically, the Company purchases components for products, including any necessary raw materials, from third-party suppliers, several of which are sole source, and assembles them in a clean room environment.

Many of the components purchased are standard products, although certain parts are made to the Company’s specifications.

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

During fiscal year 2024, the Company had four suppliers, Honeywell, FilConn, APCT Inc and Brandywine Precision Inc.

that accounted for most of Company’s total inventory related purchases.

When appropriate, the Company enters into long-term supply agreements and uses its relationships with long-term suppliers to improve product quality and availability and reduce delivery times and product costs.

In addition, the Company identifies alternative suppliers for important component parts.

Generally, the introduction of component parts from new suppliers into existing products requires FAA certification of the entire finished product if the newly sourced component varies significantly from the original drawings and specifications.

The Company has not experienced significant delays in delivery of products which could happen as a result of the inability to obtain either component parts or FAA approval of products incorporating new component parts.

OUR CUSTOMERS AND PRODUCT DISTRIBUTION

The Company’s customers include the U.S.

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The Company’s revenue is concentrated with a limited number of customers.

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 2024, our three largest customers, Pilatus, Textron and Honeywell accounted for 23%, 7% and 7% of total revenue, respectively.

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%, 22% 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.

Retrofit Market

The aviation retrofit market involves the modification, refurbishment, or upgrade of existing aircraft to improve performance, safety, fuel efficiency, passenger experience, or regulatory compliance.

This market has been growing, especially as airlines and operators seek to extend the lifetime of existing fleets, reduce operational costs, and meet new environmental standards.

Historically, most of the Company’s sales have come from the retrofit market, which the Company has pursued because of the growing need to support the world’s aging fleet of aircraft.

The design and airframe structure of many types of older aircraft generally exceed the technology and technical capabilities of the original cockpit instruments and avionics.

The Company has developed products that enable owners and operators to upgrade their aircraft by retrofitting them with the Company’s products at a competitive cost and with equipment that provides cockpit displays with capabilities and technology equivalent to newer aircraft.

The design and airframes of many types of older aircraft generally exceed the technology and technical capabilities of the original cockpit instruments and avionics.

The Company has developed products that enable owners and operators to upgrade their aircraft by retrofitting them with the Company’s products at a competitive cost with equipment that provides instruments with capabilities and technology equivalent to newer aircraft.

We expect our main customers in the retrofit market will continue to be the DoD and defense contractors, aircraft operators and aircraft modification centers.

Department of Defense and Defense Contractors.

The Company sells its products directly to the DoD and to domestic and international defense contractors for end use in military aircraft retrofit programs.

The Company markets its products directly to the DoD and to domestic and international defense contractors for end use in military aircraft retrofit programs.

DoD programs generally take one of two forms:

a subcontract with a prime government contractor, such as Boeing, Lockheed Martin, or L3Harris Technologies, Inc.

or a direct contract with the appropriate government agency, such as the U.S.

a subcontract with a prime government contractor, such as Boeing, Lockheed Martin, or L3Harris Technologies, or a direct contract with the appropriate government entity, such as the U.S.

The government’s desire for cost-effective retrofit of its aircraft has led it to purchase commercial off-the-shelf equipment rather than to develop specially designed products, which are usually more costly and take longer to implement.

These retrofit contracts tend to be on arms-length commercial terms, although some termination and other provisions of government contracts are typically applicable to these contracts, as described under “Government Regulation” below.

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

Upon such alteration or termination, the Company is entitled typically to be compensated for already delivered items and reimbursement for allowable costs incurred.

These retrofit contracts tend to be on arms-length commercial terms, although some termination and other provisions of typical government contracts may be incorporated as described below under “Government Regulation.” Each government agency or general contractor usually retains the right to modify or terminate a contract at any time at its convenience.

Upon such alteration or termination, the Company is typically entitled to compensation for items already delivered and reimbursement for allowable costs incurred.

Aircraft Operators.

The Company sells its products to aircraft operators, including commercial airlines, cargo carriers and business and general aviation aircraft owners or suppliers, primarily for retrofitting of aircraft owned or operated by these customers.

The Company markets its products to aircraft operators, including commercial airlines, cargo carriers and business and general aviation aircraft owners or suppliers, primarily for retrofitting of aircraft owned or operated by these customers.

The Company’s commercial fleet customers include or have included, among others, AAL, ATSG, FedEx and Icelandair.

The Company sells these customers a range of products from FPDS to air data systems.

The Company sells these customers a range of products and services.

Aircraft Modification Centers.

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Original Equipment Manufacturers

The Company has signed a multi-year agreement with Textron to supply ThrustSense® Autothrottle on their new production aircraft, the King Air 360 and King Air 260, as described above in “Products - ThrustSense® Autothrottle”.

The Company also markets its products to other OEMs including, among others, Boeing and Lockheed Martin.

The Company has signed a multi-year agreement with Textron to supply ThrustSense® Autothrottles on their King Air 360 and King Air 260 production aircraft as described above in “Products - ThrustSense® Autothrottle”.

The Company has developed and manufactures the utilities management system for the Pilatus’ PC-24 aircraft under a multi-year production contract as described above under “Products - Utilities Management System.” The Company also markets its products to other OEMs including, among others, Boeing and Lockheed Martin.

INTELLECTUAL PROPERTY

We have various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights, which we believe, in the aggregate but not individually, are important to our business.

The Company's products are manufactured, marketed and sold using a portfolio of patents, trademarks, licenses, and other forms of intellectual property, some of which expire in the future.

The Company develops and acquires new intellectual property on an ongoing basis.

Based on the broad scope of the Company’s product lines, management believes that the loss or expiration of any single intellectual property right would not have a material effect on our consolidated financial statements.

HUMAN CAPITAL RESOURCES

Our ability to attract, develop and retain top talent across all of our business functions, and particularly in highly technical areas, has a significant impact on organizational success.

Accordingly, our human capital management strategy places a significant focus on both attracting a diverse, highly skilled workforce and engaging and developing talent from within by creating a work environment that promotes inclusion and equitability.

By providing our valued employees the opportunity to enhance their skillsets, develop their careers and pursue excellence through numerous training and development opportunities, we consistently emphasize the importance of innovation and continuous improvement throughout our organization.

We attract and compensate our employees by offering a competitive total compensation package which includes benefits, resources, and programs that support health, physical, mental, and financial wellness.

The benefits package we offer, coupled with employee recognition opportunities and employee engagement activities help create a comprehensive employee experience.

As of September 30, 2024, we had 133 full-time employees as compared to 98 full-time employees as of September 30, 2023.

On an as-needed basis, we employ temporary personnel with specialized disciplines to fill staffing gaps.

We do not have any employees represented by a union, and we believe that our relations with our employees are good.

We provide our team members with ongoing opportunities to share thoughts and perspectives on company and employment-related matters through surveys, all-hands meetings, and management open door policies.

Our management, with oversight from the Compensation and Nominating & Corporate Governance Committee of our board of directors, monitors the hiring, retention, and management of our employees.

GOVERNMENT REGULATION

Environmental Regulation

We are subject to regulations administered by the U.S.

Environmental Protection Agency, the U.S.

Occupational Safety and Health Administration, various state, county, and local agencies acting in cooperation with federal and state authorities.

Among other things, these regulatory bodies impose restrictions to control air, soil, and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use, and release of certain hazardous chemicals and substances.

The extensive regulatory framework imposes compliance burdens and risks on us.

Governmental authorities have the power to enforce compliance with these regulations and to obtain injunctions or impose civil and criminal fines in the case of violations.

The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) imposes strict, joint and several liability on the present and former owners and operators of facilities that release hazardous substances into the environment.

The Resource Conservation and Recovery Act of 1976 (“RCRA”) regulates the generation, transportation, treatment, storage, and disposal of hazardous waste.

In addition, the Occupational Safety and Health Act, which requires employers to provide a place of employment that is free from recognized and preventable hazards that are likely to cause serious physical harm to employees, obligates employers to provide notice to employees regarding the presence of hazardous chemicals and to train employees in the use of such substances.

Our operations require the use of a limited amount of chemicals and other materials, which are classified under applicable laws as hazardous chemicals and substances.

We follow all federal, state and local rules and regulations regarding the disposal of these chemicals and associated waste.

Federal Aviation Administration Regulation

We are subject to regulation by the Federal Aviation Administration (“FAA”) under the provisions of the Federal Aviation Act of 1958, as amended.

The FAA prescribes standards and licensing requirements for aircraft and aircraft components.

We are subject to inspections by the FAA and may be subjected to fines and other penalties (including orders to cease production) for noncompliance with FAA regulations.

Our failure to comply with applicable regulations could result in the termination of or our disqualification from some of our contracts, which could have a material adverse effect on our operations.

GOVERNMENT CONTRACT COMPLIANCE

Our government contracts and sub-contracts are subject to the procurement rules and regulations of the U.S.

Many of the contract terms are dictated by these rules and regulations.

Specifically, cost-based pricing is determined under the Federal Acquisition Regulation (“FAR”), which provide guidance on the types of costs that are allowable in establishing prices for goods and services under U.S.

Government contracts.

For example, costs such as those related to charitable contributions, advertising, interest expense,

and public relations are unallowable, and therefore not recoverable through sales.

During and after the fulfillment of a government contract, we may be audited in respect of the direct and allocated indirect costs attributed thereto.

These audits may result in adjustments to our contract costs.

Additionally, we may be subject to U.S.

Government inquiries and investigations because of our participation in government procurement.

Any inquiry or investigation can result in fines or limitations on our ability to continue to bid for government contracts and fulfill existing contracts.

We believe that we are in compliance with all federal, state, and local laws and regulations governing our operations and have obtained all material licenses and permits required for the operation of our business.

Government generally has the ability to terminate our contracts, in whole or in part, without prior notice, for convenience or for default based on performance.

Government contract were to be terminated for convenience, we generally would be protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs, but not the anticipated profit that would have been earned had the contract been completed.

In the unusual circumstance where a U.S.

Government contract does not have such termination protection, we attempt to mitigate the termination risk through other means.

Termination resulting from our default may expose us to liability and could have a material adverse effect on our ability to compete for other contracts.

Government also has the ability to stop work under a contract for a limited period of time for its convenience.

In the event of a stop work order, we generally would be protected by provisions covering reimbursement for costs incurred on the contract to date and for costs associated with the temporary stoppage of work on the contract.

However, such temporary stoppages and delays could introduce inefficiencies for which we may not be able to negotiate full recovery from the U.S.

Government, and could ultimately result in termination for convenience or reduced future orders on certain contracts.

Additionally, we may be required to continue to perform for some period of time on certain of our U.S.

Government contracts, even if the U.S.

Government is unable to make timely payments.

COMPETITIVE CONDITIONS

We experience competition in our aerospace and defense markets across suppliers of competitive products and services as well as with vertically integrated primes.

We believe that the principal points of competition in our markets are product quality, reliability, price, design and engineering capabilities, product development, conformity to customer specifications, timeliness of delivery, effectiveness of the distribution organization and quality of support after the sale.

We believe ISSC has demonstrated a track record of performance excellence across each of these areas that has resulted in long-standing customer relationships, often characterized by recurring contractual relationships.

With respect to our products, the Company’s principal competitors include Honeywell Aerospace, Collins Aerospace, GE Aerospace, Thales Defense & Security, Inc., Elbit Systems and Garmin Ltd.

OUR COMPETITIVE STRENGTHS

• Vertically integrated model.

ISSC can reduce its time-to-market through inhouse design, manufacturing and testing capabilities;

full service integration and repair capabilities;

and deep technical expertise.

• Systems integration expertise.

IS&S’s extensive system integration expertise is a key differentiator within the market and provides a compelling value to its Company’s customer base.

We believe this expertise enhances ease of installation, reduces aircraft downtime and reduces system complexity.

• Retrofit application expertise.

The average age of the global commercial airline fleet has reached a record level of 14.8 years, according to the International Air Transport Association.

Extending an aircraft’s lifespan increases maintenance demands.

Since age brings wear and tear that requires more frequent and thorough inspections and replacement of parts that fail or reach their lifetime limits.

IS&S specializes in retrofitting older aircraft with state-of-the-art avionics, such as Flat Panel Display Systems and Autothrottles that significantly improve functionality and compliance with current aviation standards.

• Strong Product and IP Portfolio.

As of September 30, 2024, the Company held 47 U.S.

The Company holds 111 international patents and has 17 trademarks.

Certain of these patents cover technology relating to air data measurement systems, and others cover technology relating to flat panel display systems and other aspects of the COCKPIT/IP® product.

• Depth of experience in serving global customer brands.

ISSC has experience serving both commercial and military customers with global reach, including, among others, Amazon, American Airlines, BAE Systems, Boeing, DHL, Eclipse Aviation, FedEx, Lockheed Martin, Pilatus, and Textron.

INDUSTRY OUTLOOK

We operate in highly competitive markets.

Since our inception more than 35 years ago, our markets have experienced significant growth, leading to new entrants with considerable financial resources and scale.

During this time, ISSC has built a strong position with a portfolio of established, long-term customers that value our ability to deliver reliable, high-quality products that incorporate advanced technologies together with expert technical support, and a competitive, value-centric approach to product pricing.

We believe that, in times of adverse economic conditions, customers that may have otherwise elected to purchase newly manufactured aircraft may be interested instead in retrofitting existing aircraft as a cost-effective alternative, thereby enhancing the retrofit market opportunity for the Company.

A wide range of information is critical for the proper and safe operation of aircraft.

The Company believes that aircraft cockpits will become more complete information centers that are capable of delivering additional information that is either mandated by regulation or demanded by pilots to assist in the safe and efficient operation of aircraft.

We believe that the market will continue to migrate toward autonomous flight and that the flight deck will incorporate additional technologies that are stepping-stones on the path to complete autonomy.

Historically, equipment data, such as engine and fuel-related information, were displayed on analog mechanical instruments.

Engine and fuel instruments provide information on engine activity, including oil and hydraulic pressures and temperature.

These instruments are clustered throughout an aircraft’s cockpit.

Individual instruments tend to be replaced more frequently than the aircraft itself due to obsolescence and normal wear-and-tear.

Increasingly, operators are replacing their clusters of analog mechanical instruments with integrated display systems such as the IS&S panel displays.

These new technologies and procedures, such as traffic avoidance, ground awareness, increased precision of navigation and vertical position, runway incursion prevention and increased digital communication, will require innovation and intuitive methods to display situational awareness information for the pilots.

We believe that IS&S flat panel displays provide an attractive solution to the growing need for innovation and new methods in this area.

The foundation of our value creation framework is our focused business strategy which seeks to deliver stable commercial growth, including both organic and inorganic growth, operational excellence and disciplined capital allocation.

Key elements of the strategy include the following:

#1 - Targeted Commercial Growth

• Expand product line portfolio

The Company’s COCKPIT/IP® system components are examples of its ability to engineer products using the selective application of non-avionic technology.

In 2016, ISSC recognized that the lack of an available autothrottle system on turboprop aircraft was an unmet need in the marketplace, leading it to invest in the development of a sophisticated turboprop autothrottle.

We believe that ThrustSense® Autothrottle, the Company’s turboprop autothrottle incorporating patented technology, is highly effective, less complex and less costly than other available products and offers sophisticated sensing and multiple safety features that even exceed those of some much more expensive jet autothrottle systems.

The Company intends to continue to capitalize on being the first to market an autothrottle to owners and operators of turboprop aircraft.

• Focus on retrofit opportunity

Given an aging global aircraft fleet, cockpit avionics upgrades for existing aircraft continue to be a significant opportunity for the Company.

• Expand presence in flat panel display market

Due to recent demand from cargo operators, we believe that many aircraft will be retrofitted with flat panel displays over the next several years.

The Company believes that its COCKPIT/IP® has significant benefits over competitive flat panel displays, including lower cost, larger size, reduced weight, enhanced viewing angles, and a broader array of functions.

The Company’s patented and proprietary Integrity Checking Processor and Zooming features provide increased situational awareness, reliability, performance and utility to the owner/operator.

Accordingly, we believe that these advantages will allow the Company to generate increased revenues from the COCKPIT/IP® product and increase our market share.

In addition, the Company believes that demand for new aircraft, FAA mandates and obsolescence issues on older aircraft will contribute to this growth.

• Evaluate potential acquisitions and strategic partnerships

As a part of the Company’s growth strategy, we continuously evaluate acquisition opportunities and opportunities to make investments in complementary businesses, technologies, services or products.

In addition, we may enter into strategic partnerships with parties who can provide access to assets, additional product or services offerings, additional distribution or marketing synergies or additional industry expertise in order to enhance and expand the Company’s product offerings, technology and capabilities in its current and future products.

Any newly acquired products and technology may enable the Company to sell to a new group of buyers and introduce them to our broader range of products.

#2 - Improve Operational Efficiency

• The Company works to build on its legacy of strong operational execution to generate attractive margins through both increased operating leverage from higher revenues, and internal margin initiatives.

The Company believes it can realize efficiencies in the manufacturing and repair of the acquired Honeywell products by insourcing the production of product sub-assemblies.

We also expect to benefit from higher fixed cost leverage as we more effectively utilize the manufacturing capacity at our Exton facility.

We will also work to realize additional efficiencies through sourcing and procurement initiatives in an effort to drive cost savings.

#3 - Return-Focused Capital Allocation Strategy

• We employ a disciplined, return-focused capital allocation strategy.

Our primary focus will be on capital deployment in support of our growth initiatives.

The Company remains committed to maintaining strong financial flexibility.

Backlog, beginning of period

bookings during period, net

acquired through acquisition

sales recognized during period

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Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders.

The backlog excludes potential future sole-source production orders from products developed under the Company’s EDC programs, including the Pilatus PC-24, the KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs.

The backlog excludes potential future sole-source production orders from products developed under the Company’s engineering development contracts (“EDC”) programs, including the Pilatus PC-24, the KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs.

Although the Company believes that the orders included in backlog are firm, most of the backlog involves orders that can be modified or terminated by the customer.

As of September 30, 2023, 8% of the Company’s backlog was expected to be filled beyond fiscal 2024.

Engineering Development

The Company invests a significant percentage of its sales in engineering development, which includes both research & development (“R&D”) and EDC.

At September 30, 2023, approximately 26% 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 changes 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.

R&D charges incurred for product design, product enhancements and future product development are expensed as R&D.

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 recognized over time or at a point in time) applicable to such contracts.

Sales and Marketing

The Company focuses its sales efforts on passenger and cargo carrying aircraft operators, general aviation owner/operators, maintenance, repair and overhaul (“MRO”) dealer networks, distributors, avionics integrators, aircraft modification centers, the DoD, DoD contractors and OEMs.

Periodically, the Company evaluates its sales and marketing efforts with respect to these focus areas and, where appropriate, makes use of third-party sales representatives who receive compensation through commissions based on performance.

As of September 30, 2023, we had thirteen third-party sales representatives worldwide actively selling the Company’s products.

We are continuing to expand our MRO dealer network to address worldwide markets for Boeing 737, 757 and 767, Pilatus PC-12, Beechcraft King Air models and other aircraft types.

We have established a dealer network for ThrustSense® Autothrottle, and we are exploring adding more MRO dealers in the United States and internationally.

Our marketing efforts have focused on applicable markets to establish and maintain customer relationships using email campaigns, key market influencers, advertisements, trade shows, web casts, direct mailers and digital and social media.

Our ThrustSense® Autothrottle offering on the Pilatus PC-12 and King Air have been favorably featured in multiple articles in major publications over the past several years.

The Company believes its ability to provide prompt and effective repair and upgrade service is critical to its marketing efforts.

The Company’s customer service program offers a 24-hour customer hotline.

The Company services its customers utilizing either field service engineers or its in-house repair and upgrade facility.

The Company may lend spare units to customers when it is repairing or overhauling their equipment.

The Company provides customers with a standard two-year warranty on new products and offers customers extended warranties of varying lengths beyond the two years for additional fees.

The Company believes its ability to provide an installation service is critical to its marketing efforts.

The Company’s repair station, which began operating in June 2022, provides a mobile STC Installation Team to install the PC-12 and King Air ThrustSense® Autothrottle systems.

Most of the Company’s sales, personnel and assets are located within the United States.

In fiscal years 2023, 2022 and 2021 net sales outside the United States amounted to $15.5 million, $11.1 million and $8.4 million, respectively.

Government Regulation

FAA regulations govern the manufacture and installation of the Company’s products in aircraft owned and operated in the United States.

Both the Company’s manufacturing facility and repair station are FAA-certified.

The most significant product and installation regulations are Technical Standard Orders, Parts Manufacturer Approvals and STCs, which establish the minimum operational performance standards.

For example, in April 2019, the FAA issued its Technical Standard Orders authorization and STC for the Company’s ThrustSense® Autothrottle for retrofit in the King Air dual prop PT6 powered aircraft.

In February 2019, the FAA issued its Technical Standard Orders authorization and STC for the Company’s B767 Integrated Standby Unit to be used on B767 aircraft in the United States.

Generally, sales of the Company’s products to European or other non-U.S.

owners of aircraft require approval of EASA, or other relevant governmental agencies.

EASA certification requirements for the manufacture and installation of the Company’s products in European owned aircraft mirror FAA regulations, and its process for European certification is similar to that of the FAA.

For example, in September 2021, EASA and the Transport Canada Civil Aviation issued STCs for the Company’s ThrustSense® Autothrottle for King Air series aircraft in the European Union and Canada, respectively.

In addition to product-related regulations, the Company is subject to U.S.

government procurement regulations with respect to the sale of the Company’s products to government entities or government contractors.

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

Upon such alteration or termination, the Company is generally entitled to an equitable adjustment to the contract price so that the Company receives the purchase price for products or services already delivered, reimbursement for allowable costs incurred and termination related costs.

The Company’s business is also impacted by various other laws and regulations, including, but not limited to, local, state, federal, and international tax codes, import and export controls and customs laws, employment and employment-related laws, environmental laws, intellectual property laws, and consumer protection statutes.

The Company from time to time incurs costs in the ordinary course of business in connection with maintaining compliance with these evolving and at times overlapping regulatory regimes.

Manufacturing, Assembly and Materials Acquisition

The Company’s manufacturing activities consist primarily of assembling and testing components and subassemblies and integrating them into finished systems.

Many of the components purchased are standard products, although certain parts are made to the Company’s specifications.

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

In addition, the Company identifies alternative

suppliers for important component parts.

The Company has not experienced significant delays in delivery of products caused by the inability to obtain either component parts or FAA approval of products incorporating new component parts.

Quality Assurance

Product quality is of vital importance.

The Company is ISO 9001 and AS9100D certified.

The Company’s certification to these standards allows the Company to represent to customers that it maintains high-quality industry standards in the education of its employees and in the design and manufacture of its products.

In addition, the Company’s products undergo extensive and documented quality control testing prior to being delivered to customers.

The market for the Company’s products is highly competitive.

Competitors vary in size and resources, and substantially all the Company’s competitors are much larger than the Company and have substantially greater resources.

With respect to air data systems and related products, the Company’s principal competitors include Honeywell, Collins Aerospace, Thales Defense & Security, Inc.

and Garmin Ltd.

With respect to flat panel displays, principal competitors currently include Honeywell, Collins Aerospace, L3Harris Technologies, Garmin Ltd.

and GE Aviation Systems.

However, as the flat panel display industry evolves and the demand for flat panel displays increases, the Company may face future competition in this area from other suppliers.

The Company believes that the principal competitive factors in its markets are cost, development cycle time, responsiveness to customer preferences, product quality, technology and reliability.

We believe that its our significant and long-standing customer relationships reflect the Company’s ability to compete favorably with respect to these factors.

Intellectual Property and Proprietary Rights

The Company relies on patents to protect its proprietary technology.

As of September 30, 2023, the Company holds 32 U.S.

patents and has three U.S.

patent applications pending relating to its technology.

In addition, as of September 30, 2023, the Company holds 85 international patents and has six international patent applications pending.

Certain of these patents and patent applications cover technology relating to air data measurement systems, and others cover technology relating to flat panel display systems and other aspects of the COCKPIT/IP® product.

While we believe these patents have significant value in protecting our technology, we believe that the innovative skill, technical expertise and know-how of the Company’s personnel in applying the technology reflected in its patents would be difficult, costly and time consuming for third parties to reproduce.

While the Company is not aware of any pending lawsuits against the Company alleging patent infringement or the violation of other intellectual property rights, it cannot be certain such infringement claims will not be asserted against the Company in the future.

Human Capital

Our people are the driving force behind our success, and our future and growth prospects depend on our ability to attract, train and retain highly qualified personnel.

We are fortunate to have talented and outstanding employees, and we are proud of our diverse workforce and the broad range of skills and experiences that our people have.

We work hard to cultivate a dynamic and enjoyable work environment that provides opportunities to learn new skills.

We emphasize teamwork and encourage our employees to brainstorm and develop and refine new ideas to help us innovate and achieve our goals.

We maintain equity compensation plans and benefits packages designed to retain talented people who share our goals and interests.

We also offer competitive salaries and generous benefits, including vacation, a 401(k) savings and retirement plan, health, dental, life, long-term disability insurance, an Employee Assistance Program and health and dependent Flexible Spending Account programs.

Additionally, we regularly review and reevaluate our recruitment strategies to ensure our practices align with our mission, purpose, and values.

Nevertheless, competition for such qualified personnel is intense, and the Company may not be able to attract, train and retain highly qualified personnel in the future.

We are an equal opportunity employer and a Vietnam Era Veterans’ Readjustment Assistance Act federal contractor.

All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity,

national origin, disability status, protected veteran status, or any other characteristic protected by law.

We also comply with all applicable state and local laws governing nondiscrimination in employment and have a Code of Business Conduct and Ethics applicable to each employee, director, officer, contractor and consultant of the Company designed to ensure that we maintain the highest standards of business conduct in every aspect of our business and operations.

As of September 30, 2023, the Company had 98 employees (95 of whom were full-time employees).

None of our employees are currently represented by a labor union, nor are they subject to a collective bargaining agreement.

We consider our relationship with our employees to be good.

Executive Officers of the Registrant

The following is a list of the Company’s executive officers, their ages and their positions in each case.

Shahram Askarpour

Director and Chief Executive Officer

Interim Chief Financial Officer

(1) 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.

Winand was appointed as interim Chief Financial Officer of the Company on November 8, 2023.

Shahram Askarpour has been the Chief Executive Officer of the Company since April 2022.

Askarpour joined the Company as a Director of Engineering in 2003, was promoted to Vice President of Engineering in 2005, and was promoted to President in 2012.

Askarpour has more than 30 years of aerospace industry experience in managerial and technical positions.

Prior to joining the Company, he was employed by Smiths Aerospace (a division of Smiths Group PLC), Instrumentation Technology and Marconi Avionics.

He holds several key patents in the aviation field.

Askarpour received his engineering education in the United Kingdom and received an undergraduate degree in Electrical Engineering from Middlesex University, a post graduate Certificate of Advanced Study in Systems Engineering and a PhD in Automatic Control from Brunel University.

He was awarded the title of Associate Research Fellow for three consecutive years by Brunel University, and has published numerous papers in leading international peer reviewed journals.

In addition, he has completed management courses at Carnegie Mellon University and finance courses at the Wharton School of Business at the University of Pennsylvania.

Winand was appointed as interim Chief Financial Officer of the Company on November 8, 2023.

Winand, age 69, previously served as the Company’s Chief Financial Officer from December 2014 until his retirement in July 2022, after serving as the Company’s Controller from September 2014 to December 2014.

Previously, Mr.

Winand served in a number of executive financial capacities with public companies, including Chief Financial Officer of ECC International, Corp, a manufacturer of computer-controlled maintenance simulators primarily for the DoD and Vice President Finance and Administration of Traffic.com, Inc., a leading provider of accurate, real-time traffic information in the United States.

Immediately prior to joining the Company, Mr.

Winand was Chief Financial Officer from 2008 to 2013 of Orbit/FR, Inc., an international developer and manufacturer of sophisticated microwave test and measurement systems for aerospace/defense, wireless, satellite and automotive industries.

From January 2014 until September 2014, Mr.

Winand served as a consultant for Solomon Edwards Group LLC.

He has over 30 years’ experience in financial management and reporting for both public domestic and international manufacturing companies.

Winand received a B.S.

in Accounting from Drexel University and an M.B.A.

in Finance from Widener University.

The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and information statements and other information about issuers, including the Company, that file electronically with the SEC.

The public can obtain any document we file with the SEC at www.sec.gov.

The Company also maintains its corporate website at http://www.innovative-ss.com and makes available, free of charge, on that website (under the “Investor Relations – Investor Information” tab) the Company’s annual reports on Form 10-K, quarterly reports on Form 10 Q, current reports on Form 8 K, and amendments to those as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.

The information on the Company’s website is not incorporated as part of this Annual Report on Form 10-K.

As of September 30, 2024, 35% of the Company’s backlog was expected to be filled beyond fiscal year 2025.

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 1. Business