What changed in this filing

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Item 1. Financial Statements

2025-02-14 compared with 2024-08-14 · 265 added, 247 removed, 356 unchanged (59% of the section changed)

9 unchanged sentences

Prepaid expenses and other current assets

Assets held for sale

Total current assets

4 unchanged sentences

Current liabilities

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, 2024 and September 30, 2023

No shares issued and outstanding at December 31, 2024 and September 30, 2024

Common stock, $ .001 par value:

75,000,000 shares authorized, 19,590,156 and 19,543,441 issued at June 30, 2024 and September 30, 2023, respectively

75,000,000 shares authorized, 19,635,515 and 19,599,052 issued at December 31, 2024 and September 30, 2024, respectively

Additional paid-in capital

Retained earnings

Treasury stock, at cost, 2,096,451 shares at June 30, 2024 and at September 30, 2023

Treasury stock, at cost, 2,096,451 shares at December 31, 2024 and at September 30, 2024, respectively

( 21,368,537 )

2 unchanged sentences

Total liabilities and shareholders’ equity

The accompanying notes are an integral part of these statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Nine Months Ended June 30,

Customer service

Engineering development contracts

Three Months Ended December 31,

Total net sales

Cost of sales:

Customer service

Engineering development contracts

Total cost of sales

7 unchanged sentences

Income before income taxes

Income tax expense

Income tax expense (benefit)

Net income per common share:

Weighted average shares outstanding:

The accompanying notes are an integral part of these statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Three Months Ended December 31, 2024

shareholders’

4 unchanged sentences

( 21,368,537 )

Share-based compensation

Balance, March 31, 2024

( 21,368,537 )

Share-based compensation

Balance, June 30, 2024

( 21,368,537 )

The accompanying notes are an integral part of these statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

shareholders’

Balance, September 30, 2023

1 unchanged sentence

Share-based compensation

Exercise of stock options

Balance, December 31, 2023

( 21,368,537 )

Share-based compensation

Balance, March 31, 2023

( 21,368,537 )

Share-based compensation

Balance, June 30, 2023

( 21,368,537 )

The accompanying notes are an integral part of these statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

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

Restricted stock awards and Market stock unit awards

Gain on disposal of property and equipment

2 unchanged sentences

Accounts receivable

( 1,646,558 )

Contract assets

( 1,730,281 )

( 2,065,720 )

( 1,660,222 )

Prepaid inventories

Prepaid expenses and other current assets

3 unchanged sentences

Accrued expenses

Income taxes payable

Contract liabilities

2 unchanged sentences

Purchases of property and equipment

Acquisition of a business

( 35,860,000 )

Proceeds from the sale of property and equipment

Net cash provided by (used in) investing activities

( 36,025,084 )

Net cash (used in) provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

4 unchanged sentences

( 1,514,510 )

Proceeds from term note

Proceeds from exercise of stock options

Net cash (used in) provided by financing activities

( 8,791,046 )

Net (decrease) increase in cash and cash equivalents

Net cash (used in) financing activities

( 1,514,510 )

( 8,888,486 )

Net increase (decrease) in cash and cash equivalents

( 2,629,859 )

Cash and cash equivalents, beginning of year

1 unchanged sentence

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for income taxes

Cash paid for interest

SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION

Transfer from prepaid inventory to purchases of property and equipment

Transfer from prepaid inventory to inventory

Transfer from prepaid inventory to goodwill

Transfer from prepaid inventory to intangible assets, net

The accompanying notes are an integral part of these statements.

Transfer from prepaid expenses to PP&E

Transfer from prepaid expenses to intangible assets, net

See accompanying notes to the unaudited condensed consolidated financial statements.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

4 unchanged sentences

Description of the Company

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 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 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.

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

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

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

an assignment of certain customer contracts;

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

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

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”).

On September 27, 2024, the Company entered into a second Asset Purchase and License Agreement (the “September 2024 Honeywell Agreement”) with Honeywell, International Inc.

(“Honeywell”), pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents;

an assignment of certain contracts;

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

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

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

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

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.

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

Basis of Presentation

2 unchanged sentences

The condensed consolidated balance sheet as of September 30, 2024 is derived from the audited financial statements of the Company.

Operating results for the three- and nine-month periods ended June 30, 2024 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.

Operating results for the three months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2025 which cannot be determined at this time.

These unaudited condensed 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, 2024.

5 unchanged sentences

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, inventory obsolescence, 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.

Estimates are used in accounting for, among other items, valuation of tangible and intangible assets acquired, long term contracts, evaluation of allowances for doubtful accounts, inventory obsolescence, product warranty cost liabilities, income taxes, engineering and material costs on Engineering Development Contracts (“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 condensed consolidated statements of operations in the period they are determined.

Principles of Acquisitions

Reclassification

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

For the three months ended December 31, 2024, the Company has aggregated these items into one category, “Services” and reclassified Customer service and Engineering and development contracts revenues as well as Cost of sales to conform the presentation of the Consolidated Statements of Operations for three months ended December 31, 2023.

For additional information, see Note, 3 Summary of Significant Accounting Policies, (“Reclassifications ”) to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

Business Combinations

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.

10 unchanged sentences

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

We allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, with any excess recorded as goodwill.

The valuations of the acquired assets and liabilities will impact the determination of future operating results.

Determining the fair value of assets we acquire and liabilities we assume requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.

We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors.

Fair value adjustments to the

assets and liabilities are recognized and the results of operations of the acquired business are included in our consolidated financial statements from the effective date of the acquisition.

Asset Acquisitions

Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions.

The Company allocates the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis.

Goodwill is not recognized in an asset acquisition.

Intangible Assets

10 unchanged sentences

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

Goodwill is assigned to the reporting units that are

expected to benefit from the synergies of the business combination that generated the goodwill.

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

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

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

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

22 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, 2024 and September 30, 2023, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on June 30, 2024

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, 2024 and September 30, 2024, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on December 31, 2024

Quoted Price in

11 unchanged sentences

Money market funds

The June 30, 2024 money market funds balance differs from the cash and cash equivalents balance on the condensed 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, 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.

The December 31, 2024 money market funds balance differs from the cash and cash equivalents balance on the condensed consolidated balance sheet due to the timing of sweep transactions within the PNC cash investment accounts.

Revenue from Contracts with Customers

The Company accounts for revenue in accordance with ASC 606, “ Revenue from Contracts with Customers” (“ASC 606”).

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 accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle of ASC 606 is that an entity recognizes revenue when a customer obtains control of promised goods or services.

3 unchanged sentences

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

In addition, the Company enters fixed-price contracts, in which the Company agrees to perform the specified work for a pre-determined price.

The contractual terms of the fixed-price contracts are usually long-term, however they often contain a termination for convenience clause that results in the Company treating these contracts as short-term under ASC 606.

To the extent our actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit or could incur a loss.

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.

Payment terms are defined by when payment is typically due.

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.

1 unchanged sentence

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

Most of our revenue is

derived from purchases under which we provide a specific product or service and, as a result, there is only one performance obligation.

Most of our revenue is derived from purchases under which we provide a specific product or service and, as a result, there is only one performance obligation.

In the event that a contract includes multiple promised goods or services, such as an EDC contract, which includes both engineering services and a resulting product shipment, the Company must apply judgment to determine whether promised goods or services are capable of being distinct in the context of the contract.

7 unchanged sentences

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

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.

The Company determines standalone selling price based on the price at which the 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.

5) Recognize revenue when or as the Company satisfies a performance obligation

1 unchanged sentence

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

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.

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.

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

9 unchanged sentences

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter in which it is identified.

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, 2024 and 2023.

Therefore, no adjustment on any contract was material to our condensed consolidated financial statements for the three- and nine-month periods ended June 30, 2024 and 2023.

The impact of adjustments in contract estimates on our operating earnings is typically reflected in consolidated revenues.

There were no material contract estimate adjustments to our condensed consolidated financial statements for the three-months ended December 31, 2024 and 2023.

Contract Balances

4 unchanged sentences

Amount transferred to receivables from contract assets

( 1,029,584 )

Contract asset additions

1 unchanged sentence

Increases due to invoicing prior to satisfaction of performance obligations

June 30, 2024

December 31, 2024

Concentrations

Major Customers and Products

In the three-month period ended June 30, 2024, two customers, Pilatus Aircraft Ltd (“Pilatus”) and Lufthansa Technik AG, accounted for 21 % and 10 % of net sales, respectively.

In the nine-month period ended June 30, 2024, one customer, Pilatus accounted for 26 % of net sales.

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

(“Textron”), accounted for 25 %, 24 % and 10 % 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 months ended December 31, 2024, three customers, Lockheed Martin, Boeing and Pilatus Aircraft Ltd (“Pilatus”), accounted for 38 %, 9 % and 8 % of net sales, respectively.

In the three months ended December 31, 2023, one customer, Pilatus accounted for 29 % of net sales.

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, 2024, the Company had two and one 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, 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 months ended December 31, 2024, the Company had one supplier that was individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three months 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.

Concentration of Credit Risk

5 unchanged sentences

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

Change in Accounting Estimate

Effective April 1, 2024, the Company changed its method of computing depreciation from accelerated methods to the straight-line method for the Company’s property and equipment, except for the manufacturing facility which was already depreciating using the straight-line method.

Based on ASC 250, “ Accounting Changes and Error Corrections ”, the Company determined that the change in depreciation method from an accelerated method to a straight-line method is a change in accounting estimate affected by a change in accounting principle.

Per the guidance, a change in accounting estimate affected by a change in accounting principle is to be applied prospectively.

The change is considered preferable because the straight-line method will more accurately reflect the pattern of usage

and the expected benefits of such assets and provide greater consistency with the depreciation methods used by other companies in the Company’s industry.

The net book value of assets acquired with useful lives remaining will be depreciated using the straight-line method prospectively.

As a result of the change to the straight-line method of depreciating the assets, accumulated depreciation and depreciation expense decreased by $ 113,000 for the three- and nine-month periods ended June 30, 2024.

New Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB).

ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's Consolidated Financial Statements.

In November 2024, the FASB issued ASU No.

2024-03 (“ASU 2024-03”), Disaggregation of Income Statement Expenses.

The guidance primarily will require enhanced disclosures about certain types of expenses.

The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027 and may be applied either on a prospective or retrospective basis.

We are evaluating the impact of the standard on our disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires companies to enhance the disclosures about segment expenses.

The new standard requires the disclosure of the Company’s Chief Operating Decision Maker (CODM), expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making, and the inclusion of previous annual only segment disclosure requirements on a quarterly basis.

This ASU should be applied retrospectively for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are evaluating the impact of the standard on our disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Taxes Disclosures, which requires greater disaggregation of income tax disclosures.

The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction.

This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted.

We are evaluating the impact of the standard on our disclosures

Recently Adopted Accounting Pronouncements

In June 2016, FASB issued ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instrument” (“ASU 2016-13”).

ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

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

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

Supplemental Balance Sheet Disclosures

September 2024 Honeywell Agreement

On September 27, 2024, the Company entered into and closed the transaction contemplated by the September 2024 Honeywell Agreement.

Pursuant to the September 2024 Honeywell Agreement, 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.

The September 2024 Honeywell Agreement allows the Company to diversify its product offerings in the aerospace industry.

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

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

The Company financed the September 2024 Honeywell Agreement with borrowings against the Company’s revolving line of credit.

The purchase consideration transferred at the acquisition date was $ 14.2 million, which was entirely cash.

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

The allocation of the purchase price has not been finalized as of the date of this filing due to the timing of the transaction and due to the fact that, while legal control has been transferred, the Company has not received physical possession of certain of the acquired assets and thus these assets will be subject to settlement adjustments upon transfer as outlined in the September 2024 Honeywell Agreement.

As a result, the purchase price amount for the transaction and the allocation of the preliminary purchase consideration are preliminary estimates, and may be subject to change within the measurement period.

The following purchase price allocation table presents the Company's estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date, and subsequent measurement period adjustments recorded during the three months ended December 31, 2024:

Amounts Recognized as of

Acquisition Date

Purchase Price

(as previously reported)

Period Adjustments

Total consideration

Prepaid inventory (a)

Prepaid equipment and other current assets

Intangible assets (b)

Net assets acquired

(a) Prepaid inventory consists primarily of raw materials 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.

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

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

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

Refer to the Company’s 2024 10K, Note 5, “Intangible assets” for further details.

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

The goodwill recognized is primarily attributable to the expected synergies from the September 2024 Honeywell

Goodwill resulting from the September 2024 Honeywell Agreement has been assigned to the Company’s one reporting unit.

Transition services agreement

Concurrent with the September 2024 Honeywell Agreement, the Company entered into a transition services agreement (the “2024 TSA”) with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period.

The Company accounted for the 2024 TSA separate from business combination and has 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 prepaid expense related to the 2024 TSA was determined using the with and without method.

For the three months ended December 31, 2024, the Company recognized no additional adjustments to prepaid expenses and other current assets within the consolidated balance sheets for services received from Honeywell.

Acquisition and related costs

For the fiscal year ended September 30, 2024, the Company incurred $ 589,000 of acquisition costs included in SG&A expenses in connection with the June 2023 Honeywell Agreement.

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

For the three months ended December 31, 2024, the Company incurred $ 86,688 of costs in connection to the September 2024 Honeywell Agreement.

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

Unaudited actual and pro forma information

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, 2023:

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.

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

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

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

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

June 2023 Honeywell Agreement

On June 30, 2023, the Company entered into an Asset Purchase and License Agreement with Honeywell whereby Honeywell sold certain assets and granted perpetual license rights to manufacture and sell licensed products related to its inertial, communication and navigation product lines to the Company.

2 unchanged sentences

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

The transaction allows the Company to diversify its product offerings in the

aerospace industry.

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

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

In connection with the Transaction, the Company entered into a term loan with PNC Bank, National Association for $ 20.0 million to fund a portion of the Transaction (the “Term Loan”) – refer to Note 9, “Loan Agreement” for further details.

In connection with the transaction, the Company entered into a term loan with PNC Bank, National Association for $ 20.0 million to fund a portion of the transaction (the “Term Loan”) – Refer to the Company’s 2024 10K, Note 8, “ Loan Agreement ” for further details.

The purchase consideration transferred at the acquisition date was $ 35.9 million, which was entirely cash.

22 unchanged sentences

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

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 change in the value of the finished goods.

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 change 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 estimated fair values.

5 unchanged sentences

Goodwill resulting from the transaction has been 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 goodwill was not impaired as of June 30, 2024 and as such, no impairment charges have been recorded for the three- and nine-month periods ended June 30, 2024;

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

In the third quarter of 2024 and within one year from the acquisition date, the Company identified measurement period adjustments related to fair value estimates.

10 unchanged sentences

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 at September 30, 2023 within the condensed consolidated balance sheets for the services to be received in the future from Honeywell.

Concurrent with the June 2023 Honeywell Agreement, the Company entered into a transition services agreement (the “2023 TSA”) with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period.

The Company accounted for the 2023 TSA separate from the business combination and has recognized $ 140,000 in prepaid expenses and other current assets within the consolidated balance sheet as of the acquisition date for the services to be received in the future from Honeywell.

The prepaid expense related to the 2023 TSA was determined using the with and without method.

Acquisition and related costs

In connection with the Transaction, the Company incurred no acquisition costs for the three- and nine-month periods ended June 30, 2024.

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

of that amount, the Company incurred acquisition costs of $ 262,099 , which were expensed as incurred and included in selling, general and administrative expenses in the condensed consolidated statement of operations for the three- and nine-month periods ended June 30, 2023.

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

Unaudited pro forma information

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

Nine Months Ended

June 30, 2023

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

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

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

On July 22, 2024, the Company completed the July 2024 Honeywell Asset Acquisition of certain additional assets related to its communication and navigation product lines, including a sale of certain inventory 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 communication and navigation product lines to manufacture, upgrade and repair certain additional products for consideration of $ 4.2 million in cash.

The Company accounted for the transaction as an asset acquisition and allocated the cost of the acquisition, including direct and incremental transaction costs, to the tangible and intangible assets based on their relative fair value as detailed under ASC 805 – Business Combinations (“ASC 805”).

Definite lived assets were recorded to the relative fair value of $ 2,601,000 to property and

equipment and $ 430,000 to customer relationships and backlog.

Since license agreements are indefinite lived assets, they were recorded at fair value in the amount of $ 1,240,000 in accordance with ASC 805.

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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Prepaid insurance

Honeywell TSA Agreement

Intangible assets

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

As of June 30, 2024

As of December 31, 2024

Gross Carrying

License agreement acquired from the Transaction (a)

Customer relationships acquired from the Transaction (a)

License agreement (a)

Customer relationships (a)

( 1,809,762 )

Licensing and certification rights (b)

Licensing and certification rights (c)

( 2,842,422 )

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

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

The Company determined that the intangible assets were not impaired as of June 30, 2024 and September 30, 2023;

no impairment charges have been recorded for the three- and nine-month periods ended June 30, 2024.

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

No impairment charges were recorded during the three-and nine-month periods ended June 30, 2024.

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

Intangible asset amortization expense was $ 358,500 and $ 1,063 for the three-month periods ended June 30, 2024 and 2023, respectively.

Intangible asset amortization expense for the three-month periods ended June 30, 2024 and 2023 was charged to selling, general and administrative expense.

Intangible asset amortization expense was $ 895,500 and $ 1,063 for the nine-month periods ended June 30, 2024 and 2023, respectively.

Intangible asset amortization expense for the nine-month periods ended June 30, 2024 and 2023 was charged to selling, general and administrative expense.

License agreement (a)

Customer relationships (a)

( 1,459,861 )

Licensing and certification rights (c)

( 2,098,146 )

(a) As part of the September 2024 Honeywell Agreement, the July 2024 Honeywell Asset Acquisition, and the June 2023 Honeywell Agreement transactions, the Company acquired intangible assets related to the license agreements for the license rights to use certain Honeywell intellectual property, backlog and customer relationships.

The license agreements have an indefinite life and are not subject to amortization;

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

(b) As part of the September 2024 Honeywell Agreement, the Company acquired intangible assets related to backlog with a useful life of four years .

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, 2024 is as follows:

2024 (three 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.

The expected future amortization expense related to the customer relationships as of December 31, 2024 is as follows:

Amortization Expense

2025 (nine months remaining)

Property and equipment

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Furniture and office equipment

Manufacturing facility

Buildings and improvements

Equipment other

Less accumulated depreciation and amortization

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( 12,409,862 )

Depreciation and amortization related to property and equipment was $ 252,655 and $ 86,439 for the three-month periods ended June 30, 2024 and 2023, respectively.

Depreciation and amortization related to property and equipment was approximately $ 541,732 and $ 257,829 for the nine-month periods ended June 30, 2024 and 2023, respectively.

Depreciation and amortization related to property and equipment was $ 622,799 and $ 142,921 for the three months ended December 31, 2024 and 2023, respectively.

Other assets consist of the following:

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Other non-current assets

Other non-current assets as of June 30, 2024 includes deferred ERP implementation costs, a supplier credit from one of our suppliers and a deposit for medical claims required under the Company’s medical plan.

Other non-current assets as of September 30, 2023 includes a supplier credit from one of our suppliers, 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 June 30, 2024 and September 30, 2023 includes $ 38,795 and $ 53,585 , 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 $ 5,277 and $ 2,601 for the three-month periods ended June 30, 2024 and 2023, respectively.

Other non-current assets amortization expense was $ 14,790 and $ 2,601 for the nine-month periods ended June 30, 2024 and 2023, respectively.

Other non-current assets as of December 31, 2024 and September 30, 2024 consists primarily of deposits for medical claims required under the Company’s medical plan.

Accrued expenses

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Income tax payable

Warranty cost and accrual information for the three- and nine-month periods ended June 30, 2024 is highlighted below:

Warranty cost and accrual information for the three months ended December 31, 2024 is highlighted below:

Three Months Ending

Nine Months Ended

June 30, 2024

December 31, 2024

Warranty accrual, beginning of period

Accrued expense

Accrued expense (Adjustment)

Warranty cost

3 unchanged sentences

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 periods ended June 30, 2024 and 2023 were 17.6 % and 19.3 %, respectively.

This effective tax rate 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 nine-month periods ended June 30, 2024 and 2023 were 19.9 % and 20.5 %, respectively.

This effective tax rate 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 rates for the three-months ended December 31, 2024 and 2023 were 20.1 % and 21.8 %, respectively.

The effective tax rate for the three months ended December 31, 2024 differs from the statutory tax rate primarily due to the effect of state income taxes, tax credits and certain nondeductible expenses.

The effective tax rate for the three months ended December 31, 2023 differs from the statutory tax rate primarily due to higher state taxes as a result of a taxable gain recognized from the sale of the Company’s King Air aircraft.

Shareholders’ Equity and Share-Based Payments

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Share-Based Compensation

The Company accounts for share-based compensation under the provisions of ASC Topic 718, “ Compensation – Stock Compensation” , by using the fair value method for expensing stock options and stock awards.

Amended and Restated 2019 Stock-Based Incentive Compensation Plan

The Company’s Amended and Restated 2019 Stock-Based Incentive Compensation Plan was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders held on April 18, 2024, which amended and restated the 2019 Stock-Based Incentive Compensation Plan approved by the Company’s shareholders on April 2, 2019 (as Amended, the “Amended and Restated 2019 Plan”).

The Amended and Restated 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options

and other equity-based awards.

Options granted under the Amended and Restated 2019 Plan may be either “incentive stock options” as defined in section 422 of the Code or nonqualified stock options, as determined by the Compensation Committee.

Subject to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution, or similar corporate transaction or event, the maximum number of shares of common stock available for awards under the Amended and Restated 2019 Plan is 1,950,000 , plus the shares that were authorized to be granted but have not been issued under the Company’s 2009 Stock-Based Incentive Compensation Plan as of the effective date of the Amended and Restated 2019 Plan (i.e., April 18, 2024).

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

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

Options granted under the 2019 Plan may be either “incentive stock options” as defined in Section 422 of the U.S.

Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options, as determined by the Compensation Committee.

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

On April 18, 2024, the Company amended the 2019 Plan to include an additional 1,950,000 authorized shares available for issuance.

As of December 31, 2024, there were 1,679,135 shares of common stock available for awards under the 2019 Plan.

If any award is forfeited, terminates or otherwise is settled for any reason without an actual distribution of shares to the participant, the related shares of common stock subject to such award will again be available for future grant.

Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an award (including, in any case, shares withheld from any such award) will not be available for future grant under the Amended and Restated 2019 Plan.

If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and kind of shares of common stock which may be issued in connection with future awards, the number and kind of shares of common stock covered by awards then outstanding under the Amended and Restated 2019 Plan, the aggregate number and kind of shares of common stock available under the Amended and Restated 2019 Plan, any applicable individual limits on the number of shares of common stock available for awards under the Amended and Restated 2019 Plan, the exercise or grant price of any award, or if deemed appropriate, make provision for a cash payment with respect to any outstanding award.

If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and kind of shares of common stock which may be issued in connection with future awards, the number and kind of shares of common stock covered by awards then outstanding under the 2019 Plan, the aggregate number and kind of shares of common stock available under the 2019 Plan, any applicable individual limits on the number of shares of common stock available for awards under the 2019 Plan, the exercise or grant price of any award, or if deemed appropriate, make provision for a cash payment with respect to any outstanding award.

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 Amended and Restated 2019 Plan was $ 191,623 and $ 566,952 for the three- and nine-month periods ended June 30, 2024, respectively.

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

The compensation expense under the Amended and Restated 2019 Plan related to stock awards issued to non-employee members of the Board was $ 59,278 and $ 159,003 for the three- and nine-month periods ended June 30, 2024, respectively.

The compensation expense under the Amended and Restated 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.

Total compensation expense associated with the Amended and Restated 2019 Plan was $ 250,901 and $ 214,084 for the three-month periods ended June 30, 2024 and 2023, respectively.

Total compensation expense associated with the Amended and Restated 2019 Plan was $ 725,955 and $ 1,230,655 for the nine-month periods ended June 30, 2024 and 2023, respectively.

At June 30, 2024, unrecognized compensation expense of approximately $ 2,165,328 , net of forfeitures, related to non-vested stock options under the Amended and Restated 2019 Plan, will be recognized.

The 2019 Plan will terminate on April 2, 2029, unless earlier terminated by the Company’s Board of Directors (the “Board”).

Termination will not affect awards outstanding at the time of termination.

The Board may amend, alter, suspend, discontinue, or terminate the 2019 Plan without shareholder approval, provided that shareholder approval is required for any amendment which (i) would increase the number of shares subject to the 2019 Plan;

(ii) would decrease the price at which awards may be granted;

or (iii) would require shareholder approval by law, regulation, or the rules of any stock exchange or automated quotation system.

Market-Based Restricted Stock Units

During the three months ended December 31, 2024, to better align executive compensation with the Company’s Total Shareholder Return (“TSR”), the Board approved a special one-time grant of 201,000 market-based restricted stock units (“MSUs”) to the Company’s Chief Executive Officer under the terms and conditions of the 2019 Plan.

The MSU is a restricted stock unit containing vesting terms conditional upon the attainment of both 1) continued service to vesting and 2) stock price appreciation targets indexed against the Company’s actual stock price performance over a specified measurement period.

Under the terms of the grant, the MSU will vest as follows:

1) an initial one -third (1/3 rd ) of the MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than Ten Dollars ( $ 10.00 ) per share for twenty ( 20 ) consecutive trading days or as provided in the provisions of the second succeeding paragraph below;

2) an additional one -third (1/3 rd ) of the MSUs shall vest on the first trading date after shares of the Company’s common stock have traded at a price equal to or greater than Twelve Dollars ( $ 12.00 ) per share for twenty ( 20 ) consecutive trading days;

3) the remaining MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than Fourteen Dollars ( $ 14.00 ) per share for twenty ( 20 ) consecutive trading days.

Additionally, if the tranche of MSU’s subject to vesting pursuant to (1) above does not vest on or before November 20, 2027, then, with respect to such MSUs, the target trading price for the Company’s common stock will be increased to Twelve Dollars ($ 12.00 ) per share, such that the MSUs subject to (1) above will vest on the first trading date after shares of the Company’s common stock have traded at a price equal to or greater than Twelve Dollars ($ 12.00 ) per share for twenty ( 20 ) consecutive trading days.

Any MSUs that have not vested on or before the fourth anniversary of the grant date are immediately forfeited.

With respect to each MSU that becomes vested in accordance with the terms of the award agreement, the Grantee will be entitled to receive one share of common stock upon the settlement of the MSUs.

The Company estimated both the grant-date fair value of the MSU’s awards and the derived vesting periods using a Monte Carlo simulation with the following input assumptions:

Number of MSU's Granted

November 20, 2024

Grant Date Stock Price

Expected Dividend Rate

Expected Volatility

Weighted average risk-free interest rate

Contractual Term

Utilizing Monte Carlo simulation, the MSU’s grant date fair value was estimated to be $ 1,138,557 with a $ 5.66 weighted average grant date fair value per award and the derived vesting periods were estimated to be between 0.8 years and 1.7 years.

For the three months ended December 31, 2024, the Company recognized $ 117,108 of compensation expense related to MSU awards.

As of December 31, 2024, unrecognized compensation expense of $ 1,021,449 associated with non-vested MSU’s will be recognized in future periods under the 2019 Plan.

During the three months ended December 31, 2024, no MSUs vested or were forfeited.

The compensation expense related to stock options, and restricted stock awards issued to employees under the 2019 Plan was $ 206,527 and $ 155,581 for the three months ended December 31, 2024 and 2023, respectively.

The compensation expense under the 2019 Plan related to restricted stock awards issued to non-employee members of the Board was $ 73,026 and $ 50,135 for the three months ended December 31, 2024 and 2023, respectively.

Total compensation expense associated with the 2019 Plan was $ 396,661 and $ 205,716 for the three months ended December 31, 2024 and 2023, respectively.

As of December 31, 2024, unrecognized compensation expense of approximately $ 1,141,422 net of forfeitures, related to non-vested restricted stock under the 2019 Plan, will be recognized in future periods.

As of December 31, 2024, unrecognized compensation expense of approximately $ 459,721 , net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized in future periods.

For the three-months ended December 31, 2024, 361,613 diluted weighted-average shares outstanding were excluded from the computation of diluted earnings per share (“EPS”), because the effect would be anti-dilutive.

Earnings Per Share

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Basic weighted average shares

3 unchanged sentences

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

Basic earnings per share (“EPS”) excludes potentially dilutive securities and is computed by dividing net income by the weighted average number of common shares outstanding for the period.

Diluted EPS is computed assuming the conversion or exercise of all dilutive securities such as employee stock options and restricted stock units (“RSUs”).

Basic EPS excludes potentially dilutive securities and is computed by dividing net income by the weighted average number of common shares outstanding for the period.

Diluted EPS is computed assuming the conversion, or exercise of all dilutive securities such as employee stock options MSUs and RSUs.

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, 2024 and 2023, there were 361,613 and 128,815 options to purchase common stock outstanding, respectively, and 250,975 and 76,636 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, 2024 and 2023, respectively, 529,918 and 312,210 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, 2024 and 2023, respectively, 329,026 and 196,577 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

The number of incremental shares from assumed vestings of MSU’s is calculated using the ‘if-converted method.’ As of December 31, 2024 no outstanding MSU’s were included in the three months ended December 31, 2024 weighted-average diluted shares calculation using the if converted method.

As of December 31, 2024 and 2023, there were 361,613 and 224,374 options to purchase common stock outstanding, respectively, and 201,000 and 0 MSU’S subject to vesting outstanding, respectively.

As of December 31, 2024 and 2023, there were 204,707 and 101,968 shares of restricted stock units subject to vesting outstanding, respectively.

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

Additionally, the weighted-average diluted shares calculation excludes RSUs that are deemed anti-dilutive when applying the treasury stock method.

For the three-months ended December 31, 2024 and 2023, respectively, 361,613 and 213,409 diluted weighted-average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

Commitments and Contingencies

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Prior balances are disclosed below for comparability.

Sales to Eclipse amounted to approximately $ 110,000 and $ 155,000 for the three-month periods ended June 30, 2024 and 2023, respectively.

Sales to Eclipse amounted to approximately $ 203,000 and $ 231,000 for the nine-month periods ended June 30, 2024 and 2023, respectively.

A company in which Parizad Olver (Parchi), a former 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, “ Leases ” (“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.

Consistent with

previous accounting guidance, we will recognize payments for leases with a term of less than one year in the statement of operations on a straight-line basis over the lease term.

We lease real estate and equipment under various operating leases.

A lease exists when a contract or part of a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

In determining whether a lease exists, we consider whether a contract provides us with both:

(a) the right to obtain substantially all of the economic benefits from the use of the identified asset and (b) the right to direct the use of the identified asset.

Some of our leases include base rental periods coupled with options to renew or terminate the lease, generally at our discretion.

In evaluating the lease term, we consider whether we are reasonably certain to exercise such options.

To the extent a significant economic incentive exists to exercise an option, that option is included within the lease term.

However, based on the nature of our lease arrangements, options generally do not provide us with a significant economic incentive and are therefore excluded from the lease term for the majority of our arrangements.

Our leases typically include a combination of fixed and variable payments.

Fixed payments are generally included when measuring the right-of-use asset and lease liability.

Variable payments, which primarily represent payments based on usage of the underlying asset, are generally excluded from such measurement and expensed as incurred.

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

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

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

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 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 Condensed Consolidated Balance Sheet as of June 30, 2024:

Classification on the Consolidated Balance Sheet on June 30, 2024

Operating leases

Operating leases - current

Accrued expenses

Operating leases - noncurrent

Other liabilities

Total lease liabilities

Rent expense and cash paid for various operating leases in aggregate are $ 11,007 for the nine-month period ended June 30, 2024.

The weighted average remaining lease term is 0.4 years and the weighted average discount rate is 5.0 % as of June 30, 2024.

Future minimum lease payments under operating leases are as follows at June 30, 2024:

Twelve Months

Total minimum lease payments

Amount representing interest

Present value of minimum lease payments

Current portion

Long-term portion of lease obligations

Sales to Eclipse amounted to approximately $ 5,981 and $ 84,500 for the three months ended December 31, 2024 and 2023, respectively.

A company in which Parizad Olver (Parchi), a former member of the Board, 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.

On October 18, 2024, the Company entered into a consulting agreement with Peduzzi Associated, ltd.

(“PAL”), an entity in which Maj.

General Dean serves as President.

PAL will provide consulting services in support of the Company’s business development growth into the DoD.

The term of the agreement is for one year and in consideration for services the Company will pay PAL a retainer of $ 9,500 per month.

For the three months ended December 31, 2024, the Company paid PAL $ 28,500 .

Loan Agreement

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

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

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

Availability of funds under the Term Loan was conditioned upon the closing of the transactions contemplated by the Amended Loan Agreement and was used to fund a portion of the 2023 transaction with Honeywell.

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

2 unchanged sentences

The Applicable SOFR Margin ranges from 1.5 % to 2.5 % depending on the Company’s funded debt to EBITDA ratio.

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

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

The interest rate applicable to loans outstanding under the Revolving Line of Credit 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.

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

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

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 June 30, 2024.

The outstanding balance drawn on the Line of Credit was $ 9,859,074 at June 30, 2024.

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

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

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

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

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

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

The Company was in compliance with all applicable covenants throughout and at December 31, 2024.

As of the three months ended December 31, 2024, The outstanding balance drawn on the A&R Revolving Line of Credit was $ 26,512,491 with an effective interest rate of 6.3 percent.

As of December 31, 2024, the Company had availability of $ 8,487,509 under the A&R Revolving Line of Credit.

Subsequent Events

On July 22, 2024, the Company entered into that certain Amendment No.

3 to Asset Purchase and License Agreement (the “Amendment”) with Honeywell.

Pursuant to the Amendment, Honeywell sold, assigned or licensed to the Company certain additional assets related to its communication and navigation product lines, including a sale of certain inventory and customer-related documents;

an assignment of certain contracts;

This Amendment complements the previously disclosed license and asset acquisition completed in June 2023 from Honeywell.

On January 27, 2025, the Board increased the size of the Board to six directors and appointed Denise Devine to serve as an independent director, effective immediately, for a term until the Company’s next annual meeting of shareholders or until her successor is duly elected and qualified or until her earlier death, disqualification, resignation or removal.

In connection therewith, Ms.

Devine was also appointed by the Board to serve as a member of the Audit Committee.

On February 13, 2025, the performance condition for 67,000 units of MSUs granted to the Company’s Chief Executive Officer was met, these shares will vest according to the Company’s Amended and Restated 2019 Stock-Based Incentive Compensation Plan.

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