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What changed in INNOVATIVE SOLUTIONS & SUPPORT INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of INNOVATIVE SOLUTIONS & SUPPORT INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+356 added−328 removedSource: 10-K (2024-01-12) vs 10-K (2022-12-16)

Top changes in INNOVATIVE SOLUTIONS & SUPPORT INC's 2023 10-K

356 paragraphs added · 328 removed · 248 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

127 edited+19 added−16 removed26 unchanged
Biggest changeThe Company has also developed an FAA-certified safety mode feature for its King Air ThrustSense® Autothrottle, LifeGuard™, which provides critical Vmc a protection that proportionally reduces engine power to maintain directional control during an engine-out condition. 4 Table of Contents 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.
Biggest changeThrustSense® 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 4 Table of Contents 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.
Aircraft heading and altitude information includes aircraft speed, altitude, and rates of ascent and descent. Flight critical aircraft control information includes engine data, such as fuel and oil quantity, and other engine measurements.
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.
The Company believes that the 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.
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.
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 (“EAP”), 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.
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 (“VEVRAA”) federal contractor.
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.
IS&S 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 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.
While IS&S 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.
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.
Integrated Global Navigation System The Company’s Integrated Global Navigation System product is an alternative for adding GPS navigation capability to legacy aircraft through the OEM FMS without the high cost of upgrading the current FMS.
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.
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.
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.
The Company has incorporated Electronic Flight Bag (“EFB”) 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 combined with the precision of satellite-based navigation required to comply with the regulatory environments of both domestic and international markets.
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.
Once the flight plan data is entered, the MCDU computes the most economical 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.
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.
Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies, and foreign militaries. Occasionally, IS&S sells its products directly to DoD; however, the Company sells its products primarily to commercial customers for end use in DoD programs.
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.
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. IS&S plans to increase its international sales by adding sales and marketing personnel.
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.
Furthermore, spending by government agencies may be reduced in the future if tax revenues decline. 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.
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.
IS&S 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 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.
This ISU 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.
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.
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.
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’s FMS/FPDS product line is designed for new production and retrofit applications into general aviation, commercial air transport and military transport aircraft. In addition, the Company offers what we believe to be a state-of-the-art ISU, integrating the full functionality of the primary and navigation displays into a small backup-powered unit.
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.
IS&S 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.
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.
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 adapt technologies which are stepping-stones for complete autonomy.
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.
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 ® autothrottles on both aftermarket and OEM aircraft .
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 .
In addition, as permitted by law, IS&S 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.
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.
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.
In addition, the Company identifies alternative 13 Table of Contents 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 believes that the market will continue to embrace the initial phases of autonomous flight. 5 Table of Contents 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.
We believe that the market will continue to embrace the initial phases of autonomous flight. 5 Table of Contents 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.
Engine and Fuel Displays IS&S 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.
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 Company believes that the FMS, alongside its FPDS and CIP 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 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.
Other The SEC maintains a website that contains annual, quarterly, and current reports, proxy statements and information statements, and other information about issuers, including IS&S, that file electronically with the SEC. The public can obtain any document we file with the SEC at www.sec.gov.
Other 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.
Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms. When appropriate, IS&S enters into long-term supply agreements and uses its relationships with long-term suppliers to improve product quality and availability, and to reduce delivery times and product costs.
Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms. When appropriate, the Company enters into long-term supply agreements and uses its relationships with long-term suppliers to improve product quality and availability and reduce delivery times and product costs.
This strategy, as both a manufacturer and integrator, is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation, commercial air transport, United States Department of Defense (“DoD”)/governmental and foreign military markets.
This strategy, as both a manufacturer and integrator, is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation, commercial air transport, the U.S. Department of Defense (the “DoD”)/governmental and foreign military markets.
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. IS&S sells individual components and partial and complete air data systems.
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.
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; ● does not require replacement of the existing throttle quadrant (major cockpit modification) due to the patented compact and safe actuation mechanism; and ● broader applications for retrofit in FADEC or non-FADEC Turbofan and Turboprop aircraft.
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; and ● broader applications for retrofit in FADEC or non-FADEC turbofan and turboprop aircraft.
The design and airframe structure of many types of older aircraft generally exceeds the technology and technical capabilities of the original cockpit instruments and avionics.
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.
We believe the retrofit of an aircraft with the COCKPIT/IP ® FPDS, FMS, and ISU 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.
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.
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 CRTs.
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.
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. IS&S believes this will further increase the demand for the Company’s products.
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.
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, 2022, 16% of the Company’s backlog was expected to be filled beyond fiscal 2023.
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.
IS&S expects 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.
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.
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.
All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, 14 Table of Contents national origin, disability status, protected veteran status, or any other characteristic protected by law.
We believe that ThrustSense ® , IS&S’s new turboprop autothrottle with patented technology, is highly effective, is less complex and less costly than other available products and offers very sophisticated sensing and multiple safety features that we believe even exceeds those of much more expensive jet autothrottle systems.
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.
IS&S also maintains its corporate website at http://www.innovative-ss.com and makes available, free of charge, on that website (under the “Investor Relations” 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 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.
For several years 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 (“CIP”) product line, that incorporates proprietary technology, lower cost relative to the competition, reduced power consumption, decreased weight, and increased functionality.
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.
Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, the impact of the ongoing COVID-19 pandemic, 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, and other macroeconomic factors that affect spending behavior.
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.
The autothrottle system takes full advantage of the integrated cockpit utilizing weight and balance information for optimal control settings and enabling safety functions like a turbulence control mode. The Company sells to both the OEM and the retrofit markets.
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.
The Company has developed products that enable owners and operators to upgrade their aircraft by retrofitting them with IS&S products at a competitive cost and with equipment that provides cockpit displays with capabilities and technology equivalent to new aircraft.
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.
IS&S believes that its air data engine and fuel displays are extremely reliable, have been 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.
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.
The information on the Company’s website is not incorporated as part of this Annual Report on Form 10-K.
The information on the Company’s website is not incorporated as part of this Annual Report on Form 10-K. 15 Table of Contents
ThrustSense® is also available for retrofit on King Airs through Textron service centers and third-party service centers. 9 Table of Contents The IS&S ThrustSense® Autothrottle is designed to ensure stabilized approaches by controlling speeds during descent.
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 autothrottle is designed to prevent the airplane from becoming dangerously slow or fast and protects against overtorque and overtemp, thereby enhancing the safety and capability of your aircraft. Control of the autothrottle is housed in an easy-to-install ISU that provides standby functionality on a high-resolution LCD display.
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.
We work hard to cultivate a dynamic and enjoyable work environment full of opportunities to learn new skills, stressing teamwork and encouraging our employees to brainstorm, develop and refine new ideas to help us innovate and achieve our goals, and we maintain equity compensation plans and benefits packages designed to retain talented people who share our goals and interests.
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.
IS&S expects its 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 on military aircraft retrofit programs.
We expect our main customers in the retrofit market will continue to be the DoD and defense contractors, aircraft operators and aircraft modification centers. U.S. 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.
IS&S believes 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.
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.
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 ADS-B navigation.
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.
Due to recent demand from cargo operators, IS&S believes that many aircraft will be retrofitted with flat panel displays over the next several years.
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 European and other international aircraft operators and aircraft modification centers will retrofit legacy in-service aircraft with large flat panel displays. IS&S obtained approval from the European Union Aviation Safety Agency (“EASA”) for installing the FPDS in Europe for the B757/B767 aircraft and expects to obtain EASA approvals for other European aircraft types.
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 ISU calculates, processes and displays altitude, attitude, airspeed, slip/skid, and navigation display information, which IS&S believes 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 full sunlight readability to the pilot, and fully anti-aliased graphics.
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.
The Company believes that flat panel displays provide a strong solution to the growing need for innovation and new methods in this area. Strategy The Company’s objective is to become a leading supplier and integrator of cockpit information, and believes that its industry experience and reputation, technology and products, and business strategy provide the basis to achieve this objective.
We believe that flat panel displays provide an attractive solution to the growing need for innovation and new methods in this area. Strategy 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.
IS&S saw the lack of an available autothrottle system on turboprop aircrafts as an unmet need in the marketplace and has invested in the development of a sophisticated turboprop autothrottle.
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.
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 Business School. Michael Linacre has been the CFO since July of 2022.
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. Relland M.
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 pandemic (including as a result of the impact of any newer variants or strains of SARS-CoV-2) will result in other suspensions, delays or order cancellations by the Company’s customers or suppliers.
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.
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, 2022, we have twelve representatives worldwide that are actively selling IS&S products.
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.
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”).
Item 1. Business. Overview 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”).
This product includes RNP and RNAV approaches via the certified IS&S Beta 3 GPS and leverages components of the Company’s FPDS to provide annunciation to the pilot during GPS procedures. Autothrottle – ThrustSense® The IS&S Autothrottle, ThrustSense®, is a full regime autothrottle, from takeoff to landing phases of flight including go around.
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. 9 Table of Contents 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.
(“AAL”), Boeing, Deutsche Post DHL Group (“DHL”), FedEx Corporation (“FedEx”), Icelandair, L3Harris Technologies, Inc., Lockheed Martin Corporation, Pilatus, Sierra Nevada Corporation (“Sierra Nevada”), Textron, and the Department of National Defense (Canada), among others. 10 Table of Contents The Company’s revenue is concentrated with a limited number of customers.
(“AAL”), Boeing, Deutsche Post DHL Group, FedEx Corporation (“FedEx”), Icelandair, L3Harris Technologies, Inc. (“L3 Harris Technologies”), Lockheed Martin Corporation (“Lockheed Martin”), Pilatus, Sierra Nevada Corporation, Textron, and the Department of National Defense (Canada), among others. The Company’s revenue is concentrated with a limited number of customers.
Sales and Marketing IS&S focuses its sales efforts on passenger and cargo carrying aircraft operators, general aviation owner/operators, MRO/dealer networks, distributors, avionics integrators, aircraft modification centers, the DoD, DoD contractors, and OEMs.
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.
While IS&S believes these patents have significant value in protecting its technology, it believes 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 to reproduce.
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.
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 incurred.
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.
Accordingly, the Company believes that these advantages will allow IS&S to generate significant revenues from the COCKPIT/IP ® product, and to increase 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 engineering and product development successes.
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 supplies integrated Flight Management Systems (“FMS”), Flat Panel Display Systems (“FPDS”), FPDS with Autothrottle, air data equipment, Integrated Standby Units (“ISU”), Standby ISU with Autothrottle Systems and advanced GPS receivers that enable reduced carbon footprint navigation.
The Company supplies integrated flight management systems (“FMS”), flat panel display systems (“FPDS”), FPDS with autothrottle, air data equipment, integrated standby units, integrated standby units with autothrottle, advanced Global Positions System (“GPS”) receivers that enable reduced carbon footprint navigation, communication and navigation products and inertial reference units.
Utilities Management System IS&S provides the Utilities Management System (“UMS”) for the Pilatus PC-24 which has been certified and delivered. The IS&S UMS integrates a wide range of aircraft functions, which are commonly supported by multiple individual controllers. The UMS-24 monitors aircraft sensors and aircraft control systems as required to achieve system functionality.
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. IS&S believes there is interest in its UMS from other aircraft manufacturers as well.
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 has signed a multi-year agreement with Textron to supply ThrustSense® on their new production aircraft, the King Air 360 and King Air 260.
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”.
Upon such alteration or termination, IS&S 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 for termination related costs.
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 Repair Station provides a mobile STC Installation Team to install the PC-12 and King Air ThrustSense® Autothrottle systems beginning in June 2022. Most of the Company’s sales, personnel and assets are located within the United States.
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 2022, 2021 and 2020 net sales outside the United States amounted to $11.1 million, $8.4 million and $9.4 million, respectively. 12 Table of Contents Government Regulation FAA regulations govern the manufacture and installation of the Company’s products in aircraft owned and operated in 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.
In the early 1980s, Cathode Ray Tubes (“CRT”) 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 (“AMLCD”) to replace traditional analog instruments, CRT or LCD displays.
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.
Accordingly, the Company believes flat panel displays, which can integrate and display a “suite” of information, will replace individual instrument CRTs and LCDs on legacy aircraft. In the past, equipment data, such as engine and fuel-related information, were displayed on conventional analog mechanical instruments. Engine and fuel instruments provide information on engine activity, including oil and hydraulic pressures, and temperature.
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.
On the other hand, the Company believes 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 creating a market opportunity for IS&S.
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. Industry A wide range of information is critical for the proper and safe operation of aircraft.
IS&S’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.
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.
In addition, IS&S holds 40 international patents and has 2 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® solution.
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.
The Company may lend spare units to customers when it is repairing or overhauling their equipment. IS&S provides customers with a standard two-year warranty on new products. The Company 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 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlthough the certification requirements of the FAA and EASA are substantially similar, no formal reciprocity exists between the two regulators. Accordingly, even though the Company’s products are FAA approved, the Company may need to obtain approval from EASA or other appropriate organizations to have them certified for installation outside the United States.
Biggest changeAccordingly, even though the Company’s products are FAA approved, the Company may need to obtain approval from EASA or other appropriate organizations to have them certified for installation outside the United States. 20 Table of Contents Significant delay in receiving certification for newly developed products or enhancements to the Company’s products, or the loss of certification for its existing products, could result in lost sales or delays in sales.
While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. The Company’s competition includes other manufacturers of air data systems and flight information displays against whom it may not be able to compete successfully.
These factors and their impact are difficult to predict, and any one or more of them could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. The Company’s competition includes other manufacturers of air data systems and flight information displays against whom it may not be able to compete successfully.
Litigation with customers, employees and others could harm our reputation and impact operating results. In the ordinary course of business, we may be involved in lawsuits and regulatory actions with customers, employees and others. Additionally, we may be subject to employment-related claims alleging discrimination, harassment, wrongful termination and wage issues, including those relating to overtime compensation.
Legal and Regulatory Risks Litigation with customers, employees and others could harm our reputation and impact operating results. In the ordinary course of business, we may be involved in lawsuits and regulatory actions with customers, employees and others. Additionally, we may be subject to employment-related claims alleging discrimination, harassment, wrongful termination and wage issues, including those relating to overtime compensation.
In seeking new customers, the Company may have difficulty in displacing the products of incumbent competitors. IS&S cannot be assured that potential customers will accept its products or that existing customers will not abandon them. 16 Table of Contents Contracts can be terminated by many of the Company’s customers at any time and, therefore, may not result in sales.
In seeking new customers, the Company may have difficulty in displacing the products of incumbent competitors. The Company cannot be assured that potential customers will accept its products or that existing customers will not abandon them. 16 Table of Contents Contracts can be terminated by many of the Company’s customers at any time and, therefore, may not result in sales.
If a successful claim of patent infringement were made against IS&S, and if the Company were unable to develop non-infringing technology, or to license the infringed or similar technology on a timely and cost-effective basis, the Company might not be able to produce and sell some of its products.
If a successful claim of patent infringement were made against the Company, and if the Company were unable to develop non-infringing technology, or to license the infringed or similar technology on a timely and cost-effective basis, the Company might not be able to produce and sell some of its products.
During these periods of volatility and disruption, risks to IS&S include: ● declines in revenues and profitability from reduced orders, payment delays or other factors caused by the economic problems of customers; ● reprioritization of government spending away from defense programs in which IS&S participates; ● reduced access to credit sources; and ● disruptions in supplies associated with any financial constraints faced by vendors.
During these periods of volatility and disruption, risks to the Company include: ● declines in revenues and profitability from reduced orders, payment delays or other factors caused by the economic problems of customers; ● reprioritization of government spending away from defense programs in which the Company participates; ● reduced access to credit sources; and ● disruptions in supplies associated with any financial constraints faced by vendors.
Because some of these projects involve new technologies and applications, and can last for more than a year, unforeseen events such as technological difficulties, fluctuations in the price of raw materials, problems with subcontractors, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to IS&S over time.
Because some of these projects involve new technologies and applications, and can last for more than a year, unforeseen events such as technological difficulties, fluctuations in the price of raw materials, problems with subcontractors, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to the Company over time.
If the Company is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines the Company has a material weakness or significant deficiency in its internal control over financial reporting once that firm begin its reviews, the Company could lose investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock could decline, and it could be subject to sanctions or investigations by NASDAQ, the Securities and Exchange Commission or other regulatory authorities.
If the Company is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines the Company has a material weakness or significant deficiency in its internal control over financial reporting once that firm begin its reviews, the Company could lose investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock could decline, and it could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities.
IS&S cannot be certain that patents will be issued on any of its present or future applications. In addition, existing patents or future patents may not adequately protect the Company’s technology if they are not broad enough or are successfully challenged, or if other entities are able to develop competing methods without violating its patents.
The Company cannot be certain that patents will be issued on any of its present or future applications. In addition, existing patents or future patents may not adequately protect the Company’s technology if they are not broad enough or are successfully challenged, or if other entities are able to develop competing methods without violating its patents.
The Company’s products, as they relate to aircraft applications, must be approved by the FAA, EASA, or other equivalent organizations before they can be installed in an aircraft. To be certified, IS&S must demonstrate that its products are accurate and able to maintain certain levels of repeatability over time.
The Company’s products, as they relate to aircraft applications, must be approved by the FAA, EASA, or other equivalent organizations before they can be installed in an aircraft. To be certified, the Company must demonstrate that its products are accurate and able to maintain certain levels of repeatability over time.
If IS&S is not successful in protecting its intellectual property, competitors could begin to offer products that incorporate its technology. Patent protection involves complex legal and factual questions, and, therefore, is highly uncertain. Litigation relating to intellectual property is often very time consuming and expensive.
If the Company is not successful in protecting its intellectual property, competitors could begin to offer products that incorporate its technology. Patent protection involves complex legal and factual questions, and, therefore, is highly uncertain. Litigation relating to intellectual property is often very time consuming and expensive.
As of September 30, 2022, 16% of the Company’s backlog was expected to be filled beyond fiscal 2023, which is below the Company’s historical expectations and may result in lower revenues in future periods. As a result, future revenue will be dependent on orders booked and shipped in that quarter, and may not be predictable with any degree of certainty.
As of September 30, 2023, 8% of the Company’s backlog was expected to be filled beyond fiscal 2024, which is below the Company’s historical expectations and may result in lower revenues in future periods. As a result, future revenue will be dependent on orders booked and shipped in that quarter, and may not be predictable with any degree of certainty.
Despite the Company’s quality assurance process, errors, omissions or defects could occur in its current products, in new products, or in new versions or enhancements of existing products. IS&S may be required to redesign or recall those products or pay damages.
Despite the Company’s quality assurance process, errors, omissions or defects could occur in its current products, in new products, or in new versions or enhancements of existing products. The Company may be required to redesign or recall those products or pay damages.
Further, the nature and impact of any future changes to tax law, and the resulting impact on our business, financial condition and results of operations, are uncertain. 22 Table of Contents The Company is subject to various laws and regulations.
Further, the nature and impact of any future changes to tax law, and the resulting impact on our business, financial condition and results of operations, are uncertain. The Company is subject to various laws and regulations.
If IS&S fails to enhance existing products, or to develop and achieve market acceptance for flat panel displays, flight management systems, autothrottle technology and other new products that meet customer requirements, its business, reputation and statements of income may be affected adversely.
If the Company fails to enhance existing products, or to develop and achieve market acceptance for flat panel displays, flight management systems, autothrottle technology and other new products that meet customer requirements, its business, reputation and statements of income may be affected adversely.
In addition, these competitors have much greater experience in and resources for marketing their products. As a result, these competitors may be able to respond more quickly to new or emerging technologies and customer preferences, or to devote greater resources to development, promotion and sale of their products than IS&S can.
In addition, these competitors have much greater experience in and resources for marketing their products. As a result, these competitors may be able to respond more quickly to new or emerging technologies and customer preferences, or to devote greater resources to development, promotion and sale of their products than the Company can.
IS&S cannot be certain that it will be able to develop, introduce or market its FPDS, FMS, ThrustSense® Autothrottle or other new products or product enhancements in a timely or cost-effective manner, or that any new products or product enhancements will receive market acceptance or necessary regulatory approval.
The Company cannot be certain that it will be able to develop, introduce or market its FPDS, FMS, ThrustSense® Autothrottle or other new products or product enhancements in a timely or cost-effective manner, or that any new products or product enhancements will receive market acceptance or necessary regulatory approval.
The markets for the Company’s products are intensely competitive and subject to rapid technological change. Competitors include Honeywell International Inc., Collins Aerospace, Thales Defense & Security, Inc., Garmin Ltd. and GE Aviation Systems. All these competitors have substantially greater financial, technical, and human resources than does IS&S.
The markets for the Company’s products are intensely competitive and subject to rapid technological change. Competitors include Honeywell, Collins Aerospace, Thales Defense & Security, Inc., Garmin Ltd. and GE Aviation Systems. All these competitors have substantially greater financial, technical, and human capital resources than does the Company.
The Company’s future results could be affected negatively by changes in the effective tax rate as a result of changes in the overall profitability and changes to statutory tax rates in the United States and in other jurisdictions, changes in tax legislation, and the results of audits and examinations of previously filed tax returns.
The Company’s future results could be affected negatively by changes in the effective tax rate due to changes in the Company’s overall profitability, changes to statutory tax rates in the United States and in other jurisdictions, changes in tax legislation, and the results of audits and examinations of previously filed tax returns.
The Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) requires, among other things, that the Company maintain effective internal control over financial reporting and disclosure controls and procedures. Under Section 404 of the Sarbanes-Oxley Act, the Company is required to furnish a report by management on, among other things, the effectiveness of the Company’s internal control over financial reporting.
The Sarbanes-Oxley Act requires, among other things, that the Company maintain effective internal control over financial reporting and disclosure controls and procedures. Under Section 404 of the Sarbanes-Oxley Act, the Company is required to furnish a report by management on, among other things, the effectiveness of the Company’s internal control over financial reporting.
These risks, if not effectively mitigated or controlled, could materially harm our business or reputation. While we believe that we have implemented appropriate measures and controls, there can be no assurance that such actions will be sufficient to prevent disruptions to critical systems, unauthorized release of confidential information or corruption of data.
These risks, if not effectively mitigated or controlled, could materially harm our business or reputation. There can be no assurance that actions we have taken to implement appropriate measures and controls will be sufficient to prevent disruptions to critical systems, unauthorized release of confidential information or corruption of data.
While the full impact of such reductions is not determinable, the impact of any resulting reductions in defense appropriations, and/or reductions in U.S. defense spending could result in delays in procurement of products and services due to lack of funding, and negatively affect the IS&S’s revenues, financial condition and results of operations. 17 Table of Contents The loss of a key customer or a significant deterioration in the financial condition of a key customer could have a material adverse effect on the Company’s results of operations.
The impact of any such reductions in defense appropriations and/or reductions in U.S. defense spending could result in delays in procurement of products and services due to lack of funding, and negatively affect the Company’s revenues, financial condition and results of operations. 17 Table of Contents The loss of a key customer or a significant deterioration in the financial condition of a key customer could have a material adverse effect on the Company’s results of operations.
Risks inherent in doing business internationally include: ● differing regulatory requirements; ● legal uncertainty regarding liability and the enforceability of agreements; ● tariffs, trade and investment barriers, and other regulatory barriers; ● political and economic instability, including changes in government budgets; ● changes in diplomatic and trade relationships; ● failure by our employees or agents to comply with U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act of 1977, as amended; ● difficulty with staffing and managing widespread operations; ● the impact of recessions in economies outside the United States; and ● variances and unexpected changes in local laws and regulations. 18 Table of Contents Currently, all of the Company’s international sales are denominated in U.S. dollars.
Risks inherent in doing business internationally include: ● differing regulatory requirements; ● legal uncertainty regarding liability and the enforceability of agreements; ● tariffs, trade and investment barriers, and other regulatory barriers; ● political and economic instability, including changes in government budgets and wars, such as the wars in the Ukraine and Israel; ● changes in diplomatic and trade relationships; ● failure by our employees or agents to comply with U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act of 1977, as amended; ● difficulty with staffing and managing widespread operations; ● the impact of recessions in economies outside the United States; and 18 Table of Contents ● variances and unexpected changes in local laws and regulations.
During fiscal year 2022, approximately 2% percent of the Company’s total sales were from fixed-price EDC arrangements with customers to perform specified design and EDC services related to its products. These arrangements allow IS&S to benefit by recovering some of its product development costs, but it carries the risk of potential cost overruns.
During fiscal year 2023, approximately 3.3% percent of the Company’s total sales were from fixed-price EDC arrangements with customers to perform specified design and EDC services related to its products. These arrangements allow the Company to benefit by recovering some of its product development costs, but it carries the risk of potential cost overruns.
IS&S plans to derive increasing revenues from sales outside the United States, particularly in Europe and Asia.
The Company plans to derive increasing revenues from sales outside the United States, particularly in Europe and Asia.
Currently, IS&S spends a large portion of its R&D efforts in developing and marketing the FPDS, FMS, ThrustSense® Autothrottle and complementary products.
The Company spends a large portion of its R&D efforts in developing and marketing the FPDS, FMS, ThrustSense® Autothrottle and complementary products.
Moreover, if an investigation, inquiry or audit finds that the Company acted improperly or was involved in illegal activities, the Company could be subject to civil penalties, criminal penalties, and administrative sanctions. As a result, the Company’s reputation could be harmed even if the allegations were later determined to be false. Reductions in government expenditures could adversely affect IS&S business.
Moreover, if an investigation, inquiry or audit finds that the Company acted improperly or was involved in illegal activities, the Company could be subject to civil penalties, criminal penalties, and administrative sanctions. As a result, the Company’s reputation could be harmed even if the allegations were later determined to be false.
If any of the Company’s top customers were to become bankrupt or insolvent or otherwise were unable to pay for the products and services provided by the Company, including as a result of the impact of the COVID-19 pandemic on their businesses or financial conditions, then the Company may incur significant write-offs of accounts receivable, incur other impairment charges or result in a significant loss of expected revenues, which may have a material adverse effect on the Company’s results of operations.
If any of the Company’s top customers were to become bankrupt or insolvent or otherwise were unable to pay for the products and services provided by the Company, then the Company may incur significant write-offs of accounts receivable, incur other impairment charges or result in a significant loss of expected revenues, which may have a material adverse effect on the Company’s results of operations.
Reductions in funding of the DoD and U.S. defense spending could have significant consequences to the Company’s business and industry.
Reductions in government expenditures could adversely affect the Company’s business. Reductions in funding of the DoD and U.S. defense spending could have significant consequences to the Company’s business and industry.
If IS&S fails to modify or improve its products in response to evolving industry standards and government regulations, its products could rapidly become obsolete. 19 Table of Contents The Company’s products are currently subject to direct regulation by the FAA and other equivalent organizations.
If the Company fails to modify or improve its products in response to evolving industry standards and government regulations, its products could rapidly become obsolete. The Company’s products are currently subject to direct regulation by the FAA and other equivalent organizations.
These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract management’s attention from core business operations and impact operating results, particularly if a lawsuit results in an unfavorable outcome, or could harm the Company’s reputation with customers, employees, investors and others.
These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract management’s attention from core business operations and impact operating results, particularly if a lawsuit results in an unfavorable outcome, or could harm the Company’s reputation with customers, employees, investors and others. 23 Table of Contents Tax changes could affect the Company’s effective tax rate and future profitability.
The Company’s success depends on the efforts, abilities, and expertise of its senior management and other key personnel. There can be no assurance IS&S will be able to retain such employees, and the loss of some could damage its ability to execute its business strategy. The Company intends to continue hiring key management, engineering, and sales and marketing personnel.
The Company’s success depends on the efforts, abilities, and expertise of its senior management and other key personnel. There can be no assurance that the Company will be able to retain such employees, and the loss of some could damage its ability to execute its business strategy.
Failure to remedy any material weakness in the Company’s internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict the Company’s future access to the capital markets. Item 1B. Unresolved Staff Comments. None 23 Table of Contents
Failure to remedy any material weakness in the Company’s internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict the Company’s future access to the capital markets.
Emerging market operations in particular can present many risks, including cultural differences (such as employment and business practices), volatility in gross domestic product, economic and government instability, and the imposition of exchange controls and capital controls.
Emerging market operations in particular can present many risks, including volatility in gross domestic product, economic and government instability, and the imposition of exchange controls and capital controls.
In addition, the Company’s business is dependent upon maintaining its reputation and relationships with existing customers. If the Company’s performance does not meet its customers’ expectations, the Company’s reputation and its relationships could be damaged, which may have a material adverse impact on the Company’s business and statements of income, including reductions in sales.
If the Company’s performance or the performance of the Company’s products does not meet its customers’ expectations, the Company’s reputation and its relationships could be damaged, which may have a material adverse impact on the Company’s business and statements of income, including reductions in sales.
The Company’s revenue is concentrated with a limited number of customers. During fiscal year 2022 IS&S derived 58% of revenue from the top five customers. IS&S expects a relatively small number of customers to account for a majority of its revenues for the foreseeable future.
The Company’s revenue is concentrated with a limited number of customers. During fiscal year 2023 the Company derived 54% of revenue from the top five customers. The Company continues to expect a relatively small number of customers to account for a majority of its revenues for the foreseeable future.
If the Company is unable to maintain relationships with key third-party suppliers, the development and distribution of its products could be delayed until equivalent components can be obtained and integrated into the products.
The suppliers may not continue to be available to the Company, or be able to perform or timely deliver our components. If the Company is unable to maintain relationships with key third-party suppliers, the development and distribution of its products could be delayed until equivalent components can be obtained and integrated into the products.
The Company’s revenue and operating results may vary significantly from quarter to quarter because of a number of factors, including, but not limited to: ● demand for products and/or delivery schedule changes by its customers; ● capital expenditure budgets of aircraft owners and operators, and appropriation cycles of the U.S. government; ● changes in the use of the Company’s products, including air data systems, flat panel displays, flight management systems and autothrottle technology; ● delays in introducing or obtaining government approval for new products; ● new product introductions by competitors; ● changes in IS&S pricing policies or pricing policies of competitors; and ● costs related to possible acquisition of technologies or businesses. 21 Table of Contents A cyber security incident or other technology disruption could have a negative impact on our business.
The Company’s revenue and operating results may vary significantly from quarter to quarter because of a number of factors, including, but not limited to: ● demand for products and/or delivery schedule changes by its customers; ● capital expenditure budgets of aircraft owners and operators, and appropriation cycles of the U.S. government; ● changes in the use of the Company’s products, including air data systems, flat panel displays, flight management systems and autothrottle technology; ● delays in introducing or obtaining government approval for new products; ● new product introductions by competitors; ● changes in the Company’s pricing policies or pricing policies of competitors; and ● costs related to possible acquisition of technologies or businesses. ​ If the Company is unable to respond to rapid technological change, its products could become obsolete and its reputation could suffer.
The Company’s competitors may have greater name recognition and more extensive customer bases. Such competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share. General Risk Factors The ongoing COVID-19 pandemic may adversely affect IS&S.
The Company’s competitors may have greater name recognition and more extensive customer bases. Such competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share.
In addition, IS&S must operate without infringing the proprietary rights of others. 20 Table of Contents As of September 30, 2022, IS&S holds 14 U.S. patents and has 3 U.S. patent applications pending relating to its technology. In addition, the Company holds 40 international patents and has 2 international patent applications pending.
In addition, the Company must operate without infringing the proprietary rights of others. 22 Table of Contents 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, the Company holds 85 international patents and has six international patent applications pending.
Government contracts are also subject to special risks as a result of the U.S. government’s audit practices. A portion of IS&S sales has been, and is expected to continue to be, from defense contractors or government agencies in connection with government aircraft retrofit or OEM contracts.
A portion of the Company’s sales has been, and is expected to continue to be, from defense contractors or government agencies in connection with government aircraft retrofit or OEM contracts.
If IS&S is unable to protect and enforce its intellectual property rights, it may be unable to compete effectively. The Company’s success and ability to compete will depend in part on its ability to obtain and maintain patent or other protection for its technology and products, both in the United States and internationally.
The Company’s success and ability to compete will depend in part on its ability to obtain and maintain patent or other protection for its technology and products, both in the United States and internationally.
The Company’s results of operations are dependent on its ability to maximize earnings from the EDC service arrangements. Lower earnings caused by cost overruns could have a negative impact on the Company’s financial condition, operating results, and cash flows. A portion of IS&S sales come from government contracts, which could be adversely affected by continued high U.S. federal budget deficits.
The Company’s results of operations are dependent on its ability to maximize earnings from the EDC service arrangements. Lower earnings caused by cost overruns could have a negative impact on the Company’s financial condition, operating results and cash flows.
The Company enters into fixed-price contracts or service arrangements to perform specified design and EDC services related to its products that could subject IS&S to losses in the event the Company incurs cost overruns on its projects.
However, because these contracts can be terminated for convenience, the Company cannot be assured that its backlog will result in sales. The Company enters into fixed-price contracts or service arrangements to perform specified design and EDC services related to its products that could subject the Company to losses in the event the Company incurs cost overruns on its projects.
In addition, substitution of certain components from other manufacturers may require product redesign or FAA, EASA or other approvals, which could delay the Company’s ability to ship products, and any increase in component costs, including the costs of any necessary raw materials, in the Company’s supply chain could adversely affect the Company’s results of operations.
In addition, substitution of certain components from other manufacturers may require product redesign or FAA, EASA or other approvals, which could delay the Company’s ability to ship products, and any increase in component costs, including the costs of any necessary raw materials, in the Company’s supply chain could adversely affect the Company’s results of operations. 19 Table of Contents The Company depends on key personnel to manage its business effectively, and an inability to retain its key employees and plan for management succession could adversely impact the Company’s ability to compete.
If the Company’s initial cost estimates are incorrect, it can incur potentially large one time charges and losses on these contracts. These EDC arrangements can expose the Company to potential losses because the customer may compel IS&S to complete a project or, in the event of a termination for default, pay the incremental cost of its replacement by another provider.
These EDC arrangements can expose the Company to potential losses because the customer may compel the Company to complete a project or, in the event of a termination for default, pay the incremental cost of its replacement by another provider.
An increase in the dollar’s value compared to other currencies could render the Company’s products less competitive in the international markets. In the future, IS&S may be required to conduct sales in the foreign country’s local currency, thus exposing it to fluctuations and volatility in exchange rates that could adversely affect its operating results.
In the future, the Company may be required to conduct sales in the foreign country’s local currency, thus exposing it to fluctuations and volatility in exchange rates that could adversely affect its operating results.
Failure to comply with all applicable laws could result in investigation and remediation costs to the Company and could adversely impact the operations and profits of the Company.
Failure to comply with all applicable laws could result in investigation and remediation costs to the Company and could adversely impact the operations and profits of the Company. In addition, the evolving and at times overlapping regulatory regimes to which the Company is subject may change at any time.
IS&S’s contracts, including contracts with government agencies, includes various terms and conditions that impose certain requirements on IS&S, including the ability of the government agency or general contractor to alter the price, quantity or delivery schedule of the products. Additionally, government agencies and general contractors typically retain the right to terminate the contract at any time at their convenience.
The Company’s contracts, including contracts with government agencies, include various terms and conditions that impose certain requirements on the Company, including the ability of the government agency or general contractor to alter the price, quantity or delivery schedule of the products.
Although IS&S carries product liability insurance, this insurance may not be adequate to cover its losses in the event of a large product liability claim. In addition, IS&S may not be able to maintain such insurance in the future. The Company’s success depends on its ability to protect its proprietary rights against potential risk of infringement.
The Company’s product liability insurance, may not be adequate to cover its losses in the event of a large product liability claim. In addition, the Company may not be able to maintain such insurance in the future.
Upon alteration or termination of these contracts, IS&S is entitled typically to an equitable adjustment to the contract price so that it would be compensated for delivered items and allowable costs incurred. However, because these contracts can be terminated for convenience, the Company cannot be assured that its backlog will result in sales.
Additionally, government agencies and general contractors typically retain the right to terminate the contract at any time at their convenience. Upon alteration or termination of these contracts, the Company is entitled typically to an equitable adjustment to the contract price so that it would be compensated for delivered items and allowable costs incurred.
IS&S cannot ensure that it will receive regulatory approval on a timely basis or at all. IS&S relies on third-party suppliers for components of its products, including any necessary raw materials, and any interruption in the supply of these components could hinder its ability to deliver products on a timely basis.
The Company relies on third-party suppliers for components of its products, including any necessary raw materials, and any interruption in the supply of these components could hinder its ability to deliver products on a timely basis. The Company’s manufacturing process consists primarily of assembling components purchased from its supply chain.
Competition for skilled personnel is intense, and IS&S may not be able to attract or retain additional qualified personnel. The Company’s future success will depend in part on its ability to implement and improve its operational, administrative and financial systems and controls and to manage, train and expand its employee base.
The Company’s future success will depend in part on its ability to implement and improve its operational, administrative and financial systems and controls and to manage, train and expand its employee base. The Company cannot provide assurance that current and planned personnel levels, systems, procedures and controls will be adequate to support its current and future customer base.
Any delays or difficulties encountered could impair the Company’s ability to attract new customers or maintain its relationships with existing customers. In addition, effective succession planning is important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving senior management and other key personnel could hinder our strategic planning and execution.
In such a circumstance, the Company may not be able to fully capitalize on existing and potential market opportunities. Any delays or difficulties encountered could impair the Company’s ability to attract new customers or maintain its relationships with existing customers. In addition, effective succession planning is important to our long-term success.
IS&S-Specific Risk Factors Growth of the Company’s customer base could be limited by delays or difficulties in completing development and introduction of planned products or product enhancements.
In that event, the market price of our common stock could decline, and you could lose part or all of your investment. Risks Related to Our Business and Industry Growth of the Company’s customer base could be limited by delays or difficulties in completing development and introduction of planned products or product enhancements.
The Company’s revenue and operating results may vary significantly from quarter to quarter, which may cause its stock price to decline.
Failure to ensure effective transfer of knowledge and smooth transitions involving senior management and other key personnel could hinder our strategic planning and execution The Company’s revenue and operating results may vary significantly from quarter to quarter, which may cause its stock price to decline.
Further, IS&S has incurred, and may continue to incur, significant legal and other costs in defense of its intellectual property. IS&S depends on key personnel to manage its business effectively, and an inability to retain its key employees and plan for management succession could adversely impact the Company’s ability to compete.
Further, the Company has incurred, and may continue to incur, significant legal and other costs in defense of its intellectual property. A cyber security incident or other technology disruption could have a negative impact on our business.
In addition, failure to timely comply with regulatory changes could cause payments to be withheld and/or an impact on future business. Volatility and weakness in capital markets may adversely affect credit availability and related financing costs, which could adversely affect IS&S. Bank and capital markets can experience periods of volatility and disruption.
Any changes to existing laws or regulations, or the adoption of new laws or regulations, could increase our compliance costs and operating costs. In addition, failure to timely comply with regulatory changes could cause payments to be withheld and/or an impact on future business.
Significant delay in receiving certification for newly developed products or enhancements to the Company’s products, or the loss of certification for its existing products, could result in lost sales or delays in sales. Furthermore, new regulations or product standards, and changes to existing product standards could require IS&S to change its products and underlying technology.
Furthermore, new regulations or product standards, and changes to existing product standards could require the Company to change its products and underlying technology. The Company cannot ensure that it will receive regulatory approval on a timely basis or at all.
Removed
Item 1A. Risk Factors. Each reader should carefully consider the risks, uncertainties and other factors described below, in addition to the other information set forth in this report, because they could materially and adversely affect the Company’s business, operating results, financial condition, cash flows, prospects, and the value of an investment in IS&S common stock.
Added
Item 1A. Risk Factors. Investing in our common stock involves a high degree of risk.
Removed
Summary An investment in our common stock involves various risks, including risks related to the items listed below. However, you are urged to carefully consider all of the matters discussed in this Part I, Item 1A of this Report under the caption “Risk Factors” (not just those discussed in this summary) in considering our business and prospects.
Added
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock.
Removed
IS&S-Specific Risk Factors The Company faces risks relating to: ● continued market acceptance of the Company’s air data systems and other products; ● the deferral or termination of programs or contracts for convenience by customers; ● the potential for losses due to cost overruns on fixed-price contract projects; 15 Table of Contents ● U.S. federal government budget deficits and audit practices, including the possibility of reductions in government expenditures; ● the possibility that IS&S may lose one or more key customers; ● the self-insured portion of IS&S’ employee medical insurance program; ● our lack of substantial backlog; ● the ability to service the international market; and ● intense competition with key competitors.
Added
Our business, financial condition, results of operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected.
Removed
General Risk Factors The Company faces risks relating to: ● the ongoing COVID-19 pandemic; ● the ability to respond to technological change; ● delays in receiving components from third-party suppliers; ● challenges associated with the complexity of our products; ● our ability to protect our intellectual property rights; ● failure to retain/recruit key personnel; ● succession planning; ● variations in our revenue and operating results over time; ● a cyber security incident; ● potential litigation; ● the costs of compliance with present and future laws and regulations; ● changes in law, including changes to corporate tax laws in the United States and the availability of certain tax credits; ● volatility and weakness in capital markets, including rising inflation and interest rates; and ● the efficacy of our internal control over financial reporting.
Added
In addition, the Company’s business is dependent upon maintaining its reputation and relationships with existing customers.
Removed
The Company has not yet seen a material impact from the COVID-19 pandemic on its business, financial position, liquidity, or ability to service customers or maintain critical operations.
Added
If the Company’s initial cost estimates are incorrect, it can incur potentially large one time charges and losses on these contracts.
Removed
However, some parts of the world are continuing to see a rise in COVID-19 cases and hospitalizations, and it is possible that new, more virulent strains and variants of COVID-19 may emerge and lead governments and private sectors to re-institute quarantine and trade restrictions, which could adversely impact market conditions.
Added
A portion of the Company’s sales come from government contracts, which could be adversely affected by continued high U.S. federal budget deficits. Government contracts are also subject to special risks as a result of the U.S. government’s audit practices.
Removed
IS&S will continue to monitor the impact of the COVID-19 pandemic on its business, including how it has impacted and will impact the Company’s employees, customers, suppliers and distribution channels.
Added
Currently, all of the Company’s international sales are denominated in U.S. dollars. An increase in the dollar’s value compared to other currencies could render the Company’s products less competitive in the international markets.
Removed
The Company could face liquidity shortages, weaker product demand from its customers, disruptions in its supply chain, and/or staffing shortages in its workforce in the future due to the direct and indirect effects of the COVID-19 pandemic. If IS&S is unable to respond to rapid technological change, its products could become obsolete and its reputation could suffer.
Added
The Company intends to continue hiring key management, engineering, and sales and marketing personnel. Competition for skilled personnel is intense, and the Company may not be able to attract or retain additional qualified personnel.
Removed
The Company’s manufacturing process consists primarily of assembling components purchased from its supply chain. The suppliers may not continue to be available to IS&S, including as a result of the impact of the COVID-19 pandemic on their businesses or financial conditions.
Added
Although the certification requirements of the FAA and EASA are substantially similar, no formal reciprocity exists between the two regulators.
Removed
IS&S cannot provide assurance that current and planned personnel levels, systems, procedures, and controls will be adequate to support its current and future customer base. In such a circumstance, the Company may not be able to fully capitalize on existing and potential market opportunities.
Added
We may pursue strategic acquisitions, investments, strategic partnerships or other ventures, and our business could be materially harmed if we fail to successfully identify, evaluate, complete, and integrate such transactions. Acquisitions, including the Transaction, involve inherent risks that may adversely affect our operating results and financial condition.
Removed
Tax changes could affect the Company’s effective tax rate and future profitability.

… 42 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company’s fiscal year ended September 30, 2021 lease expense for this property was approximately $34,000. The Company leased two separate hangars to house the Company’s airplanes in New Castle County, Delaware under month-to-month leases. One hangar lease expired with the sale of the Pilatus PC-12 airplane during the quarter ended September 30, 2022.
Biggest changeOne hangar lease expired with the sale of the Pilatus PC-12 airplane during the quarter ended September 30, 2022. The annual lease expense for both hangars was approximately $52,000. On November 30, 2023, the Company sold its King Air aircraft. and cancelled the remaining month-to-month hangar lease.
Item 2. Properties. In fiscal 2001, IS&S purchased 7.5 acres of land in the Eagleview Corporate Park in Exton, Pennsylvania. Shortly thereafter, the Company constructed a 45,000 square foot design, manufacturing and office facility on this site. Land development approval allows for expansion of up to 20,400 square feet.
Item 2. Properties. In fiscal 2001, the Company purchased 7.5 acres of land in the Eagleview Corporate Park in Exton, Pennsylvania. Shortly thereafter, the Company constructed a 45,000 square foot design, manufacturing and office facility on this site. Land development approval allows for expansion of up to 20,400 square feet.
Such expansion would provide for a 65,400 square foot facility which the Company believes is adequate to meet the needs of the Company for the foreseeable future. The Company had occupied approximately 8,358 square feet of office and warehouse space in Exton, Pennsylvania under a lease that expired March 2021.
Such expansion would provide for a 65,400 square foot facility which the Company believes is adequate to meet the needs of the Company for the foreseeable future. The Company leased two separate hangars to house the Company’s airplanes in New Castle County, Delaware under month-to-month leases.
Removed
The annual lease expense for both hangars was approximately $52,000.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. In the ordinary course of business, IS&S is at times subject to various legal proceedings and claims. The Company does not believe any such matters that are currently pending will, individually or in the aggregate, have a material effect on the results of operations or financial position. Item 4. Mine Safety Disclosures . Not applicable.
Biggest changeItem 3. Legal Proceedings. In the ordinary course of business, the Company is at times subject to various legal proceedings and claims. The Company does not believe any such matters that are currently pending will, individually or in the aggregate, have a material effect on the results of operations or financial position. 26 Table of Contents Item 4.
Added
Mine Safety Disclosures . Not applicable. PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 24 ​ ​ ​ ​ PART II ​ ​ ​ ​ Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24 Item 6. Selected Consolidated Financial Data 25 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A.
Biggest changeItem 4. Mine Safety Disclosures 27 ​ ​ ​ ​ PART II ​ ​ ​ ​ Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27 Item 6. Selected Consolidated Financial Data 28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A.
Quantitative and qualitative disclosures about market risk 36 Item 8. Financial statements and supplementary data 36
Quantitative and Qualitative Disclosures About Market Risk 39 Item 8. Financial Statements and Supplementary Data 39

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors.
Biggest changeThe declaration and payment of any dividend in the future will be at the discretion of the Board and will depend on then-existing conditions, including our operating results, financial condition, business prospects and other factors the Board may deem relevant. ​ ​ 27 Table of Contents
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer purchases of Equity Securities. The Company’s common stock has been traded on the NASDAQ Global Select Market(R) tier of the NASDAQ Stock Market, LLC under the symbol “ISSC” since its initial public offering on August 4, 2000.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. Market Information The Company’s common stock has been traded on the NASDAQ Global Select Market® tier of the NASDAQ Stock Market, LLC under the symbol “ISSC” since its initial public offering on August 4, 2000.
Removed
Many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, as a result, we are unable to estimate the total number of stockholders represented by these record holders. The Company did not pay cash dividends in fiscal 2022.
Added
Holders of Common Stock As of January 8, 2024, there were approximately seven registered holders of the Company’s common stock.
Removed
On September 4, 2020, the Company’s Board of Directors declared a special cash dividend in the amount of $0.65 per share, payable on October 1, 2020 to shareholders of record as of the close of business on September 15, 2020. The total dividend payment was approximately $11.2 million.
Added
A substantially greater number of holders of the Company’s common stock are beneficial holders, whose shares of record are held by banks, brokers and other financial institutions in “street name.” Dividends The Company’s Board of Directors (the “Board”) previously declared special cash dividends in the amount of $0.65 per share in fiscal 2020 and $0.50 per share in fiscal 2021.
Removed
On December 10, 2020, the Company’s Board of Directors declared a special cash dividend in the amount of $0.50 per share, payable on December 30, 2020 to shareholders of record as of the close of business on December 21, 2020. The total dividend payment was approximately $8.6 million. ​ ​ 24 Table of Contents
Added
The Company did not pay cash dividends in fiscal years 2022 and 2023. The Company intends to retain future earnings, if any, to finance the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeThe selected statements of operations data for the fiscal years ended September 30, 2019 and 2018 and the balance sheet data as at September 30, 2020, 2019 and 2018 are extracted from the Company’s audited consolidated financial statements that are not included in this Annual Report on Form 10-K. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal year ended September 30, ​ 2022 2021 2020 2019 2018 Statements of Operations Data: ​ ​ ​ ​ ​ ​ Net sales ​ $ 27,740,695 ​ $ 23,044,796 ​ $ 21,595,199 ​ $ 17,572,589 ​ $ 13,850,372 Cost of sales ​ 11,066,314 ​ 10,263,166 ​ 9,793,224 ​ 7,676,119 ​ 7,311,923 Gross profit ​ 16,674,381 ​ 12,781,630 ​ 11,801,975 ​ 9,896,470 ​ 6,538,449 Research and development ​ 2,705,140 ​ 2,622,919 ​ 2,955,976 ​ 2,489,806 ​ 3,575,801 Selling, general and administrative ​ 6,753,915 ​ 6,257,732 ​ 6,100,545 ​ 5,877,920 ​ 6,674,187 Total operating expenses ​ 9,459,055 ​ 8,880,651 ​ 9,056,521 ​ 8,367,726 ​ 10,249,988 Operating income (loss) ​ 7,215,326 ​ 3,900,979 ​ 2,745,454 ​ 1,528,744 ​ (3,711,539) Interest income ​ 61,051 ​ 1,234 ​ 154,950 ​ 249,620 ​ 53,561 Other income ​ 65,232 ​ 74,906 ​ 60,497 ​ 73,737 ​ 67,724 Income (loss) before income taxes ​ 7,341,609 ​ 3,977,119 ​ 2,960,901 ​ 1,852,101 ​ (3,590,254) Income tax expense (benefit) ​ 1,817,831 ​ (1,087,783) ​ (308,882) ​ 1,805 ​ 63,651 Net Income (loss) ​ $ 5,523,778 ​ $ 5,064,902 ​ $ 3,269,783 ​ $ 1,850,296 ​ $ (3,653,905) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per common share: ​ ​ ​ ​ ​ ​ Basic ​ $ 0.32 ​ $ 0.29 ​ $ 0.19 ​ $ 0.11 ​ $ (0.22) Diluted ​ $ 0.32 ​ $ 0.29 ​ $ 0.19 ​ $ 0.11 ​ $ (0.22) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared per common share ​ $ — ​ $ 0.50 ​ $ 0.65 ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares outstanding: ​ ​ ​ ​ ​ ​ Basic ​ 17,256,750 ​ 17,225,423 ​ 16,939,302 ​ 16,867,550 ​ 16,805,991 Diluted ​ 17,257,871 ​ 17,226,620 ​ 17,114,191 ​ 16,942,447 ​ 16,805,991 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, ​ 2022 2021 2020 2019 2018 Balance Sheet Data: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 17,250,546 ​ $ 8,265,606 ​ $ 12,603,967 ​ $ 22,416,830 ​ $ 20,390,713 Restricted Cash ​ — ​ — ​ 11,180,900 ​ — ​ — Working capital ​ 24,262,016 ​ 15,218,172 ​ 19,473,305 ​ 27,739,070 ​ 25,315,334 Total assets ​ 34,705,323 ​ 27,086,000 ​ 41,545,837 ​ 38,557,025 ​ 37,633,678 Total shareholders’ equity ​ 30,749,955 ​ 24,585,081 ​ 27,769,031 ​ 36,208,152 ​ 34,154,470 ​ ​ 25 Table of Contents
Biggest changeThe selected statements of operations data for the fiscal years ended September 30, 2020 and 2019 and the balance sheet data as of September 30, 2021, 2020 and 2019 are extracted from the Company’s audited consolidated financial statements that are not included in this Annual Report on Form 10-K. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal year ended September 30, ​ 2023 2022 2021 2020 2019 Statements of Operations Data: ​ ​ ​ ​ ​ ​ Net sales ​ $ 34,808,513 ​ $ 27,740,695 ​ $ 23,044,796 ​ $ 21,595,199 ​ $ 17,572,589 Cost of sales ​ 13,497,442 ​ 11,066,314 ​ 10,263,166 ​ 9,793,224 ​ 7,676,119 Gross profit ​ 21,311,071 ​ 16,674,381 ​ 12,781,630 ​ 11,801,975 ​ 9,896,470 Research and development ​ 3,129,518 ​ 2,705,140 ​ 2,622,919 ​ 2,955,976 ​ 2,489,806 Selling, general and administrative ​ 10,822,505 ​ 6,753,915 ​ 6,257,732 ​ 6,100,545 ​ 5,877,920 Total operating expenses ​ 13,952,023 ​ 9,459,055 ​ 8,880,651 ​ 9,056,521 ​ 8,367,726 Operating income ​ 7,359,048 ​ 7,215,326 ​ 3,900,979 ​ 2,745,454 ​ 1,528,744 Interest expense ​ (393,281) ​ — ​ — ​ — ​ — Interest income ​ 518,188 ​ 61,051 ​ 1,234 ​ 154,950 ​ 249,620 Other income ​ 151,317 ​ 65,232 ​ 74,906 ​ 60,497 ​ 73,737 Income before income taxes ​ 7,635,272 ​ 7,341,609 ​ 3,977,119 ​ 2,960,901 ​ 1,852,101 Income tax expense (benefit) ​ 1,607,517 ​ 1,817,831 ​ (1,087,783) ​ (308,882) ​ 1,805 Net Income ​ $ 6,027,755 ​ $ 5,523,778 ​ $ 5,064,902 ​ $ 3,269,783 ​ $ 1,850,296 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.35 ​ $ 0.32 ​ $ 0.29 ​ $ 0.19 ​ $ 0.11 Diluted ​ $ 0.35 ​ $ 0.32 ​ $ 0.29 ​ $ 0.19 ​ $ 0.11 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared per common share ​ $ — ​ $ — ​ $ 0.50 ​ $ 0.65 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares outstanding: ​ ​ ​ ​ ​ ​ ​ Basic ​ 17,411,684 ​ 17,256,750 ​ 17,225,423 ​ 16,939,302 ​ 16,867,550 Diluted ​ 17,419,185 ​ 17,257,871 ​ 17,226,620 ​ 17,114,191 ​ 16,942,447 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, ​ 2023 2022 2021 2020 2019 Balance Sheet Data: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 3,097,193 ​ $ 17,250,546 ​ $ 8,265,606 ​ $ 12,603,967 ​ $ 22,416,830 Restricted cash ​ — ​ — ​ — ​ 11,180,900 ​ — Working capital ​ 28,274,744 ​ 24,262,016 ​ 15,218,172 ​ 19,473,305 ​ 27,739,070 Total assets ​ 62,957,451 ​ 34,705,323 ​ 27,086,000 ​ 41,545,837 ​ 38,557,025 Total shareholders’ equity ​ 38,636,984 ​ 30,749,955 ​ 24,585,081 ​ 27,769,031 ​ 36,208,152 ​ ​ 28 Table of Contents
The selected statement of operations data for the fiscal years ended September 30, 2022, 2021 and 2020 and the balance sheet data as at September 30, 2022 and 2021 are derived from the Company’s audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The selected statements of operations data for the fiscal years ended September 30, 2023, 2022 and 2021 and the balance sheet data as of September 30, 2023 and 2022 are derived from the Company’s audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

51 edited+34 added−48 removed27 unchanged
Biggest changeResults of Operations The following table sets forth statements of operations data expressed as a percentage of total net sales for the fiscal years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ending September 30, Net sales: 2022 2021 2020 Product ​ 98.3 % 98.8 % 96.3 % Engineering development contracts ​ 1.7 % 1.2 % 3.7 % Total net sales ​ 100.0 % 100.0 % 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ Product ​ 39.3 % 44.2 % 44.3 % Engineering development contracts ​ 0.6 % 0.3 % 1.0 % Total cost of sales ​ 39.9 % 44.5 % 45.3 % ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ 60.1 % 55.5 % 54.7 % ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ Research and development ​ 9.8 % 11.4 % 13.7 % Selling, general and administrative ​ 24.3 % 27.1 % 28.2 % Total operating expenses ​ 34.1 % 38.5 % 41.9 % ​ ​ ​ ​ ​ ​ ​ ​ Operating income ​ 26.0 % 17.0 % 12.8 % ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ 0.2 % 0.0 % 0.7 % Other income ​ 0.2 % 0.3 % 0.3 % ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 26.4 % 17.3 % 13.8 % ​ ​ ​ ​ ​ ​ ​ ​ Income tax expense (benefit) ​ 6.5 % (4.7) % (1.3) % ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ 19.9 % 22.0 % 15.1 % ​ ​ 27 Table of Contents Fiscal Year Ended September 30, 2022 Compared to Fiscal Year Ended September 30, 2021 ​ Net sales.
Biggest changeFor 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. 30 Table of Contents Results of Operations The following table sets forth statements of operations data expressed as a percentage of total net sales for the fiscal years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ending September 30, ​ 2023 2022 2021 Net sales: ​ ​ ​ ​ ​ ​ ​ Product ​ 64.9 % 80.7 % 81.3 % Customer service ​ 31.8 % 17.6 % 17.5 % Engineering development contracts ​ 3.3 % 1.7 % 1.2 % Total net sales ​ 100.0 % 100.0 % 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ ​ Product ​ 28.0 % 33.9 % 37.7 % Customer service ​ 9.7 % 5.4 % 6.5 % Engineering development contracts ​ 1.1 % 0.6 % 0.3 % Total cost of sales ​ 38.8 % 39.9 % 44.5 % ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ 61.2 % 60.1 % 55.5 % ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ Research and development ​ 9.0 % 9.8 % 11.4 % Selling, general and administrative ​ 31.1 % 24.3 % 27.1 % Total operating expenses ​ 40.1 % 34.1 % 38.5 % ​ ​ ​ ​ ​ ​ ​ ​ Operating income ​ 21.1 % 26.0 % 17.0 % ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ (1.1) % 0.0 % 0.0 % Interest income ​ 1.5 % 0.2 % 0.0 % Other income ​ 0.4 % 0.2 % 0.3 % ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 21.9 % 26.4 % 17.3 % ​ ​ ​ ​ ​ ​ ​ ​ Income tax expense (benefit) ​ 4.6 % 6.5 % (4.7) % ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ 17.3 % 19.9 % 22.0 % ​ ​ 31 Table of Contents Fiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 30, 2022 ​ Net sales.
Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies, and foreign militaries. The Company currently derives the majority of its revenues from the sale of this equipment and related EDC services.
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. The Company currently derives the majority of its revenues from the sale and service of this equipment and related EDC services.
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. The Company sells to both the OEM and the retrofit 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 sells to both the OEM and the retrofit markets.
Other income was flat at $0.1 million for both fiscal 2022 and fiscal 2021. Income taxes. Income tax expense of $1.8 million for fiscal 2022 as compared to income tax benefit of $1.1 million in fiscal 2021.
Other income was flat at $0.1 million for both fiscal 2022 and fiscal 2021. Income taxes. Income tax expense was $1.8 million for fiscal 2022 as compared to an income tax benefit of $1.1 million in fiscal 2021.
As new accounting pronouncements are issued, we will adopt those that are applicable. 35 Table of Contents Business Segments The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells, and services flight guidance and cockpit display systems for OEMs and retrofit applications.
As new accounting pronouncements are issued, we will adopt those that are applicable. 38 Table of Contents Business Segments The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services flight guidance and cockpit display systems for OEMs and retrofit applications.
Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies, and foreign militaries. Occasionally, IS&S sells its products directly to DoD; however, the Company sells its products primarily to commercial customers for end use in DoD programs.
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.
SG&A expense increased $0.5 million or 7.9% to $6.8 million from $6.3 million in fiscal 2021. The increase in SG&A expense was primarily the result of increased legal, and professional fees, with an offset due to the sale of a PC-12 aircraft. Interest income.
SG&A expense increased $0.5 million or 7.9% to $6.8 million from $6.3 million in fiscal 2021. The increase in SG&A expense was primarily the result of increased legal, and professional fees, with an offset due to a gain on the sale of a PC-12 aircraft. Interest income.
Furthermore, spending by government agencies may be reduced in the future if tax revenues decline. 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.
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.
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 The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below.
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. 37 Table of Contents 5) Recognize revenue when or as the Company satisfies a performance obligation The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below.
To achieve this core principle, the Company applies the following five steps: 32 Table of Contents 1) Identify the contract with a customer The Company’s contract with its customers typically is the form of a purchase order issued to the Company by its customers and, to a lesser degree, in the form of a purchase order issued in connection with a formal contract executed with a customer.
To achieve this core principle, the Company applies the following five steps: 1) Identify the contract with a customer The Company’s contract with its customers typically is in the form of a purchase order issued to the Company by its customers and, to a lesser degree, in the form of a purchase order issued in connection with a formal contract executed with a customer.
These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within cost of sales, with the reimbursement accounted for as a sale in accordance with the percentage-of-completion method or completed contract method of accounting.
These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within cost of sales, with the reimbursement accounted for as a sale in accordance with the percentage-of-completion method or 29 Table of Contents completed contract method of accounting.
R&D expense decreased to 9.8% of net sales in fiscal 2022 compared to 11.4% of net sales in fiscal 2021. This decrease in R&D expense as a percent of net sales was due to lower salaries and benefits due to lower headcount, along with fewer R&D related projects, including STC certifications. Selling, general, and administrative (“SG&A”) .
R&D expense decreased to 9.8% of net sales in fiscal 2022 compared to 11.4% of net sales in fiscal 2021. This decrease in R&D expense as a percent of net 32 Table of Contents sales was due to lower salaries and benefits due to lower headcount, along with fewer R&D related projects, including STC certifications. Selling, general, and administrative.
Revenue from Contracts with Customers The Company accounts for revenue in accordance with 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.
Revenue from Contracts with Customers 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.
Management and the Company’s Board of Directors are committed to identifying, assessing, and understanding the potential impact of ESG issues and related risks on the Company’s business model, as well as potential areas of improvement. We are committed to recruiting, motivating and developing a diversity of talent.
Management and the Board are committed to identifying, assessing and understanding the potential impact of ESG issues and related risks on the Company’s business model, as well as potential areas for ESG related improvements. We are committed to recruiting, motivating and developing a diversity of talent.
New 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 U.S.
New Accounting Pronouncements In June 2016, Financial Accounting Standards Board (“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 U.S.
Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations. Overview Innovative Solutions and Support, Inc.
Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.
Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, the impact of the ongoing COVID-19 pandemic, 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, and other macroeconomic factors that affect spending behavior.
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.
Contract costs include material, components and third-party avionics purchased from suppliers, direct labor, and overhead costs. Contract Balances Contract assets consist of the right to consideration in exchange for product offerings that we have transferred to a customer under the contract.
Contract costs include material, components and third-party avionics purchased from suppliers, direct labor and overhead costs. Contract Balances Contract assets consist of the right to consideration in exchange for product offerings that we have transferred to a customer under the contract. Contract liabilities primarily relate to consideration received in advance of performance under the contract.
Most of the Company’s sales, operating results and identifiable assets are generated in the United States. In fiscal years 2022, 2021 and 2020 net sales outside the United States amounted to $11.1 million, $8.4 million and $9.4 million, respectively.
Most of the Company’s sales, operating results and identifiable assets are generated in 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.
Selling, general and administrative expenses consist of sales, marketing, business development, professional services, salaries and benefits for executive and administrative personnel, facility costs, recruiting, legal, accounting and other general corporate expenses. 26 Table of Contents IS&S sells its products to agencies of the United States and foreign governments, aircraft operators, aircraft modification centers, and OEMs.
Selling, general and administrative (“SG&A”) expenses consist of sales, marketing, business development, professional services, salaries and benefits for executive and administrative personnel, facility costs, recruiting, legal, accounting and other general corporate expenses. The Company sells its products to agencies of the United States and foreign governments, aircraft operators, aircraft modification centers and OEMs.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Objective The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management’s perspective and should be read in conjunction with “Selected Consolidated Financial Data” and the consolidated financial statements and related notes included in this report.
Objective The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management’s perspective and should be read in conjunction with “Selected Consolidated Financial Data” and the consolidated financial statements and related notes included in this Annual Report on Form 10-K.
This strategy, as both a manufacturer and integrator, is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation, commercial air transport, United States Department of Defense (“DoD”)/governmental, and foreign military markets.
This strategy, as both a manufacturer and integrator, is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation, commercial air transport, the DoD/governmental and foreign military markets.
The Company generated $4.6 million of cash in operating activities during fiscal 2021 as compared to cash generated of $2.2 million during fiscal 2020.
The Company generated $6.1 million of cash in operating activities during fiscal 2022, as compared to cash generated of $4.6 million during fiscal 2021.
Revenue recognition The Company enters into sales arrangements with customers that, in general, provide for the Company to design, develop, manufacture and deliver large flat-panel display systems, flight information computers, autothrottles and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude, and engine and fuel data measurements.
Actual results may differ from these estimates. 36 Table of Contents Revenue recognition The Company enters into sales arrangements with customers that, in general, provide for the Company to design, develop, manufacture and deliver large flat-panel display systems, flight information computers, autothrottles and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude and engine and fuel data measurements.
(the “Company,” “IS&S”, “we” or “us”) 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”).
Overview 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 OEMs.
Investing Activities Cash provided by investing activities was $2.6 million for fiscal year 2022 and consisted primarily of proceeds from the sale of the Company’s Pilatus PC-12 airplane offset by spending of $0.2 million primarily for quality test equipment and computer hardware. The Company plans to continue investing in capital equipment to support engineering development efforts and operations.
Cash provided by investing activities was $2.6 million for fiscal year 2022 and consisted primarily of proceeds from the sale of the Company’s Pilatus PC-12 airplane offset by spending of $0.2 million primarily for quality test equipment and computer hardware.
Apart from what has been disclosed above, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources. The Company did not pay cash dividends in fiscal 2022.
Apart from what has been disclosed above, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources. The Board previously declared special cash dividends in the amount of $0.65 per share in fiscal 2020 and $0.50 per share in fiscal 2021.
The Company intends to continue investing in the development of new products that complement current product offerings and to expense associated R&D costs as they are incurred.
Company funded R&D expenditures relate to internally-funded efforts for the development of new products and the improvement of existing products. These costs are expensed as incurred and reported as R&D expenses. The Company intends to continue investing in the development of new products that complement current product offerings and to expense associated R&D costs as they are incurred.
On a fully diluted basis, net income per share was $0.29 for fiscal 2021, compared to a net income of $0.19 per share for fiscal 2020. ​ 29 Table of Contents Liquidity and Capital Resources The following table highlights key financial measurements of the Company: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ September 30, ​ 2022 2021 Cash and cash equivalents ​ $ 17,250,546 ​ $ 8,265,606 Accounts receivable ​ $ 4,297,457 ​ $ 4,046,337 Current assets ​ $ 28,202,319 ​ $ 17,690,411 Current liabilities ​ $ 3,940,303 ​ $ 2,472,239 Contract liability ​ $ 135,686 ​ $ 61,330 Other non-current liabilities (1) ​ $ 15,065 ​ $ 28,680 Quick ratio (2) ​ 5.47 ​ 4.98 Current ratio (3) ​ 7.16 ​ 7.16 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ended September 30, ​ ​ 2022 2021 2020 Cash flow activities: ​ ​ ​ Net cash provided by operating activities ​ $ 6,094,440 ​ $ 4,592,499 ​ $ 2,192,167 Net cash provided by (used in) investing activities ​ 2,589,346 ​ (340,678) ​ (118,797) Net cash provided by (used in) financing activities ​ 301,154 ​ (19,771,082) ​ (705,333) (1) Excludes contract liability (2) Calculated as: the sum of cash and cash equivalents plus accounts receivable, net, divided by current liabilities (3) Calculated as: current assets divided by current liabilities The Company’s principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years’ operations.
On a fully diluted basis, net income per share was $0.32 for fiscal 2022, compared to a net income of $0.29 per share for fiscal 2021. 33 Table of Contents Liquidity and Capital Resources Sources of Liquidity The following table highlights key financial measurements of the Company: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ September 30, ​ 2023 2022 Cash and cash equivalents ​ $ 3,097,193 ​ $ 17,250,546 Accounts receivable ​ $ 9,743,714 ​ $ 4,297,457 Current assets ​ $ 34,673,703 ​ $ 28,202,319 Current liabilities ​ $ 6,398,959 ​ $ 3,940,303 Contract liability ​ $ 143,359 ​ $ 259,183 Other non-current liabilities ​ $ 17,921,508 ​ $ 15,065 Quick ratio (1) ​ 2.01 ​ 5.47 Current ratio (2) ​ 5.42 ​ 7.16 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ended September 30, ​ ​ 2023 2022 2021 Cash flow activities: ​ ​ ​ Net cash provided by operating activities ​ $ 2,096,174 ​ $ 6,094,440 ​ $ 4,592,499 Net cash (used in) provided by investing activities ​ (36,158,373) ​ 2,589,346 ​ (340,678) Net cash provided by (used in) financing activities ​ 19,908,846 ​ 301,154 ​ (19,771,082) (1) Calculated as: the sum of cash and cash equivalents plus accounts receivable, net, divided by current liabilities (2) Calculated as: current assets divided by current liabilities The Company’s principal source of liquidity for operations has been cash flows from current year operations and cash accumulated from prior years’ operations.
Cost of sales was $11.1million or 39.9% of net sales, for fiscal 2022 compared to $10.3 million, or 44.5% of net sales, in fiscal 2021. The increase in cost of sales was primarily the result of an increase in product sales volume. The Company’s overall gross margin in fiscal 2021 was 60.1% compared to 55.5% in fiscal 2021.
The increase in cost of sales was primarily the result of an increase in product sales volume. The Company’s overall gross margin in fiscal 2021 was 60.1% compared to 55.5% in fiscal 2021.
The Company supplies integrated Flight Management Systems (“FMS”), Flat Panel Display Systems (“FPDS”), FPDS with Autothrottle, air data equipment, Integrated Standby Units (“ISU”), ISU with Autothrottle and advanced GPS receivers that enable reduced carbon footprint navigation.
The Company supplies integrated FMS, FPDS, FPDS with autothrottle, air data equipment, integrated standby units, integrated standby units with autothrottle and advanced GPS receivers that enable reduced carbon footprint navigation, communication and navigation products and inertial reference units.
OEM sales to general aviation customers were relatively flat compared to fiscal 2021 at $10.4 million. Military sales were up slightly from fiscal 2021 at $2.8 million, which was up $0.3 million or 13.5%. The increase in customer service revenue was mainly due to increases in repair work from the Department of Defense. Cost of sales .
This increase in product sales primarily reflects increased shipments of aftermarket retrofit displays to commercial customers. OEM sales to general aviation customers were relatively flat compared to fiscal 2021 at $10.4 million. Military sales were up slightly from fiscal 2021 at $2.8 million, which was up $0.3 million, or a 13.5% increase.
Inflation IS&S does not believe inflation had a material effect on its financial position or results of operations during the past three years; however, it cannot predict future effects of inflation. 31 Table of Contents Impact of the COVID-19 Pandemic The Company has not yet seen a material impact from the COVID-19 pandemic on its business, financial position, liquidity, or ability to service customers or maintain critical operations.
Inflation The Company does not believe inflation had a material effect on its financial position or results of operations during the past three years; however, it cannot predict future effects of inflation.
The cash generated by operating activities for the year ended September 30, 2021 was primarily generated by net income of $5.1 million, depreciation and amortization of $0.4 million and a decrease in accounts receivable of $0.3 million, partially offset by an increase in deferred income tax assets of $1.2 million.
The cash generated by operating activities for the year ended September 30, 2023 was primarily generated by net income of $6.0 million, increase in non-cash compensation expenses for stock options and stock awards of $0.8 million and $0.7 million, respectively, and depreciation and amortization expense of $0.7 million, partially offset by increases to accounts receivable of $5.4 million and an increase in inventories of $0.8 million.
Net sales for fiscal 2022 increased $4.7 million, or 20.4%, to $27.7 million from $23.0 million for fiscal 2021. For fiscal 2022, product sales increased $3.7 million and customer service sales increased $0.8, or 20.8% from fiscal 2021. This increase in product sales primarily reflects increased shipments of aftermarket retrofit displays to commercial customers.
Fiscal Year Ended September 30, 2022 Compared to Fiscal Year Ended September 30, 2021 ​ Net sales. Net sales for fiscal 2022 increased $4.7 million, or 20.4%, to $27.7 million from $23.0 million for fiscal 2021. For fiscal 2022, product sales increased $3.7 million, or 19.6% and customer service sales increased $0.8 million, or 21.0%, from fiscal 2021.
If insufficient funds are available, the Company may not be able to introduce new products or to compete effectively.
Furthermore, the Company may need to develop and introduce new or enhanced products to respond to competitive pressures, to invest in or acquire businesses or technologies or to respond to unanticipated requirements or developments. If insufficient funds are available, the Company may not be able to introduce new products or to compete effectively.
Contract liabilities primarily relate to consideration received in advance of performance under the contract. 33 Table of Contents Customer Service Revenue The Company enters into sales arrangements with customers for the repair or upgrade of its various products that are not under warranty.
Customer Service Revenue The Company enters into sales arrangements with customers for the repair or upgrade of its various products that are not under warranty. The Company’s customer service revenue and cost of sales are included in product and service sales and product and service cost of sales, respectively, on the accompanying consolidated statements of operations.
The overhead portion of cost of sales primarily comprises salaries and benefits, building occupancy costs, supplies, and outside service costs related to production, purchasing, material control, and quality control. Cost of sales includes warranty costs. Cost of sales related to Engineering Development Contracts (“EDC”) sales comprises engineering labor, consulting services, and other costs associated with specific design and development projects.
Many of the components are standard, although certain parts are manufactured to meet the Company’s specifications. The overhead portion of cost of sales primarily comprises salaries and benefits, building occupancy costs, supplies and outside service costs related to production, purchasing, material control and quality control. Cost of sales also includes warranty costs.
The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors.
The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors and will depend on then-existing conditions, including our operating results, financial condition, business prospects and other factors the Board may deem relevant.
Net interest income of $1,234 in fiscal 2021 decreased by $153,716 as compared to fiscal 2020 interest income of $154,950. The decrease in interest income was primarily the result of decreased cash balance and lower interest rates in fiscal 2021 as compared to fiscal 2020. Other income.
Interest income of $0.5 million in fiscal 2023 increased by $0.4 million as compared to interest income in fiscal 2022 of $0.1 million. The increase in interest income was primarily the result of the increase in the average cash balance in fiscal 2023 and a general increase in interest rates as compared to fiscal 2022. Other income.
Financing Activities Cash provided by financing activities was $0.3 million for fiscal year 2022 and consisted of proceeds from employees’ exercise of stock options. Cash used by financing activities was $19.8 million for fiscal year 2021 and consisted primarily of dividends paid.
Cash provided by financing activities was $0.3 million for fiscal year 2022 and consisted of proceeds from employees’ exercise of stock options. Summary Future capital requirements depend upon numerous factors, including market acceptance of the Company’s products, the timing and rate of expansion of business, acquisitions, joint ventures and other factors.
Net sales for fiscal 2021 increased $1.4 million, or 6.7%, to $23.0 million from $21.6 million for fiscal 2020. For fiscal 2021, product sales increased $1.9 million and EDC sales decreased $0.5 million, in each case, compared to fiscal 2020.
Net sales in fiscal 2023 increased $7.1 million, or 25.5%, to $34.8 million from $27.7 million in fiscal 2022. Product sales in fiscal 2023 increased $0.2 million compared to fiscal 2022. EDC sales increased $0.7 million, or 146.8% compared to fiscal 2022, reflecting increased EDC business. Customer service sales increased $6.2 million, or 127.2% from fiscal 2022.
Cash used in investing activities was $0.3 million for fiscal year 2021 and consisted of spending for manufacturing facility and laboratory test equipment. The Company plans to continue investing in capital equipment to support engineering development efforts and operations.
The Company plans to continue investing in capital equipment to support engineering development efforts and operations. 35 Table of Contents Financing Activities Cash provided by financing activities was $19.9 million for fiscal year 2023 and primarily consisted of proceeds from the Term Loan with PNC for $20.0 million to fund a portion of the Honeywell Agreement with Honeywell, proceeds from the exercise of stock options for $0.4 million and the paydown of the Term Loan for $0.5 million.
On a fully diluted basis, net income per share was $0.32 for fiscal 2022, compared to a net income of $0.29 per share for fiscal 2021. ​ 28 Table of Contents Fiscal Year Ended September 30, 2021 Compared to Fiscal Year Ended September 30, 2020 Net sales.
As a result of the factors described above, the Company’s net income in fiscal 2023 was $6.0 million compared to net income of $5.5 million in fiscal 2022. On a fully diluted basis, net income per share was $0.35 in fiscal 2023, compared to a net income of $0.32 per share in fiscal 2022.
SG&A expense increased $0.2 million or 2.6% to $6.3 million or 27.2% of net sales, for fiscal 2021 from $6.1 million, or 28.2%, for fiscal 2020. The increase in SG&A expense was primarily the result of an increase in employee stock compensation, payroll and payroll related benefits. Interest income, net.
The increase in SG&A expense in fiscal 2023 was primarily the result of increased stock compensation expense and legal fees, professional fees, audit fees and amortization expense primarily related to the Transaction and increased board director fees. Interest income.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
The preparation of these consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. Management has determined that the most critical accounting policies and estimates are those related to revenue recognition, inventory valuation and valuation of tangible and intangible assets acquired.
The decrease in EDC sales was primarily the result of the completion of a modification contract with the U.S. Navy in 2020. Cost of sales . Cost of sales was $10.3 million or 44.5% of net sales, for fiscal 2021 compared to $9.8 million, or 45.3% of net sales, in fiscal 2020.
The increase in customer service revenue was mainly due to increases in repair work for the Department of Defense. Cost of sales . Cost of sales was $11.1million, or 39.9% of net sales, for fiscal 2022 compared to $10.3 million, or 44.5% of net sales, in fiscal 2021.
Cash is used principally to finance inventory, accounts receivable, contract assets, and payroll, as well as the Company’s known contractual and other commitments (including those described in Note 16, “Lease Recognition”. The Company’s existing cash balances and anticipated cash flows from operations are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months.
Cash is used principally to finance inventory, accounts receivable, contract assets, and payroll, as well as the Company’s known contractual and other commitments (including those described in Note 19, “Lease Recognition.” Debt Facility In connection with the Transaction, the Company entered into the Term Loan with PNC for $20.0 million to fund a portion of the Transaction (see Note 20, “Loan Agreement” for further details).
The Company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months. Further, IS&S may need to develop and introduce new or enhanced products, to respond to competitive pressures, to invest in or acquire businesses or technologies, or to respond to unanticipated requirements or developments.
The Company has experienced increases in expenditures since its inception and anticipates that expenditures will remain relatively constant with the levels experienced in fiscal 2023 and fiscal 2022. The Company believes that its cash and cash equivalents and current banking facility will provide sufficient capital to fund operations for at least the next twelve months.
The increase in cost of sales was primarily the result of an increase in product sales volume. The Company’s overall gross margin in fiscal 2021 was 55.5% compared to 54.7% in fiscal 2020. The fiscal 2021 gross margin percentage increase was attributable to product mix as well as the favorable leverage achieved by the growth in revenues.
Cost of sales was $13.5 million, or 38.8% of net sales, in fiscal 2023 compared to $11.1 million, or 39.9% of net sales, in fiscal 2022. The increase in cost of sales was primarily the result of an increase in customer service sales volume. The Company’s overall gross margin in fiscal 2023 was 61.2% compared to 60.1% in fiscal 2022.
Cost of sales related to product sales comprises material, components and third-party avionics purchased from suppliers, direct labor, and overhead costs. Many of the components are standard, although certain parts are manufactured to meet IS&S specifications.
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. Cost of sales related to product and service sales comprises materials, components and third-party avionics purchased from suppliers, direct labor and overhead costs.
Removed
Company funded research and development (“R&D”) expenditures relate to internally-funded efforts for the development of new products and the improvement of existing products. These costs are expensed as incurred and reported as R&D expenses.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Removed
For example, earlier 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 pandemic will result in other suspensions, delays or order cancellations by the Company’s customers or suppliers.
Added
In June 2023, the Company entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc.
Removed
In particular, the ongoing COVID-19 pandemic is a significant event, driver of market trends, and source of uncertainty that may ultimately have a direct or indirect material impact on the Company’s business, financial position, liquidity, or ability to service customers or maintain critical operations.
Added
(“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”).
Removed
In direct response to the COVID-19 pandemic, the Company has taken specific actions to seek to ensure the safety of its employees, including temperature monitoring, frequent sanitization of workspaces, observance of social distancing protocols, and other increased safety measures.
Added
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.
Removed
This increase in product sales primarily reflects increased shipments for OEM programs to general aviation customers and displays for retrofit programs to commercial transport customers. These increases were partially offset by reduced shipments under the U.S. Navy F-5 production contract and displays for retrofit programs to other military customers compared to fiscal 2020.
Added
Cost of sales related to EDC sales comprises engineering labor, consulting services and other costs associated with specific design and development projects.
Removed
Research and development . R&D expense was $2.6 million for fiscal 2021 and $3.0 million for fiscal 2020. R&D expense decreased to 11.4% of net sales in fiscal 2021 compared to 13.7% of net sales in fiscal 2020.
Added
The increase in customer service sales primarily reflects customer service sales of $5.8 million due to the Honeywell Agreement. The increase in product sales primarily reflects increased shipments of displays to general aviation customers and commercial transport customers of $0.7 million and $0.6 million, respectively. Military product sales decreased $1.1 million due to reduced business volume. Cost of sales .
Removed
This decrease in R&D expense was primarily the result of a decrease in third party costs related to STC certifications offset by an increase in payroll and payroll related benefits. Selling, general, and administrative (“SG&A”) .
Added
The fiscal 2023 gross margin percentage increase was primarily attributable to increased customer service sales that typically generate higher gross margins than manufactured products. Research and development . R&D expenses were $3.1 million in fiscal 2023 and $2.7 million in fiscal 2022.
Removed
Other income is primarily composed of royalties earned and increased by $14,409, to $74,906 in fiscal 2021 from $60,497 in fiscal 2020. Income taxes. Income tax benefit for fiscal 2021 was $1,087,783 as compared to income tax benefit of $308,882 for fiscal 2020.
Added
R&D expense decreased to 9.0% of net sales in fiscal 2023 compared to 9.8% of net sales in fiscal 2022. The increase in R&D expense resulted primarily from increased personnel and related benefits, offset by the increase of EDC contract activity whose costs are reflected in cost of sales rather than R&D expense. Selling, general, and administrative.
Removed
The effective tax rate benefit for fiscal 2021 was 27.4% and differs from the statutory rate primarily due to the release of the valuation allowance for all federal and state deferred tax assets with the exception of certain state net operating losses for jurisdictions in which the Company does not believe these net operating losses are more likely than not to be realized.
Added
SG&A expenses increased $4.0 million or 60.2%, to $10.8 million from $6.8 million in fiscal 2022. SG&A expenses in fiscal 2022 were reduced by inclusion of a gain of $1.2 million from the sale of the PC-12 aircraft.
Removed
This release both increased the deferred tax asset and removed the valuation allowance. Net income. As a result of the factors described above, the Company’s net income for fiscal 2021 was $5.1 million compared to net income of $3.3 million for fiscal 2020.
Added
Other income was $0.2 million in fiscal 2023, an increase of $.01 million in fiscal 2022. Income taxes. Income tax expense was $1.6 million in fiscal 2023 as compared to income tax expense of $1.8 million in fiscal 2022. The effective tax rate in fiscal 2023 was 21.1% as compared to 24.8% in fiscal 2022.
Removed
On September 4, 2020, the Company’s Board of Directors declared a special cash dividend in the amount of $0.65 per share, payable on October 1, 2020 to shareholders of record as of the close of business on September 15, 2020. The total dividend payment was approximately $11.2 million.
Added
The higher tax and effective tax rate in fiscal 2022 as compared to fiscal 2023 primarily reflects higher state tax due to tax on the gain from the sale of the PC-12 aircraft. Net income.
Removed
On December 10, 2020, the Company’s Board of Directors declared a special cash dividend in the amount of $0.50 per share, payable on December 30, 2020 to shareholders of record as of the close of business on December 21, 2020. The total dividend payment was approximately $8.6 million.
Added
In addition to providing for the Term Loan, the Loan Agreement, together with a corresponding Line of Credit Note in favor of PNC, executed on May 11, 2023, provides for the senior secured Revolving Line of Credit in an aggregate principal amount of $10,000,000, with an expiration date of May 11, 2028.
Removed
The ongoing COVID-19 pandemic is a significant event, driver of market trends, and source of uncertainty that may have a material impact on the Company’s liquidity, financial condition, capital resources, cash flows or operating results.
Added
On December 19, 2023, the Company and PNC entered into an Amendment to Loan Documents and a corresponding Amended and Restated Revolving Line of Credit Note and Amended and Restated Line of Credit and Investment Sweep Rider. See Note 21, “Subsequent Events”.
Removed
In direct response to the COVID-19 pandemic, the Company has taken specific actions to seek to ensure the safety of its employees, including temperature monitoring, frequent sanitization of workspaces, observance of social distancing protocols, and other increased safety measures. 30 Table of Contents Operating Activities The Company generated $6.1 million of cash from operating activities during fiscal 2022 as compared to cash generated of $4.6 million during fiscal 2021.
Added
Stifel Sales Agreement On September 22, 2023, the Company entered into an at-the-market equity offering Sales Agreement (the “ATM Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (the “Sales Agent”), pursuant to which the Company may offer and sell from time to time through the Sales Agent up to $40 million of shares of its common stock.
Removed
Summary Future capital requirements depend upon numerous factors, including market acceptance of the Company’s products, the timing and rate of expansion of business, acquisitions, joint ventures, and other factors. IS&S has experienced increases in expenditures since its inception and anticipates that expenditures will remain relatively constant with the levels experienced in fiscal 2022 and fiscal 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAssuming that the balances during fiscal 2022 were to remain constant and that the Company did not act to alter the existing interest rate sensitivity, a hypothetical 1% increase in variable interest rates would have affected interest income by approximately $88,000. This would result in a net impact on cash of approximately $88,000 for fiscal 2022.
Biggest changeAssuming that the balances during fiscal 2023 were to remain constant and that the Company did not act to alter the existing interest rate sensitivity, a hypothetical 1% increase in variable interest rates would have affected interest income by approximately $99,000. This would have resulted in a net impact on cash of approximately $99,000 for fiscal 2023.

Other ISSC 10-K year-over-year comparisons