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INNOVATIVE SOLUTIONS & SUPPORT INC

INNOVATIVE SOLUTIONS & SUPPORT INCISSCEarnings & Financial Report

Nasdaq · Information Technology · Services-Computer Programming Services

Motorola Solutions, Inc., is an American technology company that provides safety and security products and services. Headquartered in Chicago, Illinois, the company provides critical communications, video security, and command center technologies, used by public safety agencies and enterprises. It was formed in 2011 by the division of Motorola, Inc., and is its legal successor; the former company's mobile phone division was spun off as Motorola Mobility, now part of Chinese technology company...

What changed in INNOVATIVE SOLUTIONS & SUPPORT INC's 10-K — 2023 vs 2024

Top changes in INNOVATIVE SOLUTIONS & SUPPORT INC's 2024 10-K

411 paragraphs added · 372 removed · 181 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

39 edited+65 added−125 removed8 unchanged
(“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”).
(“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.
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.
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 markets its products directly to the DoD and to domestic and international defense contractors for end use in military aircraft retrofit programs.
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.
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 (“ADS-B”) navigation.
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.
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.
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”.
Original Equipment Manufacturers The Company has signed a multi-year agreement with Textron to supply ThrustSense® Autothrottles on their King Air 360 and King Air 260 production aircraft as described above in “Products - ThrustSense® Autothrottle”.
DoD programs generally take one of two forms: a subcontract with a prime government contractor, such as Boeing, Lockheed Martin, or L3Harris Technologies, Inc. or a direct contract with the appropriate government agency, such as the U.S. Air Force.
DoD programs generally take one of two forms: a subcontract with a prime government contractor, such as Boeing, Lockheed Martin, or L3Harris Technologies, or a direct contract with the appropriate government entity, such as the U.S. Air Force.
The Company has developed products that enable owners and operators to upgrade their aircraft by retrofitting them with the Company’s products at a competitive cost and with equipment that provides cockpit displays with capabilities and technology equivalent to newer aircraft.
The Company has developed products that enable owners and operators to upgrade their aircraft by retrofitting them with the Company’s products at a competitive cost with equipment that provides instruments with capabilities and technology equivalent to newer aircraft.
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.
We believe that, in times of adverse economic conditions, customers that may have otherwise elected to purchase newly manufactured aircraft may be interested instead in retrofitting existing aircraft as a cost-effective alternative, thereby enhancing the retrofit market opportunity for the Company. A wide range of information is critical for the proper and safe operation of aircraft.
In fiscal year 2023, the three largest customers, Pilatus, ATSG and Textron accounted for 23%, 12% and 10% of total revenue, respectively. In fiscal year 2022, the three largest customers, Pilatus, ATSG and Textron accounted for 22%, 11% and 11% of total revenue, respectively.
In fiscal year 2023, the three largest customers, 6 Table of Contents Pilatus, ATSG and Textron accounted for 23%, 12% and 10% of total revenue, respectively. In fiscal year 2022, the three largest customers, Pilatus, ATSG and Textron accounted for 22%, 22% and 11% of total revenue, respectively.
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.
We believe that ThrustSense® Autothrottle, the Company’s turboprop autothrottle incorporating patented technology, is highly effective, less complex and less costly than other available products and offers sophisticated sensing and multiple safety features that even exceed those of some much more expensive jet autothrottle systems.
Engine and fuel instruments provide information on engine activity, including oil and hydraulic pressures and temperature. These instruments are clustered throughout an aircraft’s cockpit. Engine and fuel instruments tend to be replaced more frequently than other instruments due to obsolescence and normal wear-and-tear.
Engine and fuel instruments provide information on engine activity, including oil and hydraulic pressures and temperature. These instruments are clustered throughout an aircraft’s cockpit. Individual instruments tend to be replaced more frequently than the aircraft itself due to obsolescence and normal wear-and-tear.
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.
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, 2024, 35% of the Company’s backlog was expected to be filled beyond fiscal year 2025. ​
The backlog excludes potential future sole-source production orders from products developed under the Company’s EDC programs, including the Pilatus PC-24, the KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs.
The backlog excludes potential future sole-source production orders from products developed under the Company’s engineering development contracts (“EDC”) programs, including the Pilatus PC-24, the KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs.
These retrofit contracts tend to be on arms-length commercial terms, although some termination and other provisions of government contracts are typically applicable to these contracts, as described under “Government Regulation” below. Each government agency or general contractor retains the right to terminate a contract at any time at its convenience.
These retrofit contracts tend to be on arms-length commercial terms, although some termination and other provisions of typical government contracts may be incorporated as described below under “Government Regulation.” Each government agency or general contractor usually retains the right to modify or terminate a contract at any time at its convenience.
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.
The Company believes that aircraft cockpits will become more complete information centers that are capable of delivering additional information that is either mandated by regulation or demanded by pilots to assist in the safe and efficient operation of aircraft.
Communications and Navigation, Inertial Reference Products In June 2023, the Company entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc.
In June 2023, the Company entered into an Asset Purchase and License Agreement (the “June 2023 Honeywell Agreement”) with Honeywell International, Inc.
The Company’s certification to these standards allows the Company to represent to customers that it maintains high-quality industry standards in the education of its employees and in the design and manufacture of its products. In addition, the Company’s products undergo extensive and documented quality control testing prior to being delivered to customers.
The Company’s certification to these standards allows ISSC to represent to customers that it maintains high-quality industry standards in the education of its employees and in the design and manufacture of its products.
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.
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 similar functionality to that of new aircraft. • Expand presence in flat panel display market Due to recent demand from cargo operators, we believe that many aircraft will be retrofitted with flat panel displays over the next several years.
As a part of the Company’s growth strategy, we continuously evaluate acquisition opportunities and opportunities to make investments in complementary businesses, technologies, services or products, or to enter into strategic partnerships with parties who can provide access to those assets, additional product or services offerings, additional distribution or marketing synergies or additional industry expertise in order to enhance and expand the Company’s product offerings, technology and capabilities in its current products and in future products.
In addition, we may enter into strategic partnerships with parties who can provide access to assets, additional product or services offerings, additional distribution or marketing synergies or additional industry expertise in order to enhance and expand the Company’s product offerings, technology and capabilities in its current and future products.
Typically, the Company purchases components for products, including any necessary raw materials, from third-party suppliers, several of which are sole source, and assembles them in a clean room environment. Many of the components purchased are standard products, although certain parts are made to the Company’s specifications.
Suppliers The Company’s manufacturing activities consist primarily of assembling and testing components and subassemblies and integrating them into finished systems. Typically, the Company purchases components for products, including any necessary raw materials, from third-party suppliers, several of which are sole source, and assembles them in a clean room environment.
The Company has developed and manufactures the utilities management system for the Pilatus’ PC-24 aircraft under a multi-year production contract as described above under “Products - Utilities Management System”. The Company also markets its products to other OEMs including, among others, Boeing and Lockheed Martin.
The Company has developed and manufactures the utilities management system for the Pilatus’ PC-24 aircraft under a multi-year production contract as described above under “Products - Utilities Management System.” The Company also markets its products to other OEMs including, among others, Boeing and Lockheed Martin. ​ INTELLECTUAL PROPERTY We have various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights, which we believe, in the aggregate but not individually, are important to our business.
The Company 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 which could happen as a result of the inability to obtain either component parts or FAA approval of products incorporating new component parts.
(“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.
(“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. In fiscal year 2024, our three largest customers, Pilatus, Textron and Honeywell accounted for 23%, 7% and 7% of total revenue, respectively.
The Company sells these customers a range of products from FPDS to air data systems. Aircraft Modification Centers. Aircraft modification centers, which repair and retrofit private aircraft, represent the primary retrofit market for private and corporate jets.
The Company’s commercial fleet customers include or have included, among others, AAL, ATSG, FedEx and Icelandair. The Company sells these customers a range of products and services. Aircraft Modification Centers. Aircraft modification centers, which repair and retrofit private aircraft, represent the primary retrofit market for private and corporate jets.
Backlog ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30 ​ 2023 2022 Backlog, beginning of period ​ $ 11,778,988 ​ $ 9,121,585 Plus: bookings during period, net ​ 36,480,406 ​ 30,398,098 Less: sales recognized during period ​ (34,808,513) ​ (27,740,695) Backlog, end of period ​ $ 13,450,881 ​ $ 11,778,988 ​ Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders.
The Company remains committed to maintaining strong financial flexibility. ​ ​ Backlog ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30 ​ ​ ​ 2024 ​ ​ 2023 Backlog, beginning of period ​ $ 13,450,881 ​ $ 11,778,988 ​ Plus: bookings during period, net ​ 48,672,715 ​ 36,480,406 ​ Plus: acquired through acquisition ​ ​ 74,307,000 ​ ​ — ​ Less: sales recognized during period ​ (47,198,020) ​ (34,808,513) ​ Backlog, end of period ​ $ 89,232,576 ​ $ 13,450,881 ​ ​ 11 Table of Contents Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders.
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.
Periodically, the Company evaluates our sales and marketing efforts with respect to these focus areas and, where appropriate, makes use of third-party sales representatives who receive compensation through commissions based on performance. Raw Materials We require the use of various raw materials in our manufacturing processes. We purchase a variety of manufactured component parts from various suppliers.
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.
Accordingly, we believe that these advantages will allow the Company to generate increased revenues from the COCKPIT/IP® product and increase our market share.
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.
The capacity expansion is expected to cost approximately $6 million. Sales & Marketing Our multi-channel sales strategy targets passenger and cargo carrying aircraft operators, general aviation owner/operators, maintenance, repair and overhaul (“MRO”) dealer networks, distributors, avionics integrators, aircraft modification centers, the Department of Defense (“the DoD”), DoD contractors and OEMs.
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.
Key elements of the strategy include the following: #1 - Targeted Commercial Growth • Expand product line portfolio 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 sells its products to aircraft operators, including commercial airlines, cargo carriers and business and general aviation aircraft owners or suppliers, primarily for retrofitting of aircraft owned or operated by these customers. The Company’s commercial fleet customers include or have included, among others, AAL, ATSG, FedEx and Icelandair.
Upon such alteration or termination, the Company is typically entitled to compensation for items already delivered and reimbursement for allowable costs incurred. Aircraft Operators. The Company markets its products to aircraft operators, including commercial airlines, cargo carriers and business and general aviation aircraft owners or suppliers, primarily for retrofitting of aircraft owned or operated by these customers.
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.
As of September 30, 2024, the Company held 47 U.S. patents. The Company holds 111 international patents and has 17 trademarks. Certain of these patents cover technology relating to air data measurement systems, and others cover technology relating to flat panel display systems and other aspects of the COCKPIT/IP® product. • Depth of experience in serving global customer brands.
In fiscal year 2021, the two largest customers, Pilatus and Textron accounted for 20% and 17% of total revenue, respectively. Retrofit Market Historically, most of the Company’s sales have come from the retrofit market, which the Company has pursued because of the growing need to support the world’s aging fleet of aircraft.
Historically, most of the Company’s sales have come from the retrofit market, which the Company has pursued because of the growing need to support the world’s aging fleet of aircraft. The design and airframes of many types of older aircraft generally exceed the technology and technical capabilities of the original cockpit instruments and avionics.
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.
We believe that IS&S flat panel displays provide an attractive solution to the growing need for innovation and new methods in this area. STRATEGY The foundation of our value creation framework is our focused business strategy which seeks to deliver stable commercial growth, including both organic and inorganic growth, operational excellence and disciplined capital allocation.
The Company received the first supplemental type certificate (“STC”) ever granted by the FAA for a turboprop autothrottle in June 2017. The Company intends to continue to capitalize on being the first to market an autothrottle to owners and operators of turboprop aircraft. 6 Table of Contents ● Continuation of ThrustSense® Autothrottle STC Installations .
The Company intends to continue to capitalize on being the first to market an autothrottle to owners and operators of turboprop aircraft. 10 Table of Contents • Focus on retrofit opportunity Given an aging global aircraft fleet, cockpit avionics upgrades for existing aircraft continue to be a significant opportunity for the Company.
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. Customers The Company’s customers include the U.S. government (including the DoD, the Department of Interior and the Department of Homeland Security), Air Transport Services Group Inc. (“ATSG”), Amazon.com, Inc., American Airlines, Inc.
OUR CUSTOMERS AND PRODUCT DISTRIBUTION The Company’s customers include the U.S. government (including the DoD, the Department of Interior and the Department of Homeland Security), Air Transport Services Group Inc. (“ATSG”), Amazon.com, Inc., American Airlines, Inc. (“AAL”), Boeing, Deutsche Post DHL Group, FedEx Corporation (“FedEx”), Icelandair, L3Harris Technologies, Inc.
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.
During fiscal year 2024, the Company had four suppliers, Honeywell, FilConn, APCT Inc and Brandywine Precision Inc. that accounted for most of Company’s total inventory related purchases. When appropriate, the Company enters into long-term supply agreements and uses its relationships with long-term suppliers to improve product quality and availability and reduce delivery times and product costs.
Aircraft operators continue to purchase individual conventional engine and fuel instruments as replacements because the information that these instruments display is vital for safe and efficient flight. Increasingly, operators are replacing their clusters of analog mechanical instruments with integrated engine instrument display systems or FPDS packages.
Increasingly, operators are replacing their clusters of analog mechanical instruments with integrated display systems such as the IS&S panel displays.
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”).
Incorporated in Pennsylvania in 1988, ISSC is a vertically integrated provider of flight solutions and equipment to commercial air transport, general aviation markets, the United States Department of Defense (“DoD”) and allied foreign militaries. We operate in one business segment that designs, develops, manufactures, sells and services avionics products and systems for retrofit applications and Original Equipment Manufacturers (“OEMs”).
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.
The Company’s COCKPIT/IP® system components are examples of its ability to engineer products using the selective application of non-avionic technology. In 2016, ISSC recognized that the lack of an available autothrottle system on turboprop aircraft was an unmet need in the marketplace, leading it to invest in the development of a sophisticated turboprop autothrottle.
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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.
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Item 1. Business . INTRODUCTION As used in this Annual Report on Form 10-K, unless expressly stated otherwise or the context otherwise requires, the terms “ISSC” or “the Company”, “we”, “us” and “our”, refers to Innovative Solutions & Support and its subsidiaries.
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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.
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In the fiscal year 2024 ended September 30, 2024, we reported net sales of $47.2 million, an increase of 35.6% on a year-over-year basis from $34.8 million in the fiscal year ended 2023, and net income of $7.0 increased 16.1% from $6.0 million in fiscal 2023.
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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.
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At September 30, 2024, our backlog was $89.2 million compared with $13.5 million at September 30, 2023. Backlog at September 30, 2024 included $74.3 million of acquired backlog as a result of the September 27, 2024 acquisition. Backlog is converted into sales in future periods as work is performed or deliveries are made.
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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.
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We expect to recognize approximately 65% of our backlog over the next 12 months and approximately 98% over the next 24 months as revenue, with the remainder recognized thereafter. During fiscal 2024, we made important progress on our commercial growth strategy highlighted by several key awards and contract wins across our commercial, military and business aviation markets.
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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.
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In October 2024, we announced our ThrustSense® Autothrottle system was selected by the US Army to be installed on their C-12 (B200) aircraft equipped with ProLine21 avionics suites. Deliveries of the IS&S ThrustSense Autothrottle system for this application began in September 2024, with ongoing installations anticipated.
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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.
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In August 2024, we received a multi-million dollar production contract from a major aerospace company to supply our 19’’ Multifunction Display (MFD) with Integrated Mission Computer.
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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.
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This order marks our latest OEM contract and builds on existing programs with Pilatus Aircraft (“Pilatus”) for the PC-24, Textron Aviation (“Textron”) for the King Air 260/360 and The Boeing Company (“Boeing”) for the KC-46A, KC-767 and the T-7A.
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The shift in the regulatory and technological environment is illustrated by the dramatic increase in the number of Space Based Augmentation System (“SBAS”) or Wide Area Augmentation System (“WAAS”) approach qualified airports, particularly as realized through Localizer Performance with Vertical guidance (“LPV”) navigation procedures.
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In July 2024, the Company entered into an exclusive license agreement and acquired additional key assets for certain communication and navigation product lines from Honeywell (the “July 2024 Honeywell Asset Acquisition”). This transaction complements the previous Honeywell license and asset acquisition completed in June 2023. Total consideration was $4.2 million in cash.
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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.
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On September 27, 2024, the Company entered into a second Asset Purchase and License Agreement (the “September 2024 Honeywell Agreement”) with Honeywell, pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its various generations of military display generators and flight control computers to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for consideration of $14.2 million in cash.
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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.
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The Company believes the September 2024 Honeywell Agreement will help to accelerate the Company’s growth and enhance its global reputation for delivering best price-for-performance product and service solutions. ​ 4 Table of Contents OUR BUSINESS MODEL We specialize in providing systems integrations capabilities that include the design, manufacture, sale and servicing of high-performance avionics products and systems used in both commercial and military aircraft platforms.
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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.
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As a systems integrator, we leverage our proven expertise in developing end-to-end systems that combine mechanical, electrical, software, and avionics components into an integrated solution. Our activities as an integrator includes system design and analysis; integration and testing; regulatory compliance and documentation; and lifecycle support.
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The NextGen Flight Deck features Primary Flight and Multi-Function Displays and integrated standby units, as well as an integrated FMS and electronic flight bag system. The innovative avionics suite includes dual flight management systems, autothrottles, synthetic vision and enhanced vision.
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Our systems integration activities leverage our owned intellectual property and our products and service capabilities, together with third-party technologies that, in combination, provide our customers with advanced solutions on an on-demand basis.
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The NextGen Flight Deck enhanced avionics suite is available for integration into other business aircraft with full-authority digital engine control (“FADEC”) and non-FADEC engines. The Company has developed its FAA-certified ThrustSense® Autothrottle for retrofit in the King Air, dual turbo prop PT6 powered aircraft. The ThrustSense® Autothrottle is designed to automate power management for speed and power control including go-around.
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We believe that our ability to source and integrate advanced componentry provides our customers with a unique value proposition, one that helps to reduce cost and optimize fleet utilization. Currently, we support multiple OEM platforms, including those with the Boeing Company, Eclipse Aerospace, Lockheed Martin, and Pilatus Aircraft.
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ThrustSense® Autothrottle also ensures aircraft envelope protection and engine protection during all phases of flight, thereby reducing pilot workload and increasing safety. The Company has signed a multi-year agreement with Textron Aviation, Inc. (“Textron”) to supply ThrustSense® Autothrottle on the King Air 360 and King Air 260.
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Products The Company manufactures, markets and sells a wide variety of high-value, advanced avionics solutions for commercial air transport, business aviation and military customers. It sources its products through internal research and development efforts, in addition to opportunistic licensing and acquisition of mature product lines that complement the Company’s existing business.
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ThrustSense® Autothrottle is also available for retrofit on King Air aircraft through Textron service centers and third-party service centers. The Company has also developed an FAA-certified 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.
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The Company believes that the acquisition of additional product lines presents the opportunity for the Company to leverage potential cost synergies from better utilization of the Company’s skill engineering team and its existing operational capacity while expanding the Company’s customer base and providing opportunities for the Company to market its internally developed products to acquired Customers.
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We believe the ThrustSense® Autothrottle is innovative in that it is the first autothrottle developed for a turbo prop that allows a pilot to automatically control the power setting of the engine. The ThrustSense® Autothrottle computes and controls appropriate power levels thereby reducing overall pilot workload.
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As the Company’s product offerings focus on individual avionics components and systems, it is able to market its products to both customers building new aircraft and customers engaged in the retrofit market.
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The system computes thrust, holds selected speed/torque, and implements appropriate speed and engine limit protections. When engaged by the pilot, the ThrustSense® Autothrottle system adjusts the throttles automatically to achieve and hold the selected airspeed while guarding the engines via a torque/temperature limit mode.
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Our product portfolio consists of the following five categories: Integrated Flight Deck Systems COCKPIT/IP® that include primary flight/navigation displays, crew alerting and engine displays, integrated standby instruments and mission displays. Navigation Systems that includes flight management systems, mission computers, navigation radios and transponders. Communication Systems that includes communication radios, audio panels and radio management units.
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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.
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Sensors and Control Systems that includes air data computers, attitude and heading reference systems, magnetometers, inertial reference units, GPS receivers, utility management systems and flight control computers. Advanced Flight Actuators that includes an array of linear and rotary smart-actuators for movement of aircraft levers and surfaces.
Removed
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.
Added
Manufacturing Engineering & Design We believe that our customers value our history of technological innovation, new product development and technical expertise across multiple platforms. As of September 30, 2024, we held more than 120 U.S. and international patents relating to our products and systems.
Removed
Sales to defense contractors are generally made on commercial terms, although some of the termination and other provisions of government contracts are applicable to these contracts. The Company’s retrofit projects are generally pursuant to either a direct contract with a customer or a subcontract with a general contractor to a customer (including government agencies).
Added
We invest heavily in engineering and development, with approximately 27% of our full-time employees serving in engineering-related roles as of September 30, 2024. We currently operate a 45,000 square foot design, manufacturing, and office facility in Exton, Pennsylvania. ISSC is ISO 9001 and AS9100D certified.
Removed
Customers have been and may continue to be affected by changes in economic conditions both in the United States and abroad. Such changes may cause customers to curtail or delay their spending on both new and existing aircraft.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

82 edited+122 added−38 removed29 unchanged
We may not be able to, at any given time, refinance our debt, sell assets, incur additional indebtedness or issue equity securities on terms acceptable to us, in amounts sufficient to meet our needs. If we are able to raise additional funds through the issuance of equity securities, such issuance would also result in dilution to our shareholders.
We may also not be able to, at any given time, refinance our debt, sell assets, incur additional indebtedness or issue equity securities on terms acceptable to us, in amounts sufficient to meet our needs. If we are able to raise additional funds through the issuance of equity securities, such issuance would also result in dilution to our shareholders.
Unanticipated changes in any applicable actuarial assumptions or management estimates underlying our recorded liabilities for these losses could result in materially different amounts of expense than expected under these programs, which could have a material adverse effect on our financial condition and results of operations.
Unanticipated changes in any applicable actuarial assumptions or management estimates underlying our recorded liabilities for these losses could result in materially different amounts of expense than expected under these programs, which could have a material adverse effect on our business, financial condition and results of operations.
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 Company cannot be certain that it will be able to develop, acquire, 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.
We face certain security threats and technology disruptions, including threats to our information technology (“IT”) infrastructure, attempts to gain access to our or our customers’ proprietary or classified information, threats of terrorism events, and failures of our technology tools and systems.
We face certain security threats and technology disruptions, including threats to our information technology (“IT”) infrastructure, attempts to gain access to our or our customers’ proprietary or classified information, threats of terrorism, and failures of our technology tools and systems.
The success of the Transaction, including anticipated benefits and potential additional revenue opportunities, will depend, in part, on the Company’s ability to successfully integrate the Honeywell product lines in a manner that results in various benefits, including, among other things, enhancing the Company’s current offerings in the air transport, military and business aviation markets, creating potential cost synergies, accelerating the Company’s growth and enhancing its global reputation.
The success of the Honeywell acquisitions, including anticipated benefits and potential additional revenue opportunities, will depend in part on the Company’s ability to successfully integrate the Honeywell product lines in a manner that results in various benefits, including, among other things, enhancing the Company’s current offerings in the air transport, military and business aviation markets, creating potential cost synergies, accelerating the Company’s growth and enhancing its global reputation.
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.
In addition, these competitors have much greater experience in, and resources for, marketing their products. As a result, the Company’s 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.
Furthermore, if the Company does not meet project deadlines or if its products do not meet customer specifications, it may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages, or suffer losses if the customer exercises its right to terminate.
Furthermore, if the Company does not meet project deadlines or if its products do not meet customer specifications, it may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages, or suffer losses if the customer exercises its right to terminate its agreement early.
The Company is subject to, and must comply with, various laws and regulations, including, but not limited to, the product-related and other regulations of the FAA and the EASA, U.S. government procurement regulations, the rules and regulations of the SEC, and local, state, federal, and international tax codes, import and export controls and customs laws, employment and employment-related laws, environmental laws, intellectual property laws, and consumer protection statutes.
The Company is subject to, and must comply with, various laws and regulations, including, but not limited to, the product-related and other regulations of the FAA and the EASA, U.S. government procurement regulations, the rules and regulations of the SEC, and local, state, federal, and 22 Table of Contents international tax codes, import and export controls and customs laws, employment and employment-related laws, environmental laws, intellectual property laws, and consumer protection statutes.
We may not successfully integrate business, operational, and financial activities such as internal controls, the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) compliance, cyber security measures, the GDPR and other corporate governance and regulatory matters, operations, personnel or products related to acquisitions we may make in the future.
We may not successfully integrate business, operational, and financial activities such as internal controls, the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) compliance, cyber security measures, the GDPR and similar privacy laws and other corporate governance and regulatory matters, operations, personnel or products related to acquisitions we may make in the future.
In addition, the premiums for this coverage could increase in the future, or we could be forced to raise our self-insured retention amounts. If these expenses increase, or if we experience a claim in excess of our reserve and/or coverage limits, it could also have a material adverse effect on our financial condition and results of operation.
In addition, the premiums for this coverage could increase in the future, or we could be forced to raise our self-insured retention amounts. If these expenses increase, or if we experience a claim in excess of our reserve and/or coverage limits, it could also have a material adverse effect on our business, financial condition and results of operations.
Such an event could require significant management attention and resources, negatively impact our reputation among our customers and the public and challenge our eligibility for future work on sensitive or classified systems, which could have a material adverse effect on our business, financial condition and results of operations.
Any such cybersecurity event could require significant management attention and resources, negatively impact our reputation among our customers and the public and challenge our eligibility for future work on sensitive or classified systems, which could have a material adverse effect on our business, financial condition and results of operations.
Failure to maintain an active trading market for our common stock may adversely affect our shareholders’ ability to sell our common stock in short time periods, or at all. Our common 24 Table of Contents stock has experienced, and may experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock.
Failure to maintain an active trading market for our common stock may adversely affect our shareholders’ ability to sell our common stock in short time periods, or at all. Our common stock has experienced, and may experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock.
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 markets for the Company’s products are intensely competitive and subject to rapid technological change. Our primary competitors include Honeywell, Collins Aerospace, Thales Defense & Security, Inc., Garmin Ltd. and GE Aviation Systems . All of these competitors have substantially greater financial, technical, and human capital resources than the Company.
Furthermore, if prevailing interest rates or other factors result in higher interest rates upon any potential future financing, then interest expense related to the refinance indebtedness would increase. 25 Table of Contents In addition, all the agreements governing our indebtedness subject us to continued compliance with certain financial and negative covenants.
Furthermore, if prevailing interest rates or other factors result in higher interest rates upon any potential future financing, then interest expense related to the refinance indebtedness would increase. In addition, all the agreements governing our indebtedness subject us to continued compliance with certain financial and negative covenants.
Stock markets are subject to significant price fluctuations that may be unrelated to the operating performance of particular companies, and accordingly the market price of our common stock may frequently and meaningfully change. In addition, the market price of our common stock has fluctuated and may continue to fluctuate substantially due to a variety of other factors.
Stock markets are subject to significant price fluctuations that may be unrelated to the operating performance of particular companies, and accordingly the market price of our common stock may change frequently and by large margins. In addition, the market price of our common stock has fluctuated and may continue to fluctuate substantially due to a variety of other factors.
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.
During fiscal year 2024 approximately 5% percent of the Company’s total sales were derived 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.
In addition, the Company’s business is dependent upon maintaining its reputation and relationships with existing customers.
In addition, the Company’s business is dependent upon maintaining its reputation and relationships with existing customers and potential partners.
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 Company’s future results could be negatively affected by changes in the effective tax rate due to changes in the Company’s overall profitability, changes to statutory tax rates in the U.S. and in other jurisdictions, changes in tax legislation, and the results of audits and examinations of previously filed tax returns.
The Company’s ability to grow and diversify its operations through introduction and sale of new products is dependent upon its continued success in product development and engineering activities, its sales and marketing efforts, and its ability to obtain necessary regulatory approvals to sell such products.
The Company’s ability to grow and diversify its operations through the introduction and sale of new products is dependent upon its continued success in product development and engineering activities, its sales and marketing efforts, its ability to acquire new products from strategic partnerships and acquisitions, and its ability to obtain necessary regulatory approvals to sell such products.
Sales growth will depend in part on market acceptance of and demand for the FPDS, FMS, ThrustSense® Autothrottle and future products.
Sales growth will depend in part on market acceptance of and demand for the FPDS, FMS, ThrustSense® Autothrottle and any products we develop in the future.
These security systems cannot provide absolute security. To the extent we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise impact the use of our IT systems.
To the extent we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could materially damage business partner and customer relationships, and curtail or otherwise impact the use of our IT systems.
Acquisitions, including the Transaction, involve various inherent risks, such as: our ability to assess accurately the value, strengths, weaknesses, internal controls, contingent and other liabilities and potential profitability of acquisition candidates; difficulties in integrating acquired businesses, including the potential loss of key personnel from an acquired business, our potential inability to achieve identified financial, operating and other synergies anticipated to result from an acquisition, and integration issues associated with internal controls of acquired businesses; the diversion of management’s attention from our existing businesses; the potential impairment of assets; potential unknown liabilities associated with a business that we acquire or in which we invest, including environmental liabilities; new and proposed regulations limiting the enforcement of noncompetition and nonsolicitation agreements; and production delays associated with consolidating acquired facilities and manufacturing operations.
Acquisitions involve various inherent risks, such as: our ability to assess accurately the value, strengths, weaknesses, internal controls, contingent and other liabilities and potential profitability of acquisition candidates; difficulties in integrating acquired businesses, our potential inability to achieve identified financial, operating and other synergies anticipated to result from an acquisition, and integration issues associated with internal controls of acquired businesses; the diversion of management’s attention from our existing businesses; the potential impairment of assets; potential unknown liabilities associated with a business that we acquire or in which we invest, including environmental liabilities; and production delays associated with consolidating acquired facilities and manufacturing operations.
Any past or future acquisition, including the Transaction, could also result in such risks. Due diligence performed prior to closing acquisitions may not uncover certain risks or liabilities that could materially impact our business and financial results.
Any past or future acquisition could also result in such risks. Due diligence performed prior to closing acquisitions may not uncover certain risks or liabilities that could materially impact our business, financial condition and results of operations.
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.
During these periods of volatility and disruption, additional 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; 25 Table of Contents • reduced access to credit sources and ability to raise capital; and • disruptions in supplies or increased supply prices associated with any financial constraints faced by vendors.
In particular, cybersecurity threats—which include, but are not limited to, computer viruses, spyware and malware, attempts to access information, denial of service attacks and other electronic security breaches—are persistent and evolve quickly. In general, such threats have increased in frequency, scope and potential impact in recent years.
Cybersecurity threats—which include, but are not limited to, computer viruses, ransomware, break-ins, sabotage, spyware, other malware, attempts to access information, denial of service attacks and other electronic security breaches—are persistent and evolve quickly. In general, such threats have increased in 21 Table of Contents frequency, scope and potential impact in recent years.
The Company 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 research and development efforts in developing and marketing the FPDS, FMS, ThrustSense® Autothrottle and complementary products.
The estimated liability for the self-funded portion of our insurance program is determined actuarially, based on claims filed historically, demographic factors and an estimate of claims incurred but not yet reported.
We self-insure a significant portion of our employee medical insurance program and related benefit claims. The estimated liability for the self-funded portion of our insurance program is determined actuarially, based on claims filed historically, demographic factors and an estimate of claims incurred but not yet reported.
The ongoing process of integrating the Transaction could result in a loss of 21 Table of Contents key personnel, cause an interruption of, or loss of momentum in, the activities of one or more of the Company’s businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of the Company to maintain relationships with customers and employees.
The ongoing process of integrating the Honeywell assets could result in a loss of key personnel, cause an interruption of, or loss of momentum in, the activities of one or more of the Company’s businesses or inconsistencies in standards, controls, procedures and policies and impair the ability of the Company to maintain relationships with customers and employees.
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.
The Company’s revenue is concentrated in a limited number of customers. During fiscal year 2024 the Company derived 36% of its revenue from a limited number of customers. The Company continues to expect a relatively small number of customers to account for a majority of its revenue for the foreseeable future.
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.
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.
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.
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, financial condition and results of operations.
We may fail to pay these or additional future obligations, as and when required. Specifically, if we are unable to generate sufficient cash flows from operations or to borrow sufficient funds in the future to service or refinance our debt, our business, operating results, financial condition and cash flows will be harmed.
Specifically, if we are unable to generate sufficient cash flows from operations or borrow sufficient funds in the future to service or refinance our debt, our business, financial condition and results of operations will be harmed.
If the Company’s initial cost estimates are incorrect, it can incur potentially large one time charges and losses on these contracts.
If the Company’s initial cost estimates are incorrect, it can incur one-time charges that may be quite high and losses on these contracts.
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.
Risks inherent in doing business internationally include: • differing regulatory requirements; • legal uncertainty regarding liability and the enforceability of agreements and accounts receivable collection and longer collection periods; • tariffs, trade and investment barriers, and other regulatory barriers; • uncertainty of protection of our intellectual property rights; • heightened risk of unfair or corrupt business practices in certain locations; • 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 and in recruiting local experienced personnel, and the costs and expenses associated with such activities; • the impact of recessions in economies outside the U.S.; and • variances and unexpected changes in local laws and regulations. 20 Table of Contents Currently, all of the Company’s international sales are denominated in U.S. dollars.
The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of the Transaction could have an adverse effect on the business, financial condition, operating results and prospects of the Company.
The diversion of management’s attention from other business concerns and any delays or difficulties encountered in connection with the integration of the Honeywell assets could have an adverse effect on the Company’s business, financial condition and results of operations.
Our inability to service our obligations or refinance our debt could have a material and adverse effect on our business, financial condition or operating results.
Our inability to service our obligations or refinance our debt could have a material and adverse effect on our business, financial condition and results of operations. Item 1B. Unresolved Staff Comments. None
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.
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. We must also hire and train qualified personnel to manage our foreign operations.
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.
An increase in the dollar’s value compared to other currencies could render the Company’s products less competitive in international markets. In the future, the Company may be required to conduct sales in foreign country’s local currency, thus exposing it to fluctuations and volatility in exchange rates that could adversely affect its operating results.
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.
ISSC Risk Factors Risks Related to Our Business and Industry If the Company fails to enhance existing products, or to develop and achieve market acceptance for flat panel displays, flight control computers, display generators, flight management systems, autothrottle technology and other new products that meet customer requirements, its business, financial condition and results of operation may be affected adversely.
We currently operate without a substantial backlog. During periods of economic uncertainty, the rate of customer orders can quickly decrease, and a substantial backlog may help promote greater efficiency in production, facilitate business planning and improve revenue visibility.
Lower earnings caused by cost overruns could furthermore have a negative impact on the Company’s business, financial condition and results of operations. We currently operate without a substantial backlog. During periods of economic uncertainty, the rate of customer orders can quickly decrease, and a substantial backlog may help promote greater efficiency in production, facilitate business planning and improve revenue visibility.
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.
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 business, financial condition and results of operations.
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.
Any delays or difficulties encountered in maintaining a sufficient workforce 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.
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.
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 impact the Company’s business, financial condition and results of operations.
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 the ordinary course of business, we may be involved in lawsuits and regulatory actions with customers, employees and others. These actions may involve claims for, among other things, compensation for alleged personal injury and product liability claims. Additionally, we may be subject to employment-related claims alleging discrimination, harassment, wrongful termination and wage issues, including those relating to overtime compensation.
The Company’s products use complex system designs and components that may contain errors, omissions, or defects, particularly when the Company incorporates new technologies into its products or when it releases new versions or enhancements of its existing products.
There can be no assurance that the complex system designs and components contained in the Company’s products were not designed with, or manufactured containing, errors, omissions, or defects, particularly when the Company incorporates new technologies into its products or when it releases new versions or enhancements of its existing products.
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.
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. 24 Table of Contents ​ Risks Related to Our Common Stock, Capital Markets and Indebtedness Our common stock may be affected by limited trading volume and may fluctuate significantly.
One example is the recent asset acquisition of certain inertial, communication and navigation product lines from Honeywell. We may not be able to identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates in the future, we may not be able to complete those transactions on commercially favorable terms, or at all.
We may not be able to identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates in the future, we may not be able to complete transactions with such partners on commercially favorable terms, or at all.
The Company’s future success will depend on its ability to: ● embrace rapidly changing technologies; ● adapt the Company’s products to evolving industry standards and government regulations; and ● develop and introduce timely, high-quality, cost effective new products and product enhancements to address the increasingly sophisticated needs of its customers.
The Company’s future success will depend on its ability to: • embrace rapidly changing technologies; • develop and introduce timely, high-quality, cost-effective new products and product enhancements to address the increasingly sophisticated needs of its customers; and • adapt the Company’s products to evolving industry standards and government regulations; and These factors may be costly to the Company, and there is no assurance that the Company will be successful in its strategy. 12 Table of Contents The Company’s products are currently subject to direct regulation by the FAA and other equivalent organizations.
Risks Related to Our Common Stock, Capital Markets and Indebtedness Our common stock may be affected by limited trading volume and may fluctuate significantly. Our common stock is traded on NASDAQ. Although an active trading market has developed for our common stock, there can be no assurance that an active trading market for our common stock will be sustained.
Our common stock is traded on the Nasdaq Global Select Market. Although an active trading market has developed for our common stock, there can be no assurance that an active trading market for our common stock will be sustained.
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.
Variance in the Company’s revenue may be caused by multiple factors, including: • 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 and foreign governments; • changes in the use of the Company’s products, including air data systems, flat panel displays, flight management systems, autothrottle technology display generals and flight control computers; • delays in 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, including the cost to pursue and negotiate acquisitions and integrate such products and business thereafter.
If we are unable to meet our debt service obligations or should we fail to comply with our financial and other negative covenants contained in the agreements governing our indebtedness, we may be required to refinance all or part of our debt, sell strategic assets at unfavorable prices, incur additional indebtedness or issue common stock or other equity securities.
If any such default occurs, we may be required to refinance all or part of our debt, sell strategic assets at unfavorable prices, incur additional indebtedness or issue common stock or other equity securities.
The Company plans to derive increasing revenues from sales outside the United States, particularly in Europe and Asia.
The Company has limited experience in marketing and distributing its products internationally. The Company plans to derive increasing revenues from sales outside the U.S., particularly in Europe and Asia.
Changes to, or failure by the Company to comply with, these laws and regulations could have a significant impact on the Company’s business and operations.
Legal and Regulatory Risks The Company is subject to various laws and regulations. Changes to, or failure by the Company to comply with, these laws and regulations could have a significant impact on the Company’s business and operations. The aerospace industry is highly regulated by the U.S. government as well as other international agencies.
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.
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, business, financial condition and results of operations.
Future generations of flat panel displays, air data systems, engine and fuel displays, flight management systems and autothrottle technology which embody new technologies or new industry standards could render the Company’s products obsolete. The market for aviation products is subject to rapid technological change, new product introductions, changes in customer preferences, and evolving industry standards and government regulations.
Our products must continue to evolve as the industry evolves, and simultaneously continue to comply with government standards. Future generations of flat panel displays, air data systems, engine and fuel displays, flight management systems and computers and autothrottle technology which embody new technologies or new industry standards could render the Company’s products obsolete.
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.
Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition and results of operations. ​ ​ ​ 13 Table of Contents We may pursue strategic acquisitions, investments, strategic partnerships, product line acquisitions or other ventures, and our business could be materially harmed if we fail to successfully identify, evaluate, complete, and integrate such transactions.
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.
In seeking new customers, the Company may have difficulty in displacing the products of incumbent competitors who are more familiar with such markets and the needs of target customers. The Company cannot be assured that potential customers will accept its products or that existing customers will not abandon them.
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.
In addition, 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. We may also experience security breaches that may remain undetected for an extended period.
Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from the Company’s independent registered public accounting firm on the effectiveness of the Company’s internal control over financial reporting. The Company’s compliance with Section 404 requires that it compile the system and process documentation necessary to perform an appropriate evaluation.
Although the Company is not currently required to provide an attestation from its auditors on the effectiveness of the Company’s internal control over financial reporting, it may become subject to such requirement in the future. The Company’s compliance with Section 404 requires that it compile the system and process documentation necessary to perform an appropriate evaluation.
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.
To this end, as of September 30, 2024, the Company holds 47 U.S. patents and has 17 trademarks. In addition, the Company holds 111 international patents. 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 U.S. and internationally.
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.
As of September 30, 2024, 35% of the 17 Table of Contents Company’s backlog was expected to be filled beyond the end of the 2025 fiscal year, which is below the Company’s historical expectations and may result in lower revenues in future periods.
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.
Further, 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 may lose entire product lines, and as a result, incur substantial losses in revenue, and incur substantial costs in development new, non-infringing technology.
We self-insure a significant portion of our employee medical insurance program, which may expose us to unpredictable costs and negatively affect our financial performance. We self-insure a significant portion of our employee medical insurance program and related benefit claims.
Failure to ensure effective transfers of knowledge and smooth transitions involving senior management and other key personnel could hinder the execution of our strategic planning. We self-insure a significant portion of our employee medical insurance program, which may expose us to unpredictable costs and negatively affect our financial performance.
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.
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. Tariffs and other trade policies could have a substantial impact on our business. The Company’s business is dependent upon the availability of raw materials and components for assembly.
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.
There can be no assurance that the Company will be able to retain such employees, and the loss of important personnel could damage its ability to execute its business strategy. Competition for skilled personnel is intense, and the Company may not be able to attract or retain additional qualified employees.
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.
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. In such a circumstance, the Company may not be able to fully capitalize on existing and potential market opportunities.
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.
If our backlog fails to materialize, our business, financial condition and results of operations could be materially and adversely affected. The Company relies on third-party suppliers for components of its products, including several sole source suppliers, and any interruption in the supply of these components could hinder its ability to deliver products on a timely basis.
The Company may be unable to successfully integrate and realize the anticipated benefits of the Transaction.
Acquisitions involve inherent risks that may adversely affect our operating results and financial condition. The Company may be unable to successfully integrate and realize the anticipated benefits of recent acquisitions.
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.
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. Our growth strategy is dependent in part upon our successful entry into new markets.
The Company was in compliance with all applicable covenants throughout and at September 30, 2023.
The Company was in compliance with all applicable covenants throughout and at September 30, 2024. A breach of any of our covenants under our operative agreements could result in a default under such an agreement.
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.
Failure to comply with all applicable laws could result in investigation and remediation costs to the Company and could adversely impact the business, financial condition and results of operations of the Company. Failure to comply with applicable regulations could also result in significant fines.
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. 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.
Although 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 approved by the FAA, the Company may need to obtain approval from EASA or other appropriate organizations to have them certified for installation outside the U.S.
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.
The Company could be subjected to losses in the event that the Company suffers cost overruns or contractual penalties in connection with fixed-price contracts or service arrangements to perform specified design and EDC services.
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.
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. The Company cannot ensure that it will receive regulatory approval on a timely basis or at all.
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.
Additionally, patent protection related litigation is time consuming and expensive. The Company has incurred, and may continue to incur, significant legal and other costs in defense of its intellectual property.
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.
Similarly, due to the nature of the Company’s products, potential customers may not be willing to expend the resources and effort required to replace existing competitive technology and parts with the Company’s products. If the Company fails to modify or improve its products in response to evolving industry standards and government regulations, its products rapidly could become obsolete.
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.
Changes in U.S. government priorities, spending levels and response to world events could adversely affect the Company’s ability to maintain or grow the revenue the Company receives through government contracting. A significant portion of the Company’s sales derives from defense contractors or U.S. government agencies in connection with government aircraft retrofit or OEM contracts.
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’s results of operations are dependent on its ability to maximize earnings from the EDC service arrangements. Similarly, if the Company is unable to meet deadlines and customer specifications, its reputation in the industry may suffer harm, which may have a negative impact on the Company’s ability to retain its current customers and attract new customers.
Such an event could result in the following: ● delay or loss of revenues; ● cancellation of customer contracts; ● diversion of development resources; ● damage to the Company’s reputation; ● increased service and warranty costs; or ● litigation costs.
In the event a defect or error is detected in any of the Company’s products, the Company may be required to issue a recall, face liability in litigation or pay damages, which may result in a delay or loss of revenues, cancellation of customer contracts, damage to the Company’s reputation, and litigation costs.
As of September 30, 2023, the balance of the Term Loan amounted to $19.5 million. There was no balance drawn on the Revolving Line of Credit as of September 30, 2023. We may incur additional indebtedness in the future under these existing credit facilities and/or enter into new financing arrangements.
The Company has indebtedness pursuant to loan agreements and lines of credit with PNC Bank, National Association, and may pursue additional sources of credit or borrowed money in the future under these existing credit facilities and/or enter into new financing arrangements. We may fail to pay these or additional future obligations, as and when required.

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Item 2. Properties

Properties — owned and leased real estate

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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.
Item 2. Properties. In fiscal year 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 leased two separate hangars to house the Company’s airplanes in New Castle County, Delaware under month-to-month leases.
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. We are currently making additional investments in our Exton facility to expand capacity. The Company leased two separate hangars to house the Company’s airplanes in New Castle County, Delaware under month-to-month leases.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 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.
Item 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. Item 4. Mine Safety Disclosures . Not applicable.
Removed
Mine Safety Disclosures . Not applicable. PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Quantitative and Qualitative Disclosures About Market Risk 39 Item 8. Financial Statements and Supplementary Data 39
Quantitative and Qualitative Disclosures About Market Risk 39 Item 8. Financial Statements and Supplementary Data 40

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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.
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 year 2020 and $0.50 per share in fiscal year 2021.
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.
The Company did not pay cash dividends in fiscal years 2022, 2023 and 2024. 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.
Holders of Common Stock As of January 8, 2024, there were approximately seven registered holders of the Company’s common stock.
Holders of Common Stock As of December 13, 2024, there were approximately nine registered holders of the Company’s common stock.

Item 6. [Reserved]

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

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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.
The selected statements of operations data for the fiscal years ended September 30, 2024, 2023 and 2022 and the balance sheet data as of September 30, 2024 and 2023 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, 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 statements of operations data for the fiscal years ended September 30, 2021 and 2020 and the balance sheet data as of September 30, 2022, 2021 and 2020 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, ​ 2024 2023 2022 2021 2020 Statements of Operations Data: ​ ​ ​ ​ ​ ​ Net sales ​ $ 47,198,020 ​ $ 34,808,513 ​ $ 27,740,695 ​ $ 23,044,796 ​ $ 21,595,199 Cost of sales ​ 21,284,429 ​ 13,497,442 ​ 11,066,314 ​ 10,263,166 ​ 9,793,224 Gross profit ​ 25,913,591 ​ 21,311,071 ​ 16,674,381 ​ 12,781,630 ​ 11,801,975 Research and development ​ 4,137,985 ​ 3,129,518 ​ 2,705,140 ​ 2,622,919 ​ 2,955,976 Selling, general and administrative ​ 12,114,069 ​ 10,822,505 ​ 6,753,915 ​ 6,257,732 ​ 6,100,545 Total operating expenses ​ 16,252,054 ​ 13,952,023 ​ 9,459,055 ​ 8,880,651 ​ 9,056,521 Operating income ​ 9,661,537 ​ 7,359,048 ​ 7,215,326 ​ 3,900,979 ​ 2,745,454 Interest expense ​ (937,309) ​ (393,281) ​ — ​ — ​ — Interest income ​ 127,332 ​ 518,188 ​ 61,051 ​ 1,234 ​ 154,950 Other income ​ — ​ 151,317 ​ 65,232 ​ 74,906 ​ 60,497 Income before income taxes ​ 8,851,560 ​ 7,635,272 ​ 7,341,609 ​ 3,977,119 ​ 2,960,901 Income tax expense (benefit) ​ 1,853,180 ​ 1,607,517 ​ 1,817,831 ​ (1,087,783) ​ (308,882) Net Income ​ $ 6,998,380 ​ $ 6,027,755 ​ $ 5,523,778 ​ $ 5,064,902 ​ $ 3,269,783 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.40 ​ $ 0.35 ​ $ 0.32 ​ $ 0.29 ​ $ 0.19 Diluted ​ $ 0.40 ​ $ 0.35 ​ $ 0.32 ​ $ 0.29 ​ $ 0.19 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared per common share ​ $ — ​ $ — ​ $ — ​ $ 0.50 ​ $ 0.65 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares outstanding: ​ ​ ​ ​ ​ ​ ​ Basic ​ 17,459,823 ​ 17,411,684 ​ 17,256,750 ​ 17,225,423 ​ 16,939,302 Diluted ​ 17,480,247 ​ 17,419,185 ​ 17,257,871 ​ 17,226,620 ​ 17,114,191 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, ​ 2024 2023 2022 2021 2020 Balance Sheet Data: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 538,977 ​ $ 3,097,193 ​ $ 17,250,546 ​ $ 8,265,606 ​ $ 12,603,967 Restricted cash ​ — ​ — ​ — ​ — ​ 11,180,900 Working capital ​ 27,420,444 ​ 28,274,744 ​ 24,262,016 ​ 15,218,172 ​ 19,473,305 Total assets ​ 82,382,261 ​ 62,957,451 ​ 34,705,323 ​ 27,086,000 ​ 41,545,837 Total shareholders’ equity ​ 46,638,655 ​ 38,636,984 ​ 30,749,955 ​ 24,585,081 ​ 27,769,031 ​ ​ 28 Table of Contents

Item 7. Management's Discussion & Analysis

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

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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.
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 inventories of $0.8 million.
The Transaction involved a sale of certain inventory, equipment and customer-related documents; an assignment of certain customer contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company.
The 2023 Transaction involved a sale of certain inventory, equipment and customer-related documents; an assignment of certain customer contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company.
The Transaction enhances the Company’s current offerings in the air transport, military and business aviation markets. In addition, there are potential cost synergies from better utilization of the Company’s skilled engineering team and its existing operational capacity.
The 2023 Transaction enhances the Company’s 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.
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.
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.
Sales of the shares of the Company’s common stock, if any, under the ATM Sales Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on or through NASDAQ or any other existing 34 Table of Contents trading market for the Company’s common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices and/or any other method permitted by law.
Sales of the shares of the Company’s common stock, if any, under the ATM Sales Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on or through Nasdaq or any other existing trading market for the Company’s common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices and/or any other method permitted by law.
During the year ended September 30, 2023, we did not sell any shares of common stock under the ATM Sales Agreement. Future Funding Requirements The Company’s existing cash balances, anticipated cash flows from operations and current banking facility are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months.
During the fiscal year ended September 30, 2024, we did not sell any shares of common stock under the ATM Sales Agreement. Future Funding Requirements The Company’s existing cash balances, anticipated cash flows from operations and current banking facility are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months.
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.
Interest income of $0.5 million in fiscal year 2023 increased by $0.4 million as compared to interest income in fiscal year 2022 of $0.1 million. The increase in interest income was primarily the result of the increase in the average cash balance in fiscal year 2023 and a general increase in interest rates as compared to fiscal year 2022.
The exclusive licensing of these product lines from Honeywell is a unique opportunity for the Company that enhances its current offerings in the air transport, military and business aviation markets. In addition, there are potential cost synergies from better utilization of the Company’s skilled engineering team and its existing operational capacity.
The exclusive licensing of these product lines from Honeywell is a unique opportunity for the Company to enhance 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.
(“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”).
In June 2023, the Company entered into the June 2023 Honeywell Agreement with Honeywell pursuant to which Honeywell sold, assigned or licensed certain assets related to its inertial, communication and navigation product lines, including a sale of certain inventory, equipment and customer-related documents, an assignment of certain contracts and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for cash consideration of $35.9 million.
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 .
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.
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. 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.
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. 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, ​ 2024 2023 2022 Net sales: ​ ​ ​ ​ ​ ​ ​ Product ​ 51.4 % 64.9 % 80.7 % Services ​ 48.6 % 35.1 % 19.3 % Total net sales ​ 100.0 % 100.0 % 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales: ​ ​ ​ ​ Product ​ 22.4 % 27.9 % 33.9 % Services ​ 22.6 % 10.9 % 6.0 % Total cost of sales ​ 45.0 % 38.7 % 39.9 % ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ 55.0 % 61.3 % 60.1 % ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ Research and development ​ 8.8 % 9.0 % 9.8 % Selling, general and administrative ​ 25.6 % 31.1 % 24.3 % Total operating expenses ​ 34.4 % 40.1 % 34.1 % ​ ​ ​ ​ ​ ​ ​ ​ Operating income ​ 20.6 % 21.2 % 26.0 % ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ (2.0) % (1.1) % 0.0 % Interest income ​ 0.3 % 1.5 % 0.2 % Other income ​ — % 0.4 % 0.2 % ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 18.9 % 22.0 % 26.4 % ​ ​ ​ ​ ​ ​ ​ ​ Income tax expense ​ 3.9 % 4.6 % 6.5 % ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ 14.9 % 17.4 % 19.9 % ​ ​ 31 Table of Contents Fiscal Year Ended September 30, 2024 Compared to Fiscal Year Ended September 30, 2023 ​ Historically, the Company presented Customer service and Engineering and development contracts Net Sales and Cost of sales separately on the Consolidated Statements of Operations.
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.
The increase in SG&A expense in fiscal year 2023 was primarily the result of increased stock-based compensation expense and legal fees, professional fees, audit fees and amortization expense primarily related to the June 2023 Honeywell Agreement and increased board of director fees. Interest income .
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.
The effective tax rate in fiscal year 2023 was 21.1% as compared to 24.8% in fiscal year 2022. The higher tax and effective tax rate in fiscal year 2022 as compared to fiscal year 2023 primarily reflects higher state tax due to tax on the gain from the sale of the PC-12 aircraft. Net income.
The Company believes this agreement can 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. In addition, the Company spent $0.3 million for the purchase of test equipment and computer hardware. The Company plans to continue investing in capital equipment to support engineering development efforts and operations.
The Company believes this agreement can 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. In addition, the Company spent $0.3 million for the purchase of test equipment and computer hardware.
The Company did not pay cash dividends in fiscal 2022 or 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.
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.
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.
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.
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.
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.
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 was $13.5 million, or 38.7% of Net sales, in fiscal year 2023 compared to $11.1 million, or 39.9% of Net sales, in fiscal year 2022. The increase in Cost of sales was primarily the result of an increase in customer service sales volume.
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.
Other income. Other income was $0.2 million in fiscal year 2023, an increase of $0.1 million from fiscal year 2022. Income taxes. Income tax expense was $1.6 million in fiscal year 2023 as compared to income tax expense of $1.8 million in fiscal year 2022.
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.
On a fully diluted basis, net income per share was $0.35 for fiscal year 2023, compared to a net income of $0.32 per share for fiscal year 2022. 33 Table of Contents Liquidity and Capital Resources Sources of Liquidity The following table highlights key financial measurements of the Company: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ As of ​ ​ ​ September 30, ​ ​ September 30, ​ 2024 2023 Cash and cash equivalents ​ $ 538,977 ​ $ 3,097,193 Accounts receivable ​ $ 12,612,482 ​ $ 9,743,714 Current assets ​ $ 34,685,698 ​ $ 34,673,703 Current liabilities ​ $ 7,265,254 ​ $ 6,398,959 Contract liability ​ $ 340,481 ​ $ 143,359 Other non-current liabilities ​ $ 28,478,352 ​ $ 17,921,508 Quick ratio (1) ​ 1.81 ​ 2.01 Current ratio (2) ​ 4.77 ​ 5.42 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ended September 30, ​ ​ 2024 2023 2022 Cash flow activities: ​ ​ ​ Net cash provided by operating activities ​ $ 5,796,222 ​ $ 2,096,174 ​ $ 6,094,440 Net cash (used in) provided by investing activities ​ (16,881,440) ​ (36,158,373) ​ 2,589,346 Net cash provided by financing activities ​ 8,527,002 ​ 19,908,846 ​ 301,154 (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 has been cash flows from current year operations and cash accumulated from prior years’ operations, supplemented with our revolving credit facility.
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.
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 June 2023 Honeywell Agreement, proceeds from the exercise of stock options for $0.4 million and the paydown of the Term Loan for $0.5 million.
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.
The Company’s overall gross margin in fiscal year 2023 was 61.3% compared to 60.1% in fiscal year 2022. The fiscal year 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 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.
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 . SG&A expenses increased $4.0 million or 60.2%, to $10.8 million from $6.8 million in fiscal year 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.
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 years 2023 or 2024.
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.
SG&A expenses in fiscal year 2022 were reduced by inclusion of a gain of $1.2 million from the sale of the PC-12 aircraft.
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.
Net sales in fiscal year 2023 increased $7.1 million, or 25.5%, to $34.8 million from $27.7 million in fiscal year 2022. Product sales in fiscal year 2023 increased $0.2 million compared to fiscal year 2022. Services sales in fiscal year 2023 increased $6.9 million, or 128.8%, compared to fiscal year 2022.
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.
These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within Cost of sales, with reimbursement accounted for as a sale in accordance with the percentage-of-completion method or completed contract method of accounting. Company funded R&D expenditures relate to internally-funded efforts for the development of new products and the improvement of existing products.
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.
As a result of the factors described above, the Company’s net income for fiscal year 2023 was $6.0 million compared to net income of $5.5 million for fiscal year 2022.
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.
The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. ​ ​ ​ ​ ​ ​ 37 Table of Contents 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.
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.
The Company currently derives the majority of its revenues from the sale and service of this equipment and related EDC services. Most of the Company’s sales, operating results and identifiable assets are generated in the United States. In fiscal years 2024, 2023 and 2022 Net sales outside the United States amounted to $22.8 million, $15.5 million and $11.1 million, respectively.
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.
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. 35 Table of Contents Operating Activities The Company generated $5.8 million of cash from operating activities during fiscal year 2024, as compared to cash generated of $2.1 million during fiscal year 2023.
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.
If sufficient funds are not available, the Company may not be able to introduce new products or compete effectively. 36 Table of Contents 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 the future effects of inflation, if any.
Operating Activities The Company generated $2.1 million of cash from operating activities during fiscal 2023, as compared to cash generated of $6.1 million during fiscal 2022.
Changes is certain other working capital accounts drove the remainder of the increase for fiscal year 2024. The Company generated $2.1 million of cash in operating activities during fiscal year 2023, as compared to cash generated of $6.1 million during fiscal year 2022.
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 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. Cost of sales related to EDC sales comprises engineering labor, consulting services and other costs associated with specific design and development projects.
The Company also plans to enhance its focus on the environmental impact of its operations. Critical Accounting Policies and Estimates The discussion and analysis of financial condition and consolidated results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
The Company also plans to enhance its focus on the environmental impact of its operations. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”).
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).
Cash is used principally to finance inventory, accounts receivable, contract assets, payroll, debt service and acquisitions, as well as the Company’s known contractual and other commitments (including those described in Note 19, “Leases”).
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”.
On December 19, 2023, the Company and PNC entered into an Amendment to the Loan (the “Restated Loan Amendment”) and a corresponding Amended and Restated Revolving Line of Credit Note (“Restated Line of Credit Note”) and Amended and Restated Line of Credit and Investment Sweep Rider (the “Restated Rider”), to increase the aggregate principal amount available under the Company’s senior secured revolving line of credit from $10,000,000 to $30,000,000 and extend the maturity date until December 19, 2028.
The cash generated by operating activities for the year ended September 30, 2022 was primarily generated by net income of $5.5 million, increase in accrued expenses of $1.3 million and a decrease in deferred income tax assets of $1.0 million, partially offset by the gain on sale of the Company’s Pilatus PC-12 airplane of $1.2 million and an increase in inventories of $0.7 million.
The cash generated by operating activities for the year ended September 30, 2024 was primarily generated by net income of $7.0 million, an increase in non-cash compensation expenses for stock options and stock awards of $0.3 million and $0.7 million, respectively, and depreciation and amortization expense of $2.1 million.
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.
The Company believes that each of the June 2023 Honeywell Agreement, the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement will 29 Table of Contents help to accelerate the Company’s growth and enhance its global reputation for delivering some of the industry’s best price-for-performance product and service solutions.
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.
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, the DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies and foreign militaries.
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.
The Company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months. However, the Company may need to develop and introduce new or enhanced products, respond to competitive pressures, invest in or acquire businesses or technologies, or respond to unanticipated requirements or developments.
Interest income of $61,051 in fiscal 2022 increased by $59,817 as compared to fiscal 2021 interest income of $1,234. The increase in interest income was primarily the result of the increase in the cash balance in fiscal 2022 and a general increase in interest rates as compared to fiscal 2021. Other income.
The decrease in interest income was primarily the result of the decrease in the average cash balance in fiscal year 2024 and a general decrease in interest rates as compared to fiscal year 2023. Other income. Other income was $0.2 million in fiscal year 2023. The Company did not have any other income for fiscal year 2024. Income taxes.
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.
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 increases in expenditures will continue in the foreseeable future.
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.
Cost of sales was $21.3 million, or 45.0% of Net sales, in fiscal year 2024 compared to $13.5 million, or 38.7% of Net sales, in fiscal year 2023. The increase in Cost of sales was primarily the result of an increase in Services sales volume.
Fiscal 2022 income tax expense of $1.8 million represents income taxes due based on an effective tax rate of 24.7% with no related allowances. Net income. As a result of the factors described above, the Company’s net income for fiscal 2022 was $5.5 million compared to net income of $5.1 million for fiscal 2021.
Net income. As a result of the factors described above, the Company’s net income in fiscal year 2024 was $7.0 million compared to net income of $6.0 million in fiscal year 2023.
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.
The increase in SG&A expense in fiscal year 2024 was primarily the result of increases in consulting and legal fees of $0.9 million primarily due to acquisition related expenses and increased costs of $0.6 million as a result of the recruitment of a new CFO and other corporate initiatives.
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.
R&D expenses were $4.1 million in fiscal year 2024 and $3.1 million in fiscal year 2023. The increase in R&D expense was due to higher salaries and benefits due to higher headcount. As a percentage of Net sales, R&D expense decreased slightly to 8.8% of Net sales for fiscal year 2024 compared to 9.0% for fiscal year 2023.
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.
In addition, the Company spent $0.7 million for the purchases of property and equipment, partially offset by proceeds of $2.2 million from the sale of the Company’s King Air aircraft. The Company plans to continue investing in capital equipment to support engineering development efforts and operations. Cash used in investing activities was $36.2 million for fiscal year 2023.
Removed
In June 2023, the Company entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc.
Added
In July 2024, the Company entered into the July 2024 Honeywell Asset Acquisition, an exclusive license agreement and acquired additional key assets for certain communication and navigation product lines from Honeywell. This transaction complements the previous Honeywell license and asset acquisition completed in June 2023. Total consideration was $4.2 million in cash.
Removed
Cost of sales related to EDC sales comprises engineering labor, consulting services and other costs associated with specific design and development projects.
Added
On September 27, 2024, the Company entered into the September 2024 Honeywell Agreement with Honeywell, pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its various generations of military display generators and flight control computers to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for consideration of $14.2 million in cash.
Removed
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.
Added
Cost of sales related to product and service sales comprises materials, 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 the Company’s specifications.
Removed
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.
Added
For the fiscal year ended September 30, 2024, the Company has aggregated these items into one category, “Services” and reclassified Customer service and Engineering and development contracts revenues as well as Cost of sales to conform the presentation of the Consolidated Statements of Operations for fiscal years ended September 30, 2023, and 2022. See Footnote 3.
Removed
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.
Added
Summary of Significant Accounting Policies, (“Reclassifications ”) for additional information. ​ Net sales . Net sales in fiscal year 2024 increased $12.4 million, or 36.0%, to $47.2 million from $34.8 million in fiscal year 2023. The increase in Net sales was driven by a 7% increase or $1.7 million in product sales.
Removed
The fiscal 2022 gross margin percentage increase was attributable to operating leverage achieved due to increased sales that resulted in increased cost absorption, as well as a favorable product mix. Research and development . R&D expense was $2.7 million for fiscal 2022 and $2.6 million for fiscal 2021.
Added
The increase in product sales was related to increases in business aviation sales of $1.5 million and an increase of $0.5 million in defense sales, offset by a decline in commercial air transport sales of $0.3 million. The increase in business aviation sales was driven by increase in demand to support aircraft production.
Removed
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.
Added
The increase in defense sales was primarily driven by increased market demand for our products. The decrease in commercial air transport was primarily due to the decline that occurred during the first half of fiscal year 2024. We began to experience a recovery in commercial air transport demand during the second half of 2024.
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. This release both increased the deferred tax asset and removed the valuation allowance.
Added
Services sales in fiscal year 2024 increased $10.7 million, or 87.6%, compared to fiscal year 2023.
Removed
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.
Added
The increase in service sales primarily reflects customer service sales of $9.7 million due to sales from the product lines acquired from Honeywell, which included a $1.7 million true-up payment from Honeywell for services performed by third parties, primarily offset by a $0.3 million decrease in legacy customer service. Cost of sales .
Removed
Investing Activities Cash used in investing activities was $36.2 million for fiscal year 2023.
Added
The Company’s overall gross margin in fiscal year 2024 was 55.0% compared to 61.3% in fiscal year 2023. The decrease in overall gross margin percentage for fiscal year 2024 is primarily the result of changes in product mix, increased depreciation and cost inefficiencies due to hiring and training of additional personnel and other integration costs. Research and development .
Removed
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 preliminary purchase consideration was $35.9 million in cash.
Added
Selling, general, and administrative. SG&A expenses increased $1.3 million or 11.9%, to $12.1 million from $10.8 million in fiscal year 2023.
Removed
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.
Added
In addition, the Company incurred amortization expense of $1,191,361 related to the customer relationships intangible asset resulting from the combined acquisitions. These increases were partially offset by a $162,000 gain from the sale of the Company’s King Air aircraft.
Removed
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.
Added
As a percentage of Net sales, selling, general and administrative expenses were 25.6% in fiscal year 2024 compared to 31.1% for fiscal year 2023. Interest income. Interest income of $0.1 million in fiscal year 2024 decreased by $0.4 million as compared to interest income in fiscal year 2023 of $0.5 million.
Removed
On an ongoing basis, the Company’s management evaluates its estimates based upon historical experience and various other assumptions that it believes to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Added
Income tax expense was $1.9. million in fiscal year 2024 as compared to income tax expense of $1.6 million in fiscal year 2023. The effective tax rate in fiscal year 2024 was 20.9% as compared to 21.1% in fiscal year 2023. The increase in income tax expense was primarily due to an increase in earnings in fiscal year 2024.
Removed
The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services.
Added
On a fully diluted basis, net income per share was $0.40 in fiscal year 2024, compared to a net income of $0.35 per share in fiscal year 2023. ​ ​ ​ 32 Table of Contents Fiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 30, 2022 ​ Net sales .
Removed
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.
Added
EDC sales increased $0.7 million, or 146.8% compared to fiscal year 2022, reflecting increased EDC business. Customer service sales increased $6.2 million, or 127.2% from fiscal year 2022. The increase in customer service sales primarily reflects customer service sales of $5.8 million due to the Honeywell Agreement.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company’s operations are exposed to market risks primarily as a result of changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes. The Company’s exposure to market risk for changes in interest rates relates to its cash equivalents.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company’s operations are exposed to market risks primarily as a result of changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes. We have exposure to interest rate risk, mainly related to our revolving credit facility, which has variable interest rates.
The Company’s cash equivalents consist of funds invested in money market funds, which bear interest at a variable rate. The Company does not participate in interest rate hedging. A change in interest rates earned on the Company’s cash equivalents would impact interest income and cash flows but would not impact the fair market value of the underlying instruments.
A change in interest rates earned on the Company’s cash equivalents would impact interest income and cash flows but would not impact the fair market value of the underlying instruments.
Assuming 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.
Assuming that the balances during fiscal year 2024 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 not have a material impact on our results of operations, financial position or cash flows. ​ ​ ​ 39 Table of Contents ​
Added
Interest rate risk associated with our variable rate debt is the potential increase in interest expense from an increase in interest rates. Based on our aggregate outstanding variable rate debt balance of $28.0 million as of September 30, 2024, a hypothetical 1% in variable interest rates would have affected interest expense by approximately $0.3 million.
Added
The Company’s exposure to market risk for changes in interest rates relates to its cash equivalents. The Company’s cash equivalents consist of funds invested in money market funds, which bear interest at a variable rate.

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