Innovative Solutions & Support Inc 10-Q for FY2023 Q2

Innovative Solutions & Support Inc (IA)

10-Q 2023-05-08 For: 2023-03-31

Added on April 07, 2026

About this 10-Q

Innovative Solutions & Support Inc filed this 10-Q on May 8, 2023, covering the quarter ended March 31, 2023 (FY2023 Q2).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $7.34M; up 7.2% from $6.85M a year earlier
Net income: $1.27M; down 11.1% from net income of $1.43M a year earlier
Diluted EPS: $0.07; down 12.5% from $0.08 a year earlier

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PENNSYLVANIA		23-2507402
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

720 Pennsylvania Drive, Exton, Pennsylvania		19341
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		ISSC		NASDAQ Stock Market LLC

☐ Large accelerated filer	☐ Accelerated filer
☐ Non-accelerated filer	☒ Smaller reporting company
☐ Emerging growth company


		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets – March 31, 2023 (unaudited) and September 30, 2022	1

	Consolidated Statements of Operations – Three and Six Months Ended March 31, 2023 and 2022 (unaudited)	2

	Consolidated Statements of Shareholders’ Equity – Three and Six Months Ended March 31, 2023 and 2022 (unaudited)	3 - 3

	Consolidated Statements of Cash Flows – Six Months Ended March 31, 2023 and 2022 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6 - 19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 - 27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

SIGNATURES		31


	March 31,		September 30,
	2023		2022
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	19,791,346	$	17,250,546
Accounts receivables		3,966,646		4,297,457
Contract assets		162,742		162,742
Inventories		5,899,835		5,349,104
Prepaid expenses and other current assets		1,243,343		1,142,470
Total current assets		31,063,912		28,202,319
Property and equipment, net		6,200,951		6,292,189
Deferred income taxes		592,857		46,487
Other assets		264,666		164,328
Total assets	$	38,122,386	$	34,705,323

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,499,181	$	708,845
Accrued expenses		1,862,191		2,972,275
Contract liability		191,731		259,183
Total current liabilities		3,553,103		3,940,303

Other liabilities		424,157		15,065

Total liabilities		3,977,260		3,955,368

Commitments and contingencies (See Note 6)

Shareholders’ equity
Preferred stock, 10,000,000 shares authorized, $.001 par value, of which 200,000 shares are authorized as Class A Convertible stock. No shares issued and outstanding at March 31, 2023 and September 30, 2022		—		—
Common stock, $.001 par value: 75,000,000 shares authorized, 19,520,259 and 19,412,664 issued at March 31, 2023 and September 30, 2022		19,518		19,413
Additional paid-in capital		53,883,433		52,458,121
Retained Earnings (accumulated deficit)		1,610,712		(359,042)
Treasury stock, at cost, 2,096,451 shares at March 31, 2023 and September 30, 2022		(21,368,537)		(21,368,537)

Total shareholders’ equity		34,145,126		30,749,955
Total liabilities and shareholders’ equity	$	38,122,386	$	34,705,323


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Net Sales:
Product	$	7,340,454	$	6,647,617	$	13,489,810	$	13,343,395
Engineering development contracts		—		198,203		366,899		198,203
Total net sales		7,340,454		6,845,820		13,856,709		13,541,598

Cost of sales:
Product		2,600,303		2,646,462		5,335,349		5,374,519
Engineering development contracts		—		16,748		57,406		16,748
Total cost of sales		2,600,303		2,663,210		5,392,755		5,391,267

Gross profit		4,740,151		4,182,610		8,463,954		8,150,331

Operating expenses:
Research and development		866,198		650,031		1,536,643		1,386,556
Selling, general and administrative		2,446,635		1,724,800		4,708,498		3,531,782
Total operating expenses		3,312,833		2,374,831		6,245,141		4,918,338

Operating income		1,427,318		1,807,779		2,218,813		3,231,993

Interest income		130,951		346		246,843		442
Other income		23,258		11,555		41,455		27,793
Income before income taxes		1,581,527		1,819,680		2,507,111		3,260,228

Income tax expense		310,424		390,110		537,357		697,600

Net income	$	1,271,103	$	1,429,570	$	1,969,754	$	2,562,628

Net income per common share:
Basic	$	0.07	$	0.08	$	0.11	$	0.15
Diluted	$	0.07	$	0.08	$	0.11	$	0.15

Weighted average shares outstanding:
Basic		17,352,340		17,253,746		17,334,553		17,250,059
Diluted		17,354,030		17,253,746		17,340,104		17,250,059


	Six Months Ended March 31, 2023
					(Accumulated
			Additional		Deficit)
	Common		Paid-In		Retained		Treasury
	Stock		Capital		Earnings		Stock		Total
Balance, September 30, 2022	$	19,413	$	52,458,121	$	(359,042)	$	(21,368,537)	$	30,749,955

Share-based compensation		—		233,125		—		—		233,125
Exercise of stock options		57		408,789		—		—		408,846
Net income		—		—		698,651		—		698,651

Balance, December 31, 2022	$	19,470	$	53,100,035	$	339,609	$	(21,368,537)	$	32,090,577

Share-based compensation		48		783,398		—		—		783,446
Net income		—		—		1,271,103		—		1,271,103

Balance, March 31, 2023	$	19,518	$	53,883,433	$	1,610,712	$	(21,368,537)	$	34,145,126


	Six Months Ended March 31, 2022
			Additional
	Common		Paid-In		(Accumulated		Treasury
	Stock		Capital		Deficit)		Stock		Total
Balance, September 30, 2021	$	19,343	$	51,817,095	$	(5,882,820)	$	(21,368,537)	$	24,585,081

Share-based compensation		—		45,591		—		—		45,591
Net income		—		—		1,133,058		—		1,133,058

Balance, December 31, 2021	$	19,343	$	51,862,686	$	(4,749,762)	$	(21,368,537)	$	25,763,730

Share-based compensation		25		204,564		—		—		204,589
Net income		—		—		1,429,570		—		1,429,570

Balance, March 31, 2022	$	19,368	$	52,067,250	$	(3,320,192)	$	(21,368,537)	$	27,397,889


	For the Six Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,969,754	$	2,562,628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		171,389		188,136
Share-based compensation expense
Stock options		536,142		90,185
Stock awards		480,429		159,995
Deferred income taxes		(546,370)		527,141
(Increase) decrease in:
Accounts receivables		330,811		(9,355)
Inventories		(550,731)		(143,869)
Prepaid expenses and other assets		(77,192)		(44,955)
Other non-current assets		(107,228)		—
Increase (decrease) in:
Accounts payables		790,336		121,072
Accrued expenses		(736,604)		67,412
Income taxes payable / receivable		18,821		59,978
Contract liability		(67,452)		(140,776)
Net cash provided by operating activities		2,212,105		3,437,592

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(80,151)		(84,358)
Net cash used in investing activities		(80,151)		(84,358)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		408,846		—
Net cash provided by financing activities		408,846		—

Net increase in cash and cash equivalents		2,540,800		3,353,234
Cash and cash equivalents, beginning of period		17,250,546		8,265,606

Cash and cash equivalents, end of period	$	19,791,346	$	11,618,840

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$	1,065,506	$	110,481


	Fair Value Measurement on March 31, 2023
	Quoted Price in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents:
Money market funds	$	16,320,328	$	—	$	—

	Fair Value Measurement on September 30, 2022
	Quoted Price in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents:
Money market funds	$	16,083,571	$	—	$	—


	Contract		Contract
	Assets		Liabilities
September 30, 2022	$	162,742	$	259,183
Amount transferred to receivables from contract assets		—		—
Contract asset additions		—		—
Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period		—		(232,138)
Increases due to invoicing prior to satisfaction of performance obligations		—		164,686
March 31, 2023	$	162,742	$	191,731


	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2023		2022		2023		2022
Customer Service Sales	$	1,395,303	$	1,360,155	$	2,456,452	$	2,445,600
Customer Service Cost of Sales		397,553		399,086		716,655		742,736
Gross Profit	$	997,750	$	961,069	$	1,739,797	$	1,702,864


	Three Months Ending		Six Months Ending
	March 31, 2023		March 31, 2023
Warranty accrual, beginning of period	$	577,690	$	607,001
Accrued expense		34,912		34,376
Warranty cost		(24,952)		(53,727)
Warranty accrual, end of period	$	587,650	$	587,650


Classification on the Consolidated Balance Sheet on March 31, 2023
Assets
Operating leases	Other assets	$	21,790

Liabilities
Operating leases- current	Accrued expenses	$	13,287
Operating leases - noncurrent	Other liabilities	$	8,503
Total lease liabilities		$	21,790


	Twelve Months
	Ending	Operating
	March 31,	Leases
	2024	$	14,676
	2025		9,784
Total minimum lease payments		$	24,460
Amount representing interest			(2,670)
Present value of minimum lease payments			21,790
Current portion			(13,287)
Long-term portion of lease obligations		$	8,503


	March 31,		September 30,
	2023		2022
Raw materials	$	5,108,433	$	4,451,045
Work-in-process		745,587		795,723
Finished goods		45,815		102,336
	$	5,899,835	$	5,349,104


	March 31,		September 30,
	2023		2022
Computer equipment	$	2,316,679	$	2,307,139
Corporate airplane		2,406,468		2,406,468
Furniture and office equipment		976,993		976,993
Manufacturing facility		5,889,491		5,889,491
Equipment		5,607,386		5,624,966
Land		1,021,245		1,021,245
		18,218,262		18,226,302
Less: accumulated depreciation and amortization		(12,017,311)		(11,934,113)
	$	6,200,951	$	6,292,189


	Three Months Ended		Six Months Ended

	March 31, 2023
Backlog, beginning of period	$	8,513,958	$	11,778,988
Bookings, net		13,607,084		16,858,309
Recognized in revenue		(7,340,454)		(13,856,709)
Backlog, end of period	$	14,780,588	$	14,780,588


31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) ⁽¹⁾

31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) ⁽¹⁾

32.1	Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ⁽²⁾

101.INS	XBRL Instance Document ⁽¹⁾

101.SCH	XBRL Taxonomy Extension Scheme Document ⁽¹⁾

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document ⁽¹⁾

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document ⁽¹⁾

101.LAB	XBRL Taxonomy Extension Label Linkbase Document ⁽¹⁾

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document ⁽¹⁾

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

	INNOVATIVE SOLUTIONS AND SUPPORT, INC.

Date: May 8, 2023	By:	/s/ MICHAEL LINACRE
		MICHAEL LINACRE
		CHIEF FINANCIAL OFFICER

	By:	/s/ SHAHRAM ASKARPOUR
Date: May 8, 2023		SHAHRAM ASKARPOUR
		CHIEF EXECUTIVE OFFICER