Innovative Solutions & Support Inc 10-Q for FY2024 Q1

Innovative Solutions & Support Inc (IA)

10-Q 2024-02-14 For: 2023-12-31

Added on April 07, 2026

About this 10-Q

Innovative Solutions & Support Inc filed this 10-Q on February 14, 2024, covering the quarter ended December 31, 2023 (FY2024 Q1).

Headline figures

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

Revenue: $9.31M; up 42.8% from $6.52M a year earlier
Net income: $1.06M; up 51.3% from net income of $698.65K a year earlier
Diluted EPS: $0.06; up 50.0% from $0.04 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

	Condensed Consolidated Balance Sheets – December 31, 2023 (unaudited) and September 30, 2023	1

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

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

	Condensed Consolidated Statements of Cash Flows –Three Months Ended December 31, 2023 and 2022 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6 - 22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 - 33

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

SIGNATURES		37


	December 31,		September 30,
	2023		2023
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	467,334	$	3,097,193
Accounts receivable		5,583,593		9,743,714
Contract assets		647,644		487,139
Inventories		7,799,935		6,139,713
Prepaid inventory		11,509,067		12,069,114
Prepaid expenses and other current assets		919,639		1,073,012
Assets held for sale		—		2,063,818

Total current assets		26,927,212		34,673,703

Goodwill		3,557,886		3,557,886
Intangible assets, net		15,916,821		16,185,321
Property and equipment, net		7,931,009		7,892,427
Deferred income taxes		1,141,048		456,392
Other assets		224,221		191,722

Total assets	$	55,698,197	$	62,957,451

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Current portion of long-term debt	$	10,611,514	$	2,000,000
Accounts payable		1,545,799		1,337,275
Accrued expenses		2,984,947		2,918,325
Contract liability		228,306		143,359

Total current liabilities		15,370,566		6,398,959

Long-term debt		—		17,500,000
Other liabilities		427,581		421,508

Total liabilities		15,798,147		24,320,467

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 December 31, 2023 and September 30, 2023		—		—

Common stock, $.001 par value: 75,000,000 shares authorized, 19,550,184 and 19,543,441 issued at December 31, 2023 and September 30, 2023, respectively		19,549		19,543

Additional paid-in capital		54,522,975		54,317,265
Retained earnings (accumulated deficit)		6,726,063		5,668,713
Treasury stock, at cost, 2,096,451 shares at December 31, 2023 and at September 30, 2023		(21,368,537)		(21,368,537)

Total shareholders’ equity		39,900,050		38,636,984

Total liabilities and shareholders’ equity	$	55,698,197	$	62,957,451


	Three Months Ended December 31,
	2023		2022
Net Sales:
Product	$	4,424,108	$	5,088,208
Customer service		4,227,247		1,061,149
Engineering development contracts		656,708		366,899
Total net sales		9,308,063		6,516,256

Cost of sales:
Product		1,781,345		2,415,944
Customer service		1,726,961		319,102
Engineering development contracts		276,595		57,406
Total cost of sales		3,784,901		2,792,452

Gross profit		5,523,162		3,723,804

Operating expenses:
Research and development		901,144		670,445
Selling, general and administrative		3,006,819		2,261,863
Total operating expenses		3,907,963		2,932,308

Operating income		1,615,199		791,496

Interest expense		(360,013)		—
Interest income		79,479		115,892
Other income		17,699		18,196
Income before income taxes		1,352,364		925,584

Income tax expense (benefit)		295,014		226,933

Net income	$	1,057,350	$	698,651

Net income per common share:
Basic	$	0.06	$	0.04
Diluted	$	0.06	$	0.04

Weighted average shares outstanding:
Basic		17,451,362		17,316,766
Diluted		17,474,906		17,326,177


	Three Months Ended December 31, 2023

			Additional						Total
	Common		Paid-In		Retained		Treasury		shareholders’
	Stock		Capital		Earnings		Stock		equity
Balance, September 30, 2023	$	19,543	$	54,317,265	$	5,668,713	$	(21,368,537)	$	38,636,984

Share-based compensation		6		205,710		—		—		205,716
Net income		—		—		1,057,350		—		1,057,350

Balance, December 31, 2023	$	19,549	$	54,522,975	$	6,726,063	$	(21,368,537)	$	39,900,050


	Three Months Ended December 31, 2022
					(Accumulated
			Additional		Deficit)				Total
	Common		Paid-In		Retained		Treasury		shareholders’
	Stock		Capital		Earnings		Stock		equity
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


	For the Three Months Ended December 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,057,350	$	698,651
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		411,421		85,409
Share-based compensation expense
Stock options		105,285		—
Stock awards		100,431		283,195
Gain on disposal of property and equipment		(160,577)		—
Deferred income taxes		(676,483)		(284,689)
(Increase) decrease in:
Accounts receivable		4,160,121		980,938
Contract assets		(160,505)		—
Inventories		(1,660,222)		96,809
Prepaid inventories		560,047		—
Prepaid expenses and other current assets		153,373		93,264
Other non-current assets		(35,800)		—
Increase (decrease) in:
Accounts payable		208,523		133,417
Accrued expenses		(903,673)		(614,657)
Income taxes		971,497		511,622
Contract liabilities		84,947		(167,404)
Net cash provided by operating activities		4,215,735		1,816,555

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(182,918)		(32,716)
Proceeds from the sale of property and equipment		2,225,810		—
Net cash provided by (used in) investing activities		2,042,892		(32,716)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of term note		(19,500,000)		—
Proceeds from line of credit note		19,402,560		—
Repayments of line of credit note		(8,791,046)		—
Proceeds from exercise of stock options		—		408,846
Net cash (used in) provided by financing activities		(8,888,486)		408,846

Net (decrease) increase in cash and cash equivalents		(2,629,859)		2,192,685
Cash and cash equivalents, beginning of year		3,097,193		17,250,546

Cash and cash equivalents and restricted cash, end of year	$	467,334	$	19,443,231

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$	—	$	—


	Fair Value Measurement on December 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	$	497,187	$	—	$	—


	Fair Value Measurement on September 30, 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	$	3,665,128	$	—	$	—


	Contract		Contract
	Assets		Liabilities
September 30, 2023	$	487,139	$	143,359
Amount transferred to receivables from contract assets		(200,977)		—
Contract asset additions		361,482		—
Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period		—		(9,030)
Increases due to invoicing prior to satisfaction of performance obligations		—		93,977
December 31, 2023	$	647,644	$	228,306


	Amounts Recognized as of
	Acquisition Date		Measurement			Purchase Price
	(as previously reported)		Period Adjustments			Allocation
Cash consideration	$	35,860,000	$	—		$	35,860,000
Total consideration	$	35,860,000	$	—		$	35,860,000
							—
Prepaid inventory ^(a)	$	10,036,160	$	2,032,954	^(d)	$	12,069,114
Equipment		2,609,000		(54,000)	^(d)		2,555,000
Construction in progress		1,238,000		—			1,238,000
Intangible assets ^(b)		20,900,000		(4,460,000)	^(d)		16,440,000
Goodwill ^(c)		4,608,041		(1,050,155)	^(d)(e)		3,557,886
Assets acquired		39,391,201		(3,531,201)			35,860,000
Accrued expenses		(3,531,201)		3,531,201	^(e)		—
Liabilities assumed		(3,531,201)		3,531,201			—
Net assets acquired	$	35,860,000	$	—		$	35,860,000


	As of December 31, 2023
	Gross Carrying		Accumulated		Accumulated		Net Carrying
	Value		Impairment			Amortization	Value
License agreement acquired from the Transaction ^(a)	$	5,700,000	$	—	$	—	$	5,700,000
Customer relationships acquired from the Transaction ^(a)		10,740,000		—		(537,000)		10,203,000
Licensing and certification rights ^(b)		696,506		(44,400)		(638,285)		13,821
Total	$	17,136,506	$	(44,400)	$	(1,175,285)	$	15,916,821


	As of September 30, 2023
	Gross Carrying		Accumulated		Accumulated		Net Carrying
	Value		Impairment		Amortization		Value
License agreement acquired from the Transaction ^(a)	$	5,700,000	$	—	$	—	$	5,700,000
Customer relationships acquired from the Transaction ^(a)		10,740,000		—		(268,500)		10,471,500
Licensing and certification rights ^(b)		696,506		(44,400)		(638,285)		13,821
Total	$	17,136,506	$	(44,400)	$	(906,785)	$	16,185,321


	December 31,		September 30,
	2023		2023
Raw materials	$	6,495,880	$	5,162,177
Work-in-process		1,211,405		966,888
Finished goods		92,650		10,648
	$	7,799,935	$	6,139,713


2024 (nine months remaining)	$	805,500
2025		1,074,000
2026		1,074,000
2027		1,074,000
2028		1,074,000
Thereafter		5,101,500
Total	$	10,203,000


	Three Months Ending
	December 31, 2023
Warranty accrual, beginning of period	$	562,645
Accrued expense		19,505
Warranty cost		(40,700)
Warranty accrual, end of period	$	541,450


Classification on the Consolidated Balance Sheet on December 31, 2023
Assets
Operating leases	Other assets	$	11,764

Liabilities
Operating leases- current	Accrued expenses	$	11,764
Operating leases – noncurrent	Other liabilities	$	—
Total lease liabilities		$	11,764


	Twelve Months
	Ending	Operating
	December 31,	Leases
	2024	$	13,453
	2025		—
Total minimum lease payments		$	13,453
Amount representing interest			(1,689)
Present value of minimum lease payments		$	11,764
Current portion			11,764
Long-term portion of lease obligations		$	—


	Three Months Ended

	December 31, 2023
Backlog, beginning of period	$	13,450,881
Plus: bookings during period, net		10,415,963
Less: sales recognized during period		(9,308,063)
Backlog, end of period	$	14,558,781


2.1	Asset Purchase and License Agreement, dated June 30, 2023, by and between Innovative Solutions and Support, Inc. and Honeywell International Inc.(1)*

3.1	Articles of Incorporation (2)

3.2	Articles of Amendment, filed April 17, 2023, to the Articles of Incorporation of IS&S (3)

3.3	Amended and Restated Bylaws of IS&S (4)

10.1	Offer Letter from IS&S to Relland Winand, dated November 8, 2023 (5)**

10.2	Amendment to Loan Documents, dated December 19, 2023, by and among Innovative Solutions and Support, Inc., Innovative Solutions and Support, LLC and PNC Bank, National Association (6)*

10.3	Amended and Restated Revolving Line of Credit, dated December 19, 2023, executed by Innovative Solutions and Support, Inc. and Innovative Solutions and Support, LLC (6)*

10.4	Amended and Restated Line of Credit and Investment Sweep Rider, dated December 19, 2023, by and among Innovative Solutions and Support, Inc., Innovative Solutions and Support, LLC and PNC Bank, National Association (6)*

13.1	Annual Report on Form 10-K filed with the SEC on January 12, 2024(7)

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.

31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith.

32.1	Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith. This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

101.INS	Inline XBRL Instance Document, filed herewith.

101.SCH	Inline XBRL Taxonomy Extension Scheme Document, filed herewith.

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith.

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document, filed herewith.

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith.

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


	INNOVATIVE SOLUTIONS AND SUPPORT, INC.

Date: February 14, 2024	By:	/s/ Relland M. Winand
		Relland M. Winand
		Interim Chief Financial Officer


	By:	/s/ Shahram Askarpour
Date: February 14, 2024		Shahram Askarpour
		Chief Executive Officer