Innovative Solutions & Support Inc 10-Q for FY2023 Q3

Innovative Solutions & Support Inc (IA)

10-Q 2023-08-11 For: 2023-06-30

Added on April 07, 2026

About this 10-Q

Innovative Solutions & Support Inc filed this 10-Q on August 11, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $7.96M; up 14.8% from $6.94M a year earlier
Net income: $1.42M; up 4.7% from net income of $1.36M a year earlier
Diluted EPS: $0.08; unchanged 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

	Condensed Consolidated Balance Sheets – June 30, 2023 (unaudited) and September 30, 2022	1

	Condensed Consolidated Statements of Operations – Three and Nine Months Ended June 30, 2023 and 2022 (unaudited)	2

	Condensed Consolidated Statements of Shareholders’ Equity – Three and Nine Months Ended June 30, 2023 and 2022 (unaudited)	3 - 4

	Condensed Consolidated Statements of Cash Flows – Nine Months Ended June 30, 2023 and 2022 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6 - 23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 - 32

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	32

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

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		36


	June 30,		September 30,
	2023		2022
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	2,572,233	$	17,250,546
Accounts receivables		5,944,015		4,297,457
Contract assets		252,162		162,742
Inventories		5,742,613		5,349,104
Prepaid inventory		10,036,160		—
Prepaid expenses and other current assets		1,390,034		1,142,470
Total current assets		25,937,217		28,202,319

Goodwill		4,608,041		—
Intangible assets, net		20,914,885		60,348
Property and equipment, net		10,046,444		6,292,189
Deferred income taxes		643,708		46,487
Other assets		198,333		103,980

Total assets	$	62,348,628	$	34,705,323

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-terrm debt	$	2,000,000	$	—
Accounts payable		767,096		708,845
Accrued expenses		5,275,041		2,972,275
Contract liability		102,953		259,183

Total current liabilities		8,145,090		3,940,303

Long-term debt		18,000,000		—
Other liabilities		420,949		15,065

Total liabilities		26,566,039		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 June 30, 2023 and September 30, 2022		—		—
Common stock, $.001 par value: 75,000,000 shares authorized, 19,535,219 and 19,412,664 issued at June 30, 2023 and September 30, 2022		19,533		19,413
Additional paid-in capital		54,097,502		52,458,121
Retained Earnings (accumulated deficit)		3,034,091		(359,042)
Treasury stock, at cost, 2,096,451 shares at June 30, 2023 and September 30, 2022		(21,368,537)		(21,368,537)

Total shareholders’ equity		35,782,589		30,749,955
Total liabilities and shareholders’ equity	$	62,348,628	$	34,705,323


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Net Sales:
Product	$	7,893,625	$	6,935,976	$	21,383,435	$	20,279,371
Engineering development contracts		65,583		—		432,482		198,203
Total net sales		7,959,208		6,935,976		21,815,917		20,477,574

Cost of sales:
Product		3,202,870		2,879,462		8,538,219		8,253,981
Engineering development contracts		21,692		—		79,098		16,748
Total cost of sales		3,224,562		2,879,462		8,617,317		8,270,729

Gross profit		4,734,646		4,056,514		13,198,600		12,206,845

Operating expenses:
Research and development		851,296		676,381		2,387,939		2,062,937
Selling, general and administrative		2,395,714		1,694,233		7,104,212		5,226,015
Total operating expenses		3,247,010		2,370,614		9,492,151		7,288,952

Operating income		1,487,636		1,685,900		3,706,449		4,917,893

Interest income		185,652		10,429		432,495		10,871
Other income		90,049		21,608		131,504		49,401
Income before income taxes		1,763,337		1,717,937		4,270,448		4,978,165

Income tax expense		339,958		358,763		877,315		1,056,363

Net income	$	1,423,379	$	1,359,174	$	3,393,133	$	3,921,802

Net income per common share:
Basic	$	0.08	$	0.08	$	0.19	$	0.23
Diluted	$	0.08	$	0.08	$	0.19	$	0.23

Weighted average shares outstanding:
Basic		17,576,969		17,261,349		17,415,358		17,253,822
Diluted		17,577,588		17,265,798		17,419,265		17,255,305


	Three Months Ended June 30, 2023 and 2022
					(Accumulated
			Additional		Deficit)				Total
	Common		Paid-In		Retained		Treasury		shareholders’
	Stock		Capital		Earnings		Stock		equity
Balance, March 31, 2023	$	19,518	$	53,883,433	$	1,610,712	$	(21,368,537)	$	34,145,126

Share-based compensation		15		214,069		—		—		214,084
Net income		—		—		1,423,379		—		1,423,379

Balance, June 30, 2023	$	19,533	$	54,097,502	$	3,034,091	$	(21,368,537)	$	35,782,589


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

Share-based compensation		2		58,417		—		—		58,419
Exercise of stock options		3		17,151		—		—		17,154
Net income		—		—		1,359,174		—		1,359,174

Balance, June 30, 2022	$	19,373	$	52,142,818	$	(1,961,018)	$	(21,368,537)	$	28,832,636


	Nine Months Ended June 30, 2023 and 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		63		1,230,592		—		—		1,230,655
Exercise of stock options		57		408,789		—		—		408,846
Net income		—		—		3,393,133		—		3,393,133

Balance, June 30, 2023	$	19,533	$	54,097,502	$	3,034,091	$	(21,368,537)	$	35,782,589

Balance, September 30, 2021	$	19,343	$	51,817,095	$	(5,882,820)	$	(21,368,537)	$	24,585,081

Share-based compensation		27		308,572		—		—		308,599
Exercise of stock options		3		17,151		—		—		17,154
Net income		—		—		3,921,802		—		3,921,802

Balance, June 30, 2022	$	19,373	$	52,142,818	$	(1,961,018)	$	(21,368,537)	$	28,832,636


	For the Nine Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,393,133	$	3,921,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		258,892		278,164
Share-based compensation expense
Stock options		646,172		135,273
Stock awards		584,483		173,326
Impairment of long-lived assets		44,400		—
Loss on disposal of property and equipment		—		357
Deferred income taxes		(597,221)		785,737
(Increase) decrease in:
Accounts receivables		(1,646,558)		1,042,975
Contract asset		(89,420)		—
Inventories		(393,509)		(264,789)
Prepaid expenses and other assets		(71,679)		69,344
Other non-current assets		(104,626)		—
Increase (decrease) in:
Accounts payables		58,251		128,859
Accrued expenses		(854,793)		357,566
Income taxes payable/receivable		(133,370)		(119,855)
Contract liability		(156,230)		(88,388)
Net cash provided by operating activities		937,925		6,420,371

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(165,084)		(161,230)
Acquisition of a business		(35,860,000)		—
Net cash used in investing activities		(36,025,084)		(161,230)

CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds		20,000,000		—
Proceeds from exercise of stock options		408,846		17,154
Net cash provided by financing activities		20,408,846		17,154

Net (decrease) increase in cash and cash equivalents		(14,678,313)		6,276,295
Cash and cash equivalents, beginning of period		17,250,546		8,265,606

Cash and cash equivalents, end of period	$	2,572,233	$	14,541,901

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$	1,608,506	$	390,481


	Fair Value Measurement on June 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	$	2,545,241	$	—	$	—

	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		89,420		—
Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period		—		(240,944)
Increases due to invoicing prior to satisfaction of performance obligations		—		84,714
June 30, 2023	$	252,162	$	102,953


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Customer Service Sales	$	1,318,214	$	1,338,893	$	3,774,666	$	3,784,493
Customer Service Cost of Sales		371,359		369,562		716,655		1,112,298
Gross Profit	$	946,855	$	969,331	$	3,058,011	$	2,672,195


Cash consideration	$	35,860,000
Total consideration	$	35,860,000

Prepaid inventory	$	10,036,160
Equipment		2,609,000
Construction in progress		1,238,000
Intangible assets ^(a)		20,900,000
Goodwill ^(b)		4,608,041
Assets acquired		39,391,201
Accrued expenses		(3,531,201)
Liabilities assumed		(3,531,201)
Net assets acquired	$	35,860,000

Net sales		$	11,865,707		$	12,071,221		$	36,118,352		$	37,553,854
Net income		$	2,661,132		$	2,690,013		$	7,439,335		$	8,444,970


	As of June 30, 2023
	Gross Carrying		Accumulated		Accumulated		Net Carrying
	Value		Impairment			Amortization	Value
License agreement acquired from the Transaction ^(a)	$	7,870,000	$	—	$	—	$	7,870,000
Customer relationships acquired from the Transaction ^(a)		13,030,000		—		—		13,030,000
Licensing and certification rights ^(b)		696,506		(44,400)		(637,221)		14,885
Total	$	21,596,506	$	(44,400)	$	(637,221)	$	20,914,885


	June 30,		September 30,
	2023		2022
Raw materials	$	5,115,987	$	4,451,045
Work-in-process		570,487		795,723
Finished goods		56,139		102,336
	$	5,742,613	$	5,349,104


2023 (three months remaining)	$	325,750
2024		1,303,000
2025		1,303,000
2026		1,303,000
2027		1,303,000
Thereafter		7,492,250
Total	$	13,030,000


	June 30,		September 30,
	2023		2022
Computer equipment	$	2,325,721	$	2,307,139
Corporate airplanes		2,406,468		2,406,468
Furniture and office equipment		976,993		976,993
Manufacturing facility		5,889,491		5,889,491
Equipment		8,292,277		5,624,966
Land		1,021,245		1,021,245
Construction in progress		1,238,000		—
		22,150,195		18,226,302
Less: accumulated depreciation and amortization		(12,103,751)		(11,934,113)
	$	10,046,444	$	6,292,189


	June 30,		September 30,
	2023		2022
Warranty	$	589,048	$	607,001
Salary, benefits and payroll taxes		746,576		1,030,628
Professional fees		119,129		364,794
Operating lease		13,125		13,615
Supplier purchase orders		3,531,201		—
Other		275,962		956,237
	$	5,275,041	$	2,972,275


	As of September 30, 2022
	Gross Carrying		Accumulated		Accumulated		Net Carrying
	Value		Impairment		Amortization		Value
Licensing and certification rights ^(b)	$	696,506	$	—	$	(636,158)	$	60,348
Total	$	696,506	$	—	$	(636,158)	$	60,348


	Three Months Ending		Nine Months Ending
	June 30, 2023		June 30, 2023
Warranty accrual, beginning of period	$	587,650	$	607,001
Accrued expense		29,119		63,495
Warranty cost		(27,721)		(81,448)
Warranty accrual, end of period	$	589,048	$	589,048


Classification on the Consolidated Balance Sheet on June 30, 2023
Assets
Operating leases	Other assets	$	18,407

Liabilities
Operating leases- current	Accrued expenses	$	13,125
Operating leases – noncurrent	Other liabilities	$	5,282
Total lease liabilities		$	18,407


	Twelve Months
	Ending	Operating
	June 30,	Leases
	2024	$	14,676
	2025		6,115
Total minimum lease payments		$	20,791
Amount representing interest			(2,384)
Present value of minimum lease payments			18,407
Current portion			(13,125)
Long-term portion of lease obligations		$	5,282


	Three Months Ended		Six Months Ended

	June 30, 2023
Backlog, beginning of period	$	14,780,588	$	11,778,988
Bookings, net		6,942,680		23,800,989
Recognized in revenue		(7,959,208)		(21,815,917)
Backlog, end of period	$	13,764,060	$	13,764,060

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

3.3	Articles of Amendment, filed April 17, 2023, to the Articles of Incorporation of Innovative Solutions and Support, Inc.

10.1	Loan Agreement, dated May 11, 2023, by and among Innovative Solutions and Support, Inc., Innovative Solutions and Support, LLC, and PNC Bank, National Association

10.2	Amendment to Loan Documents, dated June 28, 2023, by and among Innovative Solutions and Support, Inc., Innovative Solutions and Support, LLC, and PNC Bank, National Association

10.3	Term Note, executed June 28, 2023, by Innovative Solutions and Support, Inc. and Innovative Solutions and Support, LLC

10.4	Revolving Line of Credit Note, executed May 11, 2023, by Innovative Solutions and Support, Inc. and Innovative Solutions and Support, LLC

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: August 11, 2023	By:	/s/ MICHAEL LINACRE
		MICHAEL LINACRE
		CHIEF FINANCIAL OFFICER


	By:	/s/ SHAHRAM ASKARPOUR
Date: August 11, 2023		SHAHRAM ASKARPOUR
		CHIEF EXECUTIVE OFFICER