Item 1A. Risk Factors.
1A 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.
The Company spends a large portion of its research and development efforts in developing and marketing the FPDS, FMS, ThrustSense® Autothrottle, military display generators and flight control computers and other complementary 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 FPDS, FMS, ThrustSense® Autothrottle, military display generators and flight control computers and any other products we develop in the future. The Company cannot be certain that it will be able to develop, acquire, introduce or market its FPDS, FMS, ThrustSense® Autothrottle, military display generators and flight control computers 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. In addition, the Company’s business is dependent upon maintaining its reputation and relationships with existing customers and potential partners. 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.
13
Table of Contents
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. 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. 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 could become obsolete rapidly.
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. 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. 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
These factors may be costly to the Company, and there is no assurance that the Company will be successful in its strategy.
Furthermore, new regulations or product standards, and changes to existing product standards could require the Company to change its products and underlying technology and expend significant costs to come into compliance. Many of our customer contracts additionally require us to comply with strict industry standards. The policies and regulations applicable to the Company may be modified, interpreted, and applied inconsistently, which may result in the Company’s noncompliance with applicable rules. If the Company is found to be noncompliant with applicable regulations or rules imposed by certain contracts, the Company may face significant fines, reputational harm, and other regulatory consequences (such as, loss of certain certifications or operational restrictions). Any of the foregoing consequences may adversely affect the Company’s business, financial condition and results of operations.
We design, manufacture and service products that incorporate advanced technologies; the introduction of new products and technologies involves risks, and we may not realize the degree or timing of benefits initially anticipated.
The design, development, production, sale and support of innovative commercial aerospace and defense systems and products involves advanced technologies. We invest substantial amounts in research and development efforts to pursue advancements in a wide range of technologies, products and services aimed at meeting the ever-evolving product, program and service needs of our customers. Our ability to realize the anticipated benefits of our investments depends on a variety of factors, including meeting development, production, certification and regulatory approval schedules; receiving regulatory approvals; execution of internal and external performance plans; achieving cost and production efficiencies; availability and quality of supplier- and internally-produced parts and materials; availability of supplier and internal facility capacity to perform maintenance, repair and overhaul services; availability of test equipment; development of complex software; hiring and training of qualified personnel; identification of emerging technological trends for our target end-customers; the level of customer interest in new technologies and products and customer acceptance of our products and technologies. For example, our customers manufacture or acquire end products and systems that incorporate certain of our products. These end products and systems may also incorporate additional technologies manufactured by third parties and involve additional risks and uncertainties. As a result, the performance and industry acceptance of these larger systems and end products could affect the level of customer interest in and acceptance of our products in the marketplace. In addition, many of our products must adhere to strict regulatory and market-driven safety and performance standards in a variety of jurisdictions. The evolving nature of these standards, along with the long duration of development, production and aftermarket support programs, creates uncertainty regarding program profitability, particularly with our aircraft engine products. Development efforts divert resources from other potential investments in our businesses, and these efforts may not lead to the development of new technologies or products on a timely
14
Table of Contents
basis or meet the needs of our customers as fully as competitive offerings. In addition, the industries for our products or products that incorporate our technologies may not develop or grow as we anticipate. We or our customers, suppliers or subcontractors may encounter difficulties in developing and producing new products and services and may not realize the degree or timing of benefits initially anticipated or may otherwise suffer significant adverse financial consequences. Due to the design complexity of our products or those of our customers or third-party manufacturers that incorporate our products into theirs or our customers’ products, we may experience delays in completing the development and introduction of new products or we may experience the suspension of production after these products enter into service due to safety concerns. Delays and/or suspension of production could result in increased development costs or deflect resources from other projects. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition and results of operations.
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. 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.
Our growth strategy includes evaluating 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.
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. Our ability to find partners to further our growth strategy is likely to be affected by factors outside of our control in the aerospace industry such as the activities of pilot unions, pilot shortages and labor strikes, along with other economic and geopolitical factors. Any one of these factors may impede our ability to find strategic partners.
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; potential margin dilution and production delays associated with consolidating acquired facilities and manufacturing operations. 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.
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. Over the past two years, we have acquired several product lines from Honeywell to enhance the Company’s current offerings in various markets, including communication and navigation product lines and display generators and flight control computers. As the assets acquired from Honeywell are intended to further the Company’s revenue in the retrofit market and are intended to be incorporated into U.S. government contract work, the Company must comply with further regulatory requirements, including heightened security measures, that it may not achieve. If the Company fails to obtain all regulatory approvals required to use the Honeywell assets as intended, the Company may fail to realize the anticipated benefits of these transactions in a timely manner or at all, as it may not be able to generate any revenue in the intended markets.
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.
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 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.
15
Table of Contents
Additionally, we may incur significant costs and risks in integrating Honeywell product lines, including the risk of additional demands on our resources, systems, procedures and controls. We may also incur significant transaction costs in connection with future acquisitions, including acquisitions that we do not complete for any reason. We are required to expense such transaction costs as incurred, which may have a material adverse impact on our financial results.
The Company’s revenue and operating results may vary significantly from quarter to quarter, which may cause its stock price to decline.
Historically, the Company’s revenue and operating results have varied from quarter to quarter, and may continue to vary, which may adversely affect our business, financial condition and results of operations, and cause our stock price to decline. As such, our historical results of operations should not be relied upon as accurate indications of future performance. Variance in the Company’s revenue may be caused by multiple factors, including:
•demand for products and/or delivery schedule changes by its customers;
•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
Many of these factors are outside of the Company’s control, and difficult to predict. The unpredictable nature of the Company’s business and results of operations could result in revenue that is lower than anticipated. If we fail to perform as investors or other analysts may have anticipated, our stock price may delice as a result.
Our sales in the commercial aircraft market are subject to downturns affecting the aerospace industry generally.
Sales of our products may be impacted by downturns in the global economy within the industry in which we operate and can adversely affect our business, financial condition and results of operations. For example, in recent years, sales across the commercial OEM sector saw a decline due in large part to the decrease in production by Boeing and Airbus related to reduced demand for commercial air travel because of the COVID-19 pandemic.
Similarly, the operation of an aircraft is inherently subject to various risks, and the technological advances, including those contained in our products and services, may be impacted by safety hazards or accidents. Any mechanical error or adverse external condition may result in death or injury to personnel and passengers, which could impact customer and consumer confidence in the aerospace industry. Reduced confidence in the safety and reliability of the air transportation services industry could lead to a reduction in demand for the Company’s products and services, particularly if such accidents or disasters were due to a safety fault.
The F-16 program comprises a material portion of our revenue and reductions or delays in funding for this program and risks related to performance, schedule, cost and requirements of the program could adversely affect our performance.
The F-16 program, which consists of multiple production and sustainment contracts, is our largest program and represented 36.7% of our total consolidated net sales in 2025. A decision by the U.S. Government, international partners, or FMS customer countries to cut spending on this program or reduce or delay planned orders would have an adverse impact on our business and results of operations. Given the size and complexity of the F-16 program, we anticipate that there will be continual reviews related to aircraft performance, program and delivery schedule, cost and requirements as part of the DoD, Congressional and international countries’ oversight and budgeting processes. Challenges and risks associated with this program include supplier performance, contract approval and receiving
16
Table of Contents
funding for contracts on a timely basis, the level of cost associated with life cycle operations, sustainment and potential contractual obligations, inflation-related cost pressures, the ability to improve affordability and potential competition from next-generation or other platforms.
We also may not be successful in making hardware upgrades and other modernization capabilities in a timely manner, including as a result of dependencies on suppliers, which could increase costs and create schedule delays. Our ability to capture and retain future F-16 growth in development, production and sustainment is dependent on the success of our efforts to achieve F-16 customer affordability, supply chain improvements, continued reliability improvements and other efficiencies, some of which are outside our control.
Public health events and conditions could adversely affect our business, financial condition and operating results.
We face a wide variety of risks related to public health crises, epidemics, pandemics or similar events. If a new health epidemic or outbreak were to occur, we could experience broad and varied effects similar to the impact of COVID-19, including adverse impacts to our workforce and supply chain, inflationary pressures and increased costs, schedule or production delays, market volatility and other financial ramifications. If any of these were to occur, our future results and performance could be adversely impacted.
Due to the inherent nature of our products and the industry in which we operate, a product safety failure or quality issue could seriously harm our business.
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. Any failure or error in the Company’s products during a flight presents a substantial risk to the operation of the aircraft, as products provide information necessary for a safe and efficient flight, and as a result, a risk to the safety of persons aboard such flights. 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.
Additionally, such occurrences could materially impair the production of our products, result in damage to equipment, personal injury or death, and potential legal liability. Although we currently maintain insurance in amounts which we consider adequate, the nature of these risks is such that liabilities might exceed policy limits, the liabilities and hazards might not be insurable, or we may elect in the future not to insure against such liabilities due to high premium costs or other reasons, in which event we could incur significant costs that could have a materially adverse effect upon our business, financial condition and results of operations.
We serve a limited number of customers and face customer concentration risk.
The Company’s revenue is concentrated in a limited number of customers. During the fiscal year ended September 30, 2025 the Company derived 57 % 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. Any disruption in the Company’s business with those customers, whether as a result of changes in demand for the customer’s services, adverse changes in the customer’s industry generally or other challenges in securing or renewing contracts, could have a material adverse impact on our business, financial condition and results of operations.
Additionally, much of the Company’s revenue is concentrated in contracts in the retrofit market with the U.S. government (including the DoD, the Department of Interior and the Department of Homeland Security) and foreign governments. Retrofit contracts with the DoD typically are not required to be renewed by the DoD and are terminable by the DoD at their convenience. Contracts with foreign governments may contain similar provisions. There can be no assurance that we will continue to be awarded contracts by the U.S. government or any foreign government, as the market for the Company’s products is highly competitive.
Our customers may terminate their contracts with us at any time which would adversely affect our business.
In general, the Company’s customer contracts typically contain provisions which permit the customer to terminate the agreement for their convenience, at any time. There can be no assurance that any of the Company’s customers will continue their contractual relationship and obligations with the Company, and therefore, we cannot guarantee any future sales. Given the Company’s limited customer concentration, if customers terminate their contracts with the Company without cause, prior to its expiration date, the Company’s business, financial condition and results of operations would likely be harmed.
17
Table of Contents
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 military and defense market is significantly dependent upon government budget trends, particularly the U.S. Department of Defense budget. In addition to normal business risks, our procurement of products and services are subject to unique risks largely beyond our control. U.S. Department of Defense budgets could be negatively impacted by several factors, including, but not limited to, a change in defense spending policy, the U.S. government’s budget deficits, spending priorities (for example, shifting funds to efforts to combat the impact of the pandemic or efforts to assist Ukraine in the Russia and Ukraine conflict), the cost of sustaining the U.S. military presence internationally, possible political pressure to reduce U.S. government military spending and the ability of the U.S. government to enact appropriations bills and other relevant legislation. 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.
Defense spending may also be reduced as a result of the change in presidential administration, and other political factors affecting the U.S. government such as budget deficits, spending priorities (such as, pandemics or emerging conflicts), pressures related to the cost of sustaining the U.S. military presence internationally and reducing U.S. military presence generally, and the ability of the government to efficiently enact appropriations bills and other relevant legislation. While we are unable to precisely predict what actions the new administration will take, President-elect Donald Trump has indicated that his administration will treat national security much differently that the current and previous presidential administrations. While difficult to predict, the new administration’s policies to reduce U.S. military presence and foreign military aid could result in a decrease in defense spending, and negatively impact the Company’s revenue in the retrofit market.
Additionally, U.S. government contracts are funded by agency budgets that operate on a fiscal year basis. As a result, government contracts are often not fully funded at inception. The remaining funds are only made available as appropriated by Congress over time, and thus subject to delay. Further, congressional appropriation and presidential approval are required for funding the governmental agencies with which we contract. In the past few years, the government has not been able to complete its budget process before the end of its fiscal year, resulting in government shutdowns, as well as insufficient funding for government agencies. For example, in October 2025, the U.S. federal government shut down for 43 days. We anticipate the federal budget, debt ceiling, regulatory environment and potential tax reform will continue to be subject to debate and compromise shaped by, among other things, the current administration and Congress, heightened political tensions, the global security environment, inflationary pressures and macroeconomic conditions. Additionally, the administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance and other factors and then potentially taking action based on those assessments. In particular, the administration has issued executive orders aimed at deregulating the Department of Defense’s procurement process to achieve a more efficient and nimble procurement process. If the Company and its products are unable to successfully compete with its competitors in any reformed procurement environment, or if the administration’s efforts result in the Company facing a disadvantage in contracting decisions due to its size, history, product mix or any other factor, such reforms could result in impacts to both our current and future business prospects and financial performance. As a result, our sales revenue in the retrofit market are vulnerable to both delays in funding and reductions in spending. If our government contracts are not fully funded, or significant programs or contracts with the U.S. government are terminated, our business, financial condition and results of operations would be substantially adversely affected.
Geopolitical factors and changes in policies and regulations could adversely affect our business.
Our international sales and operations are sensitive to changes in foreign national priorities, foreign government budgets, and regional and local political and economic factors, including volatility in energy prices or supply, political or civil unrest, changes in threat environments and political relations, military conflicts, geopolitical uncertainties, and changes in U.S. foreign policy. Our international sales and operations are also sensitive to changes in foreign government laws, regulations and policies, including those related to tariffs, sanctions, embargoes, export and import controls and other trade restrictions. Events such as increased trade restrictions or retaliatory trade policies, renegotiation of existing trade agreements, or regime change can affect demand for our products and services, the competitive position of our products, our supply chain, and our ability to manufacture or sell products in certain countries. Further, operations in emerging market countries are subject to additional risks, including volatility in gross domestic product and rates of economic growth, government instability, cultural differences (such as employment and business practices), the imposition of exchange and capital controls, and risks associated with exporting components manufactured in those countries for incorporation into finished products completed in other countries. While these factors and their impact are difficult to
18
Table of Contents
predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity.
In addition, given the role of our defense businesses in the support of the national security interests of the U. S. and its allies, we are subject to risks and uncertainties relating to policies of the U.S. and its allies, as well as other countries, including those that are or become regarded as potential adversaries or threats. We engage in both direct commercial sales, which generally require U.S. government licenses and approvals, as well as foreign military sales, which are government-to-government transactions initiated by, and carried out at the direction of, the U.S. government. Changes in budgets and spending levels, policies, or priorities, which are subject to geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S. government licenses and approvals for sales, the risk of sanctions or other restrictions, as well as potential human rights issues associated with the use of our defense products. These risks and uncertainties may directly or indirectly impact our commercial businesses as well.
Government contracts are subject to special risks as a result of the U.S. government’s audit practices.
Our contracts with the U.S. government require us to comply with extensive laws and regulations in the performance of such contracts. The U.S. government regularly investigates and audits its suppliers’ compliance with applicable regulations and performance under the relevant government contracts.
If a government inquiry or investigation uncovers improper or illegal activities by us, our employees, or others working on our behalf, we could be subject to civil or criminal penalties or administrative sanctions, including contract termination, revocation of required security clearances, fines, forfeiture of fees, suspension of payment and suspension or debarment from doing business with U.S. government agencies, any of which could materially adversely impact our reputation, business, financial condition and results of operations. Additionally, ensuring we are fully compliant with new and existing government regulations could increase our costs, reduce our margins and adversely affect our competitiveness. Furthermore, our contractual obligations with the U.S. government include certain classified information, which imposes security requirements that limit our ability to discuss our performance on these contracts, including any specific risks, disputes and claims.
The Company could be subjected to unanticipated 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.
During the fiscal year ended September 30, 2025, approximately 7% 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. 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. These EDC arrangements can expose the Company to potential losses because the customer may compel the Company to complete a project or, in the event of a termination for default, pay the incremental cost of its replacement by another provider. Because some of these projects involve new technologies and applications, and can last for more than a year, unforeseen events such as technological difficulties, fluctuations in the price of raw materials, problems with subcontractors, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to the Company over time. 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’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. Lower earnings caused by cost overruns could furthermore have a negative impact on the Company’s business, financial condition and results of operations.
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’s manufacturing process consists primarily of assembling components purchased from its supply chain. Further, there are a limited amount of suppliers that are able to produce certain components. Several of our suppliers are sole source suppliers. If we lose a significant or sole source supplier, or our key suppliers’ businesses fail, our ability to purchase components at all (in the case of sole source suppliers) or in sufficient quantities and on commercially reasonable terms would be seriously harmed as it may take a long time, and involve significant costs, to identify and qualify a sufficient alternative supplier.
19
Table of Contents
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. 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.
The impacts of global supply chain and labor market disruptions on our supply chain have negatively affected and will continue to negatively affect our business.
Our performance requires a variety of raw materials, supplier-provided parts, components, sub-systems and contract manufacturing services, and we rely on U.S. and non-U.S. suppliers (including third-party manufacturing suppliers, subcontractors and service providers) and commodity markets for these materials and services. In some instances, we depend upon a single source of supply, manufacturing, services support or assembly, or participate in commodity markets that may be subject to allocations of limited supplies by suppliers. In addition, our defense businesses are subject to specific procurement requirements that limit the types of materials they use. Our defense businesses also must require suppliers to comply with various DoD requirements, including cybersecurity requirements, any of which requirements may further limit the suppliers and subcontractors they may utilize. Identifying and qualifying second- or third- source suppliers can be difficult, time-consuming and may result in increased costs. Additionally, an open conflict or war across any region, including, but not limited to, the conflicts in Ukraine and Israel, could affect our ability to obtain raw materials.
In addition, global supply chain and labor markets are continuing to experience high levels of disruption, causing significant materials and parts shortages, as well as delivery delays, labor shortages, distribution issues, energy cost increases and price increases. Current geopolitical conditions, including sanctions and other trade restrictive activities and strained intercountry relations, are contributing to these issues. Certain of our suppliers and subcontractors have been unable to hire and retain sufficient qualified personnel for their performance. We and our suppliers and subcontractors have also experienced difficulties in procuring necessary raw materials and components, including microelectronics. All of the above have contributed to price increases. These issues have led to significant supplier and subcontractor performance failures and delays. As a result of these various problems, we have had difficulties receiving necessary materials, components, other supplies and third-party services timely or at all, which have negatively impacted production flow in our factories, hindered our ability to perform on our commitments to customers and negatively affected our results of operations, financial condition and liquidity. Our supply costs have increased due to the above factors. Continuing high inflation has exacerbated these increases and increased our operating costs.
Additionally, an open conflict or war across any region, including, but not limited to, the conflicts in Ukraine and Israel, could affect our ability to obtain raw materials.
The timing of the impacts of these supply chain risks and issues and our ability to mitigate them are uncertain and difficult to predict. However, we expect the current supply chain, labor availability and price issues, and their negative impacts on our business, to continue. In particular, we expect to experience prolonged delays for certain critical component parts and sub-systems. Furthermore, the existing supply chain and labor market issues could be compounded by other events, such as an economic downturn; supplier capacity constraints for other reasons; supplier quality issues (for example, defects or fraudulent parts); supplier closing, bankruptcy or financial difficulties; price increases for various reasons; worsening shortages of raw materials or commodities; and energy supply constraints, including as a result of war or other geopolitical actions, natural disaster (including the effects of climate change), health pandemic or other business continuity events, or transport and distribution issues, any of which could further negatively impact our ability to meet our commitments to customers or increase our operating costs and therefore incrementally affect our results of operations, financial condition and liquidity.
20
Table of Contents
Our subcontractors and third-party suppliers may fail to deliver high quality materials, products or services, which may result in a failure of our products or services and a violation of applicable law.
The suppliers the Company depends on may not be able to timely deliver a sufficient number of components on that are of a reliable quality on commercially reasonable terms. We also depend on our key third-party suppliers to provide materials that comply with our specifications. If any products or materials that are provided by our suppliers do not comply with our specifications, and we do not discover such noncompliance until after those parts are installed and as a result the products fails, the Company would be harmed, potentially resulting in a loss of its ISO 9001 and AS9100D certifications, loss of customers, harm to reputation, product recalls and liability for any other harm caused. Such failures could delay or stop our production, result in possible lost sales and seriously threaten our business, financial condition and results of operations.
Similarly, as we continue to acquire new product lines and expand the scope of our business, we require an increasing level of support from subcontractors. We are liable for the work of our subcontractors under each applicable agreement pursuant to which subcontractors assist. If our subcontractors violate the provisions of any applicable contract, or violate applicable laws or regulations, our relationship with such customer will be negatively impacted, and could result in a customer terminating our contract for default. A termination for default could expose us to liability, including liability for the costs of re-procurement, damage our reputation and impair our ability to compete for future contracts.
Our competitors have greater resources and experience than us, and if we are not able to compete, our business, financial condition and results of operations will be substantially adversely affected.
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. 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. The Company’s competitors may have greater name recognition and more extensive customer bases. Such competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share.
The Company depends on key personnel to manage its business effectively, and an inability to attract and retain key employees and plan for management succession could adversely impact the Company’s ability to compete.
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 attract or 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.
In addition, our ability to execute our growth strategy is dependent upon our ability to retain our Chief Executive Officer, Shahram Askarpour. Mr. Askarpour’s skills and expertise are important to the Company’s ability to expand its operations into different markets and further its acquisition strategy. However, there is much competition in the aerospace market for qualified executives such as Mr. Askarpour. If we are unable to retain integral members of our executive team, our competitive position in the market, relationships with potential partners, and our ability to execute our strategic business plan may be adversely affected.
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. In such a circumstance, the Company may not be able to fully capitalize on existing and potential market opportunities. Similarly, the Company plans to further enhance in sales and distribution capabilities in the retrofit markets. It will be expensive and time consuming for the Company to hire a larger sales force for government and defense sales, and it may not be successful in finding appropriately qualified candidates that are able to implement the Company’s strategy.
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. 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.
21
Table of Contents
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. 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. 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. 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.
The Company has limited experience in marketing and distributing its products internationally, which may limit the Company’s ability to penetrate international markets and increase international sales.
The Company plans to derive increasing revenues from sales outside the U.S., particularly in Europe and Asia. Risks inherent in doing business internationally include:
•differing regulatory requirements;
•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;
•the impact of recessions in economies outside the U.S.; and
•variances and unexpected changes in local laws and regulations.
Currently, all of the Company’s international sales are denominated in U.S. dollars. An increase in the dollar’s value compared to other currencies could render the Company’s products less competitive in international markets. In the future, the Company may be required to conduct sales in foreign countries local currencies, thus exposing it to fluctuations and volatility in exchange rates that could adversely affect its operating results. Further, as we pursue customers in Asia and other less developed markets throughout the world, our potential inability to ensure the creditworthiness of counterparties could impose additional risks and affect our overall profitability. 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. We may experience difficulties in recruiting, training, managing, and retaining an international staff, specifically sales management and sales personnel, which may impact sales productivity in foreign markets.
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.
22
Table of Contents
Risks Related to Intellectual Property, Privacy, Cybersecurity, and Technical Infrastructure
Our intellectual property rights are important to our operations, and we could suffer loss if they infringe upon others’ rights or are infringed upon by others.
We rely on a combination of patents, and trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. To this end, as of September 30, 2025, the Company holds 46 U.S. patents and has 17 trademarks. In addition, the Company holds 125 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. The value of our products relies substantially on our technical innovation in fields in which there are many patent filings. However, there is no guarantee that our patent applications will become issued patents. Moreover, even if approved, our patents may thereafter be successfully challenged by others or otherwise become invalidated for a variety of reasons. Thus, any patents we currently have or may later acquire may not provide us a significant competitive advantage. If our products are not protected by patents, our technology may be rendered obsolete by competitors that may develop similar technology using our ideas and our technology, which will seriously harm our ability to generate sales revenue.
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. 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. Additionally, if the Company is found to have infringed upon the intellectual property rights of a third-party, reputational harm to the Company would likely occur, and harm the Company’s ability to license its technology, or license technology from others.
Certain of our products incorporate and rely upon licensed third-party technology.
As part of our growth strategy, we have obtained licenses to third-party technology to improve our products. We may be required to renegotiate our currently licensed technology in the future and may seek to license additional technology from other third parties to enhance our products and position in the market. However, there is no guarantee that third-party licenses will be available to us, or continue to be made available to us, on terms acceptable and beneficial to the Company. If we are unable to maintain our current licenses or obtain additional licenses to further improve our products, we may be required to develop lower quality and less innovative products and as a result, our business, financial condition and results of operations may suffer.
A cyber security incident or other technology disruption could have a negative impact on our business.
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. Our IT networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. We are also involved with IT systems for certain customers and other third parties, for which we face similar security threats as for our own, including, in particular, the DoD. 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 frequency, scope and potential impact in recent years. Further, a variety of technological tools and systems, including both company-owned IT and technological services provided by outside parties, support our critical functions. These technologies, as well as our products, are subject to failure and the user’s inability to have such technologies properly supported, updated, expanded or integrated into other technologies and, in certain cases, may contain open source and third-party software which may unbeknownst to us contain defects or viruses that pose unintended risks. These risks could materially harm our business or reputation.
Threat actors (such as ransomware groups) are becoming increasingly sophisticated and using tools and techniques that are designed to circumvent security controls, to evade detection and to remove or obfuscate forensic evidence. Our and our customers, suppliers and other third-parties’ technology systems and networks may be damaged, disrupted, or compromised by malicious events, such as cyberattacks (including computer viruses, ransomware, and other malicious and destructive code, phishing attacks, and denial of service attacks), physical or electronic security breaches, natural disasters, fire, power loss, terrorism, war, telecommunications and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, employee theft or misuse, human error, fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state-supported actors or unauthorized
23
Table of Contents
access or use by persons inside our organization, or persons with access to systems inside our organization. Such attacks or security breaches may be perpetrated by internal bad actors, such as employees or contractors, or by third parties. Furthermore, because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until after they are launched against a target, we and our customers, suppliers and other third parties may be unable to anticipate these techniques or implement adequate preventative measures.
While we have implemented what we believe is an appropriate information security program with cybersecurity procedures, practices, and controls, the control systems, cybersecurity program, infrastructure, physical facilities of, and personnel associated with the third parties that we rely on are beyond our control and we cannot guarantee that our or our customers’, suppliers’ and other third parties’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our products and services. 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. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. The security measures we have implemented may become subject to third-party security breaches, employee error, malfeasance, faulty password management or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access our IT systems. In the past, we have experienced immaterial breaches of our IT systems, which we have sought to address through upgrades to our IT security systems. However, 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. Moreover, if a security breach of our IT systems affects our computer systems or results in the release of personally identifiable or other sensitive information of customers, business partners, employees and other third parties, our reputation and brand could be materially damaged, use of our products and services could decrease, and we could be exposed to a risk of loss, litigation and potential liability. Further, as cyber threats continue to evolve, the Company may be required to expend significant resources to continue to modify or enhance its protective measures or to investigate and remediate any security vulnerabilities. Additionally, the continuing and evolving threat of cybersecurity attacks has resulted in evolving legal and compliance matters, including increased regulatory focus on prevention, which could require the Company to expend significant additional resources to meet such requirements, which as a result may also harm the Company’s reputation.
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.
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 negative 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. 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. Although the Company has obtained approvals to install its products from most foreign civil aviation authorities, including the European Union, United Kingdom and China, which require the Company to comply with applicable aviation laws in such foreign jurisdictions, there can be no assurance that the Company will be able to maintain such approvals in the future.
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. In addition, new or more stringent governmental regulations may be adopted in the future, which may require us to incur significant expenses to become compliant with new regulations in a timely manner.
In the performance of our contracts with the U.S. government, we operate in a highly regulated environment, and we are subject to routine audits and reviews by the U.S. government and its agencies, such as the Defense Contract Audit Agency (“DCCA”). These
24
Table of Contents
agencies routinely review contract performance and compliance with applicable laws, regulations and standards. Systems that are subject to review include, but are not limited to, cybersecurity systems, accounting systems, and purchasing systems. Our supply chain is also subject to some of the same government contractual obligations. The U.S. government may, if it deems appropriate conduct an investigation into possible illegal or unethical activity in connection with these contracts. Investigations of this nature are common in the defense industry, and lawsuits may result.
Exports and imports of certain of our products are subject to various export control, sanctions and import regulations and may require authorization from regulatory agencies of the U.S. or other countries.
We must comply with various laws and regulations relating to the export and import of products, services and technology from and into the U.S. and other countries having jurisdiction over our operations. In the U.S., these laws and regulations include, among others, the Export Administration Regulations (EAR) administered by the U.S. Department of Commerce, the International Traffic in Arms Regulations (ITAR) administered by the U.S. Department of State, embargoes and sanctions regulations administered by the U.S. Department of the Treasury, and import regulations administered by the U.S. Department of Homeland Security and the U.S. Department of Justice. Certain of our products, services and technologies have military or strategic applications and are on the U.S. Munitions List of the ITAR, the Commerce Control List of the EAR or are otherwise subject to the EAR, and/or the U.S. Munitions Import List and we are required to obtain licenses and authorizations from the appropriate U.S. government agencies before selling these products outside of the U.S. or importing these products into the U.S. U.S. foreign policy or foreign policy of other licensing jurisdictions may affect the licensing process or otherwise prevent us from engaging in business dealings with certain individuals, entities or countries. Any failure by us, our customers or our suppliers to comply with these laws and regulations could result in civil or criminal penalties, fines, seizure of our products, adverse publicity, restrictions on our ability to export or import our products, or the suspension or debarment from doing business with the U.S. government. Moreover, any changes in export control, sanctions or import regulations may further restrict the export or import of our products or services, and the possibility of such changes requires constant monitoring to ensure we remain compliant. Our ability to obtain required licenses and authorizations on a timely basis or at all is subject to risks and uncertainties, including changing U.S. government laws, regulations or foreign policies, delays in Congressional action, or geopolitical and other factors. If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely manner, our sales relating to those approvals may be prevented or delayed, and revenue and profit previously recognized may be reversed. Any restrictions on the export or import of our products or product lines could have a material adverse effect on our business, financial condition and results of operations.
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. 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. We are susceptible to claims filed by customers alleging responsibility for breaches of contract or from product defects, and we are also subject to lawsuits filed by patent holders alleging patent infringement. These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract management’s attention from core business operations and impact operating results, particularly if a lawsuit results in an unfavorable outcome, or could harm the Company’s reputation with customers, employees, investors and others.
Tax changes could affect the Company’s effective tax rate and future profitability.
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. In addition, adverse changes in the underlying profitability and financial outlook of our operations or future changes in tax law could lead to changes in the value of tax assets or liabilities that we currently or in the future may hold, which could materially affect our results of operations. 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. U.S. relations with the rest of the world remains uncertain with respect to taxes, trade policies and tariffs, especially as the political landscape changes due to the recent U.S. presidential and congressional elections. Changes in U.S. administrative policy may lead to significant increases in tariffs for imported goods among other possible changes. President-elect Donald Trump has indicated that his administration is likely to
25
Table of Contents
impose significant tariffs on imported goods. The imposition of such tariffs may strain international trade relations and increase the risk that foreign governments implement retaliatory tariffs on goods imported from the United States. Similarly, interest rates may continue to rise and create further uncertainty and volatility in the market which would negatively impact our business, financial condition and results of operations. In addition, the potential exists that other countries may impose retaliatory tariffs, which could adversely affect the Company’s sales to those countries.
These political and economic changes could have a material effect on global economic conditions and the stability of financial markets and could significantly reduce global trade. In addition to potential increases on tariffs, wars or conflicts could affect our ability to obtain raw materials. Ongoing and future conflicts and other geopolitical events may result in sanctions or other export controls imposed by the U.S. or United Nations.
As the Company plans to increase its sales in international markets, any such international instability and reduction in global trade could negatively impact the Company’s expansion plans and international sales. Such risks may also affect our customers’ budgets and their policies which may adversely affect our sales revenue.
If the Company fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial condition, results of operations or cash flows, which may adversely affect investor confidence in the Company and, as a result, the value of the Company’s common stock.
The Sarbanes-Oxley Act requires, among other things, that the Company maintain effective internal control over financial reporting and disclosure controls and procedures. Under Section 404 of the Sarbanes-Oxley Act, the Company is required to furnish a report by management on, among other things, the effectiveness of the Company’s internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by management in the Company’s internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. 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. During the evaluation and testing process, if the Company identifies one or more material weaknesses in its internal control over financial reporting, it will be unable to assert that its internal control over financial reporting is effective. The Company cannot assure you that there will not be material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit the Company’s ability to accurately report its financial condition, results of operations or cash flows. If the Company is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines the Company has a material weakness or significant deficiency in its internal control over financial reporting once that firm begin its reviews, the Company could lose investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock could decline, and it could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. 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.
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 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. 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.
26
Table of Contents
Our common stock has experienced and may continue to experience significant price fluctuations, which could cause you to lose a significant portion of your investment and interfere with our efforts to grow our business.
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. Possible exogenous incidents and trends may also impact the capital markets generally and our common stock prices specifically. For example, the war in the Middle East and the war between Russia and Ukraine and resulting economic sanctions imposed by many countries on Russia have led to disruption, instability and volatility in the U.S. and global markets and industries and are expected to have a negative impact on the U.S. and broader global economies. The timing of your purchase and sale of our common stock relative to fluctuations in its trading price may result in you losing a significant portion of your investment.
Because we do not intend to declare cash dividends on our shares of common stock in the foreseeable future, shareholders must rely on appreciation of the value of our common stock for any return on their investment.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, we expect that only appreciation of the price of our common stock, if any, will provide a return to investors in this offering for the foreseeable future.
Volatility and weakness in capital markets may adversely affect credit availability and related financing costs, which could adversely affect the Company.
Bank and capital markets can experience periods of volatility and disruption which may adversely affect our ability to access the capital markets as needed. The general economic conditions in the U.S. and abroad is uncertain and historically has been negative. There can be no assurance that market conditions will improve.
Further, companies in the transportation industry and sales in the commercial airline markets historically have been negatively impacted by poor economic conditions. In the past, these sales have been affected by airline profitability, which is impacted by, among other things, fuel and labor costs, price competition, interest rates, downturns in the global economy and national and international events.
Furthermore, because of the lengthy research and development cycle involved in bringing new products to market, we cannot predict the economic conditions that will exist when a new product is introduced. A reduction in capital spending in the aviation or defense industries could have a significant effect on the demand for our products, which could have an adverse effect on our financial performance or results of operations.
During these periods of volatility and disruption, additional risks to the Company include:
•reprioritization of government spending away from defense programs in which the Company participates;
•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.
Such volatility in the market may also negatively impact our customers and suppliers’ ability to raise capital or obtain credit to continue operating. Such conditions may negatively impact the demand and production of our products, which can adversely affect our business, financial condition and results of operations.
There are risks associated with our outstanding and future indebtedness.
The Company has indebtedness pursuant to loan agreements and lines of credit with JP Morgan Chase Bank, N.A. and may pursue additional sources of credit or borrowed money in the future under these existing credit facilities and/or enter into new financing
27
Table of Contents
arrangements. 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 borrow sufficient funds in the future to service or refinance our debt, our business, financial condition and results of operations will be harmed. Any downgrades from credit rating agencies such as Moody’s Investors Service or Standard & Poor’s Rating Services may adversely impact our ability to obtain additional financing or the terms of such financing and reduce the market capacity for our commercial paper. 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. A breach of any of our covenants under our operative agreements could result in a default under such an agreement. 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. Additionally, if we default under our secured loan agreements, the lenders thereunder will have a right to proceed against the collateral granted to them to secure the debt, which includes available cash. In such a circumstance, we may not have sufficient assets to repay our debt in full. 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. 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
Item 1C. Cybersecurity.
Safeguarding the Company’s information technology (“IT”) systems, intellectual property, and the confidential information and personal data that customers, suppliers, business partners, employees and others share is a critical concern. As such, the Company has processes in place to assess, identify, and manage material cybersecurity threats and incidents. The Company’s cybersecurity strategy includes policies, procedures, and technology that proactively safeguard its operations against cybersecurity threats. The Company utilizes IT that enables its team to access both operational and financial performance data in real time, while, at the same time, identifying and preventing cybersecurity threats and risks. The Company aims to incorporate industry best practices throughout its cybersecurity processes and its cybersecurity framework leverages internationally recognized standards. These processes incorporate preventative, detective and corrective controls to identify relevant cyber risks and include network and endpoint protection technologies that are designed to block and detect security events at the perimeter and within its network as well as evaluation and monitoring of detected security events. The Company continuously monitors activity, frequently scans applications and systems for vulnerabilities to risk from cybersecurity threats. Continuous monitoring of the Company’s networks and systems for threats and vulnerabilities is a key component of the Company’s strategy, supported by the analysis of threat intelligence from external sources. This multi-layered approach enables early detection and facilitates prompt response to potential cybersecurity threats.
Management reviews the Company’s IT, data security and other systems, processes, policies, procedures and controls at least annually to (a) identify, assess, monitor and mitigate cybersecurity risks; and (b) identify measures to protect and safeguard against cybersecurity threats and breaches of confidential information and data and IT infrastructure and its other assets or assets of its customers or other third parties in the Company’s possession or custody.
The Company has not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected it or are reasonably likely to materially affect it, including its operations, business strategy, results of operations, or financial condition.
The Company’s management supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by it; and alerts and reports produced by security tools deployed in the IT environment.
28
Table of Contents
Item 2. Properties.
In the fiscal year ended September 30, 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. During the fiscal year ended September 30, 2025, the Company expanded the facility by approximately an additional 40,000 square feet. Subsequent to October 2025, we operate an 85,000 square foot design, manufacturing, and office facility in Exton, Pennsylvania, which we believe is adequate to meet the needs of the Company for the foreseeable future.
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.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
Market Information
The Company’s common stock has been traded on the Nasdaq Global Select Market® tier of the Nasdaq Stock Market, LLC under the symbol “ISSC” since its initial public offering on August 4, 2000.
Holders of Common Stock
As of December 4, 2025, there were approximately ten registered holders of the Company’s common stock. 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 has not paid cash dividends since the fiscal year ended September 30, 2021. 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 declaration and payment of any dividend in the future will be at the discretion of the Board of Directors and will depend on then-existing conditions, including our operating results, financial condition, business prospects and other factors the Board of Directors may deem relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth additional information as of September 30, 2025 with respect to the shares of common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements in effect as of September 30, 2025. The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options and the number of shares remaining available for future grant, excluding the shares to be issued upon exercise of outstanding options.
29
Table of Contents
Securities Authorized for Issuance under Equity Compensation Plans
Number of
securities
remaining
Number of available for
securities to be Weighted- future issuance
issued upon average under equity
exercise of exercise price compensation
outstanding of outstanding plans (excluding
options, options, securities
warrants and warrants and reflected in
rights (a) rights (b)(1) column(a) (c)(2)
Equity compensation plans not approved by security holders - - -
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during fiscal year 2025.
Recent Sales of Unregistered Securities
We did not issue any equity securities during fiscal year 2025 that were not registered under the Securities Act and that have not otherwise been described in a Quarterly Report on Form 10-Q or a Periodic Report on Form 8-K.
Item 6. [Reserved]
This item is not longer required.
30
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Objective
The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management’s perspective and should be read in conjunction with “Selected Consolidated Financial Data” and the consolidated financial statements and related notes included in this Annual Report on Form 10-K. Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.
Overview
The Company was incorporated in Pennsylvania on February 12, 1988. The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services, air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles and cockpit display systems for retrofit applications and OEMs. The Company supplies integrated FMS, FPDS, FPDS with autothrottle, air data equipment, integrated standby units, integrated standby units with autothrottle and advanced GPS receivers that enable reduced carbon footprint navigation, communication and navigation products and inertial reference units.
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. This strategy, as both a manufacturer and integrator, has positioned the company to deliver cost-effective solutions for the general aviation, commercial air transport, the DoD/governmental and foreign military markets. This approach, combined with the Company’s deep industry experience across OEMs and platforms is designed to enable the Company to develop high-quality products and systems, to reduce product time to market and to achieve cost advantages over products offered by its competitors.
The Company sells to both the OEM and the retrofit markets. 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. 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).
In June 2023, the Company entered into an agreement with Honeywell (“The June 2023 Honeywell Agreement”) 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.
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 complemented the previous Honeywell license and asset acquisition completed in June 2023. Total consideration was $4.2 million in cash.
On September 27, 2024, the Company entered into a further agreement with Honeywell (the “September 2024 Honeywell Agreement”), 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.
Following the acquisition of Honeywell’s military display generators and flight control computers business, Honeywell has continued to manufacture these products and maintain related inventory at its facilities under the September 2024 Honeywell Agreement. Revenue, and costs from this production are attributed to and reported by the Company; however, the Company relies on Honeywell
31
Table of Contents
for access to the operational and financial data needed to prepare its financial statements. The Company has limited ability to oversee the operations or verify the data received from Honeywell, making it difficult to predict revenues and gross margins. Over the coming months, the production of the military display generators and flight control computers business will cease at Honeywell facilities and transition to the Company’s facilities. During this transition process, production will be temporarily halted while the Company ramps up its production and inventory at its facilities. In anticipation of the transition, Honeywell is expected to accelerate its production of these products in the short term. We anticipate this will lead to a spike in revenues in the short term followed by a temporary dip in revenues before revenues are normalized.
As a result, the Company anticipates revenues related to the September 2024 Honeywell Agreement will continue to fluctuate significantly over the next few quarters. The transition from Honeywell to Company facilities will involve certain risks that may impact operational performance and reported results. While the Company cannot assure that the transition will not adversely affect operations and reported results, it is committed to closely monitoring the integration process. The Company remains confident in the long-term benefits of the Honeywell acquisitions.
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. The overhead portion of Cost of sales are primarily comprised of 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. 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. 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.
Selling, general and administrative (“SG&A”) expenses consist of sales, marketing, business development, professional services, salaries and benefits for executive and administrative personnel, facility costs, recruiting, legal, accounting and other general corporate expenses.
The Company sells its products to agencies of the United States and foreign governments, aircraft operators, aircraft modification centers and OEMs. 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. Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, general levels of consumer spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, inflation, public health crises and pandemics and other macroeconomic factors that affect spending behavior. Furthermore, spending by government agencies may be reduced in the future. If customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions, the Company’s revenues and results of operations would be affected adversely. For example, in the fiscal year ended September 30, 2025, changes in U.S. administrative tariff policy, have led to increases in tariffs for imported goods. Thus far, the impact to Company has been nominal.
32
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,
Net sales:
Cost of sales:
Operating expenses:
Research and development 4.7 % 8.8 % 9.0 %
Selling, general and administrative 19.4 % 25.6 % 31.1 %
Total operating expenses 24.1 % 34.4 % 40.1 %
Interest expense (2.0) % (2.0) % (1.1) %
Interest income 0.0 % 0.3 % 1.5 %
Other income 1.9 % — % 0.4 %
Income before income taxes 23.8 % 18.9 % 22.0 %
Income tax expense 5.1 % 9.2 % 4.6 %
33
Table of Contents
Fiscal Year Ended September 30, 2025 Compared to Fiscal Year Ended September 30, 2024
Historically, the Company presented Customer service and Engineering and development contracts Net Sales and Cost of sales separately on the Consolidated Statements of Operations. 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 year ended September 30, 2023. Consequently, Services revenues and cost of sales primarily comprise Customer Service, EDC and Royalties. See Footnote 3. Summary of Significant Accounting Policies, (“Reclassifications”) for additional information.
Net sales. Net sales in fiscal year 2025 increased $37.1 million, or 78.6%, to $84.3 million from $47.2 million in fiscal year 2024. Net sales of $84.3 million for fiscal year 2025 comprised $53.3 million in organic Net sales and $31.0 million in Net sales related to the September 2024 Honeywell Agreement. The increase in Net sales was driven primarily by a $29.8 million, or 122.7 %, increase in Product sales derived from the September 2024 Honeywell Agreement, an increase in commercial air transport sales of $10.5 million, partially offset by a decrease of $3.7 million in sales in business aviation. Services sales for fiscal year 2025 increased $7.3 million, or 31.8%, compared to Services sales for fiscal year 2024 of $22.9 million. The increase in Services sales primarily reflects increases in engineering development services of $3.4 million and an increase in customer service sales from the product lines acquired from Honeywell of $1.4 million, partially offset by a decrease in legacy customer service revenue of $0.6 million.
Cost of sales. Cost of sales was $43.8 million, or 51.9 % of Net sales, for fiscal year 2025 compared to $21.2 million, or 45.0 % of Net sales, for fiscal year 2024. The increase in Cost of sales was primarily the result of a significant increase in overall sales volume. The Company’s overall gross margin for fiscal year 2025 was 48.1 % compared to 55.0% for fiscal year 2024. The decrease in overall gross margin percentage for fiscal year 2025 compared to fiscal year 2024, was primarily the result of unfavorable changes in product mix, increased depreciation and cost inefficiencies due to hiring and training of additional personnel and other integration costs associated with the September 2024 Honeywell Agreement. The factors that have affected and will continue to affect the Company’s gross margin include depreciation resulting from recent product line acquisitions and the increased proportion of military sales in the Company’s sales mix.
Research and development. R&D expense decreased $0.1 million, or 3.5 %, to $4.0 million for fiscal year 2025 from $4.1 million for fiscal year 2024. As a percentage of net sales, R&D expenses decreased to 4.7% of net sales for fiscal year 2025 from 8.8% of net sales for fiscal year, 2024. The decrease in R&D expenses as a percentage of revenues in the quarter was primarily the result of additional revenues for fiscal year 2025 compared to the same period last year. In fiscal 2025 $2.6 million of R&D expense was recharacterized as Cost of sales related to the EDC sales as compared to $1.3 million in fiscal year 2024, which was offset by $1.2 million in additional engineering staffing to support the Company’s development programs.
Selling, general, and administrative.
SG&A expenses increased $4.3 million or 35.8 %, to $16.4 million for fiscal year 2025 from $12.1 million for fiscal year 2024. The increase in SG&A expense for fiscal year 2025 was primarily the result of increases in professional services fees and other related fees of $0.8 million primarily due to corporate initiatives. In addition, the Company incurred increased depreciation and amortization expenses of $1.1 million related to the customer relationships and intangible assets resulting from the combined acquisitions and $2.0 million due to employee related expenses and benefits resulting from increased headcount, and $0.4 million increase in other operating expenses. As a percentage of Net sales, SG&A expenses were 19.4% for fiscal year 2025 compared to 25.6% for fiscal year 2024.
Interest income. Interest income was $0.1 million for fiscal year 2025 and fiscal 2024.
Other income. Other income was $1.5 million in fiscal year 2025, which was primarily from monies received of $1.9 million with respect to the Employee Retention Tax Credits (“ERTC”), offset by a $0.4 million one-time ERTC related settlement fee. The Company did not have any other income for fiscal year 2024.
Income taxes. Income tax expense was $4.3 million in fiscal year 2025 as compared to income tax expense of $1.9 million in fiscal year 2024. The effective tax rate in fiscal year 2025 was 21.7% as compared to 20.9% in fiscal year 2024. The increase in income tax expense was primarily due to an increase in earnings in fiscal year 2025.
Net income. As a result of the factors described above, the Company’s net income in fiscal year 2025 was $15.6 million compared to net income of $7.0 million in fiscal year 2024. On a fully diluted basis, net income per share was $0.88 in fiscal year 2025, compared to a net income of $0.40 per share in fiscal year 2024.
34
Table of Contents
Fiscal Year Ended September 30, 2024 Compared to Fiscal Year Ended September 30, 2023
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. 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. 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. Services sales in fiscal year 2024 increased $10.7 million, or 87.6%, compared to fiscal year 2023. 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. 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. 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. 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.
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. 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. In addition, the Company incurred amortization expense of $1.2 million related to the customer relationships intangible asset resulting from the combined acquisitions. These increases were partially offset by a $0.2 million gain from the sale of the Company’s King Air aircraft. 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. 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. The Company did not have any other income for fiscal year 2024. Other income was $0.2 million in fiscal year 2023.
Income taxes. 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.
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. 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.
35
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,
Twelve Months Ended September 30,
Cash flow activities:
(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. 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 footnote 19, “Lease Recognition” to the financial statements contained in this Annual Report on Form 10-K. The Company’s existing cash balances and anticipated cash flows from operations, together with borrowings under our revolving credit facility, are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months. Apart from what has been disclosed in this Management’s Discussion and Analysis, 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 declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors.
2025 Credit Agreement
On July 18, 2025, the Company, its wholly-owned subsidiary Innovative Solutions and Support, LLC (“Borrower”) and certain domestic subsidiaries entered into a Credit Agreement (the “2025 Credit Agreement”) with J.P. Morgan Chase Bank, N.A. (the “Bank”) and the other lender parties thereto, which Credit Agreement provides for the Bank to extend to the Borrower credit facilities in an aggregate principal amount of up to $100.0 million (the “JPM Facility”), consisting of the following:
1) a $25,000,000 initial term loan facility (the “Initial Term Loan”);
2) a $30,000,000 revolving credit facility (the “Revolving Facility”); and
3) a $45,000,000 delayed draw term loan facility (the “Delayed Draw Term Loan”).
The JPM Facility replaced the A&R Revolving Line of Credit with PNC described below under the heading “Prior Debt Facility.”
See footnote 20. Loan Agreement, for additional disclosures related the 2025 Credit Agreement.
36
Table of Contents
Stifel Sales Agreement
On September 22, 2023, the Company entered into an at-the-market equity offering Sales Agreement (the “ATM Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (the “Sales Agent”), pursuant to which the Company may offer and sell from time to time through the Sales Agent up to $40 million of shares of its common stock. The shares will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-267595), which was declared effective by the SEC on October 14, 2022. The Company filed a prospectus supplement, dated September 22, 2023, with the SEC in connection with the offer and sale of the shares. Subject to the terms and conditions of the ATM Sales Agreement, the Sales Agent will use commercially reasonable efforts to sell shares of the Company’s common stock from time to time, based upon the Company’s instructions. The Company is not obligated to sell any shares under the ATM Sales Agreement, and the Company or the Sales Agent may at any time suspend solicitation and offers under the ATM Sales Agreement or terminate the ATM Sales Agreement. The Company has provided the Sales Agent with customary indemnification rights, and the Sales Agent will be entitled to compensation for its services of up to 3.0% of the gross sales price per share of the shares of the Company’s common stock sold through the Sales Agent. 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 fiscal years ended September 30, 2024 and September 30,2025, we did not sell any shares of common stock under the ATM Sales Agreement.
Prior Debt Facility
In connection with the June 2023 Honeywell Agreement, the Company entered into a term loan with PNC Bank for $20.0 million to fund a portion of the June 2023 Honeywell Agreement. In addition to providing for the Term Loan, the Loan Agreement, together with a corresponding Line of Credit Note in favor of PNC, executed on May 11, 2023, provided for a senior secured Revolving Line of Credit in an aggregate principal amount of $10,000,000, with an expiration date of May 11, 2028.
On December 19, 2023, the Company and PNC entered into the Restated Loan Amendment and the corresponding Restated Line of Credit Note and Restated Rider, to increase the aggregate principal amount available under the Company’s senior secured revolving line of credit from $10 million to $30 million and extend the maturity date until December 19, 2028. The proceeds of the Restated Line of Credit Note was used for working capital and other general corporate purposes, for acquisitions as permitted under the Restated Loan Amendments and to pay off and close the loan evidenced by that certain Term Note executed in favor of PNC, dated June 28, 2023, which provided for a senior secured term loan in aggregate principal amount of $20 million, with a maturity date of June 28, 2028.
On September 30, 2024, in connection with the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement, the Company entered into the Loan 2024 Amendment with PNC, which amended certain terms of the Loan Agreement to increase the line of credit with PNC. Concurrently with the Loan 2024 Amendment, the Company entered into (i) A&R Revolving Line of Credit Note, and (ii) A&R Rider. The A&R Revolving Line of Credit Note provided for a senior secured revolving line of credit in an aggregate principal amount of $35 million, with an expiration date of December 19, 2028 (the “Revolving Line of Credit”). The interest rate applicable to loans outstanding under the Revolving Line of Credit was a rate per annum equal to the sum of (A) Daily SOFR (as defined in the A&R Revolving Line of Credit Note) plus (B) an unadjusted spread of the Applicable SOFR Margin plus (C) a SOFR adjustment of ten basis points. The Applicable SOFR Margin ranges from 1.5% to 2.5% depending on the Company’s funded debt to EBITDA ratio, as defined in the A&R Revolving Line of Credit Note. The A&R Rider provided for how PNC will make advances to the Company under the Revolving Line of Credit.
On July 18th, 2025, the outstanding balance drawn on the A&R Revolving Line of Credit of $25,342,529 was fully paid.
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.
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.
37
Table of Contents
The Company did not pay cash dividends in fiscal years 2023, 2024 or 2025. 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 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.
Operating Activities
The Company generated $13.3 million of cash from operating activities during fiscal year 2025, as compared to cash generated of $5.8 million during fiscal year 2024. The cash generated by operating activities for the year ended September 30, 2025 was primarily generated by net income of $15.6 million, including $1.5 million of net ERTC funds received in fiscal year 2025, non-cash compensation expenses for traditional and market-based stock options and traditional and market-based stock awards of $0.3 million and $2.0 million, respectively, and depreciation and amortization expense of $3.8 million. Changes in certain other working capital accounts drove the remainder of the increase for fiscal year 2025.
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. 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. Changes in certain other working capital accounts drove the remainder of the increase for fiscal year 2024.
Investing Activities
Cash used in investing activities was $6.5 million for the fiscal year ended September 30, 2025 and was primarily due to expenditures related to additions and improvements in the Company’s facilities, purchases of equipment and computer software investment related to the Company’s ERP (“Enterprise Resource Planning”) implementation.
Cash used in investing activities was $16.8 million for the fiscal year ended September 30, 2024 and was primarily due to the $14.2 million acquisition of various generations of military display generators and flight control computers in September 2024 and the $4.2 million acquisitions of certain additional assets related to the Company’s communication and navigation product lines in July of 2024. 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.
Financing Activities
Net cash used in financing activities was $4.6 million for the fiscal year ended September 30, 2025 and primarily consisted of approximately $27.0 million in borrowings against the 2025 Initial term loan, partially offset by the payoff of the previous revolving line of credit under the PNC Facility of approximately $25.3 million, the payoff of $2.0 million under the Revolving facility, a $0.6 million principal payment on the Initial Term Loan and the payment of approximately $1.0 million in initial borrowing fees.
Net cash provided by financing activities was $8.5 million for the fiscal year ended September 30, 2024 and consisted of $43.8 million in payments against the Company’s line of credit offset by $52.3 million in additional borrowings used to fund the Company’s fiscal year ended September 30, 2024 acquisitions.
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. IA has experienced increases in expenditures since its inception and anticipates that increases in expenditures will continue in the foreseeable future. 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. If sufficient funds are not available, the Company may not be able to introduce new products or compete effectively.
38
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.
Environmental, Social and Governance Considerations
We are committed to recruiting, motivating and developing a diversity of talent. We are an equal opportunity employer and a Vietnam Era Veterans’ Readjustment Assistance Act federal contractor. All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability status, protected veteran status or any other characteristic protected by law.
The nature of the Company’s business also supports long-term sustainability. Historically, a majority of the Company’s sales have been generated from the retrofit market, in which the Company upgrades existing aircraft and equipment to improve functionality, safety, and regulatory compliance. These retrofit activities extend the useful life of in-service assets and reduce the likelihood that aircraft and related equipment will be retired or scrapped, thereby supporting reuse and waste reduction within the aviation industry. In addition, the Company’s GPS receivers enable more efficient navigation practices that may reduce fuel consumption and associated carbon emissions.
The Company is committed to further advancing its sustainability efforts and intends to strengthen its focus on managing and reducing the environmental impact of its operations. This includes evaluating opportunities to improve energy efficiency, minimize waste, and adopt environmentally responsible practices across its manufacturing and administrative functions.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”). See Part II, Item 8, “Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements,” Note 3, “Significant Accounting and Reporting Policies,” for additional information about our significant accounting and reporting policies that require us to make certain judgments and estimates in reporting our operating results and our assets and liabilities. The following paragraphs describe the accounting policies that require significant judgment and estimates due to inherent uncertainty or complexity.
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 from Contracts with Customers
The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue when a customer obtains control of promised goods or services. 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.
To achieve this core principle, the Company applies the following five steps:
39
Table of Contents
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. In addition, the Company enters fixed-price contracts, in which the Company agrees to perform the specified work for a pre-determined price. The contractual terms of the fixed-price contracts are usually long-term, however they often contain a termination for convenience clause that results in the Company treating these contracts as short-term under ASC 606. To the extent our actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit or could incur a loss. For the purpose of accounting for revenue under ASC 606, a contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. Payment terms are defined by when payment is typically due. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
2) Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. Most of our revenue is derived from purchases under which we provide a specific product or service and, as a result, there is only one performance obligation. In the event that a contract includes multiple promised goods or services, such as an EDC contract, which includes both engineering services and a resulting product shipment, the Company must apply judgment to determine whether promised goods or services are capable of being distinct in the context of the contract. In these cases, the Company considers whether the customer could, on its own, or together with other resources that are readily available from third parties, produce the physical product using only the output resulting from the Company’s completion of engineering services. If the customer cannot produce the physical product, then the promised goods or services are accounted for as a combined performance obligation.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
4) Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. 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. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer. Historically, the Company has also recognized revenue from EDC contracts and is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract costs include material, components and third-party avionics purchased from suppliers, direct labor and overhead costs.
40
Table of Contents
Acquisitions and Investments, and Goodwill and Other Indefinite-Lived Intangible Assets
We allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, with any excess recorded as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. Determining the fair value of assets we acquire and liabilities we assume requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors. Fair value adjustments to the assets and liabilities are recognized and the results of operations of the acquired business are included in our consolidated financial statements from the effective date of the acquisition.
Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of the Company’s intent to do so. Goodwill and identifiable intangible assets are recorded at their estimated fair value on the date of acquisition and are reviewed at least annually for impairment based on cash flow projections and fair value estimates.
Inventories
Inventories are stated at the lower of cost or net realizable value. Write-downs for slow-moving and obsolete inventories are provided based on current assessments about future product demand, production requirements for expected usage and usage for the last 12 months. Where we estimate that the net realizable value is below cost or have determined that future demand is lower than current inventory levels based on historical experience, current and projected market demand, current and projected volume trends and other relevant current and projected factors associated with the current economic conditions, a reduction in inventory cost to estimated net realizable value is recorded as a charge included in Cost of sales. Management believes that our estimates of excess and obsolete inventory are reasonable and material changes in future estimates or assumptions used to calculate our estimates are unlikely. However, actual results may differ materially from the estimates and additional provisions may be required in the future.
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. 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 ended September 30, 2025, 2024 and 2023 Net sales outside the United States amounted to $16.4 million, $22.8 million and $15.5 million, respectively.
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. 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 $24.3 million as of September 30, 2025, a hypothetical change +/- 1% change in variable interest rates would have affected interest expense by approximately $0.3 million.
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. 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 the fiscal year ended September 30, 2025 were to remain constant and that the Company did not act to alter the existing interest rate sensitivity, a hypothetical +/-1% change in interest rates would not have a material impact on our results of operations, financial position or cash flows.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Company listed in the index appearing under Item 8 herein are filed as part of this Annual Report on Form 10-K.
41
Table of Contents
Innovative Solutions and Support, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm PCAOB ID Number 248 43
Consolidated Balance Sheets 44
Consolidated Statements of Operations 45
Consolidated Statements of Shareholders’ Equity 46
Consolidated Statements of Cash Flows 47
Notes to Consolidated Financial Statements 48-79
42
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Innovative Solutions & Support, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Innovative Solutions & Support, Inc. (a Pennsylvania corporation) and subsidiaries (the “Company”) as of September 30, 2025 and 2024, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Companyas of September 30, 2025 and 2024, and the results of itsoperations and itscash flows for each of the three years in the period ended September 30, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2014.
Philadelphia, Pennsylvania
December 22, 2025
43
Table of Contents
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
ASSETS
Current assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt $ 2,438,802 $ —
Commitments and contingencies (See Note 16)
Shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
44
Table of Contents
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Year Ended September 30,
Net Sales:
Cost of sales:
Operating expenses:
Net income per common share:
Weighted average shares outstanding:
The accompanying notes are an integral part of these consolidated financial statements.
45
Table of Contents
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
Additional Total
Common Paid-In Retained Treasury shareholders’
Stock Capital Earnings Stock equity
46
Table of Contents
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES:
Amortization of loan fees 40,269 — —
Impairment of long-lived assets — — 44,400
Gain on disposal of property and equipment — (160,577) —
(Increase) decrease in:
Increase (decrease) in:
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets — (4,249,460) —
Proceeds from the sale of property and equipment — 2,225,810 —
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial Term Loan debt proceeds 25,000,000 — —
Initial Term Loan principal payments (625,000) — —
Proceeds from exercise of stock options — — 408,846
Payments of debt issuance costs (984,592) — —
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION
Transfer from prepaid inventory to inventory $ 3,398,107 4,254,492 —
Transfer from prepaid inventory to goodwill — 516,580 —
Transfer from other assets to PP&E 318,534 — —
Transfer from intangible assets to goodwill 1,490,000 — —
Transfer from prepaid expenses to intangible assets 275,995 — —
The accompanying notes are an integral part of these consolidated financial statements.
47
Table of Contents
INNOVATIVE SOLUTIONS AND SUPPORT, INC. DBA INNOVATIVE AEROSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Background
Innovative Solutions and Support, Inc. dba Innovative Aerosystems, Inc. (the “Company,” “we” or “us”) was incorporated in Pennsylvania on February 12, 1988. The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services avionics products and systems for retrofit applications and original equipment manufacturers (“OEMs”).
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. 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, Department of Defense (“DoD”), governmental and foreign military markets. This approach, combined with the Company’s industry experience, is designed to enable us to develop high-quality products and systems, to reduce product time to market and to achieve cost advantages over products offered by its competitors. Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies and foreign militaries.
On September 27, 2024, the Company entered into and closed the transactions contemplated by that certain Asset Purchase and License Agreement (the “September 2024 Honeywell Agreement”) with Honeywell International Inc. (“Honeywell”). Pursuant to the Agreement, 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. The September 2024 Honeywell Agreement allows the Company to diversify its product offerings in the aerospace industry. The Company determined that the September 2024 Honeywell Agreement met the definition of a business under ASC 805; therefore, the Company accounted for the transaction as a business combination and applied the acquisition method of accounting. See Footnote 4. Acquisition, for additional information.
On July 22, 2024, the Company completed the acquisition of certain additional assets related to its communication and navigation product lines, including a sale of certain inventory and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property (the “July 2024 Honeywell Asset Acquisition”) related to its communication and navigation product lines to manufacture, upgrade and repair certain additional products for consideration of $4.2 million in cash. The Company accounted for the transaction as an asset acquisition. See Footnote 4. Acquisition, for additional information.
On June 30, 2023, the Company entered into an Asset Purchase and License Agreement with Honeywell International, Inc. (the “June 2023 Honeywell Agreement”) whereby Honeywell sold certain assets and granted perpetual license rights to manufacture and sell licensed products related to its inertial, communication and navigation product lines to the Company. 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. See Note 4, “Acquisition” for more details. See Footnote 4. Acquisition, for additional information. The Company determined that the transaction met the definition of a business under ASC 805, therefore the Company accounted for the transaction as a business combination and applied the acquisition method of accounting.
2. Concentrations
Major Customers
In fiscal years ended September 30, 2025, 2024 and 2023, the Company derived 57%, 42% and 54%, respectively, of total sales from five customers, although not all the same customers in each year. Accounts receivable and contract assets related to the Company’s
48
Table of Contents
top five customers were $8.7 million, $7.6 million and $3.5 million as of fiscal years ended September 30, 2025, 2024 and 2023, respectively.
Major Suppliers
The Company buys several of its components from sole source suppliers. Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms.
During the fiscal year ended September 30, 2025, the Company had two suppliers that accounted for 51% of the Company’s total inventory related purchases. During the fiscal year ended September 30, 2024, the Company had four suppliers that accounted for 63.1% of the Company’s total inventory related purchases. During the fiscal year ended September 30, 2023, the Company had four suppliers that accounted for 49.0% of the Company’s total inventory related purchases.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances and accounts receivable. The Company invests its excess cash where preservation of principal is the major consideration. Cash balances are maintained with two major banks. Balances on deposit with certain money market accounts and operating accounts may exceed the Federal Deposit Insurance Corporation limits. The Company’s customer base consists principally of companies within the aviation industry. The Company requests advance payments and/or letters of credit from customers that it considers to be significant credit risks.
3. Summary of Significant Accounting Policies
Principles of Consolidation