10-Q 1 issc-20230630x10q.htm 10-Q UNITED STATES
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[For the transition period from                        to                      ]

Commission File No. 000-31157

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA

    

23-2507402

(State or Other Jurisdiction
of Incorporation or Organization)

(I.R.S. Employer
Identification No.)

720 Pennsylvania Drive, Exton, Pennsylvania

19341

(Address of Principal Executive Offices)

(Zip Code)

(610) 646-9800

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ISSC

Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes   No 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

As of July 31, 2023, there were 17,446,990 shares of the Registrant’s Common Stock, with par value of $.001 per share, outstanding.

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

FORM 10-Q June 30, 2023

INDEX

 

 

Page No.

PART I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

 

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

1

 

 

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

2

 

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

3 - 4

 

 

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

5

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6 - 23

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24 - 32

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

32

 

 

Item 4.

Controls and Procedures

32

 

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

33

 

 

Item 1A.

Risk Factors

33

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

Item 3.

Defaults upon Senior Securities

34

 

 

Item 4.

Mine Safety Disclosures

34

 

 

Item 5.

Other Information

34

 

 

Item 6.

Exhibits

35

 

 

SIGNATURES

36

PART I—FINANCIAL INFORMATION

Item 1- Financial Statements

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 

September 30, 

    

2023

    

2022

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

2,572,233

$

17,250,546

Accounts receivables

5,944,015

 

4,297,457

Contract assets

 

252,162

 

162,742

Inventories

 

5,742,613

 

5,349,104

Prepaid inventory

10,036,160

Prepaid expenses and other current assets

 

1,390,034

 

1,142,470

Total current assets

 

25,937,217

 

28,202,319

Goodwill

4,608,041

Intangible assets, net

20,914,885

60,348

Property and equipment, net

 

10,046,444

 

6,292,189

Deferred income taxes

643,708

46,487

Other assets

 

198,333

103,980

Total assets

$

62,348,628

$

34,705,323

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Current portion of long-terrm debt

$

2,000,000

$

Accounts payable

767,096

708,845

Accrued expenses

 

5,275,041

 

2,972,275

Contract liability

 

102,953

 

259,183

Total current liabilities

 

8,145,090

 

3,940,303

 

 

Long-term debt

18,000,000

Other liabilities

420,949

15,065

Total liabilities

 

26,566,039

 

3,955,368

Commitments and contingencies (See Note 6)

Shareholders’ equity

Preferred stock, 10,000,000 shares authorized, $.001 par value, of which 200,000 shares are authorized as Class A Convertible stock. No shares issued and outstanding at June 30, 2023 and September 30, 2022

Common stock, $.001 par value: 75,000,000 shares authorized, 19,535,219 and 19,412,664 issued at June 30, 2023 and September 30, 2022

 

19,533

 

19,413

Additional paid-in capital

 

54,097,502

 

52,458,121

Retained Earnings (accumulated deficit)

 

3,034,091

 

(359,042)

Treasury stock, at cost, 2,096,451 shares at June 30, 2023 and September 30, 2022

 

(21,368,537)

 

(21,368,537)

Total shareholders’ equity

 

35,782,589

 

30,749,955

Total liabilities and shareholders’ equity

$

62,348,628

$

34,705,323

The accompanying notes are an integral part of these statements.

1

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Three Months Ended June 30, 

Nine Months Ended June 30, 

    

2023

    

2022

    

2023

   

2022

Net Sales:

Product

$

7,893,625

$

6,935,976

$

21,383,435

$

20,279,371

Engineering development contracts

 

65,583

 

 

432,482

 

198,203

Total net sales

 

7,959,208

 

6,935,976

 

21,815,917

 

20,477,574

Cost of sales:

Product

 

3,202,870

 

2,879,462

 

8,538,219

 

8,253,981

Engineering development contracts

 

21,692

 

 

79,098

 

16,748

Total cost of sales

 

3,224,562

 

2,879,462

 

8,617,317

 

8,270,729

Gross profit

 

4,734,646

 

4,056,514

 

13,198,600

 

12,206,845

Operating expenses:

Research and development

 

851,296

 

676,381

 

2,387,939

 

2,062,937

Selling, general and administrative

 

2,395,714

 

1,694,233

 

7,104,212

 

5,226,015

Total operating expenses

 

3,247,010

 

2,370,614

 

9,492,151

 

7,288,952

Operating income

 

1,487,636

 

1,685,900

 

3,706,449

 

4,917,893

Interest income

 

185,652

 

10,429

 

432,495

 

10,871

Other income

 

90,049

 

21,608

 

131,504

 

49,401

Income before income taxes

 

1,763,337

 

1,717,937

 

4,270,448

 

4,978,165

Income tax expense

 

339,958

 

358,763

 

877,315

 

1,056,363

Net income

$

1,423,379

$

1,359,174

$

3,393,133

$

3,921,802

Net income per common share:

Basic

$

0.08

$

0.08

$

0.19

$

0.23

Diluted

$

0.08

$

0.08

$

0.19

$

0.23

Weighted average shares outstanding:

Basic

 

17,576,969

17,261,349

17,415,358

 

17,253,822

Diluted

 

17,577,588

17,265,798

17,419,265

 

17,255,305

The accompanying notes are an integral part of these statements.

2

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(unaudited)

Three Months Ended June 30, 2023 and 2022

(Accumulated

Additional

Deficit)

Total

Common

Paid-In

Retained

Treasury

shareholders’

    

Stock

    

Capital

    

Earnings

    

Stock

    

equity

Balance, March 31, 2023

$

19,518

$

53,883,433

$

1,610,712

$

(21,368,537)

$

34,145,126

Share-based compensation

15

214,069

214,084

Net income

1,423,379

1,423,379

Balance, June 30, 2023

$

19,533

$

54,097,502

$

3,034,091

$

(21,368,537)

$

35,782,589

Balance, March 31, 2022

$

19,368

$

52,067,250

$

(3,320,192)

$

(21,368,537)

$

27,397,889

Share-based compensation

2

58,417

58,419

Exercise of stock options

3

17,151

17,154

Net income

1,359,174

1,359,174

Balance, June 30, 2022

$

19,373

$

52,142,818

$

(1,961,018)

$

(21,368,537)

$

28,832,636

The accompanying notes are an integral part of these statements.

3

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(unaudited)

Nine Months Ended June 30, 2023 and 2022

(Accumulated

Additional

Deficit)

Total

Common

Paid-In

Retained

Treasury

shareholders’

    

Stock

    

Capital

    

Earnings

    

Stock

    

equity

Balance, September 30, 2022

$

19,413

$

52,458,121

$

(359,042)

$

(21,368,537)

$

30,749,955

Share-based compensation

63

1,230,592

1,230,655

Exercise of stock options

57

408,789

408,846

Net income

3,393,133

3,393,133

Balance, June 30, 2023

$

19,533

$

54,097,502

$

3,034,091

$

(21,368,537)

$

35,782,589

Balance, September 30, 2021

$

19,343

$

51,817,095

$

(5,882,820)

$

(21,368,537)

$

24,585,081

Share-based compensation

27

308,572

308,599

Exercise of stock options

3

17,151

17,154

Net income

3,921,802

3,921,802

Balance, June 30, 2022

$

19,373

$

52,142,818

$

(1,961,018)

$

(21,368,537)

$

28,832,636

The accompanying notes are an integral part of these statements.

4

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

For the Nine Months Ended June 30, 

    

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

3,393,133

$

3,921,802

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

258,892

278,164

Share-based compensation expense

 

Stock options

646,172

135,273

Stock awards

584,483

173,326

Impairment of long-lived assets

44,400

Loss on disposal of property and equipment

357

Deferred income taxes

(597,221)

785,737

(Increase) decrease in:

Accounts receivables

 

(1,646,558)

 

1,042,975

Contract asset

 

(89,420)

 

Inventories

 

(393,509)

 

(264,789)

Prepaid expenses and other assets

 

(71,679)

 

69,344

Other non-current assets

(104,626)

Increase (decrease) in:

Accounts payables

 

58,251

 

128,859

Accrued expenses

 

(854,793)

 

357,566

Income taxes payable/receivable

(133,370)

(119,855)

Contract liability

 

(156,230)

 

(88,388)

Net cash provided by operating activities

 

937,925

 

6,420,371

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

 

(165,084)

 

(161,230)

Acquisition of a business

 

(35,860,000)

 

Net cash used in investing activities

 

(36,025,084)

 

(161,230)

CASH FLOWS FROM FINANCING ACTIVITIES:

Debt proceeds

20,000,000

Proceeds from exercise of stock options

408,846

17,154

Net cash provided by financing activities

 

20,408,846

 

17,154

Net (decrease) increase in cash and cash equivalents

(14,678,313)

6,276,295

Cash and cash equivalents, beginning of period

17,250,546

8,265,606

Cash and cash equivalents, end of period

$

2,572,233

$

14,541,901

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for income taxes

$

1,608,506

$

390,481

The accompanying notes are an integral part of these statements.

5

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Summary of Significant Accounting Policies

Description of the Company

Innovative Solutions and Support, Inc. (the “Company,” “IS&S,” “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 air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles and cockpit display systems for retrofit applications and original equipment manufacturers (“OEMs”). The Company supplies integrated Flight Management Systems (“FMS”), Flat Panel Display Systems (“FPDS”), FPDS with Autothrottle, air data equipment, Integrated Standby Units (“ISU”), ISU with Autothrottle and advanced Global Positioning System (“GPS”) receivers that enable reduced carbon footprint navigation.

The Company has continued to position itself as a system integrator, which capability provides the Company with the 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, United States Department of Defense (“DoD”)/governmental and foreign military markets. This approach, combined with the Company’s industry experience, is designed to enable IS&S to develop high-quality products and systems, to reduce product time to market, and to achieve cost advantages over products offered by its competitors.

On June 30, 2023 (the “Acquisition Date”), the Company entered into an Asset Purchase and License Agreement with Honeywell International, Inc. (“Honeywell”) 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 (the “Product Lines”) to the Company (the “Transaction”). The Transaction involves 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, “Acquisition” in the Supplemental Balance Sheet Disclosures section below for more details.

Basis of Presentation

The accompanying unaudited consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements. In the opinion of Company management, the unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the results for the interim periods presented. The consolidated balance sheet as of September 30, 2022 is derived from the audited financial statements of the Company. Operating results for the three-and nine-month periods ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023 which cannot be determined at this time. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Reclassification

The Company presented intangible assets, net separately in the consolidated balance sheet as of June 30, 2023. In order to conform to the presentation of the consolidated balance sheet as of June 30, 2023, the Company reclassified $60,348 from other assets to intangible assets, net in the consolidated balance sheet as of September 30, 2022. This reclassification has no impact on the Company’s net income for the three months ended June 30, 2023 and 2022 and the nine months ended June 30, 2023 and 2022.

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

6

Use of Estimates

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Estimates are used in accounting for, among other items, valuation of tangible and intangible assets acquired, long term contracts, evaluation of allowances for doubtful accounts, product warranty cost liabilities, income taxes, engineering and material costs on Engineering Development Contract (“EDC”) programs, percentage of completion on EDC contracts, the useful lives of long-lived assets for depreciation and amortization, the recoverability of long-lived assets, evaluation of goodwill impairment, and contingencies. Estimates and assumptions are reviewed periodically and the effects of changes, if any, are reflected in the consolidated statements of operations in the period they are determined.

Acquisitions

The Company evaluates each of its acquisitions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), to determine whether the transaction is a business combination or an asset acquisition. In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first performs a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the acquired set is not deemed to be a business and is instead accounted for as an asset acquisition. If this is not the case, the Company then further evaluates whether the acquired set includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the acquired set is a business.

The Company accounts for business acquisitions using the acquisition method of accounting. Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill.

During the measurement period, which may be up to one year from the acquisition date, the Company adjusts the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s consolidated statements of operations.

Intangible Assets

The Company’s identifiable intangible assets primarily consist of license agreement and customer relationships. Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired and are reported separately from any goodwill recognized.

Intangible assets with a finite life are amortized over their estimated useful life and are reported net of accumulated amortization. They are assessed for impairment in accordance with the Company’s policy on assessing long-lived assets for impairment described below.

Indefinite-lived intangible assets are not amortized, but are subject to an annual impairment test, or when events or circumstances dictate, more frequently. The impairment review for indefinite-lived intangible assets can be performed using a qualitative or quantitative impairment assessment. The quantitative assessment consists of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-lived intangible asset is not considered impaired.

Goodwill

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The recorded amounts of goodwill from business combinations are based on management’s best estimates of the fair values of assets acquired and liabilities assumed at the date of acquisition. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the business combination that generated the goodwill. The Company’s goodwill impairment

7

test is performed at the reporting unit level. Reporting units are determined based on an evaluation of the Company’s operating segments and the components making up those operating segments.

Goodwill is tested for impairment annually or in an interim period if certain changes in circumstances indicate a possibility that an impairment may exist. Factors to consider that may indicate an impairment may exist are: the macroeconomic conditions, industry and market considerations such as a significant adverse change in the business climate, cost factors, overall financial performance such as current-period operating results or cash flow declines combined with a history of operating results or cash flow declines or a projection/forecast that demonstrates continuing declines in the cash flow or the inability to improve the operations to forecasted levels, and any entity-specific events.

If the Company determines that it is more likely than not that the fair value of the reporting unit is below the carrying amount as part of its qualitative assessment, a quantitative assessment of goodwill is required. In the quantitative evaluation, the fair value of the reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the goodwill is deemed not to be impaired and no further action is required. If the fair value is less than the carrying value, goodwill is considered impaired and a charge is reported as impairment of goodwill in the consolidated statements of operations.

Cash and Cash Equivalents

Highly liquid investments, purchased with an original maturity of three months or less, are classified as cash equivalents. Cash equivalents at June 30, 2023 and September 30, 2022 consist of cash on deposit and cash invested in money market funds with financial institutions.

Inventory Valuation

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using an accelerated method over the estimated useful lives of the assets (the lesser of three to seven years or over the lease term), except for the manufacturing facility and the corporate airplane, which are depreciated using the straight-line method over their estimated useful lives of thirty-nine years and ten years, respectively. Costs are considered construction in progress when the property and equipment are not ready for their intended use. Major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the life of assets are charged to expense as incurred.

Long-Lived Assets

The Company assesses the impairment of long-lived assets in accordance with FASB ASC Topic 360-10, “Property, Plant and Equipment.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In addition, long-lived assets to be disposed of should be reported at the lower of the carrying amount or fair value less cost to sell. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to estimated future cash flows expected to result from use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows.

Fair Value of Financial Instruments

The net carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximate their fair value because of the short-term nature of these instruments. For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value as follows:

Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

8

Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets in non-active markets;
Inputs other than quoted prices that are observable for the asset or liability; and
Inputs that are derived principally from or corroborated by other observable market data.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2023 and September 30, 2022, according to the valuation techniques the Company used to determine their fair values.

Fair Value Measurement on June 30, 2023

Quoted Price in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

Cash and cash equivalents:

Money market funds

 

$

2,545,241

 

$

 

$

Fair Value Measurement on September 30, 2022

Quoted Price in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

Cash and cash equivalents:

Money market funds

 

$

16,083,571

 

$

 

$

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 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:

1)

Identify the contract with a customer

The Company’s contract with its customers typically is 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. 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

9

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. 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.

Contract Estimates

Accounting for performance obligations in long-term contracts that are satisfied over time involves the use of various techniques to estimate progress towards satisfaction of the performance obligation. The Company typically measures progress based on costs incurred compared to estimated total contract costs. Contract cost estimates are based on various assumptions to project the outcome of future events that often span more than a single year. These assumptions include the amount of labor and labor costs, the quantity and cost of raw materials used in the completion of the performance obligation, and the complexity of the work to be performed.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified.

10

Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter in which it is identified.

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates did not change our revenue and operating earnings (and diluted earnings per share) for the three-and nine-month periods ended June 30, 2023 and 2022, respectively.

Contract Balances

Contract assets consist of the right to consideration in exchange for product offerings that we have transferred to a customer under the contract. Contract liabilities primarily relate to consideration received in advance of performance under the contract. The following table reflects the Company’s contract assets and contract liabilities:

Contract

Contract

    

Assets

    

Liabilities

September 30, 2022

$

162,742

$

259,183

Amount transferred to receivables from contract assets

Contract asset additions

89,420

Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period

(240,944)

Increases due to invoicing prior to satisfaction of performance obligations

84,714

June 30, 2023

$

252,162

$

102,953

Customer Service Revenue

The Company enters into sales arrangements with customers for the repair or upgrade of its various products that are not under warranty. The Company’s customer service revenue and cost of sales are included in product sales and product cost of sales, respectively, on the accompanying consolidated statements of operations. The Company’s customer service revenue and cost of sales for the three-and nine-month periods ended June 30, 2023 and 2022 respectively are as follows:

For the Three Months Ended June 30, 

 

For the Nine Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Customer Service Sales

 

$

1,318,214

 

$

1,338,893

$

3,774,666

$

3,784,493

Customer Service Cost of Sales

371,359

369,562

716,655

1,112,298

Gross Profit

$

946,855

$

969,331

$

3,058,011

$

2,672,195

Lease Recognition

The Company accounts for leases in accordance with ASU 2016-02, Leases (Topic 842). At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have any financing leases that are material in nature.

Income Taxes

Income taxes are recorded in accordance with ASC Topic 740, “Income Taxes” (“ASC Topic 740”), which utilizes a balance sheet approach to provide for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets, liabilities, and expected benefits of utilizing NOLs and tax credit carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. At the end of each interim reporting period, the Company prepares an estimate of the annual effective income tax rate and applies that annual effective income tax rate to ordinary year-to-date pre-tax income for the interim period. Specific tax items discrete to a particular quarter are recorded in income tax expense for that quarter. The estimated annual effective tax rate used in providing for income taxes on a year-to-date basis may change in subsequent periods.

11

Deferred tax assets are reduced by a valuation allowance if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be verified objectively, and significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if a valuation allowance is required by considering available evidence. Deferred tax assets are recognized when expected future taxable income is sufficient to allow the related tax benefits to reduce taxes that would otherwise be payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and credit carryforwards, taxable income in carry-back years, and tax planning strategies which are both prudent and feasible. The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets. If the Company were to determine that it would be able to realize additional state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

The accounting for uncertainty in income taxes requires a more likely than not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the (i) benefit recognized and measured for financial statement purposes and (ii) the tax position taken or expected to be taken on the Company’s tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company has elected to record any interest or penalties associated with uncertain tax positions as income tax expense.

The Company files a consolidated U.S. federal income tax return. The Company prepares and files tax returns based on the interpretation of tax laws and regulations, and records estimates based on these judgments and interpretations. In the normal course of business, the tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities, and the Company records a liability when it is probable that there will be an assessment. The Company adjusts the estimates periodically as a result of ongoing examinations by and settlements with the various taxing authorities, and changes in tax laws, regulations and precedent. The consolidated tax provision of any given year includes adjustments to prior years’ income tax accruals that are considered appropriate, and any related estimated interest. Management believes that it has made adequate accruals for income taxes. Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material effect on the Company’s consolidated financial position but could possibly be material to its consolidated results of operations or cash flow of any one period.

Engineering Development

The Company invests a significant percentage of its sales on engineering development, both Research & Development (“R&D”) and EDC. At June 30, 2023, approximately 23% of the Company’s employees were engineers engaged in various engineering development projects. Total engineering development expense comprises both internally funded R&D and product development and design charges related to specific customer contracts. Engineering development expense consists primarily of payroll-related expenses of employees engaged in EDC projects, engineering related product materials and equipment, and subcontracting costs. R&D charges incurred for product design, product enhancements, and future product development are expensed as incurred. Product development and design charges related to specific customer contracts are charged to cost of sales-EDC based on the method of contract accounting (either percentage-of-completion or completed contract) applicable to such contracts.

Treasury Stock

We account for treasury stock purchased under the cost method and include treasury stock as a component of shareholders’ equity. Treasury stock purchased with intent to retire (whether or not the retirement is actually accomplished) is charged to common stock.

Share-Based Compensation

The Company accounts for share-based compensation under ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which requires the Company to measure the cost of employee or non-employee director services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model. The Company recognizes such cost over the period during which an employee or non-employee director is required to provide service in exchange for the award. Our policy is to recognize forfeitures as incurred.

12

Accordingly, adoption of ASC Topic 718’s fair value method results in recording compensation costs under the Company’s stock-based compensation plans. The Company determined the fair value of its stock option awards at the date of grant using the Black-Scholes option pricing model. Option pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of its awards. These assumptions and judgments include estimating future volatility of the Company’s stock price, expected dividend yield, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can materially affect fair value estimates. The Company does not believe that a reasonable likelihood exists that there will be a material change in future estimates or assumptions used to determine share-based compensation expense. However, if actual results are not consistent with the Company’s estimates or assumptions, the Company would adjust its estimates. Such adjustments could have a material impact on the Company’s financial position.

Warranty Reserves

The Company offers warranties on some products of various lengths, however the standard warranty period is twenty-four months. At the time of shipment, the Company establishes a reserve for estimated costs of warranties based on its best estimate of the amounts necessary to settle future and existing claims using historical data on products sold as of the balance sheet date. The length of the warranty period, the product’s failure rates, and the customer’s usage affect warranty cost. If actual warranty costs differ from the Company’s estimated amounts, future results of operations could be affected adversely. Warranty cost is recorded as cost of sales, and the reserve balance recorded as an accrued expense. While the Company maintains product quality programs and processes, its warranty obligation is affected by product failure rates and the related corrective costs. If actual product failure rates and/or corrective costs differ from the estimates, the Company revises the estimated warranty liability accordingly.

Self-Insurance Reserves

Since January 1, 2014, the Company has self-insured a significant portion of its employee medical insurance. The Company maintains a stop-loss insurance policy that limits its losses both on a per employee basis and an aggregate basis. Liabilities associated with the risks that are retained by the Company are estimated based upon actuarial assumptions such as historical claims experience and demographic factors. The Company estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at June 30, 2023 and September 30, 2022, respectively. However, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions. At June 30, 2023 and September 30, 2022, the estimated liability for medical claims incurred but not reported was $53,419 and $51,590, respectively. The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of $432,703 and $424,155 as a current asset in the accompanying consolidated balance sheets as of June 30, 2023 and September 30, 2022, respectively.

Concentrations

Major Customers and Products

In the three-month period ended June 30, 2023, three customers, Pilatus Aircraft Ltd (“Pilatus”), Air Transport Services Group (“ATSG”) and Textron Aviation, Inc. (“Textron”), accounted for 25%, 24% and 10% of net sales, respectively. In the nine-month period ended June 30, 2023, three customers, Pilatus, ATSG and Textron, accounted for 27%, 18% and 10% of net sales, respectively.

In the three-month period ended June 30, 2022, three customers, Pilatus, Textron and Cargojet Inc., accounted for 27%, 16% and 14% of net sales, respectively. In the nine-month period ended June 30, 2022, three customers, Pilatus, Textron and ATSG, accounted for 27%, 11% and 10% of net sales, 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.

For the three- and nine-month periods ended June 30, 2023, the Company had four suppliers, respectively, that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

For the three- and nine-month periods ended June 30, 2022, the Company had zero and two suppliers, respectively, that were individually responsible for greater than 10% of the Company’s total inventory related purchases.

13

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 credit risks.

Recent Accounting Pronouncements

In June 2016, FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument (“ASU 2016-13”). ASU 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for SEC small business filers for fiscal years beginning after December 15, 2022. The adoption of this standard is not expected to have a material impact on our consolidated financial statements or related disclosures.

2. Supplemental Balance Sheet Disclosures

Acquisition

On June 30, 2023, the Company entered into an Asset Purchase and License Agreement with Honeywell 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 involves a sale of certain inventory, equipment and customer-related documents; an assignment of certain customer contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company. The Transaction allows the Company to diversify its product offerings in the aerospace industry. 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.

In connection with the Transaction, the Company entered into a term loan with PNC Bank, National Association for $20.0 million to fund a portion of the Transaction (the “Term Loan”) – refer to Note 9, “Loan Agreement” for further details. The preliminary purchase consideration transferred at the Acquisition Date was $35.9 million, which was entirely cash.

The allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been finalized as of the date of this filing. Specifically, the purchase price amount for the Transaction and the allocation of the purchase consideration for

14

prepaid inventory, equipment, construction in progress, intangible assets, and goodwill are preliminary estimates, which may be subject to change within the measurement period.

The preliminary allocation of the purchase consideration as of the Acquisition Date is as follows:

Cash consideration

    

$

35,860,000

Total consideration

$

35,860,000

Prepaid inventory

$

10,036,160

Equipment

 

2,609,000

Construction in progress

 

1,238,000

Intangible assets (a)

 

20,900,000

Goodwill (b)

 

4,608,041

Assets acquired

 

39,391,201

Accrued expenses

 

(3,531,201)

Liabilities assumed

 

(3,531,201)

Net assets acquired

$

35,860,000

(a)Intangible assets consist of license agreements related to the license rights to use certain Honeywell intellectual property and customer relationships and are recorded at provisional estimated fair values. The provisional estimated fair value of the license agreement is based on a variation of the income valuation approach and is determined using the relief from royalty method. The provisional estimated fair value of the customer relationships is based on a variation of the income valuation approach known as the multi-period excess earnings method. Refer to Note, “Intangible assets” for further details.
(b)Goodwill represents the excess of the preliminary purchase consideration over the provisional fair value of the assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to the expected synergies from the Transaction. Goodwill resulting from the Transaction has been provisionally assigned to the Company’s one operating segment; the assignment of goodwill to reporting units is not complete. The goodwill is not expected to be deductible for income tax purposes. Further, the Company determined that the preliminary goodwill was not impaired as of June 30, 2023 and as such, no impairment charges have been recorded for the three-and nine-month periods ended June 30, 2023.

Transition services agreement

Concurrent with the Transaction, the Company entered into a transition services agreement (the “TSA”) with Honeywell, at no additional costs, to receive certain transitional services and technical support during the transition service period. The Company accounted for the TSA separate from business combination and have recognized $140,000 in prepaid expenses and other current assets within the consolidated balance sheets for the services to be received in the future from Honeywell. The prepaid expense related to the TSA was determined using the with and without method.

Acquisition and related costs

For the three and nine months ended June 30, 2023, the Company incurred acquisition costs of $262,099, which were expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations; the debt issuance costs related to the Term Loan were not material.

Unaudited actual and pro forma information

Since the acquisition date of the Transaction was on June 30, 2023, the Company did not recognize any revenues and net income related to the Product Lines in the consolidated statements of operations.

The following unaudited pro forma summary presents consolidated information of the Company, including the Product Lines, as if the Transaction had occurred on October 1, 2021, the earliest period presented herein:

Three Months Ended June 30,

Nine Months Ended June 30,

    

2023

    

2022

    

2023

    

2022

15

Net sales

$

11,865,707

$

12,071,221

$

36,118,352

$

37,553,854

Net income

$

2,661,132

$

2,690,013

$

7,439,335

$

8,444,970

These pro forma results are for illustrative purposes and are not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations. The unaudited pro forma information for all periods presented was adjusted to give effect to pro forma events that are directly attributable to the Transaction and is factually supportable. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change, and the impact of such changes may be material. The unaudited pro forma results do not include any incremental cost savings that may result from the integration.

Significant adjustments to the pro forma information above include recognition of non-recurring direct incremental acquisition costs in the nine months ended June 30, 2022 and exclusion of those costs from all other periods presented; increase in interest expense related to the Term Loan; increase in amortization expense associated with the estimate of the acquired intangible assets; increase in depreciation expense related to the fair value adjustment of the acquired equipment; and increase in cost of sales related to the fair value adjustment of the acquired inventory.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory, and consist of the following:

June 30, 

September 30, 

    

2023

    

2022

Raw materials

 

$

5,115,987

 

$

4,451,045

Work-in-process

 

570,487

 

795,723

Finished goods

 

56,139

 

102,336

 

$

5,742,613

 

$

5,349,104

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

June 30, 

September 30, 

    

2023

    

2022

Prepaid insurance

 

$

614,700

$

777,311

Other

 

775,334

 

365,159

 

$

1,390,034

$

1,142,470

16

Intangible assets

The Company’s intangible assets other than goodwill are as follows:

    

As of June 30, 2023

    

Gross Carrying

    

Accumulated

    

Accumulated

    

Net Carrying

Value

 

Impairment

 

Amortization

 

Value

License agreement acquired from the Transaction (a)

$

7,870,000

$

$

$

7,870,000

Customer relationships acquired from the Transaction (a)

 

13,030,000

 

 

 

13,030,000

Licensing and certification rights (b)

 

696,506

 

(44,400)

 

(637,221)

 

14,885

Total

$

21,596,506

$

(44,400)

$

(637,221)

$

20,914,885

As of September 30, 2022

    

Gross Carrying

    

Accumulated

    

Accumulated

    

Net Carrying

 

Value

 

Impairment

 

Amortization

 

Value

Licensing and certification rights (b)

$

696,506

$

$

(636,158)

$

60,348

Total

$

696,506

$

$

(636,158)

$

60,348

(a)

As part of the Transaction, the Company acquired intangible assets related to the license agreement for the license rights to use certain Honeywell intellectual property, and customer relationships. The gross carrying values are preliminary estimates and may be subject to change within the measurement period – refer to Note, “Acquisition” for further details. The license agreement has an indefinite life and is not subject to amortization; the customer relationships have an estimated weighted average life of ten years. The Company determined that the preliminary intangible assets were not impaired as of June 30, 2023 and as such, no impairment charges have been recorded for the three-and nine-month periods ended June 30, 2023.

(b)

The licensing and certification rights are amortized over a defined number of units. An impairment charge of $44,400 was recorded during the three-and nine-month periods ended June 30, 2023. No impairment charges were recorded during the three-and nine-month periods ended June 30, 2022.

Intangible asset amortization expense was $1,063 and $0 for the three-month periods ended June 30, 2023 and 2022, respectively. Intangible asset amortization expense was $1,063 and $1,063 for the nine-month periods ended June 30, 2023 and 2022, respectively.

The timing of future amortization expense is not determinable for the licensing and certification rights because they are amortized over a defined number of units. The expected future amortization expense related to the customer relationships as of June 30, 2023 is as follows:

2023 (three months remaining)

    

$

325,750

2024

1,303,000

2025

1,303,000

2026

 

1,303,000

2027

 

1,303,000

Thereafter

 

7,492,250

Total

$

13,030,000

17

Property and equipment

Property and equipment, net consists of the following:

June 30,

September 30,

    

2023

    

2022

Computer equipment

$

2,325,721

$

2,307,139

Corporate airplanes

 

2,406,468

 

2,406,468

Furniture and office equipment

 

976,993

 

976,993

Manufacturing facility

 

5,889,491

 

5,889,491

Equipment

 

8,292,277

 

5,624,966

Land

1,021,245

1,021,245

Construction in progress

1,238,000

 

22,150,195

 

18,226,302

Less: accumulated depreciation and amortization

 

(12,103,751)

 

(11,934,113)

 

$

10,046,444

 

$

6,292,189

Depreciation and amortization related to property and equipment was $86,439 and $89,072 for the three-month periods ended June 30, 2023 and 2022, respectively. The corporate airplane is utilized primarily in support of product development.

Depreciation and amortization related to property and equipment was approximately $257,829 and $269,567 for the nine-month periods ended June 30, 2023 and 2022, respectively.

Other assets

Other assets consist of the following:

June 30,

September 30,

    

2023

    

2022

Operating lease right-of-use asset

$

18,407

$

28,680

Other non-current assets

179,926

 

75,300

 

$

198,333

 

$

103,980

Other non-current assets as of June 30, 2023 and September 30, 2022 include the security deposit for an airplane hangar, supplier credit from one of our suppliers and a deposit for medical claims required under the Company’s medical plan. In addition, other non-current assets as of June 30, 2023 and September 30, 2022 includes $56,855 and $0, respectively, of prepaid software licenses that will be earned upon the shipment of a certain product to a customer. Other non-current assets amortization expense was $2,601 and $2,021 for the three-month periods ended June 30, 2023 and 2022, respectively. Other non-current assets amortization expense was $2,601 and $7,534 for the nine-month periods ended June 30, 2023 and 2022, respectively.

Accrued expenses

Accrued expenses consist of the following:

June 30,

September 30,

    

2023

    

2022

Warranty

 

$