Innovative Solutions and Support(ISSC) - 2024 Q1 - Quarterly Report

Financial Performance - Net sales for the three months ended December 31, 2023, were $9,308,063, an increase of 42.8$6,516,256 for the same period in 2022 [171]. - Product sales decreased by $664,100 or 13.1$3,166,098 or 298.4% compared to the year-ago quarter [171]. - Gross profit margin improved to 59.3% for the three months ended December 31, 2023, up from 57.1% in the prior year [172]. - Net income for the three months ended December 31, 2023, was $1,057,350, compared to$698,651 for the same period in 2022, with diluted net income per share increasing to $0.06 from$0.04 [180]. - Selling, general and administrative expenses rose by $744,956 or 32.9$3,006,819, representing 32.3% of net sales compared to 34.7% in the prior year [176]. - Research and development expenses increased by $230,699 or 34.4$901,144, but as a percentage of net sales, it decreased to 9.7% [175]. - The effective tax rate for the three-month period ended December 31, 2023, was 21.8%, down from 24.5% in the prior year [179]. Cash Flow and Financing - The Company reported cash and cash equivalents of $467,334 as of December 31, 2023, down from$3,097,193 at September 30, 2023 [182]. - Net cash provided by operating activities was $4.2 million for the three-month period ended December 31, 2023, primarily from net income of$1.1 million and a decrease in accounts receivable of $4.2 million [189]. - Net cash provided by investing activities was$2.0 million for the three-month period ended December 31, 2023, mainly from proceeds of $2.2 million from the sale of the Company's King Air aircraft [190]. - Net cash used in financing activities was$8.9 million for the three-month period ended December 31, 2023, consisting of payments against the Company's line of credit [191]. - The Company entered into a Restated Loan Amendment to increase its revolving line of credit from $10 million to$30 million, maturing on December 19, 2028 [184]. - The Company has the ability to offer and sell up to $40 million of shares of its common stock through an at-the-market equity offering Sales Agreement with Stifel [186]. Business Operations and Strategy - The Company entered into an Asset Purchase and License Agreement with Honeywell for$35.9 million, acquiring certain assets related to inertial, communication, and navigation product lines [150]. - The Honeywell Agreement is expected to enhance the Company’s offerings and accelerate growth in the air transport, military, and business aviation markets [151]. - The Company’s FMS and FPDS product lines are designed to meet regulatory demands and address the high costs of maintaining aging aircraft [144]. - The Company’s strategy as a systems integrator aims to leverage technology for cost-effective solutions in aviation markets [142]. - The Company’s products are sold to various customers, including OEMs, commercial air transport carriers, and government agencies, with a focus on both retrofit and new production markets [149]. - The Company aims to continue investing in R&D for new products and improvements, expensing associated costs as incurred [153]. Market and Economic Conditions - The Company’s sales and operations may be affected by economic conditions, including consumer spending and government agency budgets [156]. - The majority of the Company's backlog is expected to be filled within the next twelve months, and future operating results may be negatively impacted if new business orders do not continue to equal or exceed sales recognized [195]. - A hypothetical 1% increase in variable interest rates would have affected interest income by approximately $13,744 for the three-month period ended December 31, 2023 [197]. Sustainability and ESG Commitment - The Company is committed to addressing ESG issues and enhancing the sustainability of its operations [159]. - The Company anticipates continued increases in expenditures in the foreseeable future due to market acceptance of products and business expansion [192]. - The Company has no off-balance sheet arrangements or relationships with unconsolidated entities [196]. - The Company does not use derivative financial instruments for speculative purposes and maintains cash balances with two major banks [197].