Innovative Solutions and Support(ISSC) - 2024 Q2 - Quarterly Report

Acquisition and Agreements - 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 [131]. - The Honeywell Agreement is expected to enhance the Company's offerings and accelerate growth through potential cost synergies [132]. Product Development and Innovation - The FAA-certified ThrustSense® Autothrottle is designed to automate power management for speed and power control, enhancing safety and reducing pilot workload [129]. - The Company has developed a Flight Management System (FMS) that optimizes in-flight fuel savings and complies with regulatory environments, addressing market demand for aging aircraft upgrades [126]. - The NextGen Flight Deck features ThrustSense® Integrated PT6 Autothrottle and is available for retrofit in various aircraft, enhancing avionics capabilities [127]. - The Company continues to invest in research and development for new products, expensing associated costs as incurred [134]. - The Company aims to enhance its focus on environmental impact and sustainability through its product offerings and operational practices [141]. Financial Performance - Net sales for the three months ended March 31, 2024 were $10,739,516, an increase of 46.3% compared to $7,340,454 for the same period in 2023 [146]. - For the six months ended March 31, 2024, net sales were $20,047,579, an increase of 44.7% compared to $13,856,709 for the same period in 2023 [157]. - Customer service sales increased by $3,702,919 or 265.4%, while product sales decreased by $1,049,562 or 17.7% compared to the prior year quarter [146]. - Cost of sales increased by $2,556,851 or 98.3% to $5,157,154, representing 48.0% of net sales for the three months ended March 31, 2024 [147]. - Gross profit margin decreased to 52.0% for the three months ended March 31, 2024, down from 64.6% in the same period of 2023 [147]. - Research and development expenses increased by $164,921 or 19.0% to $1,031,119, representing 9.6% of net sales for the three months ended March 31, 2024 [150]. - Selling, general and administrative expenses rose by $461,558 or 18.9% to $2,908,193, accounting for 27.1% of net sales for the three months ended March 31, 2024 [151]. - Net income for the three months ended March 31, 2024 was $1,208,316, compared to $1,271,103 for the same period in 2023 [156]. Cash Flow and Financing - Cash and cash equivalents decreased to $574,079 as of March 31, 2024, down from $3,097,193 as of September 30, 2023 [168]. - The Company increased its senior secured revolving line of credit from $10 million to $30 million, extending the maturity date to December 19, 2028 [170]. - Net cash provided by operating activities was $4.4 million for the six-month period ended March 31, 2024, compared to $2.2 million for the same period in 2023 [175]. - Net cash provided by investing activities was $1.9 million for the six-month period ended March 31, 2024, primarily from the sale of the Company's King Air aircraft [176]. - Net cash used in financing activities was $8.9 million for the six-month period ended March 31, 2024, due to loan repayments and line of credit repayments [177]. - The Company's backlog at the end of the six-month period was $10,432,682, with expectations to fill the majority within the next twelve months [180]. - The Company anticipates that its cash and cash equivalents will be sufficient to fund operations for at least the next twelve months [179]. - The Company has no off-balance sheet arrangements with unconsolidated entities or financial partnerships [181]. Economic and Market Conditions - The Company’s products are affected by economic conditions, which may lead to customer spending delays or reductions [136]. - A hypothetical 1% increase in variable interest rates would have affected interest income by approximately $10,416 for the six-month period ended March 31, 2024 [182]. - The effective tax rate for the six-month period ended March 31, 2024 was 21.5%, compared to 21.4% for the same period in 2023 [165]. - The interest rate on the Restated Line of Credit ranges from 1.5% to 2.5% based on the Company's funded debt to EBITDA ratio [171]. - The Company has not sold any shares under the ATM Sales Agreement, which allows for the sale of up to $40 million of common stock [174].