Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Mar. 31, 2015 | Apr. 30, 2015 | |
Document and Entity Information | ||
Entity Registrant Name | INNOVATIVE SOLUTIONS & SUPPORT INC | |
Entity Central Index Key | 836690 | |
Document Type | 10-Q | |
Document Period End Date | 31-Mar-15 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -21 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 16,889,638 | |
Document Fiscal Year Focus | 2015 | |
Document Fiscal Period Focus | Q2 |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Mar. 31, 2015 | Sep. 30, 2014 |
Current Assets | ||
Cash and cash equivalents | $15,568,221 | $15,214,584 |
Accounts receivable | 3,390,952 | 4,419,863 |
Unbilled receivables, net | 5,859,955 | 7,425,728 |
Inventories | 4,619,241 | 5,470,786 |
Deferred income taxes | 2,871,417 | 3,245,223 |
Prepaid expenses and other current assets | 875,890 | 750,108 |
Total current assets | 33,185,676 | 36,526,292 |
Property and equipment, net | 7,363,487 | 7,467,663 |
Non-current deferred income taxes | 1,007,361 | 57,707 |
Other assets | 170,248 | 110,848 |
Total Assets | 41,726,772 | 44,162,510 |
Current Liabilities | ||
Accounts payable | 1,039,583 | 2,402,652 |
Accrued expenses | 2,491,242 | 4,077,290 |
Deferred revenue | 760,847 | 526,320 |
Total current liabilities | 4,291,672 | 7,006,262 |
Non-current deferred income taxes | 133,233 | 132,999 |
Other liabilities | 11,902 | 11,725 |
Total liabilities | 4,436,807 | 7,150,986 |
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 March 31, 2015 and September 30, 2014 | ||
Common stock, $.001 par value: 75,000,000 shares authorized, 18,736,089 and 18,714,449 issued at March 31, 2015 and September 30, 2014, respectively | 18,736 | 18,715 |
Additional paid-in capital | 51,000,436 | 50,697,497 |
Retained earnings | 6,914,553 | 6,684,902 |
Treasury stock, at cost, 1,846,451 shares at March 31, 2015 and 1,756,807 at September 30, 2014 | -20,643,760 | -20,389,590 |
Total shareholders' equity | 37,289,965 | 37,011,524 |
Total liabilities and shareholders' equity | $41,726,772 | $44,162,510 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Mar. 31, 2015 | Sep. 30, 2014 |
Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred Stock, par value (in dollars per share) | $0.00 | $0.00 |
Preferred Stock, shares issued | 0 | 0 |
Preferred Stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $0.00 | $0.00 |
Common stock, shares authorized | 75,000,000 | 75,000,000 |
Common stock, shares issued | 18,736,089 | 18,714,449 |
Treasury stock, shares | 1,846,451 | 1,756,807 |
Series A Preferred Stock | ||
Preferred Stock, shares authorized | 200,000 | 200,000 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | |
Net sales: | ||||
Product | $3,487,933 | $8,060,217 | $8,037,453 | $15,798,831 |
Engineering development contracts | 1,798,117 | 4,434,799 | 3,972,853 | 7,801,996 |
Total net sales | 5,286,050 | 12,495,016 | 12,010,306 | 23,600,827 |
Cost of sales: | ||||
Product | 2,376,434 | 3,880,669 | 4,617,987 | 7,679,526 |
Engineering development contracts | 1,326,220 | 4,829,222 | 3,047,118 | 8,355,740 |
Total cost of sales | 3,702,654 | 8,709,891 | 7,665,105 | 16,035,266 |
Gross profit | 1,583,396 | 3,785,125 | 4,345,201 | 7,565,561 |
Operating expenses: | ||||
Research and development | 647,473 | 660,876 | 1,302,472 | 1,287,797 |
Selling, general and administrative | 1,573,888 | 2,034,609 | 3,514,379 | 3,779,500 |
Total operating expenses | 2,221,361 | 2,695,485 | 4,816,851 | 5,067,297 |
Operating income (loss) | -637,965 | 1,089,640 | -471,650 | 2,498,264 |
Interest income | 6,013 | 5,299 | 11,898 | 10,965 |
Other income | 9,407 | 8,901 | 20,229 | 19,368 |
Income (loss) before income taxes | -622,545 | 1,103,840 | -439,523 | 2,528,597 |
Income tax expense (benefit) | -258,454 | 319,623 | -669,174 | 735,784 |
Net income (loss) | ($364,091) | $784,217 | $229,651 | $1,792,813 |
Net income (loss) per common share: | ||||
Basic (in dollars per share) | ($0.02) | $0.05 | $0.01 | $0.11 |
Diluted (in dollars per share) | ($0.02) | $0.05 | $0.01 | $0.10 |
Weighted average shares outstanding: | ||||
Basic (in shares) | 16,925,028 | 16,915,823 | 16,940,377 | 16,901,955 |
Diluted (in shares) | 16,925,028 | 17,152,678 | 17,043,735 | 17,123,512 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 6 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $229,651 | $1,792,813 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 287,874 | 273,595 |
Share-based compensation expense: | ||
Stock options | 200,230 | 339,565 |
Stock awards | 149,952 | 100,042 |
Tax adjustment from share-based compensation | -47,221 | -159,259 |
Recovery of loss on unbilled receivables | -62,159 | |
(Gain) loss on disposal of property and equipment | -15,723 | |
Excess and obsolete inventory cost | 217,832 | 25,553 |
Deferred income taxes | -575,614 | 578,839 |
(Increase) decrease in: | ||
Accounts receivable | 1,028,911 | -2,383,789 |
Unbilled receivables, net | 1,627,931 | -1,720,900 |
Inventories | 633,713 | -1,053,414 |
Prepaid expenses and other current assets | -74,417 | -22,247 |
Other non-current assets | -71,800 | -10,447 |
Increase (decrease) in: | ||
Accounts payable | -1,363,070 | 1,296,522 |
Accrued expenses | -1,400,897 | 589,503 |
Income taxes payable | -236,339 | -293,796 |
Deferred revenue | 234,527 | -159,807 |
Net cash provided by (used in) operating activities | 763,381 | -807,227 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | -171,474 | -525,767 |
Proceeds from the sale of property and equipment | 15,900 | |
Net cash (used in) investing activities | -155,574 | -525,767 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Purchase of Company's stock | -254,170 | |
Proceeds from exercise of stock options | 231,128 | |
Net cash (used in) provided by financing activities | -254,170 | 231,128 |
Net increase (decrease) in cash and cash equivalents | 353,637 | -1,101,866 |
Cash and cash equivalents, beginning of period | 15,214,584 | 16,386,207 |
Cash and cash equivalents, end of period | 15,568,221 | 15,284,341 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||
Cash paid for income tax | $190,000 | $610,000 |
Summary_of_Significant_Account
Summary of Significant Accounting Policies | 6 Months Ended | ||||||||||
Mar. 31, 2015 | |||||||||||
Summary of Significant Accounting Policies | |||||||||||
Summary of Significant Accounting Policies | |||||||||||
1. Summary of Significant Accounting Policies | |||||||||||
Description of the Company | |||||||||||
Innovative Solutions and Support, Inc. (the “Company” or “IS&S”) was incorporated in Pennsylvania on February 12, 1988. The Company operates in one business segment as a systems integrator that designs, manufactures, sells, and services air data equipment, engine display systems, standby equipment, primary flight guidance, 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”), Integrated Standby Units (“ISU”) 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. The 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. Customers include commercial air transport carriers and corporate/general aviation companies, the DoD and its commercial contractors, aircraft operators, aircraft modification centers, foreign militaries, and various OEMs. | |||||||||||
Basis of Presentation | |||||||||||
The accompanying unaudited condensed 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 condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the results for the interim periods presented. The condensed consolidated balance sheet as of September 30, 2014 is derived from the audited financial statements of the Company. Operating results for the three and six months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2015. These unaudited condensed 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, 2014. | |||||||||||
The Company’s condensed consolidated financial statements include the accounts of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. | |||||||||||
Use of Estimates | |||||||||||
Preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Estimates are used in accounting for, among other items, long term contracts, allowance for doubtful accounts, inventory obsolescence, product warranty cost liabilities, income taxes, engineering and material costs on Engineering Development Contracts (“EDC”) programs, percentage-of-completion on EDC, recoverability of long-lived assets, stock-based compensation expense, and contingencies. Actual results could differ materially from those estimates. | |||||||||||
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 March 31, 2015 and September 30, 2014 consist of funds invested in money market funds with financial institutions. | |||||||||||
Property and Equipment | |||||||||||
Property and equipment are stated at cost. Depreciation is provided using an accelerated method over the estimated useful lives of the assets (the lesser of three to seven years or over the related lease term), except for the manufacturing facility and the corporate airplane. The building is being depreciated on a straight line basis over 39 years. Major additions and improvements are capitalized. Maintenance and repairs that do not improve or extend the life of assets are charged to expense as incurred. The airplane was depreciated on a straight-line basis over its estimated useful life of ten years; however, because the airplane had been depreciated previously to its estimated salvage value, no depreciation expense was recorded during the six months ended March 31, 2015 or 2014. | |||||||||||
Fair Value of Financial Instruments | |||||||||||
The net carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable 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. | |||||||||||
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 March 31, 2015 and September 30, 2014, according to the valuation techniques the Company used to determine their fair values. | |||||||||||
Fair Value Measurement on March 31, 2015 | |||||||||||
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 | $ | 13,906,809 | $ | — | $ | — | |||||
Fair Value Measurement on September 30, 2014 | |||||||||||
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 | $ | 13,397,547 | $ | — | $ | — | |||||
Long-Lived Assets | |||||||||||
The Company assesses the impairment of long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360-10, “Property, Plant and Equipment” (“ASC Topic 360-10”). 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 must 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 compares the carrying amount of the asset to estimated future cash flows expected 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 measured by discounting expected future cash flows. No impairment charges were recorded during the six months ended March 31, 2015 or 2014. | |||||||||||
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 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. The Company’s sales arrangements may include multiple deliverables as defined in FASB ASC Topic 605-25 “Multiple-Element Arrangements” (“ASC Topic 605-25”), which typically include design and engineering services, and the production and delivery of the flat panel display and related components. The Company includes any design and engineering services elements in EDC sales and any functional upgrade and product elements in product sales in the accompanying consolidated statements of operations. | |||||||||||
To the extent that an arrangement contains software elements that are essential to the functionality of tangible products sold in the arrangement, the Company recognizes revenue for the deliverables in accordance with the guidance included in FASB Accounting Standards Update 2009-14, “Revenue Arrangements That Include Software Elements” (“ASU 2009-14”), FASB Accounting Standards Update 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”), and FASB ASC Topic 605, “Revenue Recognition” (“ASC Topic 605”). | |||||||||||
To the extent that an arrangement contains software components, which may include functional upgrades, that the Company sells on a standalone basis and which it has deemed outside the scope of the exception defined by ASU 2009-14, the Company recognizes software revenue in accordance with ASC Topic 985, “Software” (“ASC Topic 985”). | |||||||||||
Multiple Element Arrangements - | |||||||||||
The Company identifies all goods and/or services that are to be delivered separately under such a sales arrangement and allocates sales to each deliverable (if more than one) based on that deliverable’s fair value. The Company then considers the appropriate recognition method for each deliverable. The Company’s multiple element arrangements can include defined design and development activities, functional upgrades, and product sales. | |||||||||||
The Company utilizes the selling price hierarchy that has been established by ASU 2009-13, which requires that the selling price for each deliverable be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. To the extent that an arrangement includes a deliverable for which estimated selling price is used, the Company determines the best estimate of selling price by applying the same pricing policies and methodologies that would be used to determine the price to sell the deliverable on a standalone basis. | |||||||||||
To the extent that an arrangement contains defined design and EDC activities as identified deliverables and products (resulting in a multiple element arrangement), the Company recognizes as EDC sales amounts earned during the design and development phase of the contract following the guidance included in FASB ASC Topic 605-35, “Construction-Type and Production-Type Contracts” (“ASC Topic 605-35”) under the percentage of completion method. To the extent that multiple element arrangements include product sales, sales are generally recognized once revenue recognition criteria for the product deliverables have been met based on the provisions of ASC Topic 605. The Company includes any design and engineering services elements in EDC sales, and any functional upgrade and product elements in “product” sales on the accompanying consolidated statements of operations. | |||||||||||
Single Element Arrangements — | |||||||||||
Products - | |||||||||||
To the extent that a single element arrangement provides for product sales and repairs, the Company recognizes sales when revenue recognition criteria for the product deliverables have been met based on the provisions of ASC Topic 605. In addition, the Company receives orders for equipment and parts. Generally, revenue from the sale of such products is recognized upon shipment to the customer. | |||||||||||
The Company offers its customers extended warranties for additional fees. These warranty sales are recorded as deferred revenue and recognized as sales on a straight-line basis over the warranty period. | |||||||||||
Engineering Development Contracts | |||||||||||
The Company may enter into contracts to perform specified design and EDC services related to its products. The Company recognizes revenue from these arrangements as EDC sales, following the guidance included in ASC Topic 605-35, and considers the nature of these contracts (including term, size of contract, and level of effort) when determining the appropriate accounting treatment for a particular contract. Certain of these contracts are accounted for under the percentage-of-completion method of accounting when the Company determines that progress toward completion is reasonable and reliably estimable, and the contract is long-term in nature. The Company uses the completed contract method for all other contracts because these contracts are short-term in nature and meet the criteria set forth in ASC Topic 605-35. Sales and profit margins under the percentage-of-completion method are recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method (for development effort). | |||||||||||
The percentage-of-completion method of accounting requires the Company to estimate the profit margin for each individual contract, and to apply that profit margin on a uniform basis as sales are recorded under the contract. The estimation of profit margin requires the Company to make projections of the total sales to be generated and the total costs that will be incurred under each contract. The projections require the Company to make numerous assumptions and estimates relating to items, such as the complexity of design and related development costs, performance of subcontractors, availability and cost of materials, engineering productivity and cost, overhead, and capital costs. Contracts sometimes include purchase options for additional quantities and customer change orders for additional or revised product functionality. Sales and costs related to profitable purchase options are included in the Company’s estimates only when the options are exercised, while sales and costs related to unprofitable purchase options are included in the Company’s estimates when exercise is determined to be probable. Sales related to change orders are included in profit estimates only if they can be reliably estimated and collectability is reasonably assured. Purchase options and change orders are accounted for, either as an integral part of the original contract or separately, depending upon the nature and value of the item. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. | |||||||||||
For contracts for which uncertainty regarding the performance against certain contract terms remains and in which no loss is expected, the Company uses the zero profit margin approach to applying the percentage of completion method following the guidance included in FASB ASC Topic 605-35. | |||||||||||
The Company reviews estimates of profit margins for contracts on a quarterly basis. The percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract. Changes in these underlying estimates because of revisions in revenue and cost estimates or to the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised. Significant changes in estimates related to accounting for long-term contracts may have a material effect on the Company’s results of operations in the period in which the revised estimate is made. Cumulative catch-up adjustments resulting from changes in estimates are disclosed in the notes to the consolidated financial statements of the Company. | |||||||||||
Income Taxes | |||||||||||
Income taxes are recorded in accordance with FASB 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 net operating losses (“NOL”) and tax credit carry-forwards. 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 or loss 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 interim periods. | |||||||||||
Deferred tax assets are reduced by valuation allowances 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 objectively verified, and significant management judgment is required in determining any valuation allowances recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are 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 carry-forwards, taxable income in carry-back years, and tax planning strategies which are both prudent and feasible. The current balance of the deferred tax valuation allowance relates principally to NOL of certain state taxing jurisdictions. The Company believes that its estimate of future taxable income is inherently uncertain, and if its current or future operations generate losses, further adjustments to the valuation allowance are possible. There is currently no assurance of such future income before 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 United States 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 the 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 adequate accruals have been made 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 adverse 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 large percentage of its sales in engineering development, both research and development (“R&D”) and EDC. At March 31, 2015, approximately 37% of the Company’s employees were engaged in various engineering development projects. Total engineering development expense is comprised of both design and EDC related to specific customer contracts and R&D. EDC 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. EDC and design charges related to specific customer arrangements 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 | |||||||||||
Treasury stock is recorded at acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings. When treasury shares are retired and returned to authorized but unissued status, the carrying value in excess of par is allocated to additional paid-in capital and retained earnings on a pro rata basis. | |||||||||||
Comprehensive Income | |||||||||||
Pursuant to FASB ASC Topic 220, “Comprehensive Income” (“ASC Topic 220”), the Company is required to classify items of other comprehensive income by their nature in the balance sheet and to display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of its condensed consolidated balance sheets. For the three and six months ended March 31, 2015 and 2014, respectively, comprehensive income consisted of net income only. There were no items of other comprehensive income or accumulated other comprehensive income balances in the equity accounts for any of the periods presented. | |||||||||||
Share-Based Compensation | |||||||||||
The Company accounts for share-based compensation under FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees” (“ASC Topic 505-50”), and FASB ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which require 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. That cost is recognized over the period during which an employee or non-employee director is required to provide service in exchange for the award. | |||||||||||
Warranty | |||||||||||
The Company offers warranties of various lengths. 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 are higher than 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 is recorded as an accrued expense. Although the Company maintains product quality programs and processes, its warranty obligations are 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 | |||||||||||
Beginning January 1, 2014, the Company began self-insuring 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 including historical claim experience and demographic factors. The Company has estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at March 31, 2015. However, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions. At March 31, 2015 and September 30, 2014, the estimated liability for medical claims incurred but not reported was $78,000 and $106,000 respectively. The Company has recorded the excess of funded premiums over estimated claims incurred but not reported in the amounts of $361,000 and $169,000 as a current asset in the accompanying condensed consolidated balance sheets as of March 31, 2015 and September 30, 2014, respectively. | |||||||||||
Concentrations | |||||||||||
Major Customers and Products | |||||||||||
For the three months ended March 31, 2015, four customers, Pilatus Aircraft Limited (“Pilatus”), Eclipse Aerospace, Inc. (“Eclipse”), iAccess Technologies, Inc. (“iAccess”), and Icelandair, Inc. accounted for 33%, 22%, 12% and 10% of net sales, respectively. During the six months ended March 31, 2015, four customers, Pilatus, Eclipse, the DoD, and iAccess accounted for 28%, 16%, 14% and 11% of net sales, respectively. | |||||||||||
For the three months ended March 31, 2014, three customers, Pilatus, FedEx Corp. (“FedEx”), and Kanematsu Aerospace Corp., accounted for 19%, 11% and 10% of net sales, respectively. During the six months ended March 31, 2014, four customers, Pilatus, the DoD, FedEx and Eclipse accounted for 16%, 13%, 11% and 10% of net sales, respectively. | |||||||||||
Major Suppliers | |||||||||||
The Company buys several components from sole source suppliers. Although there are a limited number of manufacturers of particular components, the Company believes other suppliers could provide similar components on comparable terms. | |||||||||||
For the three and six months ended March 31, 2015, the Company had three and two suppliers respectively that were individually responsible for greater than 10% of the Company’s total inventory related purchases. | |||||||||||
For the three and six months ended March 31, 2014, the Company had two suppliers that were individually responsible for greater than 10% 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 primary 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 (“FDIC”) 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. | |||||||||||
The Company has allowances for doubtful accounts of $3.6 million and $3.7 million, related to the Delta contract, as of March 31, 2015 and September 30, 2014 respectively (See Unbilled Receivables below under Note 2. Supplemental Balance Sheet Disclosures). | |||||||||||
Recent Accounting Pronouncements | |||||||||||
In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)” (“ASU 2014-15”). The objective of ASU 2014-15 is to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and provide related disclosures. Currently, GAAP does not provide guidance to evaluate whether there is substantial doubt regarding an organization’s ability to continue as a going concern. ASU 2014-15 provides guidance to an organization’s management, with principles and definitions to reduce diversity in the timing and content of financial statement disclosures commonly provided by organizations. ASU 2014-15 is effective for periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. | |||||||||||
In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation (ASC Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This ASU further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. | |||||||||||
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)” (“ASU 2014-09”). ASU 2014-09 will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring retrospective application of the new standard with the cumulative effect of applying the new standard as of the date of initial application recognized and disclosure of results under old standards. The FASB has recently issued an Exposure Draft of a proposed ASU that would delay by one year the effective date of this standard. The Company is currently evaluating the impacts of adoption and the implementation approach to be used. | |||||||||||
The Company does not believe that recently issued, but not yet effective, accounting standards listed above will have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances. | |||||||||||
Supplemental_Balance_Sheet_Dis
Supplemental Balance Sheet Disclosures | 6 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Supplemental Balance Sheet Disclosures | ||||||||
Supplemental Balance Sheet Disclosures | ||||||||
2. Supplemental Balance Sheet Disclosures | ||||||||
Unbilled Receivables | ||||||||
Unbilled receivables principally represent sales recorded under the percentage-of-completion method of accounting that, in accordance with applicable contract terms, have not been billed to customers. Unbilled receivables, net of progress payments and an impairment of $3.6 million and $3.7 million related to the Delta contract at March 31, 2015 and September 30, 2014 respectively, were $5.9 million and $7.4 million at March 31, 2015 and September 30, 2014, respectively. | ||||||||
Significant changes in estimates related to accounting for long-term contracts under the percentage-of-completion method may have a material effect on the Company’s results of operations in the period in which the revised estimates are made. Cumulative catch-up adjustments resulting from changes in estimates increased operating income by $354,000 and $720,000 for the three and six months ended March 31, 2015 respectively. Cumulative catch-up adjustments resulting from changes in estimates reduced operating income by $443,000 and $614,000 for the three and six months ended March 31, 2014 respectively. | ||||||||
Inventories | ||||||||
Inventories are stated at the lower of cost (first-in, first-out) or market, net of reserve for excess and obsolete inventory, and consist of the following: | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Raw materials | $ | 3,766,723 | $ | 4,389,334 | ||||
Work-in-process | 658,153 | 905,529 | ||||||
Finished goods | 194,365 | 175,923 | ||||||
$ | 4,619,241 | $ | 5,470,786 | |||||
Prepaid expenses and other current assets | ||||||||
Prepaid expenses and other current assets consist of the following: | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Prepaid insurance | $ | 613,418 | $ | 398,090 | ||||
Other | 262,472 | 352,018 | ||||||
$ | 875,890 | $ | 750,108 | |||||
Property and equipment | ||||||||
Property and equipment, net consists of the following: | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Land | $ | 1,021,245 | $ | 1,021,245 | ||||
Computer equipment | 2,302,497 | 2,292,548 | ||||||
Corporate airplane | 3,128,504 | 3,128,504 | ||||||
Furniture and office equipment | 1,063,253 | 1,063,254 | ||||||
Manufacturing facility | 5,733,313 | 5,728,437 | ||||||
Equipment | 5,178,275 | 5,047,737 | ||||||
18,427,087 | 18,281,725 | |||||||
Less: accumulated depreciation and amortization | (11,063,600 | ) | (10,814,062 | ) | ||||
$ | 7,363,487 | $ | 7,467,663 | |||||
Depreciation and amortization related to property and equipment was approximately $140,000 and $144,000 for the three months ended March 31, 2015 and 2014, respectively. The corporate airplane is utilized primarily in support of product development and has been depreciated to its estimated salvage value. | ||||||||
Depreciation and amortization related to property and equipment was approximately $275,000 and $274,000 for the six months ended March 31, 2015 and 2014, respectively. | ||||||||
Other assets | ||||||||
Other assets consist of the following: | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Intangible assets, net of accumulated amortization of $512,237 and $499,837 at March 31, 2015 and September 30, 2014 | $ | 88,000 | $ | 100,400 | ||||
Other non-current assets | 82,248 | 10,448 | ||||||
$ | 170,248 | $ | 110,848 | |||||
Intangible assets consist of licensing and certification rights which are amortized over a defined number of units. No impairment charges were recorded in the six months ended March 31, 2015 and 2014. | ||||||||
Total amortization expense was approximately $8,000 and $0 for the three months ended March 31, 2015 and 2014, respectively. Total amortization expense was approximately $12,000 and $0 for the six months ended March 31, 2015 and 2014, respectively. The timing of future amortization expense is not determinable because the intangible assets are being amortized over a defined number of units. | ||||||||
Accrued expenses | ||||||||
Accrued expenses consist of the following: | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Warranty | $ | 826,136 | $ | 777,599 | ||||
Salary, benefits and payroll taxes | 499,687 | 787,277 | ||||||
Professional fees | 203,040 | 431,612 | ||||||
Income taxes payable | — | 185,151 | ||||||
Other, including losses on contracts | 962,379 | 1,895,651 | ||||||
$ | 2,491,242 | $ | 4,077,290 | |||||
Other accrued expense at March 31, 2015 and September 30, 2014 includes $0.7 and $1.5 million of EDC program costs, respectively. | ||||||||
Warranty cost and accrual information for the three and six months ended March 31, 2015 is highlighted below: | ||||||||
Three Months Ending | Six Months Ending | |||||||
March 31, 2015 | March 31, 2015 | |||||||
Warranty accrual, beginning of period | $ | 818,006 | $ | 777,599 | ||||
Accrued expense | 41,056 | 132,444 | ||||||
Warranty cost | (32,926 | ) | (83,907 | ) | ||||
Warranty accrual, end of period | $ | 826,136 | $ | 826,136 | ||||
Income_Taxes
Income Taxes | 6 Months Ended |
Mar. 31, 2015 | |
Income Taxes | |
Income Taxes: | |
3. Income Taxes | |
The income tax benefit for the three and six months ended March 31, 2015 was $258,000 and $669,000, respectively, compared to a tax expense of $320,000 and $736,000 for the three and six months ended March 31, 2014, respectively. | |
The effective tax rate for the three months ended March 31, 2015 was (42%). The effective tax rate for the three months ended March 31, 2015 differs from the statutory rate primarily because of the favorable impact of the Federal Research and Development Tax Credit (“R&D Tax Credit”). The current year estimated annual effective income tax rate reflects the benefit from the R&D Tax Credit for only the three months ended December 31, 2014, as permitted by ASC Topic 740, because the R&D Tax Credit expired as of December 31, 2014. | |
The effective tax rate for the three months ended March 31, 2014 was 29%. The effective tax rate for the three months ended March 31, 2014 differs from the statutory rate primarily because of the R&D Tax Credit and the Domestic Production Activities Deduction (“DPAD”). The 2014 fiscal year estimated annual effective income tax rate reflects the benefit from the R&D Tax Credit for only the three months ended December 31, 2013, as permitted by ASC Topic 740, because the R&D Tax Credit expired as of December 31, 2013. | |
The effective tax rate for the six months ended March 31, 2015 was (152%). The effective tax rate for the six months ended March 31, 2015 differs from the statutory rate primarily because of the retroactive extension of the R&D Tax Credit. The retroactive extension of the R&D Tax Credit was effective January 1, 2014. The current year estimated annual effective income tax rate reflects the benefit from the R&D Tax Credit only for the three months ended December 31, 2014, as permitted by ASC Topic 740, because the R&D Tax Credit expired as of December 31, 2014. In addition, the retroactive benefit for the period from January 1, 2014 to September 30, 2014 was reflected as a discrete item which further reduced the Company’s income tax expense for the six months ended March 31, 2015. | |
The effective tax rate for the six months ended March 31, 2014 was 29%. The effective tax rate differs from the statutory rate for the six months ended March 31, 2014 primarily because of the R&D Tax Credit and the DPAD. | |
At March 31, 2015, the balance of the deferred tax valuation allowance relates principally to NOL of certain state taxing jurisdictions. The Company will continue to maintain the balance of the valuation allowance until the Company generates a sufficient level of profitability in certain jurisdictions to warrant a conclusion that it no longer is more likely than not that these net state deferred tax assets will not be realized in future periods. The Company believes that its estimate of future taxable income is inherently uncertain, and, therefore, further adjustments to the valuation allowance are possible. | |
On September 13, 2014, the U.S. Treasury Department and the IRS issued final regulations that addressed cost incurred in acquiring, producing, or improving tangible property (the “tangible property regulations”). The tangible property regulations were generally effective for tax years beginning on or after January 1, 2014 and required the Company to make additional tax accounting method changes as of October 1, 2014. However, the impact of these changes to the Company’s consolidated financial statements was immaterial as of and for the six months ended March 31, 2015. | |
Shareholders_Equity_and_Shareb
Shareholders' Equity and Share-based Payments | 6 Months Ended |
Mar. 31, 2015 | |
Shareholders' Equity and Share-based Payments | |
Shareholders' Equity and Share-based Payments | |
4. Shareholders’ Equity and Share-based Payments | |
At March 31, 2015, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue 75,000,000 shares of common stock and 10,000,000 shares of preferred stock. | |
Share-based compensation | |
The Company accounts for share-based compensation under the provisions of ASC Topic 505-50 and ASC Topic 718 by using the fair value method for expensing stock options and stock awards. | |
Total share-based compensation expense was approximately $146,000 and $205,000 for the three months ended March 31, 2015 and 2014, respectively. The income tax effect recognized as a (charge) to additional paid-in capital related to share-based compensation arrangements was ($5,000) and ($13,000) for the three months ended March 31, 2015 and 2014, respectively. | |
Total share-based compensation expense was approximately $350,000 and $440,000 for the six months ended March 31, 2015 and 2014, respectively. The income tax effect recognized as a (charge) to additional paid-in capital related to share-based compensation arrangements was ($47,000) and ($159,000) for the six months ended March 31, 2015 and 2014, respectively. Compensation expense related to share-based awards is recorded as a component of general and administrative expense. | |
The Company maintains three share-based compensation plans, the 1998 Stock Option Plan (the “1998 Plan”), the 2003 Restricted Stock Plan (the “Restricted Plan”), and the 2009 Stock-Based Incentive Compensation Plan (the “2009 Plan”). The Company’s shareholders approved each of these plans. The 1998 Plan expired on November 13, 2008. The last awards under the Restricted Plan were made in 2010, and no further shares remain to be awarded under the Restricted Plan. | |
1998 Stock Option Plan | |
The 1998 Plan authorized the grant of incentive and nonqualified stock options to employees, officers, directors, and independent contractors and consultants. No stock options were granted to independent contractors or consultants under this Plan. There was no compensation expense associated with awards under the 1998 Plan for the six months ended March 31, 2015 and 2014. | |
Incentive stock options granted under the 1998 Plan have exercise prices that must be at least equal to the fair value of the common stock on the grant date. Nonqualified stock options granted under the 1998 Plan have exercise prices that may be less than, equal to, or greater than the fair value of the common stock on the date of grant. The Company reserved 3,389,000 shares of common stock for awards under the 1998 Plan. On November 13, 2008, the 1998 Plan expired, and no additional shares were granted under the Plan after that date. | |
2003 Restricted Stock Plan | |
The Restricted Plan for non-employee directors was approved by shareholders at the Company’s February 26, 2004 Annual Meeting of Shareholders. It provided for an annual award of non-vested shares of common stock having a fair market value of $40,000 at close of business on October 1 of each year for each eligible non-employee director. The shares of common stock were awarded in four quarterly installments during the fiscal year if the director was still serving on the board on the quarterly issue date. The last awards under the Restricted Plan were made in 2010, and the Company has awarded all available shares under the Restricted Plan. However, the Company has continued to make an annual grant of shares to eligible non-employee directors under the 2009 Plan. | |
There was no compensation expense under the Restricted Plan for the six months ended March 31, 2015 and 2014. | |
2009 Stock-Based Incentive Compensation Plan | |
The 2009 Plan authorizes the grant of Stock Appreciation Rights (“SARs”), Restricted Stock, Options, and other equity-based awards (collectively referred to as “Awards”). Options granted under the 2009 Plan may be either “Incentive Stock Options” as defined in section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or “Nonqualified Stock Options” as determined by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). | |
Subject to an adjustment required because of a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution, or other similar corporate transaction or event, the maximum number of shares of common stock available for Awards under the 2009 Plan is 1,200,000, all of which may be issued pursuant to Awards of Incentive Stock Options. In addition, the 2009 Plan provides that no more than 300,000 shares of common stock per year may be awarded to any employee as a performance-based Award under Section 162(m) of the Code. At March 31, 2015, there were 332,190 shares of common stock available for Awards under the 2009 Plan. | |
If any Award is forfeited, or if any Option terminates, expires, or lapses without being exercised, the shares of common stock subject to such Award will again be available for future grant. Any shares tendered by a participant in payment of the exercise price of an Option or the tax liability with respect to an Award (including, in any case, shares withheld from any such Award) will not be available for future grant under the 2009 Plan. If there is any change in the Company’s corporate capitalization, the Compensation Committee must adjust proportionately and equitably the number and kind of shares of common stock which may be issued in connection with future Awards, the number and type of shares of common stock covered by Awards then outstanding under the 2009 Plan, the number and type of shares of common stock available under the 2009 Plan, the exercise or grant price of any Award, or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award, provided that no adjustment may be made that would affect adversely the status of any Award that is intended to be a performance-based Award under Section 162(m) of the Code, unless otherwise determined by the Compensation Committee. In addition, the Compensation Committee may make adjustments in the terms and conditions of any Awards, including any performance goals, in recognition of unusual or nonrecurring events affecting the Company or any subsidiary, or in response to changes in applicable laws, regulations or accounting principles, provided that no adjustment may be made that would affect adversely the status of any Award that is intended to be a performance-based Award under Section 162(m) of the Code, unless otherwise determined by the Compensation Committee. | |
On April 17, 2014, the Board of Directors resolved to revise the valuation date and the timing of the issuance of the awards of non-vested shares of common stock to each eligible non-employee director under the 2009 Plan. Effective January 1, 2015, the awards had a fair market value of $40,000 each at the close of business on the first business day after January 1 of each calendar year and will be issued on December 31 of that year. If any non-employee director resigns from the Board of Directors prior to December 31 of such calendar year, the Company will issue to such non-employee director a pro-rata number of shares through the date of resignation. | |
Total compensation expense related to Options issued to employees under the 2009 Plan was approximately $96,000 and $155,000 for the three months ended March 31, 2015 and 2014, respectively; and $200,000 and $340,000 for the six months ended March 31, 2015 and 2014, respectively. The expense under the 2009 Plan related to shares issued to non-employee members of the Company’s Board of Directors as compensation was $0 and $50,000 for the three months ended March 31, 2015 and 2014, respectively; and $150,000 and $100,000 for the six months ended March 31, 2015 and 2014, respectively. Total compensation expense associated with the 2009 Plan was $96,000 and $205,000 for the three months ended March 31, 2015 and 2014, respectively; and $350,000 and $440,000 for the six months ended March 31, 2015 and 2014, respectively. | |
Stock repurchase program | |
On April 17, 2014, the Company’s Board of Directors approved the extension of the current share repurchase program (originally approved on April 29, 2013), which allows the Company to acquire up to 250,000 shares of its outstanding common stock until May 1, 2015. Under the share repurchase program, the Company may purchase shares of its common stock through open market transactions, in privately negotiated block purchases, or in other private transactions (either solicited or unsolicited). The timing and amount of repurchase transactions under this program will depend on market conditions, and corporate and regulatory considerations. The program may be discontinued or suspended at any time. The Company anticipates funding for this program to come from available corporate funds, including cash on hand and future cash flow. During the six months ended March 31, 2015, the Company purchased 89,644 shares of common stock. The cost of the shares purchased in the six months ended March 31, 2015 was $254,170 at an average cost per share of $2.84. As of March 31, 2015, the number of shares that may yet be purchased under the current share repurchase program was 160,356 shares. | |
Earnings_Per_Share
Earnings Per Share | 6 Months Ended | |||||||||||||
Mar. 31, 2015 | ||||||||||||||
Earnings Per Share | ||||||||||||||
Earnings Per Share: | ||||||||||||||
5. Earnings Per Share | ||||||||||||||
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||
Numerator: | ||||||||||||||
Net income (loss) | $ | (364,091 | ) | $ | 784,217 | $ | 229,651 | $ | 1,792,813 | |||||
Denominator: | ||||||||||||||
Basic weighted average shares | 16,925,028 | 16,915,823 | 16,940,377 | 16,901,955 | ||||||||||
Dilutive effect of share-based awards | — | 236,855 | 103,358 | 221,557 | ||||||||||
Diluted weighted average shares | 16,925,028 | 17,152,678 | 17,043,735 | 17,123,512 | ||||||||||
Earnings per common share: | ||||||||||||||
Basic EPS | $ | (0.02 | ) | $ | 0.05 | $ | 0.01 | $ | 0.11 | |||||
Diluted EPS | $ | (0.02 | ) | $ | 0.05 | $ | 0.01 | $ | 0.1 | |||||
Earnings per share (“EPS”) are calculated pursuant to FASB ASC Topic 260, Earnings Per Share (“ASC Topic 260”). Basic EPS excludes potentially dilutive securities and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed assuming the conversion or exercise of all dilutive securities such as employee stock options. | ||||||||||||||
The number of incremental shares from the assumed exercise of stock options is calculated by using the treasury stock method. As of March 31, 2015 and 2014, there were 671,168 and 719,668 options to purchase common stock outstanding, respectively. The average outstanding diluted shares calculation excludes options with an exercise price that exceeds the average market price of shares during the period. | ||||||||||||||
For the three months ended March 31, 2015 and 2014, respectively, 671,168 and 57,500 diluted weighted average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive. | ||||||||||||||
For the six months ended March 31, 2015 and 2014, respectively, 402,774 and 71,049 diluted weighted average shares outstanding were excluded from the computation of diluted EPS because the effect would be anti-dilutive. | ||||||||||||||
Contingencies
Contingencies | 6 Months Ended |
Mar. 31, 2015 | |
Contingencies | |
Contingencies | |
6. Contingencies | |
The Company announced previously that Delta Airlines (“Delta”) purported to terminate its contract with the Company to develop, manufacture and install new cockpit displays and certain navigation capabilities on its fleet of approximately 182 MD88 and MD90 aircraft. The Company initiated and engaged in a non-binding mediation with Delta on February 25, 2015. The mediation session did not resolve the dispute. On February 25, 2015, the Company filed a complaint against Delta in the United States District Court for the Eastern District of Pennsylvania for breach of contract. The Company has alleged that Delta’s purported termination of the contract was wrongful and in breach of the terms of the contract. On March 20, 2015, Delta answered the Company’s complaint and filed counterclaims against the Company for breach of contract and breach of the duty of good faith and fair dealing. The parties are entering into discovery and the outcome of the litigation is not determinable at this time. The Company had $3.6 million of unbilled receivables and $0.2 million of inventory on the balance sheet relating to the Delta program at March 31, 2015, both of which are fully reserved. | |
On January 17, 2007 the Company filed suit in the Court of Common Pleas for Delaware County, Pennsylvania against Strathman Associates, a former software consultant for IS&S, alleging that Strathman had improperly used IS&S trade secrets and proprietary information in assisting J2 and Kollsman in developing the J2/Kollsman Air Data Computer. The case has not been resolved as of the date of the filing of this Form 10-Q. | |
Summary_of_Significant_Account1
Summary of Significant Accounting Policies (Policies) | 6 Months Ended | ||||||||||
Mar. 31, 2015 | |||||||||||
Summary of Significant Accounting Policies | |||||||||||
Basis of Presentation | |||||||||||
Basis of Presentation | |||||||||||
The accompanying unaudited condensed 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 condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the results for the interim periods presented. The condensed consolidated balance sheet as of September 30, 2014 is derived from the audited financial statements of the Company. Operating results for the three and six months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2015. These unaudited condensed 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, 2014. | |||||||||||
The Company’s condensed consolidated financial statements include the accounts of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. | |||||||||||
Use of Estimates | |||||||||||
Use of Estimates | |||||||||||
Preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Estimates are used in accounting for, among other items, long term contracts, allowance for doubtful accounts, inventory obsolescence, product warranty cost liabilities, income taxes, engineering and material costs on Engineering Development Contracts (“EDC”) programs, percentage-of-completion on EDC, recoverability of long-lived assets, stock-based compensation expense, and contingencies. Actual results could differ materially from those estimates. | |||||||||||
Cash and Cash Equivalents | |||||||||||
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 March 31, 2015 and September 30, 2014 consist of funds invested in money market funds with financial institutions. | |||||||||||
Property and Equipment | |||||||||||
Property and Equipment | |||||||||||
Property and equipment are stated at cost. Depreciation is provided using an accelerated method over the estimated useful lives of the assets (the lesser of three to seven years or over the related lease term), except for the manufacturing facility and the corporate airplane. The building is being depreciated on a straight line basis over 39 years. Major additions and improvements are capitalized. Maintenance and repairs that do not improve or extend the life of assets are charged to expense as incurred. The airplane was depreciated on a straight-line basis over its estimated useful life of ten years; however, because the airplane had been depreciated previously to its estimated salvage value, no depreciation expense was recorded during the six months ended March 31, 2015 or 2014. | |||||||||||
Fair Value of Financial Instruments | |||||||||||
Fair Value of Financial Instruments | |||||||||||
The net carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable 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. | |||||||||||
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 March 31, 2015 and September 30, 2014, according to the valuation techniques the Company used to determine their fair values. | |||||||||||
Fair Value Measurement on March 31, 2015 | |||||||||||
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 | $ | 13,906,809 | $ | — | $ | — | |||||
Fair Value Measurement on September 30, 2014 | |||||||||||
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 | $ | 13,397,547 | $ | — | $ | — | |||||
Long-Lived Assets | Long-Lived Assets | ||||||||||
The Company assesses the impairment of long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360-10, “Property, Plant and Equipment” (“ASC Topic 360-10”). 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 must 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 compares the carrying amount of the asset to estimated future cash flows expected 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 measured by discounting expected future cash flows. No impairment charges were recorded during the six months ended March 31, 2015 or 2014. | |||||||||||
Revenue Recognition | |||||||||||
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 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. The Company’s sales arrangements may include multiple deliverables as defined in FASB ASC Topic 605-25 “Multiple-Element Arrangements” (“ASC Topic 605-25”), which typically include design and engineering services, and the production and delivery of the flat panel display and related components. The Company includes any design and engineering services elements in EDC sales and any functional upgrade and product elements in product sales in the accompanying consolidated statements of operations. | |||||||||||
To the extent that an arrangement contains software elements that are essential to the functionality of tangible products sold in the arrangement, the Company recognizes revenue for the deliverables in accordance with the guidance included in FASB Accounting Standards Update 2009-14, “Revenue Arrangements That Include Software Elements” (“ASU 2009-14”), FASB Accounting Standards Update 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”), and FASB ASC Topic 605, “Revenue Recognition” (“ASC Topic 605”). | |||||||||||
To the extent that an arrangement contains software components, which may include functional upgrades, that the Company sells on a standalone basis and which it has deemed outside the scope of the exception defined by ASU 2009-14, the Company recognizes software revenue in accordance with ASC Topic 985, “Software” (“ASC Topic 985”). | |||||||||||
Multiple Element Arrangements - | |||||||||||
The Company identifies all goods and/or services that are to be delivered separately under such a sales arrangement and allocates sales to each deliverable (if more than one) based on that deliverable’s fair value. The Company then considers the appropriate recognition method for each deliverable. The Company’s multiple element arrangements can include defined design and development activities, functional upgrades, and product sales. | |||||||||||
The Company utilizes the selling price hierarchy that has been established by ASU 2009-13, which requires that the selling price for each deliverable be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. To the extent that an arrangement includes a deliverable for which estimated selling price is used, the Company determines the best estimate of selling price by applying the same pricing policies and methodologies that would be used to determine the price to sell the deliverable on a standalone basis. | |||||||||||
To the extent that an arrangement contains defined design and EDC activities as identified deliverables and products (resulting in a multiple element arrangement), the Company recognizes as EDC sales amounts earned during the design and development phase of the contract following the guidance included in FASB ASC Topic 605-35, “Construction-Type and Production-Type Contracts” (“ASC Topic 605-35”) under the percentage of completion method. To the extent that multiple element arrangements include product sales, sales are generally recognized once revenue recognition criteria for the product deliverables have been met based on the provisions of ASC Topic 605. The Company includes any design and engineering services elements in EDC sales, and any functional upgrade and product elements in “product” sales on the accompanying consolidated statements of operations. | |||||||||||
Single Element Arrangements — | |||||||||||
Products - | |||||||||||
To the extent that a single element arrangement provides for product sales and repairs, the Company recognizes sales when revenue recognition criteria for the product deliverables have been met based on the provisions of ASC Topic 605. In addition, the Company receives orders for equipment and parts. Generally, revenue from the sale of such products is recognized upon shipment to the customer. | |||||||||||
The Company offers its customers extended warranties for additional fees. These warranty sales are recorded as deferred revenue and recognized as sales on a straight-line basis over the warranty period. | |||||||||||
Engineering Development Contracts | |||||||||||
The Company may enter into contracts to perform specified design and EDC services related to its products. The Company recognizes revenue from these arrangements as EDC sales, following the guidance included in ASC Topic 605-35, and considers the nature of these contracts (including term, size of contract, and level of effort) when determining the appropriate accounting treatment for a particular contract. Certain of these contracts are accounted for under the percentage-of-completion method of accounting when the Company determines that progress toward completion is reasonable and reliably estimable, and the contract is long-term in nature. The Company uses the completed contract method for all other contracts because these contracts are short-term in nature and meet the criteria set forth in ASC Topic 605-35. Sales and profit margins under the percentage-of-completion method are recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method (for development effort). | |||||||||||
The percentage-of-completion method of accounting requires the Company to estimate the profit margin for each individual contract, and to apply that profit margin on a uniform basis as sales are recorded under the contract. The estimation of profit margin requires the Company to make projections of the total sales to be generated and the total costs that will be incurred under each contract. The projections require the Company to make numerous assumptions and estimates relating to items, such as the complexity of design and related development costs, performance of subcontractors, availability and cost of materials, engineering productivity and cost, overhead, and capital costs. Contracts sometimes include purchase options for additional quantities and customer change orders for additional or revised product functionality. Sales and costs related to profitable purchase options are included in the Company’s estimates only when the options are exercised, while sales and costs related to unprofitable purchase options are included in the Company’s estimates when exercise is determined to be probable. Sales related to change orders are included in profit estimates only if they can be reliably estimated and collectability is reasonably assured. Purchase options and change orders are accounted for, either as an integral part of the original contract or separately, depending upon the nature and value of the item. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. | |||||||||||
For contracts for which uncertainty regarding the performance against certain contract terms remains and in which no loss is expected, the Company uses the zero profit margin approach to applying the percentage of completion method following the guidance included in FASB ASC Topic 605-35. | |||||||||||
The Company reviews estimates of profit margins for contracts on a quarterly basis. The percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract. Changes in these underlying estimates because of revisions in revenue and cost estimates or to the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised. Significant changes in estimates related to accounting for long-term contracts may have a material effect on the Company’s results of operations in the period in which the revised estimate is made. Cumulative catch-up adjustments resulting from changes in estimates are disclosed in the notes to the consolidated financial statements of the Company. | |||||||||||
Income Taxes | |||||||||||
Income Taxes | |||||||||||
Income taxes are recorded in accordance with FASB 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 net operating losses (“NOL”) and tax credit carry-forwards. 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 or loss 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 interim periods. | |||||||||||
Deferred tax assets are reduced by valuation allowances 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 objectively verified, and significant management judgment is required in determining any valuation allowances recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are 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 carry-forwards, taxable income in carry-back years, and tax planning strategies which are both prudent and feasible. The current balance of the deferred tax valuation allowance relates principally to NOL of certain state taxing jurisdictions. The Company believes that its estimate of future taxable income is inherently uncertain, and if its current or future operations generate losses, further adjustments to the valuation allowance are possible. There is currently no assurance of such future income before 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 United States 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 the 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 adequate accruals have been made 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 adverse 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 | Engineering Development | ||||||||||
The Company invests a large percentage of its sales in engineering development, both research and development (“R&D”) and EDC. At March 31, 2015, approximately 37% of the Company’s employees were engaged in various engineering development projects. Total engineering development expense is comprised of both design and EDC related to specific customer contracts and R&D. EDC 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. EDC and design charges related to specific customer arrangements 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 | Treasury Stock | ||||||||||
Treasury stock is recorded at acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings. When treasury shares are retired and returned to authorized but unissued status, the carrying value in excess of par is allocated to additional paid-in capital and retained earnings on a pro rata basis. | |||||||||||
Comprehensive Income | |||||||||||
Comprehensive Income | |||||||||||
Pursuant to FASB ASC Topic 220, “Comprehensive Income” (“ASC Topic 220”), the Company is required to classify items of other comprehensive income by their nature in the balance sheet and to display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of its condensed consolidated balance sheets. For the three and six months ended March 31, 2015 and 2014, respectively, comprehensive income consisted of net income only. There were no items of other comprehensive income or accumulated other comprehensive income balances in the equity accounts for any of the periods presented. | |||||||||||
Share-Based Compensation | |||||||||||
Share-Based Compensation | |||||||||||
The Company accounts for share-based compensation under FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees” (“ASC Topic 505-50”), and FASB ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which require 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. That cost is recognized over the period during which an employee or non-employee director is required to provide service in exchange for the award. | |||||||||||
Warranty | |||||||||||
Warranty | |||||||||||
The Company offers warranties of various lengths. 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 are higher than 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 is recorded as an accrued expense. Although the Company maintains product quality programs and processes, its warranty obligations are 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 | |||||||||||
Self-Insurance Reserves | |||||||||||
Beginning January 1, 2014, the Company began self-insuring 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 including historical claim experience and demographic factors. The Company has estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at March 31, 2015. However, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions. At March 31, 2015 and September 30, 2014, the estimated liability for medical claims incurred but not reported was $78,000 and $106,000 respectively. The Company has recorded the excess of funded premiums over estimated claims incurred but not reported in the amounts of $361,000 and $169,000 as a current asset in the accompanying condensed consolidated balance sheets as of March 31, 2015 and September 30, 2014, respectively. | |||||||||||
Concentrations | |||||||||||
Concentrations | |||||||||||
Major Customers and Products | |||||||||||
For the three months ended March 31, 2015, four customers, Pilatus Aircraft Limited (“Pilatus”), Eclipse Aerospace, Inc. (“Eclipse”), iAccess Technologies, Inc. (“iAccess”), and Icelandair, Inc. accounted for 33%, 22%, 12% and 10% of net sales, respectively. During the six months ended March 31, 2015, four customers, Pilatus, Eclipse, the DoD, and iAccess accounted for 28%, 16%, 14% and 11% of net sales, respectively. | |||||||||||
For the three months ended March 31, 2014, three customers, Pilatus, FedEx Corp. (“FedEx”), and Kanematsu Aerospace Corp., accounted for 19%, 11% and 10% of net sales, respectively. During the six months ended March 31, 2014, four customers, Pilatus, the DoD, FedEx and Eclipse accounted for 16%, 13%, 11% and 10% of net sales, respectively. | |||||||||||
Major Suppliers | |||||||||||
The Company buys several components from sole source suppliers. Although there are a limited number of manufacturers of particular components, the Company believes other suppliers could provide similar components on comparable terms. | |||||||||||
For the three and six months ended March 31, 2015, the Company had three and two suppliers respectively that were individually responsible for greater than 10% of the Company’s total inventory related purchases. | |||||||||||
For the three and six months ended March 31, 2014, the Company had two suppliers that were individually responsible for greater than 10% 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 primary 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 (“FDIC”) 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. | |||||||||||
The Company has allowances for doubtful accounts of $3.6 million and $3.7 million, related to the Delta contract, as of March 31, 2015 and September 30, 2014 respectively (See Unbilled Receivables below under Note 2. Supplemental Balance Sheet Disclosures). | |||||||||||
Recent Accounting Pronouncements | |||||||||||
Recent Accounting Pronouncements | |||||||||||
In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)” (“ASU 2014-15”). The objective of ASU 2014-15 is to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and provide related disclosures. Currently, GAAP does not provide guidance to evaluate whether there is substantial doubt regarding an organization’s ability to continue as a going concern. ASU 2014-15 provides guidance to an organization’s management, with principles and definitions to reduce diversity in the timing and content of financial statement disclosures commonly provided by organizations. ASU 2014-15 is effective for periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. | |||||||||||
In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation (ASC Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This ASU further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. | |||||||||||
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)” (“ASU 2014-09”). ASU 2014-09 will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring retrospective application of the new standard with the cumulative effect of applying the new standard as of the date of initial application recognized and disclosure of results under old standards. The FASB has recently issued an Exposure Draft of a proposed ASU that would delay by one year the effective date of this standard. The Company is currently evaluating the impacts of adoption and the implementation approach to be used. | |||||||||||
The Company does not believe that recently issued, but not yet effective, accounting standards listed above will have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances. | |||||||||||
Summary_of_Significant_Account2
Summary of Significant Accounting Policies (Tables) | 6 Months Ended | ||||||||||
Mar. 31, 2015 | |||||||||||
Summary of Significant Accounting Policies | |||||||||||
Schedule of financial assets and liabilities accounted for at fair value on a recurring basis | |||||||||||
Fair Value Measurement on March 31, 2015 | |||||||||||
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 | $ | 13,906,809 | $ | — | $ | — | |||||
Fair Value Measurement on September 30, 2014 | |||||||||||
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 | $ | 13,397,547 | $ | — | $ | — | |||||
Supplemental_Balance_Sheet_Dis1
Supplemental Balance Sheet Disclosures (Tables) | 6 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Supplemental Balance Sheet Disclosures | ||||||||
Schedule of inventories | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Raw materials | $ | 3,766,723 | $ | 4,389,334 | ||||
Work-in-process | 658,153 | 905,529 | ||||||
Finished goods | 194,365 | 175,923 | ||||||
$ | 4,619,241 | $ | 5,470,786 | |||||
Schedule of prepaid expenses and other current assets | March 31, | September 30, | ||||||
2015 | 2014 | |||||||
Prepaid insurance | $ | 613,418 | $ | 398,090 | ||||
Other | 262,472 | 352,018 | ||||||
$ | 875,890 | $ | 750,108 | |||||
Schedule of property and equipment, net | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Land | $ | 1,021,245 | $ | 1,021,245 | ||||
Computer equipment | 2,302,497 | 2,292,548 | ||||||
Corporate airplane | 3,128,504 | 3,128,504 | ||||||
Furniture and office equipment | 1,063,253 | 1,063,254 | ||||||
Manufacturing facility | 5,733,313 | 5,728,437 | ||||||
Equipment | 5,178,275 | 5,047,737 | ||||||
18,427,087 | 18,281,725 | |||||||
Less: accumulated depreciation and amortization | (11,063,600 | ) | (10,814,062 | ) | ||||
$ | 7,363,487 | $ | 7,467,663 | |||||
Schedule of other assets | March 31, | September 30, | ||||||
2015 | 2014 | |||||||
Intangible assets, net of accumulated amortization of $512,237 and $499,837 at March 31, 2015 and September 30, 2014 | $ | 88,000 | $ | 100,400 | ||||
Other non-current assets | 82,248 | 10,448 | ||||||
$ | 170,248 | $ | 110,848 | |||||
Schedule of accrued expenses | ||||||||
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Warranty | $ | 826,136 | $ | 777,599 | ||||
Salary, benefits and payroll taxes | 499,687 | 787,277 | ||||||
Professional fees | 203,040 | 431,612 | ||||||
Income taxes payable | — | 185,151 | ||||||
Other, including losses on contracts | 962,379 | 1,895,651 | ||||||
$ | 2,491,242 | $ | 4,077,290 | |||||
Schedule of warranty cost and accrual information | ||||||||
Three Months Ending | Six Months Ending | |||||||
March 31, 2015 | March 31, 2015 | |||||||
Warranty accrual, beginning of period | $ | 818,006 | $ | 777,599 | ||||
Accrued expense | 41,056 | 132,444 | ||||||
Warranty cost | (32,926 | ) | (83,907 | ) | ||||
Warranty accrual, end of period | $ | 826,136 | $ | 826,136 | ||||
Earnings_Per_Share_Tables
Earnings Per Share (Tables) | 6 Months Ended | |||||||||||||
Mar. 31, 2015 | ||||||||||||||
Earnings Per Share | ||||||||||||||
Schedule of earnings per share | ||||||||||||||
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||
Numerator: | ||||||||||||||
Net income (loss) | $ | (364,091 | ) | $ | 784,217 | $ | 229,651 | $ | 1,792,813 | |||||
Denominator: | ||||||||||||||
Basic weighted average shares | 16,925,028 | 16,915,823 | 16,940,377 | 16,901,955 | ||||||||||
Dilutive effect of share-based awards | — | 236,855 | 103,358 | 221,557 | ||||||||||
Diluted weighted average shares | 16,925,028 | 17,152,678 | 17,043,735 | 17,123,512 | ||||||||||
Earnings per common share: | ||||||||||||||
Basic EPS | $ | (0.02 | ) | $ | 0.05 | $ | 0.01 | $ | 0.11 | |||||
Diluted EPS | $ | (0.02 | ) | $ | 0.05 | $ | 0.01 | $ | 0.1 | |||||
Summary_of_Significant_Account3
Summary of Significant Accounting Policies (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | |
item | ||||
segment | ||||
Summary of Significant Accounting Policies | ||||
Number of business segments in which the entity operates | 1 | |||
Property and Equipment | ||||
Depreciation | $140,000 | $144,000 | $275,000 | $274,000 |
Long-Lived Assets | ||||
Impairment charges | 0 | 0 | ||
Revenue Recognition | ||||
Minimum number of deliverable for allocating revenue to each deliverable | 1 | |||
Engineering Development | ||||
Percentage of employees who were engineers engaged in various engineering development projects | 37.00% | |||
Property Plant and Equipment Other than Air Transportation Equipment and Manufacturing Facility | Minimum | ||||
Property and Equipment | ||||
Estimated useful lives | 3 years | |||
Property Plant and Equipment Other than Air Transportation Equipment and Manufacturing Facility | Maximum | ||||
Property and Equipment | ||||
Estimated useful lives | 7 years | |||
Manufacturing Facility | ||||
Property and Equipment | ||||
Estimated useful lives | 39 years | |||
Air Transportation Equipment | ||||
Property and Equipment | ||||
Estimated useful lives | 10 years | |||
Depreciation | $0 | $0 |
Summary_of_Significant_Account4
Summary of Significant Accounting Policies (Details 2) (USD $) | Mar. 31, 2015 | Sep. 30, 2014 |
Self Insurance Reserve Abstract | ||
Estimated liability for medical claims incurred but not reported | $78,000 | $106,000 |
Excess Funded Premiums Over Estimated Claims | 361,000 | 169,000 |
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1 | Money Market Funds | ||
Assets | ||
Cash and cash equivalents | $13,906,809 | $13,397,547 |
Summary_of_Significant_Account5
Summary of Significant Accounting Policies (Details 3) (USD $) | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | |
In Millions, unless otherwise specified | Mar. 31, 2015 | Sep. 30, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2014 |
item | customer | customer | customer | ||
Concentration of Credit Risk | |||||
Number of banks for maintenance of cash balances | 2 | 2 | |||
Allowance for doubtful accounts | $3.60 | $3.70 | |||
Revenues Net | Customer Concentration Risk | |||||
Concentrations | |||||
Number of major customers | 4 | 4 | 3 | 4 | |
Revenues Net | Customer Concentration Risk | Pilatus Aircraft Limited | |||||
Concentrations | |||||
Sales percentage | 28.00% | 33.00% | 19.00% | 16.00% | |
Revenues Net | Customer Concentration Risk | Eclipse Aerospace Inc | |||||
Concentrations | |||||
Sales percentage | 16.00% | 22.00% | 10.00% | ||
Revenues Net | Customer Concentration Risk | US Department of Defense | |||||
Concentrations | |||||
Sales percentage | 14.00% | 13.00% | |||
Revenues Net | Customer Concentration Risk | iAccess Technologies, Inc | |||||
Concentrations | |||||
Sales percentage | 11.00% | 12.00% | |||
Revenues Net | Customer Concentration Risk | Icelandair, Inc. | |||||
Concentrations | |||||
Sales percentage | 10.00% | ||||
Revenues Net | Customer Concentration Risk | Fed Ex Corporation | |||||
Concentrations | |||||
Sales percentage | 11.00% | 11.00% | |||
Revenues Net | Customer Concentration Risk | Kanematsu Aerospace Corp | |||||
Concentrations | |||||
Sales percentage | 10.00% | ||||
Inventory | Supplier Concentration Risk | |||||
Concentrations | |||||
Number of major suppliers | 2 | 3 | 2 | 2 |
Supplemental_Balance_Sheet_Dis2
Supplemental Balance Sheet Disclosures (Details) (USD $) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | Sep. 30, 2014 | |
Inventories valuation | |||||
Raw materials | $3,766,723 | $3,766,723 | $4,389,334 | ||
Work-in-process | 658,153 | 658,153 | 905,529 | ||
Finished goods | 194,365 | 194,365 | 175,923 | ||
Inventory, Net, Total | 4,619,241 | 4,619,241 | 5,470,786 | ||
Prepaid expenses and other current assets | |||||
Prepaid insurance | 613,418 | 613,418 | 398,090 | ||
Other | 262,472 | 262,472 | 352,018 | ||
Total | 875,890 | 875,890 | 750,108 | ||
Unbilled receivables | |||||
Change in operating income resulting from revised estimates | -637,965 | 1,089,640 | -471,650 | 2,498,264 | |
Provision for loss on unbilled receivables | 3,600,000 | 3,700,000 | |||
Unbilled receivables, net | 5,859,955 | 5,859,955 | 7,425,728 | ||
Contracts Accounted for under Percentage of Completion | |||||
Unbilled receivables | |||||
Change in operating income resulting from revised estimates | $354,000 | $443,000 | $720,000 | $614,000 |
Supplemental_Balance_Sheet_Dis3
Supplemental Balance Sheet Disclosures (Details 2) (USD $) | 3 Months Ended | 6 Months Ended | |||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | Sep. 30, 2014 | |
Property and equipment | |||||
Total | $18,427,087 | $18,427,087 | $18,281,725 | ||
Less: Accumulated depreciation and amortization | -11,063,600 | -11,063,600 | -10,814,062 | ||
Property and equipment, net | 7,363,487 | 7,363,487 | 7,467,663 | ||
Depreciation | 140,000 | 144,000 | 275,000 | 274,000 | |
Other assets: | |||||
Intangible assets, net of accumulated amortization of $512,237 and $499,837 at March 31, 2015 and September 30, 2014 | 88,000 | 88,000 | 100,400 | ||
Other non-current assets | 82,248 | 82,248 | 10,448 | ||
Total other assets | 170,248 | 170,248 | 110,848 | ||
Accumulated amortization of intangible assets | 512,237 | 512,237 | 499,837 | ||
Impairment charges | 0 | 0 | |||
Total intangible amortization expense | 8,000 | 0 | 12,000 | 0 | |
Land | |||||
Property and equipment | |||||
Total | 1,021,245 | 1,021,245 | 1,021,245 | ||
Computer Equipment | |||||
Property and equipment | |||||
Total | 2,302,497 | 2,302,497 | 2,292,548 | ||
Air Transportation Equipment | |||||
Property and equipment | |||||
Total | 3,128,504 | 3,128,504 | 3,128,504 | ||
Depreciation | 0 | 0 | |||
Furniture and Fixtures | |||||
Property and equipment | |||||
Total | 1,063,253 | 1,063,253 | 1,063,254 | ||
Manufacturing Facility | |||||
Property and equipment | |||||
Total | 5,733,313 | 5,733,313 | 5,728,437 | ||
Equipment | |||||
Property and equipment | |||||
Total | $5,178,275 | $5,178,275 | $5,047,737 |
Supplemental_Balance_Sheet_Dis4
Supplemental Balance Sheet Disclosures (Details 3) (USD $) | 3 Months Ended | 6 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2015 | Sep. 30, 2014 | |
Accrued expenses | |||
Warranty | $826,136 | $826,136 | |
Salary, benefits and payroll taxes | 499,687 | 499,687 | 787,277 |
Professional fees | 203,040 | 203,040 | 431,612 |
Income taxes payable | 185,151 | ||
Other | 962,379 | 962,379 | 1,895,651 |
Accrued Liabilities, Current, Total | 2,491,242 | 2,491,242 | 4,077,290 |
EDC program costs | 700,000 | 700,000 | 1,500,000 |
Warranty cost and accrual information | |||
Warranty accrual, beginning of period | 818,006 | 777,599 | |
Accrued expense | 41,056 | 132,444 | |
Warranty cost | -32,926 | -83,907 | |
Warranty accrual, end of period | $826,136 | $826,136 |
Income_Taxes_Details
Income Taxes (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | |
Components of income taxes | ||||
Income tax expense (benefit) | ($258,454) | $319,623 | ($669,174) | $735,784 |
Reconciliation of the statutory federal rate to the Company's effective income tax rate | ||||
Effective tax rates (as a percent) | -42.00% | 29.00% | -152.00% | 29.00% |
Shareholders_Equity_and_Shareb1
Shareholders' Equity and Share-based Payments (Details) (USD $) | 3 Months Ended | 6 Months Ended | 77 Months Ended | ||||||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Sep. 30, 2014 | Apr. 17, 2014 | Oct. 01, 2014 | Jan. 01, 2015 | |
item | |||||||||
Shareholders' Equity and Share-based Payments | |||||||||
Common stock, shares authorized | 75,000,000 | 75,000,000 | 75,000,000 | 75,000,000 | |||||
Preferred Stock, shares authorized | 10,000,000 | 10,000,000 | 10,000,000 | 10,000,000 | |||||
Share-based compensation | |||||||||
Share-based compensation expense | $146,000 | $205,000 | $350,000 | $440,000 | |||||
Income tax effect recognized as a charge to additional paid-in capital related to share-based compensation | -5,000 | -13,000 | -47,000 | -159,000 | |||||
Number of share-based compensation plans maintained by the company | 3 | ||||||||
Stock repurchase program | |||||||||
Maximum number of shares of outstanding common stock approved to acquire under repurchase program | 250,000 | ||||||||
Number of shares of common stock purchased under the repurchase program | 89,644 | ||||||||
Cost of common stock purchased under the repurchase program | 254,170 | ||||||||
Average market price of common stock purchased under the repurchase program (in dollars per share) | $2.84 | ||||||||
Number of shares of common stock yet to be purchased under the repurchase program | 160,356 | 160,356 | 160,356 | ||||||
Stock Option Plan 1998 | |||||||||
Share-based compensation | |||||||||
Share-based compensation expense | 0 | 0 | |||||||
Options granted | 0 | ||||||||
Number of shares of common stock reserved for awards | 3,389,000 | 3,389,000 | 3,389,000 | ||||||
Restricted Stock Plan 2003 | |||||||||
Share-based compensation | |||||||||
Share-based compensation expense | 0 | 0 | |||||||
Number of quarterly installments of shares awards | 4 | ||||||||
Restricted Stock Plan 2003 | Non Employee Director | |||||||||
Share-based compensation | |||||||||
Fair market value of annual award of non-vested shares | 40,000 | ||||||||
Stock Based Incentive Compensation Plan 2009 | |||||||||
Share-based compensation | |||||||||
Share-based compensation expense | 96,000 | 205,000 | 350,000 | 440,000 | |||||
Number of shares of common stock available for awards under the plan | 332,190 | 332,190 | 332,190 | ||||||
Number of shares of common stock reserved for awards | 1,200,000 | 1,200,000 | 1,200,000 | ||||||
Stock Based Incentive Compensation Plan 2009 | Non Employee Director | |||||||||
Share-based compensation | |||||||||
Share-based compensation expense | 0 | 50,000 | 150,000 | 100,000 | |||||
Fair market value of annual award of non-vested shares | 40,000 | ||||||||
Stock Based Incentive Compensation Plan 2009 | Employee | |||||||||
Share-based compensation | |||||||||
Share-based compensation expense | $96,000 | $155,000 | $200,000 | $340,000 | |||||
Stock Based Incentive Compensation Plan 2009 | Performance Shares | Employee | |||||||||
Share-based compensation | |||||||||
Maximum award (in shares) | 300,000 | 300,000 | 300,000 |
Earnings_Per_Share_Details
Earnings Per Share (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Mar. 31, 2015 | Mar. 31, 2014 | |
Numerator: | ||||
Net income (loss) | ($364,091) | $784,217 | $229,651 | $1,792,813 |
Denominator: | ||||
Basic weighted average shares | 16,925,028 | 16,915,823 | 16,940,377 | 16,901,955 |
Dilutive effect of share-based awards (in shares) | 236,855 | 103,358 | 221,557 | |
Diluted weighted average shares | 16,925,028 | 17,152,678 | 17,043,735 | 17,123,512 |
Earnings per common share: | ||||
Basic EPS (in dollars per share) | ($0.02) | $0.05 | $0.01 | $0.11 |
Diluted EPS (in dollars per share) | ($0.02) | $0.05 | $0.01 | $0.10 |
Options to purchase common stock outstanding (in shares) | 671,168 | 719,668 | 671,168 | 719,668 |
Weighted dilutive shares outstanding excluded from the computation of diluted earnings per share | 671,168 | 57,500 | 402,774 | 71,049 |
Contingencies_Detail
Contingencies (Detail) (USD $) | Mar. 31, 2015 | Sep. 30, 2014 |
Loss Contingencies | ||
Unbilled Receivables, Current | $5,859,955 | $7,425,728 |
Inventory, Net | 4,619,241 | 5,470,786 |
Delta | ||
Loss Contingencies | ||
Number Of Aircraft | 182 | |
Unbilled Receivables, Current | 3,600,000 | |
Inventory, Net | $200,000 |