Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Mar. 31, 2020 | Apr. 30, 2020 | |
Document and Entity Information | ||
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Entity Registrant Name | INNOVATIVE SOLUTIONS & SUPPORT INC | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 16,984,426 | |
Entity Central Index Key | 0000836690 | |
Current Fiscal Year End Date | --09-30 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Current assets | ||
Cash and cash equivalents | $ 22,644,037 | $ 22,416,830 |
Accounts receivable | 2,684,981 | 2,348,537 |
Contract asset | 186,848 | 80,182 |
Inventories | 4,821,062 | 4,470,694 |
Prepaid expenses and other current assets | 1,057,797 | 642,049 |
Total current assets | 31,394,725 | 29,958,292 |
Property and equipment, net | 8,282,858 | 8,444,692 |
Other assets | 230,678 | 154,041 |
Total assets | 39,908,261 | 38,557,025 |
Current liabilities | ||
Accounts payable | 1,355,755 | 1,079,073 |
Accrued expenses | 1,177,065 | 1,110,918 |
Contract liability | 97,136 | 29,231 |
Total current liabilities | 2,629,956 | 2,219,222 |
Deferred income taxes | 129,689 | 129,651 |
Other liabilities | 5,637 | 0 |
Total liabilities | 2,765,282 | 2,348,873 |
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, 2020 and September 30, 2019 | ||
Common stock, $.001 par value: 75,000,000 shares authorized, 19,080,877 and 19,005,487 issued at March 31, 2020 and September 30, 2019 | 19,081 | 19,006 |
Additional paid-in capital | 52,155,835 | 51,987,096 |
Retained earnings | 6,336,600 | 5,570,587 |
Treasury stock, at cost, 2,096,451 shares at March 31, 2020 and September 30, 2019 | (21,368,537) | (21,368,537) |
Total shareholders' equity | 37,142,979 | 36,208,152 |
Total liabilities and shareholders' equity | $ 39,908,261 | $ 38,557,025 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2020 | Sep. 30, 2019 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 75,000,000 | 75,000,000 |
Common stock, shares issued | 19,080,877 | 19,005,487 |
Treasury stock, shares | 2,096,451 | 2,096,451 |
Class A Convertible stock | ||
Preferred stock, shares authorized | 200,000 | 200,000 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Net sales: | ||||
Total net sales | $ 4,835,065 | $ 4,203,127 | $ 9,346,493 | $ 8,180,777 |
Cost of sales: | ||||
Total cost of sales | 2,539,894 | 1,856,921 | 4,449,675 | 3,668,768 |
Gross profit | 2,295,171 | 2,346,206 | 4,896,818 | 4,512,009 |
Operating expenses: | ||||
Research and development | 712,019 | 648,482 | 1,378,634 | 1,244,854 |
Selling, general and administrative | 1,531,389 | 1,524,657 | 3,234,663 | 2,998,073 |
Total operating expenses | 2,243,408 | 2,173,139 | 4,613,297 | 4,242,927 |
Operating income | 51,763 | 173,067 | 283,521 | 269,082 |
Interest income | 65,721 | 26,480 | 144,591 | 48,032 |
Other income | 11,219 | 10,746 | 28,499 | 32,600 |
Income before income taxes | 128,703 | 210,293 | 456,611 | 349,714 |
Income tax (benefit) expense | (309,402) | 7,794 | (309,402) | 7,794 |
Net income | $ 438,105 | $ 202,499 | $ 766,013 | $ 341,920 |
Net income per common share: | ||||
Basic (in dollars per share) | $ 0.03 | $ 0.01 | $ 0.05 | $ 0.02 |
Diluted (in dollars per share) | $ 0.03 | $ 0.01 | $ 0.04 | $ 0.02 |
Weighted average shares outstanding: | ||||
Basic (in shares) | 16,931,138 | 16,860,568 | 16,920,087 | 16,850,584 |
Diluted (in shares) | 17,123,388 | 16,875,720 | 17,102,483 | 16,858,160 |
Product | ||||
Net sales: | ||||
Total net sales | $ 4,645,682 | $ 3,706,910 | $ 9,104,376 | $ 7,482,419 |
Cost of sales: | ||||
Total cost of sales | 2,464,697 | 1,567,861 | 4,309,177 | 3,291,142 |
Engineering development contracts | ||||
Net sales: | ||||
Total net sales | 189,383 | 496,217 | 242,117 | 698,358 |
Cost of sales: | ||||
Total cost of sales | $ 75,197 | $ 289,060 | $ 140,498 | $ 377,626 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - USD ($) | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total |
Balance at Sep. 30, 2018 | $ 18,937 | $ 51,783,779 | $ 3,720,291 | $ (21,368,537) | $ 34,154,470 |
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 139,421 | 139,421 | |||
Balance at Dec. 31, 2018 | 18,937 | 51,783,779 | 3,859,712 | (21,368,537) | 34,293,891 |
Balance at Sep. 30, 2018 | 18,937 | 51,783,779 | 3,720,291 | (21,368,537) | 34,154,470 |
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 341,920 | ||||
Balance at Mar. 31, 2019 | 19,006 | 51,987,096 | 4,062,211 | (21,368,537) | 34,699,776 |
Balance at Dec. 31, 2018 | 18,937 | 51,783,779 | 3,859,712 | (21,368,537) | 34,293,891 |
Increase (Decrease) in Stockholders' Equity | |||||
Issuance of stock to directors | 69 | 203,317 | 203,386 | ||
Net income | 202,499 | 202,499 | |||
Balance at Mar. 31, 2019 | 19,006 | 51,987,096 | 4,062,211 | (21,368,537) | 34,699,776 |
Balance at Sep. 30, 2019 | 19,006 | 51,987,096 | 5,570,587 | (21,368,537) | 36,208,152 |
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 327,908 | 327,908 | |||
Balance at Dec. 31, 2019 | 19,006 | 51,987,096 | 5,898,495 | (21,368,537) | 36,536,060 |
Balance at Sep. 30, 2019 | 19,006 | 51,987,096 | 5,570,587 | (21,368,537) | 36,208,152 |
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 766,013 | ||||
Balance at Mar. 31, 2020 | 19,081 | 52,155,835 | 6,336,600 | (21,368,537) | 37,142,979 |
Balance at Dec. 31, 2019 | 19,006 | 51,987,096 | 5,898,495 | (21,368,537) | 36,536,060 |
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of stock options | 2 | 8,820 | 8,822 | ||
Issuance of stock to directors | 73 | 159,919 | 159,992 | ||
Net income | 438,105 | 438,105 | |||
Balance at Mar. 31, 2020 | $ 19,081 | $ 52,155,835 | $ 6,336,600 | $ (21,368,537) | $ 37,142,979 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 6 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 766,013 | $ 341,920 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
Depreciation and amortization | 205,154 | 234,846 |
Share-based compensation expense: | ||
Stock awards | 159,992 | 203,386 |
Deferred income taxes | 38 | 33 |
(Increase) decrease in: | ||
Accounts receivable | (336,444) | 829,445 |
Contract asset | (106,666) | |
Inventories | (350,368) | (290,704) |
Prepaid expenses and other current assets | (105,615) | (19,134) |
Income taxes receivable/payable | (311,896) | 7,305 |
Increase (decrease) in: | ||
Accounts payable | 276,682 | (543,857) |
Accrued expenses | (13,990) | (9,660) |
Contract liability | 67,905 | 169,098 |
Net cash provided by operating activities | 250,805 | 922,678 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | (32,420) | (72,195) |
Net cash used in investing activities | (32,420) | (72,195) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from exercise of stock options | 8,822 | |
Net cash provided by financing activities | 8,822 | |
Net increase in cash and cash equivalents | 227,207 | 850,483 |
Cash and cash equivalents, beginning of year | 22,416,830 | 20,390,713 |
Cash and cash equivalents, end of period | 22,644,037 | $ 21,241,196 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||
Cash paid for income tax | $ 2,456 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Mar. 31, 2020 | |
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,” “IS&S,” “we” or “us”) was incorporated in Pennsylvania on February 12, 1988. The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles and cockpit display systems for retrofit applications and original equipment manufacturers (“OEMs”). The Company supplies integrated Flight Management Systems (“FMS”), Flat Panel Display Systems (“FPDS”), FPDS with Autothrottle, air data equipment, Integrated Standby Units (“ISU”), ISU with Autothrottle and advanced Global Positioning System (“GPS”) receivers that enable reduced carbon footprint navigation. The Company has continued to position itself as a system integrator, which capability provides the Company with the potential to generate more substantive orders over a broader product base. 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. 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, 2019 is derived from the audited financial statements of the Company. Operating results for the three - and six-month periods ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020, including in terms of the impact of the coronavirus pandemic (the "COVID-19 pandemic"), which cannot be determined at this time. 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, 2019. 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. Impact of the COVID-19 Pandemic The ongoing global outbreak of coronavirus, which was declared a pandemic by the World Health Organization on March 11, 2020 and a national emergency by the President of the United States on March 13, 2020, has caused and is continuing to cause business slowdowns and shutdowns and turmoil in the financial markets both in the United States and abroad. IS&S is monitoring the impact of the COVID-19 pandemic on its business, including how it has impacted and will impact the Company's employees, customers, suppliers and distribution channels. The COVID-19 pandemic, as well as the quarantines and other governmental and non-governmental restrictions which have been imposed throughout the world in an effort to contain or mitigate the spread of the coronavirus, has created significant volatility, uncertainty and economic disruption which has begun to and is expected to continue to adversely affect IS&S' business. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as information is rapidly evolving with respect to the duration and severity of the COVID-19 pandemic. At this point, the Company cannot reasonably estimate the duration and severity of the COVID-19 pandemic or its overall impact on the Company's business. Use of Estimates The Company prepares its condensed consolidated financial statements in conformity with GAAP, which 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, self-insurance reserves, 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, 2020 and September 30, 2019 consist of cash on deposit and cash 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 lease term), except for the manufacturing facility and the corporate airplanes, which are depreciated using the straight-line method over their estimated useful lives of thirty-nine years and ten years, respectively. Major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the life of assets are charged to expense as incurred. 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, 2020 and September 30, 2019, according to the valuation techniques the Company used to determine their fair values. Fair Value Measurement on March 31, 2020 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 $ 21,578,153 $ — $ — Fair Value Measurement on September 30, 2019 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 $ 21,450,242 $ — $ — 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.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In addition, long-lived assets to be disposed of should be reported at the lower of the carrying amount or fair value less cost to sell. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to estimated future cash flows expected to result from use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows. No impairment charges were recorded during the six months ended March 31, 2020 or 2019. Revenue Recognition The Company enters into sales arrangements with customers that, in general, provide for the Company to design, develop, manufacture and deliver large flat-panel display systems, flight information computers, autothrottles and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude, and engine and fuel data measurements. Revenue from Contracts with Customers In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “ Revenue from Contracts with Customers ,” which provides a single, comprehensive revenue recognition model for all contracts with customers, and contains principles to determine the measurement of revenue and timing of when it is recognized. The model supersedes most existing revenue recognition guidance, and also requires enhanced revenue-related disclosures. Under the new standard and its related amendments (collectively known as “ASC 606”), revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized will reflect the consideration that the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASC 606 on October 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The adoption of ASC 606 represents a change in accounting principle. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. To achieve this core principle, the Company applies the following five steps: 1) The Company’s contract with its customers typically is the form of a purchase order issued to the Company by its customers and, to a lesser degree, in the form of purchase order issued in connection with a formal contract executed with a customer. For purpose of accounting for revenue under ASC 606, a contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. 2) Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. Most of our revenue is derived from purchases under which we provide a specific product or service and, as a result, there is only one performance obligation. In the event that a contract includes multiple promised goods or services, such as an EDC contract which includes both engineering services and a resulting product shipment, the Company must apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. In these cases, the Company considers whether the customer could, on its own or together with other resources that are readily available from third parties, produce the physical product using only the output resulting from the Company’s completion of engineering services. If the customer cannot produce the physical product, then the promised goods or services are accounted for as a combined performance obligation. 3) The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company's contracts as of March 31, 2020 included variable consideration. 4) If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions as well as the cost of the goods or services and the Company’s normal margins for similar performance obligations. 5) Recognize revenue when or as the Company satisfies a performance obligation The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer. Revenue from products transferred to customers at a point in time accounted for 96% and 88% of our revenue for the quarter ended March 31, 2020 and 2019, respectively, and is typically recognized at the time of shipment of products to the customer. The remaining revenue results from EDC contracts and is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract costs include material, components and third-party avionics purchased from suppliers, direct labor, and overhead costs. At March 31, 2020, we had $9,789,412 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize the majority of our remaining performance obligations as revenue over the next 12 months with the remaining balance recognized thereafter. Contract Estimates Accounting for performance obligations in long-term contracts that are satisfied over time involves the use of various techniques to estimate progress towards satisfaction of the performance obligation. The Company typically measures progress based on costs incurred compared to estimated total contract costs. Contract cost estimates are based on various assumptions to project the outcome of future events that often span more than a single year. These assumptions include the amount of labor and labor costs, the quantity and cost of raw materials used in the completion of the performance obligation, and the complexity of the work to be performed. As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified. The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates did not change our revenue and operating earnings (and diluted earnings per share) for the three- and six- month periods ended March 31, 2020. Therefore, no adjustment on any contract was material to our unaudited consolidated financial statements for the three- and six- month periods ended March 31, 2020. Financial Statement Impact of Adopting ASC 606 ASC 606 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company adopted ASC 606 on October 1, 2018 using the modified retrospective method, and the adoption resulted in no adjustment to the Company’s retained earnings as of the adoption date and there were no significant changes in the Company’s consolidated statements of operations for the three months ended December 31, 2018 as a result of the adoption of ASC 606 on October 1, 2018 compared to if the Company had continued to recognize revenues under previous guidance. Additionally, there was no change to the Company’s assets or liabilities as of December 31, 2018 as a result of the adoption of ASC 606 on October 1, 2018 compared to if the Company had continued to recognize revenues under previous guidance. The adoption of ASC 606 had no impact on the Company’s cash flows from operations. Contract Balances Contract assets consist of the right to consideration in exchange for product offerings that we have transferred to a customer under the contract. Contract liabilities primarily relate to consideration received in advance of performance under the contract. The following table reflects the Company’s contract assets and contract liabilities: Contract Contract Assets Liabilities September 30, 2019 $ 80,182 $ 29,231 Amount transferred to receivables from contract assets (80,182) — Contract asset additions 186,848 — Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period — (28,781) Increases due to invoicing prior to satisfaction of performance obligations — 96,686 March 31, 2020 $ 186,848 $ 97,136 Customer Service Revenue The Company enters into sales arrangements with customers for the repair or upgrade of its various products that are not under warranty. The Company’s customer service revenue and cost of sales are included in product sales and product cost of sales, respectively, on the accompanying consolidated statements of operations. The Company’s customer service revenue and cost of sales for the three - and six-month periods ended March 31,2020 and 2019 respectively are as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, 2020 2019 2020 2019 Customer Service Sales $ 1,206,644 $ 813,955 $ 2,395,684 $ 1,476,048 Customer Service Cost of Sales 402,354 303,813 751,969 628,695 Gross Profit $ 804,290 $ 510,142 $ 1,643,715 $ 847,353 Income Taxes Income taxes are recorded in accordance with ASC Topic 740, “Income Taxes” (“ASC Topic 740”), which utilizes a balance sheet approach to provide for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets, liabilities, and expected benefits of utilizing net operating losses (“NOL”) and tax credit carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled, and are reflected in the consolidated financial statements in the period of enactment. At the end of each interim reporting period, the Company prepares an estimate of the annual effective income tax rate and applies that annual effective income tax rate to ordinary year-to-date pre-tax income for the interim period. Specific tax items discrete to a particular quarter are recorded in income tax expense for that quarter. The estimated annual effective tax rate used in providing for income taxes on a year-to-date basis may change in subsequent periods. Deferred tax assets are reduced by a valuation allowance if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be verified objectively, and significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if a valuation allowance is required by considering available evidence. Deferred tax assets are recognized when expected future taxable income is sufficient to allow the related tax benefits to reduce taxes that would otherwise be payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and credit carryforwards, taxable income in carryback years, and tax planning strategies which are both prudent and feasible. The Company’s current balance of the deferred tax valuation allowance is recorded against all of its federal and state deferred tax assets. The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets. If the Company were to determine that it would be able to realize additional federal or state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes. The accounting for uncertainty in income taxes requires a more likely than not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the (i) benefit recognized and measured for financial statement purposes and (ii) the tax position taken or expected to be taken on the Company’s tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company has elected to record any interest or penalties associated with uncertain tax positions as income tax expense. The Company files a consolidated U.S. federal income tax return. The Company prepares and files tax returns based on the interpretation of tax laws and regulations, and records estimates based on these judgments and interpretations. In the normal course of business, the tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities, and the Company records a liability when it is probable that there will be an assessment. The Company adjusts the estimates periodically as a result of ongoing examinations by and settlements with the various taxing authorities, and changes in tax laws, regulations and precedent. The consolidated tax provision of any given year includes adjustments to prior years’ income tax accruals that are considered appropriate, and any related estimated interest. Management believes that it has made adequate accruals for income taxes. Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material effect on the Company’s consolidated financial position, but could possibly be material to its consolidated results of operations or cash flow of any one period. On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”), which made broad and complex changes to the U.S. Internal Revenue Code of 1986, as amended (the "Code"), including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 34 percent to 21 percent; (2) bonus depreciation that will allow for full expensing of qualified property; (3) elimination of the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (4) a new limitation on deductible interest expense; (5) the repeal of the domestic production activity deduction; and (6) limitations on NOLs generated after December 31, 2017, to 80 percent of taxable income. The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018. Consequently, we recorded a provisional adjustment to decrease deferred tax assets and liabilities with a corresponding net adjustment to deferred income tax expense of $321,038 for the period ended December 31, 2017. This expense is offset fully by a change in the valuation allowance. We completed our accounting for the income tax effects of certain elements of the Tax Act as of the quarter ended December 31, 2018. In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act") was signed into law to provide emergency assistance to affected individuals, families, and businesses. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses. The CARES Act amends the NOL provisions of the Tax Act, allowing for the carryback of losses arising in tax years beginning before December 31, 2017, to each of the two taxable years preceding the taxable year of loss. An estimated $1,500,000 of pre-tax NOL will be carried back two years to fully offset taxable income. This carryback frees up previously utilized R&D credits, resulting in an estimated increase in R&D credit carryforward of $196,000. The carryback will create approximately $16,000 of AMT tax, which will be refunded. The cash impact of this carryback is $309,412. An income tax receivable was recorded for $310,135 as of the quarter ended March 31, 2020. Engineering Development The Company invests a large percentage of its sales on engineering development, both Research and Development (“R&D”) and EDC. At March 31, 2020, approximately 21% of the Company’s employees were engineers engaged in various engineering development projects. Total engineering development expense is comprised of both internally funded R&D and product development and design charges related to specific customer contracts. Engineering development expense consists primarily of payroll-related expenses of employees engaged in EDC projects, engineering related product materials and equipment, and subcontracting costs. R&D charges incurred for product design, product enhancements, and future product development are expensed as incurred. Product development and design charges related to specific customer contracts are charged to cost of sales-EDC based on estimated progress towards satisfaction of the performance obligation under ASC 606. Treasury Stock We account for treasury stock purchased under the cost method and include treasury stock as a component of shareholders’ equity. Treasury stock purchased with intent to retire (whether or not the retirement is actually accomplished) is charged to common stock. Comprehensive Income Pursuant to FASB ASC Topic 220, “Comprehensive Income,” the Company is required to classify items of other comprehensive income by their nature in a financial statement and 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-month periods ended March 31, 2020 and 2019, comprehensive income consisted of net income only, and there were no items of other comprehensive income for any of the periods presented. Share-Based Compensation The Company accounts for share-based compensation under FASB ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which requires the Company to measure the cost of employee or non-employee director services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model. The Company recognizes such cost over the period during which an employee or non-employee director is required to provide service in exchange for the award. Warranty The Company offers warranties on some products of various lengths, however the standard warranty period is twenty-four months. Our standard warranties typically only cover repairs of product defects and, although the Company offers extended warranties, there have been no sales of extended warranties to date. As a result, none of the Company's warranties represent performance obligations under ASC 606. At the time of shipment, the Company establishes a reserve for estimated costs of warranties based on its best estimate of the amounts necessary to settle future and existing claims using historical data on products sold as of the balance sheet date. The length of the warranty period, the product’s failure rates, and the customer’s usage affect warranty cost. If actual warranty costs differ from the Company’s estimated amounts, future results of operations could be affected adversely. Warranty cost is recorded as cost of sales, and the reserve balance recorded as an accrued expense. While the Company maintains product quality programs and processes, its warranty obligation is affected by product failure rates and the related corrective costs. If actual product failure rates and/or corrective costs differ from the estimates, the Company revises the estimated warranty liability accordingly. Self-Insurance Reserves Since January 1, 2014, the Company has self-insured a significant portion of its employee medical insurance. The Company maintains a stop-loss insurance policy that limits its losses both on a per employee basis and an aggregate basis. Liabilities associated with the risks that are retained by the Company are estimated based upon actuarial assumptions such as historical claims experience and demographic factors. The Company estimated the total medical claims incurred but not reported and the Company believes that it has ad |
Supplemental Balance Sheet Disc
Supplemental Balance Sheet Disclosures | 6 Months Ended |
Mar. 31, 2020 | |
Supplemental Balance Sheet Disclosures | |
Supplemental Balance Sheet Disclosures | 2. Supplemental Balance Sheet Disclosures Inventories Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory, and consist of the following: March 31, September 30, 2020 2019 Raw materials $ 3,715,412 $ 3,408,742 Work-in-process 831,518 775,770 Finished goods 274,132 286,182 $ 4,821,062 $ 4,470,694 Prepaid expenses and other current assets Prepaid expenses and other current assets consist of the following: March 31, September 30, 2020 2019 Prepaid insurance $ 466,355 $ 302,376 Income tax receivable 310,135 — Other 281,307 339,673 $ 1,057,797 $ 642,049 Property and equipment Property and equipment, net consists of the following: March 31, September 30, 2020 2019 Computer equipment $ 2,299,372 $ 2,285,152 Corporate airplanes 5,601,039 5,601,039 Furniture and office equipment 1,033,779 1,033,779 Manufacturing facility 5,733,313 5,733,313 Equipment 5,647,371 5,635,134 Land 1,021,245 1,021,245 21,336,119 21,309,662 Less: accumulated depreciation and amortization (13,053,261) (12,864,970) $ 8,282,858 $ 8,444,692 Depreciation and amortization related to property and equipment was approximately $97,610 and $111,000 for the three months ended March 31, 2020 and 2019, respectively. The corporate airplanes are utilized primarily in support of product development. The Pilatus PC-12 airplane, one of the Company’s two corporate airplanes, has been depreciated to its estimated salvage value. Depreciation and amortization related to property and equipment was approximately $194,254 and $218,000 for the six months ended March 31, 2020 and 2019, respectively. Other assets Other assets consist of the following: March 31, September 30, 2020 2019 Intangible assets, net of accumulated amortization of $555,837 and $551,037 at March 31, 2020 and September 30, 2019, respectively $ 44,400 $ 49,200 Operating lease right-of-use asset 87,536 — Other non-current assets 98,742 104,841 $ 230,678 $ 154,041 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, 2020 and 2019. Intangible asset amortization expense was approximately $0 and $5,000 for the three months ended March 31, 2020 and 2019, respectively. Intangible asset amortization expense was approximately $4,800 and $12,000 for the six months ended March 31, 2020 and 2019, respectively. The timing of future amortization expense is not determinable because the intangible assets are being amortized over a defined number of units. Other non-current assets as of March 31, 2020 and September 30, 2019 include the security deposit for an airplane hangar, and a deposit for medical claims required under the Company’s medical plan. In addition, other non-current assets as of March 31, 2020 and September 30, 2019 includes $23,442 and $29,541, respectively, of prepaid software licenses that will be earned upon the shipment of a certain product to a customer. Other non-current assets amortization expense was approximately $3,409 and $2,000 for the three months ended March 31, 2020 and 2019, respectively. Other non-current assets amortization expense was approximately $6,100 and $4,000 for the six months ended March 31, 2020 and 2019, respectively. Accrued expenses Accrued expenses consist of the following: March 31, September 30, 2020 2019 Warranty $ 573,412 $ 606,680 Salary, benefits and payroll taxes 272,306 212,322 Professional fees 106,464 153,298 Operating lease 81,899 — Other 142,984 138,618 $ 1,177,065 $ 1,110,918 Warranty cost and accrual information for the three - and six-month periods ended March 31, 2020 is highlighted below: Three Months Ended Six Months Ended March 31, 2020 March 31, 2020 Warranty accrual, beginning of period $ 559,180 $ 606,680 Accrued expense 63,777 40,975 Warranty cost (49,545) (74,243) Warranty accrual, end of period $ 573,412 $ 573,412 |
Income Taxes
Income Taxes | 6 Months Ended |
Mar. 31, 2020 | |
Income Taxes | |
Income Taxes | 3. Income Taxes On December 22, 2017, the U.S. government enacted the Tax Act, which made broad and complex changes to the Code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 34 percent to 21 percent; (2) bonus depreciation that will allow for full expensing of qualified property; (3) elimination of the corporate AMT and changing how existing AMT credits can be realized; (4) a new limitation on deductible interest expense; (5) the repeal of the domestic production activity deduction; and (6) limitations on NOLs generated after December 31, 2017, to 80 percent of taxable income. Income tax effects resulting from changes in tax laws are accounted for by the Company in accordance with the authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted and the effects are recorded as a component of the provision for income taxes from continuing operations. The Tax Act made significant changes to the U.S. corporate income tax system, including reducing the U.S. federal corporate tax rate to 21.0% as of January 1, 2018. The Tax Act also eliminated the previous carryback period for NOLs of two years and permits an indefinite carryforward period. In March 2020, in response to the COVID-19 pandemic, the CARES Act was signed into law to provide emergency assistance to affected individuals, families, and businesses. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses. The CARES Act amends the NOL provisions of the Tax Act, allowing for the carryback of losses arising in tax years beginning before December 31, 2017, to each of the two taxable years preceding the taxable year of loss. An estimated $1,500,000 of pre-tax NOL will be carried back two years to fully offset taxable income. This carryback frees up previously utilized R&D credits, resulting in an estimated increase in R&D credit carryforward of $196,000. The carryback will create approximately $16,000 of AMT tax, which will be refunded. The cash impact of this carryback is $309,412. An income tax receivable was recorded for $310,135 as of the quarter ended March 31, 2020. The income tax benefit for the three months ended March 31, 2020 was $309,402 as compared to an income tax expense of $7,794 for the three months ended March 31, 2019. The effective tax benefit rate for the three months ended March 31, 2020 was 240.4% and differs from the statutory tax rate primarily due to the income tax benefit associated with the NOL carryback provisions under the CARES Act and the release of the valuation allowance. This loss utilization both decreased the deferred tax asset and the valuation allowance. For the three months ended March 31, 2020, the valuation allowance decreased by approximately $1,342,000. The effective tax rate for the three months ended March 31, 2019 was 3.7% and differs from the statutory tax rate primarily due to net operating loss usage. This loss usage both decreased the deferred tax asset and the valuation allowance. For the three months ended March 31, 2019, the valuation allowance decreased by approximately $84,000. The income tax benefit for the six months ended March 31, 2020 was $309,402 as compared to an income tax expense of $7,794 for the six months ended March 31, 2019. The effective tax benefit rate for the six months ended March 31, 2020 was 67.8% and differs from the statutory tax rate primarily due to the income tax benefit associated with the NOL carryback provisions under the CARES Act and the release of the valuation allowance. This loss utilization both decreased the deferred tax asset and the valuation allowance. For the six months ended March 31, 2020, the valuation allowance decreased by approximately $1,397,000. The effective tax rate for the six months ended March 31, 2019 was 2.2% and differs from the statutory tax rate primarily due to net operating loss usage. This loss usage both decreased the deferred tax asset and the valuation allowance. For the six months ended March 31, 2019, the valuation allowance decreased by approximately $246,000. |
Shareholders' Equity and Share-
Shareholders' Equity and Share-Based Payments | 6 Months Ended |
Mar. 31, 2020 | |
Shareholders' Equity and Share-Based Payments | |
Shareholders' Equity and Share-Based Payments | 4. Shareholders’ Equity and Share-Based Payments At March 31, 2020, 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 718 by using the fair value method for expensing stock options and stock awards. Total compensation expense was $159,992 and $203,386 for the three-and six-month periods ended March 31, 2020 and 2019, respectively. The Company has two share-based compensation plans, the 2009 Stock-Based Incentive Compensation Plan (the “2009 Plan”), which the shareholders approved on March 12, 2009, and the 2019 Stock-Based Incentive Compensation Plan (the “2019 Plan”), which the shareholders approved on April 2, 2019. The 2009 Plan terminated on January 20, 2019 with respect to the grant of any new awards. 2009 Stock-Based Incentive Compensation Plan The 2009 Plan authorized the grant of stock appreciation rights, restricted stock, options and other equity-based awards. Options granted under the 2009 Plan may be either “incentive stock options” as defined in section 422 of 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 necessary upon 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 similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2009 Plan was 1,200,000, all of which could be issued pursuant to awards of incentive stock options. In addition, the 2009 Plan provided that no more than 300,000 shares may be awarded in any calendar year to any employee as a performance-based award under Section 162(m) of the Code. If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust 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 adversely affect 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 adversely affect 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. Total compensation expense related to options issued to employees under the 2009 Plan was $0 for each of the three- and six-month periods ended March 31, 2020 and 2019. The compensation expense under the 2009 Plan related to shares issued to non-employee members of the Company’s Board of Directors (the “Board”) was $0 for each of the three- and six-month periods ended March 31, 2020 and $203,386 for each of the three- and six-month periods ended March 31, 2019. Total compensation expense associated with the 2009 Plan was $0 for each of the three- and six-month periods ended March 31, 2020 and $203,386 for each of the three- and six-month periods ended March 31, 2019. 2019 Stock-Based Incentive Compensation Plan The 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options and other equity-based awards. Options granted under the 2019 Plan may be either “incentive stock options” as defined in section 422 of the Code or nonqualified stock options, as determined by the Compensation Committee. Subject to an adjustment necessary upon 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 similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2019 Plan is 750,000, plus 139,691 shares of common stock that were authorized but unissued under the 2009 Plan as of the effective date of the 2019 Plan (i.e., April 2, 2019), all of which may be issued pursuant to awards of incentive stock options. In addition, the 2019 Plan provides that no more than 300,000 shares may be awarded in any calendar year to any employee. As of March 31, 2020, there were 816,635 shares of common stock available for awards under the 2019 Plan. If any award is forfeited, terminates or otherwise is settled for any reason without an actual distribution of shares to the participant, the related 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 2019 Plan. If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and kind of shares of common stock which may be issued in connection with future awards, the number and kind of shares of common stock covered by awards then outstanding under the 2019 Plan, the aggregate number and kind of shares of common stock available under the 2019 Plan, any applicable individual limits on the number of shares of common stock available for awards under the 2019 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. 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. Total compensation expense related to options issued to employees under the 2019 Plan was $0 for each of the three- and six-month periods ended March 31, 2020 and 2019. The compensation expense under the 2019 Plan related to shares issued to non-employee members of the Board was $159,992 for each of the three- and six-month periods ended March 31, 2020 and $0 for each of the three- and six-month periods ended March 31, 2019. Total compensation expense associated with the 2019 Plan was $159,992 for each of the three- and six-month periods ended March 31, 2020 and $0 for each of the three- and six-month periods ended March 31, 2019. |
Earnings Per Share
Earnings Per Share | 6 Months Ended |
Mar. 31, 2020 | |
Earnings Per Share | |
Earnings Per Share | 5. Earnings Per Share Three Months Ended March 31, Six Months Ended March 31, 2020 2019 2020 2019 Numerator: Net income $ 438,105 $ 202,499 $ 766,013 $ 341,920 Denominator: Basic weighted average shares 16,931,138 16,860,568 16,920,087 16,850,584 Dilutive effect of share-based awards 192,250 15,152 182,396 7,576 Diluted weighted average shares 17,123,388 16,875,720 17,102,483 16,858,160 Earnings per common share: Basic EPS $ 0.03 $ 0.01 $ 0.05 $ 0.02 Diluted EPS $ 0.03 $ 0.01 $ 0.04 $ 0.02 Earnings per share (“EPS”) are calculated pursuant to FASB ASC Topic 260, “ Earnings Per Share.” 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, 2020, and 2019, there were 548,500 and 550,834 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, 2020 and 2019, respectively, 0 and 300,834 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, 2020 and 2019, respectively, 0 and 425,834 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, 2020 | |
Contingencies | |
Contingencies | 6. Contingencies In the ordinary course of business, the Company is at times subject to various legal proceedings and claims. The Company does not believe any such matters that are currently pending will, individually or in the aggregate, have a material effect on the results of operations or financial position. |
Leases
Leases | 6 Months Ended |
Mar. 31, 2020 | |
Leases | |
Leases | 7. Leases On October 1, 2019, we adopted ASU 2016-02. This pronouncement requires lessees to record "right-of-use" assets and corresponding lease liabilities on the balance sheet for most leases. We adopted this pronouncement utilizing the transition practical expedient which eliminated the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption. As part of our adoption, we elected to utilize the package of practical expedients permitted under the new standard, which allowed us to not reassess: (a) whether an existing contract is or contains a lease, (b) the classification for existing leases and (c) initial direct costs. Further, as permitted by the standard, we made an accounting policy election not to record right-of-use assets or lease liabilities for leases with an initial term of 12 months or less. Instead, consistent with previous accounting guidance, we will recognize payments for such leases in the statement of operations on a straight-line basis over the lease term. We lease real estate and equipment under various operating leases. A lease exists when a contract or part of a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In determining whether a lease exists, we consider whether a contract provides us with both: (a) the right to obtain substantially all of the economic benefits from the use of the identified asset and (b) the right to direct the use of the identified asset. Some of our leases include base rental periods coupled with options to renew or terminate the lease, generally at our discretion. In evaluating the lease term, we consider whether we are reasonably certain to exercise such options. To the extent a significant economic incentive exists to exercise an option, that option is included within the lease term. However, based on the nature of our lease arrangements, options generally do not provide us with a significant economic incentive and are therefore excluded from the lease term for the majority of our arrangements. Our leases typically include a combination of fixed and variable payments. Fixed payments are generally included when measuring the right-of-use asset and lease liability. Variable payments, which primarily represent payments based on usage of the underlying asset, are generally excluded from such measurement and expensed as incurred. In addition, certain of our lease arrangements may contain a lease coupled with an arrangement to provide other services, such as maintenance, or may require us to make other payments on behalf of the lessor related to the leased asset, such as payments for taxes or insurance. As permitted by ASC 842, we have elected to account for these non-lease components together with the associated lease component if included in the lease payments. This election has been made for each of our asset classes. The measurement of "right-of-use" assets and lease liabilities requires us to estimate appropriate discount rates. To the extent the rate implicit in the lease is readily determinable, such rate is utilized. However, based on information available at lease commencement for our leases, the rate implicit in the lease is not known. In these instances, we utilize an incremental borrowing rate, which represents the rate of interest that we would pay to borrow on a collateralized basis over a similar term. The following table presents the lease-related assets and liabilities reported in the Consolidated Balance Sheet as of March 31, 2020: Classification on the Consolidated Balance Sheet on March 31, 2020 Assets Operating leases Other assets $ 87,536 Liabilities Operating leases- current Accrued expenses $ 81,899 Operating leases – noncurrent Other liabilities $ 5,637 Total lease liabilities $ 87,536 Rent expense and cash paid for various operating leases in aggregate are $21,488 and $42,918 for the three - and six-month periods ended March 31, 2020. The weighted average remaining lease term is 1.1 years and the weighted average discount rate is 5.0% as of March 31, 2020. Future minimum lease payments under operating leases are as follows at March 31, 2020: Twelve Months Ending Operating March 31, Leases 2021 $ 85,777 2022 6,115 Total minimum lease payments $ 91,892 Amount representing interest (4,356) Present value of minimum lease payments 87,536 Current portion (81,899) Long-term portion of lease obligations $ 5,637 |
Subsequent Event
Subsequent Event | 6 Months Ended |
Mar. 31, 2020 | |
Subsequent Event | |
Subsequent Event | 8. Subsequent Events Paycheck Protection Program Application On May 4, 2020, as a result of the increased costs resulting from, and uncertainty created by, the COVID-19 pandemic and to help ensure adequate liquidity during this period, the Company's wholly-owned subsidiary, Innovative Solutions and Support LLC, a Pennsylvania limited liability, entered into an unsecured loan in the aggregate principal amount of $1,203,900 (the “ Loan ”) with PNC Bank, National Association under the Paycheck Protection Program (the “ PPP ”) administered by the U.S. Small Business Administration. The PPP is part of the CARES Act (and the related regulatory relief programs) enacted by the U.S. federal government to provide economic relief to U.S. companies impacted by the COVID-19 pandemic. However, since the time of our loan application, additional guidance has been issued by the Small Business Administration and the U.S. Treasury Department that creates uncertainty regarding the qualification requirements for a PPP loan. Out of an abundance of caution and in light of the new guidance, the Company has concluded that it is prudent to repay the Loan. The Company expects that the $1,203,900 in proceeds from the Loan, which were not used by the Company, will be withdrawn from the Company’s account by PNC Bank, National Association by the close of business on the date of this report. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Mar. 31, 2020 | |
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, 2019 is derived from the audited financial statements of the Company. Operating results for the three - and six-month periods ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020, including in terms of the impact of the coronavirus pandemic (the "COVID-19 pandemic"), which cannot be determined at this time. 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, 2019. 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. |
Impact of the COVID-19 Pandemic | Impact of the COVID-19 Pandemic The ongoing global outbreak of coronavirus, which was declared a pandemic by the World Health Organization on March 11, 2020 and a national emergency by the President of the United States on March 13, 2020, has caused and is continuing to cause business slowdowns and shutdowns and turmoil in the financial markets both in the United States and abroad. IS&S is monitoring the impact of the COVID-19 pandemic on its business, including how it has impacted and will impact the Company's employees, customers, suppliers and distribution channels. The COVID-19 pandemic, as well as the quarantines and other governmental and non-governmental restrictions which have been imposed throughout the world in an effort to contain or mitigate the spread of the coronavirus, has created significant volatility, uncertainty and economic disruption which has begun to and is expected to continue to adversely affect IS&S' business. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as information is rapidly evolving with respect to the duration and severity of the COVID-19 pandemic. At this point, the Company cannot reasonably estimate the duration and severity of the COVID-19 pandemic or its overall impact on the Company's business. |
Use of Estimates | Use of Estimates The Company prepares its condensed consolidated financial statements in conformity with GAAP, which 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, self-insurance reserves, 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, 2020 and September 30, 2019 consist of cash on deposit and cash 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 lease term), except for the manufacturing facility and the corporate airplanes, which are depreciated using the straight-line method over their estimated useful lives of thirty-nine years and ten years, respectively. Major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the life of assets are charged to expense as incurred. |
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, 2020 and September 30, 2019, according to the valuation techniques the Company used to determine their fair values. Fair Value Measurement on March 31, 2020 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 $ 21,578,153 $ — $ — Fair Value Measurement on September 30, 2019 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 $ 21,450,242 $ — $ — |
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.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In addition, long-lived assets to be disposed of should be reported at the lower of the carrying amount or fair value less cost to sell. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to estimated future cash flows expected to result from use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows. No impairment charges were recorded during the six months ended March 31, 2020 or 2019. |
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, autothrottles and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude, and engine and fuel data measurements. Revenue from Contracts with Customers In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “ Revenue from Contracts with Customers ,” which provides a single, comprehensive revenue recognition model for all contracts with customers, and contains principles to determine the measurement of revenue and timing of when it is recognized. The model supersedes most existing revenue recognition guidance, and also requires enhanced revenue-related disclosures. Under the new standard and its related amendments (collectively known as “ASC 606”), revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized will reflect the consideration that the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASC 606 on October 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The adoption of ASC 606 represents a change in accounting principle. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. To achieve this core principle, the Company applies the following five steps: 1) The Company’s contract with its customers typically is the form of a purchase order issued to the Company by its customers and, to a lesser degree, in the form of purchase order issued in connection with a formal contract executed with a customer. For purpose of accounting for revenue under ASC 606, a contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. 2) Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. Most of our revenue is derived from purchases under which we provide a specific product or service and, as a result, there is only one performance obligation. In the event that a contract includes multiple promised goods or services, such as an EDC contract which includes both engineering services and a resulting product shipment, the Company must apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. In these cases, the Company considers whether the customer could, on its own or together with other resources that are readily available from third parties, produce the physical product using only the output resulting from the Company’s completion of engineering services. If the customer cannot produce the physical product, then the promised goods or services are accounted for as a combined performance obligation. 3) The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company's contracts as of March 31, 2020 included variable consideration. 4) If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions as well as the cost of the goods or services and the Company’s normal margins for similar performance obligations. 5) Recognize revenue when or as the Company satisfies a performance obligation The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer. Revenue from products transferred to customers at a point in time accounted for 96% and 88% of our revenue for the quarter ended March 31, 2020 and 2019, respectively, and is typically recognized at the time of shipment of products to the customer. The remaining revenue results from EDC contracts and is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract costs include material, components and third-party avionics purchased from suppliers, direct labor, and overhead costs. At March 31, 2020, we had $9,789,412 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize the majority of our remaining performance obligations as revenue over the next 12 months with the remaining balance recognized thereafter. Contract Estimates Accounting for performance obligations in long-term contracts that are satisfied over time involves the use of various techniques to estimate progress towards satisfaction of the performance obligation. The Company typically measures progress based on costs incurred compared to estimated total contract costs. Contract cost estimates are based on various assumptions to project the outcome of future events that often span more than a single year. These assumptions include the amount of labor and labor costs, the quantity and cost of raw materials used in the completion of the performance obligation, and the complexity of the work to be performed. As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified. The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates did not change our revenue and operating earnings (and diluted earnings per share) for the three- and six- month periods ended March 31, 2020. Therefore, no adjustment on any contract was material to our unaudited consolidated financial statements for the three- and six- month periods ended March 31, 2020. Financial Statement Impact of Adopting ASC 606 ASC 606 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company adopted ASC 606 on October 1, 2018 using the modified retrospective method, and the adoption resulted in no adjustment to the Company’s retained earnings as of the adoption date and there were no significant changes in the Company’s consolidated statements of operations for the three months ended December 31, 2018 as a result of the adoption of ASC 606 on October 1, 2018 compared to if the Company had continued to recognize revenues under previous guidance. Additionally, there was no change to the Company’s assets or liabilities as of December 31, 2018 as a result of the adoption of ASC 606 on October 1, 2018 compared to if the Company had continued to recognize revenues under previous guidance. The adoption of ASC 606 had no impact on the Company’s cash flows from operations. Contract Balances Contract assets consist of the right to consideration in exchange for product offerings that we have transferred to a customer under the contract. Contract liabilities primarily relate to consideration received in advance of performance under the contract. The following table reflects the Company’s contract assets and contract liabilities: Contract Contract Assets Liabilities September 30, 2019 $ 80,182 $ 29,231 Amount transferred to receivables from contract assets (80,182) — Contract asset additions 186,848 — Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period — (28,781) Increases due to invoicing prior to satisfaction of performance obligations — 96,686 March 31, 2020 $ 186,848 $ 97,136 Customer Service Revenue The Company enters into sales arrangements with customers for the repair or upgrade of its various products that are not under warranty. The Company’s customer service revenue and cost of sales are included in product sales and product cost of sales, respectively, on the accompanying consolidated statements of operations. The Company’s customer service revenue and cost of sales for the three - and six-month periods ended March 31,2020 and 2019 respectively are as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, 2020 2019 2020 2019 Customer Service Sales $ 1,206,644 $ 813,955 $ 2,395,684 $ 1,476,048 Customer Service Cost of Sales 402,354 303,813 751,969 628,695 Gross Profit $ 804,290 $ 510,142 $ 1,643,715 $ 847,353 |
Income Taxes | Income Taxes Income taxes are recorded in accordance with ASC Topic 740, “Income Taxes” (“ASC Topic 740”), which utilizes a balance sheet approach to provide for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets, liabilities, and expected benefits of utilizing net operating losses (“NOL”) and tax credit carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled, and are reflected in the consolidated financial statements in the period of enactment. At the end of each interim reporting period, the Company prepares an estimate of the annual effective income tax rate and applies that annual effective income tax rate to ordinary year-to-date pre-tax income for the interim period. Specific tax items discrete to a particular quarter are recorded in income tax expense for that quarter. The estimated annual effective tax rate used in providing for income taxes on a year-to-date basis may change in subsequent periods. Deferred tax assets are reduced by a valuation allowance if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be verified objectively, and significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if a valuation allowance is required by considering available evidence. Deferred tax assets are recognized when expected future taxable income is sufficient to allow the related tax benefits to reduce taxes that would otherwise be payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and credit carryforwards, taxable income in carryback years, and tax planning strategies which are both prudent and feasible. The Company’s current balance of the deferred tax valuation allowance is recorded against all of its federal and state deferred tax assets. The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets. If the Company were to determine that it would be able to realize additional federal or state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes. The accounting for uncertainty in income taxes requires a more likely than not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the (i) benefit recognized and measured for financial statement purposes and (ii) the tax position taken or expected to be taken on the Company’s tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company has elected to record any interest or penalties associated with uncertain tax positions as income tax expense. The Company files a consolidated U.S. federal income tax return. The Company prepares and files tax returns based on the interpretation of tax laws and regulations, and records estimates based on these judgments and interpretations. In the normal course of business, the tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities, and the Company records a liability when it is probable that there will be an assessment. The Company adjusts the estimates periodically as a result of ongoing examinations by and settlements with the various taxing authorities, and changes in tax laws, regulations and precedent. The consolidated tax provision of any given year includes adjustments to prior years’ income tax accruals that are considered appropriate, and any related estimated interest. Management believes that it has made adequate accruals for income taxes. Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material effect on the Company’s consolidated financial position, but could possibly be material to its consolidated results of operations or cash flow of any one period. On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”), which made broad and complex changes to the U.S. Internal Revenue Code of 1986, as amended (the "Code"), including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 34 percent to 21 percent; (2) bonus depreciation that will allow for full expensing of qualified property; (3) elimination of the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (4) a new limitation on deductible interest expense; (5) the repeal of the domestic production activity deduction; and (6) limitations on NOLs generated after December 31, 2017, to 80 percent of taxable income. The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018. Consequently, we recorded a provisional adjustment to decrease deferred tax assets and liabilities with a corresponding net adjustment to deferred income tax expense of $321,038 for the period ended December 31, 2017. This expense is offset fully by a change in the valuation allowance. We completed our accounting for the income tax effects of certain elements of the Tax Act as of the quarter ended December 31, 2018. In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act") was signed into law to provide emergency assistance to affected individuals, families, and businesses. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses. The CARES Act amends the NOL provisions of the Tax Act, allowing for the carryback of losses arising in tax years beginning before December 31, 2017, to each of the two taxable years preceding the taxable year of loss. An estimated $1,500,000 of pre-tax NOL will be carried back two years to fully offset taxable income. This carryback frees up previously utilized R&D credits, resulting in an estimated increase in R&D credit carryforward of $196,000. The carryback will create approximately $16,000 of AMT tax, which will be refunded. The cash impact of this carryback is $309,412. An income tax receivable was recorded for $310,135 as of the quarter ended March 31, 2020. |
Engineering Development | Engineering Development The Company invests a large percentage of its sales on engineering development, both Research and Development (“R&D”) and EDC. At March 31, 2020, approximately 21% of the Company’s employees were engineers engaged in various engineering development projects. Total engineering development expense is comprised of both internally funded R&D and product development and design charges related to specific customer contracts. Engineering development expense consists primarily of payroll-related expenses of employees engaged in EDC projects, engineering related product materials and equipment, and subcontracting costs. R&D charges incurred for product design, product enhancements, and future product development are expensed as incurred. Product development and design charges related to specific customer contracts are charged to cost of sales-EDC based on estimated progress towards satisfaction of the performance obligation under ASC 606. |
Treasury Stock | Treasury Stock We account for treasury stock purchased under the cost method and include treasury stock as a component of shareholders’ equity. Treasury stock purchased with intent to retire (whether or not the retirement is actually accomplished) is charged to common stock. |
Comprehensive Income | Comprehensive Income Pursuant to FASB ASC Topic 220, “Comprehensive Income,” the Company is required to classify items of other comprehensive income by their nature in a financial statement and 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-month periods ended March 31, 2020 and 2019, comprehensive income consisted of net income only, and there were no items of other comprehensive income for any of the periods presented. |
Share-Based Compensation | Share-Based Compensation The Company accounts for share-based compensation under FASB ASC Topic 718, “Stock Compensation” (“ASC Topic 718”), which requires the Company to measure the cost of employee or non-employee director services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model. The Company recognizes such cost over the period during which an employee or non-employee director is required to provide service in exchange for the award. |
Warranty | Warranty The Company offers warranties on some products of various lengths, however the standard warranty period is twenty-four months. Our standard warranties typically only cover repairs of product defects and, although the Company offers extended warranties, there have been no sales of extended warranties to date. As a result, none of the Company's warranties represent performance obligations under ASC 606. At the time of shipment, the Company establishes a reserve for estimated costs of warranties based on its best estimate of the amounts necessary to settle future and existing claims using historical data on products sold as of the balance sheet date. The length of the warranty period, the product’s failure rates, and the customer’s usage affect warranty cost. If actual warranty costs differ from the Company’s estimated amounts, future results of operations could be affected adversely. Warranty cost is recorded as cost of sales, and the reserve balance recorded as an accrued expense. While the Company maintains product quality programs and processes, its warranty obligation is affected by product failure rates and the related corrective costs. If actual product failure rates and/or corrective costs differ from the estimates, the Company revises the estimated warranty liability accordingly. |
Self-Insurance Reserves | Self-Insurance Reserves Since January 1, 2014, the Company has self-insured a significant portion of its employee medical insurance. The Company maintains a stop-loss insurance policy that limits its losses both on a per employee basis and an aggregate basis. Liabilities associated with the risks that are retained by the Company are estimated based upon actuarial assumptions such as historical claims experience and demographic factors. The Company estimated the total medical claims incurred but not reported and the Company believes that it has adequate reserves for these claims at March 31, 2020 and September 30, 2019, respectively. However, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions. At March 31, 2020 and September 30, 2019, the estimated liability for medical claims incurred but not reported was approximately $48,567 and $55,700, respectively. The Company has recorded the excess of funded premiums over estimated claims incurred but not reported of approximately $200,895 and $123,100 as a current asset in the accompanying condensed consolidated balance sheets as of March 31, 2020 and September 30, 2019, respectively. |
Concentrations | Concentrations Major Customers and Products For the three months ended March 31, 2020, two customers, Pilatus Aircraft Ltd (“Pilatus"), and Kalitta Air ("Kalitta"), accounted for 38% and 19% of net sales, respectively. During the six months ended March 31, 2020, two customers, Pilatus, and Kalitta accounted for 35% and 14%, respectively, of net sales. For the three months ended March 31, 2019, four customers, Pilatus, Air Transport Services Group Inc. ("ATSG"), Cargojet Inc., and Dayton T. Brown, Inc., accounted for 32%, 15%, 12% and 12% of net sales, respectively. During the six months ended March 31, 2019, two customers, Pilatus, and ATSG accounted for 27% and 23%, respectively, of net sales. Major Suppliers The Company buys several of its components from sole source suppliers. Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms. For the three - and six-month periods ended March 31, 2020, the Company had two suppliers, respectively, that were individually responsible for greater than 10% of the Company’s total inventory related purchases. For the three- and six-month periods ended March 31, 2019, the Company had three and one supplier , respectively, 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 major consideration. Cash balances are maintained with two major banks. Balances on deposit with certain money market accounts and operating accounts may exceed the Federal Deposit Insurance Corporation limits. The Company’s customer base consists principally of companies within the aviation industry. The Company requests advance payments and/or letters of credit from customers that it considers to be credit risks. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements See Note 1, "Financial Statement Impact of Adopting ASC 606," to the unaudited condensed consolidated financial statements for a discussion of the impact resulting from the adoption of ASC 606. On October 1, 2019, we adopted FASB ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) as modified, which replaces existing lease accounting guidance. This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record "right-of-use" assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases continue to be recognized in a manner similar to previous accounting guidance. We adopted this pronouncement utilizing the transition practical expedient added by the FASB, which eliminated the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption. This adoption approach will result in a balance sheet presentation that will not be comparable to the prior period in the first year of adoption. At adoption, we recognized a right-to-use asset and corresponding lease liability of $130,018 on our consolidated balance sheet. Additional required disclosures have been included with Note 7, “Leases,” to the unaudited condensed consolidated financial statements. Such adoption did not have an impact on our liquidity or results of operations. In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument (“ASU 2016-13”). ASU 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for SEC small business filers for fiscal years beginning after December 15, 2022. Management is currently assessing the impact ASU 2016-13 will have on the Company. In June 2018, the FASB issued ASU 2018-07, “Stock-Based Compensation: Improvements to Nonemployee Share-based Payment Accounting” (“ASU 2018-07”), which amends the existing accounting standards for share-based payments to nonemployees. ASU 2018-07 aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. ASU 2018-07 becomes effective in the first quarter of fiscal year 2019 and early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. Entities will apply ASU 2018-07 by recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption. We adopted ASU 2018-07 effective October 1, 2018 and the implementation had no material impact on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. ASU 2018-13 expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. For public entities, the standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures and adoption of the additional disclosures can be delayed until the effective date. The Company does not currently expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
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, 2020 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 $ 21,578,153 $ — $ — Fair Value Measurement on September 30, 2019 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 $ 21,450,242 $ — $ — |
Summary of contract assets and contract liabilities balances | Contract Contract Assets Liabilities September 30, 2019 $ 80,182 $ 29,231 Amount transferred to receivables from contract assets (80,182) — Contract asset additions 186,848 — Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period — (28,781) Increases due to invoicing prior to satisfaction of performance obligations — 96,686 March 31, 2020 $ 186,848 $ 97,136 |
Schedule of customer service revenue and cost of sales | For the Three Months Ended March 31, For the Six Months Ended March 31, 2020 2019 2020 2019 Customer Service Sales $ 1,206,644 $ 813,955 $ 2,395,684 $ 1,476,048 Customer Service Cost of Sales 402,354 303,813 751,969 628,695 Gross Profit $ 804,290 $ 510,142 $ 1,643,715 $ 847,353 |
Supplemental Balance Sheet Di_2
Supplemental Balance Sheet Disclosures (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Supplemental Balance Sheet Disclosures | |
Schedule of inventories | March 31, September 30, 2020 2019 Raw materials $ 3,715,412 $ 3,408,742 Work-in-process 831,518 775,770 Finished goods 274,132 286,182 $ 4,821,062 $ 4,470,694 |
Schedule of prepaid expenses and other current assets | March 31, September 30, 2020 2019 Prepaid insurance $ 466,355 $ 302,376 Income tax receivable 310,135 — Other 281,307 339,673 $ 1,057,797 $ 642,049 |
Schedule of property and equipment, net | March 31, September 30, 2020 2019 Computer equipment $ 2,299,372 $ 2,285,152 Corporate airplanes 5,601,039 5,601,039 Furniture and office equipment 1,033,779 1,033,779 Manufacturing facility 5,733,313 5,733,313 Equipment 5,647,371 5,635,134 Land 1,021,245 1,021,245 21,336,119 21,309,662 Less: accumulated depreciation and amortization (13,053,261) (12,864,970) $ 8,282,858 $ 8,444,692 |
Schedule of other assets | March 31, September 30, 2020 2019 Intangible assets, net of accumulated amortization of $555,837 and $551,037 at March 31, 2020 and September 30, 2019, respectively $ 44,400 $ 49,200 Operating lease right-of-use asset 87,536 — Other non-current assets 98,742 104,841 $ 230,678 $ 154,041 |
Schedule of accrued expenses | March 31, September 30, 2020 2019 Warranty $ 573,412 $ 606,680 Salary, benefits and payroll taxes 272,306 212,322 Professional fees 106,464 153,298 Operating lease 81,899 — Other 142,984 138,618 $ 1,177,065 $ 1,110,918 |
Schedule of warranty cost and accrual information | Three Months Ended Six Months Ended March 31, 2020 March 31, 2020 Warranty accrual, beginning of period $ 559,180 $ 606,680 Accrued expense 63,777 40,975 Warranty cost (49,545) (74,243) Warranty accrual, end of period $ 573,412 $ 573,412 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Earnings Per Share | |
Schedule of earnings per share | Three Months Ended March 31, Six Months Ended March 31, 2020 2019 2020 2019 Numerator: Net income $ 438,105 $ 202,499 $ 766,013 $ 341,920 Denominator: Basic weighted average shares 16,931,138 16,860,568 16,920,087 16,850,584 Dilutive effect of share-based awards 192,250 15,152 182,396 7,576 Diluted weighted average shares 17,123,388 16,875,720 17,102,483 16,858,160 Earnings per common share: Basic EPS $ 0.03 $ 0.01 $ 0.05 $ 0.02 Diluted EPS $ 0.03 $ 0.01 $ 0.04 $ 0.02 |
Lease (Tables)
Lease (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Leases | |
Schedule of lease-related assets and liabilities reported in the Consolidated Balance Sheet | Classification on the Consolidated Balance Sheet on March 31, 2020 Assets Operating leases Other assets $ 87,536 Liabilities Operating leases- current Accrued expenses $ 81,899 Operating leases – noncurrent Other liabilities $ 5,637 Total lease liabilities $ 87,536 |
Schedule of future minimum lease payments under operating leases | Future minimum lease payments under operating leases are as follows at March 31, 2020: Twelve Months Ending Operating March 31, Leases 2021 $ 85,777 2022 6,115 Total minimum lease payments $ 91,892 Amount representing interest (4,356) Present value of minimum lease payments 87,536 Current portion (81,899) Long-term portion of lease obligations $ 5,637 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details) | Jan. 01, 2018 | Dec. 22, 2017 | Mar. 31, 2020USD ($) | Mar. 31, 2019USD ($) | Mar. 31, 2020USD ($)segment | Mar. 31, 2019USD ($) | Dec. 31, 2017USD ($) |
Number of business segments | |||||||
Number of business segments in which the entity operates | segment | 1 | ||||||
Long-Lived Assets | |||||||
Impairment charges | $ 0 | $ 0 | |||||
Income Taxes | |||||||
U.S. Federal statutory tax rate (as a percent) | 21.00% | 34.00% | 21.00% | ||||
Net operating losses (as a percent) | 80.00% | ||||||
Deferred income tax expense | $ 321,038 | ||||||
Engineering Development | |||||||
Percentage of employees who were engineers engaged in various engineering development projects | 21.00% | ||||||
Warranty | |||||||
Length of warranty period | 24 months | ||||||
Contract Balances | |||||||
Balance at beginning of the period (contract assets) | $ 80,182 | ||||||
Balance at beginning of the period (contract liabilities) | 29,231 | ||||||
Amount transferred to receivables from contract assets | (80,182) | ||||||
Contract asset additions | 186,848 | ||||||
Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period | (28,781) | ||||||
Increases due to invoicing prior to satisfaction of performance obligations | 96,686 | ||||||
Balance at end of the period (contract assets) | $ 186,848 | 186,848 | |||||
Balance at end of the period (contract liabilities) | 97,136 | 97,136 | |||||
Customer Service Revenue | |||||||
Customer Service Cost of Sales | 2,539,894 | $ 1,856,921 | 4,449,675 | 3,668,768 | |||
Gross profit | 2,295,171 | 2,346,206 | 4,896,818 | 4,512,009 | |||
Customer Service | |||||||
Customer Service Revenue | |||||||
Customer Service Sales | 1,206,644 | 813,955 | 2,395,684 | 1,476,048 | |||
Customer Service Cost of Sales | 402,354 | 303,813 | 751,969 | 628,695 | |||
Gross profit | $ 804,290 | $ 510,142 | $ 1,643,715 | $ 847,353 | |||
Property and equipment except manufacturing facility and the corporate airplane | Minimum | |||||||
Number of business segments | |||||||
Estimated useful lives | 3 years | ||||||
Property and equipment except manufacturing facility and the corporate airplane | Maximum | |||||||
Number of business segments | |||||||
Estimated useful lives | 7 years | ||||||
Manufacturing facility | |||||||
Number of business segments | |||||||
Estimated useful lives | 39 years | ||||||
Corporate airplanes | |||||||
Number of business segments | |||||||
Estimated useful lives | 10 years |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies - Concentration Risk (Details) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020customeritem | Mar. 31, 2019customeritem | Mar. 31, 2020customeritem | Mar. 31, 2019customeritem | |
Concentration of Credit Risk | ||||
Number of banks for maintenance of cash balances | 2 | 2 | ||
Net sales | Major Customers and Products | ||||
Concentrations | ||||
Number of major customers | customer | 2 | 4 | 2 | 2 |
Net sales | Major Customers and Products | Pilatus Aircraft Ltd ("Pilatus") | ||||
Concentrations | ||||
Concentration of risk (as a percent) | 38.00% | 32.00% | 27.00% | |
Net sales | Major Customers and Products | Empresa Nacional de Aeronautica | ||||
Concentrations | ||||
Concentration of risk (as a percent) | 19.00% | |||
Net sales | Major Customers and Products | Air Transport Services Group | ||||
Concentrations | ||||
Concentration of risk (as a percent) | 15.00% | 35.00% | 23.00% | |
Net sales | Major Customers and Products | Cargojet Inc. ("Cargojet") | ||||
Concentrations | ||||
Concentration of risk (as a percent) | 12.00% | |||
Net sales | Major Customers and Products | Dayton T. Brown, Inc. ("DTB") | ||||
Concentrations | ||||
Concentration of risk (as a percent) | 12.00% | |||
Net sales | Major Customers and Products | Deutsche Post DHL Group | ||||
Concentrations | ||||
Concentration of risk (as a percent) | 14.00% | |||
Inventory | Major Suppliers | ||||
Concentrations | ||||
Concentration of risk (as a percent) | 10.00% | 10.00% | 10.00% | 10.00% |
Number of major suppliers | 2 | 1 | 2 | 1 |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($) | 6 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenue, remaining performance obligations | ||
Revenue, Remaining Performance Obligation, Optional Exemption, Performance Obligation [true false] | true | |
Percentage of revenue from products | 96.00% | 88.00% |
Remaining performance obligations | $ 9,789,412 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01 | ||
Revenue, remaining performance obligations | ||
Revenue, Remaining Performance Obligation,Expected Timing of Satisfaction, Period | 12 months |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies - Fair Value (Details) - USD ($) | 6 Months Ended | |
Mar. 31, 2020 | Sep. 30, 2019 | |
Warranty | ||
Length of warranty period | 24 months | |
Self-Insurance Reserves | ||
Estimated liability for medical claims incurred but not reported | $ 48,567 | $ 55,700 |
Excess of funded premiums over estimated claims incurred but not reported | 200,895 | 123,100 |
Fair value on a recurring basis | Quoted Price in Active Markets for Identical Assets (Level 1) | Money market funds | ||
Assets | ||
Cash and cash equivalents | $ 21,578,153 | $ 21,450,242 |
Summary of Significant Accoun_8
Summary of Significant Accounting Policies - Impact of COVID-19 (Details) | 1 Months Ended |
Mar. 31, 2020USD ($) | |
Unusual or Infrequent Item, or Both [Line Items] | |
Income tax receivable | $ 310,135 |
COVID-19 | |
Unusual or Infrequent Item, or Both [Line Items] | |
Net operating loss | 1,500,000 |
Alternate minimum tax | 16,000 |
Cash impact of the NOL carrryback | 309,412 |
Income tax receivable | 310,135 |
R&D | COVID-19 | |
Unusual or Infrequent Item, or Both [Line Items] | |
Tax Credit carryforwards | $ 196,000 |
Summary of Significant Accoun_9
Summary of Significant Accounting Policies - New Accounting Pronouncements (Details) - USD ($) | Mar. 31, 2020 | Oct. 01, 2019 |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Operating lease right-of-use asset | $ 87,536 | |
Operating lease liabilities | $ 87,536 | |
2016-02 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Operating lease right-of-use asset | $ 130,018 | |
Operating lease liabilities | $ 130,018 |
Supplemental Balance Sheet Di_3
Supplemental Balance Sheet Disclosures - Inventories and Prepaid expenses and other current assets (Details) - USD ($) | Mar. 31, 2020 | Sep. 30, 2019 |
Inventory valuation | ||
Raw materials | $ 3,715,412 | $ 3,408,742 |
Work-in-process | 831,518 | 775,770 |
Finished goods | 274,132 | 286,182 |
Inventories | 4,821,062 | 4,470,694 |
Prepaid expenses and other current assets | ||
Prepaid insurance | 466,355 | 302,376 |
Income tax receivable | 310,135 | |
Other | 281,307 | 339,673 |
Total prepaid expenses and other current assets | $ 1,057,797 | $ 642,049 |
Supplemental Balance Sheet Di_4
Supplemental Balance Sheet Disclosures - Property and Equipment (Details) | 3 Months Ended | 6 Months Ended | |||
Mar. 31, 2020USD ($) | Mar. 31, 2019USD ($) | Mar. 31, 2020USD ($)aircraft | Mar. 31, 2019USD ($) | Sep. 30, 2019USD ($) | |
Property and equipment | |||||
Property and equipment, gross | $ 21,336,119 | $ 21,336,119 | $ 21,309,662 | ||
Less: accumulated depreciation and amortization | (13,053,261) | (13,053,261) | (12,864,970) | ||
Property and equipment, net | 8,282,858 | 8,282,858 | 8,444,692 | ||
Depreciation and amortization for property and equipment | 97,610 | $ 111,000 | 194,254 | $ 218,000 | |
Other assets | |||||
Intangible assets, net of accumulated amortization of $555,837 and $551,037 at December 31, 2019 and September 30, 2019, respectively | 44,400 | 44,400 | 49,200 | ||
Operating lease right-of-use asset | 87,536 | 87,536 | |||
Other non-current assets | 98,742 | 98,742 | 104,841 | ||
Total other assets | 230,678 | 230,678 | 154,041 | ||
Accumulated amortization of intangible assets | 555,837 | 555,837 | 551,037 | ||
Impairment charges | 0 | 0 | |||
Intangible asset amortization expense | 0 | 5,000 | 4,800 | 12,000 | |
Prepaid software licenses | 23,442 | 23,442 | 29,541 | ||
Computer equipment | |||||
Property and equipment | |||||
Property and equipment, gross | 2,299,372 | 2,299,372 | 2,285,152 | ||
Corporate airplanes | |||||
Property and equipment | |||||
Property and equipment, gross | 5,601,039 | $ 5,601,039 | 5,601,039 | ||
Number of airplanes depreciated | aircraft | 2 | ||||
Pilatus PC-12 | |||||
Property and equipment | |||||
Number of airplanes depreciated | aircraft | 1 | ||||
Furniture and office equipment | |||||
Property and equipment | |||||
Property and equipment, gross | 1,033,779 | $ 1,033,779 | 1,033,779 | ||
Manufacturing facility | |||||
Property and equipment | |||||
Property and equipment, gross | 5,733,313 | 5,733,313 | 5,733,313 | ||
Equipment | |||||
Property and equipment | |||||
Property and equipment, gross | 5,647,371 | 5,647,371 | 5,635,134 | ||
Land | |||||
Property and equipment | |||||
Property and equipment, gross | 1,021,245 | 1,021,245 | $ 1,021,245 | ||
Prepaid software licenses | |||||
Other assets | |||||
Intangible asset amortization expense | $ 3,409 | $ 2,000 | $ 6,100 | $ 4,000 |
Supplemental Balance Sheet Di_5
Supplemental Balance Sheet Disclosures - Accrued Expenses (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2020 | Mar. 31, 2020 | Sep. 30, 2019 | |
Accrued expenses | ||||
Warranty | $ 573,412 | $ 573,412 | $ 573,412 | $ 606,680 |
Salary, benefits and payroll taxes | 272,306 | 212,322 | ||
Professional fees | 106,464 | 153,298 | ||
Operating lease | 81,899 | |||
Other | 142,984 | 138,618 | ||
Total accrued expenses | $ 1,177,065 | $ 1,110,918 | ||
Warranty cost and accrual information | ||||
Warranty accrual, beginning of period | 559,180 | 606,680 | ||
Accrued expense | 63,777 | 40,975 | ||
Warranty cost | (49,545) | (74,243) | ||
Warranty accrual, end of period | $ 573,412 | $ 573,412 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | Jan. 01, 2018 | Dec. 22, 2017 | Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 |
Income Taxes | ||||||
U.S. Federal statutory tax rate (as a percent) | 21.00% | 34.00% | 21.00% | |||
Net operating losses (as a percent) | 80.00% | |||||
Net operating loss previous carryback period elimination | 2 years | |||||
Income tax (benefit) expense | $ (309,402) | $ 7,794 | $ (309,402) | $ 7,794 | ||
Effective tax rate benefit (as a percent) | 240.40% | 3.70% | 67.80% | 2.20% | ||
Change in valuation allowance | $ (1,342,000) | $ 84,000 | $ 246,000 | |||
Decrease in valuation allowance | $ (1,397,000) |
Income Taxes - Impact of COVID-
Income Taxes - Impact of COVID-19 (Details) | 1 Months Ended |
Mar. 31, 2020USD ($) | |
Unusual or Infrequent Item, or Both [Line Items] | |
Income tax receivable | $ 310,135 |
COVID-19 | |
Unusual or Infrequent Item, or Both [Line Items] | |
Net operating loss | 1,500,000 |
Alternate minimum tax | 16,000 |
Cash impact of the NOL carrryback | 309,412 |
Income tax receivable | 310,135 |
COVID-19 | R&D | |
Unusual or Infrequent Item, or Both [Line Items] | |
Tax Credit carryforwards | $ 196,000 |
Shareholders' Equity and Shar_2
Shareholders' Equity and Share-Based Payments (Details) | 3 Months Ended | 6 Months Ended | |||
Mar. 31, 2020USD ($)shares | Mar. 31, 2019USD ($) | Mar. 31, 2020USD ($)planshares | Mar. 31, 2019USD ($) | Sep. 30, 2019shares | |
Share-Based compensation | |||||
Common stock, shares authorized | 75,000,000 | 75,000,000 | 75,000,000 | ||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | 10,000,000 | ||
Share-based compensation expense | $ | $ 159,992 | $ 203,386 | $ 159,992 | $ 203,386 | |
Number of share-based compensation plans maintained by the company | plan | 2 | ||||
Employee | |||||
Share-Based compensation | |||||
Share-based compensation expense | $ | 159,992 | 0 | $ 159,992 | 0 | |
2009 Plan | |||||
Share-Based compensation | |||||
Share-based compensation expense | $ | $ 0 | 203,386 | $ 0 | 203,386 | |
Number of shares of common stock reserved for awards | 1,200,000 | 1,200,000 | |||
2009 Plan | Employee | |||||
Share-Based compensation | |||||
Share-based compensation expense | $ | $ 0 | 0 | $ 0 | 0 | |
2009 Plan | Non-employee director | |||||
Share-Based compensation | |||||
Share-based compensation expense | $ | $ 0 | 203,386 | $ 0 | 203,386 | |
2009 Plan | Performance-based Award | Employee | |||||
Share-Based compensation | |||||
Number of shares of common stock reserved for awards | 300,000 | 300,000 | |||
2019 Plan | |||||
Share-Based compensation | |||||
Common stock, shares authorized | 139,691 | 139,691 | |||
Share-based compensation expense | $ | $ 0 | 0 | $ 0 | 0 | |
Number of shares of common stock reserved for awards | 750,000 | 750,000 | |||
Number of shares of common stock available for awards under the plan | 816,635 | 816,635 | |||
2019 Plan | Employee | |||||
Share-Based compensation | |||||
Number of shares of common stock reserved for awards | 300,000 | 300,000 | |||
2019 Plan | Non-employee director | |||||
Share-Based compensation | |||||
Share-based compensation expense | $ | $ 159,992 | $ 0 | $ 159,992 | $ 0 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||||
Mar. 31, 2020 | Dec. 31, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Mar. 31, 2020 | Mar. 31, 2019 | |
Numerator: | ||||||
Net income | $ 438,105 | $ 327,908 | $ 202,499 | $ 139,421 | $ 766,013 | $ 341,920 |
Denominator: | ||||||
Basic weighted average shares | 16,931,138 | 16,860,568 | 16,920,087 | 16,850,584 | ||
Dilutive effect of share-based awards | 192,250 | 15,152 | 182,396 | 7,576 | ||
Diluted weighted average shares | 17,123,388 | 16,875,720 | 17,102,483 | 16,858,160 | ||
Earnings per common share: | ||||||
Basic EPS (in dollars per share) | $ 0.03 | $ 0.01 | $ 0.05 | $ 0.02 | ||
Diluted EPS (in dollars per share) | $ 0.03 | $ 0.01 | $ 0.04 | $ 0.02 | ||
Options to purchase common stock outstanding (in shares) | 548,500 | 550,834 | 548,500 | 550,834 | ||
Diluted weighted-average shares outstanding excluded from computation of diluted EPS (in shares) | 0 | 300,834 | 0 | 425,834 |
Lease (Details)
Lease (Details) | 3 Months Ended | 6 Months Ended |
Mar. 31, 2020USD ($) | Mar. 31, 2020USD ($) | |
Leases | ||
Operating leases | $ 87,536 | $ 87,536 |
Operating leases- current | 81,899 | 81,899 |
Operating leases - noncurrent | 5,637 | 5,637 |
Total lease liabilities | $ 87,536 | $ 87,536 |
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List] | Other Assets, Noncurrent | Other Assets, Noncurrent |
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List] | Accrued Liabilities, Current | Accrued Liabilities, Current |
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List] | Other Liabilities, Noncurrent | Other Liabilities, Noncurrent |
Operating leases expenses | $ 21,488 | $ 42,918 |
Weighted average remaining lease term | 1 year 1 month 6 days | 1 year 1 month 6 days |
Weighted average discount rate | 5.00% | 5.00% |
Lease - Future minimum lease pa
Lease - Future minimum lease payments (Details) | Mar. 31, 2020USD ($) |
Leases | |
2021 | $ 85,777 |
2022 | 6,115 |
Total minimum lease payments | 91,892 |
Amount representing interest | (4,356) |
Total lease liabilities | 87,536 |
Current portion | (81,899) |
Long-term portion of lease obligations | $ 5,637 |
Subsequent Event (Details)
Subsequent Event (Details) | May 04, 2020USD ($) |
Subsequent Event | Innovative Solutions and Support LLC | Paycheck Protection Program | |
Subsequent Event | |
Principal amount | $ 1,203,900 |