IA 10-K & 10-Q changes, risk factors and insider trading

ISSC1A Risk Factors

The Company spends a large portion of its research and development efforts in developing and marketing the FPDS, FMS, ThrustSense® AutothrottleAutothrottle, military display generators and flight control computers and other complementary products. The Company’s ability to grow and diversify its operations through the introduction and sale of new products is dependent upon its continued success in product development and engineering activities, its sales and marketing efforts, its ability to acquire new products from strategic partnerships and acquisitions, and its ability to obtain necessary regulatory approvals to sell such products. Sales growth will depend in part on market acceptance of and demand for the FPDS, FMS, ThrustSense® AutothrottleAutothrottle, military display generators and flight control computers and any other products we develop in the future. The Company cannot be certain that it will be able to develop, acquire, introduce or market its FPDS, FMS, ThrustSense® AutothrottleAutothrottle, military display generators and flight control computers or other new products or product enhancements in a timely or cost-effective manner, or that any new products or product enhancements will receive market acceptance or necessary regulatory approval. In addition, the Company’s business is dependent upon maintaining its reputation and relationships with existing customers and potential partners. If the Company’s performance or the performance of the Company’s products does not meet its customers’ expectations, the Company’s reputation and its relationships could be damaged, which may have a material adverse impact on the Company’s business, financial condition and results of operations.

If the Company fails to modify or improve its products in response to evolving industry standards and government regulations, its products rapidly could become obsolete.obsolete rapidly.

The design, development, production, sale and support of innovative commercial aerospace and defense systems and products involves advanced technologies. We invest substantial amounts in research and development efforts to pursue advancements in a wide range of technologies, products and services aimed at meeting the ever-evolving product, program and service needs of our customers. Our ability to realize the anticipated benefits of our investments depends on a variety of factors, including meeting development, production, certification and regulatory approval schedules; receiving regulatory approvals; execution of internal and external performance plans; achieving cost and production efficiencies; availability and quality of supplier- and internally-produced parts and materials; availability of supplier and internal facility capacity to perform maintenance, repair and overhaul services; availability of test equipment; development of complex software; hiring and training of qualified personnel; identification of emerging technological trends for our target end-customers; the level of customer interest in new technologies and products and customer acceptance of our products and technologies. For example, our customers manufacture or acquire end products and systems that incorporate certain of our products. These end products and systems may also incorporate additional technologies manufactured by third parties and involve additional risks and uncertainties. As a result, the performance and industry acceptance of these larger systems and end products could affect the level of customer interest in and acceptance of our products in the marketplace. In addition, many of our products must adhere to strict regulatory and market-driven safety and performance standards in a variety of jurisdictions. The evolving nature of these standards, along with the long duration of development, production and aftermarket support programs, creates uncertainty regarding program profitability, particularly with our aircraft engine products. Development efforts divert resources from other potential investments in our businesses, and these efforts may not lead to the development of new technologies or products on a timely basis or meet the needs of our customers as fully as competitive offerings. In addition, the industries for our products or products that incorporate our technologies may not develop or grow as we anticipate. We or our customers, suppliers or subcontractors may encounter difficulties in developing and producing new products and services,services and may not realize the degree or timing of benefits initially anticipated or may otherwise suffer significant adverse financial consequences. Due to the design complexity of our products or those of our customers or third partythird-party manufacturers that incorporate our products into theirs or our customers’ products, we may experience delays in completing the development and introduction of new products or we may experience the suspension of production after these products enter into service due to safety concerns. Delays and/or suspension of production could result in increased development costs or deflect resources from other projects. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition and results of operations.

We may not be able to identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates in the future, we may not be able to complete transactions with such partners on commercially favorable terms, or at all. Our ability to find partners to further our growth strategy is likely to be affected by factors outside of our control in the aerospace industry such as the activities of pilot unions, pilot shortages and labor strikes, includingalong with other economic and geopolitical factors. Any one of these factors may impede our ability to find strategic partners.

Acquisitions involve various inherent risks, such as: our ability to assess accurately the value, strengths, weaknesses, internal controls, contingent and other liabilities and potential profitability of acquisition candidates; difficulties in integrating acquired businesses, our potential inability to achieve identified financial, operating and other synergies anticipated to result from an acquisition, and integration issues associated with internal controls of acquired businesses; the diversion of management’s attention from our existing businesses; the potential impairment of assets; potential unknown liabilities associated with a business that we acquire or in which we invest, including environmental liabilities; potential margin dilution and production delays associated with consolidating acquired facilities and manufacturing operations. Any past or future acquisition could also result in such risks. Due diligence performed prior to closing acquisitions may not uncover certain risks or liabilities that could materially impact our business, financial condition and results of operations.

AdditionallyAdditionally, we may incur significant costs and risks in integrating Honeywell product lines, including the risk of additional demands on our resources, systems, procedures and controls. We may also incur significant transaction costs in connection with future acquisitions, including acquisitions that we do not complete for any reason. We are required to expense such transaction costs as incurred, which may have a material adverse impact on our financial results.

The Company’s revenue is concentrated in a limited number of customers. During the fiscal year 2024ended September 30, 2025 the Company derived 36%57 % of its revenue from a limited number of customers. The Company continues to expect a relatively small number of customers to account for a majority of its revenue for the foreseeable future. Any disruption in the Company’s business with those customers, whether as a result of changes in demand for the customer’s services, adverse changes in the customer’s industry generally or other challenges in securing or renewing contracts, could have a material adverse impact on our business, financial condition and results of operations.

Additionally, much of the Company’s revenue is concentrated in contracts in the retrofit market with the U.S. government (including the DoD, the Department of Interior and the Department of Homeland Security) and foreign governments. Retrofit contracts with the DoD typically are not required to be renewed by the DoD,DoD and are terminable by the DoD at their convenience. Contracts with foreign governments may contain similar provisions. There can be no assurance that we will continue to be awarded contracts by the U.S. government or any foreign government, as the market for the Company’s products is highly competitive.

Our customers may terminate their contracts with us at any time.time which would adversely affect our business.

A significant portion of the Company’s sales derives from defense contractors or U.S. government agencies in connection with government aircraft retrofit or OEM contracts. The military and defense market is significantly dependent upon government budget trends, particularly the U.S. Department of Defense spendingbudget. mayIn addition to normal business risks, our procurement of products and services are subject to unique risks largely beyond our control. U.S. Department of Defense budgets could be negatively impacted by variousseveral factors, includingincluding, but not limited to, a change in defense spending policy, the changingU.S. government’s budget deficits, spending priorities (for example, shifting funds to efforts to combat the impact of the pandemic or efforts to assist Ukraine in the Russia and Ukraine conflict), the cost of sustaining the U.S. military presence internationally, possible political environmentpressure to reduce U.S. government military spending and shiftsthe inability domesticof the U.S. government to enact appropriations bills and internationalother marketsrelevant and priorities, and ongoing and emerging conflicts.legislation. The impact of any such reductions in defense appropriations and/or reductions in U.S. defense spending could result in delays in procurement of products and services due to lack of funding,funding and negatively impact the Company’s business, financial condition and results of operations.

Additionally, U.S. government contracts are funded by agency budgets that operate on a fiscal year basis. As a result, government contracts are often not fully funded at inception. The remaining funds are only made available as appropriated by Congress over time, and thus subject to delay. Further, congressional appropriation and presidential approval are required for funding the governmental agencies with which we contract. In the past few years, the government has not been able to complete its budget process before the end of its fiscal year, resulting in government shutdowns, as well as insufficient funding for government agencies. For example, in October 2025, the U.S. federal government shut down for 43 days. We anticipate the federal budget, debt ceiling, regulatory environment and potential tax reform will continue to be subject to debate and compromise shaped by, among other things, the current administration and Congress, heightened political tensions, the global security environment, inflationary pressures and macroeconomic conditions. Additionally, the administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance and other factors and then potentially taking action based on those assessments. In particular, the administration has issued executive orders aimed at deregulating the Department of Defense’s procurement process to achieve a more efficient and nimble procurement process. If the Company and its products are unable to successfully compete with its competitors in any reformed procurement environment, or if the administration’s efforts result in the Company facing a disadvantage in contracting decisions due to its size, history, product mix or any other factor, such reforms could result in impacts to both our current and future business prospects and financial performance. As a result, our sales revenue in the retrofit market are vulnerable to both delays in funding and reductions in spending. If our government contracts are not fully funded, or significant programs or contracts with the U.S. government are terminated, our business, financial condition and results of operations would be substantially adversely affected.

Geopolitical factors and changes in policies and regulations could adversely affect our internal business.

The Company could be subjected to unanticipated losses in the event that the Company suffers cost overruns or contractual penalties in connection with fixed-price contracts or service arrangements to perform specified design and EDC services.

During the fiscal year 2024ended September 30, 2025, approximately 5%7% percent of the Company’s total sales were derived from fixed-price EDC arrangements with customers to perform specified design and EDC services related to its products. These arrangements allow the Company to benefit by recovering some of its product development costs, but it carries the risk of potential cost overruns. If the Company’s initial cost estimates are incorrect, it can incur one-time charges that may be quite high and losses on these contracts. These EDC arrangements can expose the Company to potential losses because the customer may compel the Company to complete a project or, in the event of a termination for default, pay the incremental cost of its replacement by another provider. Because some of these projects involve new technologies and applications, and can last for more than a year, unforeseen events such as technological difficulties, fluctuations in the price of raw materials, problems with subcontractors, and cost overruns can result in the contractual price becoming less favorable or even unprofitable to the Company over time. Furthermore, if the Company does not meet project deadlines or if its products do not meet customer specifications, it may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages, or suffer losses if the customer exercises its right to terminate its agreement early. The Company’s results of operations are dependent on its ability to maximize earnings from the EDC service arrangements. Similarly, if the Company is unable to meet deadlines and customer specifications, its reputation in the industry may suffer harm, which may have a negative impact on the Company’s ability to retain its current customers and attract new customers. Lower earnings caused by cost overruns could furthermore have a negative impact on the Company’s business, financial condition and results of operations.

Our subcontractors and third-party suppliers may fail to producedeliver high quality work,materials, products or services, which may result in a failure of our products or services and a violation of applicable law.

The suppliers the Company depends on may not be able to timely deliver a sufficient number of components on that are of a reliable quality on commercially reasonable terms. We also depend on our key third-party suppliers to provide materials that comply with our specifications. If any products or materials that are provided by our suppliers do not comply with our specifications, and we do not discover such noncompliance until after those parts are installed and as a result the products fails, the Company would be harmed, potentially resulting in a loss of its ISO 9001 and AS9100D certifications, loss of customers, harm to reputation, product recalls,recalls and liability for any other harm caused. Such failures could delay or stop our production, result in possible lost sales and seriously threaten our business, financial condition and results of operations.

The markets for the Company’s products are intensely competitive and subject to rapid technological change. Our primary competitors include Honeywell, Collins Aerospace, Thales Defense & Security, Inc., Garmin Ltd. and GE Aviation Systems .Systems. All of these competitors have substantially greater financial, technical, and human capital resources than the Company. In addition, these competitors have much greater experience in, and resources for, marketing their products. As a result, the Company’s competitors may be able to respond more quickly to new or emerging technologies and customer preferences, or to devote greater resources to development, promotion and sale of their products than the Company. The Company’s competitors may have greater name recognition and more extensive customer bases. Such competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share.

The Company depends on key personnel to manage its business effectively, and an inability to attract and retain its key employees and plan for management succession could adversely impact the Company’s ability to compete.

The Company’s success depends on the efforts, abilities, and expertise of its senior management and other key personnel. There can be no assurance that the Company will be able to attract or retain such employees, and the loss of important personnel could damage its ability to execute its business strategy. Competition for skilled personnel is intense, and the Company may not be able to attract or retain additional qualified employees.

The Company has limited experience in marketing and distributing its products internationally.internationally, which may limit the Company’s ability to penetrate international markets and increase international sales.

Currently, all of the Company’s international sales are denominated in U.S. dollars. An increase in the dollar’s value compared to other currencies could render the Company’s products less competitive in international markets. In the future, the Company may be required to conduct sales in foreign country’scountries local currency,currencies, thus exposing it to fluctuations and volatility in exchange rates that could adversely affect its operating results. Further, as we pursue customers in Asia and other less developed markets throughout the world, our potential inability to ensure the creditworthiness of counterparties could impose additional risks and affect our overall profitability. Emerging market operationsoperations, in particularparticular, can present many risks, including volatility in gross domestic product, economic and government instability, and the imposition of exchange controls and capital controls. We must also hire and train qualified personnel to manage our foreign operations. We may experience difficulties in recruiting, training, managing, and retaining an international staff, and specifically staff related to sales management and sales personnel, which may impact in sales productivity in foreign markets.

As part of our growth strategy, we have obtained licenses to third-party technology to improve our products. We may be required to renegotiate our currently licensed technology in the future,future and may seek to license additional technology from other third parties to enhance our products and position in the market. However, there is no guarantee that third-party licenses will be available to us, or continue to be made available to us, on terms acceptable and beneficial to the Company. If we are unable to maintain our current licenses or obtain additional licenses to further improve our products, we may be required to develop lower quality and less innovative products and as a result, our business, financial condition and results of operations may suffer.

We face certain security threats and technology disruptions, including threats to our information technology (“IT”) infrastructure, attempts to gain access to our or our customers’ proprietary or classified information, threats of terrorism, and failures of our technology tools and systems. Our IT networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. We are also involved with IT systems for certain customers and other third parties, for which we face similar security threats as for our own, including, in particular, the DoD. Cybersecurity threats—which include, but are not limited to, computer viruses, ransomware, break-ins, sabotage, spyware, other malware, attempts to access information, denial of service attacks and other electronic security breaches—are persistent and evolve quickly. In general, such threats have increased in frequency, scope and potential impact in recent years. Further, a variety of technological tools and systems, including both company-owned IT and technological services provided by outside parties, support our critical functions. These technologies, as well as our products, are subject to failure and the user’s inability to have such technologies properly supported, updated, expanded or integrated into other technologies and, in certain cases, may contain open source and third-party software which may unbeknownst to us contain defects or viruses that pose unintended risks. These risks could materially harm our business or reputation.

While we have implemented what we believe is an appropriate information security program with cybersecurity procedures, practices, and controls, the control systems, cybersecurity program, infrastructure, physical facilities of, and personnel associated with the third parties that we rely on are beyond our control and we cannot guarantee that our or our customers’, suppliers’ and other third parties’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our products and services. In addition, there can be no assurance that actions we have taken to implement appropriate measures and controls will be sufficient to prevent disruptions to critical systems, unauthorized release of confidential information or corruption of data. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. The security measures we have implemented may become subject to third-party security breaches, employee error, malfeasance, faulty password management or other irregularities. For example, third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access our IT systems. In the past, we have experienced immaterial breaches of our IT systems, which we have sought to address through upgrades to our IT security systems. However, these security systems cannot provide absolute security. To the extent we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could materially damage business partner and customer relationships,relationships and curtail or otherwise impact the use of our IT systems. Moreover, if a security breach of our IT systems affects our computer systems or results in the release of personally identifiable or other sensitive information of customers, business partners, employees and other third parties, our reputation and brand could be materially damaged, use of our products and services could decrease, and we could be exposed to a risk of loss, litigation and potential liability. Further, as cyber threats continue to evolve, the Company may be required to expend significant resources to continue to modify or enhance its protective measures or to investigate and remediate any security vulnerabilities. Additionally, the continuing and evolving threat of cybersecurity attacks has resulted in evolving legal and compliance matters, including increased regulatory focus on prevention, which could require the Company to expend significant additional resources to meet such requirements, which as a result may also harm the Company’s reputation.

The Company is subject to various laws and regulations. Changes to, or failure by the Company to comply with, these laws and regulations could have a significant negative impact on the Company’s business and operations.

Our common stock has experienced and may continue to experience significant price fluctuations, which could cause you to lose a significant portion of your investment and interfere with our efforts to grow our business.

The Company has indebtedness pursuant to loan agreements and lines of credit with PNCJP Morgan Chase Bank, National Association,N.A. and may pursue additional sources of credit or borrowed money in the future under these existing credit facilities and/or enter into new financing arrangements. We may fail to pay these or additional future obligations, as and when required. Specifically, if we are unable to generate sufficient cash flows from operations or borrow sufficient funds in the future to service or refinance our debt, our business, financial condition and results of operations will be harmed. Any downgrades from credit rating agencies such as Moody’s Investors Service or Standard & Poor’s Rating Services may adversely impact our ability to obtain additional financing or the terms of such financing and reduce the market capacity for our commercial paper. Furthermore, if prevailing interest rates or other factors result in higher interest rates upon any potential future financing, then interest expense related to the refinance indebtedness would increase.

In addition, all the agreements governing our indebtedness subject us to continued compliance with certain financial and negative covenants. The Company was in compliance with all applicable covenants throughout and at September 30, 2024. A breach of any of our covenants under our operative agreements could result in a default under such an agreement. If any such default occurs, we may be required to refinance all or part of our debt, sell strategic assets at unfavorable prices, incur additional indebtedness or issue common stock or other equity securities. Additionally, if we default under our secured loan agreements, the lenders thereunder will have a right to proceed against the collateral granted to them to secure the debt, which includes available cash. In such a circumstance, we may not have sufficient assets to repay our debt in full. We may also not be able to, at any given time, refinance our debt, sell assets, incur additional indebtedness or issue equity securities on terms acceptable to us, in amounts sufficient to meet our needs. If we are able to raise additional funds through the issuance of equity securities, such issuance would also result in dilution to our shareholders. Our inability to service our obligations or refinance our debt could have a material and adverse effect on our business, financial condition and results of operations.

The Company has continued to position itself as a system integrator, which provides the Company with the capability and potential to generate more substantive orders over a broader product base. This strategy, as both a manufacturer and integrator, ishas designedpositioned the company to leverage the latest technologies developed for the computer and telecommunications industries into advanced anddeliver cost-effective solutions for the general aviation, commercial air transport, the DoD/governmental and foreign military markets. This approach, combined with the Company’s deep industry experience,experience across OEMs and platforms is designed to enable the Company to develop high-quality products and systems, to reduce product time to market and to achieve cost advantages over products offered by its competitors.

In June 2023, the Company entered into thean agreement with Honeywell (“The June 2023 Honeywell Agreement with Honeywell”) pursuant to which Honeywell sold, assigned or licensed certain assets related to its inertial, communication and navigation product lines, including a sale of certain inventory, equipment and customer-related documents, an assignment of certain contracts and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for cash consideration of $35.9 million.

In July 2024, the Company entered into the July 2024 Honeywell Asset Acquisition, an exclusive license agreement and acquired additional key assets for certain communication and navigation product lines from Honeywell.Honeywell (the “July 2024 Honeywell Asset Acquisition”). This transaction complementscomplemented the previous Honeywell license and asset acquisition completed in June 2023. Total consideration was $4.2 million in cash.

On September 27, 2024, the Company entered into a further agreement with Honeywell (the “September 2024 Honeywell Agreement with Honeywell,”), pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its various generations of military display generators and flight control computers to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for consideration of $14.2 million in cash.

Cost of sales related to product and service sales comprises materials, components and third-party avionics purchased from suppliers, direct labor and overhead costs. Many of the components are standard, although certain parts are manufactured to meet the Company’s specifications. The overhead portion of Cost of sales are primarily comprisescomprised of salaries and benefits, building occupancy costs, supplies and outside service costs related to production, purchasing, material control and quality control. Cost of sales also includes warranty costs.

Cost of sales related to EDC sales comprises engineering labor, consulting services and other costs associated with specific design and development projects. These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within Cost of sales, with reimbursement accounted for as a sale in accordance with the percentage-of-completion method or completed contract method of accounting. Company funded R&D expenditures relate to internally-fundedinternally funded efforts for the development of new products and the improvement of existing products. These costs are expensed as incurred and reported as R&D expenses. The Company intends to continue investing in the development of new products that complement current product offerings and to expense associated R&D costs as they are incurred.

The Company sells its products to agencies of the United States and foreign governments, aircraft operators, aircraft modification centers and OEMs. Customers have been and may continue to be affected by changes in economic conditions both in the United States and abroad. Such changes may cause customers to curtail or delay their spending on both new and existing aircraft. Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, general levels of consumer spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, inflation, public health crises and pandemics, including the COVID-19 pandemic,pandemics and other macroeconomic factors that affect spending behavior. Furthermore, spending by government agencies may be reduced in the future. If customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions, the Company’s revenues and results of operations would be affected adversely. For example, in the 2020 fiscal year,year certainended ofSeptember 30, 2025, changes in U.S. administrative tariff policy, have led to increases in tariffs for imported goods. Thus far, the Company’simpact customersto temporarilyCompany suspendedhas productbeen deliveries as a result of the COVID-19 pandemic, and while these deliveries subsequently resumed, there is a possibility that the COVID-19 or similar pandemics will result in other suspensions, delays or order cancellations by the Company’s customers or suppliers.nominal.

Selling, general, and administrative. SG&A expenses increased $1.3 million or 11.9%, to $12.1 million from $10.8 million in fiscal year 2023. The increase in SG&A expense in fiscal year 2024 was primarily the result of increases in consulting and legal fees of $0.9 million primarily due to acquisition related expenses and increased costs of $0.6 million as a result of the recruitment of a new CFO and other corporate initiatives. In addition, the Company incurred amortization expense of $1,191,361$1.2 million related to the customer relationships intangible asset resulting from the combined acquisitions. These increases were partially offset by a $162,000$0.2 million gain from the sale of the Company’s King Air aircraft. As a percentage of Net sales, selling, general and administrative expenses were 25.6% in fiscal year 2024 compared to 31.1% for fiscal year 2023.

Other income. Other income was $0.2 million in fiscal year 2023. The Company did not have any other income for fiscal year 2024. Other income was $0.2 million in fiscal year 2023.

The Company’s principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years’ operations, supplemented with our revolving credit facility. Cash is used principally to finance inventory, accounts receivable, contract assets, payroll, debt service and acquisitions, as well as the Company’s known contractual and other commitments (including those described in Notefootnote 19, “LeasesLease Recognition”). to the financial statements contained in this Annual Report on Form 10-K. The Company’s existing cash balances and anticipated cash flows from operations, together with borrowings under our revolving credit facility, are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months. Apart from what has been disclosed in this Management’s Discussion and Analysis, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources.

During the fiscal yearyears ended September 30, 2024,2024 and September 30,2025, we did not sell any shares of common stock under the ATM Sales Agreement.

The Company did not pay cash dividends in fiscal years 20232023, 2024 or 2024.2025. The Company intends to retain future earnings, if any, to finance the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors and will depend on then-existing conditions, including our operating results, financial condition, business prospects and other factors the Board may deem relevant.

The Company generated $5.8$13.3 million of cash from operating activities during fiscal year 2024,2025, as compared to cash generated of $2.1$5.8 million during fiscal year 2023.2024. The cash generated by operating activities for the year ended September 30, 20242025 was primarily generated by net income of $7.0$15.6 million, anincluding increase$1.5 million of net ERTC funds received in fiscal year 2025, non-cash compensation expenses for traditional and market-based stock options and traditional and market-based stock awards of $0.3 million and $0.7$2.0 million, respectively, and depreciation and amortization expense of $2.1$3.8 million. Changes isin certain other working capital accounts drove the remainder of the increase for fiscal year 2024.2025.

The Company generated $2.1$5.8 million of cash infrom operating activities during fiscal year 2023,2024, as compared to cash generated of $6.1$2.1 million during fiscal year 2022.2023. The cash generated by operating activities for the year ended September 30, 20232024 was primarily generated by net income of $6.0$7.0 million, an increase in non-cash compensation expenses for stock options and stock awards of $0.8$0.3 million and $0.7 million, respectively, and depreciation and amortization expense of $0.7$2.1 million,million. partiallyChanges offsetin bycertain increasesother toworking capital accounts receivabledrove the remainder of $5.4the millionincrease andfor inventoriesfiscal ofyear $0.8 million.2024.

Cash used in investing activities was $16.8 million for the fiscal year ended September 30, 2024 and was primarily due to the $14.2 million acquisition of various generations of military display generators and flight control computers in September 2024 and the $4.2 million acquisitions of certain additional assets related to the Company’s communication and navigation product lines in July of 2024. In addition, the Company spent $0.7 million for the purchases of property and equipment, partially offset by proceeds of $2.2 million from the sale of the Company’s King Air aircraft. The Company plans to continue investing in capital equipment to support engineering development efforts and operations.

Net cash provided by financing activities was $8.5 million for the fiscal year ended September 30, 2024 and consisted of $43.8 million in payments against the Company’s line of credit offset by $52.3 million in additional borrowings used to fund the Company’s fiscal year ended September 30, 2024 acquisitions.

Future capital requirements depend upon numerous factors, including market acceptance of the Company’s products, the timing and rate of expansion of business, acquisitions, joint ventures and other factors. IS&SIA has experienced increases in expenditures since its inception and anticipates that increases in expenditures will continue in the foreseeable future. The Company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months. However, the Company may need to develop and introduce new or enhanced products, respond to competitive pressures, invest in or acquire businesses or technologies, or respond to unanticipated requirements or developments. If sufficient funds are not available, the Company may not be able to introduce new products or compete effectively.

For information regarding the Company’s risk factors, refer to the “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2025, filed with the SEC on December 22, 2025. There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form10-KForm 10-K for the fiscal year ended September 30, 2025.

The Company has continued to position itself as a system integrator, which provides the Company with the capability and potential to generate more substantive orders over a broader product base. This strategy, as both a manufacturer and integrator, has positioned the Company to deliver cost-effective solutions for the general aviation, commercial air transport, and the DoD and governmental and foreign military markets. This approach, combined with the Company’s deep industry experience across OEMs and platformsplatforms, is designed to enable the Company to develop high-quality products and systems, to reduce product time to market and to achieve cost advantages over products offered by its competitors.

As a result, theThe Company anticipates revenues related to the above Honeywell transactions will continue to fluctuate significantly over the next few quarters. The transition of the business from Honeywell to the Company’s facilities will involve certain risks that may adversely impact operational performance and reported results.

Cost of sales related to product and service sales comprisescomprise materials, components and third-party avionics purchased from suppliers, direct labor and overhead costs. Many of the components are standard, although certain parts are manufactured to meet the Company’s specifications. The overhead portion of cost of sales are primarily comprised ofcomprise salaries and benefits, building occupancy costs, supplies and outside service costs related to production, purchasing, material control and quality control. Cost of sales also includes warranty costs.

The Company believes that its critical accounting policies affect its more significant estimates and judgments used in the preparation of its condensed consolidated financial statements. The Annual Report on Form 10-K for the fiscal year ended September 30, 2025 contains a discussion of these critical accounting policies. See also Note 1 to the unaudited condensed consolidated financial statements for the three and sixnine months ended MarchJune 31,30, 2026 included in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS FOR THE THREE AND SIXNINE MONTHS ENDED

MARCHJUNE 31,30 2026 AND 2025

Three Months Ended MarchJune 31,30, 2026 Compared to the Three Months Ended MarchJune 31,30, 2025

Net sales. Net sales for the three months ended MarchJune 31,30, 2026,2026 increased by 2.0%10.7% to $22.4$26.7 million, up from net sales of $21.9$24.1 million for the three months ended MarchJune 31,30, 2025. The increase in net sales principally reflects an increase of $4.3$4.0 million in commercial aftermarket product sales andsales, an increase of $1.1$2.1 million in business aviation,aviation and the contribution from recent acquisitions, partially offset by a decrease of $4.4$4.9 million in military product sales,sales primarily dueas toa result of a decline in F-16 revenues from elevated levels in the transitionprior of F-16 production into the Exton facility.period. Services sales for the three months ended MarchJune 31,30, 2026,2026 decreasedincreased $0.7$1.3 million, or 8.0%,17.2%, compared to Services sales for the three months ended MarchJune 31,30, 2025, of $8.8 million. The decreaseincrease in Services sales primarily reflects aan decreaseincrease in service volumes related to the IRUsIRUs, radio, and radioautopilot product lines acquired in 20232023, 2024, and 20242026 of $0.6$1.3 millionmillion, an increase in engineering project revenue of $0.8 million, and a $0.1$0.2 million decreaseincrease in legacy customer service revenue, partially offset by a $1.0 million decrease in F-16 service revenue.

Cost of sales. Cost of sales was $20.9$12.9 million, or 47.2%48.3% of net sales, for the sixthree months ended MarchJune 31,30, 2026 compared to $20.0$15.6 million, or 52.8%64.4% of net sales, for the sixthree months ended MarchJune 31,30, 2025. The change in cost of sales for the sixthree months ended MarchJune 31,30, 2026 compared to the sixthree months ended MarchJune 31,30, 2025 principally reflects product mixmix, with net sales growth of $9.9$4.0 million in commercial aftermarket salessales, and $0.6$2.1 million in business aviation while OEMsales, and $1.3 million in net service sales, while military net sales decreased by $5.9$4.9 million. Gross profit was $23.3$13.8 million, or 52.8%51.7% of net sales, for the sixthree months ended MarchJune 31,30, 2026 compared to $17.9$8.6 million, or 47.2%35.5% of net sales, for the sixthree months ended MarchJune 31,30, 2025. The increase in gross margin principally reflects the previouslyincrease mentioned net sales growth, a more favorable product mix within ourin commercial aftermarket product line, and abusiness aviation sales, which have higher proportion of commercial aftermarket revenue, which by nature has higher gross margins as compared tothan military and OEM business.sales.

Research and development. R&D expense increased $1.1$1.0 million, or 57.8%,104.8%, to $3.1$1.9 million for three months ended June 30, 2026 from $0.9 million for the sixthree months ended MarchJune 31, 2026 from $2.0 million for the six months ended March 31,30, 2025. As a percentage of net sales, R&D expenses increased to 7.0% of net sales for the sixthree months ended MarchJune 31,30, 2026 from 5.3%4.8% of net sales for the sixthree months ended MarchJune 31,30, 2025. The increase in R&D expenses as a percentage of revenues in the quarter was primarily the result of additional headcount to supportdrive long-term growth for the developmentnext-gen ofcapabilities futurethat products.support multiple platforms and end markets. For the sixthree months ended MarchJune 31,30, 20262026, and 2025, $1.0$0.7 million of R&D expense was recharacterized as cost of sales related to the EDC sales, which was offset by $0.8$0.7 million in additional engineering staffing to support the Company’snext developmentgeneration programs.or products.

SG&A. SG&A expenses increased $1.4$1.8 million,million or 18.4%,42.2%, to $9.0$5.9 million for the sixthree months ended MarchJune 31,30, 2026 from $7.6$4.2 million for the sixthree months ended MarchJune 31,30, 2025. The increase in SG&A expense for the sixthree months ended MarchJune 31,30, 2026 was primarily the result of increases in employee-related costs of $1.4$0.6 million, and $1.2 million and an increase in one-timecosts charges of $0.5 millionlargely related to threenew business from completed acquisitions that closeddid not exist during the sixprevious months ended March 31, 2026.quarter. As a percentage of net sales, SG&A expenses were 20.3%22.1% for the sixthree months ended MarchJune 31,30, 2026 compared to 20.0%17.2% for the sixthree months ended MarchJune 31,30, 2025.

Interest expense. Interest expense was $1.0 million for the sixthree months ended MarchJune 31,30, 2026, an increase of $0.2$0.6 million from $0.8$0.4 million for the sixthree months ended MarchJune 31,30, 2025. The change was due to approximatelyinterest $0.1paid millionon innew amortizationborrowings ofto deferredfinance financing fees.acquisitions.

Interest income. Interest income was negligible for the sixthree months ended MarchJune 31,30, 2026 and 2025, respectively.

Other income. Other income was negligible$0 for the sixthree months ended MarchJune 31,30, 2026 and 2025,$0 respectively.for the three months ended June 30, 2025.

Income taxes. Income tax expense was $2.8$0.5 million for the sixthree months ended MarchJune 31,30, 2026 as compared to income tax expense of $1.5$0.7 million for the sixthree months ended MarchJune 31,30, 2025. The effective tax rate for the sixthree months ended MarchJune 31,30, 2026 was 27.3%10.5% as compared to 19.2%21.5% for the sixthree months ended MarchJune 31,30, 2025. The increasesdecreases in income tax expense and the effective tax rate were primarily due to an increase in income before income taxes as well as the unfavorable effectseffect of state income taxes, tax credits, temporary and permanent tax differences related to stock-based compensation and certainfavorable non-deductible expenses for the six months ended March 31, 2026, comparedreturn to theprovision six months ended March 31, 2025.adjustments.

Net income. As a result of the factors described above, the Company’s net income for the sixthree months ended MarchJune 31,30, 2026 was $7.5$4.5 million compared to net income of $6.1$2.4 million for the sixthree months ended MarchJune 31,30, 2025. On a fully diluted basis, net income per share was $0.42$0.25 for the sixthree months ended MarchJune 31,30, 2026, compared to a net income of $0.34$0.14 per share for the sixthree months ended MarchJune 31,30, 2025.

See footnote 9. Loan Agreement to the unaudited condensed consolidated financial statements for the three and sixnine months ended MarchJune 31,30, 2026 included in this Quarterly Report on Form 10-Q for additional disclosures related to the 2025 Credit Agreement.

During the fiscal years ended September 30, 2024 and September 30, 2025, and during the three and sixnine months ended MarchJune 31,30, 2026, we did not sell any shares of common stock under the ATM Sales Agreement.

The Company did not pay cash dividends in fiscal years 2024 or 2025, or in the three and sixnine months ended MarchJune 31,30, 2026. The Company currently intends to retain future earnings, if any, to finance the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors and will depend on then-existing conditions, including our operating results, financial condition, business prospects and other factors the Board may deem relevant.

Net cash provided by operating activities was $10.5$15.55 million for the sixnine months ended MarchJune 31,30, 2026 and consisted primarily of funding from net income of $7.5$12.0 million and changes in working capital.

Net cash provided by operating activities was $3.1$10.3 million for the sixnine months ended MarchJune 31,30, 2025 and consisted primarily of funding from net income of $6.1$8.5 million and changes in working capital.

Net cash used in investing activities was $35.7$36.2 million for sixthe nine months ended MarchJune 31,30, 2026 and was primarily due to the $22.0 million acquisition for the Honeywell Autopilot Agreement, $8.0 million for the Honeywell Generators Agreement and $3.5 for the S-TEC® acquisition. In addition, the Company spent $1.3 million for the purchase of an Eclipse business jet for research and development and $1.4$1.9 million for additions and improvements in the Company’s facilities and the purchases of equipment.

Net cash used in investing activities was $1.8$5.5 million for the sixnine months ended MarchJune 31,30, 2025 and consisted of expenditures related to additions and improvements in the Company’s facilities andfacilities, purchases of equipment and computer hardware.software investment related to the Company’s ERP (“Enterprise Resource Planning”) implementation.

Net cash provided by financing activities was $29.3$28.7 million for the sixnine months ended MarchJune 31,30, 2026 and consisted of proceeds of $32.0 million from the delayed draw term loan to fund acquisitions offset by payments against the Company’s term loan of $1.3$1.9 million and $1.4$1.5 million for the tax payments of vested equity award shares withheld for taxes.

Net cash used in financing activities was $0.6$4.8 million for the sixnine months ended MarchJune 31,30, 2025 and consisted of payments against the Company’s line of credit.

At MarchJune 31,30, 2026, our backlog was $87.0$82.9 million compared with $77.4 million at September 30, 2025. Backlog is converted into sales in future periods as work is performed or deliveries are made. We expect to recognize approximately 67%78% of our backlog over the next 12 months and approximately 97%95% over the next 24 months as revenue, with the remainder recognized thereafter.