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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Innovative Solutions and Support, Inc.    ISSC

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

(ISSC)
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Innovative and Support : SOLUTIONS & SUPPORT INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/10/2020 | 05:11pm EDT

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS




This report contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are based largely on
current expectations and projections about future events and trends affecting
the business, are not guarantees of future performance, and involve a number of
risks, uncertainties and assumptions that are difficult to predict. In this
report, the words "anticipates," "believes," "may," "will," "estimates,"
"continues," "anticipates," "intends," "forecasts," "expects," "plans," "could,"
"should," "would," "is likely" and similar expressions, as they relate to the
business or to its management, are intended to identify forward-looking
statements, but they are not exclusive means of identifying them. Unless the
context otherwise requires, all references herein to "IS&S," the "Registrant,"
the "Company," "we," "us" or "our" are to Innovative Solutions and Support, Inc.
and its consolidated subsidiaries.



The forward-looking statements in this report are only predictions, and actual
events or results may differ materially. In evaluating such statements, a number
of risks, uncertainties and other factors could cause actual results,
performance, financial condition, cash flows, prospects and opportunities to
differ materially from those expressed in, or implied by, the forward-looking
statements. These risks, uncertainties and other factors include those set forth
in Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year
ended September 30, 2019, those set forth in Item 1A of our Quarterly Report on
Form 10-Q for the quarterly period ended March 1, 2020, and the following
factors:



· market acceptance of the Company's ThrustSense® Integrated PT6 Autothrottle,

PC-12 Autothrottle, VmcaMitigation and Hot Start Protection capabilities, FPDS,

NextGen Flight Deck and COCKPIT/IP® or other planned products or product

enhancements;

· continued market acceptance of the Company's air data systems and products;

· the competitive environment and new product offerings from competitors;

· difficulties in developing and producing the Company's ThrustSense® Integrated

PT6 Autothrottle, PC-12 Autothrottle, Vmca Mitigation and Hot Start Protection

capabilities, NextGen Flight Deck, COCKPIT/IP® Flat Panel Display System or

other planned products or product enhancements;

· the deferral or termination of programs or contracts for convenience by

customers;

· the ability to service the international market;

· the availability of government funding;

· the impact of general economic trends on the Company's business, including as a

result of the COVID-19 pandemic;

· disruptions in the Company's supply chain, customer base and workforce,

including as a result of the COVID-19 pandemic;

· the ability to gain regulatory approval of products in a timely manner;

· delays in receiving components from third-party suppliers;

· the bankruptcy or insolvency of one or more key customers;

· protection of intellectual property rights;

· the ability to respond to technological change;

· failure to retain/recruit key personnel;

· risks related to succession planning;

· a cyber security incident;

· risks related to our self-insurance program;

· potential future acquisitions;

· the costs of compliance with present and future laws and regulations;

· changes in law, including changes to corporate tax laws in the United States

and the availability of certain tax credits; and

· other factors disclosed from time to time in the Company's filings with the

   United States Securities and Exchange Commission (the "SEC").




Except as expressly required by the federal securities laws, the Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise
after the date of this report. Results of operations in any past period should
not be considered indicative of the results to be expected for future periods.
Fluctuations in operating results may result in fluctuations in the price of the
Company's common stock.


Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company does not
undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events, circumstances or changes in
expectations after the date of this report, or to reflect the occurrence of
unanticipated events. The forward-looking statements in this document are
intended to be subject to the safe harbor protection provided by Sections 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and 21E of the
Securities Exchange Act of 1934, as amended

(the "Exchange Act").



20






Investors should also be aware that while the Company, from time to time,
communicates with securities analysts, it is against its policy to disclose any
material non-public information or other confidential commercial information.
Accordingly, shareholders should not assume that the Company agrees with any
statement or report issued by any analyst irrespective of the content of the
statement or report. Furthermore, the Company has a policy against issuing or
confirming financial forecasts or projections issued by others. Thus, to the
extent that reports issued by securities analysts contain any projections,
forecasts or opinions, such reports are not the responsibility of the Company.



21






Company Overview



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"), Autothrottle Systems, air data equipment, Integrated
Standby Units ("ISU") and advanced Global Positioning System ("GPS") receivers
that enable reduced carbon footprint navigation.



The Company has continued to position itself as a system integrator, which
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, 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.


For several years the Company has been working with advances in technology to
provide pilots with more information to enhance both the safety and efficiency
of flying, and has developed its COCKPIT/IP® Cockpit Information Portal ("CIP")
product line, that incorporates proprietary technology, low cost, reduced power
consumption, decreased weight, and increased functionality. The Company has
incorporated Electronic Flight Bag ("EFB") functionality, such as charting and
mapping systems, into its FPDS product line.



The Company has developed an FMS that combines the savings long associated with
in-flight fuel optimization in enroute flight management combined with the
precision of satellite-based navigation required to comply with the regulatory
environments of both domestic and international markets. The Company believes
that the FMS, alongside its FPDS and CIP product lines, is well suited to
address market demand driven by certain regulatory mandates, new technologies,
and the high cost of maintaining aging and obsolete equipment on aircraft that
will be in service for up to fifty years. The shift in the regulatory and
technological environment is illustrated by the dramatic increase in the number
of Space Based Augmentation System ("SBAS") or Wide Area Augmentation System
("WAAS") approach qualified airports, particularly as realized through Localizer
Performance with Vertical guidance ("LPV") navigation procedures. Aircraft
equipped with the Company's FMS, FPDS and SBAS/WAAS/LPV enabled navigator, will
be qualified to land at such airports and will comply with Federal Aviation
Administration ("FAA") mandates for Required Navigation Performance, and
Automatic Dependent Surveillance-Broadcast navigation. IS&S believes this will
further increase the demand for the Company's products. The Company's FMS/FPDS
product line is designed for new production and retrofit applications into
general aviation, commercial air transport and military transport aircraft. In
addition, the Company offers what we believe to be a state-of-the-art ISU,
integrating the full functionality of the primary and navigation displays into a
small backup-powered unit. This ISU builds on the Company's legacy air data
computer to form a complete next-generation cockpit display and navigation
upgrade offering to the commercial and military markets.



The Company has developed and received certification from the FAA on its NextGen
Flight Deck featuring its ThrustSense® Integrated PT6 Autothrottle
("ThrustSense® Autothrottle") for retrofit in the Pilatus PC-12. The NextGen
Flight Deck features Primary Flight and Multi-Function Displays and ISUs, as
well as an Integrated FMS and EFB System. The innovative avionics suite includes
dual flight management systems, autothrottles, synthetic vision and enhanced
vision. The NextGen enhanced avionics suite is available for integration into
other business aircraft with Non-FADEC and FADEC engines.



The Company has developed, and in April 2019 received certification from the FAA
for, its ThrustSense® Autothrottle for retrofit in the King Air, dual turbo prop
PT6 powered aircraft. The autothrottle is designed to automate the power
management for speed and power control. ThrustSense also ensures aircraft
envelope protection and engine protection during all phases of flight reducing
pilot workload and increasing safety.



More recently, on December 9, 2019 the Company received certification from the
FAA for a safety mode feature during an engine-out condition for its King Air
ThrustSense® Autothrottle.



We believe the ThrustSense® Autothrottle is innovative in that it is the first
autothrottle developed for a turbo prop that allows a pilot to automatically
control the power setting of the engine. The autothrottle computes and controls
appropriate power levels reducing overall pilot workload. The system computes
thrust, holds selected speed/torque, and implements appropriate speed and engine
limit protection. When engaged by the pilot, the autothrottle system adjusts the
throttles automatically to achieve and hold the selected airspeed guarded by a
torque/temperature limit mode. The autothrottle system takes full advantage of
the integrated cockpit utilizing weight and balance information for optimal
control settings and enabling safety functions like a turbulence control mode.



22






The Company sells to both the OEM and the retrofit markets. Customers include
various OEMs, commercial air transport carriers and corporate/general aviation
companies, DoD and its commercial contractors, aircraft operators, aircraft
modification centers, government agencies, and foreign militaries. Occasionally,
IS&S sells its products directly to DoD; however, the Company sells its products
primarily to commercial customers for end use in DoD programs. Sales to defense
contractors are generally made on commercial terms, although some of the
termination and other provisions of government contracts are applicable to these
contracts. The Company's retrofit projects are generally pursuant to either a
direct contract with a customer or a subcontract with a general contractor to a
customer (including government agencies).



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, the impact of the ongoing COVID-19
pandemic, 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, and other macroeconomic factors
that affect spending behavior. Furthermore, spending by government agencies may
be reduced in the future if tax revenues decline. 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, previously certain of the
Company's customers temporarily suspended product deliveries as a result of the
COVID-19 pandemic, and while these deliveries have since resumed, there is a
possibility that the COVID-19 pandemic will result in other suspensions, delays
or order cancellations by the Company's customers (or, for that matter, by
the
Company's suppliers).


In particular, the ongoing COVID-19 pandemic is a significant event, driver of
market trends, and source of uncertainty that may have a material impact on the
Company's liquidity, financial condition, capital resources, cash flows or
operating results. In direct response to the COVID-19 pandemic, the Company has
taken specific actions to ensure the safety of its employees, including
increased safety measures and the transitioning of many employees to remote
work.



Cost of sales related to product sales comprises material 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 IS&S specifications. The overhead portion of cost of sales comprises
primarily salaries and benefits, building occupancy costs, supplies, and outside
service costs related to production, purchasing, material control, and quality
control. Cost of sales includes warranty costs.



Cost of sales related to engineering development contracts ("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 the reimbursement accounted for as a sale in
accordance with the percentage-of-completion method of accounting. Company
funded research and development ("R&D") expenditures relate to internally-funded
efforts towards 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.



Selling, general and administrative expenses consist of sales, marketing,
business development, professional services, salaries and benefits for executive
and administrative personnel, facility costs, recruiting, legal, accounting, bad
debt expense and other general corporate expenses.



Critical Accounting Policies and Estimates

The discussion and analysis of financial condition and consolidated results of
operations are based upon the Company's condensed consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of these condensed
consolidated financial statements requires estimates and assumptions that affect
the reported amounts of assets, liabilities, sales and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, IS&S
management evaluates its estimates based upon historical experience and various
other assumptions that it believes to be reasonable in the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.



The Company believes that its critical accounting policies affect its more
significant estimates and judgments used in the preparation of its consolidated
financial statements. The Annual Report on Form 10-K for the fiscal year ended
September 30, 2019 contains a discussion of these critical accounting policies.
There have been no significant changes in the Company's critical accounting
policies since September 30, 2019. See also Note 1 to the unaudited condensed
consolidated financial statements for the three- and nine-month periods ending
June 30, 2020 as set forth herein.



23






           RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
                             JUNE 30, 2020 AND 2019


The following table sets forth the statements of operations data expressed as a
percentage of total net sales for the periods indicated (some items may not add
due to rounding):



                                           Three Months Ended June 30,           Nine Months Ended June 30,
                                            2020                2019              2020                 2019
Net sales:
Product                                          91.5 %              97.1 %           95.1 %               93.5 %
Engineering development contracts                 8.5 %               2.9 %
           4.9 %                6.5 %
Total net sales                                 100.0 %             100.0 %          100.0 %              100.0 %

Cost of sales:
Product                                          41.8 %              43.8 %           44.4 %               41.5 %
Engineering development contracts                 1.2 %               1.2 %
           1.4 %                3.4 %
Total cost of sales                              43.0 %              45.0 %           45.8 %               44.9 %

Gross profit                                     57.0 %              55.0 %           54.2 %               55.1 %

Operating expenses:
Research and development                         14.6 %              15.7 %           14.7 %               15.4 %
Selling, general and administrative              21.5 %              30.9 %
          29.5 %               34.6 %
Total operating expenses                         36.1 %              46.6 %           44.2 %               50.0 %

Operating income                                 20.9 %               8.4 %           10.0 %                5.1 %

Interest income                                   0.1 %               2.2 %            1.0 %                1.2 %
Other income                                      0.3 %               0.5 %            0.3 %                0.4 %
Income before income taxes                       21.3 %              11.1 %           11.3 %                6.7 %

Income tax expense (benefit)                      0.1 %               0.0 %           (2.0 )%               0.1 %

Net income                                       21.2 %              11.1 %           13.2 %                6.7 %




24





Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019




Net sales. Net sales were $5,953,689 for the three months ended June 30, 2020
compared to $4,589,824 for the three months ended June 30, 2019, an increase of
29.7%. Product sales increased $987,302 in the three months ended June 30, 2020
compared to the three months ended June 30, 2019, and EDC sales increased
$376,563 from the same period in the prior year. Product sales for the three
months ended June 30, 2020 increased from the same period in the prior year
primarily because of increased shipments of displays for retrofit programs to
commercial transport and general aviation customers and King Air autothrottle
systems to our OEM customer. The increase in EDC sales in the current year
period was primarily the result of completing a modification contract for a F-5
air data computer for the U.S. Navy.



Cost of sales. Cost of sales increased $494,399, or 23.9%, to $2,559,016, or
43.0% of net sales, in the three months ended June 30, 2020, compared to
$2,064,617 or 45.0% of net sales, in the three months ended June 30, 2019. The
increase in cost of sales was primarily the result of an increase in labor and
related benefit costs attributable to an increase in headcount to meet customer
backlog requirements and higher material costs reflecting increased product
sales for the three months ended June 30, 2020 compared to the three months
ended June 30, 2019. The Company's overall gross margin was 57.0% and 55.0% for
the quarters ended June 30, 2020 and 2019, respectively.



Research and development. R&D expense increased $148,280, or 20.5%, to $870,805,
or 14.6% of net sales, in the three months ended June 30, 2020 from $722,525, or
15.7% of net sales, in the three months ended June 30, 2019. The increase in R&D
expense in the quarter was primarily the result of increased payroll, payroll
related benefits and outside services.



Selling, general and administrative. Selling, general and administrative expense
decreased by $136,631 to $1,279,422 in the three months ended June 30, 2020 from
$1,416,053 in the three months ended June 30, 2019. As a percentage of net
sales, selling, general and administrative expenses decreased to 21.5% of net
sales in the three months ended June 30, 2020 from 30.9% of net sales in the
three months ended June 30, 2019 reflecting both increased net sales in the
current quarter and a reduction in selling, general and administrative expense.
The decrease in selling, general and administrative expense in the quarter was
primarily the result of a decrease in professional services and trade show
expenses.



Interest income. Interest income decreased by $92,149 to $7,767 in the three
months ended June 30, 2020 from $99,916 in the three months ended June 30, 2019,
mainly a result of lower interest rates in the current year period compared to
the same period in the prior year.



Other income. Other income is mainly composed of royalties earned and decreased
by $8,453 to $16,261 in the three months ended June 30, 2020 compared to the
same period in the prior year.



Income tax expense. The income tax expense for the three months ended June 30,
2020 was $8,616 as compared to an income tax expense of $0 for the three months
ended June 30, 2019.



The effective tax rate for the three months ended June 30, 2020 was 0.7% and
differs from the statutory tax rate primarily due to an increase in the NOL
usage due to an increase in pretax book income 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 June 30, 2020, the valuation
allowance decreased by approximately $243,300 to $3,485,000 and is recorded
against all its federal and state deferred tax assets.



The effective tax rate for the three months ended June 30, 2019 was 0% and
differs from the statutory tax rate primarily due to net operating loss
realization. This loss realization both decreased the deferred tax asset and the
valuation allowance. For the three months ended June 30, 2019, the valuation
allowance decreased by approximately $565,000.



Net income. The Company reported net income for the three months ended June 30,
2020 of $1,259,858 compared to net income of $511,259 for the three months ended
June 30, 2019. On a diluted basis, the net income per share was $0.07 for the
three months ended June 30, 2020 compared to net income per share of $0.03 for
the three months ended June 30, 2019.



25





Nine Months Ended June 30, 2020 Compared to the Nine Months Ended June 30, 2019




Net sales. Net sales were $15,300,182 for the nine months ended June 30, 2020
compared to $12,770,601 for the nine months ended June 30, 2019, an increase of
19.8%. Product sales increased $2,609,259 in the nine months ended June 30, 2020
compared to the nine months ended June 30, 2019, and EDC sales decreased $79,678
from the same period in the prior year. Product sales for the nine months ended
June 30, 2020 increased from the same period in the prior year primarily because
of increased shipments of displays for retrofit programs to the DoD and military
subcontractors and general aviation customers. The decrease in EDC sales in the
current year period was primarily the result of completing a development
contract for a new F-5 air data computer for the U.S. Navy.



Cost of sales. Cost of sales increased $1,275,306, or 22.2%, to $7,008,691, or
45.8% of net sales, in the nine months ended June 30, 2020, compared to
$5,733,385 or 44.9% of net sales, in the nine months ended June 30, 2019. The
increase in cost of sales was primarily the result of an increase in labor and
related benefit costs attributable to an increase in headcount to meet customer
backlog requirements; higher material costs reflecting increased product sales;
and warranty costs due to increased warranty activity for the nine months ended
June 30, 2020 compared to the nine months ended June 30, 2019. The Company's
overall gross margin was 54.2% and 55.1% for the nine months ended June 30,
2020
and 2019, respectively.



Research and development. R&D expense increased $282,060, or 14.3%, to
$2,249,439, or 14.7% of net sales, in the nine months ended June 30, 2020 from
$1,967,379, or 15.4% of net sales, in the nine months ended June 30, 2019. The
increase in R&D expense was primarily the result of increased payroll and
related benefits and a higher proportion of efforts focused upon internal
projects rather than EDC programs, whose costs are reflected in cost of sales
rather than as R&D expense.



Selling, general and administrative. Selling, general and administrative expense
increased by $99,959, or 2.3%, to $4,514,085 in the nine months ended June 30,
2020 from $4,414,126 in the nine months ended June 30, 2019. The increase in
selling, general, and administrative expense in the nine months period was
primarily the result of increased sales commissions. As a percentage of net
sales, selling, general and administrative expenses decreased to 29.5% of net
sales reflecting increased net sales in the nine months ended June 30, 2020 from
34.6% of net sales in the nine months ended June 30, 2019.



Interest income. Interest income increased marginally by $4,410 to $152,358 in
the nine months ended June 30, 2020 from $147,948 in the nine months ended June
30, 2019, mainly a result of higher interest rates in the current year period
compared to the same period in the prior year.



Other income. Other income is mainly composed of royalties earned and decreased
by $12,254 to $44,760 in the nine months ended June 30, 2020 compared to the
same period in the prior year.



Income tax expense. The income tax benefit for the nine months ended June 30,
2020 was $300,786 as compared to an income tax expense of $7,794 for the nine
months ended June 30, 2019.


The effective tax benefit rate for the nine months ended June 30, 2020 was 17.4%
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 nine months ended June 30, 2020,
the valuation allowance decreased by approximately $243,000 to $3,485,000 and is
recorded against all its federal and state deferred tax assets.



The effective tax rate for the nine months ended June 30, 2019 was 0.9% and differs from the statutory tax rate primarily due to net operating loss realization. This loss realization both decreased the deferred tax asset and the valuation allowance. For the nine months ended June 30, 2019, the valuation allowance decreased by approximately $811,000.

Net income. The Company reported net income for the nine months ended June 30,
2020 of $2,025,871 compared to net income of $853,179 for the nine months ended
June 30, 2019. On a diluted basis, the net income per share was $0.12 for the
nine months ended June 30, 2020 compared to net income per share of $0.05 for
the nine months ended June 30, 2019.



26





Liquidity and Capital Resources

The following table highlights key financial measurements of the Company:



                                                     June 30,        September 30,
                                                       2020              2019
Cash and cash equivalents                          $ 22,984,249$    22,416,830
Accounts receivable                                   3,864,656           2,348,537
Current assets                                       32,665,970          29,958,292
Current liabilities                                   2,562,211           2,219,222
Contract liability                                      106,341              29,231
Total debt and other non-current liabilities (1)        131,930            
129,651
Quick ratio (2)                                           10.48               11.16
Current ratio (3)                                         12.75               13.50




                                             Nine Months Ended June 30,
                                               2020               2019

Cash flow activites: Net cash provided by operating activites $ 626,221$ 2,248,283 Net cash used in investing activites

             (67,624 )         (75,585 )
Net cash provided by financing activites           8,822                 -

(1) Excludes contract liabilities

(2) The sum of cash and cash equivalents plus accounts receivable,

              divided by current liabilities


(3) Current assets divided by current liabilities





The Company's principal source of liquidity has been cash flows from current
year operations and cash accumulated from prior years' operations. Cash is used
principally to finance inventory, accounts receivable, and payroll.



The ongoing COVID-19 pandemic is a significant event, driver of market trends, and source of uncertainty that may have a material impact on the Company's liquidity, financial condition, capital resources, cash flows or operating results. In direct response to the COVID-19 pandemic, the Company has taken specific actions to ensure the safety of its employees, including increased safety measures and the transitioning of many employees to remote work.



Operating activities


Cash provided by operating activities for the nine months ended June 30, 2020 resulted primarily from net income of $2,025,871, offset by an increase in accounts receivable of $1,516,119.




Cash provided by operating activities for the nine months ended June 30, 2019
resulted primarily from a decrease in accounts receivable of $2,008,000, and net
income of $853,000, offset by a decrease in accounts payable of $707,000.



Investing activities


Cash used in investing activities was $67,624 for the nine months ended June 30, 2020 and consisted primarily of the purchase of computer, production and laboratory test equipment.




Cash used in investing activities was approximately $76,000 for the nine months
ended June 30, 2019, and consisted primarily of the purchase of production
and
laboratory test equipment.



Financing activities



Net cash provided by financing activities was $8,822 for the nine months ended
June 30, 2020 and consisted primarily of the proceeds from the exercise of
stock
options by employees.


There was no net cash used by financing activities for the nine months ended June 30, 2019.



27






Summary


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&S has experienced
increases in expenditures since its inception and anticipates that 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 insufficient funds are available, the Company may not be able
to introduce new products or compete effectively.



Impact of the COVID-19 Pandemic




Through the first three quarters of 2020, the Company has not yet seen a
material impact from the COVID-19 pandemic on its business, financial position,
liquidity, or ability to service customers or maintain critical operations.
However, 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 caused and is continuing to cause significant market turbulence
and disruption that may continue for some time even after business restrictions
are lifted and the threat of the coronavirus diminishes. As a result, the
Company expects that it may face liquidity shortages, weaker product demand from
its customers, disruptions in its supply chain, and/or staffing shortages in its
workforce for the foreseeable future due to the direct and indirect effects
of
the COVID-19 pandemic.



Backlog


Backlog represents the value of contracts and purchase orders received, less sales recognized to date on those contracts and purchase orders. Backlog activity for the nine months ended June 30, 2020:





                                     Three Months Ended       Nine Months Ended
                                                   June 30, 2020
     Backlog, beginning of period   $          9,789,412     $         5,896,163
     Bookings, net                             2,682,746              15,922,488
     Recognized in revenue                    (5,953,689 )           (15,300,182 )
     Backlog, end of period         $          6,518,469     $         6,518,469






At June 30, 2020, the majority of the Company's backlog is expected to be filled
within the next twelve months. To the extent new business orders do not continue
to equal or exceed sales recognized in the future from the Company's existing
backlog, future operating results may be impacted negatively.



Off-Balance Sheet Arrangements

The Company has no relationships with unconsolidated entities or financial
partnerships, such as Special Purpose Entities or Variable Interest Entities,
established for the purpose of facilitating off-balance sheet arrangements or
other limited purposes.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2019 17,6 M - -
Net income 2019 1,85 M - -
Net cash 2019 22,4 M - -
P/E ratio 2019 42,8x
Yield 2019 -
Capitalization 117 M 117 M -
EV / Sales 2018 1,62x
EV / Sales 2019 3,25x
Nbr of Employees 71
Free-Float 59,5%
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Managers
NameTitle
Geoffrey S. M. Hedrick Chairman & Chief Executive Officer
Shahram Askarpour President
Relland M. Winand Chief Financial Officer
Winston J. Churchill Independent Director
Robert E. Mittelstaedt Independent Director
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