Financial Analysis

4. Acquisition September 2024 Honeywell Agreement On September 27, 2024, the Company entered into 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. The Company determined that the transaction met the definition of a business under ASC 805; therefore, the Company accounted for the transaction as a business combination and applied the acquisition method of accounting. The Company financed the September 2024 Honeywell Agreement with borrowings against the Companys revolving line of credit. Please see Note 20, Loan Agreement for more details. The allocation of the purchase price was based upon certain preliminary valuations and other analyses. During the fiscal year ended September 30, 2025 and within one year of the purchase date, the Company finalized the allocation of the purchase price. The allocation of the purchase consideration as of the acquisition date is …

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16. Commitments and Contingencies Purchase Obligations A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the Company and that specifies all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. These amounts primarily comprise open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the Companys current order backlog. The purchase obligations on open purchase orders were $20.9 million, $9.8 million and $2.4 million as of September 30, 2025, 2024 and 2023, respectively. Product Liability The Company has product liability insurance of $50,000,000. The Company has not experienced any material product liability claims. Legal Proceedings 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. …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

20. Loan Agreement On June 28, 2023, the Company and one of its subsidiaries entered into an Amendment to Loan Documents (the Loan Amendment) with PNC Bank, National Association (the PNC), which amends certain terms of that certain Loan Agreement entered into by the parties on May 11, 2023 (the Loan Agreement and, as amended, the Amended Loan Agreement) and (ii) a corresponding Term Note in favor of PNC (the Term Note), which together provide for a senior secured term loan in an aggregate principal amount of $20.0 million, with a maturity date of June 28, 2028. Availability of funds under the Term Loan was conditioned upon the closing of the transactions contemplated by the Amended Loan Agreement and was used to fund a portion of the 2023 Transaction. Under the agreement, the Company has the right to prepay any amounts outstanding at any time and from time to time, whole or in part; subject to payment of any break funding indemnification amounts. The interest rate applicable to loans outstanding under the Term Loan is a floating interest rate equal to the sum of (A) the Term SOFR Rate (as defined in the Term Note) plus (B) an unadjusted spread of the Applicable SOFR Margin plus (C) a SOFR adjustment of ten basis points. The Applicable SOFR Margin ranges from 1.5% to 2.5% depending on the Companys funded debt to EBITDA ratio. Commencing on June 30, 2023, the Term Loan consists of sixty equal monthly principal installments, over a period of ten years, with the balance payable o …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

15. Share-Based Compensation At June 30, 2024, the Companys 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. The Company accounts for share-based compensation under the provisions of ASC Topic 718, Compensation Stock Compensation, by using the fair value method for expensing stock options, performance-based equity awards, market-based equity awards and stock awards. Total share-based compensation expense was approximately $2,336,227, $1,003,292, and $1,450,428 for the fiscal years ended September 30, 2025, 2024 and 2023, respectively. Compensation expense related to share-based awards is recorded as a component of Cost of sales and selling, general and administrative expenses. Amended and Restated 2019 Stock-Based Incentive Compensation Plan The Companys 2019 Stock-Based Incentive Compensation Plan (as amended, the 2019 Plan) was approved by the Companys shareholders at the Companys Annual Meeting of Shareholders held on April 2, 2019. The 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options, performance-based equity awards, and other equity-based awards. Options granted under the 2019 Plan may be either incentive stock options as defined in Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the Code), or nonqualified stock options, as determined by the Compensation Committee. Subject to an adjustment necessary upo …

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13. Income Taxes The components of income taxes are as follows: For the Fiscal Year Ended September 30, 2025 2024 2023 Current provision Federal $ 4,830,246 $ 2,617,951 $ 1,541,726 State 747,399 371,701 56,288 Total current provision 5,577,645 2,989,652 1,598,014 Deferred provision (benefit) Federal (770,018) (881,495) 28,994 State (483,824) (254,977) (19,491) Total deferred provision (benefit) (1,253,842) (1,136,472) 9,503 Total current and deferred provision $ 4,323,803 $ 1,853,180 $ 1,607,517 Following is a reconciliation of the statutory federal rate to the Companys effective income tax rate: For the Fiscal Year Ended September 30, 2025 2024 2023 U.S. Federal statutory tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 2.2 % 1.1 % 0.4 % Permanent items 0.4 % 0.1 % % Research and development tax credits % (1.6) % (0.8) % Valuation allowance (1.5) % (0.1) % (0.1) % Change in unrecognized tax benefits (0.3) % 0.4 % 0.1 % Stock based compensation awards cancellations and forfeitures (0.1) % 0.0 % 0.4 % Other % 0.0 % 0.1 % Effective income tax rate 21.7 % 20.9 % 21.1 % The deferred tax effect of temporary differences giving rise to the Companys deferred tax assets and liabilities consists of the components below: As of September 30, 2025 2024 Non Current Non Current Deferred tax assets: Reserves and accruals $ 1,772,377 $ 1,233,261 NOL carryforwards -fed/state 920,919 971,825 Stock based compensation awards 705,841 375,224 Amortization 1,736,177 1,302,165 …

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19. Lease Recognition The Company accounts for leases in accordance with ASU 2016-02 and records right-of-use assets and corresponding lease liabilities on the balance sheet for most leases with an initial term of greater than one year. We recognize payments for leases with a term of less than one year in the statements 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 v …

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New Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's Consolidated Financial Statements. In November 2024, the FASB issued ASU No. 2024-03 (ASU 2024-03), Disaggregation of Income Statement Expenses. The guidance primarily will require enhanced disclosures about certain types of expenses. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027 and may be applied either on a prospective or retrospective basis. We are evaluating the impact of the standard on our disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, which requires greater disaggregation of income tax disclosures. The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating the impacts of this guidance on the Companys Consolidated Financial Statements. Recently Adopted Accounting Pronouncements In …

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14. Savings Plan The Company sponsors a voluntary defined contribution savings plan covering all employees. The Company made contributions of approximately $490,000, $344,000 and $242,000 for the fiscal years ended September 30, 2025, 2024 and 2023, respectively. …

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17. Related Party Transactions In recent years, the Company has had sales to AML Global Eclipse, LLC, (Eclipse), whose principal shareholder is also a principal shareholder in the Company. Eclipse became a new related party for fiscal year 2023 due to their president acquiring more than 10% in shares on the Company. Prior balances are disclosed below for comparability. As of July 2025, the principal shareholder no longer owns any shares of the Company. Sales to Eclipse amounted to $0.2 million, $0.2 million and $0.3 million for the fiscal years ended September 30, 2025, 2024 and 2023, respectively. On October 18, 2024, the Company entered into a consulting agreement with Peduzzi Associated, ltd. (PAL), an entity in which board member Maj. General Dean serves as President. PAL will provide consulting services in support of the Companys business development growth into the DoD. The term of the agreement is for one year and in consideration for services the Company will pay PAL a retainer of $9,500 per month. For fiscal year 2025, the Company paid PAL $114,000. …

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18. Business Segments 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 to OEMs, the DoD, the Department of Interior, other government agencies, commercial air transport carriers and corporate/general aviation markets. The individual responsible for key decisions within the Companys business segment is defined as the Chief Operating Decision Maker (CODM). The Companys CODM is the Chief Executive Officer (CEO), Shahram Askarpour. The CODM is the ultimate decision maker as he is responsible for final decisions in allocating resources to achieve the Companys strategic objectives and assessing the Companys performance. The CEO uses consolidated net income and related expense categories as included in the consolidated statement of operations to assess the performance of the segment and make key strategic and operational decisions, such as capital expenditures allocations, new business acquisitions, operating budget review and approval. While input is received from other executive management team members, no other individual approves key operating decisions without the approval of the CEO. There is no management committee or executive committee. Geographic Data Most of the Companys sales, operating results and identifiable assets are generated in the United States. All long-live …

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21. Subsequent Events None. …

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6. Commitments and Contingencies Purchase Obligations A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the Company and that specifies all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. These amounts primarily comprise open purchase order commitments entered in the ordinary course of business with vendors and subcontractors pertaining to fulfillment of the Companys current order backlog. The purchase obligations on open purchase orders were $33.8 million as of December 31, 2025. Product Liability The Company has product liability insurance of $50,000,000. The Company has not experienced any material product liability claims. Legal Proceedings 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 aggregate, have a material effect on the results of operations or financial position. …

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8. Loan Agreement On September 30, 2024, in connection with the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement, the Company entered into the Loan 2024 Amendment with PNC, which amended certain terms of the Loan Agreement to increase the line of credit with PNC. Concurrently with the Loan 2024 Amendment, the Company entered into (i) the A&R Revolving Line of Credit Note and (ii) the A&R Rider. The A&R Revolving Line of Credit Note provided for a senior secured revolving line of credit in an aggregate principal amount of $35 million, with an expiration date of December 19, 2028 (the Revolving Line of Credit). The interest rate applicable to loans outstanding under the Revolving Line of Credit was a rate per annum equal to the sum of (A) Daily SOFR (as defined in the A&R Revolving Line of Credit Note) plus (B) an unadjusted spread of the Applicable SOFR Margin plus (C) a SOFR adjustment of ten basis points. The Applicable SOFR Margin ranges from 1.5% to 2.5% depending on the Companys funded debt to EBITDA ratio as defined in the A&R Revolving Line of Credit Note. The A&R Rider provided for how PNC will make advances to the Company under the A&R Revolving Line of Credit. On July 18 th , 2025, the outstanding balance drawn on the A&R Revolving Line of Credit of $ 25,342,529 was fully paid. On July 18, 2025, Innovative Solutions and Support, Inc. (the Company), its wholly-owned subsidiary Innovative Solutions and Sup …

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3. Income Taxes 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 state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes. On July 4, 2025, the One Big Beautiful Bill Act (OBBB) was signed into law, which includes a broad range of tax reform provisions that may affect the Company's financial results. The OBBB allows an elective deduction for domestic Research and Development (R&D), and a reinstatement of elective 100% first-year bonus depreciation, among other provisions. The Company is currently evaluating the impact of these provisions which could affect the Company's effective tax rate and deferred tax assets in fiscal year 2026 and future periods. As a result of the 2017 Tax Cuts and Jobs Act, the Company must amortize amounts paid or incurred for specified research and development expenditures, including software development expenses, ratably over 60 months, beginning at the mid-point of the tax year in which the expenditures are paid or incurred. The effective tax rate for the three months ended December 31, 2025 was 30.8% and differs from the statutory tax rate primarily due to the effect of state income taxes, tax credits, temporary and permanent tax differences related to stock-based compensation an …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

New Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's Consolidated Financial Statements. In November 2024, the FASB issued ASU No. 2024-03 (ASU 2024-03), Disaggregation of Income Statement Expenses. The guidance primarily will require enhanced disclosures about certain types of expenses. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027 and may be applied either on a prospective or retrospective basis. We are evaluating the impact of the standard on our disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, which requires greater disaggregation of income tax disclosures. The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating the impacts of this guidance on the Companys Consolidated Financial Statements. Recently Adopted Accounting Pronouncements In …

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7. Related Party Transactions On October 18, 2024, the Company entered into a consulting agreement with Peduzzi Associates, ltd. (PAL), an entity in which board member Maj. General Dean serves as President. PAL provides consulting services in support of the Companys business development growth into the DoD. The term of the agreement is for one year and in consideration for services the Company will pay PAL a retainer of $9,500 per month. For the three months ended December 31, 2025 and 2024, the Company paid PAL $30,000 and $28,500, respectively. …

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9. Subsequent Events None. …

SubsequentEventsTextBlock · excerpt; the full note is in the filing