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Supplemental Balance Sheet Disclosures

3 Months Ended

Dec. 31, 2024

Supplemental Balance Sheet Disclosures

2. Supplemental Balance Sheet Disclosures

September 2024 Honeywell Agreement

On September 27, 2024, the Company entered into and closed the transaction contemplated by the September 2024 Honeywell Agreement.

Pursuant to the September 2024 Honeywell Agreement, 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. The September 2024 Honeywell Agreement allows the Company to diversify its product offerings in the aerospace industry. 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 Company’s revolving line of credit. The purchase consideration transferred at the acquisition date was $14.2 million, which was entirely cash.

The allocation of the purchase price is based upon certain preliminary valuations and other analyses. The allocation of the purchase price has not been finalized as of the date of this filing due to the timing of the transaction and due to the fact that, while legal control has been transferred, the Company has not received physical possession of certain of the acquired assets and thus these assets will be subject to settlement adjustments upon transfer as outlined in the September 2024 Honeywell Agreement. As a result, the purchase price amount for the transaction and the allocation of the preliminary purchase consideration are preliminary estimates, and may be subject to change within the measurement period.

The following purchase price allocation table presents the Company's estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date, and subsequent measurement period adjustments recorded during the three months ended December 31, 2024:


	Amounts Recognized as of
	Acquisition Date		Measurement		Purchase Price
	(as previously reported)		Period Adjustments		Allocation
Total consideration	$	14,060,000	$	—	$	14,060,000

Prepaid inventory ^(a)	$	3,191,000	$	—	$	3,191,000
Prepaid equipment and other current assets		160,000		—		160,000
Intangible assets ^(b)		9,570,000		—		9,570,000
Goodwill ^(c)		1,139,000		—		1,139,000
Net assets acquired	$	14,060,000	$	—	$	14,060,000

(a)

Prepaid inventory consists primarily of raw materials acquired by the Company but not in the Company’s physical possession as of the acquisition date. The fair value of raw materials was estimated to equal the replacement cost.

(b)

Intangible assets consists of backlog, customer relationships, and license agreements related to the license rights to use certain Honeywell intellectual property and are recorded at estimated fair values. The estimated fair value of these license agreements are based on a variation of the income valuation approach and are determined using the relief from royalty method. The estimated fair value of the backlog and customer relationships are based on a variation of the income valuation approach known as the multi-period excess earnings method. Refer to the Company’s 2024 10K, Note 5, “Intangible assets” for further details.

(c)

Goodwill represents the excess of the purchase consideration over the preliminary fair value of the net assets acquired. The goodwill recognized is primarily attributable to the expected synergies from the September 2024 Honeywell

Agreement. Goodwill resulting from the September 2024 Honeywell Agreement has been assigned to the Company’s one reporting unit.

Transition services agreement

Concurrent with the September 2024 Honeywell Agreement, the Company entered into a transition services agreement (the “2024 TSA”) with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period. The Company accounted for the 2024 TSA separate from business combination and has recognized $140,000 in prepaid expenses and other current assets within the consolidated balance sheets for the services to be received in the future from Honeywell. The prepaid expense related to the 2024 TSA was determined using the with and without method. For the three months ended December 31, 2024, the Company recognized no additional adjustments to prepaid expenses and other current assets within the consolidated balance sheets for services received from Honeywell.

Acquisition and related costs

For the fiscal year ended September 30, 2024, the Company incurred $589,000 of acquisition costs included in SG&A expenses in connection with the June 2023 Honeywell Agreement. The debt issuance costs related to the Term Loan were not material. For the three months ended December 31, 2024, the Company incurred $86,688 of costs in connection to the September 2024 Honeywell Agreement. For the three months ended December 31, 2023, the Company incurred no acquisition costs.

Unaudited actual and pro forma information

The following unaudited pro forma summary presents consolidated information of the Company, including the product lines, as if the transaction had occurred on October 1, 2023:


		Three Months Ended December 31,
	2023
Net sales	$	12,021,871
Net income	$	401,129

These pro forma results are for illustrative purposes and are not indicative of the actual results of operations that would have been achieved, nor are they indicative of future results of operations. The unaudited pro forma information for all periods presented was adjusted to give effect to pro forma events that are directly attributable to the transaction and are factually supportable. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change, and the impact of such changes may be material. The unaudited pro forma results do not include any incremental cost savings that may result from the integration.

June 2023 Honeywell Agreement

On June 30, 2023, the Company entered into an Asset Purchase and License Agreement with Honeywell whereby Honeywell sold certain assets and granted perpetual license rights to manufacture and sell licensed products related to its inertial, communication and navigation product lines to the Company. The transaction involves a sale of certain inventory, equipment and customer-related documents; an assignment of certain customer 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. The transaction allows the Company to diversify its product offerings in the

aerospace industry. 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.

In connection with the transaction, the Company entered into a term loan with PNC Bank, National Association for $20.0 million to fund a portion of the transaction (the “Term Loan”) – Refer to the Company’s 2024 10K, Note 8, “Loan Agreement” for further details. The purchase consideration transferred at the acquisition date was $35.9 million, which was entirely cash.

In the third quarter of 2024 and within one year from the acquisition date, the Company finalized its accounting of the transaction. The following purchase price allocation table presents the Company's estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date, and subsequent measurement period adjustments recorded during the one-year period ended June 30, 2024:


	Amounts Recognized as of
	Acquisition Date		Measurement			Purchase Price
	(as previously reported)		Period Adjustments			Allocation
Cash consideration	$	35,860,000	$	—		$	35,860,000
Total consideration	$	35,860,000	$	—		$	35,860,000
							—
Prepaid inventory ^(a)	$	10,036,160	$	(3,012,626)	^(d)	$	7,023,534
Equipment		2,609,000		3,675,000	^(d)		6,284,000
Construction in progress		1,238,000		—			1,238,000
Intangible assets ^(b)		20,900,000		(3,660,000)	^(d)		17,240,000
Goodwill ^(c)		4,608,041		(533,575)	^(d)(e)		4,074,466
Assets acquired		39,391,201		(3,531,201)			35,860,000
Accrued expenses		(3,531,201)		3,531,201	^(e)		—
Liabilities assumed		(3,531,201)		3,531,201			—
Net assets acquired	$	35,860,000	$	—		$	35,860,000

(a)

Prepaid inventory consists of raw materials and finished goods acquired by the Company but not in the Company’s physical possession as of the acquisition date. The fair value of raw materials was estimated to equal the replacement cost. The fair value of finished goods was determined based on the estimated selling price, net of selling costs and a margin on the selling activities, which resulted in a change in the value of the finished goods.

(b)

Intangible assets consist of license agreement related to the license rights to use certain Honeywell intellectual property and customer relationships and are recorded at estimated fair values. The estimated fair value of the license agreement is based on a variation of the income valuation approach and is determined using the relief from royalty method. The estimated fair value of the customer relationships is based on a variation of the income valuation approach known as the multi-period excess earnings method. Refer to Intangible assets within Note 2, “Supplemental Balance Sheet Disclosures” for further details.

(c)

Goodwill represents the excess of the purchase consideration over the estimated fair value of the assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to the expected synergies from the transaction. Goodwill resulting from the transaction has been assigned to the Company’s one operating segment and one reporting unit.

(d)

In the third quarter of 2024 and within one year from the acquisition date, the Company identified measurement period adjustments related to fair value estimates. The measurement period adjustments were due to the refinement of inputs used to calculate the fair value of the prepaid inventory, equipment, license agreement and customer relationships based on facts and circumstances that existed as of the acquisition date. One of the refinements of inputs used was a change in classification of prepaid inventory to equipment of $3.7 million. The adjustments resulted in an overall increase to goodwill of $3.0 million. As a result of the measurement period adjustments to the estimated fair values of equipment and customer relationships, during the third quarter of 2024, the Company recognized $218,623 additional depreciation expense in cost of sales and $67,500 additional amortization expense in selling, general and administrative respectively, related to the effects that would have been recognized in previous quarters if the measurement period adjustments were recognized as of the acquisition date. For the remaining measurement period adjustments, the change to the preliminary fair value estimates did not have a material impact to the condensed consolidated statement of operations.

(e)

During the fourth quarter of 2023, the Company identified measurement period adjustments related to the fair value estimates for accrued expenses. While the Asset Purchase and License Agreement indicated an amount of liabilities related to open supplier purchase orders to be assumed by the Company as of the acquisition date, it was determined that there were no actual liabilities outstanding related to these open supplier purchase orders as of the acquisition date; therefore, the $3.5 million assumed liabilities preliminarily recorded were reversed. The adjustments resulted in an overall decrease to goodwill of $3.5 million; the adjustments have no impact to the condensed consolidated statement of operations.

Transition services agreement

Concurrent with the June 2023 Honeywell Agreement, the Company entered into a transition services agreement (the “2023 TSA”) with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period. The Company accounted for the 2023 TSA separate from the business combination and has recognized $140,000 in prepaid expenses and other current assets within the consolidated balance sheet as of the acquisition date for the services to be received in the future from Honeywell. The prepaid expense related to the 2023 TSA was determined using the with and without method.

Other

On July 22, 2024, the Company completed the July 2024 Honeywell Asset Acquisition of certain additional assets related to its communication and navigation product lines, including a sale of certain inventory 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 communication and navigation product lines to manufacture, upgrade and repair certain additional products for consideration of $4.2 million in cash. The Company accounted for the transaction as an asset acquisition and allocated the cost of the acquisition, including direct and incremental transaction costs, to the tangible and intangible assets based on their relative fair value as detailed under ASC 805 – Business Combinations (“ASC 805”). Definite lived assets were recorded to the relative fair value of $2,601,000 to property and

equipment and $430,000 to customer relationships and backlog. Since license agreements are indefinite lived assets, they were recorded at fair value in the amount of $1,240,000 in accordance with ASC 805.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory and consist of the following:


	December 31,		September 30,
	2024		2024
Raw materials	$	12,227,940	$	9,862,591
Work-in-process		1,590,822		1,357,504
Finished goods		1,688,089		1,512,286
	$	15,506,851	$	12,732,381

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:


	December 31,		September 30,
	2024		2024
Prepaid insurance	$	292,636	$	54,197
Honeywell TSA Agreement		70,000		140,000
Other		1,203,247		967,197
	$	1,565,883	$	1,161,394

Intangible assets

The Company’s intangible assets other than goodwill are as follows:


	As of December 31, 2024
	Gross Carrying		Accumulated		Accumulated		Net Carrying
	Value		Impairment		Amortization		Value
License agreement ^(a)	$	9,140,000	$	—	$	—	$	9,140,000
Customer relationships ^(a)		13,284,327		—		(1,809,762)		11,474,565
Backlog ^(b)		6,310,000		—		(394,375)		5,915,625
Licensing and certification rights ^(c)		696,506		(44,400)		(638,285)		13,821
Total	$	29,430,833	$	(44,400)	$	(2,842,422)	$	26,544,011


	As of September 30, 2024
	Gross Carrying		Accumulated		Accumulated		Net Carrying
	Value		Impairment		Amortization		Value
License agreement ^(a)	$	9,140,000	$	—	$	—	$	9,140,000
Customer relationships ^(a)		13,008,332		—		(1,459,861)		11,548,471
Backlog ^(b)		6,310,000		—		—		6,310,000
Licensing and certification rights ^(c)		696,506		(44,400)		(638,285)		13,821
Total	$	29,154,838	$	(44,400)	$	(2,098,146)	$	27,012,292

(a)

As part of the September 2024 Honeywell Agreement, the July 2024 Honeywell Asset Acquisition, and the June 2023 Honeywell Agreement transactions, the Company acquired intangible assets related to the license agreements for the license rights to use certain Honeywell intellectual property, backlog and customer relationships. The license agreements have an indefinite life and are not subject to amortization; the customer relationships have an estimated weighted average life of ten years.

(b)

As part of the September 2024 Honeywell Agreement, the Company acquired intangible assets related to backlog with a useful life of four years.

(c)

The licensing, and certification rights are amortized over a defined number of units.

The timing of future amortization expense is not determinable for the licensing and certification rights because they are amortized over a defined number of units. The expected future amortization expense related to the customer relationships as of December 31, 2024 is as follows:


		Amortization Expense
2025 (nine months remaining)	$	2,218,895
2026		2,958,527
2027		2,958,527
2028		2,958,527
2029		1,381,027
Thereafter		4,914,687
Total	$	17,390,190

Property and equipment

Property and equipment, net consists of the following:


	December 31,		September 30,
	2024		2024
Computer equipment	$	2,922,175	$	2,416,795
Furniture and office equipment		984,205		984,205
Buildings and improvements		6,241,299		6,198,690
Equipment other		15,312,781		15,161,225
Land		1,021,245		1,021,245
		26,481,705		25,782,160
Less accumulated depreciation and amortization		(13,032,661)		(12,409,862)
	$	13,449,044	$	13,372,298

Depreciation and amortization related to property and equipment was $622,799 and $142,921 for the three months ended December 31, 2024 and 2023, respectively.

Other assets

Other assets consist of the following:


	December 31,		September 30,
	2024		2024
Operating lease right-of-use assets	$	—	$	2,100
Other non-current assets		150,119		471,625
	$	150,119	$	473,725

Other non-current assets as of December 31, 2024 and September 30, 2024 consists primarily of deposits for medical claims required under the Company’s medical plan.

Accrued expenses

Accrued expenses consist of the following:


	December 31,		September 30,
	2024		2024
Warranty	$	522,724	$	596,538
Salary, benefits and payroll taxes		426,558		1,685,372
Professional fees		142,709		262,320
Operating lease		—		2,100
Income tax payable		1,596,511		1,194,185
Other		1,594,964		868,779
	$	4,283,466	$	4,609,294

Warranty cost and accrual information for the three months ended December 31, 2024 is highlighted below:


	Three Months Ending
	December 31, 2024
Warranty accrual, beginning of period	$	596,538
Accrued expense (Adjustment)		(20,000)
Warranty cost		(53,814)
Warranty accrual, end of period	$	522,724