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Supplemental Balance Sheet Disclosures | 9 Months Ended
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Jun. 30, 2024
Supplemental Balance Sheet Disclosures |
Supplemental Balance Sheet Disclosures | 2. Supplemental Balance Sheet Disclosures Acquisition 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 Note 9, “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. The goodwill is not expected to be deductible for income tax purposes. Further, the Company determined that the goodwill was not impaired as of June 30, 2024 and as such, no impairment charges have been recorded for the three- and nine-month periods ended June 30, 2024; the Company also determined that the goodwill was not impaired as of September 30, 2023.
| (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 Transaction, the Company entered into a transition services agreement (the “TSA”) with Honeywell, at no additional costs, to receive certain transitional services and technical support during the transition service period. The Company accounted for the TSA separate from business combination and have recognized $140,000 in prepaid expenses and other current assets at September 30, 2023 within the condensed consolidated balance sheets for the services to be received in the future from Honeywell. The prepaid expense related to the TSA was determined using the with and without method. Acquisition and related costs In connection with the Transaction, the Company incurred no acquisition costs for the three- and nine-month periods ended June 30, 2024. The Company incurred acquisition costs of $408,961, which were expensed as incurred and included in selling, general and administrative expenses in the condensed consolidated statement of operations for the year ended September 30, 2023; of that amount, the Company incurred acquisition costs of $262,099, which were expensed as incurred and included in selling, general and administrative expenses in the condensed consolidated statement of operations for the three- and nine-month periods ended June 30, 2023. The debt issuance costs related to the Term Loan were not material. Unaudited 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, 2021: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​ | Nine Months Ended
​ |  | June 30, 2023
Net sales | ​ | $ | 12,035,209 | ​ | $ | 36,846,252
Net income | ​ | $ | 2,859,238 | ​ | $ | 7,760,831
​ 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 unaudited pro forma results do not include any incremental cost savings that may result from the integration. 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: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, |  | September 30,
​ | ​ | 2024 | ​ | 2023
Raw materials | ​ | $ | 12,277,086 | ​ | $ | 5,162,177
Work-in-process | ​ |  | 1,242,259 | ​ |  | 966,888
Finished goods | ​ |  | 1,020,827 | ​ |  | 10,648
​ | ​ | $ | 14,540,172 | ​ | $ | 6,139,713
​ Prepaid expenses and other current assets Prepaid expenses and other current assets consist of the following:
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, |  | September 30,
​ | ​ | 2024 | ​ | 2023
Prepaid insurance | ​ | $ | 157,771 | ​ | $ | 623,186
Other | ​ |  | 826,913 | ​ |  | 449,826
​ | ​ | $ | 984,684 | ​ | $ | 1,073,012
​ Intangible assets ​ The Company’s intangible assets other than goodwill are as follows:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | As of June 30, 2024
​ |  | Gross Carrying |  | Accumulated |  | Accumulated |  | Net Carrying
​ | ​ | Value |  | Impairment |  | Amortization |  | Value
License agreement acquired from the Transaction (a) | ​ | $ | 5,600,000 | ​ | $ | — | ​ | $ | — | ​ | $ | 5,600,000
Customer relationships acquired from the Transaction (a) | ​ |  | 11,640,000 | ​ |  | — | ​ |  | (1,164,000) | ​ |  | 10,476,000
Licensing and certification rights (b) | ​ |  | 696,506 | ​ |  | (44,400) | ​ |  | (638,285) | ​ |  | 13,821
Total | ​ | $ | 17,936,506 | ​ | $ | (44,400) | ​ | $ | (1,802,285) | ​ | $ | 16,089,821
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of September 30, 2023
​ |  | Gross Carrying |  | Accumulated |  | Accumulated |  | Net Carrying
​ |  | Value |  | Impairment |  | Amortization |  | Value
License agreement acquired from the Transaction (a) | ​ | $ | 5,700,000 | ​ | $ | — | ​ | $ | — | ​ | $ | 5,700,000
Customer relationships acquired from the Transaction (a) | ​ |  | 10,740,000 | ​ |  | — | ​ |  | (268,500) | ​ |  | 10,471,500
Licensing and certification rights (b) | ​ |  | 696,506 | ​ |  | (44,400) | ​ |  | (638,285) | ​ |  | 13,821
Total | ​ | $ | 17,136,506 | ​ | $ | (44,400) | ​ | $ | (906,785) | ​ | $ | 16,185,321
​
| (a) | As part of the Transaction, the Company acquired intangible assets related to the license agreement for the license rights to use certain Honeywell intellectual property and customer relationships. The license agreement has an indefinite life and is not subject to amortization; the customer relationships have an estimated weighted average life of nine years. The Company determined that the intangible assets were not impaired as of June 30, 2024 and September 30, 2023; no impairment charges have been recorded for the three- and nine-month periods ended June 30, 2024.
| (b) | The licensing and certification rights are amortized over a defined number of units. No impairment charges were recorded during the three-and nine-month periods ended June 30, 2024. An impairment charge of $44,400 was recorded during the three-and nine-month periods ended June 30, 2023.
Intangible asset amortization expense was $358,500 and $1,063 for the three-month periods ended June 30, 2024 and 2023, respectively. Intangible asset amortization expense for the three-month periods ended June 30, 2024 and 2023 was charged to selling, general and administrative expense. ​ Intangible asset amortization expense was $895,500 and $1,063 for the nine-month periods ended June 30, 2024 and 2023, respectively. Intangible asset amortization expense for the nine-month periods ended June 30, 2024 and 2023 was charged to selling, general and administrative expense. ​ 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 June 30, 2024 is as follows:
​ | ​ | ​ | ​
2024 (three months remaining) |  | $ | 291,000
2025 | ​ | ​ | 1,164,000
2026 | ​ | ​ | 1,164,000
2027 |  | ​ | 1,164,000
2028 |  | ​ | 1,164,000
Thereafter |  | ​ | 5,529,000
Total | ​ | $ | 10,476,000
​ Assets Held for Sale ​ As of September 30, 2023, the Company classified $2.1 million of net property and equipment as “assets held for sale” on the condensed consolidated balance sheet. During the fourth quarter 2023, management of the Company implemented a plan to sell a Company-owned aircraft and commenced efforts to locate a buyer for the aircraft. On November 20, 2023, the Company sold its assets held for sale, the King Air aircraft, for $2.3 million. The resultant gain on the sale of $162,000 is a reduction to selling, general and administrative expense in the quarter ended December 31, 2023. ​ Property and equipment Property and equipment, net consists of the following: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, |  | September 30,
​ | ​ | 2024 | ​ | 2023
Computer equipment | ​ | $ | 2,405,850 | ​ | $ | 2,343,996
Furniture and office equipment | ​ |  | 984,206 | ​ |  | 970,230
Manufacturing facility | ​ |  | 6,198,690 | ​ |  | 5,926,584
Equipment | ​ |  | 13,025,229 | ​ |  | 9,554,197
Land | ​ |  | 1,021,245 | ​ |  | 1,021,245
​ | ​ |  | 23,635,220 | ​ |  | 19,816,252
Less accumulated depreciation and amortization | ​ |  | (12,045,013) | ​ |  | (11,923,825)
​ | ​ | $ | 11,590,207 | ​ | $ | 7,892,427
​ Depreciation and amortization related to property and equipment was $252,655 and $86,439 for the three-month periods ended June 30, 2024 and 2023, respectively. Depreciation and amortization related to property and equipment was approximately $541,732 and $257,829 for the nine-month periods ended June 30, 2024 and 2023, respectively. Other assets Other assets consist of the following: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, |  | September 30,
​ | ​ | 2024 | ​ | 2023
Operating lease right-of-use assets | ​ | $ | 5,282 | ​ | $ | 15,065
Other non-current assets | ​ |  | 540,698 | ​ |  | 176,657
​ | ​ | $ | 545,980 | ​ | $ | 191,722
​ Other non-current assets as of June 30, 2024 includes deferred ERP implementation costs, a supplier credit from one of our suppliers and a deposit for medical claims required under the Company’s medical plan. Other non-current assets as of September 30, 2023 includes a supplier credit from one of our suppliers, a deposit for medical claims required under the Company’s medical plan and an airplane hanger deposit. In addition, other non-current assets as of June 30, 2024 and September 30, 2023 includes $38,795 and $53,585, respectively, of prepaid software licenses that will be earned upon the shipment of a certain product to a customer. Other non-current assets amortization expense was $5,277 and $2,601 for the three-month periods ended June 30, 2024 and 2023, respectively. Other non-current assets amortization expense was $14,790 and $2,601 for the nine-month periods ended June 30, 2024 and 2023, respectively. Accrued expenses Accrued expenses consist of the following: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, |  | September 30,
​ | ​ | 2024 | ​ | 2023
Warranty | ​ | $ | 550,081 | ​ | $ | 562,645
Salary, benefits and payroll taxes | ​ |  | 1,173,868 | ​ |  | 1,181,219
Professional fees | ​ |  | 419,082 | ​ |  | 200,668
Operating lease | ​ | ​ | 5,282 | ​ | ​ | 12,965
Income tax payable | ​ | ​ | — | ​ | ​ | 116,697
Other | ​ |  | 670,092 | ​ |  | 844,131
​ | ​ | $ | 2,818,405 | ​ | $ | 2,918,325
​ Warranty cost and accrual information for the three- and nine-month periods ended June 30, 2024 is highlighted below: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ending | ​ | Nine Months Ended |
​ | ​ | June 30, 2024 |  | June 30, 2024 | ​
Warranty accrual, beginning of period | ​ | $ | 574,971 | ​ | $ | 562,645 | ​
Accrued expense | ​ |  | 8,477 | ​ |  | 81,688 | ​
Warranty cost | ​ |  | (33,367) | ​ |  | (94,252) | ​
Warranty accrual, end of period | ​ | $ | 550,081 | ​ | $ | 550,081 | ​
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