Phase Space AI

Financial Model Notes

Innovative Solutions and Support [ISSC]

ISSC — Financial Model Notes

Every figure below is traced to a primary filing. Derivations are shown. Estimates are labelled as estimates.

Fiscal year ends 30 September. Q1 = Dec, Q2 = Mar, Q3 = Jun, Q4 = Sep. Getting this wrong is the single easiest way to mis-model this name.

1. Sources

Document Accession Filed Period
10-Q Q2 FY2026 0001104659-26-062716 2026-05-15 Q ended 2026-03-31
10-Q Q1 FY2026 0001104659-26-015306 2026-02-13 Q ended 2025-12-31
10-K FY2025 0001104659-25-123847 2025-12-23 FY ended 2025-09-30
10-K/A FY2025 (Part III only) 0001104659-26-006952 2026-01-27 —
10-K FY2024 0001558370-24-016501 2024-12-30 FY ended 2024-09-30
10-K/A FY2024 (Part III only) 0001558370-25-000364 2025-01-23 —
8-K — Sparton Aydin acquisition 0001104659-26-085413 2026-07-21 —
S-3 shelf 0001104659-25-099201 2025-10-14 —

XBRL: data.sec.gov/api/xbrl/companyfacts/CIK0000836690.json, retrieved 2026-07-29. Latest tagged period 2026-03-31 — recency asserted, not stale.

Revenue tag note: ISSC used us-gaap:SalesRevenueNet through FY2018 and us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax from FY2017 onward. A model keyed only to RevenueFromContractWithCustomerExcludingAssessedTax (the more common tag, and the one EVLV-style filers use) finds only ten observations spanning 2017–2019 and silently produces nonsense. This is a live instance of the D1 "existence is not validity" defect.

2. Income statement

Annual, $ (FY ends 30 September)

FY2022 FY2023 FY2024 FY2025
Net sales 27,740,695 34,808,513 47,198,020 84,296,889
growth — +25.5% +35.6% +78.6%
Gross profit 16,674,381 21,311,071 25,913,591 40,511,881
Gross margin 60.1% 61.3% 55.0% 48.1%
R&D (% of sales) — 9.0% 8.8% 4.7%
SG&A (% of sales) — 31.1% 25.6% 19.4%
Operating income 7,215,326 7,359,048 9,661,537 20,071,990
Operating margin 26.0% 21.2% 20.6% 24.0%
Net income 5,523,778 6,027,755 6,998,380 15,627,660
Net margin 19.9% 17.4% 9.7% 18.7%
Diluted EPS 0.32 0.35 0.40 0.88
Diluted shares 17,257,871 17,419,185 17,480,247 17,829,033

EPS cross-check: 15,627,660 ÷ 17,829,033 = $0.8765 vs filed diluted EPS $0.88. Exact.

Quarterly, $

Q ending FY/Q Net sales Net income Diluted EPS
2024-12-31 FY25 Q1 15,968,729 736,192 0.04
2025-03-31 FY25 Q2 21,936,214 5,336,342 0.30
2025-06-30 FY25 Q3 24,144,832 2,443,814 0.14
2025-09-30 FY25 Q4 22,247,114 (derived) 7,111,312 (derived) —
2025-12-31 FY26 Q1 21,807,083 4,059,063 0.22
2026-03-31 FY26 Q2 22,365,029 3,434,092 0.19

Modelling note — the Q4 trap, again. 10-Ks do not tag Q4 as a discrete period. Q4 FY2025 must be derived: 84,296,889 − (15,968,729 + 21,936,214 + 24,144,832) = 22,247,114. A TTM assembled by summing tagged quarterly periods omits it entirely — the exact defect found elsewhere in this batch.

TTM build at 3/31/2026: 24,144,832 (Jun-25) + 22,247,114 (Sep-25) + 21,807,083 (Dec-25) + 22,365,029 (Mar-26) = **$90,564,058**

TTM operating income: 20,071,990 (FY25) − 8,328,138 (H1 FY25) + 11,235,821 (H1 FY26) = **$22,979,673** → 25.4% margin. TTM net income: 15,627,660 − 6,072,534 + 7,493,155 = **$17,048,281**.

Half-year, $ — the comparison that matters

H1 FY2026 H1 FY2025 Δ
Product 27,875,059 23,164,266 +20.3%
Services 16,297,053 14,740,677 +10.6%
Total net sales 44,172,112 37,904,943 +16.5%
Gross profit 23,319,255 17,877,680 +30.4%
Gross margin 52.8% 47.2% +5.6pp
R&D 3,116,963 1,974,964 +57.8%
SG&A 8,966,471 7,574,578 +18.4%
Operating income 11,235,821 8,328,138 +34.9%
PRO FORMA net sales (incl. Autopilot) 50,230,657 42,160,151 +19.1%
PRO FORMA net income 8,849,965 6,218,705 +42.3%

3. The acquisition ledger — model this, not a revenue CAGR

Date Target Consideration Financing Accounting
2023-06-30 Honeywell inertial / comms / nav lines $35,860,000 $20m PNC term loan ASC 805 business combination
2024-07-22 Honeywell asset acquisition not separately stated — ASC 805
2024-09-27 Honeywell military display generators & flight control computers $14,060,000 PNC revolver ASC 805
2026-03-27 Honeywell GA autopilots / nav-com / MFD / transponders $22,000,000 JPM delayed-draw TL ASC 805, PPA preliminary
2026-07-21 Sparton Aydin, LLC $24,500,000 JPM credit facility pending
Disclosed total ≈ $96,420,000 ~100% debt

Purchase price allocations

Deal Consideration Prepaid inventory Equipment / CIP Intangibles Goodwill
June 2023 (final) 35,860,000 7,023,534 7,522,000 17,240,000 4,074,466
Sept 2024 (final) 14,060,000 3,191,000 160,000 8,080,000 2,629,000
March 2026 (preliminary) 22,000,000 — — 18,190,000 3,810,000

March 2026 intangibles: backlog $1,420,000 (amortised to order fulfilment) · customer relationships $8,360,000 (10 years) · licence agreements $8,410,000, indefinite-lived, not amortised.

Modelling notes. 1. The Autopilot PPA allocates 100% of consideration to intangibles and goodwill because ISSC has legal control but has not taken physical possession. Inventory and equipment will be recognised on transfer and goodwill will fall. Do not treat the $3.81m as final. 2. $8.41m of indefinite-lived licence agreements never amortise. They are subject to annual impairment testing only. This flatters reported earnings versus a peer that amortises. 3. Amortisation of acquired backlog runs with order fulfilment, so cost of sales is lumpy in the two years after each deal. The FY2025 10-K discloses that acquired-backlog fair value was revised down in Q2 FY2025 "to reflect lower forecasted margin."

The pro formas — the only like-for-like data that exists

Filed in Deal "As if" from PF prior year PF current year Growth
FY2024 10-K June 2023 Honeywell 2021-10-01 FY2022 $49,218,764 FY2023 $43,757,196 −11.1%
FY2024 10-K July + Sept 2024 Honeywell 2022-10-01 FY2023 $52,287,873 FY2024 $55,545,035 +6.2%
FY2025 10-K Sept 2024 Honeywell 2023-10-01 — FY2024 $54,883,092 vs FY2025 actual $84.297m: +53.6%
Q2 FY26 10-Q March 2026 Autopilot 2024-10-01 H1 FY25 $42,160,151 H1 FY26 $50,230,657 +19.1%

Company-stated organic split, FY2025 10-K MD&A, verbatim:

"Net sales of $84.3 million for fiscal year 2025 comprised $53.3 million in organic Net sales and $31.0 million in Net sales related to the September 2024 Honeywell Agreement."

→ organic FY2025 growth = 53.3 / 47.198 − 1 = +12.9%.

Implied acquired-line revenue: 2024-acquired lines did $17.5m in FY2023 (PF $52.288m − actual $34.809m) and $8.3m in FY2024 (PF $55.545m − actual $47.198m). The lines shrink inside Honeywell before ISSC buys them. The June-2023 line did $21.5m in FY2022 (PF $49.219m − actual $27.741m) and $8.9m in FY2023 (PF $43.757m − actual $34.809m). Same pattern.

4. Balance sheet — 3/31/2026, $

Assets Liabilities & equity
Cash and equivalents 6,764,157 Current portion of long-term debt 5,641,501
Accounts receivable 13,188,080 Accounts payable 4,487,502
Contract assets 1,655,807 Accrued expenses 4,128,653
Inventories 28,067,469 Contract liabilities 2,220,944
Prepaid & other 3,541,373 Total current liabilities 16,478,600
Total current assets 53,216,886 Long-term debt, net 49,279,407
Goodwill 15,773,104 Other liabilities 396,497
Intangible assets, net 46,944,050 Total liabilities 66,154,504
PP&E, net 20,722,377 Common stock (18,168,575 issued) 17,829
Deferred income taxes 939,192 Additional paid-in capital 39,767,173
Other 670,833 Retained earnings 35,787,908
Treasury (339,644 shares) (3,460,972)
Total assets 138,266,442 Total equity 72,111,938
Total debt $54,920,908
Net debt at 3/31/2026 $48,156,751
+ Aydin, 2026-07-21 +$24,500,000
Net debt, pro forma ≈ $72,656,751
Committed JPM facilities $100,000,000
Utilisation, pro forma ≈ 79%
Goodwill + intangibles $62,717,154
Tangible book value ≈ $9,394,784
Shares outstanding (18,168,575 − 339,644) 17,828,931

Modelling notes. 1. Net debt, not net cash. Cash of $6.76m against $54.92m of debt. A routine that reads CashAndCashEquivalentsAtCarryingValue and stops understates EV by $54.9m on a $316m market cap — 17%. The scanner got this right here; it is the standing trap. 2. Debt is split across LongTermDebtCurrent and LongTermDebtNoncurrent. Summing only the non-current tag misses $5.64m. 3. Inventories are 31% of TTM sales. High, but normal for an avionics spares business, and inflated by acquired inventory — the June-2023 and Sept-2024 deals brought $10.2m of prepaid inventory between them. 4. Tangible book is ~$9.4m against $72.1m of equity. Every deal adds intangibles. The equity cushion under the $54.9m (pro forma $79.4m) of debt is largely goodwill and licence agreements.

Do not model a revenue CAGR. Model the acquisition engine.

  1. Organic base. FY2025 organic $53.3m growing 8–13% — the range spanned by the filed like-for-like figures (PF FY23→FY24 +6.2%, company organic FY2025 +12.9%). Not 44.8%.
  2. Acquired lines, each separately, at their own run-rate and decay:
  3. June-2023 line — now inside "organic" per the company's own definition;
  4. Sept-2024 line — $31.0m in FY2025 (disclosed);
  5. March-2026 Autopilot line — ≈$12.1m/yr, derived as (PF H1 FY26 $50.231m − actual H1 FY26 $44.172m) × 2;
  6. Aydin — UNKNOWN. Do not estimate it. The 8-K/A is due ~2026-09-30.
  7. Backlog conversion. Backlog $77.4m at 9/30/2025 (from $89.2m); 44% converts within 12 months, 92% within 24. Book-to-bill FY2025 = 0.86x. Model bookings, not just shipments.
  8. Gross margin by mix: legacy ~60%, acquired Honeywell lines materially lower. Blended went 61.3% → 55.0% → 48.1% → 52.8% (H1 FY26). Each new carve-out is dilutive to gross margin and accretive to operating margin, because it absorbs fixed R&D and SG&A.
  9. R&D is the swing item. 9.0% → 8.8% → 4.7% → 7.1% (H1 FY26) of sales. Modelling it at the FY2025 level flatters operating margin and understates the reinvestment an avionics business needs.
  10. Interest expense: SOFR + 1.75–2.75% on the Total Net Leverage grid, on ~$79.4m pro forma. Model the grid, not a fixed rate — a leverage step-up is both a cost and a covenant signal.
  11. Amortisation: customer relationships 10 years; backlog with order fulfilment; licence agreements indefinite-lived, no amortisation.

6. Data-hygiene checks run

Check Result
TTM from four quarters, not last FY Done. $90.565m, not $84.297m. Using FY2025 would overstate EV/Sales by 7%.
Q4 present in the TTM Done. Q4 FY2025 derived ($22,247,114); not tagged as a discrete period.
Correct revenue tag Done. RevenueFromContractWithCustomerIncludingAssessedTax. The Excluding tag has only ten observations, all 2017–2019.
Fiscal-year alignment Done. FY ends 30 September. Calendar-quarter labels would shift every period by one.
Net cash vs net debt Done. Net debt $48.16m at 3/31/26; $72.66m pro forma for Aydin.
Debt tags — current + non-current Done. $5,641,501 + $49,279,407.
Net income ÷ shares ≈ filed EPS Pass. FY2025 $15,627,660 ÷ 17,829,033 = $0.8765 vs $0.88 filed.
Dual class N/A. Single class of common. 200,000 Class A Convertible preferred authorised, none issued.
10-K/A is not a restatement Confirmed. Both FY2024 and FY2025 amendments are Part III only.
Acquisitions flagged before computing a CAGR Done. BusinessAcquisitionsProFormaRevenue is tagged on this filer — that tag alone should have suspended the demonstrated CAGR pending decomposition.
Post-period-end events Done. Aydin closed 2026-07-21, after the last periodic filing. The screen could not have seen it; the memo must.
Missing tag → INDETERMINATE, not FAIL Applied. No criterion was scored off a nan.