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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>/in/edgar/work/0001036050-00-001304/0001036050-00-001304.txt : 20000714
<SEC-HEADER>0001036050-00-001304.hdr.sgml : 20000714
ACCESSION NUMBER:		0001036050-00-001304
CONFORMED SUBMISSION TYPE:	S-1/A
PUBLIC DOCUMENT COUNT:		10
FILED AS OF DATE:		20000713

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INNOVATIVE SOLUTIONS & SUPPORT INC
		CENTRAL INDEX KEY:			0000836690
		STANDARD INDUSTRIAL CLASSIFICATION:	 [7371
]		IRS NUMBER:				232507402
		STATE OF INCORPORATION:			PA
		FISCAL YEAR END:			0930
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		S-1/A
			SEC ACT:		
			SEC FILE NUMBER:	333-36584
			FILM NUMBER:		672121
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		420 LAPP ROAD
				CITY:			MALVERN
				STATE:			PA
				ZIP:			19355
				BUSINESS PHONE:		6108899898
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		420 LAPP ROAD
					CITY:			MALVERN
					STATE:			PA
					ZIP:			19355
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-1/A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM S-1/A - AMENDMENT NO. 1
<TEXT>

<PAGE>


   As filed with the Securities and Exchange Commission on July 13, 2000

                                                 Registration No. 333-36584
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------

                              AMENDMENT NO. 1

                                    TO
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                              --------------------

                  Innovative Solutions and Support, Inc.
             (Exact name of registrant as specified in its charter)
       Pennsylvania                   7371                    23-2507402
                               (Primary Standard           (I.R.S. Employer
     (State or other       Industrial Classification    Identification Number)
     jurisdiction of              Code Number)
     incorporation or
      organization)              420 Lapp Road
                          Malvern, Pennsylvania 19355
                                 (610) 889-9898
(Address, including zip code, and telephone number, including area code, of the
                   registrant's principal executive offices)
                              --------------------

                             Geoffrey S. M. Hedrick
                            Chief Executive Officer

                  Innovative Solutions and Support, Inc.
                                 420 Lapp Road
                          Malvern, Pennsylvania 19355
                                 (610) 889-9898
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                              --------------------

                                   Copies to:
         Richard J. Busis, Esq.                  Andrew C. Lynch, Esq.
           Cozen and O'Connor                     Jenkens & Gilchrist,
           1900 Market Street                  A Professional Corporation
    Philadelphia, Pennsylvania 19103     1919 Pennsylvania Avenue, N.W., Suite
             (215) 665-2000                               600
                                                 Washington, D.C. 20006
                                                     (202) 326-1521
        Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
                              --------------------

   If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]

   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
                        CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                               Proposed        Proposed
  Title of Each Class of                       Maximum          Maximum
     Securities to be         Amount to     Offering Price     Aggregate          Amount of
        Registered         be Registered(1)  Per Share(2)  Offering Price(2) Registration Fee(3)
- ------------------------------------------------------------------------------------------------
<S>                        <C>              <C>            <C>               <C>
Common Stock, $.001 par
 value per share.........  3,450,000 shares     $12.00        $41,400,000          $10,930
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(1) Includes 450,000 shares which the underwriters have the right to purchase
    from the Registrant to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee in
    accordance with Rule 457(o) under the Securities Act of 1933.

(3) $10,560 was paid with the initial filing, and an additional $370 is being
    paid with this Amendment.
   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                SUBJECT TO COMPLETION, DATED JULY 13, 2000

PROSPECTUS

                             3,000,000 shares

                  Innovative Solutions and Support, Inc.


                         [LOGO OF INNOVATIVE SOLUTIONS]

                                  Common Stock

                                --------------

  This is the initial public offering of common stock of Innovative Solutions
and Support, Inc. We are offering 3,000,000 shares of our common stock. We
anticipate that the initial public offering price will be between $10.00 and
$12.00 per share. We have applied to list our common stock on the Nasdaq
National Market under the symbol "ISSC."

                                --------------

  See "Risk Factors" beginning on page 5 for a discussion of factors that you
should consider before buying shares of our common stock.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.

<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
                                                                 Per share Total
- --------------------------------------------------------------------------------
<S>                                                              <C>       <C>
Public offering price..........................................     $       $
- --------------------------------------------------------------------------------
Underwriting discount..........................................     $       $
- --------------------------------------------------------------------------------
Proceeds, before expenses, to us...............................     $       $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

  The underwriters may purchase up to an additional 450,000 shares of common
stock from us at the initial public offering price, less the underwriting
discount, solely to cover over-allotments.

  The shares of common stock will be ready for delivery in New York, New York
on or about       , 2000.

                                --------------

Friedman Billings Ramsey
                    Stifel, Nicolaus & Company, Incorporated
                                                     Janney Montgomery Scott LLC

                                --------------

                  The date of this prospectus is      , 2000.
<PAGE>

                              INSIDE FRONT COVER

Photograph of cockpit of Pilatus PC12 aircraft with IS&S flat panel display.

     Text:
     Instrument panel in a Platus PC12 with conventional Electronic Flight
     Instrumentation System (EFIS) on the left side and the IS&S Cockpit
       Information Panel (Cockpit/IP) on the right side.

Illustration of RVSM air data system for US Air Force KC 135

     Text:
     IS&S RVSM air data system for the US Air Force KC 135
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.........................................................   1
Risk Factors...............................................................   5
Cautionary Notice Regarding Forward-Looking Statements.....................  12
Use of Proceeds............................................................  13
Dividend Policy............................................................  13
Capitalization.............................................................  14
Dilution...................................................................  15
Selected Financial Data....................................................  16
Management's Discussion and Analysis of Financial Condition and
 Results of Operations.....................................................  17
Business...................................................................  23
Management.................................................................  36
Certain Transactions.......................................................  42
Principal Shareholders.....................................................  43
Description of Capital Stock...............................................  45
Shares Eligible for Future Sale............................................  48
Underwriting...............................................................  49
Legal Matters..............................................................  51
Experts....................................................................  51
Where You Can Find More Information........................................  51
Index to Financial Statements.............................................. F-1
</TABLE>

   The IS&S name and logo and the names of products offered by us are
trademarks, registered trademarks, service marks or registered service marks of
IS&S. All other trademarks and service marks appearing in this prospectus are
the property of their respective holders.
<PAGE>

                               PROSPECTUS SUMMARY

   This summary contains basic information about us and this offering. You
should read the entire prospectus carefully, including the section entitled
"Risk Factors" and our financial statements and the accompanying notes, before
making an investment decision.

   Except as set forth in our financial statements or as otherwise specified in
this prospectus, all information in this prospectus: (1) reflects a 1.09624-
for-1 split of our common stock to occur prior to this offering; (2) assumes no
exercise of the underwriters' over-allotment option; and (3) reflects the
conversion of all of our outstanding shares of preferred stock into common
stock upon the closing of this offering. We have a September 30 fiscal year. In
this prospectus, when we refer to a specific fiscal year, it is the fiscal year
ended September 30 of the year mentioned. For example, fiscal year 1999 is the
fiscal year ended September 30, 1999.

                  Innovative Solutions and Support, Inc.

Our Business

   We design, manufacture and sell flight avionics products, which are
electronic instruments used in the operation of aircraft, to the military and
government, commercial air transport and corporate aviation markets primarily
to upgrade, or retrofit, aircraft currently in use. Our products include flight
information computers, electronic displays and advanced monitoring systems that
measure and display critical flight information, including air data, such as
airspeed and altitude, and engine and fuel data. Our strategy is to leverage
the latest technologies developed for the personal computer and
telecommunications industries into advanced, cost-effective solutions for the
aviation industry. We believe that this strategy, combined with our experience
in the aviation industry, enables us to develop high-quality avionics products,
substantially reduce product times to market and achieve cost savings over
competing products. As a result, we have increased our revenues from $10.6
million in fiscal year 1997 to $22.5 million in fiscal year 1999, and we
recorded revenues of $13.6 million for the six months ended March 31, 2000. Our
income before income taxes increased from $841,000 in fiscal year 1997 to $6.7
million in fiscal year 1999, and we recorded income before income taxes of $3.9
million for the six months ended March 31, 2000.

   Our air data product line includes our reduced vertical separation minimum
(RVSM) products, which allow aircraft to comply with regulatory standards
necessary to fly at reduced vertical separations being phased in on certain
heavily traveled routes throughout the world. As a result of our expertise and
market position, in 1997 we were selected as the sole RVSM supplier for the
United States Air Force's retrofit of the KC-135 cargo aircraft, which we
believe to be one of the largest U.S. military RVSM retrofit programs to date.

   We recently introduced our flat panel display system, a liquid crystal
display that can replicate the display of one or a suite of analog and digital
displays on one screen. We believe that our flat panel display system, which we
call our Cockpit Information Portal (CIP), at 15 inches diagonal (12p by 9p),
is the largest primary flight display available in the industry. Our CIP can
replace a substantial number of the conventional displays in the limited space
of the cockpit. Our CIP also allows the display of additional information now
available to pilots, such as weather radar and ground terrain maps, and can be
adapted to display additional information that we expect will become available
or mandated in the future. We are also developing technologies that complement
our CIP and enhance the display of cockpit information, such as our heads up
display system, which projects important flight information onto an aircraft's
cockpit windshield for easy reference by pilots.

   Among our customers are some of the most substantial aircraft owners and
operators in the world, including the United States government, Northwest
Airlines Corporation, Air Canada, Inc., DHL Airways, Inc., Emery Worldwide
Airlines, Federal Express Corporation, The Boeing Company, Lockheed Martin
Corporation, Rockwell International Corporation, Bombardier Aerospace (the
manufacturer of Learjet), Pilatus Aircraft Ltd. and Gulfstream Aerospace
Corporation.

                                       1
<PAGE>


Market Opportunity

   As air travel has increased over the past decade, U.S. and international
aviation organizations have sought ways to increase traffic flow on high
traffic routes. These organizations developed RVSM, which reduces vertical
separation between aircraft from 2,000 feet to 1,000 feet and thereby increases
available flight routes within a vertical airspace. RVSM has been in effect at
specified altitudes for certain North Atlantic routes since March 1997. RVSM
was phased in on certain Trans-Pacific air routes beginning in February 2000
and is scheduled to be phased in on Western Atlantic air routes beginning in
October 2000. Eurocontrol, the organization that oversees air traffic control
throughout Europe, plans to begin mandating RVSM on certain European routes in
January 2002. We anticipate that RVSM will continue encompassing more of the
world's airspace, including air routes over the United States, in the years to
come.

   Because aircraft must have RVSM-compliant equipment in order to fly on RVSM
routes, aircraft not equipped with such equipment will not be permitted to fly
on many of the most popular and efficient routes. We believe that we are
currently one of three primary suppliers of RVSM products to the U.S. retrofit
market, and we intend to capitalize on our position as a leading provider of
reliable, cost competitive RVSM air data products.

   Technological advances, particularly in the personal computer and
telecommunications industries, have increasing application in the avionics
industry. These advances, together with the growth in the amount of information
available to pilots and new regulatory mandates, have driven demand for state-
of-the-art avionics equipment. We designed our CIP to be the centerpiece of a
cockpit information management system. Our CIP will permit the organization and
display of various types of flight and other information that cannot currently
be displayed in cockpits, either because of space or technological limitations.

Strategy

   Our objective is to become a leading supplier and integrator of cockpit
information. We believe that our industry experience and reputation, our
technology and products, and our business strategy provide a basis to achieve
this objective. The key elements of our strategy are:

  . Maintaining our leadership in the air data and RVSM markets. We believe
    that we are one of the largest suppliers of air data and RVSM-compliant
    products to the retrofit market in the United States. As RVSM routes
    continue to be phased in over the next several years, we intend to
    capitalize on our position as a leading provider of reliable, cost
    competitive RVSM-compliant air data systems.

  . Establishing leadership in the flat panel display market. We expect that
    over the next several years, many aircraft will either be retrofitted or
    newly manufactured with flat panel displays because of their display
    capacity, versatility, visual appeal and lower cost of displaying
    multiple cockpit instruments on a single flat panel display. We believe
    that our CIP will become increasingly preferable over existing
    conventional and flat panel displays because of its lower cost, larger
    size and enhanced viewability.

  . Continuing our engineering and product development successes. We plan to
    continue using our innovative development processes to design
    technologically advanced, cost competitive avionics products such as our
    RVSM air data products and our CIP. We believe that by leveraging the
    latest technologies developed for other industries, we will be able to
    develop new leading-edge products or enhancements to our existing
    products in a more time efficient and cost effective manner than our
    competitors.

  . Increasing our sales to the commercial air transport and corporate
    aviation markets. We intend to strengthen and diversify our marketing
    efforts to include additional end user markets of the aviation industry,
    particularly the commercial air transport and corporate aviation markets,
    while at the same time maintaining our position as a provider of avionics
    products to government and military end users.

                                       2
<PAGE>


  . Expanding our international presence. We plan to increase our
    international sales through the expansion of sales and marketing
    personnel and foreign offices to respond to increased demand resulting
    from the anticipated introduction of RVSM on air routes throughout the
    world and the expected increasing interest in incorporating flat panel
    displays in aircraft cockpits.

  . Growth through acquisitions. We intend to pursue acquisitions as a means
    of growing our business. We may seek to acquire developers or suppliers
    of complementary products, technology or information, or we may acquire
    suppliers of similar products as a means of increasing our product
    offerings and market share.

General Information

   We are a Pennsylvania corporation. Our principal executive offices are
located at 420 Lapp Road, Malvern, Pennsylvania 19355. Our telephone number is
(610) 889-9898. We maintain a web site at www.innovative-ss.com. Information
found on our web site does not constitute part of this prospectus.

                              --------------------

                                  The Offering

<TABLE>
 <C>                                          <S>
 Common stock offered........................ 3,000,000 shares
 Common stock to be outstanding after the
  offering................................... 12,121,593 shares
 Use of proceeds............................. For product development of our
                                              flat panel display and related
                                              products, to finance our
                                              purchase of an airplane, to
                                              finance a portion of our new
                                              facility, to expand our sales
                                              and marketing efforts, for
                                              possible acquisitions and for
                                              general corporate purposes and
                                              working capital. See "Use of
                                              Proceeds."
 Proposed Nasdaq National Market symbol...... ISSC
</TABLE>

                              --------------------

Our common stock to be outstanding after this offering excludes:

  . 757,501 shares of common stock issuable upon exercise of stock options
    outstanding as of June 30, 2000 at a weighted average exercise price of
    $5.26 per share;

  . warrants to purchase 375,354 shares of common stock at an exercise price
    of $2.19 per share; and

  . 285,912 shares of common stock reserved for future grants under our 1998
    Stock Option Plan as of June 30, 2000.

                                       3
<PAGE>

                             Summary Financial Data


   You should read the data set forth below together with our "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
                                           Year Ended September 30,                             Six Months Ended
                          -----------------------------------------------------------------  -----------------------
                                                                                             March 31,    March 31,
                             1995          1996          1997         1998         1999         1999        2000
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
                          (unaudited)                                                             (unaudited)
<S>                       <C>           <C>           <C>          <C>          <C>          <C>         <C>
Statement of Operations
 Data:
Revenues................  $ 2,172,433   $ 6,685,682   $10,594,204  $14,682,313  $22,487,882  $8,913,950  $13,558,787
Cost of sales...........    1,847,207     5,322,424     7,007,523    8,480,549   10,570,009   4,694,879    6,399,879
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
 Gross profit...........      325,226     1,363,258     3,586,681    6,201,764   11,917,873   4,219,071    7,158,908
Research and
 development............      969,403       963,921     1,114,351    1,554,564    1,915,634     877,920    1,357,302
Selling, general and
 administrative.........      851,512     1,634,199     1,567,896    2,492,509    3,333,977   1,202,825    2,051,643
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
 Total operating
  expenses..............    1,820,915     2,598,120     2,682,247    4,047,073    5,249,611   2,080,745    3,408,945
 Operating income
  (loss)................   (1,495,689)   (1,234,862)      904,434    2,154,691    6,668,262   2,138,326    3,749,963
Interest (income)
 expense, net...........           --       (27,287)       63,813      224,121      (30,137)     31,105     (137,093)
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
 Income (loss) before
  income taxes..........   (1,495,689)   (1,207,575)      840,621    1,930,570    6,698,399   2,107,221    3,887,056
Income tax (expense)
 benefit, net...........           --            --            --    2,013,802   (2,517,764)   (792,051)  (1,420,642)
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
Net income (loss).......  $(1,495,689)  $(1,207,575)  $   840,621  $ 3,944,372  $ 4,180,635  $1,315,170  $ 2,466,414
                          ===========   ===========   ===========  ===========  ===========  ==========  ===========
Net income (loss) per
 common share:
 Basic..................  $     (0.23)  $     (0.18)  $      0.13  $      0.59  $      0.62  $     0.20  $      0.35
 Diluted................        (0.23)        (0.18)         0.10         0.46         0.45        0.15         0.25
Weighted average shares
 outstanding:
 Basic..................    6,570,649     6,612,739     6,612,739    6,670,134    6,746,976   6,727,844    7,100,319
 Diluted................    6,570,649     6,612,739     8,554,092    8,611,487    9,204,344   8,983,348    9,837,924
Operating Data:
 Gross profit margin....         15.0%         20.4%         33.9%        42.2%        53.0%       47.3%        52.8%
 Operating income (loss)
  margin................        (68.8%)       (18.5%)         8.5%        14.7%        29.7%       24.0%        27.7%
 Revenues per employee
  (1)...................  $    51,820   $   114,210   $   156,150  $   192,798  $   258,253  $  107,396  $   124,393
</TABLE>

<TABLE>
<CAPTION>
                                                         March 31, 2000
                                                   ---------------------------
                                                     Actual    As Adjusted (2)
                                                   ----------- ---------------
<S>                                                <C>         <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 6,456,285   $36,408,910
Working capital...................................  11,665,639    41,618,264
Total assets......................................  15,328,305    45,248,305
Debt and capital lease obligations, less current
 portion..........................................      38,889        38,889
Total shareholders' equity........................  12,400,118    42,320,118
</TABLE>
- --------------------
(1) Revenues per employee represent our revenues for the period divided by the
    average number of employees during the period. The average number of
    employees equals the average of the number of employees at the beginning of
    the period and at each month end during the period.

(2) Gives effect to the public offering of 3,000,000 shares of common stock at
    an assumed initial public offering price of $11.00 per share, net of
    underwriting discount and $770,000 of other estimated issuance costs.

                                       4
<PAGE>

                                  RISK FACTORS

   An investment in our shares is extremely risky. You should carefully
consider the following risks as well as the other information in this
prospectus before you decide to buy our common stock.

                         Risks Related to Our Business

Most of our sales are of air data systems products, and we cannot be certain
that the market will continue to accept these or our other products.

   During fiscal year 1999 and the six months ended March 31, 2000, we derived
81% and 100% of our revenues from the sale of air data systems and related
products. We expect that revenues from our air data products will continue to
account for a significant portion of our revenues in the future. Accordingly,
our revenues will decrease if such products do not continue to receive market
acceptance or if our existing customers do not continue to incorporate our
products in their retrofitting or manufacturing of aircraft. In seeking new
customers, it may be difficult for our products to displace competing air data
products. Accordingly, we cannot assure you that potential customers will
accept our products or that existing customers will not abandon them.

We currently have a limited number of customers that use our products,
primarily for government-related contracts, making us reliant on these
customers and government needs.

   A substantial portion of our sales have been, and we expect will continue to
be, to general contractors or government agencies in connection with government
aircraft retrofit or original manufacturing contracts. Sales to government
contractors and government agencies accounted for approximately 75% and 90% of
our revenues during fiscal year 1999 and the six months ended March 31, 2000.
Accordingly, our revenues could decline as a result of government spending
cuts, general budgetary constraints and the complex and competitive government
procurement processes.

   Additionally, a substantial portion of our revenues have been from a
relatively limited number of government contractors, fleet operators and
aircraft manufacturers. We derived 76% of our revenues during fiscal year 1999
from three customers, The Boeing Company, Rockwell International Corporation
and Northwest Airlines Corporation, and 57% of our revenues during the six
months ended March 31, 2000 from DME, Inc., Raytheon Company and Rockwell
International Corporation. We expect a relatively small number of customers to
account for a majority of our revenues for the foreseeable future. As a result
of our concentrated customer base, a loss of one or more of these customers
could adversely affect our revenues and results of operations.

Our business currently derives a large portion of its revenues from one
military retrofit program, the loss of which could reduce our revenues.

   During fiscal year 1999 and the six months ended March 31, 2000, 63% and 62%
of our revenues resulted from sales in connection with the United States Air
Force KC-135 retrofit program in which we are a supplier of certain avionics
products. Governmental spending cuts with respect to this program or our loss
of business under this program would reduce our revenues and harm our financial
condition.

The growth of our customer base could be limited by delays or difficulties in
completing the development and introduction of our planned products or product
enhancements.

   Recent advances in technology have led to increased demands for new avionics
products. Our product development efforts may not be successful, and we may
encounter significant delays in bringing our products to market. If our product
development efforts are not successful or are significantly delayed and our
customers decide to purchase competing products, our business may be harmed as
a result of decreased sales and lost market share.

                                       5
<PAGE>


If we fail to enhance existing products or to develop and achieve market
acceptance for flat panel displays and other new products that meet customer
requirements, our business may not grow.

   Although a substantial majority of our revenues has come from sales of air
data systems and related products, we expect to spend a large portion of our
research and development efforts and a portion of the proceeds of this offering
in developing and marketing our CIP and complementary products. Our ability to
grow and diversify our operations through the introduction and sale of new
products, such as flat panel displays, is dependent upon our success in
continuing product development and engineering activities as well as our sales
and marketing efforts and our ability to obtain requisite approvals to sell
such products. Our sales growth will also depend in part on the market
acceptance of and demand for our CIP and future products. We cannot be certain
that we will be able to develop, introduce or market our CIP or other new
products or product enhancements in a timely or cost-effective manner or that
any new products will receive market acceptance or necessary regulatory
approval.

We rely on third party suppliers for the components of our air data systems
products, and any interruption in the supply of these components could hinder
our ability to deliver our products.

   Our manufacturing process consists primarily of assembling components from
third party manufacturers. For fiscal year 1999, our principal suppliers were
Weston, UK, DDC, Inc. and API Harrowe, Inc. These third party components may
not continue to be available to us on commercially reasonable terms or in a
timely fashion. If we are unable to maintain relationships with key third party
suppliers, the development and distribution of our products could be delayed
until equivalent components can be obtained and integrated into our products.
In addition, substitution of certain components from other manufacturers may
require FAA or other approval, which could delay our ability to ship products.

Our government retrofit projects allow the government agency or goverment
contractor to terminate or modify their contracts with us.

   Our government retrofit projects are generally pursuant to either a direct
contract with a government agency or a subcontract with the general contractor
to a government agency. Each contract includes various federal regulations that
impose certain requirements on us, including the ability of the government
agency or general contractor to alter the price, quantity or delivery schedule
of our products. In addition, the government agency or general contractor
retains the right to terminate the contract at any time at its convenience.
Upon alteration or termination of these contracts, we would normally be
entitled to an equitable adjustment to the contract price so that we may
receive the purchase price for items we have delivered and reimbursement for
allowable costs we have incurred. Most of our backlog is from government-
related contracts. Accordingly, because these contracts can be terminated, we
cannot assure you that our backlog will result in sales.


We depend on our key personnel to manage our business effectively, and if we
are unable to retain our key employees, our ability to compete could be harmed.

   Our success depends on the efforts, abilities and expertise of our senior
management and other key personnel, including in particular our Chairman and
Chief Executive Officer, Geoffrey Hedrick. We generally do not have employment
agreements with our employees. There can be no assurance that we will be able
to retain such employees, the loss of some of whom could hurt our ability to
execute our business strategy. We intend to continue hiring key management and
sales and marketing personnel. Competition for such personnel is intense, and
we may not be able to attract or retain additional qualified personnel.

If we do not manage our rapid growth, improve existing processes and implement
new systems, procedures and controls, we may use resources, including your
investment, inefficiently and our ability to serve our customers and capitalize
on market opportunities may suffer.

   We expect our rapid growth to continue, causing significant strain on our
operational and administrative resources. We have grown from 72 employees in
1997 to approximately 115 employees as of June 30, 2000, and we expect to
continue hiring additional employees. Our future success will depend in part on
our ability to implement and improve our operational, administrative and
financial systems and controls and to manage, train and expand our employee
base. We cannot assure you that our current and planned personnel levels,
systems, procedures and controls will be adequate to support our future
operations. If inadequate, we may not be able to

                                       6
<PAGE>

exploit existing and potential market opportunities. Any delays or difficulties
we encounter could impair our ability to attract new customers or enhance our
relationships with existing customers.

Our revenue and operating results may vary significantly from quarter to
quarter, which may cause our stock price to decline.

   Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including:

  . variations in demand for our products;

  . the timing of the introduction of RVSM requirements on various flight
    routes;

  . the capital expenditure budgets of aircraft owners and operators and the
    appropriation cycles of the U.S. government;

  . changes in the use of our products, including non-RVSM air data systems,
    RVSM systems and flat panel displays;

  . delays in introducing or obtaining government approval for new products;

  . new product introductions by competitors;

  . changes in our pricing policies or the pricing policies of our
    competitors; and

  . costs related to possible acquisitions of technologies or businesses.

   We plan to increase our operating expenses to expand our sales and marketing
operations and fund greater levels of product development. As a result, a delay
in generating revenues could cause significant variations in our operating
results from quarter to quarter.

Our competition includes other manufacturers of air data systems and flight
information displays against whom we may not be able to compete successfully.

   The markets for our products are intensely competitive and subject to rapid
technological change. Our competitors include Kollsman, Inc., Honeywell
International Inc., Rockwell International Corporation, Smiths Industries plc
and Meggitt Avionics Inc. Substantially all of our competitors have
significantly greater financial, technical and human resources than we do. In
addition, our competitors have much greater experience in and resources for
marketing their products. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and customer preferences or devote
greater resources to the development, promotion and sale of their products than
we can. Our competitors may also have greater name recognition and more
extensive customer bases that they can use to their benefit. This competition
could result in price reductions, fewer customer orders, reduced gross margins
and loss of market share.

We may not be able to identify or complete acquisitions or we may consummate an
acquisition that adversely affects our operating results.

   One of our strategies is to acquire businesses or technologies that will
complement our existing operations. We have limited experience in acquiring
businesses or technologies. There can be no assurance that we will be able to
acquire or profitably manage acquisitions or successfully integrate them into
our operations. Furthermore, certain risks are inherent in our acquisition
strategy, such as the diversion of management's time and attention and
combining disparate company cultures and facilities. Acquisitions may have an
adverse effect on our operating results, particularly in quarters immediately
following the consummation of such transactions, as we integrate the operations
of the acquired businesses into our operations. Once integrated, acquisitions
may not achieve levels of net sales or profitability comparable to those
achieved by our existing operations or otherwise perform as expected.

                                       7
<PAGE>


Our success depends on our ability to protect our proprietary rights, and there
is a risk of infringement. If we are unable to protect and enforce our
intellectual property rights, we may be unable to compete effectively.

   Our success and ability to compete will depend in part on our ability to
obtain and maintain patent or other protection for our technology and products,
both in the United States and abroad. In addition, we must operate without
infringing the proprietary rights of others.

   We currently hold three U.S. patents and have one U.S. patent application
pending. In addition, we have five international patent applications pending.
We cannot be certain that patents will issue on any of our present or future
applications. In addition, our existing patents or any future patents may not
adequately protect our technology if they are not broad enough, are
successfully challenged or other entities are able to develop competing methods
without violating our patents. If we are not successful in protecting our
intellectual property, competitors could begin to offer products which
incorporate our technology. Patent protection involves complex legal and
factual questions and, therefore, is highly uncertain, and litigation relating
to intellectual property is often very time consuming and expensive. If a
successful claim of patent infringement were made against us or we are unable
to develop non-infringing technology or license the infringed or similar
technology on a timely and cost-effective basis, we might not be able to make
some of our products.

                         Risks Related to Our Industry

If we are unable to respond to rapid technological change, our products could
become obsolete and our reputation could suffer.

   Future generations of air data systems, engine and fuel displays and flat
panel displays embodying new technologies or new industry standards could
render our products obsolete. The market for aviation products is subject to
rapid technological change, new product introductions, changes in customer
preferences and evolving industry standards. Our future success will depend on
our ability to:

  . adapt to rapidly changing technologies;

  . adapt our products to evolving industry standards; and

  . develop and introduce a variety of new products and product enhancements
    to address the increasingly sophisticated needs of our customers.

   Our future success will also depend on our developing high quality, cost-
effective products and enhancements to our products that satisfy the needs of
our customers and on our introducing these new technologies to the marketplace
in a timely manner. If we fail to modify or improve our products in response to
evolving industry standards, our products could rapidly become obsolete.

Our products must obtain government approval before we can sell them.

   Our products are currently subject to direct regulation by the U.S. Federal
Aviation Authority (FAA), its European counterpart, the Joint Aviation
Authorities (JAA), and other comparable organizations. Our products and many of
their components must be approved by either the FAA, the JAA or other
comparable organizations before they can be used in an aircraft. To be
certified, we must demonstrate that our products are accurate and able to
maintain certain levels of repeatability over time. Although the certification
requirements of the FAA and the JAA are substantially similar, there is no
formal reciprocity between the two systems. Accordingly, even though some of
our products are FAA-approved, we may need to obtain approval from the JAA or
other appropriate organizations to have them certified for installation outside
the United States.

   Significant delay in receiving certification for newly developed products or
enhancements to our products or losing certification for our existing products
could result in lost sales or delays in sales. Furthermore, the adoption of
additional regulations or product standards, as well as changes to the existing
product standards, could require us to change our products and underlying
technology. Some products from which we expect to generate significant future
revenues, including our CIP, have not received regulatory approval. We cannot
assure you that we will receive regulatory approval on a timely basis or at
all. For a more detailed description, see "Business--Government Regulation."

                                       8
<PAGE>


Because our products utilize sophisticated technology and are deployed in
complex aircraft cockpit environments, problems with these products may arise
that could seriously harm our reputation for quality assurance and our
business.

   Our products use complex system designs and components that may contain
errors, omissions or defects, particularly when we incorporate new technologies
into our products or we release new versions or enhancements of our products.
Despite our quality assurance process, errors, omissions or defects could occur
in our current products, in new products or in new versions or enhancements of
existing products after commercial shipment has begun. We may be required to
redesign or recall those products or pay damages. Such an event could result in
the following:

  . the delay or loss of revenues;

  . the cancellation of customer contracts;

  . the diversion of development resources;

  . damage to our reputation;

  . increased service and warranty costs; or

  . litigation costs.

   Although we currently carry product liability insurance, this insurance may
not be adequate to cover our losses in the event of a product liability claim.
Moreover, we may not be able to maintain such insurance in the future.


We face risks associated with international operations that could cause our
financial results to suffer or make it difficult to market our products outside
of the United States.

   We expect to derive an increasing amount of our revenues from sales outside
the United States, particularly in Europe. We have limited experience in
marketing and distributing our products internationally. In addition, there are
certain risks inherent in doing business on an international basis, such as:

  . differing regulatory requirements for products being installed in
    aircraft;

  . legal uncertainty regarding liability;

  . tariffs, trade barriers and other regulatory barriers;

  . political and economic instability;

  . changes in diplomatic and trade relationships;

  . potentially adverse tax consequences;

  . the impact of recessions in economies outside the United States; and

  . variance and unexpected changes in local laws and regulations.

   Currently, all of our international sales are denominated in U.S. dollars.
An increase in the value of the dollar compared to other currencies could make
our products less competitive in foreign markets. In the future, we may conduct
sales in local currencies, exposing us to changes in exchange rates that could
adversely affect our results of operations.

                         Risks Related to Our Offering

We may not be able to obtain additional financing necessary to grow our
business.

   We currently anticipate that the net proceeds from this offering, together
with our funds from operations, will be sufficient to meet our anticipated
capital needs for the foreseeable future. However, we may require

                                       9
<PAGE>

additional capital to finance our growth strategies and other activities in the
future. Our capital requirements will depend on many factors, including:

  . the cost of developing new products;

  . the number and timing of any acquisitions; and

  . the costs associated with our expansion.

   To the extent that our existing sources of cash, plus any cash generated
from operations and from any financing arrangements we may enter into, together
with the net proceeds of this offering, are insufficient to fund our
activities, we will need to raise additional funds. If we issue additional
stock, your percentage ownership in us would be reduced. Further, such
additional stock may have rights, preferences or privileges senior to those you
possess as a holder of our common stock. Additional financing may not be
available when needed and, if such financing is available, it may not be
available on terms favorable to us.

Management has substantial discretion in the use of the proceeds of this
offering and may use the proceeds in ways that do not increase our profits or
market value.

   We expect to use a substantial portion of the net proceeds of this offering
primarily for working capital and other general corporate purposes. We may also
use some of the proceeds to acquire other businesses, products or technologies
that would complement our existing products, expand our market coverage or
enhance our technological capabilities. We have no current agreements or
understandings regarding any acquisition. As a result, our management will have
broad discretion over how to use a substantial portion of the funds provided by
this offering and you may not approve of how we utilize the net proceeds.

There has been no prior public market for our common stock. The price of our
common stock may be volatile, which could result in substantial losses for
investors purchasing shares in this offering.

   Our common stock has never been traded in a public market, and an active
trading market for our common stock may not develop in the future. If an active
trading market does develop, it may not last and the trading price of the
shares being sold in this offering may fluctuate widely as a result of a number
of factors, many of which are outside our control. Some of these factors
include:

  . quarter-to-quarter variations in our operating results;

  . our announcements about the performance of our products as well as our
    competitors' announcements about the performance of their products;

  . changes in earnings estimates by, or failure to meet the expectations of,
    securities analysts;

  . regulatory action;

  . increased price competition;

  . developments or disputes concerning intellectual property rights; and

  . general conditions in the economy or the aviation industry.

   We are negotiating the initial offering price of the common stock with the
underwriters. However, the initial offering price may not be indicative of the
prices that will prevail in the public market after the offering, and the
market price of our common stock could fall below the initial public offering
price.

Our officers and directors will continue to have substantial control over our
future direction after this offering and could limit your ability to influence
the outcome of key transactions to the detriment of shareholder value,
including potential changes of control.

   Our executive officers and directors will, in the aggregate, beneficially
own approximately 53% of our outstanding common stock following the completion
of this offering. These shareholders, if acting together,

                                       10
<PAGE>

would be able to significantly influence matters requiring approval by our
shareholders, including the election of directors and the approval of mergers
or other business combination transactions. See "Principal Shareholders."

There may be an adverse effect on the price of our stock as a result of shares
being available for sale in the future.

   After this offering, we will have outstanding 12,121,593 shares of common
stock. This total includes the shares we are selling in this offering, which
generally may be resold immediately in the public market. The remaining
9,121,593 shares will become available for resale in the public market 180 days
after the date of this prospectus due to agreements these shareholders have
with Friedman, Billings, Ramsey & Co., Inc. However, Friedman, Billings, Ramsey
& Co., Inc. may, in its sole discretion, waive the restrictions under the lock-
up agreements and allow any shareholder to sell his or her shares at any time.
As restrictions on resale end, the market price of our common stock could drop
significantly if the holders of the restricted shares sell or are perceived by
the market as intending to sell their shares. In addition, holders of 3,396,809
shares of our common stock and holders of warrants to purchase 375,354 shares
of our common stock have rights to require us to register their shares for sale
with the Securities and Exchange Commission beginning 180 days following the
date of this prospectus. The exercise of these registration rights and the sale
of a large number of shares in the public market could cause the price of our
common stock to fall. For a more detailed description, see "Shares Eligible for
Future Sale."

Purchasers of our common stock will experience immediate and substantial
dilution in the value of their shares.

   The purchasers of the shares of common stock in this offering will
experience immediate and substantial dilution of the net tangible book value
per share of common stock from the initial public offering price. Based on an
assumed offering price of $11.00 per share, as of March 31, 2000, the dilution,
on a pro forma, as adjusted basis giving effect to this offering, would have
been equal to $7.51 per share with respect to the shares purchased in this
offering. To the extent that some or all outstanding options and warrants to
purchase common stock are exercised, there will be further dilution. See
"Dilution."

Provisions of our charter documents and Pennsylvania law may have anti-takeover
effects that could prevent a change in control even if the change in control
would be beneficial to our shareholders.

   Our articles of incorporation and bylaws, as well as the corporate laws
under which we are governed, contain provisions that may have the effect of
discouraging certain transactions involving an actual or threatened change of
control. Such provisions could limit the price that certain investors might be
willing to pay in the future for our stock. In addition, our board may issue
shares of preferred stock without shareholder approval on such terms and
conditions, and having such rights, privileges and preferences, as our board
may determine. The rights of the holders of the common stock will be subject
to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. We currently have no plans to
issue preferred stock. See "Description of Capital Stock."

We have no intention to pay dividends.

   We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."

                                       11
<PAGE>

             CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

   Some of the information in this prospectus contains forward-looking
statements within the meaning of the federal securities laws. These forward-
looking statements concern our operations, economic performance and financial
condition and are based on our current expectations, assumptions, estimates and
beliefs about us and our industry. When we use words such as "believe,"
"expect," "anticipate," "estimate," "intend," "plan," "may" or similar
expressions, we are making forward-looking statements.

   These statements are not guarantees of future performance and are subject to
certain risks, uncertainties and other factors, some of which are beyond our
control, which could cause our actual results to differ materially from our
expectations. Important factors that could cause actual results to differ from
expectations include, among others, the following:

  . rapid and significant changes in technology;

  . intense competition in our industry;

  . changes in customer preferences and demand for our products or delays in
    introducing new products;

  . changes to government regulations relating to aircraft and aircraft
    parts; and

  . other general economic and business conditions.

   Certain of these risks and other factors are described in "Risk Factors" and
elsewhere in this prospectus. We caution you not to place undue reliance on
forward-looking statements. These cautionary statements should not be construed
by you to be exhaustive, and they are made only as of the date of this
prospectus.

                                       12
<PAGE>

                                USE OF PROCEEDS

   We estimate that the net proceeds to us from this offering will be
approximately $29.9 million, after deducting the underwriting discount and
other estimated expenses. If the underwriters fully exercise their over-
allotment option, we estimate that the net proceeds to us from the offering
will be approximately $34.5 million, after deducting the underwriting discount
and other estimated expenses. For the purpose of estimating net proceeds, we
are assuming that the initial public offering price will be $11.00 per share,
which represents the midpoint of the range set forth on the cover page of this
prospectus.

   We intend to use the net proceeds of this offering as follows: approximately
$4 million for additional research and development on our flat panel display
and related products; approximately $3 million to fund the purchase a Pilatus
PC12 aircraft; approximately $2 million to finance a portion of our new
facility; approximately $2 million to expand our sales and marketing efforts
over the next several years; and the balance for possible acquisitions of
complementary businesses, technologies or product lines and for general
corporate purposes and working capital. We do not currently have any
understandings with respect to any specific acquisitions.

   Until we use the net proceeds of the offering, we intend to invest the funds
in short-term, investment-grade, interest-bearing securities.

                                DIVIDEND POLICY

   We have never declared or paid dividends on our common stock. We currently
intend to retain future earnings, if any, for use in our business, and,
therefore, we do not anticipate declaring or paying any dividends in the
foreseeable future. Payments of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. In addition, our credit facility restricts
our ability to pay dividends.

                                       13
<PAGE>

                                 CAPITALIZATION

   The following table sets forth our actual and pro forma, as adjusted
capitalization as of March 31, 2000. Our pro forma, as adjusted capitalization
gives effect to:

  . the conversion of all outstanding shares of preferred stock into
    1,941,353 shares of common stock upon the closing of this offering;

  . the issuance and sale of the 3,000,000 shares of common stock offered by
    us in this offering; and

  . the application of the estimated net proceeds from the sale of our common
    stock based on an assumed initial public offering price of $11.00 per
    share and after deducting the underwriting discount and estimated
    offering expenses payable by us.

   You should read this table in conjunction with the financial statements and
the related notes and the other financial information included in this
prospectus.

<TABLE>
<CAPTION>
                                                         At March 31, 2000
                                                      -----------------------
                                                                  Pro Forma,
                                                        Actual    As Adjusted
                                                      ----------- -----------
   <S>                                                <C>         <C>
   Capitalized lease obligations, net of current
    portion.......................................... $    38,889 $    38,889
                                                      ----------- -----------
   Shareholders' equity:
    Preferred stock..................................         177         --
    Common stock.....................................       7,180      12,121
    Additional paid-in-capital.......................   9,747,394  39,662,630
    Retained earnings................................   2,645,367   2,645,367
                                                      ----------- -----------
     Total shareholders' equity......................  12,400,118  42,320,118
                                                      ----------- -----------
       Total capitalization.......................... $12,439,007 $42,359,007
                                                      =========== ===========
</TABLE>

   This table excludes an aggregate of 1,105,449 shares of common stock
issuable upon exercise of stock options and warrants outstanding as of March
31, 2000, plus an additional 313,318 shares reserved for issuance in connection
with future grants under our stock option plans as of such date.

                                       14
<PAGE>

                                   DILUTION

   Purchasers of common stock in this offering will experience immediate and
substantial dilution. Our pro forma net tangible book value at March 31, 2000
was $12.4 million, or $1.36 per share. Pro forma net tangible book value per
share represents the amount of our total tangible assets less our total
liabilities and divided by the total number of shares of common stock
outstanding, after giving effect to the conversion of all outstanding shares
of preferred stock into common stock.

   Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of our common stock in this offering and
the net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale of 3,000,000
shares of common stock offered by us at an assumed initial public offering
price of $11.00 per share, and after deducting the underwriting discount and
estimated offering expenses, pro forma, as adjusted net tangible book value at
March 31, 2000 would have been $42.3 million, or $3.49 per share. This
represents an immediate increase in pro forma net tangible book value of $2.13
per share to existing shareholders and an immediate dilution of $7.51 per
share to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution:

<TABLE>
   <S>                                                             <C>   <C>
   Assumed initial public offering price per share...............        $11.00
     Pro forma net tangible book value per share as of March 31,
      2000.......................................................  $1.36
     Increase per share attributable to new investors............   2.13
                                                                   -----
   Pro forma, as adjusted net tangible book value per share after
    the offering.................................................          3.49
                                                                         ------
   Dilution per share to new investors...........................        $ 7.51
                                                                         ======
</TABLE>

   The following table summarizes, on a pro forma basis to reflect the
adjustments described above, the difference between the total consideration
paid and the average price per share paid by our existing shareholders and the
new investors purchasing shares of common stock in this offering at an assumed
initial public offering price of $11.00 per share (before deducting the
underwriting discount and estimated offering expenses):

<TABLE>
<CAPTION>
                             Shares Purchased  Total Consideration
                            ------------------ ------------------- Average Price
                              Number   Percent   Amount    Percent   Per Share
                            ---------- ------- ----------- ------- -------------
   <S>                      <C>        <C>     <C>         <C>     <C>
   Existing shareholders..   9,121,593   75.3% $ 9,544,751   22.4%    $ 1.05
   New investors..........   3,000,000   24.7   33,000,000   77.6      11.00
                            ----------  -----  -----------  -----
     Totals...............  12,121,593  100.0% $42,544,751  100.0%
                            ==========  =====  ===========  =====
</TABLE>

   The foregoing computations are based on the number of shares of common and
preferred stock outstanding as of March 31, 2000 and exclude:

  . 730,095 shares of common stock issuable upon exercise of stock options
    outstanding at a weighted average exercise price of $5.01 per share;

  . warrants to purchase 375,354 shares of common stock at an exercise price
    of $2.19 per share; and

  . 313,318 shares of common stock reserved for future grants under our 1998
    Stock Option Plan.

   When and if any of the options or warrants are exercised, there could be
further dilution to new investors.

                                      15
<PAGE>

                            SELECTED FINANCIAL DATA

   Our statement of operations data for 1997, 1998 and 1999 and the balance
sheet data as of September 30, 1998 and 1999 have been derived from the
financial statements, which have been audited by Arthur Andersen, LLP,
independent public accountants, and are included in this prospectus. Our
statement of operations data for 1996 and the balance sheet data as of
September 30, 1996 and 1997 have been derived from our audited financial
statements, audited by Arthur Andersen, which are not included in this
prospectus. Our statement of operations data for 1995 and for the six months
ended March 31, 1999 and 2000 and the balance sheet data as of September 30,
1995 and March 31, 2000 are unaudited. You should read the data set forth below
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and related notes appearing
elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                           Year Ended September 30,                             Six Months Ended
                          -----------------------------------------------------------------  -----------------------
                                                                                             March 31,    March 31,
                             1995          1996          1997         1998         1999         1999        2000
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
                          (unaudited)                                                             (unaudited)
<S>                       <C>           <C>           <C>          <C>          <C>          <C>         <C>
Statement of Operations
 Data:
Revenues................  $ 2,172,433   $ 6,685,682   $10,594,204  $14,682,313  $22,487,882  $8,913,950  $13,558,787
Cost of sales...........    1,847,207     5,322,424     7,007,523    8,480,549   10,570,009   4,694,879    6,399,879
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
 Gross profit...........      325,226     1,363,258     3,586,681    6,201,764   11,917,873   4,219,071    7,158,908
Research and
 development............      969,403       963,921     1,114,351    1,554,564    1,915,634     877,920    1,357,302
Selling, general and
 administrative.........      851,512     1,634,199     1,567,896    2,492,509    3,333,977   1,202,825    2,051,643
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
 Total operating
  expenses..............    1,820,915     2,598,120     2,682,247    4,047,073    5,249,611   2,080,745    3,408,945
Operating income
 (loss).................   (1,495,689)   (1,234,862)      904,434    2,154,691    6,668,262   2,138,326    3,749,963
Interest (income)
 expense, net...........           --       (27,287)       63,813      224,121      (30,137)     31,105     (137,093)
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
Income (loss) before
 income taxes...........   (1,495,689)   (1,207,575)      840,621    1,930,570    6,698,399   2,107,221    3,887,056
Income tax (expense)
 benefit, net...........           --            --            --    2,013,802   (2,517,764)   (792,051)  (1,420,642)
                          -----------   -----------   -----------  -----------  -----------  ----------  -----------
Net income (loss).......  $(1,495,689)  $(1,207,575)  $   840,621  $ 3,944,372  $ 4,180,635  $1,315,170  $ 2,466,414
                          ===========   ===========   ===========  ===========  ===========  ==========  ===========
Net income (loss) per
 common share:
 Basic..................  $     (0.23)  $     (0.18)  $      0.13  $      0.59  $      0.62  $     0.20  $      0.35
 Diluted................        (0.23)        (0.18)         0.10         0.46         0.45        0.15         0.25
Weighted average shares
 outstanding:
 Basic..................    6,570,649     6,612,739     6,612,739    6,670,134    6,746,976   6,727,844    7,100,319
 Diluted................    6,570,649     6,612,739     8,554,092    8,611,487    9,204,344   8,983,348    9,837,924
Operating Data:
 Gross profit margin....         15.0%         20.4%         33.9%        42.2%        53.0%       47.3%        52.8%
 Operating income (loss)
  margin................        (68.8%)       (18.5%)         8.5%        14.7%        29.7%       24.0%        27.7%
 Revenues per employee
  (1)...................  $    51,820   $   114,210   $   156,150  $   192,798  $   258,253  $  107,396  $   124,393
</TABLE>

<TABLE>
<CAPTION>
                                              September 30,
                         ---------------------------------------------------------  March 31,
                            1995        1996        1997       1998       1999        2000
                         ----------- ----------  ---------- ---------- ----------- -----------
                         (unaudited)                                               (unaudited)
<S>                      <C>         <C>         <C>        <C>        <C>         <C>
Balance Sheet Data:
Cash and cash
 equivalents............ $1,407,519  $  328,451  $  484,281 $  102,150 $ 4,638,607 $ 6,456,285
Working capital
 (deficit)..............    439,396    (846,370)    140,212  3,387,163   8,557,052  11,665,639
Total assets............  4,308,123   3,732,425   4,839,520  9,029,168  12,612,189  15,328,305
Debt and capital lease
 obligations, less
 current portion........     42,396     115,286      27,845     46,379      45,764      38,889
Total shareholders'
 equity (deficit).......    610,219    (597,356)    368,265  4,564,637   8,935,272  12,400,118
</TABLE>
- ---------------------
(1) Revenues per employee represent our revenues for the period divided by the
    average number of employees during the period. The average number of
    employees equals the average of the number of employees at the beginning of
    the period and at each month end during the period.

                                       16
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   You should read the following discussion in conjunction with our financial
statements and related notes appearing elsewhere in this prospectus. The
following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results may differ significantly from
those projected in these forward-looking statements as a result of many factors
including but not limited to those discussed in "Risk Factors," "Cautionary
Notice Regarding Forward-Looking Statements" and elsewhere in this prospectus.

Overview

   We were founded in 1988, and we design, manufacture and sell flight
information computers, electronic displays and advanced monitoring systems to
the military and government, commercial air transport and corporate aviation
markets.

   Our revenues are derived from the sale of our products to the retrofit
market and, to a lesser extent, original equipment manufacturers (OEMs). Our
customers include government and military entities and their commercial
contractors, aircraft operators, aircraft modification centers and various
OEMs. Although we occasionally sell our products directly to government
entities, we primarily have sold our products to commercial customers for end
use in government and military programs. These sales to commercial contractors
are on commercial terms, although some of the termination and other provisions
of government contracts are applicable to these contracts.

   We record revenues when our products are shipped. Since fiscal year 1998,
the majority of our revenues have come from the sale of RVSM-compliant air data
systems, including sales to commercial contractors in connection with the
United States Air Force KC-135 retrofit program. We are the sole supplier of
these systems and components under subcontracts with various commercial
contractors for the retrofit program, which covers the approximately 600 KC-135
aircraft currently in use. As of March 31, 2000, we had delivered 177 KC-135
ship sets for retrofit installation. Assuming the government exercises its
options for the remaining aircraft, we expect the program to continue through
fiscal year 2002.

   We have recently begun marketing our flat panel display system, or Cockpit
Information Portal (CIP), and are in the process of obtaining the required
certifications. We have entered into an agreement with Pilatus Business
Aircraft, Ltd. to offer our CIP in their PC 12 business aircraft. We expect to
receive revenues from our flat panel display during fiscal year 2001.

   Our cost of sales are comprised of material components purchased through our
supplier base and direct in-house assembly labor and overhead costs. Because
our manufacturing activities consist primarily of assembling and testing
components and subassemblies and integrating them into a finished system, we
believe that we can achieve flexible manufacturing capacity while controlling
overhead expenses. In addition, many of the components we use in assembling our
products are standard, although certain parts are manufactured to meet our
specifications. The overhead portion of cost of sales is primarily comprised of
salaries and benefits, building occupancy, supplies, business travel, and
outside services costs related to our production, purchasing, material control
and quality departments as well as warranty costs.

   We intend to continue to invest in the development of new products that
complement our current product offerings. Research and development expenses are
incurred for customer-sponsored programs and for future product development.
Research and development costs incurred for customer-sponsored programs are
charged to cost of sales when products are shipped. We expense research and
development costs related to future product development as they are incurred.

   Our selling, general and administrative expenses consist of marketing and
business development expenses, professional expenses, salaries and benefits for
executive and administrative personnel, facility costs, and recruiting, legal,
accounting and other general corporate expenses.

                                       17
<PAGE>

Results of Operations

   The following table sets forth our statement of operations expressed as a
percentage of total revenues:

<TABLE>
<CAPTION>
                                                                   Six Months
                                              Fiscal Year Ended       Ended
                                                September 30,       March 31,
                                              -------------------  ------------
                                              1997   1998   1999   1999   2000
                                              -----  -----  -----  -----  -----
   <S>                                        <C>    <C>    <C>    <C>    <C>
   Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
   Cost of sales.............................  66.1   57.8   47.0   52.7   47.2
                                              -----  -----  -----  -----  -----
     Gross profit............................  33.9   42.2   53.0   47.3   52.8
   Research and development..................  10.6   10.5    8.5    9.8   10.0
   Selling, general and administrative.......  14.8   17.0   14.8   13.5   15.1
                                              -----  -----  -----  -----  -----
     Operating income........................   8.5   14.7   29.7   24.0   27.7
   Interest (income) expense, net............   0.6    1.6   (0.1)    .4   (1.0)
                                              -----  -----  -----  -----  -----
   Income before income taxes................   7.9   13.1   29.8   23.6   28.7
   Income tax benefit (expense), net.........    --   13.8  (11.2)   8.8   10.5
                                              -----  -----  -----  -----  -----
     Net income..............................   7.9%  26.9%  18.6%  14.8%  18.2%
                                              =====  =====  =====  =====  =====
</TABLE>

Six Months Ended March 31, 2000 Compared to the Six Months Ended March 31, 1999

   Revenues. Revenues increased $4.7 million, or 52.1%, to $13.6 million for
the six months ended March 31, 2000 from $8.9 million for the six months ended
March 31, 1999. The increase was primarily attributable to RVSM product
shipments for the KC-135 program. We recognized revenues related to this
program of $4.7 million for the six months ended March 31, 1999 and $8.0
million for the six months ended March 31, 2000.

   Cost of Sales. Cost of sales increased $1.7 million, or 36.3%, to $6.4
million, or 47.2% of revenues, for the six months ended March 31, 2000 from
$4.7 million, or 52.7% of revenues, for the six months ended March 31, 1999.
The increase in dollar amount was related to the increase in revenues, and the
decrease as a percentage of revenues was primarily related to cost containment
resulting from our Six Sigma program, a process evaluation program designed to
increase efficiency.

   Research and development. Research and development expenses increased
$479,000, or 54.6%, to $1.4 million, or 10.0% of revenues, for the six months
ended March 31, 2000 from $878,000, or 9.8% of revenues, for the six months
ended March 31, 1999. This increase in dollar amount was primarily due to
engineering efforts related to the introduction of new products, including our
flat panel display, an engine pressure ratio transmitter, a low-cost altimeter
and ongoing enhancements and improvements to existing products. The increase in
research and development spending reflects our continued commitment to product
development and new product introductions.

   Selling, general and administrative. Selling, general and administrative
expenses increased $849,000, or 70.6%, to $2.1 million, or 15.1% of revenues,
for the six months ended March 31, 2000 from $1.2 million, or 13.5% of
revenues, for the six months ended March 31, 1999. The increase in dollar
amount and as a percentage of revenues reflects our investment in personnel and
infrastructure to support our continued growth.

   Interest (income) expense, net. Net interest income was $137,000 for the six
months ended March 31, 2000 as compared to net interest expense of $31,000 for
the six months ended March 31, 1999. Net interest income for the six months
ended March 31, 2000 was due to higher cash balances during the period. Net
interest expense for the six months ended March 31, 1999 was due to outstanding
borrowings under our credit facility and lower cash balances.

                                       18
<PAGE>


   Income tax (expense) benefit, net. Income tax expense was $1.4 million for
the six months ended March 31, 2000 compared to an income tax expense of
$792,000 for the six months ended March 31, 1999. The increased amount was the
direct result of higher income before tax. Effective tax rates decreased to
36.5% for the six months ended March 31, 2000 from 37.6% for the six months
ended March 31, 1999 due to a difference in the effective state tax rates.

   Net income. As a result of the factors described above, our net income
increased $1.2 million, or 87.5%, to $2.5 million, or 18.2% of revenues, for
the six months ended March 31, 2000 from $1.3 million, or 14.8% of revenues,
for the six months ended March 31, 1999.

Year Ended September 30, 1999 Compared to the Year Ended September 30, 1998

   Revenues. Revenues increased $7.8 million, or 53.2%, to $22.5 million in the
year ended September 30, 1999 from $14.7 million in the year ended September
30, 1998. The increase was principally due to shipments of RVSM air data
systems for the KC-135 aircraft, which contributed $14.5 million of revenues
during the year ended September 30, 1999 compared to $4.2 million of revenues
in fiscal year 1998.

   Cost of Sales. Cost of sales increased $2.1 million, or 24.6%, to $10.6
million, or 47.0% of revenues, in the year ended September 30, 1999 from $8.5
million, or 57.8% of revenues, in the year ended September 30, 1998. The
increase in dollar amount of cost of sales was related to our increase in
revenues, and the decrease as a percentage of revenues was primarily related to
cost containment resulting from our Six Sigma program.

   Research and development. Research and development expense increased
$300,000, or 23.2%, to $1.9 million, or 8.5% of revenues, in the year ended
September 30, 1999 from $1.6 million, or 10.5% of revenues, in the year ended
September 30, 1998. The dollar increase in research and development expense was
primarily due to engineering efforts related to the introduction of new
products, including our flat panel display, an engine pressure ratio
transmitter, a low-cost altimeter and ongoing enhancements and improvements to
existing products in fiscal year 1999. The overall level of research and
development expense reflects our continued commitment to product development
and new product introductions.

   Selling, general and administrative. Selling, general and administrative
expenses increased $800,000, or 33.8%, to $3.3 million, or 14.8% of revenues,
in the year ended September 30, 1999 from $2.5 million, or 17.0% of revenues,
in the year ended September 30, 1998. The dollar increase was primarily related
to the hiring of executive personnel in general management and sales and
marketing. The decrease as a percent of revenues reflects economies associated
with increased revenues.

   Interest (income) expense, net. Net interest income was $30,000 in the year
ended September 30, 1999 as compared to net interest expense of $224,000 in the
year ended September 30, 1998. The interest income in the year ended September
30, 1999 was the result of higher average cash balances in the period. Net
interest expense in the year ended September 30, 1998 was the result of
borrowings under our credit facility and lower cash balances.

   Income tax (expense) benefit, net. We recognized an income tax expense of
$2.5 million for an effective rate of 37.6% in the year ended September 30,
1999. In the year ended September 30, 1998 we recorded a tax benefit in the
amount of $2.0 million as a result of establishing a tax-based asset to reflect
prior net operating loss carryforwards. During fiscal year 1999 we utilized all
of our net operating loss carryforwards from previous periods. We expect that
going forward we will generally be subject to normal tax rates without the
benefit of net operating loss carryforwards.

   Net income. As a result of the factors described above, our net income
increased $300,000, or 6.0%, to $4.2 million, or 18.6% of revenues, with a $2.5
million tax expense, for the year ended September 30, 1999 from net income of
$3.9 million for fiscal year 1998, or 26.9% of revenues, with a $2.0 million
tax benefit.

                                       19
<PAGE>

Year Ended September 30, 1998 Compared to the Year Ended September 30, 1997

   Revenues. Revenues increased $4.1 million, or 38.6%, to $14.7 million in the
year ended September 30, 1998 from $10.6 million in the year ended September
30, 1997. The increase in revenues was principally due to the following
customer programs: Northwest Airlines DC-9 Fuel Quantity Indicator program;
Delta Airlines 727 program; and the Parker DC-10 Fuel Quantity Indicator
program.

   Cost of Sales. Cost of sales increased $1.5 million, or 21.0%, to $8.5
million, or 57.8% of revenues, in the year ended September 30, 1998 from $7.0
million, or 66.1% of revenues, in the year ended September 30, 1997. The
increase in dollar amount of cost of sales was related to our increase in
revenues, and the decrease as a percentage of revenues was primarily related to
cost containment resulting from our Six Sigma program.

   Research and development. Research and development expense increased
$500,000, or 39.5%, to $1.6 million, or 10.5% of revenues, in the year ended
September 30, 1998 from $1.1 million, or 10.6% of revenues, in the year ended
September 30, 1997. The increase in dollar amount was primarily due to the
introduction of our air data display unit and altimeter/altitude alerter.

   Selling, general and administrative. Selling, general and administrative
expenses increased $900,000, or 59.0%, to $2.5 million, or 17.0% of revenues,
in the year ended September 30, 1998 from $1.6 million, or 14.8% of revenues,
in the year ended September 30, 1997. The increase was principally due to
management, sales and marketing related expenses.

   Interest (income) expense, net. Net interest expense was $224,000 for the
year ended September 30, 1998 as compared to net interest expense of $64,000
for the year ended September 30, 1997. The increase in net interest expense for
the year ended September 30, 1998 was due to a higher level of borrowing to
support our growth.

   Income tax (expense) benefit, net. We were not required to pay income taxes
in fiscal year 1997 due to net operating loss carryforwards from prior periods.
A tax-based asset was established to reflect the net operating loss
carryforwards in fiscal year 1998. For this reason, a tax benefit in the amount
of $2.0 million was reflected in fiscal year 1998.

   Net income. As a result of the factors described above, our net income
increased $3.1 million, or 369.2%, to $3.9 million, or 26.9% of revenues, in
the year ended September 30, 1998 from $841,000, or 7.9% of revenues, for the
year ended September 30, 1997.

Recent Developments

   To accommodate our future growth, we have initiated plans to build a new
facility that increases our space from 27,000 square feet to approximately
40,000 square feet. We expect the cost of this new facility, including land
acquisition, to be between $5.0 million and $6.0 million. We intend to finance
approximately $4.0 million of this cost with industrial development bonds and
the remainder of the cost with a portion of the proceeds from this offer.

   In June 2000, we purchased a PC12 aircraft from Pilatus Business Aircraft,
Ltd. for approximately $3.0 million. We intend to use a portion of the net
proceeds of this offering to pay for the aircraft. The aircraft will serve as a
test bed for our new air data and flat panel products, as a sales/marketing
tool for demonstrating our products to our aviation customers and will be
utilized for business travel.

                                       20
<PAGE>

Quarterly Results of Operations

   The following table sets forth certain unaudited quarterly results of
operations data for the six quarters ended March 31, 2000. The data have been
prepared on the same basis as the audited financial statements contained in
this prospectus, and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the quarterly
results of operations. This information should be read in conjunction with our
audited financial statements and related notes included elsewhere in this
prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.

<TABLE>
<CAPTION>
                                                     Three Months Ended
                            --------------------------------------------------------------------
                            December 31, March 31, June 30, September 30, December 31, March 31,
                                1998       1999      1999       1999          1999       2000
                            ------------ --------- -------- ------------- ------------ ---------
                                              (dollars in thousands)
   <S>                      <C>          <C>       <C>      <C>           <C>          <C>
   Revenues................    $3,856     $5,058    $6,849     $6,725        $6,337     $7,222
   Gross profit............    $1,672     $2,547    $3,683     $4,016        $3,504     $3,655
   Operating income........    $  638     $1,500    $2,348     $2,182        $2,019     $1,731
   Net income..............    $  385     $  930    $1,477     $1,389        $1,301     $1,165
   Gross profit margin.....      43.4%      50.4%     53.8%      59.7%         55.3%      50.6%
   Operating income mar-
    gin....................      16.5%      29.7%     34.3%      32.4%         31.9%      24.0%
   Net income as a percent
    of revenues............      10.0%      18.4%     21.6%      20.6%         20.5%      16.1%
</TABLE>

Liquidity and Capital Resources

   Our main sources of liquidity have been cash flows from operations and
borrowings. We require cash principally to finance inventory, accounts
receivable and payroll.

   Our cash flow provided from operating activities was $1.1 million for the
six months ended March 31, 2000 as compared to $1.0 million for the six months
ended March 31, 1999. The increase is a result of higher net income that was
partially offset by accrued expenses and deferred revenue.

   Cash flow provided by operating activities for fiscal year 1999 was $6.0
million as compared to cash used of $39,000 for fiscal year 1998. The increase
in fiscal year 1999 was primarily due to higher net income, adjusted for the
deferred portion of the income tax expense, and a decrease in accounts
receivable balances. This increase was partially offset by a decrease in
accounts payable. Our cash used in operating activities for fiscal year 1997
was $501,000 and primarily reflected the increase in inventories and accounts
receivable and a decrease in deferred revenue.

   Our cash used in investing activities was $293,000 for the six months ended
March 31, 2000 as compared to $292,000 for the six months ended March 31, 1999,
all of which related to purchases of property and equipment.

   Our cash used in investing activities for fiscal year 1999 was $592,000 as
compared to cash used of $238,000 for fiscal year 1998. The increase in fiscal
year 1999 was due to the purchase of property and equipment. Our cash used in
investing activities in fiscal year 1997 was $35,000 and primarily reflected
purchases of equipment.

   We expect that our aggregate capital expenditures will be approximately $7.5
million during fiscal year 2000. Included in this amount is approximately $4.0
million of the between $5.0 million and $6.0 million we expect to spend in
connection with our new facility, and $3.0 million for the purchase of our
Pilatus PC 12 aircraft. We intend to finance a portion of our new facility with
industrial development bonds and we will finance the remainder of our new
facility and the purchase of the aircraft with a portion of the net proceeds of
this offering.

   Cash flow provided by financing activities was $990,000 for the six months
ended March 31, 2000 as compared to cash used of $341,000 for the six months
ended March 31, 1999. This increase was primarily due

                                       21
<PAGE>


to the exercise of warrants during the six months ended March 31, 2000. In
contrast, the use of funds in the period ended March 31, 1999 was attributable
to repayment of loans and capital lease obligations.

   Our cash used in financing activities for fiscal year 1999 was $832,000 as
compared to cash used of $105,000 for fiscal year 1998. The increase in cash
used was primarily due to an increase in the repayment of borrowings during
fiscal year 1999. Cash flows provided by financing activities in fiscal year
1997 were $693,000 and reflected proceeds from the issuance of notes payable
offset by the repayment of capitalized lease obligations.

   We currently have a credit facility which provides for borrowings of up to
$1.0 million, increasing to $2.0 million under certain circumstances. The
credit facility bears interest at the higher of the prime rate plus 1.5% or the
bank's cost of funds, as defined in the credit facility, plus 2.5%. As of March
31, 2000, we had no amounts outstanding under the credit facility. The credit
facility expires in August 2000, is collateralized by our assets and requires
us to maintain certain financial covenants. We are currently negotiating with
our lender and intend to enter into a new credit facility providing for
increased borrowing limits.

   Our future capital requirements depend on numerous factors, including market
acceptance of our products, the timing and rate of expansion of our business
and other factors. We have experienced increases in our expenditures since our
inception consistent with growth in our operations, personnel and product line,
and we anticipate that our expenditures will continue to increase in the
foreseeable future. We believe that our cash and cash equivalents, together
with the net proceeds from this offering and any new credit facility we may
enter into, will provide sufficient capital to fund our operations for at least
the next twelve months. However, we may need to raise additional funds through
public or private financings or other arrangements in order to support more
rapid expansion of our business than we anticipate, 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 additional funds are raised through the issuance of equity
securities, dilution to existing shareholders may result. If insufficient funds
are available, we may not be able to introduce new products or compete
effectively in any of our markets, which could hurt our business.

Inflation

   We do not believe that inflation has had a material effect on our financial
position or results of operations during the past three years. However, we
cannot predict the future effects of inflation.

Recent Accounting Pronouncements

   In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), "Revenue Recognition," which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Management believes that SAB 101 will have no material effect on our financial
position or results of operations.

                                       22
<PAGE>

                                    BUSINESS

Overview

   We design, manufacture and sell flight information computers, electronic
displays and advanced monitoring systems to the military and government,
commercial air transport and corporate aviation markets. Our strategy is to
leverage the latest technologies developed for the personal computer and
telecommunications industries into advanced, cost-effective solutions for the
aviation industry. We believe that this approach, combined with our experience
in our industry, enables us to develop high-quality avionics products,
substantially reduce product times to market and achieve cost advantages over
the products offered by our competitors.

   Historically, we have focused our efforts on developing and marketing air
data systems that measure, calculate and display critical flight information,
such as airspeed and altitude, and instruments that measure engine and fuel
data, primarily for use in the aircraft retrofit market and also for the OEM
market. Since fiscal year 1997, a substantial portion of our revenues has been
from the sale of air data systems that bring aircraft into compliance with
government regulations, including the reduced vertical separation minimum, or
RVSM, requirements that are being phased in by regulatory authorities on
certain heavily traveled flight routes. We believe that we are currently one of
three primary suppliers of RVSM products to the U.S. retrofit market. As a
result of our expertise, we were selected as the sole supplier of RVSM systems
and components in connection with the United States Air Force's KC-135 retrofit
program, which we believe to be one of the largest U.S. military RVSM retrofit
programs to date.

   Advances in technology are making available to pilots increasing amounts of
information that enhance both the safety and efficiency of flying. However, the
limited amount of space in the cockpit coupled with inefficiencies associated
with currently used displays inhibits the display and integration of this
information in a user friendly manner.

   We have recently introduced our flat panel display system, or Cockpit
Information Portal (CIP), which is the first in a series of new products we
intend to develop to enhance the management and integration of cockpit
information. Our CIP has a large, 15 inch diagonal high-resolution screen which
can integrate and replace virtually all of the space-consuming conventional
displays currently used in cockpits. Our CIP is the centerpiece of our cockpit
information management system that organizes and displays a multitude of flight
information that may be mandated by regulation or that is or will become
available to pilots in the future. This information may be generated from a
variety of sources, including our RVSM air data system, our engine and fuel
instrumentation or from third-party data and information products, such as a
predictive weather information system. In addition, we are in the process of
developing technologies relating to other products to be incorporated with our
CIP, such as a heads up display system designed to project critical flight data
onto cockpit windshields for easy reference by pilots.

   In June 2000, we entered into an agreement with Pilatus Business Aircraft,
Ltd. pursuant to which Pilatus will offer our CIP as an option on the Pilatus
PC 12, initially for use on the co-pilot side of the cockpit. Pilatus will
offer our CIP as an option on the PC 12 for use on the pilot's side of the
cockpit after our display receives the requisite FAA certification for such
use, which we expect to receive during the first quarter of calendar year 2001.

   We believe that we are positioned to maintain our competitive position
because of our innovative engineering capabilities, which have allowed us to
leverage technology developed at significant cost by others for the personal
computer and telecommunications industries. These capabilities have also
allowed us to successfully develop high-quality avionics products and bring
them to market relatively quickly at what we believe to be lower development
and production costs than our competitors.

                                       23
<PAGE>

Our Industry

   A wide range of information, including airspeed, altitude and fuel levels,
is critical for the proper and safe operation of aircraft. With advances in
technology, new types of information to assist pilots, such as weather radar
and ground terrain maps, are becoming available for display in cockpits. We
believe that aircraft cockpits will increasingly become information centers,
capable of delivering additional information that is either mandated by
regulation or demanded by pilots to assist them in the safe and efficient
operation of aircraft.

   There are three general types of flight data: air data, which includes
aircraft speed, altitude and rates of ascent and descent; equipment data, such
as fuel and oil quantity and other engine measurements; and alternative source
information, which is information not originating on the aircraft, including
weather radar and surface terrain maps. Air data calculations are based
primarily on air pressure measurements derived from sensors on the aircraft.
Equipment data are determined by measuring various indices such as temperature,
volume and pressure within an aircraft's engines and other mechanical
equipment. Alternative source information is typically derived from satellites
or equipment located on land and fed by satellite or radio signals to the
aircraft. All types of information are then displayed in the cockpit for
reference by pilots.

   Traditionally, flight data and other cockpit information were displayed on a
series of separate analog dials. In the early 1980s, digital displays using
cathode ray tubes began to replace some of the individual analog displays.
Recently, the industry has begun to develop color flat panel displays using
liquid crystal displays (LCD) to replace some of the traditional analog or
digital displays. We expect that the ability to display more information in a
space-efficient and customizable platform will become increasingly important as
additional information, such as weather radar and surface terrain maps, becomes
mandated by regulation or demanded by pilots. Accordingly, we believe that flat
panel displays, which can integrate and display a "suite" of information, will
increasingly replace individual displays as the method for delivering and
ordering the information displayed in the cockpit.

   Based on industry data, we estimate that worldwide sales of avionics
products in the markets related to our current and expected products was
approximately $6 billion during 1999, and we estimate that these markets will
grow 42% to $8.8 billion in 2005.

Air Data and Reduced Vertical Separation Minimum (RVSM)

   Pilots use air data for a number of important purposes, including
maintaining safe separation from other aircraft. Until recently, aircraft on a
similar flight path at altitudes exceeding 29,000 feet have been required to
maintain a vertical separation of at least 2,000 feet. As air travel has
increased over the past decade, U.S. and international aviation organizations
have sought ways to increase traffic flow on high traffic routes. These
organizations have developed reduced vertical separation minimums, or RVSM, for
adoption on certain highly traveled routes to reduce vertical separation
between aircraft from 2,000 feet to 1,000 feet. RVSM increases available flight
routes within a vertical airspace, thereby increasing the number of aircraft
that can fly on high traffic routes.

   Safe travel on RVSM routes requires that an aircraft's altimeter be
extremely accurate, and aircraft flying RVSM routes must have RVSM-certified
equipment. RVSM-certified altimeters must be able to measure altitude to within
25 feet at an altitude of 30,000 feet. In contrast, non-RVSM systems need only
be accurate within 180 feet at 30,000 feet.

   RVSM has been in effect for certain North Atlantic routes since March 1997
and is currently mandated between the altitudes of 31,000 and 39,000 feet on
these routes. RVSM is scheduled to be mandated between 29,000 and 41,000 feet
on these North Atlantic routes by January 2002. RVSM was phased in on certain
Trans-Pacific air routes beginning in February 2000 and is scheduled to be
phased in on Western Atlantic air routes beginning in October 2000.
Eurocontrol, the organization that oversees air traffic control throughout
Europe, plans to begin mandating RVSM on certain European routes in January
2002. We anticipate that RVSM will continue encompassing more of the world's
airspace, including air routes over the United States, in the years to come.

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<PAGE>

   Because aircraft must have RVSM-certified equipment in order to fly on RVSM
routes, aircraft not equipped with RVSM-compliant equipment will not be
permitted to fly on many of the most popular and efficient routes as RVSM
continues to be phased in. RVSM compliance requires numerous modifications and
upgrades to non-compliant air data systems, requiring in most cases that an
aircraft's air data computers and altimeters be replaced or significantly
upgraded. In addition to being mandated for certain heavily traveled routes,
RVSM also offers significant operating benefits, including:

  . Greater availability of fuel-efficient routes. RVSM regulations are or
    will become applicable to certain airspace between 29,000 and 41,000
    feet. This airspace is desirable because the majority of aircraft engines
    currently in use are designed to be most fuel efficient at these
    altitudes. In addition, aircraft traveling at fuel-efficient altitudes
    are able to carry less fuel than would be required if they were traveling
    at lower altitudes, thus allowing these aircraft to carry more revenue-
    generating freight, passengers or other cargo.

  . Reduced flight times. As RVSM is phased in for various air corridors,
    aircraft that are equipped with RVSM-certified equipment will benefit by
    being permitted to fly at the most efficient altitudes and on the most
    direct routes, both of which decrease flight time and fuel consumption,
    thereby putting their operators at a competitive advantage.

Flat Panel Displays

   Air data and other flight information have traditionally been displayed on
analog instrumentation and, more recently, individual digital displays. Within
the last five years, color flat panel displays have begun to be used in
aircraft cockpits. Flat panel displays are liquid crystal display (LCD) screens
that can replicate the display of one or a suite of analog or digital displays
on one screen. Like other instrumentation, flat panel displays can be installed
in new aircraft or used to replace existing displays in aircraft already in
use.

   Flat panel displays are becoming increasingly popular in the aviation
industry, and we expect that demand for this product will grow substantially
for a number of reasons, including:

  . Ability to display additional important information. Because of space
    limitations in the cockpit and technology limitations, conventional
    displays generally convey less information than can now be accommodated
    on flat panels. Flat panel displays allow for the consolidation of the
    various types of conventional instrumentation, such as altimeters and
    airspeed indicators, and the display of additional information, such as
    weather radar and surface terrain maps, in a limited space.

  . Increased reliability and accuracy. Flat panel displays are more reliable
    than conventional mechanical displays. They have a higher mean time
    between failures, increasing in some instances from 500 hours for typical
    mechanical displays to 15,000 hours for flat panel displays. In addition,
    flat panel displays are more accurate than conventional displays due to
    their microprocessor-based digital technology.

  . Configuration and display options. Our flat panel display can be
    configured or programmed to provide different or additional information
    without the need to replace instrumentation. This flexibility should
    allow flat panel displays to be upgraded relatively quickly to display
    new information that is either mandated by regulation or desired by
    pilots.

Engine and Fuel Displays

   Equipment data, such as engine-  and fuel-related data, traditionally have
been displayed on conventional solid state displays. Equipment data displays
convey fuel and oil levels and provide information on engine activity,
including oil and hydraulic pressures, temperature and liquid oxygen levels.
This instrumentation includes individual and multiple displays clustered
throughout an aircraft's cockpit. Engine and fuel displays tend to be replaced
more frequently than other displays due to normal wear-and-tear. As the
information

                                       25
<PAGE>

displayed by this instrumentation is vital for safe and efficient flight,
aircraft operators continue to purchase individual conventional engine and fuel
displays to replace older or non-functioning displays.

Strategy

   Our objective is to become a leading supplier and integrator of cockpit
information. We believe that our industry experience and reputation, our
technology and products and our business strategy provide a basis to achieve
this objective. Key elements of our strategy include:

   Maintaining our leadership in the air data and RVSM markets. We believe that
we are one of the largest suppliers of air data and RVSM-compliant products to
the U.S. retrofit market. As RVSM routes continue to be phased in over the next
several years, we anticipate many aircraft will be retrofitted with RVSM-
compliant air data systems. The RVSM retrofit market has a limited number of
competitors, and we intend to capitalize on our position as a leading provider
of reliable, cost competitive RVSM air data products.

   Establishing leadership in the flat panel display market. We expect that
over the next several years, many aircraft will either be retrofitted or newly
manufactured with flat panel displays. Given the versatility, visual appeal and
lower cost of displaying a series of instruments and other flight-relevant
information on a single flat panel, we believe that flat panel displays will
increasingly replace individual analog and digital instruments. We also believe
that our CIP has significant benefits over the flat panel displays currently
offered by our competitors, including its lower cost, larger size and enhanced
viewability. Accordingly, we believe that these advantages will allow us to
generate significant revenues from our CIP and gain significant market share
within this market.

   Continuing our engineering and product development successes. We have
developed innovative products by combining our avionics, engineering and design
expertise with commercially available technologies, components and products
from non-aviation applications, including the personal computer and
telecommunications industries. We believe our processes allow us to bring
products to market quickly and to control our development costs. Our CIP, which
we expect will be larger, display more information and cost less than the flat
panel displays offered by our competitors, is an example of our ability to
engineer a superior product through the selective application of non-avionics
technology. We currently are developing technologies relating to other products
intended to be incorporated with our CIP, such as a heads up display system
designed to project critical flight data onto cockpit windshields for easy
reference by pilots.

   Increasing our sales to the commercial air transport and corporate aviation
markets. While we currently sell our products to commercial and corporate
aircraft operators and other retrofitters, our products have been predominantly
used in the government and military end user markets. We intend to strengthen
and diversify our marketing efforts to include all end user markets of the
aviation industry, particularly the commercial air transport market, including
national and regional carriers and other fleet operators, the corporate
aviation market, primarily through aircraft modification centers, as well as
the OEM market. We have begun building a sales and marketing force dedicated to
expanding our sales efforts to these markets while at the same time maintaining
our position as a provider of avionics products in connection with government
and military contracts.

   Expanding our international presence. We plan to increase our international
sales through expanding sales and marketing personnel and adding foreign
offices. As RVSM and flat panel displays become more prevalent throughout the
world, we believe that European and other international aircraft operators and
aircraft modification centers will accelerate their retrofitting activities,
thereby increasing the demand for RVSM products and flat panel displays. We
have recently expanded our international presence by hiring sales personnel in
London. We intend to further expand our international sales presence in
conjunction with the anticipated introduction of RVSM on other air routes
throughout the world.

   Growth through acquisitions. We intend to pursue acquisitions as a means of
growing our business with respect to both information management products and
content, and we have identified profiles of the types of companies we would
like to acquire. We may seek to acquire developers or suppliers of
complementary

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<PAGE>

products, technology or information, or we may acquire suppliers of similar
products as a means of increasing our product offerings and market share.

Our Products

   Our current line of products includes:

Air Data and RVSM Systems and Components

   Our air data and RVSM products calculate and display various measures of air
data, such as aircraft speed, altitude and rate of ascent and descent. These
systems consist of a number of components, including internally-mounted
precision pressure sensors, a computer system and a cockpit display. The
sensors collect air pressure data from calibrated openings in the skin of an
aircraft. The computers process the raw data and convert it, using advanced
proprietary algorithms developed by us, into useful information. Displays in
the cockpit then convey the information to pilots.

   Our air data systems are highly accurate with respect to the collection and
interpretation of raw air pressure data from specifically selected locations on
the aircraft. We utilize state-of-the-art, highly sensitive digital sensors
capable of gathering the requisite air pressure data. The software in our
computer systems incorporates proprietary mathematical algorithms that
interpret the air data to measure altitude, air speed and vertical speed. Our
algorithms account for time, speed and temperature variations as well as the
variations inherent in the diverse profiles of different types of aircraft so
that our products continuously provide accurate data over the requisite range
of altitudes and atmospheric conditions for the type of aircraft in which the
product is installed.

   The functionality of our traditional non-RVSM air data systems and our RVSM
systems is similar. However, our RVSM systems use advanced sensors to gather
air pressure data and customized algorithms to interpret the data, thus
allowing the system to more accurately calculate altitude and to qualify for
RVSM certification.

   We sell individual components as well as partial and complete air data
systems. Our components and systems include:

  . digital air data computers, which calculate various air data parameters
    such as altitude, airspeed, vertical speed, angle of attack and other
    information derived from the measure of air pressure;

  . integrated air data computers and display units, which calculate and
    convey air data information;

  . altitude displays, which convey aircraft altitude measurements;

  . airspeed displays, which convey various types of airspeed measurements
    including vertical airspeed and rates of ascent and descent; and

  . altitude alerters, which allow the pilot to select a desired cruising
    altitude that the aircraft will reach and maintain.

   We believe that we are able to sell our products at lower prices than our
competitors because our development costs are reduced by adapting commercially
available components and technology from other applications into our avionics
products and because of our focus on designing products that can be
manufactured on a cost-effective basis.

   Our revenues from sales of air data and RVSM systems and components were
$18.2 million, or 81% of our total revenues, for fiscal year 1999 and $13.6
million, or 100% of our total revenues, for the six months ended March 31,
2000.

Flat Panel Display

   We have developed a large, high-resolution flat panel display that can
replace virtually all of the conventional analog and digital displays currently
used in a cockpit and can also display additional information

                                       27
<PAGE>


that is not now commonly displayed in the cockpit. Our CIP is capable of
displaying nearly all types of air data, engine and fuel data and alternative
source information. As technology and information delivery systems further
develop, we expect additional information, such as surface terrain maps, to be
commonly displayed in the cockpit. We have designed our CIP to be capable of
displaying information generated from a variety of sources, including our RVSM
air data system, our engine and fuel instrumentation and third-party data and
information products.

   Our CIP can interpret, configure and display air data and equipment data
from our own products and other manufacturers' data products. The "open
architecture" characteristics of the cockpit instrumentation market enables our
CIP products to be adapted to work in most cockpit instrumentation systems. In
addition, we have designed our CIP to be able to host and integrate a heads up
display that we are developing to project important flight information onto an
aircraft's cockpit windshield for easy reference by pilots.

   We believe the advantages of our CIP compared to conventional displays
include:

  . Ability to display additional important information. Because of space
    limitations in the cockpit and technology limitations, conventional
    displays generally convey less information than can now be accommodated
    on flat panels. Flat panel displays allow for the consolidation of the
    various types of conventional instrumentation, such as altimeters and
    airspeed indicators, and the display of additional information. As
    technology and information delivery systems further develop, we expect
    there to be a demand to display increasing amounts of information that
    become available in the limited space of the cockpit.

  . Configuration and display options. Our CIP can be configured or
    programmed to provide different or additional information without the
    need to replace instrumentation. We expect that this flexibility will
    become increasingly important as technology advances and regulatory
    mandates drive the display of additional types of data in cockpits.

  . Enhanced situational awareness. Our CIP facilitates quick orientation
    recognition, or "situational awareness," of pilots by providing
    significant flight critical information on one display in a manner that
    simulates traditional instrumentation dials. In addition, the vibrant
    colors of our CIP are visually attractive and easy to read compared to
    conventional instrumentation.

  . Lower purchase and operating cost. Our CIP represents a substantial cost
    savings over the suite of analog gauges and digital displays it can
    replace. For example, the OEM purchase and installation of our CIP would
    cost an aircraft manufacturer approximately 40% less than would the
    purchase and installation of equivalent conventional mechanical displays.
    Our CIP should also be less expensive to maintain than conventional
    mechanical and electronic displays.

  . Greater reliability. Our CIP has a greater mean time between failures
    than many of the displays it can replace and should have fewer failures
    than conventional mechanical gauges.

  . Reduced space and weight requirements. Heavy instrumentation decreases
    flight efficiencies, and cockpit display space for flight instrumentation
    is very limited. Our CIP weighs less and takes up less space than the
    suite of instrumentation it is designed to replace.

   We believe the advantages of our CIP compared to the flat panel displays of
our competitors include:

  . Large screen size. At 15 inches diagonal (12" by 9"), we believe that our
    CIP is the largest primary flight display available in the industry. Our
    CIP can display significant critical flight management information on one
    screen, eliminating the need for pilots to scan multiple displays or page
    through multiple parameter screens. The larger screen size permits the
    display of additional flight information compared to several smaller
    stand-alone screens.

  . Lower purchase price. We have priced our CIP at a substantially lower
    cost compared to the cost at which our competitors are offering their
    products. We expect our CIP to cost less than half the price of many of
    the smaller flat panel displays currently being offered by our
    competitors.


                                       28
<PAGE>

  . Enhanced viewability. Our proprietary design and fabrication process
    enhances the viewability of our CIP based on brightness, contrast and
    viewing angle. Among other things, our brightness, contrast and
    viewability enhancements allow our product to offer:

    . Increased viewing angle and color resolution. The vibrant colors,
      sharp contrast and high resolution of our display, in conjunction
      with our proprietary screen coating treatment, enable pilots to view
      the screen at almost 170 degrees, a wider viewing angle than other
      flat panel displays, without significant color or intensity
      distortion.

    . Reduced visual "wash-out." The enhanced brightness of our product
      reduces visual "wash-out" in varying or high sunlight environments,
      allowing pilots to read the display with minimal color or intensity
      degradation.

  . Use of standard commercial glass. Many of our competitors incorporate
    into their flat panel displays customized glass screens purchased from
    single source suppliers. Such customized purchasing can be extremely
    costly and subjects these competitors to risks associated with single
    source purchasing. In contrast, our CIP is manufactured with the largest
    standard commercially available glass that is used in the laptop computer
    industry. It is available for purchase from multiple suppliers and is
    substantially less expensive than the customized glass used by these
    competitors.

   Flat panel displays, like other cockpit instrumentation, require FAA
approval before installation in non-military aircraft. We are in the process of
seeking "non-hazardous" approval of the display pursuant to which we will be
permitted to install our CIP on certain aircraft for non-essential use,
including, for example, on the co-pilot side of aircraft requiring operation by
just one pilot. In addition, we are in the process of seeking FAA-approval of
our CIP for essential use by pilots, initially for the Pilatus PC 12. We expect
to receive non-hazardous approval by the end of calendar year 2000 and approval
for essential use during the first quarter of calendar year 2001. After we
obtain FAA approval for essential use in the Pilatus PC 12, we will still need
approval to place our CIP in other types of aircraft. See "Business--Government
Regulation."

   In June 2000, we entered into an agreement with Pilatus Business Aircraft,
Ltd. pursuant to which Pilatus will offer our CIP as an option on the Pilatus
PC 12, initially for use on the co-pilot side of the cockpit. Pilatus will
offer the CIP as an option on the PC 12 for pilot-side use upon our receiving
the requisite certification from the FAA for such use.

Engine and Fuel Displays

   We develop, manufacture and market engine and fuel displays. Our solid state
multifunction displays convey information with respect to fuel and oil levels
as well as engine activity, such as oil and hydraulic pressures, temperature
and liquid oxygen levels. This instrumentation includes individual and multiple
displays clustered throughout an aircraft's cockpit. Our displays can be used
in conjunction with our own engine and fuel data equipment or that of other
manufacturers.

   Engine and fuel displays are vital to the safe and proper flight of aircraft
and are found in all aircraft. In addition, the accurate conveyance of engine
and fuel information is critical for the monitoring of engine stress and the
maintenance of engine parts. Engine and fuel displays tend to be replaced more
frequently than other displays and have remained largely unchanged since their
introduction due to their low cost, standard design and universal use.

   We believe that our engine and fuel displays are extremely reliable, and we
have designed them to be programmable to adapt easily without major
modification to most modern aircraft. Our products have been installed on
Lockheed Martin C-130H aircraft, Boeing DC-9 and DC-10 aircraft and U.S. Air
Force A-10 aircraft.

   Our revenues from the sale of our engine and fuel displays were $3.9
million, or 17% of total revenues, in fiscal year 1999. Although we did not
record any revenues from the sale of engine and fuel displays during the first
half of fiscal year 2000, we continue to market our engine and fuel displays
and anticipate sales of these products during fiscal year 2001.

                                       29
<PAGE>

Customers

   Our customers include, among others, the United States government, Northwest
Airlines Corporation, Air Canada, Inc., DHL Airways, Inc., Emery Worldwide
Airlines, Federal Express Corporation, The Boeing Company, Lockheed Martin
Corporation, Rockwell International Corporation, Bombardier Aerospace (the
manufacturer of Learjet), Pilatus Aircraft Ltd. and Gulfstream Aerospace
Corporation.

Retrofit Market

   Historically, the majority of our sales have come from the retrofit market.
Among other reasons, we have pursued the retrofit market because of its
continued rapid growth in response to the increasing need to support the
world's aging fleet of aircraft.

   Updating an individual aircraft's existing electronics equipment has become
increasingly common as new technology makes existing instrumentation outdated
while an aircraft is still structurally and mechanically sound. Retrofitting an
aircraft is generally a substantially less expensive alternative to purchasing
a new aircraft. We expect our main customers in the retrofit market to be:

  . government and military contractors;

  . aircraft operators; and

  . aircraft modification centers.

   Government and Military Contractors. Since 1988, we have sold products to
both commercial contractors and military end users in connection with
government aircraft retrofit programs. To date, a majority of our annual sales
have been in connection with these programs. For example, we sell various
products to Boeing and Rockwell International relating to contracts with
government entities, including the United States Air Force, to retrofit
aircraft. In addition, we sell our products directly to government entities.
Government-related projects are generally under either a subcontract with the
prime contractor, such as Boeing, or a direct contract with the appropriate
government agency. The majority of our government project sales are to
commercial contractors pursuant to commercial off-the-shelf equipment
contracts. As defense spending has decreased over the past decade, the
government's desire for cost-effective retrofitting of aircraft has led it to
increasingly purchase commercial off-the-shelf equipment rather than requiring
the development of specially designed products, which are usually more costly
and take a longer time to develop. These contracts tend to be on commercial
terms, although some of the termination and other provisions of government
contracts described below are typically applicable to these contracts.

   Among the products we sell to these programs are digital air data systems,
airspeed indicators and altimeters. During fiscal year 1999 and the six months
ended March 31, 2000, we sold approximately 75% and 90% of our RVSM systems and
related components to government and military contractors. Our participation in
these retrofit programs has been the result of our direct solicitation of both
the general contractors of such projects and the contracting government
entities. Our revenues from government and military end users were $16.9
million, or 75% of total revenues, for fiscal year 1999 and $12.2 million, or
90% of total revenues, for the six months ended March 31, 2000.

   Each government-related contract includes various federal regulations that
impose certain requirements on us, including the ability of the government
agency or general contractor to alter the price, quantity or delivery schedule
of our products. In addition, the government agency or general contractor
retains the right to terminate the contract at any time at its convenience.
Upon such alteration or termination, we would normally be entitled to an
equitable adjustment to the contract price so that we may receive the purchase
price for already delivered items and reimbursement for allowable costs
incurred.

   Aircraft Operators. We also sell our products to aircraft operators,
including commercial airlines, overnight delivery services and corporate
carriers. Our products are used mostly in the retrofitting of aircraft owned or
operated by these customers, which generally retrofit and maintain their
aircraft themselves. Our commercial fleet customers include Northwest Airlines,
Air Canada, DHL, Emery and Federal Express. We sell

                                       30
<PAGE>


these customers a range of products from fuel quantity indicators to RVSM air
data systems. During fiscal year 1999 and the six months ended March 31, 2000,
we sold approximately 13% and 4% of our RVSM systems and related components to
our commercial aircraft customers. Our revenues from sales to aircraft
operators were $2.9 million, or 13% of total revenues, for fiscal year 1999 and
$609,000, or 4% of total revenues, for the six months ended March 31, 2000.

   Aircraft Modification Centers. Based on industry data, we believe there are
approximately 12,800 private and corporate aircraft in service in North
America. The primary retrofit market for private and corporate jets is through
aircraft modification centers, which repair and retrofit private aircraft in a
manner similar to the way auto mechanics service a person's car. We are
beginning to market our products to a number of aircraft modification centers
throughout the United States. We believe that our RVSM and non-RVSM air data
systems and related components will be used by aircraft modification centers to
update older or outdated air data systems.

   We anticipate that retrofitting of air data systems by aircraft modification
centers, and thus the demand for our RVSM products, will increase significantly
as RVSM is increasingly phased-in on many of the world's most popular flight
routes. Furthermore, we anticipate that as flat panel displays gain popularity,
aircraft modification centers will become significant customers of our flat
panel product for aircraft owners seeking to upgrade their display systems. We
currently do not have revenues from sales to aircraft modification centers.
However, we anticipate that sales to aircraft modification centers will begin
during fiscal year 2001.

OEM Market

   We also market our products to original equipment manufacturers,
particularly manufacturers of corporate and private jets as well as contractors
of military jets. Customers of our products include Bombardier (the
manufacturer of Learjet), Pilatus, Gulfstream, Boeing and Lockheed.

   Certain jet manufacturers currently equip their aircraft with traditional
non-RVSM air data systems. However, we believe that most aircraft manufacturers
will begin equipping their aircraft with RVSM-compliant air data systems in
anticipation of the expected increasing use of RVSM throughout the world. In
addition, we expect that as flat panel displays become increasingly popular,
OEMs will begin manufacturing an increasing percentage of their aircraft with
flat panel displays, either as standard or optional equipment.

   Our revenues from the sale of products to OEMs were $2.7 million, or 12% of
total revenues, for fiscal year 1999 and $783,000, or 6% of total revenues, for
the six months ended March 31, 2000.

Backlog

   As of March 31, 2000, our backlog was $21.6 million, $11.7 million of which
we expect will be sold during the last two quarters of fiscal year 2000 and
$9.9 million of which we expect will be sold in fiscal year 2001.

   Our backlog consists solely of orders believed to be firm. In the case of
contracts with government entities, orders are only included in backlog to the
extent funding has been obtained for such orders. Our backlog does not include
an unexercised order of approximately $22 million under a government contract
with respect to the United States Air Force's KC-135 RVSM air data retrofit
program. We expect the government to begin exercising this order during fiscal
year 2001.

Sales and Marketing

   We have generally focused our sales efforts on government and military
entities and contractors, aircraft operators and OEMs, and more recently on
aircraft modification centers. We intend to increase our sales efforts with
respect to the commercial and corporate aviation markets in the future. To
date, we have made substantial use of third-party sales representatives for our
sales efforts. We compensate these third-party sales representatives through
commissions.

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   In December 1999, we hired a Vice President of Marketing and Business
Development and additional full-time marketing and sales personnel to undertake
sales efforts to our domestic customers and to direct our European sales
programs and operations. In February 2000, we opened a sales office in London
responsible for marketing our products throughout Europe, Africa and the Middle
East. In addition, we intend to add sales representatives to begin marketing
efforts in South America, Korea and Japan. Such additions will allow us to
expand our marketing efforts to a more global focus. We expect to compensate
our direct sales force through a combination of base salary and commissions.

   We believe that our ability to provide prompt and effective repair and
upgrade service is critical to our marketing efforts. As part of our customer
service program, we have implemented a 24-hour hotline that customers can call
with respect to product repair or upgrade concerns. We employ five field
service engineers to service our equipment and, depending on the service
required, we may either dispatch a service crew to make necessary repairs or
request that the customer return the product to us for repairs or upgrades at
our main facility. In the event repairs or upgrades are required to be made at
our facility, we provide spare products for use by our customers during the
repair time. Our in-house turnaround repair times average 15 days and
turnaround upgrade times average 30 days. Before returning our products to
customers, all repaired or upgraded products are retested for airworthiness.

   In connection with our customer service program, we typically provide our
customers with a two-year warranty on new products. We also offer our customers
extended warranties of varying terms for additional fees.

Product Development

   We focus our product development efforts on developing innovative products
in response to customer needs and bringing those products to market quickly and
at commercially viable prices. Our model is based on applying our engineering
and software solutions to existing technologies and readily available
components developed for other applications and customizing such technologies
for use in the aviation industry. Our goal is to achieve quick product
development cycle times and create highly reliable but low-cost designs that we
can sell profitably at a lower price than our competitors.

   Our product development process has proven successful as we have been able
to quickly and effectively satisfy customer product demands, allowing us to
leverage our development capabilities to obtain new contracts with our
customers. For example, we designed a standard altimeter for the U.S. Air Force
F-16. We were then able to quickly and cost effectively reengineer our F-16
altimeter and integrate existing technology to win an air data contract to
provide altimeters for Lockheed Martin's C-130 retrofit program shortly
thereafter.

   We believe our products also reflect core technical strengths. For air data
systems, we have successfully integrated precision digital pressure sensors
with software algorithms that permit accurate air data signal generation. Our
CIP incorporates proprietary technology designed to provide high contrast and
wide viewing angles for our color flat panel display.

   All of our products are controlled primarily by embedded microprocessors
and, accordingly, more than half of our engineering product development efforts
are directed towards software development. Our engineers direct much of their
efforts to digital electronic circuit design, analog circuit design, aircraft
systems engineering and mechanical and manufacturing process design.

   Our product development process is highly integrated, involving our
customers and engineers as well as our internal purchasing, manufacturing and
quality control personnel. Our development program is ISO 9001 certified and
meets FAA requirements with respect to hardware, software and overall system
performance. Each product development program is led by a project engineer who
is responsible for overseeing the various processes involved in the development
efforts for the product.

   As part of our product development process, we conduct various testing,
including environmental simulation, software and overall systems testing.
Environmental simulation testing involves subjecting our

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products to extreme temperature, humidity, altitude and vibration conditions to
evaluate whether the products continue to operate properly and meet our
performance specifications. In addition, we subject our products to extreme
electromagnetic fields testing to simulate the effects of lightening strikes on
aircraft. We also undertake product testing to determine that our software
properly functions under various operating conditions.

Government Regulation

   The manufacture and installation of our products in aircraft owned and
operated in the United States is governed by U.S. Federal Aviation
Administration (FAA) regulations. The most significant of these regulations
focus on Technical Standard Order (TSO) and Type Certificate (TC) or
Supplemental Type Certificate (STC) certifications. The FAA recommends that
avionics products be TSO-certified. A TSO sets forth the minimum general
standards that a certain type of equipment should meet. TSO certification is a
declaration by the FAA that a product meets such consensus standards and
guidelines and that it is certified to be used in aircraft. For example, all
altimeters, including RVSM and non-RVSM versions, have the same TSO, which sets
forth the various general requirements that an altimeter must meet to be TSO-
certified, such as life cycle, software, environmental and other standards.
TSO-certified avionics products are preferred by retrofitters and OEMs because
they act as an industry-wide stamp of approval and streamline the TC/STC
approval process, described below. The TSO certification process typically
takes approximately two to three months and consists of product testing,
including environmental simulation, as well as software and overall system
testing.

   The FAA requires that all avionics products receive TC or STC certification
upon their installation in aircraft. Without such certification, avionics
products may not be installed in an aircraft. TC certification is required for
installation by an OEM, and STC certification is required for retrofitting
installation. When an avionics product is installed in a certain type of
aircraft, the FAA conducts an inspection and systems tests on a test aircraft
containing such newly installed product. The TC and STC process includes ground
analyses and test flights to determine whether the product is functioning
properly in the aircraft. Upon satisfactory completion of these tests, a
product is TC- or STC-certified, meaning the type of aircraft tested can be
flown with the installed instrumentation. The TC and STC approval procedures
typically last one to four months, depending on the complexity of the equipment
being certified.

   With respect to our RVSM air data products, the FAA also requires that these
products be RVSM-certified before they are used in flight. This certification
process may be undertaken in conjunction with the TC/STC certification process.
RVSM certification requires ground and flight tests and an analysis of flight
data to ensure the accuracy, reliability, system safety and mean time between
failure rates of the product. The RVSM certification process typically lasts
one to three months.

   Sales of our products to European or other non-U.S. owners of aircraft also
typically require approval of the Joint Aviation Authorities (JAA), the
European counterpart of the FAA, or another appropriate governmental agency.
Currently, 18 European countries are members of the JAA. JAA certification
requirements for the manufacturing and installation of our products in
European-owned aircraft mirror the FAA regulations. Much like the FAA
certification process, the JAA has established a process for granting TSOs, TCs
and STCs. Certification by the JAA or other appropriate governmental agencies
is generally granted upon demonstration that the equipment is accurate and able
to maintain certain levels of repeatability over time.

   In addition to product-related regulations, we are also subject to the
government's procurement regulations with respect to sales of our products to
government entities or government contractors. These regulations dictate the
manner in which products may be sold to the government and set forth other
requirements which must be met in order to do business with or on behalf of
government entities. For example, pursuant to such regulations, the government
agency or general contractor may alter the price, quantity or delivery schedule
of our products. In addition, the government agency or general contractor
retains the right to terminate the contract at any time at its convenience.
Upon such alteration or termination, we would normally be entitled to an
equitable adjustment to the contract price so that we may receive the purchase
price for already delivered items and reimbursement for allowable costs
incurred.


                                       33
<PAGE>

Manufacturing, Assembly and Materials Acquisition

   Our manufacturing activities consist primarily of assembling and testing
components and subassemblies and integrating them into a finished system. We
believe that this method allows us to achieve relatively flexible manufacturing
capacity while lowering overhead expenses. We generally purchase the components
for our products from third-party vendors and assemble them in a clean room
environment to reduce impurities and improve the performance of our products.
Many of the components we purchase are standard products, although certain
parts are made to our specifications.

   We attempt to maintain minimal inventory and order component part supplies
only as we expect to need them, based on our sales plan. Through our weekly
"Sales Inventory Operation Planning" process, we match our production and
inventory needs with our sales forecasts. In addition to improving our
inventory management, these techniques have helped us to lower our direct labor
costs from 8.0% of revenues in fiscal year 1997 to 3.5% of revenues in fiscal
year 1999.

   When appropriate, we enter into long-term supply agreements and use our
relationships with long-term suppliers to improve product quality and
availability and to reduce delivery times and product costs. In addition, we
are continually identifying alternative component suppliers for important
component parts. Using component parts from new suppliers in our products
generally requires FAA certification of the entire finished product if the
newly sourced component varies significantly from our original drawings and
specifications. To date, we have not experienced delay in the delivery of our
products caused by the inability to obtain either component parts or FAA
approval of products incorporating new component parts.

Quality Assurance

   Product quality is of vital importance to our customers, and we have taken
steps to enhance the overall quality of our products. We utilize the Six Sigma
program, which is a process evaluation program based on the premise that
efficient companies can reduce to a very low level the number of defects and
inefficient processes. Under this program, we are continuously seeking to
improve our operational efficiencies, including our design and manufacturing
processes and, thus, the general quality of our products. In particular, our
Six Sigma program allows us to analyze our development processes and reduce the
risks inherent in shortening our development cycle times. In effect, Six Sigma
has allowed us to improve our product quality and cycle times. Our employees
are required to attend an in-house training session that teaches them the
principles and application of our Six Sigma program.

   In addition, we are ISO 9001 certified. ISO 9001 standards are an
international consensus on effective management practices with the goal of
ensuring that a company can consistently deliver its products and related
services in a manner that meets or exceeds customer quality requirements. ISO
9001 standards set forth the requirements a company's quality systems must meet
to achieve a high standard of quality. As an ISO 9001-certified manufacturer,
we can represent to our customers that we maintain high quality industry
standards in the education of our employees and the design and manufacture of
our products. In addition, our products undergo extensive quality control
testing prior to being delivered to customers. As part of our quality assurance
procedures, we maintain detailed records of test results and our quality
control processes.

Our Competition

   The market for our products is highly competitive and characterized by
several industry niches in which a number of manufacturers specialize. Our
competitors vary in size and resources, and substantially all of our
competitors are much larger and have substantially greater resources than we
do. With respect to air data systems and related products, our principal
competitors include Kollsman Inc., Honeywell International Inc., Rockwell
International Corporation, Meggitt Avionics Inc. and Smiths Industries plc. Of
these competitors, only Honeywell, Rockwell and Smiths currently manufacture
products which compete with our RVSM products. With respect to flat panel
displays, our principal competitors currently include Honeywell, Rockwell,
Meggitt and Smiths. However, because the flat panel display industry is a new
and evolving market, as the demand for flat panel displays increases, we may
face competition in this area from additional companies in the future.

                                       34
<PAGE>


   We believe that the principal competitive factors in the markets we serve
are cost, development cycle time, responsiveness to customer preferences,
product quality, technology, reliability and breadth of product line. We
believe that our significant and long-standing customer relationships reflect
our ability to compete favorably with respect to these factors.

Intellectual Property and Proprietary Rights

   We rely on patents to protect our proprietary technology. We currently hold
three U.S. patents and have one U.S. patent application pending relating to our
technology. In addition, we have five international patent applications
pending. Certain of these patents and patent applications cover technology
relating to air data measurement systems and RVSM calibration techniques while
others cover technology relating to flat panel display systems and other
aspects of our CIP solution. While we believe that these patents have
significant value in protecting our technology, we also believe that the
innovative skill, technical expertise and the know-how of our personnel in
applying the technology reflected in our patents would be difficult, costly and
time consuming to reproduce.

   While there are no pending lawsuits against us regarding the infringement of
any patents or other intellectual property rights, we cannot be certain that
such infringement claims will not be asserted against us in the future.

Our Employees

   As of June 30, 2000, we had 115 employees, 74 of whom were in our
manufacturing and assembly operations, 16 in product development, five in
customer service and field support and 20 in general administrative and
corporate positions.

   Our future success also depends on our ability to attract, train and retain
highly qualified personnel. We plan to hire additional personnel, including in
particular sales and marketing personnel, during the next twelve months.
Competition for such qualified personnel is intense and we may not be able to
attract, train and retain highly qualified personnel in the future.

   None of our employees is represented by a labor union, and we consider our
relationship with our employees to be good.

Our Facilities

   We lease approximately 27,000 square feet in an office complex located in
suburban Philadelphia. This space is used for administrative purposes, product
development and the assembly of our products. To accommodate for our future
growth, we have initiated plans to build a new facility in suburban
Philadelphia that increases our space to approximately 40,000 square feet. We
expect the cost of this new facility, including land acquisition, to be between
$5.0 million and $6.0 million.

Legal Proceedings

   In the ordinary course of our business, we are at times subject to various
legal proceedings. We do not believe that any of the current legal proceedings
will have a material adverse effect on our operations or financial condition.

                                       35
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

   The following table sets forth certain information regarding our executive
officers and directors:

<TABLE>
<CAPTION>
Name                      Age Position
- ----                      --- --------
<S>                       <C> <C>
Geoffrey S. M. Hedrick..   58 Chairman of the Board and Chief Executive Officer
Robert J. Ewy...........   54 President
James J. Reilly.........   60 Chief Financial Officer
Joseph C. Caesar........   49 Vice President of Marketing and Business Development
Roger E. Mitchell.......   45 Vice President of Operations
Joel P. Adams...........   43 Director
Glen R. Bressner........   39 Director
Winston J. Churchill....   59 Director
Benjamin A. Cosgrove....   73 Director
Ivan M. Marks...........   58 Director
Robert E. Mittelstaedt,    56 Director
 Jr.....................
</TABLE>

   Geoffrey S. M. Hedrick has been our Chief Executive Officer since he founded
IS&S in February 1988 and our Chairman of the Board since 1997. Prior to
founding us, Mr. Hedrick served as President and Chief Executive Officer of
Smiths Industries North American Aerospace Companies. He also founded Harowe
Systems, Inc. in 1971, which was subsequently acquired by Smiths Industries.
Mr. Hedrick has 35 years of experience in the avionics industry, and he holds a
number of patents in the electronics, optoelectric, electromagnetic, aerospace
and contamination-control fields.

   Robert J. Ewy has been our President since May 1999. From 1971 until joining
us, Mr. Ewy was employed by AlliedSignal, Inc., Electronics and Avionics
Systems, where he held various positions. From 1998 to 1999, Mr. Ewy was
General Manager of Business Aviation. From 1997 to 1998, he was Vice President
of Flight Information Systems, and from 1996 to 1997, he was Vice President of
Communications and Cabin Systems. Prior thereto, from 1993 to 1996, Mr. Ewy was
Director of Strategic Business Enterprises. Mr. Ewy holds a Bachelor of Science
degree in Engineering from the University of Missouri.

   James J. Reilly has been our Chief Financial Officer since February 2000.
From 1996 to 1999, Mr. Reilly was employed by B/E Aerospace, Inc., Seating
Products Group, where he served as Vice President and Chief Financial Officer.
From 1989 to 1996, Mr. Reilly was employed by E-Systems, Inc. as Vice President
and Principal Accounting Officer. Mr. Reilly holds a Bachelor of Science degree
and a Masters of Business Administration degree from the University of
Hartford.

   Joseph C. Caesar has been our Vice President of Marketing and Business
Development since December 1999. From 1997 until joining us, Mr. Caesar served
as the Director of Marketing and Business Development for world-wide
aftermarket sales for Honeywell International Inc., formerly AlliedSignal. From
1995 to 1997, Mr. Caesar served as Manager of Global General Aviation Marketing
for Honeywell, and from 1992 to 1995, he served as Director of Regional Airline
Programs for Honeywell. Mr. Caesar received a Bachelor of Science degree from
Christian Brothers University.

   Roger E. Mitchell has been our Vice President of Operations since September
1999. From July 1998 until September 1999, Mr. Mitchell served as our Director
of Operations. Prior to joining us, Mr. Mitchell was employed by AlliedSignal,
where he held various positions, including Operations Manager from 1994 to
1998. Mr. Mitchell received a Bachelor of Arts degree from Lewis University.

   Joel P. Adams has been a director since 1995. Mr. Adams has been the
President of Adams Capital Management, Inc., a venture capital management
company, since he founded it in 1994. Mr. Adams also serves

                                       36
<PAGE>

on the board of directors of AirNet Communications Corporation and NetSolve
Inc. Mr. Adams holds a Masters of Science degree from Carnegie Mellon
University and a Bachelor of Science degree in Nuclear Engineering from the
State University of New York at Buffalo.

   Glen R. Bressner has been a director since 1999. Mr. Bressner has been a
partner of Mid-Atlantic Venture Funds, a venture capital firm, since 1997. Mr.
Bressner is also a partner of NEPA Venture Fund, L.P., a venture capital firm,
a position he has held since 1985. From 1996 to 1997, Mr. Bressner served as
the Chairman of the Board of Directors of the Greater Philadelphia Venture
Group. Mr. Bressner holds a Bachelor of Science degree in Business
Administration from Boston University and a Masters of Business Administration
degree from Babson College.

   Winston J. Churchill has been a director since 1990. Since 1996, Mr.
Churchill has been a managing general partner of SCP Private Equity Partners,
L.P., a private equity fund sponsored by Safeguard Scientifics, Inc. In
addition, since 1991, Mr. Churchill has been the Chairman of the Board of
Churchill Investment Partners, Inc. and CIP Capital, Inc., both of which are
venture capital firms. Mr. Churchill is also a director of Amkor Technology,
Inc., Freedom Securities Corp., Griffin Land and Nurseries, Inc. and CinemaStar
Luxury Theaters, Inc. Mr. Churchill is a member of the Executive Committee of
the Council of Institutional Investors. Mr. Churchill holds a Bachelor of
Science degree from Fordham University, a Masters of Business Administration
from Oxford University and a Juris Doctor from Yale Law School.

   Benjamin A. Cosgrove has been a director since 1992. Mr. Cosgrove has been a
consultant to The Boeing Company since he retired from Boeing in 1993. Prior to
his retirement, Mr. Cosgrove was employed by Boeing for 44 years and held a
number of positions, including Senior Vice President for Technical and
Government Affairs. Mr. Cosgrove is currently a member of the NASA Advisory
Council's Task Force on the Shuttle-Mir Rendezvous and Docking Missions and the
Task Force on International Space Station Operational Readiness. Mr. Cosgrove
holds a Bachelor of Science degree in Aeronautical Engineering from Notre Dame
University.

   Ivan M. Marks has been a director since 1996. Mr. Marks has been the Vice
President-Controller of Parker Aerospace Group, which is the aerospace segment
of Parker Hannifin Corporation, since 1979. Mr. Marks holds a Bachelor of
Science degree in Business Administration from Drake University and is a
Certified Public Accountant.

   Robert E. Mittelstaedt, Jr. has been a director since 1989 and served as our
Chairman of the Board of Directors from 1989 to 1997. Since 1989, Mr.
Mittelstaedt has been Vice Dean of The Wharton School of the University of
Pennsylvania. Mr. Mittelstaedt also serves on the Board of Directors of
Laboratory Corporation of America Holdings, Inc. He holds a Bachelor of Science
degree from Tulane University and a Masters of Business Administration degree
from The Wharton School of the University of Pennsylvania.

Board Composition

   As of the closing of this offering, our board will consist of seven
directors and will be classified into three classes with staggered three-year
terms, each class to contain as nearly as possible one-third of the number of
members of the board. One class of directors will be elected for a three-year
term at each annual meeting of shareholders commencing in 2001. The terms of
Messrs. Adams and Marks will expire at the 2001 annual meeting of shareholders;
the terms of Messrs. Bressner and Mittelstaedt will expire at the 2002 annual
meeting of shareholders; and the terms of Messrs. Hederick, Churchill and
Cosgrove will expire at the 2003 annual meeting of shareholders. The
classification of our board may have the effect of delaying or preventing
changes of control or management of IS&S. See "Description of Capital Stock--
Anti-Takeover Effects of Provisions of Our Articles of Incorporation, Our
Bylaws and Pennsylvania Law."

   Parker Hannifin Corporation and the P/A Fund each have the right to
designate one director for our board of directors, and Messrs. Marks and Adams
are their respective designees. The rights to designate directors will expire
upon the closing of this offering.

                                       37
<PAGE>

Board Committees

   Our board has established an audit committee and a compensation committee.
Our board does not have and does not currently intend to establish an executive
committee or a nominating committee.

   Audit Committee. The audit committee makes recommendations to the board with
respect to various auditing and accounting matters, including the selection of
our auditors, the scope of our annual audits, fees to be paid to the auditors,
the performance of our auditors and our accounting practices. In addition, the
audit committee has responsibility for, among other things, the planning and
review of our annual and periodic reports and accounts and the involvement of
our auditors in that process. The audit committee currently consists of Messrs.
Adams, Bressner and Marks.

   Compensation Committee. The compensation committee recommends, reviews and
oversees the salaries, benefits and stock option plans for our employees,
consultants, directors and other individuals compensated by us. The
compensation committee currently consists of Messrs. Churchill and
Mittelstaedt.

Director Compensation

   In February 2000, our board adopted a Non-Employee Director Compensation
Plan under which each non-employee director who serves on the board at the
beginning of each fiscal year, commencing October 1, 2000 (fiscal year 2001),
will be entitled to receive shares of common stock with a fair market value of
$25,000, determined as of the first day of such fiscal year. The shares will
vest quarterly during the fiscal year, provided that the director is still
serving on the board on the date the shares are scheduled to vest.
Additionally, each non-employee director shall be entitled to receive $1,000
for each board meeting attended. All directors are reimbursed for reasonable
travel and lodging expenses associated with attendance at meetings.

   Prior to the adoption of the plan described above, our board had a non-
employee director share bonus program under which each incumbent non-employee
director who had completed a year of service on the board was entitled to 5,481
shares of common stock issuable on April 11 of the following year; provided
that the first 16,443 shares attributable to a director's first three years' of
service on the board vested at the expiration of the third year. Pursuant to
this share bonus program, effective April 11, 1999, each of our non-employee
directors at such time was issued 5,481 shares of common stock for service on
the board during fiscal year 1998.

                                       38
<PAGE>

Executive Compensation

   The following table sets forth information concerning compensation paid
during fiscal year 1999 to our chief executive officer and each of our two
other executive officers who earned more than $100,000 during fiscal year 1999.
We may refer to these officers as our named executive officers in other parts
of this prospectus.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                          Long-Term
                                                         Compensation
                                          Annual         ------------
                                       Compensation         Awards
                                    -------------------- ------------
                                                          Securities  All Other
                             Fiscal                       Underlying   Compen-
Name and Principal Position   Year  Salary($)   Bonus($)  Options(#)  sation($)
- ---------------------------  ------ ---------   -------- ------------ ---------
<S>                          <C>    <C>         <C>      <C>          <C>
Geoffrey S. M. Hedrick.....   1999   167,307       --           --         --
 Chief Executive Officer
Robert J. Ewy..............   1999    94,712(1)    --      328,872      8,173(2)
 President
Roger E. Mitchell..........   1999   113,994       --           --         --
 Vice President of
  Operations
</TABLE>
- ---------------------
(1) Mr. Ewy joined us in May 1999 and, pursuant to his employment agreement,
    was being compensated on the basis of an annual base salary of $225,000 at
    the end of fiscal year 1999.

(2) This amount represents a relocation bonus.

Stock Option Information

   The following table sets forth certain information with respect to stock
options granted during fiscal year 1999 to each of the named executive
officers. The options were granted under our 1998 Stock Option Plan and vest in
three equal annual installments beginning on the first anniversary of the date
of grant.

                       Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
                                                                                     Potential
                                                                                Realizable Value at
                                                                                  Assumed Annual
                                                                                  Rates of Stock
                                                                                Price Appreciation
                                                                                    for Option
                                            Individual Grants                       Term($)(1)
                          ----------------------------------------------------- -------------------
                          Number of
                          Securities Percent of Total
                          Underlying Options Granted
                           Options    to Employees in Exercise Price Expiration
          Name            Granted(#)    Fiscal Year   Per Share ($)     Date     5% ($)    10% ($)
          ----            ---------- ---------------- -------------- ---------- --------- ---------
<S>                       <C>        <C>              <C>            <C>        <C>       <C>
Geoffrey S. M. Hedrick..        --          --               --            --          --        --
Robert J. Ewy...........   328,872          92%            3.28        5/3/09   4,813,976 8,304,402
Roger E. Mitchell.......        --          --               --            --          --        --
</TABLE>
- ---------------------

(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
    are mandated by the SEC. The options were issued at what our board believed
    was the fair market value of our stock at the time of grant. For purposes
    of this table, the potential realizable value is calculated at the SEC-
    required assumed rates of appreciation using $11.00, the assumed initial
    public offering price as the base. These assumptions are not intended to
    forecast future appreciation of our stock price. The potential realizable
    value computation does not take into account federal or state income tax
    consequences of option exercises or sales of appreciated stock.

                                       39
<PAGE>


   The following table sets forth certain information regarding options held as
of September 30, 1999 by each of the named executive officers. None of the
named executives exercised any options during fiscal year 1999. There was no
public trading market for the common stock as of September 30, 1999.
Accordingly, these values have been calculated on the basis of the assumed
initial public offering price of $11.00 per share, less the applicable exercise
price, multiplied by the number of shares underlying the options.

                         Aggregated Option Exercises in
               Last Fiscal Year and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                              Number of Securities      Value of Unexercised
                             Underlying Unexercised         In-the-Money
                            Options at September 30,  Options at September 30,
                                     1999(#)                   1999($)
                            ------------------------- -------------------------
           Name             Exercisable Unexercisable Exercisable Unexercisable
           ----             ----------- ------------- ----------- -------------
<S>                         <C>         <C>           <C>         <C>
Geoffrey S. M. Hedrick.....       --            --           --            --
Robert J. Ewy..............       --       328,872           --     2,538,892
Roger E. Mitchell..........   32,817        21,924      253,888       169,254
</TABLE>

1998 Stock Option Plan

   Our 1998 Stock Option Plan was adopted in November 1998 and provides for
grants of stock options to selected employees, officers, directors, consultants
and advisers. By encouraging stock ownership, we are seeking to attract, retain
and motivate such persons and to encourage them to devote their efforts to our
business. There are 866,920 shares of our common stock reserved for issuance
under our 1998 Stock Option Plan. As of June 30, 2000, there were outstanding
options to purchase 581,007 shares of common stock under the plan, having a
weighted average exercise price of $5.83 per share, and 285,912 shares remained
eligible for grant. As of June 30, 2000, options exercisable for 5,481 shares
were vested under the terms of the 1998 Stock Option Plan and the applicable
option agreements.

   The 1998 Stock Option Plan provides for the grant of both options intended
to qualify as "incentive stock options" under Section 422(b) of the Internal
Revenue Code, as well as non-qualified stock options. The compensation
committee administers the 1998 Stock Option Plan, including the selection of
individuals eligible for grants of options, the terms of grants, possible
amendments to the terms of grants and the interpretation of the plan. The
maximum term of any stock option granted under the 1998 Stock Option Plan is
ten years, except that with respect to incentive stock options granted to a
person who owns stock possessing more than 10% of the voting power of our
stock, the term of an option shall be for no more than five years.

   The exercise price of incentive stock options granted under the 1998 Stock
Option Plan must be at least equal to the fair market value of our common stock
on the date of the grant. However, for any optionee who owns stock possessing
more than 10% of the voting power of our stock, the exercise price for
incentive stock options must be at least 110% of the fair market value of our
common stock on the date of the grant. The exercise price of non-qualified
stock options is set by the committee and may be less than, equal to or greater
than the fair market value of our common stock on the date of the grant.

   The aggregate fair market value on the date of grant of the common stock for
which incentive stock options are exercisable for the first time by an optionee
during any calendar year may not exceed $100,000.

   Options granted under the plan may be exercised in whole or in part as
specifically set forth in the option agreement, and, except as provided by law,
no options may be transferred except by will or by the laws of descent and
distribution. In the event of a change of control, as defined in the plan, all
outstanding options shall become vested and exercisable in full, subject to
certain exceptions. Under such circumstances, the committee may, among other
things, accelerate the date on which any option may be exercised. The board may
terminate

                                       40
<PAGE>

the plan in whole or in part at any time and may amend the plan from time to
time without shareholder approval so long as the amendment does not change the
class of individuals eligible to receive incentive stock options, increase the
number of shares as to which options may be granted or make any other changes
which would require shareholder approval. In addition, no amendment to the plan
may adversely affect any outstanding option in any material respect without the
consent of the optionee. The plan will terminate on November 14, 2008, unless
terminated earlier by our board.

1988 Incentive Stock Option Plan

   Prior to the adoption of our 1998 plan, we used our 1988 Incentive Stock
Option Plan, which was adopted in August 1988, to attract and retain employees
as well as provide incentives for such persons to exert their efforts for our
success. Options granted under the 1988 plan were intended to be "incentive
stock options" under Section 422(b) of the Internal Revenue Code. The maximum
number of shares of our common stock for which options were to be granted under
this plan was 493,308. No more options may be granted under the 1988 plan,
although unexercised options for 176,494 shares of common stock remain
outstanding.

   The maximum term of any stock options granted under the 1988 plan was ten
years, except that with respect to options granted to employees who owned stock
possessing more than 10% of the voting power of our stock, the term of the
option was not more than five years from the date the option was granted. The
exercise price of the options granted under the 1988 plan was at least 100% of
the fair market value of our common stock on the date the option was granted.
Where the optionee owned stock possessing more than 10% of the voting power of
our stock, the option price was at least 110% of the fair market value of our
common stock on the date the option was granted.

   The options granted under the 1988 plan may be exercised in whole or in part
as specifically set forth in the option agreement, and, except as provided by
law, no options may be transferred except by will or by the laws of descent and
distribution. In addition, no options may be exercised after the accelerated
expiration date set by our board in the event that IS&S is dissolved or
liquidated or sells all or substantially all of its assets; IS&S is party to a
transaction where it is not the surviving or acquiring entity; or IS&S becomes
an 80% or more owned subsidiary of another company.

Employment Contracts, Termination of Employment and Change in Control
Arrangements

   In May 1999, we entered into an employment agreement with Robert J. Ewy to
serve as our President at an annual salary of $225,000. The employment
agreement has a three-year term expiring in May 2002 that is automatically
renewable at the end of such term for an additional year and each year
thereafter unless either party gives notice of nonrenewal. In addition, we
granted Mr. Ewy an option to purchase 328,872 shares of our common stock at an
exercise price of $3.28 per share, which option vests in three equal annual
installments beginning in May 2000. In the event that a "termination without
cause" (as defined in the agreement) occurs, Mr. Ewy will continue to receive,
subject to offset, the remaining compensation and benefits payable under the
agreement until the expiration date of the agreement. In the event that a
"voluntary termination" or a "termination for cause" (as those terms are
defined in the agreement) occurs, Mr. Ewy will continue to receive his salary
until the date his employment is terminated and will forfeit all unexercised
stock options. In the event that a termination for death or disability occurs,
Mr. Ewy will continue to receive his salary until the date his employment is
terminated and will retain the right to exercise any options that have vested
as of the date his employment was terminated.

   In July 1998, we entered into an employment letter agreement with Roger E.
Mitchell to serve as our Director of Operations at an annual salary of
$110,000. Under the agreement, we granted Mr. Mitchell options to purchase
54,812 shares of common stock at $3.28 per share. Of these options, 27,406 vest
in five equal annual installments beginning on the first anniversary of Mr.
Mitchell's employment with us. The remaining 27,406 options vested in July 1999
upon the achievement by us of certain performance objectives.

                                       41
<PAGE>

401(k) Plan

   We sponsor a 401(k) plan, a defined contribution plan that is intended to
qualify under Section 401(k) of the Internal Revenue Code. All employees who
are at least 21 years old and have been employed by us for three months are
eligible to participate in our 401(k) plan. An eligible employee may begin to
participate in the plan on the first day of the month following his or her
satisfying our plan's eligibility requirements. A participating employee may
make pre-tax contributions of a percentage (not less than 2% and not more than
15%) of his or her eligible compensation, subject to limitations under the
federal tax laws. Employee contributions and the investment earnings thereon
are fully vested at all times. We do not make contributions to the 401(k) plan.

                              CERTAIN TRANSACTIONS

   We collaborate with Parker Hannifin Corporation in the sale of fuel quantity
instrumentation on DC-10 aircraft. Parker Hannifin holds approximately 16% of
our common stock and has the right to designate one of our directors, which
right will terminate upon the closing of this offering. Mr. Marks is the
designee of Parker Hannifin. In fiscal years 1999, 1998 and 1997, we paid
Parker Hannifin $617,000, $2.7 million and $1.5 million, respectively, in
connection with the purchase of component parts used in the manufacture of our
products. In addition, in fiscal years 1999, 1998 and 1997, Parker Hannifin
hired us to manufacture and assemble certain products on their behalf and paid
us $1.2 million, $3.0 million and $490,000, respectively, for such services. We
believe that the terms of these transactions are no less favorable to us than
the terms we could have obtained from unrelated third parties.

                                       42
<PAGE>

                             PRINCIPAL SHAREHOLDERS

   The following table sets forth information regarding the beneficial
ownership of our common stock as of June 30, 2000 for:

  . each person or group of affiliated persons known to us who owns
    beneficially more than 5% of our common stock;

  . each of our directors;

  . each named executive officer; and

  . all of our directors and executive officers as a group.

   The percentage of ownership is based on 9,121,593 shares of common stock
outstanding as of June 30, 2000, assuming the conversion as of that date of all
of outstanding preferred stock, which will automatically be converted into
common stock upon the closing of this offering. The numbers shown in the table
below assume no exercise by the underwriters of their over-allotment option.

   Except as otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
held by them. Unless otherwise indicated, the principal address of each of the
5% shareholders is c/o Innovative Solutions and Support, Inc., 420 Lapp Road,
Malvern, Pennsylvania 19355.

<TABLE>
<CAPTION>
                                                         Percentage of Shares
                                            Number of   Beneficially Owned (1)
                                              Shares    ----------------------
                                           Beneficially Before this After this
         Name of Beneficial Owner           Owned (1)    Offering    Offering
         ------------------------          ------------ ----------- ----------
<S>                                        <C>          <C>         <C>
Geoffrey S.M. Hedrick (2).................  3,328,184      35.9%       27.5%
Parker Hannifin Corporation (3)...........  1,447,135      15.9        11.9
The P/A Fund (4)..........................  1,673,541      18.3        13.8
NEPA Venture Fund, L.P. (5)...............    833,142       9.1         6.9
James M. Draper (6).......................    745,441       8.1         6.1
Robert J. Ewy (7).........................    109,624       1.2           *
Roger E. Mitchell (8).....................     32,887         *           *
Joel P. Adams (9).........................  1,673,541      18.3        13.8
Glen R. Bressner (10).....................    833,142       9.1         6.9
Winston J. Churchill (11).................    398,296       4.4         3.3
Benjamin A. Cosgrove (12).................     43,848         *           *
Ivan M. Marks.............................         --        --          --
Robert E. Mittelstaedt, Jr. ..............    162,857       1.8         1.3
All directors and executive officers as a
 group (11 persons) (9)(10)(13)...........  6,582,379      69.8        52.9
</TABLE>
- ---------------------
 * Less than 1%.

(1) With respect to each shareholder, includes any options or warrants held by
    such shareholder that are exercisable within 60 days of June 30, 2000.

(2) Includes warrants to purchase 149,088 shares of common stock.

(3) The address of Parker Hannifin Corporation is 18321 Jamboree Boulevard,
    Irvine, California 92612. The board of directors of Parker Hannifin
    Corporation has dispositive and voting power over the shares held by Parker
    Hannifin Corporation. The board members of Parker Hannifin Corporation are
    Patrick S. Parker, John G. Breen, Duane E. Collins, Paul C. Ely, Jr., Peter
    W. Likins, Giulio Mazzalupi, Klaus-Peter Muller, Hector R. Ortino, Allan L.
    Rayfield, Wolfgang R. Schmitt, Debra L. Starnes and Dennis W. Sullivan.

(4) The address of The P/A Fund is 518 Broad Street, Sewickley, Pennsylvania
    15143. Through various entities, Joel P. Adams has sole voting and
    investment power over the shares held by The P/A Fund.

                                       43
<PAGE>


(5) The address of NEPA Venture Fund, L.P. is 125 Goodman Drive, Bethlehem,
    Pennsylvania 18015. Through various entities, Glen R. Bressner, Frederick
    Beste and Marc Benson share voting and investment power over the shares
    held by NEPA Venture Fund, L.P.

(6) Includes warrants to purchase 43,149 shares of common stock. Also includes
    548,120 shares of common stock and warrants to purchase 21,924 shares of
    common stock held by a trust for the benefit Stephanie Hedrick, the
    daughter of Geoffrey Hedrick, our Chairman and Chief Executive Officer, for
    which Mr. Draper serves as trustee. Mr. Draper disclaims beneficial
    ownership of these shares.

(7) Consists of options to purchase 109,624 shares of common stock.

(8) Consists of options to purchase 32,887 shares of common stock.

(9) Consists of 1,673,541 shares owned by The P/A Fund. Mr. Adams is the
    President of Adams Capital Management, Inc., a venture capital firm that
    manages The P/A Fund. Mr. Adams disclaims beneficial ownership of these
    shares.

(10) Consists of 833,142 shares beneficially owned by NEPA Venture Fund, L.P.
     Mr. Bressner is a partner of Mid-Atlantic Venture Funds, a venture capital
     firm that manages the NEPA Venture Fund, L.P. Mr. Bressner disclaims
     beneficial ownership of these shares.

(11) Includes 222,898 shares owned by CIP Capital, Inc. Mr. Churchill is the
     Chairman of the Board of Directors of CIP Capital, Inc. Mr. Churchill
     disclaims beneficial ownership of these shares.

(12) Includes warrants to purchase 21,924 shares of common stock.

(13) Includes warrants to purchase 171,012 shares of common stock and options
     to purchase 142,511 shares of common stock.

                                       44
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

   The following information describes our common stock and other equity
securities, as well as certain provisions of our articles of incorporation and
bylaws in effect as of the closing of this offering. This description is only a
summary. You should also refer to our articles of incorporation and bylaws,
which have been filed with the SEC as exhibits to our registration statement of
which this prospectus forms a part.

General

   Upon completion of this offering, our authorized capital stock will consist
of 75,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred stock, $.001 par value. Immediately following the completion of this
offering, and assuming no exercise of the underwriters' over-allotment option,
12,121,593 shares of our common stock will be outstanding and no shares of
preferred stock will be outstanding.

Common Stock

   The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders and do not have cumulative voting
rights. The holders of common stock are entitled to receive dividends, if any,
as our board may declare from time to time out of funds legally available for
dividends. In the event of our liquidation, dissolution or winding up, the
holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. The holders of our common stock do
not have preemptive, redemption or conversion rights. All outstanding shares of
common stock are fully paid and nonassessable, and the shares of common stock
to be outstanding upon completion of this offering will be fully paid and
nonassessable.

Preferred Stock

   Prior to this offering, we have had one class of preferred stock
outstanding. At the closing of this offering, all outstanding shares of our
preferred stock will be converted into shares of common stock.

   After the offering, our board will be authorized, without further action by
the shareholders, to provide for the issuance of shares of preferred stock as a
class without series or in one or more series, to establish the number of
shares in each class or series and to fix the designations, powers, preferences
and rights of each class or series and the qualifications, limitations or
restrictions thereof. Because our board has the power to establish the
preferences and rights of each class or series of preferred stock, our board
may give the holders of any class or series of preferred stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of our
common stock. The issuance of preferred stock could have the effect of delaying
or preventing a change in control of IS&S. We have no plans, agreements or
understandings for the issuance of any shares of preferred stock.

Warrants

   As of June 30, 2000, there were outstanding warrants to purchase an
aggregate of 375,354 shares of our common stock at an exercise price of $2.19
per share. The warrants may be exercised any time prior to their expiration in
June 2004. The exercise price and number of shares of stock issuable upon
exercise are subject to adjustment upon changes in capitalization.

Registration Rights

   The holders of an aggregate of approximately 3,396,809 shares of our common
stock and warrants to purchase an aggregate of 375,354 shares of our common
stock are contractually entitled to certain rights with respect to the
registration of their shares under the Securities Act of 1933. Under the terms
of various registration rights agreements, if we propose registering any of our
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, these holders
would be entitled to include their shares in the registration. The rights are
subject to certain conditions and

                                       45
<PAGE>

limitations, including the right of the managing underwriter of an underwritten
offering to limit the number of shares included in such registration. The
holders of these shares and warrants have agreed to a 180-day "lock-up" with
respect to their shares and warrants, as described in "Shares Eligible for
Future Sale."

   In addition to the piggyback registration rights described above, holders of
an aggregate of 2,923,310 shares of our common stock have various rights to
direct us to file registration statements under the Securities Act, subject to
specified minimum levels of shares being registered. Furthermore, certain
shareholders may require us, on not more than two occasions within one calendar
year, to file additional registration statements on Form S-3 with respect to
their shares, provided that the estimated market value of the shares being
registered is at least $1,000,000 and such shareholders hold at least 10% of
our stock at such time.

Anti-Takeover Effects of Provisions of Our Articles of Incorporation, Our
Bylaws and Pennsylvania Law

   We are subject to the provisions of Section 2538 and Sections 2551-2556 of
the Pennsylvania Business Corporation Law of 1988, or the PBCL, which, in
certain cases, impose certain restrictions on and provide for supermajority
shareholder approval of business combinations involving us and any "interested
shareholder" (defined to include, in the case of Section 2538, shareholders who
are a party to the business combination or who are treated differently from
other shareholders, and, in the case of Sections 2551-2556, shareholders who
beneficially own 20% or more of the voting power of a "registered" corporation,
such as IS&S). The term "business combination" includes a merger, asset sale or
other transaction involving an interested shareholder.

   The PBCL also provides that the directors of a corporation making decisions
concerning takeovers or any other matters may consider, to the extent that they
deem appropriate, among other things, (1) the effects of any proposed
transaction upon any or all groups affected by such action, including, among
others, shareholders, employees, suppliers, customers and creditors, (2) the
short-term and long-term interests of the corporation and (3) the resources,
intent and conduct of the person seeking control.

   Our bylaws provide that our board is to be composed of three classes, with
staggered three-year terms, each class to contain as nearly as possible one-
third of the number of members of the board. Accordingly, at each annual
meeting of shareholders, only approximately one-third of our directors will be
elected.

   Certain other provisions of our articles of incorporation and bylaws could
also have the effect of preventing or delaying a change in control, including
(1) the advance notification procedures governing certain shareholder
nominations of candidates for the board of directors and for certain other
shareholder business to be conducted at an annual meeting, (2) the absence of
authority for shareholders to call special shareholders meetings, except in
certain limited circumstances mandated by the PBCL, and (3) the absence of
authority for shareholder action by written consent by less than all of our
shareholders. These provisions could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
seeking to acquire, control of IS&S.

Limitation of Liability and Indemnification

   As permitted by the PBCL, our bylaws provide that a director shall not be
personally liable in such capacity for monetary damages for any action taken,
or any failure to take any action, unless the director breaches or fails to
perform the duties of his or her office under the PBCL, and the breach or
failure to perform constitutes self-dealing, willful misconduct or
recklessness. These provisions of the bylaws, however, do not apply to the
responsibility or liability of a director pursuant to any criminal statute, or
to the liability of a director for the payment of the taxes of IS&S pursuant to
local, Pennsylvania or federal law. These provisions offer persons who serve on
our board protection against awards of monetary damages for negligence in the
performance of their duties.

   Our bylaws also provide that every person who is or was a director or
officer of IS&S, or a director, officer, employee, agent, partner or fiduciary
of, or in any other capacity for any corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which he served as such at the
request or for the benefit of IS&S, shall be indemnified by us to the fullest
extent permitted by law against all expenses and liabilities

                                       46
<PAGE>

reasonably incurred by or imposed upon him, in connection with any proceeding
to which he may be made, or threatened to be made, a party, or in which he may
become involved by reason of his being or having been a director or officer of
IS&S, or a director, officer, employee, agent, partner or fiduciary of, or in
any other capacity for such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, whether or not he still holds
such position at the time the expenses or liabilities are incurred.

Transfer Agent and Registrar

   The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

                                       47
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has not been any public market for our common
stock. Future sales of substantial amounts of our common stock (including
shares issued upon exercise of outstanding options or warrants) in the public
market could adversely affect the market price of our stock from time to time
and could affect our ability to raise equity capital in the future.

   Upon completion of this offering, we will have 12,121,593 shares of common
stock outstanding. The 3,000,000 shares sold in this offering will be freely
tradable without restriction, except that any shares purchased by "affiliates,"
as that term is defined in Rule 144 under the Securities Act, may generally be
sold only pursuant to an effective registration statement under the Securities
Act or in compliance with the limitations of Rule 144 as described below.

   The remaining 9,121,593 shares of common stock are "restricted securities,"
as that term is defined in Rule 144, and may not be sold unless they are
registered under the Securities Act, except where an exemption is available.
Following termination of the lock-up described below, all of the restricted
shares may be sold under Rule 144, including 7,748,882 shares, which may be
sold subject to applicable volume and other restrictions. However, the holders
of all of these shares have agreed to a 180-day "lock-up" with respect to their
shares. This generally means that they may not sell their shares during the 180
days following the date of this prospectus without the approval of Friedman,
Billings, Ramsey & Co., Inc. (FBR). After the 180-day lock-up period expires,
or sooner if earlier waived by FBR, these shares may be sold in accordance with
Rule 144. In addition, the holders of warrants to purchase 375,354 shares of
common stock can exercise these warrants at any time, but these shares cannot
be sold, absent registration, until one year after their exercise, and then
subject to Rule 144 limitations.

   FBR may, in its sole discretion and at any time without notice, release all
or any portion of the securities subject to lock-up agreements. However, FBR
currently has no plans to release any portion of the securities subject to
lock-up agreements.

   In general, under Rule 144 as currently in effect, an affiliate of IS&S or a
person (or persons whose shares are aggregated) who has beneficially owned
restricted shares for at least one year, (including the holding period of any
prior owner other than a person who may be deemed an affiliate of IS&S) is
entitled to sell within any three-month period a number of shares of common
stock that does not exceed the greater of 1% of the then-outstanding shares of
common stock (approximately 121,215 shares after this offering) and the average
weekly trading volume of our common stock on the Nasdaq National Market during
the four calendar weeks preceding the sale. Sales under Rule 144 are subject to
certain restrictions relating to manner of sale, notice and the availability of
current public information about IS&S. In addition, under Rule 144(k), a person
who is not an affiliate of IS&S and has not been an affiliate for 90 days
preceding a sale, and who has beneficially owned shares for at least two years,
would be entitled to sell his or her shares immediately following this offering
without regard to the volume limitations, manner of sale provisions or notice
or other requirements of Rule 144 of the Securities Act. Approximately
1,372,711 of the restricted shares will be eligible for sale under Rule 144(k),
subject to the lock-up agreements.

   Certain holders of our common stock and warrants have rights to have their
shares registered as described under "Description of Capital Stock--
Registration Rights."

   Upon completion of this offering, we intend to file a registration statement
on Form S-8 under the Securities Act covering all shares of common stock
reserved for issuance under our stock option plans. Shares covered by such
registration statement would be available for sale in the open market in the
future unless those shares are subject to vesting restrictions or the lock-up
described above.

                                       48
<PAGE>

                                  UNDERWRITING

   Subject to the terms and conditions of the underwriting agreement, the
underwriters named below are acting through their representatives, Friedman,
Billings, Ramsey & Co., Inc., Stifel, Nicolaus & Company, Incorporated and
Janney Montgomery Scott LLC. The underwriters have agreed with us, subject to
the terms and conditions of the underwriting agreement, to purchase from us the
number of shares of our common stock shown opposite their names below. Other
than the shares covered by the over-allotment option, the underwriters are
obligated to purchase and accept delivery of all the shares of common stock if
any are purchased.

<TABLE>
<CAPTION>
                                                                       Number of
      Underwriter                                                       Shares
      -----------                                                      ---------
<S>                                                                    <C>
Friedman, Billings, Ramsey & Co., Inc.................................
Stifel, Nicolaus & Company, Incorporated..............................
Janney Montgomery Scott LLC ..........................................
                                                                       ---------
  Total............................................................... 3,000,000
                                                                       =========
</TABLE>

   The underwriters propose initially to offer our shares of common stock in
part directly to the public at the initial public offering price shown on the
cover page of this prospectus and in part to dealers, including the
underwriters, at this price less a discount not in excess of $   per share. The
underwriters may allow, and such dealers may re-allow other dealers, a discount
not in excess of $   per share.

   The following table summarizes the underwriting discount we will pay in
connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
                                                        Without Over- With Over-
                                                          allotment   allotment
                                                        ------------- ----------
<S>                                                     <C>           <C>
Per Share..............................................      $           $
Total..................................................      $           $
</TABLE>

   The total expenses of this offering, not including the underwriting
discount, are estimated at $770,000 and are payable by us.

   Over-allotment.  The underwriters have an option, exercisable within 30 days
after the date of this prospectus, to purchase up to an aggregate of 450,000
additional shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise this option solely to
cover over-allotments, if any, made in this offering. If the underwriters
exercise this option, each underwriter will purchase shares in approximately
the same proportion as indicated in the table above.

   Indemnity.  We have agreed to indemnify the underwriters against some types
of liabilities, including liabilities under the Securities Act. We have also
agreed to contribute to payments that the underwriters may be required to make
with respect to any of those liabilities.

   Future Sales.  We and our executive officers, directors and our current
shareholders have agreed, subject to certain exceptions, not to offer, pledge,
sell, hedge or otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for common stock for a period of 180 days from the date of this
prospectus. Transfers or dispositions can be made sooner with the prior written
consent of Friedman, Billings, Ramsey & Co., Inc. Such consent may be given at
any time without public notice. During such 180-day period, we have agreed not
to file any registration statements with respect to any shares of our common
stock, except with respect to employee benefit plans.

   Offers in Other Jurisdictions.  Neither we nor the underwriters have taken
any action that would permit a public offering of the shares of common stock
being offered by this prospectus in any jurisdiction other than the United
States where action for that purpose is required. The shares of common stock
offered by this

                                       49
<PAGE>

prospectus may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering materials or advertisements related to the
offer and sale of these shares of common stock be distributed or published in
any jurisdiction except under circumstances that will result in compliance with
the applicable rules and regulation of such jurisdiction. This prospectus is
not an offer to sell or a solicitation of an offer to buy any shares of common
stock offered hereby in any jurisdiction in which such an offer or solicitation
is unlawful.

   Discretionary Account Sales.  Friedman, Billings, Ramsey & Co., Inc. has
advised us that the underwriters do not intend to confirm sales of the common
stock offered by this prospectus to any accounts over which they exercise
discretionary authority.

   Directed Share Program.  At our request, the underwriters have reserved up
to 150,000 shares of our common stock to be issued by us and offered for sale
by this prospectus, at the initial offering price, to directors, officers,
employees, business associates and related persons of IS&S. The number of
shares of common stock available for sale to the general public will be reduced
to the extent these individuals purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered by this
prospectus.

   Stabilization.  In connection with this offering, the underwriters may
engage in transactions on the Nasdaq National Market, the over-the-counter
market or otherwise that stabilize, maintain or otherwise affect the price of
our common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock. In addition, Friedman, Billings, Ramsey &
Co., Inc., on behalf of the underwriters, may reclaim selling concessions
allowed to an underwriter or dealer for distributing the common stock in this
offering if the syndicate repurchases previously distributed shares of common
stock to cover syndicate short positions, in stabilizing transactions or
otherwise. These activities may stabilize or maintain the market price of the
common stock above independent market levels. The underwriters are not required
to engage in these activities and may discontinue any of these activities at
any time.

   No Prior Public Market.  Prior to this offering, there has been no public
market for our common stock. As a result, the initial public offering price for
our common stock will be determined by negotiations between us and the
underwriters. Among the factors to be considered in determining the public
offering price will be:

  . prevailing market conditions;

  . our results of operations in recent periods;

  . the present stage of our product development;

  . the market capitalizations of other companies that we and the
    underwriters believe to be comparable to us; and

  . estimates of our growth potential.

   Affiliation.  Friedman, Billings, Ramsey & Co., Inc, one of the managing
underwriters of this offering, is an affiliate of PNC Bank, the principal
lender on our line of credit. PNC Bank owns 4.97% of the common stock of
Friedman, Billings, Ramsey Group, Inc., the parent company of Friedman,
Billings, Ramsey & Co., Inc. PNC Bank and Friedman, Billings, Ramsey Group,
Inc. have formed a strategic alliance and have agreed to work together on an
arms-length basis to refer potential business to each other.

                                       50
<PAGE>

                                 LEGAL MATTERS

   The validity of the common stock being offered will be passed upon for us by
Cozen and O'Connor, a professional corporation, Philadelphia, Pennsylvania.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Jenkens & Gilchrist, a Professional Corporation,
Washington, D.C.

                                    EXPERTS

   The financial statements and schedules as of September 30, 1998 and
September 30, 1999 and for each of the three years ended September 30, 1999
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

                      WHERE YOU CAN FIND MORE INFORMATION

   We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. This prospectus is
materially complete. However, it does not contain all of the information set
forth in the registration statement. For further information with respect to us
and the shares of common stock we are offering pursuant to this prospectus, you
should refer to the registration statement, including its exhibits and
schedules. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to are summaries and you should
refer to the copy of that contract or other document filed as an exhibit to the
registration statement. You may read and copy the registration statement and
any other documents filed by us with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a web
site at http://www.sec.gov that contains the registration statement, proxy
statements, information statements, reports and other information concerning us
and any registrants that file electronically with the SEC.

   Upon completion of this offering, we will be required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC. We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements and quarterly
reports containing unaudited interim financial information for the first three
quarters of each fiscal year.

                                       51
<PAGE>


                  Innovative Solutions and Support, Inc.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................... F-2
BALANCE SHEETS............................................................. F-3
STATEMENTS OF OPERATIONS................................................... F-4
STATEMENTS OF SHAREHOLDERS' EQUITY......................................... F-5
STATEMENTS OF CASH FLOWS................................................... F-6
NOTES TO FINANCIAL STATEMENTS.............................................. F-7
</TABLE>

                                      F-1
<PAGE>


   After the stock split discussed in Note 1 to the financial statements is
effected, we will be in a position to render the following report.

/s/ Arthur Andersen LLP

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Innovative Solutions and Support,
Inc.:

   We have audited the accompanying balance sheets of Innovative Solutions and
Support, Inc. (a Pennsylvania corporation) as of September 30, 1998 and 1999,
and the related statements of operations, shareholders' equity and cash flows
for the three years ended September 30, 1999. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Innovative Solutions and
Support, Inc. as of September 30, 1998 and 1999, and the results of its
operations and its cash flows for the three years ended September 30, 1999 in
conformity with accounting principles generally accepted in the United States.


   Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information included in Schedule II
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

Philadelphia, Pa.,
December 30, 1999

                                      F-2
<PAGE>


                  Innovative Solutions and Support, Inc.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                          September 30,  September    March 31,
                                              1998       30, 1999       2000
                                          ------------- -----------  -----------
                                                                     (unaudited)
<S>                                       <C>           <C>          <C>
                 ASSETS
Current Assets:
  Cash and cash equivalents..............  $   102,150  $ 4,638,607  $ 6,456,285
  Accounts receivable....................    3,575,333    3,413,771    3,803,267
  Inventories............................    2,808,085    3,496,773    3,596,353
  Deferred taxes.........................    1,231,937       23,530       23,530
  Prepaid expenses.......................       87,810       66,104       96,446
                                           -----------  -----------  -----------
    Total current assets.................    7,805,315   11,638,785   13,975,881
                                           -----------  -----------  -----------
Property and Equipment:
  Computers and test equipment...........    1,150,490    1,646,659    1,880,555
  Furniture and office equipment.........      265,337      341,042      400,612
  Leasehold improvements.................       29,890       50,205       50,205
                                           -----------  -----------  -----------
                                             1,445,717    2,037,906    2,331,372
  Less--Accumulated depreciation.........   (1,027,931)  (1,292,716)  (1,445,119)
                                           -----------  -----------  -----------
    Net property and equipment...........      417,786      745,190      886,253
                                           -----------  -----------  -----------
Deposits and Other Assets................       24,202       24,202      262,159
                                           -----------  -----------  -----------
Deferred Taxes...........................      781,865      204,012      204,012
                                           -----------  -----------  -----------
                                           $ 9,029,168  $12,612,189  $15,328,305
                                           ===========  ===========  ===========
  LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Credit Facility (Note 6)...............  $   550,000  $        --  $        --
  Notes payable (Note 5).................      250,000           --           --
  Current portion of capitalized lease
   obligations...........................       55,481       23,831       22,114
  Accounts payable.......................    2,251,691      888,052    1,273,846
  Accrued expenses.......................      431,007    1,385,143      942,134
  Deferred revenue.......................      879,973      784,707       72,148
                                           -----------  -----------  -----------
    Total current liabilities............    4,418,152    3,081,733    2,310,242
                                           -----------  -----------  -----------
Capitalized Lease Obligations (Note 8)...       46,379       45,764       38,889
                                           -----------  -----------  -----------
Deferred Revenue.........................           --      549,420      579,056
                                           -----------  -----------  -----------
Commitments and Contingencies (Note 8)
Shareholders' Equity:
  Preferred stock, 500,000 shares
   authorized--Class A Convertible stock,
   $.001 par value;
   200,000 shares authorized, 177,092
   shares issued and outstanding
   (liquidation value of $4,250,208 at
   March 31, 2000).......................          177          177          177
  Common stock, $.001 par value;
   10,000,000 shares authorized,
   6,727,844, 6,766,213 and 7,180,240
   shares issued and outstanding at
   September 30, 1998 and 1999 and March
   31, 2000, respectively................        6,728        6,766        7,180
  Additional paid-in capital.............    8,559,414    8,749,376    9,747,394
  Retained earnings (accumulated
   deficit)..............................   (4,001,682)     178,953    2,645,367
                                           -----------  -----------  -----------
    Total shareholders' equity...........    4,564,637    8,935,272   12,400,118
                                           -----------  -----------  -----------
                                           $ 9,029,168  $12,612,189  $15,328,305
                                           ===========  ===========  ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>


                  Innovative Solutions and Support, Inc.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                         For the Fiscal Year Ended September      For the Six Months
                                         30,                       Ended March 31,
                         -------------------------------------  -----------------------
                            1997         1998         1999         1999        2000
                         -----------  -----------  -----------  ----------  -----------
                                                                     (unaudited)
<S>                      <C>          <C>          <C>          <C>         <C>
Revenues (includes
 related party amounts
 of $489,519,
 $2,952,584, $1,226,210,
 $178,905 and $32,765,
 respectively).......... $10,594,204  $14,682,313  $22,487,882  $8,913,950  $13,558,787
Cost of Sales (includes
 related party amounts
 of $1,516,263,
 $2,744,825, $616,751,
 $89,984 and $0,
 respectively)..........   7,007,523    8,480,549   10,570,009   4,694,879    6,399,879
                         -----------  -----------  -----------  ----------  -----------
  Gross profit..........   3,586,681    6,201,764   11,917,873   4,219,071    7,158,908
                         -----------  -----------  -----------  ----------  -----------
Operating Expenses:
  Research and
   development..........   1,114,351    1,554,564    1,915,634     877,920    1,357,302
  Selling, general and
   administrative.......   1,567,896    2,492,509    3,333,977   1,202,825    2,051,643
                         -----------  -----------  -----------  ----------  -----------
                           2,682,247    4,047,073    5,249,611   2,080,745    3,408,945
                         -----------  -----------  -----------  ----------  -----------
    Operating income....     904,434    2,154,691    6,668,262   2,138,326    3,749,963
Interest Income.........     (20,307)     (14,092)     (80,376)    (12,343)    (139,815)
Interest Expense........      84,120      238,213       50,239      43,448        2,722
                         -----------  -----------  -----------  ----------  -----------
  Income before income
   taxes................     840,621    1,930,570    6,698,399   2,107,221    3,887,056
  Income tax (expense)
   benefit, net (Note
   4)...................         --     2,013,802   (2,517,764)   (792,051)  (1,420,642)
                         -----------  -----------  -----------  ----------  -----------
Net Income.............. $   840,621  $ 3,944,372  $ 4,180,635  $1,315,170  $ 2,466,414
                         ===========  ===========  ===========  ==========  ===========
Net Income Per Common
 Share:
  Basic................. $      0.13  $      0.59  $      0.62  $     0.20  $      0.35
  Diluted............... $      0.10  $      0.46  $      0.45  $     0.15  $      0.25
Weighted Average Shares
 Outstanding:
  Basic.................   6,612,739    6,670,134    6,746,976   6,727,844    7,100,319
  Diluted...............   8,544,092    8,611,487    9,204,344   8,983,348    9,837,924
</TABLE>



The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>


                  Innovative Solutions and Support, Inc.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                        Retained
                                           Additional   Earnings
                          Preferred Common  Paid-in   (Accumulated
                            Stock   Stock   Capital     Deficit)       Total
                          --------- ------ ---------- ------------  -----------
<S>                       <C>       <C>    <C>        <C>           <C>
BALANCE, SEPTEMBER 30,
 1996....................   $177    $6,613 $8,182,529 $(8,786,675)  $  (597,356)
  Warrants issued with
   subordinated notes....    --        --     125,000         --        125,000
  Net income.............    --        --         --      840,621       840,621
                            ----    ------ ---------- -----------   -----------
BALANCE, SEPTEMBER 30,
 1997....................    177     6,613  8,307,529  (7,946,054)      368,265
  Issuance of stock to
   directors.............    --        115    251,885         --        252,000
  Net income.............    --        --         --    3,944,372     3,944,372
                            ----    ------ ---------- -----------   -----------
BALANCE, SEPTEMBER 30,
 1998....................    177     6,728  8,559,414  (4,001,682)    4,564,637
  Issuance of stock to
   directors.............    --         38    104,962         --        105,000
  Compensation in
   connection with
   issuance of Common
   stock options.........    --        --      85,000         --         85,000
  Net income.............    --        --         --    4,180,635     4,180,635
                            ----    ------ ---------- -----------   -----------
BALANCE, SEPTEMBER 30,
 1999....................    177     6,766  8,749,376     178,953     8,935,272
  Exercise of warrants to
   purchase Common stock
   (unaudited)...........    --        403    986,029         --        986,432
  Exercise of options to
   purchase Common stock
   (unaudited)...........    --         11     11,989         --         12,000
  Net income
   (unaudited)...........    --        --         --    2,466,414     2,466,414
                            ----    ------ ---------- -----------   -----------
BALANCE, MARCH 31, 2000
 (unaudited).............   $177    $7,180 $9,747,394 $ 2,645,367   $12,400,118
                            ====    ====== ========== ===========   ===========
</TABLE>



The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>


                  Innovative Solutions and Support, Inc.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                             For the Fiscal Year Ended          For the Six Months
                                   September 30,                  Ended March 31,
                         -----------------------------------  ------------------------
                           1997        1998         1999         1999         2000
                         ---------  -----------  -----------  -----------  -----------
                                                                    (unaudited)
<S>                      <C>        <C>          <C>          <C>          <C>
Cash Flows From
 Operating Activities:
 Net income............. $ 840,621  $ 3,944,372  $ 4,180,635  $ 1,315,171  $ 2,466,414
 Adjustment to reconcile
  net income to net cash
  provided by (used in)
  operating activities--
   Imputed interest.....    33,560       91,440           --           --           --
  Depreciation and
   amortization.........   150,054      126,877      264,785      101,237      152,403
  Deferred taxes........        --   (2,013,802)   1,786,260           --           --
  Stock issued to
   directors............        --      252,000      105,000           --           --
  Compensation expense
   for common stock
   options..............        --           --       85,000           --           --
  (Increase) decrease
   in--
  Accounts receivable...  (932,768)  (1,079,782)     161,562      217,570     (389,496)
  Inventories...........  (121,696)  (1,209,498)    (688,688)    (397,026)     (99,580)
  Prepaid expenses and
   other................   (11,403)     (82,607)      21,706      (12,751)    (268,299)
  Increase (decrease)
   in--
  Accounts payable......   529,385      237,048   (1,363,639)  (1,071,068)     385,794
  Accrued expenses......  (201,048)     (17,058)     954,136      776,550     (443,009)
  Deferred revenue......  (787,954)    (287,502)     454,154       59,980     (682,923)
                         ---------  -----------  -----------  -----------  -----------
    Net cash provided by
     (used in) in
     operating
     activities.........  (501,249)     (38,512)   5,960,911      989,663    1,121,304
                         ---------  -----------  -----------  -----------  -----------
Cash Flows From
 Investing Activities:
  Purchases of property
   and equipment........   (35,452)    (238,152)    (592,189)    (292,232)    (293,466)
                         ---------  -----------  -----------  -----------  -----------
Cash Flows From
 Financing Activities:
  Proceeds from issuance
   of notes.............   795,455           --           --           --           --
  Repayments on notes...        --     (587,600)    (250,000)    (250,000)          --
  Borrowings on credit
   facility.............        --    2,270,000           --      950,000           --
  Repayments on credit
   facility.............        --   (1,720,000)    (550,000)  (1,000,000)          --
  Repayments of
   capitalized lease
   obligations..........  (102,924)     (67,867)     (32,265)     (40,629)      (8,592)
  Proceeds from exercise
   of stock options.....        --           --           --           --       12,000
  Proceeds from exercise
   of warrants..........        --           --           --           --      986,432
                         ---------  -----------  -----------  -----------  -----------
    Net cash provided by
     (used in) financing
     activities.........   692,531     (105,467)    (832,265)    (340,629)     989,840
                         ---------  -----------  -----------  -----------  -----------
Net Increase (Decrease)
 In Cash And Cash
 Equivalents............   155,830     (382,131)   4,536,457      356,802    1,817,678
Cash And Cash
 Equivalents, Beginning
 Of Year................   328,451      484,281      102,150      102,150    4,638,607
                         ---------  -----------  -----------  -----------  -----------
Cash And Cash
 Equivalents, End Of
 Year................... $ 484,281  $   102,150  $ 4,638,607  $   458,952  $ 6,456,285
                         =========  ===========  ===========  ===========  ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-6
<PAGE>


                  Innovative Solutions and Support, Inc.

                         NOTES TO FINANCIAL STATEMENTS

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)

1. Background:

   Innovative Solutions and Support, Inc., formerly Innovative Solutions and
Support, Incorporated (the "Company"), was incorporated in Pennsylvania on
February 12, 1988. The Company's primary business is the design, manufacture
and sale of flight information computers, electronic displays and advanced
monitoring systems to the military and governmental, commercial air transport
and corporate aviation markets.

   The Company is in the process of preparing a registration statement for the
sale of shares of Common stock to the public in an initial public offering. In
connection with the offering, on July 7, 2000, the Company's Board of Directors
approved a split of the Company's common shares on a 1.09624-to-1 basis. All
references in the financial statements to the number of common shares and to
per share amounts have been retroactively stated to reflect the common share
split. Upon the closing of the offering, the outstanding shares of Preferred
stock will be converted into 1,941,353 shares of Common stock.

   Future results of operations involve a number of risks and uncertainties.
Factors that could affect future operating results and cause actual results to
vary materially from expectations include, but are not limited to, dependence
on key personnel, dependence on technological developments, dependence on key
customers and product liability.

2. Summary Of Significant Accounting Policies:

 Use of Estimates

   Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual future results could differ from those estimates.

 Interim Financial Statements

   The financial statements as of March 31, 2000 and for the six months ended
March 31, 1999 and 2000 are unaudited and, in the opinion of management,
include all adjustments necessary for a fair presentation of results for those
interim periods. The results of operations for the six months ended March 31,
1999 and 2000 are not necessarily indicative of the results to be expected for
the entire year.

 Cash and Cash Equivalents

   Highly liquid investments purchased with an original maturity of three
months or less are classified as cash equivalents.

 Inventories

   Inventories are stated at the lower of cost (first-in, first-out) or market
as follows:

<TABLE>
<CAPTION>
                                              September 30,
                                          ----------------------   March 31,
                                             1998        1999        2000
                                          ----------  ----------  -----------
                                                                  (unaudited)
   <S>                                    <C>         <C>         <C>
   Raw materials and finished
    components........................... $2,276,764  $2,368,432  $3,257,162
   Work-in-process.......................  1,108,821   1,706,287   1,085,558
                                          ----------  ----------  ----------
   Gross inventory.......................  3,385,585   4,074,719   4,342,720
   Reserve for excess and obsolete.......   (577,500)   (577,946)   (746,367)
                                          ----------  ----------  ----------
                                          $2,808,085  $3,496,773  $3,596,353
                                          ==========  ==========  ==========
</TABLE>

                                      F-7
<PAGE>


                  Innovative Solutions and Support, Inc.

                NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)


 Property and Equipment

   Property and equipment is stated at cost. Depreciation is provided using an
accelerated method over the estimated useful lives of the assets (the lesser of
5 to 7 years or over the lease term). This method is not materially different
from straight-line. Major additions and improvements are capitalized, while
maintenance and repairs that do not improve or extend the size of assets are
charged to expense as incurred.

 Revenue Recognition

   Revenues are recognized upon shipment of product, and include $489,519,
$2,952,584 and $1,226,210 from a related-party in 1997, 1998 and 1999,
respectively, and $178,905 and $32,765 for the six months March 31, 1999 and
2000, respectively (see Note 9).

 Deferred Revenue

   The Company has a contract which provided for the customer to make advance
payments of 10% of anticipated deliverables. These amounts are recorded as
deferred revenue when received and recognized as revenue when the related
products are shipped. Additionally, in fiscal 1999, a customer purchased a 10
year warranty. This amount has been recorded as deferred revenue and is being
recognized ratably over the 10 year term of the warranty.

 Warranty

   Estimated cost to repair or replace products under warranty is provided when
revenues from product sales are recorded. In fiscal 1999, the Company began to
offer its customers extended warranties for additional fees. These warranty
sales are recorded as deferred revenue and recorded as revenues over the
warranty period.

 Income Taxes

   Income taxes are recorded in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" (see Note
4).

 Research and Development

   Research and development expenses are incurred for projects conducted under
customer-sponsored programs and for future product development. All research
and development costs incurred for projects conducted under customer-sponsored
programs are charged to cost of revenues and research and development costs
related to future product development are charged to expense as incurred.

 Long-Lived Assets

   The Company has adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No.121
requires that long-lived assets to be held and used by the Company be reviewed
for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If changes in
circumstances indicate that the carrying amount of an asset that an entity
expects to hold and use may not be recoverable, future cash flows expected to
result from the use of the asset and its disposition must be estimated. If the
undiscounted value of the future cash flows is less than the carrying amount of
the asset, impairment is recognized. No material adjustments have been recorded
for the periods presented.

                                      F-8
<PAGE>


                  Innovative Solutions and Support, Inc.

                NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)

 Comprehensive Income

   Pursuant to SFAS No. 130, "Reporting Comprehensive Income," the Company
would be required to classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. There were
no items of other comprehensive income for any of the periods presented.

 Fair Value of Financial Instruments

   The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
debt instruments. The carrying values of these assets and liabilities are
considered to be representative of their respective fair values.

 Major Customers and Products

   The Company derived 38%, 49% and 76% of its revenue from two, three and
three customers for the years ended September 30, 1997, 1998 and 1999,
respectively, and 82% and 69% from three customers for the six months ended
March 31, 1999 and 2000, respectively. Accounts receivable related to these
customers total $1,952,220, $2,096,468 and $2,454,961 at September 30, 1998 and
1999 and March 31, 2000, respectively.

   In addition, revenues from sales of air data and RVSM systems and components
were 81% of revenues for the year ended September 30, 1999 and 100% of revenues
for the six months ended March 31, 2000, respectively.

 Major Suppliers

   The Company currently buys several of its components from sole source
suppliers. Although there are a limited number of manufacturers of the
particular components, management believes that other suppliers could provide
similar components on comparable terms. A change in suppliers, however, could
cause a delay in manufacturing and shipments, a possible loss of sales, and
could cause the Company to fail to fulfill certain performance obligations
under current customer contracts, which would adversely affect operating
results.

 Concentration of Credit Risk

   Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables. The
Company invests its excess cash with large banks. The Company's customer base
principally consists of companies within the aviation industry. The Company
does not require collateral from its customers.

 Supplemental Cash Flow Information

   For the years ended September 30, 1997, 1998 and 1999, the Company paid
$14,691, $146,875 and $75,206, respectively, for interest, and $72,085, $10,028
and $155,278, respectively, for income taxes. For the six months ended March
31, 1999 and 2000 the Company paid $60,964 and $1,491, respectively, for
interest, and $154,134 and $1,560,000, respectively, for income taxes.

3. Net Income Per Share:

   Net income per share is calculated utilizing the principles of SFAS No. 128,
"Earnings per Share" ("EPS"). Basic EPS excludes potentially dilutive
securities and is computed by dividing net income by the

                                      F-9
<PAGE>


                  Innovative Solutions and Support, Inc.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)

weighted-average number of common shares outstanding for the period. Diluted
EPS is computed assuming the conversion or exercise of all dilutive securities
such as preferred stock, options and warrants.

   Under SFAS No. 128, the Company's granting of certain stock options,
warrants and convertible preferred stock resulted in potential dilution of
basic EPS. The following table summarizes the differences between basic
weighted average shares outstanding and diluted weighted average shares
outstanding used to compute diluted EPS.

<TABLE>
<CAPTION>
                                    For the Year Ended       For the Six Months
                                       September 30,           Ended March 31,
                               ----------------------------- -------------------
                                 1997      1998      1999      1999      2000
                               --------- --------- --------- --------- ---------
                                                                 (unaudited)
<S>                            <C>       <C>       <C>       <C>       <C>
Basic weighted average number
 of shares outstanding.......  6,612,739 6,670,134 6,746,976 6,727,844 7,100,319
 Incremental shares from
  assumed exercise or
  conversion of:
  Stock options..............         --        --   168,671    69,294   369,410
  Warrants...................         --        --   347,344   244,857   426,841
  Preferred stock............  1,941,353 1,941,353 1,941,353 1,941,353 1,941,353
                               --------- --------- --------- --------- ---------
  Diluted weighted average
   number of shares
   outstanding...............  8,554,092 8,611,487 9,204,344 8,983,348 9,837,924
                               ========= ========= ========= ========= =========
</TABLE>

   The number of incremental shares from the assumed exercise of stock options
and warrants is calculated applying the treasury stock method.

4. Income Taxes:

   The Company incurred operating losses and generated a significant
accumulated deficit from inception through the fiscal year ended September 30,
1996. As of September 30, 1997, and 1998 the Company had federal net operating
loss carryforwards of approximately $7.6 million, and $5.8 million,
respectively. At September 30, 1996 and 1997, a valuation allowance was
recorded for 100% of the associated deferred tax asset as realization of the
tax benefit was not considered more likely than not. At September 30, 1998,
management determined, based upon historical and projected operating results,
that it was more likely than not that the tax benefit would be realized.
Therefore, as of September 30, 1998 the Company eliminated the valuation
reserve and recorded an income tax benefit and a corresponding deferred tax
asset of $2.0 million, relating to the remaining cumulative net operating loss
of $5.8 million. The Company utilized the entire remaining cumulative net
operating loss in fiscal 1999.

   The deferred tax effect of temporary differences giving rise to the
Company's deferred tax assets consists of the following components:

<TABLE>
<CAPTION>
                                                     September 30, September 30,
                                                         1998          1999
                                                     ------------- -------------
   <S>                                               <C>           <C>
   Deferred tax assets--
     Deferred Revenue...............................  $       --     $227,542
     Net operating loss carryforwards...............   1,988,379           --
                                                      ----------     --------
   Deferred tax asset...............................  $1,988,379     $227,542
                                                      ==========     ========
</TABLE>

   Payments received for warranties are recorded as taxable income in the year
received and, therefore, generate deferred tax assets.

                                      F-10
<PAGE>


                  Innovative Solutions and Support, Inc.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)


   The components of income taxes were as follows:

<TABLE>
<CAPTION>
                                             For the Year Ended September 30,
                                             ----------------------------------
                                               1997        1998         1999
                                             ---------  -----------  ----------
   <S>                                       <C>        <C>          <C>
   Current Provision:
     Federal................................ $ 273,571  $   656,394  $  534,497
     State..................................    52,573      115,834     197,007
                                             ---------  -----------  ----------
                                               326,144      772,228     731,504
                                             ---------  -----------  ----------
   Deferred Provision (Benefit):
     Federal................................  (273,571)  (2,529,362)  1,780,359
     State..................................   (52,573)    (256,668)      5,901
                                             ---------  -----------  ----------
                                              (326,144)  (2,786,030)  1,786,260
                                             ---------  -----------  ----------
                                             $      --  $(2,013,802) $2,517,764
                                             =========  ===========  ==========
</TABLE>

   The reconciliation of the statutory federal rate to the Company's effective
income tax expense (benefit) rate is as follows:

<TABLE>
<CAPTION>
                                      For the Year
                                     Ended September      For the Six Months
                                           30,              Ended March 31,
                                    --------------------  --------------------
                                    1997    1998    1999    1999       2000
                                    -----  ------   ----  ---------  ---------
                                                              (unaudited)
<S>                                 <C>    <C>      <C>   <C>        <C>
Federal statutory tax rate........   34.0%   34.0%  34.0%      34.0%      34.0%
State income taxes, net of federal
 benefit..........................    6.3     6.0    3.6        3.6        2.5
Benefit of net operating loss
 carryforward.....................  (40.3)  (40.0)    --         --         --
Reversal of deferred tax asset
 valuation reserve................     --  (104.3)    --         --         --
                                    -----  ------   ----  ---------  ---------
                                       --% (104.3)% 37.6%      37.6%      36.5%
                                    =====  ======   ====  =========  =========
</TABLE>

5. Notes Payable:

   The Company had $837,600 of subordinated notes bearing annual interest at
10% collateralized by all of the Company's tangible and intangible assets. In
fiscal 1998, $587,600 of these notes was repaid and the remaining $250,000 was
repaid during fiscal 1999.

   Warrants to purchase 734,570 shares of Common stock at $2.19 per share
expiring in June 2004 were issued to the noteholders in conjunction with
issuance of the notes. The subordinated notes were recorded net of $125,000 of
fair value assigned to the warrants. The warrants were valued using the Black-
Scholes pricing model with the following assumptions: risk-free interest rate
of 6.50%; an expected life of seven years; dividend yield of zero; and a
volatility of 30%. The notes were amortized to their face value over one year,
with $91,440 and $33,560 of amortization included in interest expense for the
years ended September 30, 1998 and 1997, respectively (see Note 7).

6. Credit Facility:

   The Company has a revolving credit and equipment line with a bank ("Credit
Facility") which allows the Company to borrow up to $1,000,000, increasing to
$2,000,000 under certain circumstances, with interest at the higher of the
prime rate plus 1.5% or the bank's cost of funds, as defined, plus 2.5%. All
borrowings under the Credit Facility were repaid in April 1999. The original
expiration date was July 1999, and was temporarily extended to August 2000. The
Credit Facility requires the Company to maintain certain financial covenants,
as defined, and is collateralized by substantially all of the Company's
tangible assets.

                                      F-11
<PAGE>


                  Innovative Solutions and Support, Inc.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)


7. Shareholders' Equity:

 Preferred Stock

   Holders of Class A Convertible Preferred stock are entitled to certain
rights shared with Common stock holders, as defined, including equal voting
rights and an equal share of dividends, if any. In addition, Class A
Convertible Preferred stock carries a liquidation right of $24 per share in the
event of any liquidation, as defined. The Class A Convertible Preferred stock
is convertible into Common stock at the option of the holder, at the rate of
10.9624 shares of Common stock for each share of Class A Convertible Preferred
stock, subject to adjustment, as defined. In addition, the Preferred stock is
automatically convertible into Common stock upon the closing of a qualified
initial public offering, as defined.

 Common Stock

   The Company issued 115,105 and 38,368 shares of Common stock to non-employee
directors, with fair values of $252,000 and $105,000, for the years ended
September 30, 1998 and 1999, respectively. The fair value of the Common stock
was charged to selling, general and administrative expense on the accompanying
statements of operations on the date of issue.

 Stock Options

   The Company's 1988 Stock Incentive Plan provides for the grant of incentive
stock options to employees. The Company's 1998 Stock Option Plan provides for
the grant of incentive and nonqualified stock options to employees, officers,
directors and independent contractors and consultants. Incentive stock options
granted under the 1988 Stock Incentive Plan and the 1998 Stock Option Plan,
(the "Plans") must be at least 100% of the fair value of the Common stock on
the date of grant. Nonqualified stock options granted under the 1998 Plan may
be less than, equal to or greater than the fair value of the Common stock on
the date of grant. Required disclosure information regarding the Plans have
been combined due to the similarities in the Plans. The Company has reserved
1,360,228 shares of its Common stock for awards under the Plans.

   The Company applies Accounting Principal Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and the related interpretations in
accounting for options issued under the Plans. Under APB No. 25, compensation
cost related to stock options granted to employees is computed based on the
intrinsic value of the stock option at the date of grant, which represents the
difference between the exercise price and the fair value of the Common stock.
During the year ended September 30, 1999, the Company granted performance based
stock options to an employee. The Company recorded $85,000 in compensation
expense related to these options as the applicable performance measures that
determined vesting had been achieved.

                                      F-12
<PAGE>


                  Innovative Solutions and Support, Inc.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)


   Under SFAS No. 123, "Accounting for Stock-Based Compensation," compensation
cost related to stock options granted to employees is computed based on the
value of the stock option at the date of grant using an option valuation
methodology, typically the Black-Scholes pricing model. SFAS No. 123 can be
applied either by recording the fair value of the options or by continuing to
record the APB No. 25 value and disclosing the SFAS No. 123 impact on a pro-
forma basis. The Company has elected the disclosure method of SFAS No. 123. Had
the Company recognized compensation cost for its stock option plans consistent
with the provisions of SFAS 123, the Company's pro forma net income for fiscal
1997, 1998 and 1999 would have been as follows:

<TABLE>
<CAPTION>
                                                     Year Ended September 30,
                                                  ------------------------------
                                                    1997      1998       1999
                                                  -------- ---------- ----------
      <S>                                         <C>      <C>        <C>
      Net income:
        As reported.............................. $840,621 $3,944,372 $4,180,635
        Pro forma................................  824,627  3,923,963  4,114,312
      Basic EPS:
        As reported.............................. $   0.13 $     0.59 $     0.62
        Pro forma................................     0.12       0.59       0.61
      Diluted EPS:
        As reported.............................. $   0.10 $     0.46 $     0.45
        Pro forma................................     0.10       0.46       0.45
</TABLE>

   The weighted average fair value of the stock options granted during the
years ended September 30, 1997, 1998 and 1999 were $1.39, $1.28 and $2.21,
respectively. The fair value of each option grant is estimated on the grant
date using the Black-Scholes option pricing model with the following
assumptions:

<TABLE>
<CAPTION>
                                                                 Year Ended
                                                               September 30,
                                                               ----------------
                                                               1997  1998  1999
                                                               ----  ----  ----
      <S>                                                      <C>   <C>   <C>
      Expected dividend rate.................................. --    --    --
      Expected volatility.....................................  70%   70%   70%
      Weighted average risk-free interest rate................ 6.6%  5.7%  5.7%
      Expected lives (years)..................................   5     5     5
</TABLE>

                                      F-13
<PAGE>


                  Innovative Solutions and Support, Inc.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)


   Information relative to the Plans is as follows:

<TABLE>
<CAPTION>
                                                     Range of      Weighted
                                                     Exercise      Average
                                          Options     Prices    Exercise Price
                                          --------  ----------- --------------
   <S>                                    <C>       <C>         <C>
   Outstanding September 30, 1996........   78,162  $0.91- 2.74     $ 1.76
     Granted.............................  216,507         2.19       2.19
     Terminated..........................  (12,388)        1.09       1.09
                                          --------  -----------     ------
   Outstanding September 30, 1997........  282,281   0.91- 2.74       2.12
     Granted.............................  135,386   2.19- 3.28       2.70
     Terminated.......................... (109,624)  2.19- 2.74       2.24
                                          --------  -----------     ------
   Outstanding September 30, 1998........  308,043   0.91- 3.28       2.33
     Granted.............................  356,278   3.28- 6.39       3.52
     Terminated..........................  (54,812)        2.19       2.19
                                          --------  -----------     ------
   Outstanding September 30, 1999........  609,509   0.91- 6.39       3.28
     Granted (unaudited).................  169,916        10.03      10.03
     Exercised (unaudited)...............  (10,962)        1.09       1.09
     Terminated (unaudited)..............  (38,368)  0.91- 2.19       1.82
                                          --------  -----------     ------
   Outstanding March 31, 2000
    (unaudited)..........................  730,095  $2.19-10.03     $ 5.34
                                          ========  ===========     ======
</TABLE>

   As of September 30, 1999, there were 74,215 options vested and exercisable
at an aggregate exercise price of $176,380. In addition, as of March 31, 2000,
there were options to purchase an additional 313,318 shares of common stock
available for grant under the 1998 Stock Option Plan. Options may no longer be
granted under the 1988 Stock Incentive Plan.

 Warrants

   In connection with the issuance of subordinated notes, the Company issued
warrants to purchase 734,570 shares of Common stock at an exercise price of
$2.19 per share (see Note 5). During the six months ended March 31, 2000,
warrants to purchase 359,216 shares of Common stock were exercised for an
aggregate purchase price of $786,432. The remaining warrants are fully vested
and exercisable through June 2004.

   In addition, during the six months ended March 31, 2000, warrants to
purchase 43,850 shares of Common stock were exercised for an aggregate purchase
price of $200,000, or approximately $4.56 per share.

8. Commitments and Contingencies:

 Capital Leases

   The Company leases certain equipment under capital leases, with terms
ranging from three to five years. Implicit interest rates under these leases
range from 2% to 13%. The capitalized cost of $278,606, $94,291 and $94,291 and
the related accumulated amortization of $161,269, $36,771 and $46,200 has been
included in property and equipment at September 30, 1998 and 1999 and March 31,
2000, respectively.

                                      F-14
<PAGE>


                  Innovative Solutions and Support, Inc.

                NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)


   Future minimum payments of capital leases at September 30, 1999 are as
follows:

<TABLE>
      <S>                                                              <C>
      Fiscal 2000..................................................... $ 22,762
      Fiscal 2001.....................................................   19,614
      Fiscal 2002.....................................................   19,328
      Fiscal 2003.....................................................   16,906
                                                                       --------
      Total minimum lease payments....................................   78,610
      Less--amount representing interest..............................   (9,015)
                                                                       --------
      Present value of future minimum lease payments..................   69,595
      Less--Current portion...........................................  (23,831)
                                                                       --------
                                                                       $ 45,764
                                                                       ========
</TABLE>

 Operating Lease

   The Company currently leases its facility under operating leases from
affiliates of a company whose principals are shareholders of the Company. Rent
expense under operating leases totaled $224,613, $226,014 and $427,410 for the
years ended September 30, 1997, 1998 and 1999, respectively, and $158,121 and
$168,030 for the six months ended March 31, 1999, and 2000, respectively.
Future minium payments related to all noncancelable leases are $319,463 in
fiscal 2000.

 Product Liability

   The Company currently has product liability insurance to $10,000,000, which
management believes is adequate to cover potential liabilities that may arise.

 Land Purchase

   During the six months ended March 31, 2000, the Company committed to
purchase a tract of land for $1.0 million. The Company intends to construct a
new manufacturing and office facility constructed on the land. Included in the
accompanying balance sheet as of March 31, 2000, is a deposit of $100,000
toward the purchase of the land. The Company expects to spend a total of $5.0
million to $6.0 million on the construction through fiscal 2001, a portion of
which will be funded with industrial development bonds.

 Airplane Purchase

   During the six months ended March 31, 2000, the Company committed to
purchase an aircraft for approximately $3.0 million. This aircraft will serve
as a test bed for the Company's new air data and flat panel products and also
as a sales/marketing tool for demonstrating its products to its aviation
customers. Included in the accompanying balance sheet as of March 31, 2000 is a
deposit of $100,000 toward the purchase of the airplane.

 Employment Agreement

   In May 1999, the Company entered into an employment agreement with an
employee for an annual salary of $225,000 expiring in May 2002.

 Legal Proceedings

   From time to time, the Company is subject to various legal proceedings in
the ordinary course of business. Management does not believe that any of the
current legal proceedings will have a material adverse effect on the Company's
operations or financial condition.

                                      F-15
<PAGE>


                  Innovative Solutions and Support, Inc.

                NOTES TO FINANCIAL STATEMENTS--(Continued)

      (Information as of March 31, 2000 and for the six months ended

                   March 31, 1999 and 2000 is unaudited)


9. Related-party Transactions:

   The Company incurred legal fees of $29,150, $82,231 and $76,924 with a law
firm which is a shareholder of the Company for the years ended September 30,
1997, 1998 and 2000, respectively, and $10,203 and $70,924 for the six months
ended March 31, 1999 and 2000, respectively. Management believes the fees paid
were on an arm's length basis and were consistent with the fees paid prior to
the law firm's investment in the Company.

   The Company derived revenues of approximately $489,519, $2,952,584 and
$1,226,210 for the years ended September 30, 1997, 1998 and 1999, respectively,
and $178,905 and $32,765 for the six months ended March 31, 1999 and 2000,
respectively, from a company which is a minority shareholder and purchased
$1,516,263, $2,744,825, $616,751 and $89,984 of component parts used in the
manufacturing process from this related party for the years ended September 30,
1997, 1998 and 1999 and the six months ended March 31, 1999, respectively.
There were no purchases for the six months ended March 31, 2000.

                                      F-16
<PAGE>

                               INSIDE BACK COVER

Photograph of IS&S Cockpit Information Portal


     Text:
     IS&S Cockpit Information Portal (Cockpit/IP)-actual viewing area 12" x 9"

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                             3,000,000 Shares

                  Innovative Solutions and Support, Inc.


                                 [LOGO OF IS&S]

                                  Common Stock

                             ---------------------

                                   PROSPECTUS

                             ---------------------

                            Friedman Billings Ramsey
                    Stifel, Nicolaus & Company, Incorporated
                          Janney Montgomery Scott LLC

                                        , 2000

                             ---------------------

   You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide any information different from that contained
in this prospectus. Neither the delivery of this prospectus nor the sale of
common stock means that the information contained in this prospectus is correct
after the date of this prospectus. This prospectus is not an offer to sell or a
solicitation to buy any shares in any circumstances under which the offer or
solicitation is unlawful.

   Until      , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

   The following table sets forth the costs and expenses, other than the
underwriting discount, in connection with the sale of the shares of common
stock being registered. IS&S will pay all of these costs. All amounts are
estimates except the fees payable to the SEC, the National Association of
Securities Dealers, Inc. (NASD), and the Nasdaq National Market.

<TABLE>
   <S>                                                                 <C>
   SEC Registration Fee............................................... $ 10,930
   NASD Filing Fee....................................................    4,640
   Nasdaq National Market Listing Fee.................................   87,000
   Printing and Engraving Expenses....................................  160,000
   Legal Fees and Expenses............................................  250,000
   Accounting Fees and Expenses.......................................  250,000
   Transfer Agent Fees................................................    3,000
   Miscellaneous......................................................    4,430
                                                                       --------
     Total............................................................ $770,000
                                                                       ========
</TABLE>
- ---------------------

Item 14. Indemnification of Directors and Officers

   Subchapter D (Sections 1741 through 1750) of Chapter 17 of the Pennsylvania
Business Corporation Law of 1988 (the "PBCL") contains provisions for mandatory
and discretionary indemnification of a corporation's directors, officers,
employees and agents (collectively "Representatives") and related matters.

   Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors, officers and other Representatives under certain
prescribed circumstances against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with a threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party or threatened to be made a party by reason of his being
a Representative of the corporation or serving at the request of the
corporation as a Representative of another corporation, partnership, joint
venture, trust or other enterprise, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.

   Section 1742 provides for indemnification with respect to derivative and
corporate actions similar to that provided by Section 1741. However,
indemnification is not provided under Section 1742 in respect of any claim,
issue or matter as to which a Representative has been adjudged to be liable to
the corporation unless and only to the extent that the proper court determines
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, a Representative is fairly and reasonably
entitled to indemnity for the expenses that the court deems proper.

   Section 1743 provides that indemnification against expenses is mandatory to
the extent that a Representative has been successful on the merits or otherwise
in defense of any such action or proceeding referred to in Section 1741 or
1742.

   Section 1744 provides that unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation as authorized in
the specific case upon a determination that indemnification of a Representative
is proper because the Representative met the applicable standard of conduct,
and such determination will be made by the board of directors by a majority
vote of a quorum of directors not parties to the action or proceeding; if a
quorum is not obtainable or if obtainable and a majority of disinterested
directors so directs, by independent legal counsel; or by the shareholders.


                                      II-1
<PAGE>

   Section 1745 provides that expenses incurred by a Representative in
defending any action or proceeding referred to in Subchapter D of Chapter 17 of
the PBCL may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of the
Representative to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the corporation.

   Section 1746 provides generally that except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter D of Chapter
17 of the PBCL shall not be deemed exclusive of any other rights to which a
Representative seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding that office.

   Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any Representative against any liability incurred by him
in his capacity as a Representative, whether or not the corporation would have
the power to indemnify him against that liability under Subchapter D of Chapter
17 of the PBCL.

   Sections 1748 and 1749 apply the indemnification and advancement of expenses
provisions contained in Subchapter D of Chapter 17 of the PBCL to successor
corporations resulting from consolidation, merger or division and to service as
a Representative of a corporation or an employee benefit plan.

   Article VII of our bylaws provides indemnification to directors and officers
for all actions taken by them and for all failures to take action to the
fullest extent permitted by Pennsylvania law against all expense, liability and
loss reasonably incurred or suffered by them in connection with any threatened,
pending or completed action, suit or proceeding (including, without limitation,
an action, suit or proceeding by or in the right of IS&S), whether civil,
criminal, administrative, investigative or through arbitration. Article VII
also permits us, by action of our board of directors, to indemnify officers,
employees and other persons to the same extent as directors. Amendments,
repeals or modifications of Article VII can only be prospective, and such
changes require the affirmative vote of not less than all of the directors then
serving or the holders of a majority of the outstanding shares of stock
entitled to vote in elections of directors. Article VII further permits us to
maintain insurance, at our expense, for the benefit of any person on behalf of
whom insurance is permitted to be purchased by Pennsylvania law against any
such expenses, liability or loss, whether or not we would have the power to
indemnify such person against such expense, liability or loss under
Pennsylvania or other law.

Item 15. Recent Sales of Unregistered Securities

   Since October 1, 1996, we have issued unregistered securities to a limited
number of persons as described below:

     (a) From time to time since April 1997, we have issued stock options to
  our employees under our stock option plans to purchase an aggregate of
  768,463 shares of common stock at exercise prices ranging from $2.19 to
  $11.86 per share.

     (b) On June 24, 1997, we issued warrants to purchase an aggregate of
  734,570 shares of common stock at an exercise price of $2.19 per share to
  certain shareholders in connection with their agreement to make loans to us
  totaling $837,600. From October 1999 to June 2000, we issued 359,216 shares
  of common stock upon the exercise of such warrants by three of these
  shareholders.

     (c) From April 1998 to April 1999, a total of 153,473 shares of common
  stock were issued under our non-employee director share bonus program to
  our non-employee directors for services rendered from April 1995 to April
  1999. The shares otherwise issuable to Ivan M. Marks and Joel P. Adams,
  non-employee directors who serve by designation of Parker Hannifin
  Corporation and The P/A Fund, respectively, were issued directly to Parker
  Hannifin Corporation and The P/A Fund.

                                      II-2
<PAGE>


     (d) In September 1999, we issued to one of our shareholders 43,849
  shares of common stock upon the exercise of warrants at an exercise price
  of $4.56 per share.

     (e) From September 1999 to December 1999, we issued an aggregate of
  10,962 shares of common stock to an employee of ours upon the exercise of
  stock options granted to him at an exercise price of $1.09 per share.

   None of the foregoing transactions involved any underwriters, underwriting
discount or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in such transactions
represented their intention to acquire the securities for investment purposes
only and not with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates and
instruments issued in such transactions. All recipients had adequate access,
through their relationships with us, to information about us.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
 Exhibit
 Number  Exhibit Title
 ------- -------------
 <C>     <S>
   1     Form of Underwriting Agreement.
   3.1   Articles of Incorporation of IS&S.
   3.2   Bylaws of IS&S.
   5     Opinion of Cozen and O'Connor.
  10.1*  IS&S 1988 Incentive Stock Option Plan.
  10.2*  IS&S 1998 Stock Option Plan.
  10.3*  Employment Agreement by and between Robert J. Ewy and IS&S dated May
         3, 1999.
  10.4*  Employment Letter Agreement by and between Roger E. Mitchell and IS&S
         dated July 7, 1998.
  10.5*  Stock Purchase Agreement by and between IS&S and Parker Hannifin
         Corporation dated July 11, 1991.
  10.6*  Securities Purchase Agreement by and among IS&S, Geoffrey S. M.
         Hedrick, The P/A Fund and Parker Hannifin Corporation dated May 8,
         1995.
  10.7   Form of Warrant Agreement.
  21     Subsidiaries of IS&S.
  23.1   Consent of Arthur Andersen LLP.
  23.2   Consent of Cozen and O'Connor (contained in its opinion filed as
         Exhibit 5).
  24*    Power of Attorney (included on signature page).
  27.1   Restated Financial Data Schedule--September 30, 1999.
  27.2   Financial Data Schedule--March 31, 2000.
</TABLE>
- ---------------------

*Previously filed

                                      II-3
<PAGE>

(b) Financial Statement Schedule

   Schedule II--Valuation and Qualifying Accounts

   All other financial schedules have been omitted because they are not
required, not applicable or the required information is shown in the financial
statements or related notes.

Item 17. Undertakings

   We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such name as required by the underwriters to permit prompt delivery to each
purchaser.

   Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

   The undersigned registrant hereby undertakes that:

     (1) For purposes of determining any liability under the Securities Act,
  the information omitted from the form of prospectus filed as part of this
  registration statement in reliance upon Rule 430A and contained in a form
  of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
  497(h) under the Securities Act shall be deemed to be part of this
  registration statement as of the time it was declared effective; and

     (2) For the purpose of determining any liability under the Securities
  Act, each post-effective amendment that contains a form of prospectus shall
  be deemed to be a new registration statement relating to the securities
  offered therein, and the offering of such securities at that time shall be
  deemed to be the initial bona fide offering thereof.

                                      II-4
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in Malvern, Pennsylvania, on this 12th
day of July, 2000.

                                          Innovative Solutions and Support,
                                           Inc.

                                              /s/ Geoffrey S. M. Hedrick
                                          By: _________________________________
                                                  Geoffrey S. M. Hedrick
                                               Chairman and Chief Executive
                                                          Officer

   Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated:

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
    /s/ Geoffrey S. M. Hedrick         Chairman and Chief            July 12, 2000
______________________________________  Executive Officer
        Geoffrey S. M. Hedrick          (Principal Executive
                                        Officer)

       /s/ James J. Reilly             Chief Financial Officer       July 12, 2000
______________________________________  (Principal Financial and
           James J. Reilly              Accounting Officer)

                  *                    Director                      July 12, 2000
______________________________________
            Joel P. Adams

                  *                    Director                      July 12, 2000
______________________________________
           Glen R. Bressner

                  *                    Director                      July 12, 2000
______________________________________
         Winston J. Churchill

                  *                    Director                      July 12, 2000
______________________________________
         Benjamin A. Cosgrove

                  *                    Director                      July 12, 2000
______________________________________
            Ivan M. Marks
                  *                    Director                      July 12, 2000
______________________________________
     Robert E. Mittelstaedt, Jr.
</TABLE>



*By: /s/ Geoffery S. M. Hedrick
     --------------------------

       As Attorney-in-Fact

                                      II-5
<PAGE>


              SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                Balance at Charged to
                                Beginning   Cost and   Write-     Balance at
                                of Period   Expenses    offs     End of Period
                                ---------- ---------- ---------  -------------
<S>                             <C>        <C>        <C>        <C>
Allowance doubtful accounts
 (Fiscal 97)...................  $ 42,000   $    --   $ (25,070)   $ 16,930
Allowance doubtful accounts
 (Fiscal 98)...................    16,930        --     (16,930)        --
Allowance doubtful accounts
 (Fiscal 99)...................       --         --         --          --
Warranty allowance (Fiscal
 97)...........................   242,510    105,942   (247,911)    100,541
Warranty allowance (Fiscal
 98)...........................   100,541    146,823   (140,229)    107,135
Warranty allowance (Fiscal
 99)...........................   107,135    324,879    (68,446)    363,568
</TABLE>

                                      S-1
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number  Exhibit Title
 ------- -------------
 <C>     <S>
   1     Form of Underwriting Agreement.
   3.1   Articles of Incorporation of IS&S.
   3.2   Bylaws of IS&S.
   5     Opinion of Cozen and O'Connor.
  10.1*  IS&S 1988 Incentive Stock Option Plan.
  10.2*  IS&S 1998 Stock Option Plan.
  10.3*  Employment Agreement by and between Robert J. Ewy and IS&S dated May
         3, 1999.
  10.4*  Employment Letter Agreement by and between Roger E. Mitchell and IS&S
         dated July 7, 1998.
  10.5*  Stock Purchase Agreement by and between IS&S and Parker Hannifin
         Corporation dated July 11, 1991.
  10.6*  Securities Purchase Agreement by and among IS&S, Geoffrey S. M.
         Hedrick, The P/A Fund and Parker Hannifin Corporation dated May 8,
         1995.
  10.7   Form of Warrant Agreement.
  21     Subsidiaries of IS&S.
  23.1   Consent of Arthur Andersen LLP.
  23.2   Consent of Cozen and O'Connor (contained in its opinion filed as
         Exhibit 5).
  24*    Power of Attorney (included on signature page).
  27.1   Restated Financial Data Schedule--September 30, 1999.
  27.2   Financial Data Schedule--March 31, 2000.
</TABLE>
- ---------------------

* Previously filed
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>FORM OF UNDERWRITING AGREEMENT
<TEXT>

<PAGE>

                                                                       Exhibit 1

                     INNOVATIVE SOLUTIONS AND SUPPORT, INC.
                        3,000,000 Shares of Common Stock

                             UNDERWRITING AGREEMENT
                             ----------------------


                                                          ________________, 2000

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
JANNEY MONTGOMERY SCOTT LLC
 as Representatives of the several Underwriters
c/o Friedman, Billings, Ramsey & Co., Inc.
1001 19th Street North
Arlington, Virginia  22209

Dear Sirs:

     Innovative Solutions and Support, Inc., a Pennsylvania corporation (the
"Company"), confirms its agreement with each of the Underwriters listed on
Schedule II hereto (collectively, the "Underwriters"), for whom Friedman,
Billings, Ramsey & Co., Inc., Stifel, Nicolaus & Company, Incorporated and
Janney Montgomery Scott LLC are acting as representatives (in such capacity, the
"Representatives"), with respect to (i) the sale by the Company of 3,000,000
shares (the "Initial Shares") of Common Stock, par value $.001 per share, of the
Company ("Common Stock") in the respective numbers of shares set forth opposite
the name of the Company in Schedule I hereto, and the purchase by the
Underwriters, acting severally and not jointly, of the respective number of
shares of Common Stock set forth opposite the names of the Underwriters in
Schedule II hereto, and (ii) the grant of the option described in Section 1(b)
hereof to purchase all or any part of 450,000 additional shares of Common Stock
to cover overallotments (the "Option Shares"), if any, from the Company in the
number of shares of Common Stock set forth opposite the name of the Company in
Schedule I hereto, to the Underwriters, acting severally and not jointly, in the
respective numbers of shares of Common Stock set forth opposite the names of the
Underwriters in Schedule II hereto. The 3,000,000 shares of Common Stock to be
purchased by the Underwriters and all or any part of the 450,000 shares of
Common Stock subject to the option described in Section l(b) hereof are
hereinafter called, collectively, the "Shares".

     The Company understands that the Underwriters propose to make a public
offering of the Shares as soon as the Underwriters deem advisable after this
Agreement has been executed and delivered.

     The Company has filed with the Securities and Exchange Commission (the
Commission"), a registration statement on Form S-1 (No. 333-36584) and a related
preliminary prospectus for the registration of the Shares under the Securities
Act of 1933,
<PAGE>

as amended (the "Securities Act"), and the rules and regulations
thereunder (the "Securities Act Regulations"). The Company has prepared and
filed such amendments thereto, if any, and such amended preliminary
prospectuses, if any, as may have been required to the date hereof, and will
file such additional amendments thereto and such amended prospectuses as may
hereafter be required. The registration statement has been declared effective
under the Securities Act by the Commission. The registration statement as
amended at the time it became effective (including all information deemed
(whether by incorporation by reference or otherwise) to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Securities Act Regulations) is hereinafter called the "Registration
Statement," except that, if the Company files a post-effective amendment to such
registration statement which becomes effective prior to the Closing Time (as
defined below), "Registration Statement" shall refer to such registration
statement as so amended. Any registration statement filed pursuant to Rule
462(b) of the Securities Act Regulations is hereinafter called the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the 462(b) Registration Statement. Each prospectus included in the
registration statement, or amendments thereof or supplements thereto, before it
became effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Underwriters pursuant to Rule
424(a) of the Securities Act Regulations is hereinafter called the "Preliminary
Prospectus." The term "'Prospectus" means the final prospectus, as first filed
with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Securities Act Regulations, and any amendments thereof or supplements thereto.
The Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus.

     The Company and the Underwriters agree as follows:

     1.  Sale and Purchase:
         -----------------

         (a) Initial Shares. Upon the basis of the warranties and
representations and other terms and conditions herein set forth, at the purchase
price per share of [$________], the Company agrees to sell to the Underwriters
the number of Initial Shares set forth in Schedule I opposite its name, and each
Underwriter agrees, severally and not jointly, to purchase from the Company the
number of Initial Shares set forth in Schedule II opposite such Underwriter's
name, plus any additional number of Initial Shares which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 8 hereof,
subject in each case, to such adjustments among the Underwriters as Friedman,
Billings, Ramsey & Co., Inc. in its sole discretion shall make to eliminate any
sales or purchases of fractional shares. The Underwriters may from time to time
increase or decrease the public offering price after the initial public offering
to such extent as the Underwriters may determine.

                                      -2-
<PAGE>

         (b) Option Shares. In addition, upon the basis of the warranties and
representations and other terms and conditions herein set forth, at the purchase
price per share set forth in paragraph (a), the Company hereby grants an option
to purchase, in the number of shares of Common Stock set forth opposite the name
of the Company in Schedule I hereto, to the Underwriters, acting severally and
not jointly, in the respective numbers of shares of Common Stock set forth
opposite the names of the Underwriters in Schedule II hereto, plus any
additional number of Option Shares which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 8 hereof. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Shares upon notice by the Representatives to the Company setting forth
the number of Option Shares as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option Shares. Any such time and date of delivery (a "Date of Delivery") shall
be determined by the Representatives, but shall not be later than three full
business days (or earlier, without the consent of the Company, than two full
business days) after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the Option Shares, the Company will sell that proportion of the
total number of Option Shares then being purchased which the number of Initial
Shares set forth in Schedule I opposite the name of the Company bears to the
total number of Initial Shares, and each of the Underwriters, acting severally
and not jointly, will purchase that proportion of the total number of Option
Shares then being purchased which the number of Initial Shares set forth in
Schedule II opposite the name of such Underwriter bears to the total number of
Initial Shares, subject in each case to such adjustments among the Underwriters
as the Representatives in their sole discretion shall make to eliminate any
sales or purchases of fractional shares. The Underwriters may from time to time
increase or decrease the public offering price of the Option Shares after the
initial public offering to such extent as the Underwriters may determine.

     2.  Payment and Delivery:
         --------------------

         (a) Initial Shares and Warrants. Payment of the purchase price for the
Initial Shares shall be made to the Company by wire transfer of immediately
available funds or certified or official bank check payable in federal (same-
day) funds at the offices of Jenkens & Gilchrist, a Professional Corporation,
located at 1919 Pennsylvania Avenue, Suite 600, Washington, D.C. 20006-3404
(unless another place shall be agreed upon by the Representatives and the
Company) against delivery of the certificates for the Initial Shares to the
Representatives for the respective accounts of the Underwriters. Such payment
and delivery shall be made at 9:30 a.m., New York City time, on the third
(fourth, if pricing occurs after 4:30 p.m., New York City time) business day
after the date hereof (unless another time, not later than ten business days
after such date, shall be agreed to by the Representatives and the Company). The
time at which such payment

                                      -3-
<PAGE>

and delivery are actually made is hereinafter sometimes called the "Closing
Time." Certificates for the Initial Shares shall be delivered to the
Representatives in definitive form registered in such names and in such
denominations as the Representatives shall specify. For the purpose of
expediting the checking of the certificates for the Initial Shares by the
Representatives, the Company agrees to make such certificates available to the
Representatives for such purpose at least one full business day preceding the
Closing Time.

         (b) Option Shares. In addition, payment of the purchase price for the
Option Shares shall be made to the Company by wire transfer of immediately
available funds or certified or official bank check payable in federal (same-
day) funds at the offices of Jenkens & Gilchrist, a Professional Corporation,
located at 1919 Pennsylvania Avenue, Suit 600, Washington, D.C. 20006-3404
(unless another place shall be agreed upon by the Representatives and the
Company), against delivery of the certificates for the Option Shares to the
Representatives for the respective accounts of the Underwriters. Such payment
and delivery shall be made at 9:30 a.m., New York City time, on each Date of
Delivery determined pursuant to Section 1(b) above. Certificates for the Option
Shares shall be delivered to the Representatives in definitive form registered
in such names and in such denominations as the Representatives shall specify.
For the purpose of expediting the checking of the certificates for the Option
Shares by the Representatives, the Company agrees to make such certificates
available to the Representatives for such purpose at least one full business day
preceding the relevant Date of Delivery.

     3.  Representations and Warranties of the Company:  The Company represents
         ---------------------------------------------
and warrants to the Underwriters that:

         (a) the Company has an authorized capitalization as set forth in the
Prospectus under the caption "Capitalization;" the outstanding shares of capital
stock of the Company and its Subsidiaries have been duly and validly authorized
and issued and are fully paid and non-assessable, and all of the outstanding
shares of capital stock of the Subsidiaries are directly or indirectly owned of
record and beneficially by the Company; except as disclosed in the Prospectus,
there are no outstanding (i) securities or obligations of the Company or any of
its Subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such Subsidiary, (ii) warrants, rights or options to subscribe
for or purchase from the Company or any such Subsidiary any such capital stock
or any such convertible or exchangeable securities or obligations, or (iii)
obligations of the Company or any such Subsidiary to issue any shares of capital
stock, any such convertible or exchangeable securities or obligation, or any
such warrants, rights or options;

         (b) the Company and the Company's Subsidiaries (all of which are named
in an exhibit to the Registration Statement) each has been duly incorporated or
organized and is validly existing and in good standing under the laws of its
respective

                                      -4-
<PAGE>

jurisdiction of incorporation or organization with full corporate power and
authority to own its respective properties and to conduct its respective
business as described in the Registration Statement and Prospectus and, in the
case of the Company, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby;

         (c) the Company and all of its Subsidiaries are duly qualified or
licensed by each jurisdiction in which they conduct their respective businesses
and in which the failure, individually or in the aggregate, to be so qualified
or licensed could have a material adverse effect on the assets, business,
operations, earnings, prospects, properties or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole, and the Company
and its Subsidiaries are duly qualified, and are in good standing, in each
jurisdiction in which they own or lease real property or maintain an office and
in which such qualification is necessary, except where the failure to be so
qualified and in good standing would not have a material adverse effect on the
assets, business, operations, earnings, prospects, properties or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole;
except as disclosed in the Prospectus, no Subsidiary is prohibited or
restricted, directly or indirectly, from paying dividends to the Company, or
from making any other distribution with respect to such Subsidiary's capital
stock or from repaying to the Company or any other Subsidiary any amounts which
may from time to time become due under any loans or advances to such Subsidiary
from the Company or such other Subsidiary, or from transferring any such
Subsidiary's property or assets to the Company or to any other Subsidiary; other
than as disclosed in the Prospectus, the Company does not own, directly or
indirectly, any capital stock or other equity securities of any other
corporation or any ownership interest in any partnership, joint venture or other
association;

         (d) the Company and its Subsidiaries are in compliance in all material
respects with all applicable laws, rules, regulations, orders, decrees and
judgments, including those relating to transactions with affiliates;

         (e) neither the Company nor any of its Subsidiaries is in breach of or
in default under (nor has any event occurred which with notice, lapse of time,
or both would constitute a breach of, or default under), its respective articles
of incorporation or charter or by-laws, or in the performance or observance of
any obligation, agreement, covenant or condition contained in any license,
indenture, mortgage, deed of trust, loan or credit agreement or other agreement
or instrument to which the Company or any of its Subsidiaries is a party or by
which any of them or their respective properties is bound, except for such
breaches or defaults which would not have a material adverse effect on the
assets, business, operations, earnings, prospects, properties or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole,
and the execution, delivery and performance of this Agreement, and consummation
of the transactions contemplated hereby will not conflict with, or result in any
breach of, or constitute a default under (nor constitute any event which with
notice, lapse of time, or both would

                                      -5-
<PAGE>

constitute a breach of, or default under), (i) any provision of the articles of
incorporation or charter or bylaws of the Company or any of its Subsidiaries, or
(ii) any provision of any license, indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or their respective
properties may be bound or affected, or under any federal, state, local or
foreign law, regulation or rule or any decree, judgment or order applicable to
the Company or any of its Subsidiaries, except in the case of this clause (ii)
for such breaches or defaults which would not have a material adverse effect on
the assets, business, operations, earnings, prospects, properties or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole;
or result in the creation or imposition of any lien, charge, claim or
encumbrance upon any property or asset of the Company or its Subsidiaries;

         (f) this Agreement has been duly authorized, executed and delivered by
the Company and is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, and by general principles of equity, and except to
the extent that the indemnification and contribution provisions of Section 9
hereof may be limited by federal or state securities laws and public policy
considerations in respect thereof;

         (g) no approval, authorization, consent or order of or filing with any
federal, state or local governmental or regulatory commission, board, body,
authority or agency is required in connection with the Company's execution,
delivery and performance of this Agreement, its consummation of the transaction
contemplated hereby, and its sale and delivery of the Shares, other than (A)
such as have been obtained, or will have been obtained at the Closing Time or
the relevant Date of Delivery, as the case may be, under the Securities Act, (B)
such approvals as have been obtained in connection with the approval of the
quotation of the Shares on the Nasdaq National Market and (C) any necessary
qualification under the securities or blue sky laws of the various jurisdictions
in which the Shares are being offered by the Underwriters;

         (h) each of the Company and its Subsidiaries has all necessary
licenses, authorizations, consents and approvals and has made all necessary
filings required under any federal, state or local law, regulation or rule, and
has obtained all necessary authorizations, consents and approvals from other
persons, required in order to conduct their respective businesses as described
in the Prospectus, except to the extent that any failure to have any such
licenses, authorizations, consents or approvals, to make any such filings or to
obtain any such authorizations, consents or approvals would not, individually or
in the aggregate, have a material adverse effect on the assets, business,
operations, earnings, prospects, properties or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole; neither the
Company nor any of its Subsidiaries is required by any applicable law to obtain
accreditation or certification from

                                      -6-
<PAGE>

any governmental agency or authority in order to provide the products and
services which it currently provides or which it proposes to provide as set
forth in the Prospectus; neither the Company nor any of its Subsidiaries is in
violation of, in default under, or has received any notice regarding a possible
violation, default or revocation of any such license, authorization, consent or
approval or any federal, state, local or foreign law, regulation or rule or any
decree, order or judgment applicable to the Company or any of its Subsidiaries
the effect of which could be material and adverse to the assets, business,
operations, earnings, prospects, properties or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole; and no such
license, authorization, consent or approval contains a materially burdensome
restriction that is not adequately disclosed in the Registration Statement and
the Prospectus;

         (i) each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the Securities Act and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are threatened by the Commission, and any request on
the part of the Commission for additional information has been complied with;

         (j) the Preliminary Prospectus and the Registration Statement comply
and the Prospectus and any further amendments or supplements thereto will, when
they have become effective or are filed with the Commission, as the case may be,
comply in all material respects with the requirements of the Securities Act and
the Securities Act Regulations; the Registration Statement did not, and any
amendment thereto will not, in each case as of the applicable effective date,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
the Preliminary Prospectus does not, and the Prospectus or any amendment or
supplement thereto will not, as of the applicable filing date and at the Closing
Time and on each Date of Delivery (if any), contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
makes no warranty or representation with respect to any statement contained in
the Registration Statement or the Prospectus in reliance upon and in conformity
with the information concerning the Underwriters and furnished in writing by or
on behalf of the Underwriters through the Representatives to the Company
expressly for use in the Registration Statement or the Prospectus (that
information being limited to that described in the last sentence of the first
paragraph of Section 9(b) hereof);

         (k) the Preliminary Prospectus was and the Prospectus delivered to the
Underwriters for use in connection with this offering will be identical to the
versions of

                                      -7-
<PAGE>

the Preliminary Prospectus and Prospectus created to be transmitted to the
Commission for filing via the Electronic Data Gathering Analysis and Retrieval
System ("EDGAR"), except to the extent permitted by Regulation S-T;

         (l) all legal or governmental proceedings, contracts or documents of a
character required to be filed as exhibits to the Registration Statement or to
be summarized or described in the Prospectus have been so filed, summarized or
described as required;

         (m) there are no actions, suits, proceedings, inquiries or
investigations pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries or any of their respective officers and
directors or to which the properties, assets or rights of any such entity are
subject, at law or in equity, before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority, arbitral panel or
agency which could result in a judgment, decree, award or order having a
material adverse effect on the assets, business, operations, earnings,
prospects, properties or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole;

         (n) the financial statements, including the notes thereto, included in
the Registration Statement and the Prospectus present fairly the consolidated
financial position of the entities to which such financial statements relate
(the "Covered Entities") as of the dates indicated and the consolidated results
of operations and changes in financial position and cash flows of the Covered
Entities for the periods specified; such financial statements have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis during the periods involved and in accordance with Regulation
S-X promulgated by the Commission; the financial statement schedules included in
the Registration Statement and the amounts in the Prospectus under the captions
"Prospectus Summary - Summary Financial Data" and "Selected Financial Data"
fairly present the information shown therein and have been compiled on a basis
consistent with the financial statements included in the Registration Statement
and the Prospectus; the unaudited pro forma financial information (including the
related notes) included in the Prospectus or any Preliminary Prospectus complies
as to form in all material respects to the applicable accounting requirements of
the Securities Act and the Securities Act Regulations, and management of the
Company believes that the assumptions underlying the pro forma adjustments are
reasonable; such pro forma adjustments have been properly applied to the
historical amounts in the compilation of the information and such information
fairly presents with respect to the Company and the Subsidiaries, the financial
position, results of operations and other information purported to be shown
therein at the respective dates and for the respective periods specified;

         (o) Arthur Andersen LLP, whose reports on the consolidated financial
statements of the Company and its Subsidiaries are filed with the Commission as
part of

                                      -8-
<PAGE>

the Registration Statement and Prospectus, are and were during the periods
covered by their reports independent public accountants as required by the
Securities Act and the Securities Act Regulations;

         (p) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may be
otherwise stated in the Registration Statement or Prospectus, there has not been
(A) any material adverse change in the assets, business, operations, earnings,
prospects, properties or condition (financial or otherwise), present or
prospective, of the Company and its Subsidiaries taken as a whole, whether or
not arising in the ordinary course of business, (B) any transaction, which is
material to the Company and its Subsidiaries taken as a whole, contemplated or
entered into by the Company or any of its Subsidiaries, (C) any obligation,
contingent or otherwise, directly or indirectly incurred by the Company or any
of its Subsidiaries, which is material to the Company and its Subsidiaries taken
as a whole or (D) any dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock;

         (q) the Shares conform in all material respects to the description
thereof contained in the Registration Statement and the Prospectus;

         (r) there are no persons with registration or other similar rights to
have any equity securities, including securities which are convertible into or
exchangeable for equity securities, registered pursuant to the Registration
Statement or otherwise registered by the Company under the Securities Act except
for those registration or similar rights which have been waived with respect to
the offering contemplated by this Agreement, all of which registration or
similar rights described above are fairly summarized in the Prospectus;

         (s) the Shares have been duly authorized and, when issued and duly
delivered against payment therefor as contemplated by this Agreement, will be
validly issued, fully paid and nonassessable, free and clear of any pledge,
lien, encumbrance, security interest or other claim, and the issuance and sale
of the Shares by the Company is not subject to preemptive or other similar
rights arising by operation of law, under the articles of incorporation or by-
laws of the Company, under any agreement to which the Company or any of its
Subsidiaries is a party or otherwise;

         (t) the Company has not taken, and will not take, directly or
indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares;

         (u) neither the Company nor any of its affiliates (i) is required to
register as a "broker" or "dealer" in accordance with the provisions of the
Securities

                                      -9-
<PAGE>

Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and
regulations thereunder, or (ii) directly, or indirectly through one or more
intermediaries, controls or has any other association with (within the meaning
of Article I of the By-laws of the National Association of Securities Dealers,
Inc. (the "NASD")) any member firm of the NASD;

         (v) the Company has not relied upon the Representatives or legal
counsel for the Representatives for any legal, tax or accounting advice in
connection with the offering and sale of the Shares;

         (w) any certificate signed by any officer of the Company or any
Subsidiary delivered to the Representatives or to counsel for the Underwriters
pursuant to or in connection with this Agreement shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby;

         (x) the form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the articles of incorporation and by-laws of the
Company and the requirements of the Nasdaq National Market;

         (y) the Company and the Subsidiaries have good and marketable title in
fee simple to all real property, if any, and good title to all personal property
owned by them, in each case free and clear of all liens, security interests,
pledges, charges, encumbrances, mortgages and defects, except such as are
disclosed in the Prospectus or such as do not materially and adversely affect
the value of such property and do not interfere with the use made or proposed to
be made of such property by the Company and the Subsidiaries; and any real
property and buildings held under lease by the Company or any Subsidiary are
held under valid, existing and enforceable leases, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the Company or
such Subsidiary;

         (z) the descriptions in the Registration Statement and the Prospectus
of the contracts, leases and other legal documents therein described present
fairly the information required to be shown, and there are no contracts, leases,
or other documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement which are not described or filed as required;

         (aa) the Company and each Subsidiary owns or possesses adequate
license or other rights to use all patents, trademarks, service marks, trade
names, copyrights, software and design licenses, trade secrets, manufacturing
processes, other intangible property rights and know-how (collectively
"Intangibles") necessary to entitle

                                     -10-
<PAGE>

the Company and each Subsidiary to conduct its business as described in the
Prospectus, and neither the Company, nor any Subsidiary, has received notice of
infringement of or conflict with (and the Company knows of no such infringement
of or conflict with) asserted rights of others with respect to any Intangibles
which could materially and adversely affect the business, prospects, properties,
assets, results of operations or condition (financial or otherwise) of the
Company or any Subsidiary;

          (bb) the Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences;

          (cc) each of the Company and the Subsidiaries has filed on a timely
basis all necessary federal, state, local and foreign income and franchise tax
returns required to be filed through the date hereof and have paid all taxes
shown as due thereon; and no tax deficiency has been asserted against any such
entity, nor does any such entity know of any tax deficiency which is likely to
be asserted against any such entity which if determined adversely to any such
entity, could materially adversely affect the business, prospects, properties,
assets, results of operations or condition (financial or otherwise) of any such
entity, respectively; all tax liabilities are adequately provided for on the
respective books of such entities;

          (dd) each of the Company and its Subsidiaries maintain insurance
(issued by insurers of recognized financial responsibility) of the types and in
the amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its Subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect;

          (ee) neither the Company nor any of its Subsidiaries has violated, or
received notice of any violation with respect to, any applicable environmental,
safety or similar law applicable to the business of the Company or any of its
Subsidiaries, nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees, nor any applicable federal or state wages
and hours law, nor any provisions of the Employee Retirement Income Security Act
or the rules and regulations promulgated thereunder, nor any state law
precluding the denial of credit due to the neighborhood in

                                      -11-
<PAGE>

which a property is situated, the violation of any of which could have a
material adverse effect on the business, operations, earnings, prospects,
properties or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole;

          (ff) neither the Company nor any of its Subsidiaries nor any officer
or director purporting to act on behalf of the Company or any of its
Subsidiaries has at any time; (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contributions, in
violation of law, (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or allowed by applicable law,
(iii) made any payment outside the ordinary course of business to any investment
officer or loan broker or person charged with similar duties of any entity to
which the Company or any of its Subsidiaries sells or from which the Company or
any of its Subsidiaries buys loans or servicing arrangements for the purpose of
influencing such agent, officer, broker or person to buy loans or servicing
arrangements from or sell loans to the Company or any of its Subsidiaries, or
(iv) engaged in any transactions, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds which have been
and are reflected in the normally maintained books and records of the Company
and its Subsidiaries;

          (gg) except as otherwise disclosed in the Prospectus, there are no
material outstanding loans or advances or material guarantees of indebtedness by
the Company or any of its Subsidiaries to or for the benefit of any of the
officers or directors of the Company or any of its Subsidiaries or any of the
members of the families of any of them;

          (hh) neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any employee or agent of the Company or any of its
Subsidiaries, has made any payment of funds of the Company or of any Subsidiary
or received or retained any funds in violation of any law, rule or regulation or
of a character required to be disclosed in the Prospectus;

          (ii) all securities issued by the Company, any of its Subsidiaries or
any trusts established by the Company or any Subsidiary, have been issued and
sold in compliance with (i) all applicable federal and state securities laws,
(ii) the laws of the applicable jurisdiction of incorporation of the issuing
entity, and (iii) to the extent applicable to the issuing entity, the
requirements of the Nasdaq National Market;

          (jj) in connection with this offering, the Company has not offered and
will not offer its Common Stock or any other securities convertible into or
exchangeable or exercisable for Common stock in a manner in violation of the
Securities Act. The Company has not distributed and will not distribute any
Prospectus or other offering material in connection with the offer and sale of
the Shares;

                                      -12-
<PAGE>

          (kk) the Company has complied and will comply with all the provisions
of Florida Statutes, Section 517.075 (Chapter 92-198, Laws of Florida). Neither
the Company nor any of its Subsidiaries or affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba;

          (ll) the Company has not incurred any liability for any finder's fees
or similar payments in connection with the transactions herein contemplated;

          (mm) no relationship, direct or indirect, exists between or among the
Company or any of its Subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its Subsidiaries
on the other hand, which is required by the Securities Act and the Securities
Act Regulations to be described in the Registration Statement and the Prospectus
and which is not so described;

          (nn) neither the Company nor any of the Subsidiaries is and, after
giving effect to the offering and sale of the Shares, will be an "investment
company" or an entity "controlled" by and "investment company", as such terms
are defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act");

          (oo) there are no existing or, to the knowledge of the Company,
threatened labor disputes with the employees of the Company or any of its
Subsidiaries which are likely to have individually or in the aggregate a
material adverse effect on assets, business, operations, earnings, prospects,
properties or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole; and

          (pp) All computer software (including, without limitation software
which forms a part of any hardware) owned or used by the Company or any
Subsidiary, or licensed by the Company or any Subsidiary, as licensor or as
licensee, other than any shrinkwrap software available generally to retail
customers, is "Year 2000 Compliant" (as hereinafter defined). For purposes of
this Agreement, "Year 2000 Compliant" shall mean (i) all such software shall
operate in 4-digit year format and, in all material respects, without errors in
the recognition, calculation and processing of date data relating to century
recognition, leap years, single and multi-century formulae, date values and
interfaces of date-related functionalities; (ii) all date processing shall be
conducted in a four-digit year format and all date sorting that includes a "year
field" or "year category" shall be based upon a four-digit year format; and
(iii) any date arithmetic programs or calculators in the software shall operate
in all material respects in accordance with the related user documentation in
the Year 2000, and the years following, without degrading functionality or
performance.

     4.   Certain Covenants:  The Company hereby agrees with each Underwriter:
          -----------------

                                      -13-
<PAGE>

          (a) to furnish such information as may be required and otherwise to
cooperate in qualifying the Shares for offering and sale under the securities or
blue sky laws of such states as the Representatives may designate and to
maintain such qualifications in effect as long as required for the distribution
of the Shares, provided that the Company shall not be required to qualify as a
foreign corporation or to consent to the service of process under the laws of
any such state (except service of process with respect to the offering and sale
of the Shares);

          (b) to prepare the Prospectus in a form approved by the Underwriters
and file such Prospectus with the Commission pursuant to Rule 424(b) not later
than 10:00 a.m. (New York City time), on the day following the execution and
delivery of this Agreement and to furnish promptly (and with respect to the
initial delivery of such Prospectus, not later than 10:00 a.m. (New York City
time) on the day following the execution and delivery of this Agreement) to the
Underwriters as many copies of the Prospectus (or of the Prospectus as amended
or supplemented if the Company shall have made any amendments or supplements
thereto after the effective date of the Registration Statement) as the
Underwriters may reasonably request for the purposes contemplated by the
Securities Act Regulations, which Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the version created
to be transmitted to the Commission for filing via EDGAR, except to the extent
permitted by Regulation S-T;

          (c) to advise the Representatives promptly and (if requested by the
Representatives) to confirm such advice in writing, when the Registration
Statement has become effective and when any post-effective amendment thereto
becomes effective under the Securities Act Regulations;

          (d) to advise the Representatives immediately, confirming such advice
in writing, of (i) the receipt of any comments from, or any request by, the
Commission for amendments or supplements to the Registration Statement or
Prospectus or for additional information with respect thereto, or (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, or of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes and, if
the Commission or any other government agency or authority should issue any such
order, to make every reasonable effort to obtain the lifting or removal of such
order as soon as possible; to advise the Representatives promptly of any
proposal to amend or supplement the Registration Statement or Prospectus and to
file no such amendment or supplement to which the Representatives shall
reasonably object in writing;

                                      -14-
<PAGE>

          (e) to furnish to the Underwriters for a period of five years from the
date of this Agreement (i) as soon as available, copies of all annual, quarterly
and current reports or other communications supplied to holders of shares of
Common Stock, (ii) as soon as practicable after the filing thereof, copies of
all reports filed by the Company with the Commission, the NASD or any securities
exchange and (iii) such other information as the Underwriters may reasonably
request regarding the Company and its Subsidiaries;

          (f) to advise the Underwriters promptly of the happening of any event
known to the Company within the time during which a Prospectus relating to the
Shares is required to be delivered under the Securities Act Regulations which,
in the judgment of the Company, would require the making of any change in the
Prospectus then being used so that the Prospectus would not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, during such time,
to prepare and furnish, at the Company's expense, to the Underwriters promptly
such amendments or Supplements to such Prospectus as may be necessary to reflect
any such change and to furnish to the Underwriters a copy of such proposed
amendment or supplement before filing any such amendment or supplement with the
Commission;

          (g) to furnish promptly to each Representative a signed copy of the
Registration Statement, as initially filed with the Commission, and of all
amendments or supplements thereto (including all exhibits filed therewith or
incorporated by reference therein) and such number of conformed copies of the
foregoing as the Representative may reasonably request;

          (h) to furnish to each Representative, not less than two business days
before filing with the Commission subsequent to the effective date of the
Prospectus and during the period referred to in paragraph (f) above, a copy of
any document proposed to be filed with the Commission pursuant to Section 13,
14, or 15(d) of the Exchange Act;

          (i) to apply the net proceeds of the sale of the Shares in accordance
with its statements under the caption "Use of Proceeds" in the Prospectus;

          (j) to make generally available to its security holders as soon as
practicable, but in any event not later than the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the Registration
Statement an earnings statement complying with the provisions of Section 11(a)
of the Securities Act (in form, at the option of the Company, complying with the
provisions of Rule 158 of the Securities Act Regulations,) covering a period of
12 months beginning after the effective date of the Registration Statement;

                                      -15-
<PAGE>

          (k) to use its best efforts to effect and maintain the quotation of
the Shares on the Nasdaq National Market and to file with the Nasdaq National
Market all documents and notices required by the Nasdaq National Market of
companies that have securities that are traded in the over-the-counter market
and quotations for which are reported by the Nasdaq National Market;

          (l) to engage and maintain, at its expense, a registrar and transfer
agent for the Shares;

          (m) to refrain during a period of 180 days from the date of the
Prospectus, without the prior written consent of the Representatives, from (i)
offering, pledging, selling, contracting to sell, selling any option or contract
to purchase, purchasing any option or contract to sell, granting any option for
the sale of, or otherwise disposing of or transferring, directly or indirectly,
any share of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or filing any registration statement under the
Securities Act with respect to any of the foregoing, or (ii) entering into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder, or (B) any shares of Common Stock issued by the
Company upon the exercise of an option outstanding on the date hereof and
referred to in the Prospectus;

          (n) to not itself and to use its best efforts to cause its officers,
directors and affiliates not to, (i) take, directly or indirectly prior to
termination of the underwriting syndicate contemplated by this Agreement, any
action designed to stabilize or manipulate the price of any security of the
Company, or which may cause or result in, or which might in the future
reasonably be expected to cause or result in, the stabilization or manipulation
of the price of any security of the Company, to facilitate the sale or resale of
any of the Shares, (ii) sell, bid for, purchase or pay anyone any compensation
for soliciting purchases of the Shares or (iii) pay or agree to pay to any
person any compensation for soliciting any order to purchase any other
securities of the Company;

          (o) if at any time during the 30-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in the reasonable opinion
of the Representatives the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus) and after
written notice from the Representatives advising the Company to the effect set
forth above, to forthwith prepare, consult with the Representatives concerning
the substance of, and disseminate a press release or other

                                      -16-
<PAGE>

public statement, reasonably satisfactory to the Representative, responding to
or commenting on such rumor, publication or event.

     5.   Payment of Expenses:
          -------------------

          (a) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
terminated, including expenses, fees and taxes in connection with (i) the
preparation and filing of the Registration Statement, each Preliminary
Prospectus, the Prospectus, and any amendments or supplements thereto, and the
printing and furnishing of copies of each thereof to the Underwriters and to
dealers (including costs of mailing and shipment), (ii) the preparation,
issuance and delivery of the certificates for the Shares to the Underwriters,
including any stock or other transfer taxes or duties payable upon the sale of
the Shares to the Underwriters, (iii) the printing of this Agreement and any
dealer agreements and furnishing of copies of each to the Underwriters and to
dealers (including costs of mailing and shipment), (iv) the qualification of the
Shares for offering and sale under state laws that the Company and the
Representatives have mutually agreed are appropriate and the determination of
their eligibility for investment under state law as aforesaid (including the
legal fees and filing fees and other disbursements of counsel for the
Underwriters in the [maximum] amount of $________ assuming that the Common Stock
is approved for quotation on the Nasdaq National Market and the printing and
furnishing of copies of any blue sky surveys or legal investment surveys to the
Underwriters and to dealers, (v) filing for review of the public offering of the
Shares by the NASD (including the legal fees and filing fees and other
disbursements of counsel for the Underwriters relating thereto), (vi) the fees
and expenses of any transfer agent or registrar for the Shares and miscellaneous
expenses referred to in the Registration Statement, (vii) the fees and expenses
incurred in connection with the inclusion of the Shares in the Nasdaq National
Market, (viii) making road show presentations with respect to the offering of
the Shares, (ix) preparing and distributing bound volumes of transaction
documents for the Representatives and its legal counsel and (x) the performance
of the Company's other obligations hereunder. Upon the request of the
Representative, the Company will provide funds in advance for filing fees.

          (b) The Company agrees to reimburse the Representatives for its
reasonable out-of-pocket expenses in connection with the performance of its
activities under this Agreement, including, but not limited to, costs such as
printing, facsimile, courier service, direct computer expenses, accommodations
and travel, but excluding the fees and expenses of the Underwriters' outside
legal counsel and any other advisors, accountants, appraisers, etc. (other than
the fees and expenses of counsel with respect to state securities or blue sky
laws and obtaining the filing for review of the public offering of the Shares by
the NASD, all of which shall be reimbursed by the Company pursuant to the
provisions of subsection (a) above).

                                      -17-
<PAGE>

     6.   Conditions of the Underwriters' Obligations:  The obligations of the
          -------------------------------------------
Underwriters hereunder to purchase Shares at the Closing Time or on the Date of
Delivery, as applicable, are subject to the accuracy of the representations and
warranties on the part of the Company in all material respects on the date
hereof and at the Closing Time and on each Date of Delivery, as applicable, the
performance by the Company of its obligations hereunder in all material respects
and to the satisfaction of the following further conditions at the Closing Time
or on the Date of Delivery, as applicable:

          (a)   The Company shall furnish to the Underwriters at the Closing
Time and on each Date of Delivery an opinion of Cozen & O'Connor, a professional
corporation, counsel for the Company and its Subsidiaries, addressed to the
Underwriters and dated the Closing Time and each Date of Delivery and in form
and substance satisfactory to Jenkens & Gilchrist, a Professional Corporation,
counsel for the Underwriters, stating that:

          (i)   the Company has an authorized capitalization as set forth in the
Prospectus under the caption "Capitalization"; the outstanding shares of capital
stock of the Company and its Subsidiaries have been duly and validly authorized
and issued and are fully paid and non-assessable, and all of the outstanding
shares of capital stock of the Subsidiaries are directly or indirectly owned of
record and beneficially by the Company; except as disclosed in the Prospectus,
there are no outstanding (i) securities or obligations of the Company or any of
its Subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such Subsidiary, (ii) warrants, rights or options to subscribe
for or purchase from the Company or any such Subsidiary any such capital stock
or any such convertible or exchangeable securities or obligations, or (iii)
obligations of the Company or any such Subsidiary to issue any shares of capital
stock, any such convertible or exchangeable securities or obligation, or any
such warrants, rights or options;

          (ii)  the Company and its Subsidiaries (all of which are named in an
exhibit to the Registration Statement) each has been duly incorporated or
organized and is validly existing as a corporation or limited liability company
in good standing under the laws of its respective jurisdiction of incorporation
or organization with full corporate or limited liability company power and
authority to own its respective properties and to conduct its respective
business as described in the Registration Statement and Prospectus and, in the
case of the Company, to execute and deliver this Agreement and to consummate the
transactions described in this Agreement;

          (iii) the Company and its Subsidiaries are duly qualified or licensed
by each jurisdiction in which they conduct their respective businesses and in
which the failure, individually or in the aggregate, to be so licensed could
have a material adverse effect on the assets, business, operations, earnings,
prospects, properties or condition

                                      -18-
<PAGE>

(financial or otherwise) of the Company and its Subsidiaries taken as a whole,
and the Company and its Subsidiaries are duly qualified, and are in good
standing, in each jurisdiction in which they own or lease real property or
maintain an office and in which such qualification is necessary except where the
failure to be so qualified and in good standing would not have a material
adverse effect on the assets, business, operations, earnings, prospects,
properties or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole; except as disclosed in the Prospectus, no
Subsidiary is prohibited or restricted, directly or indirectly, from paying
dividends to the Company, or from making any other distribution with respect to
such Subsidiary's capital stock or from repaying to the Company or any other
Subsidiary, any amounts which may from time to time become due under any loans
or advances to such Subsidiary from the Company or such other Subsidiary, or
from transferring any such Subsidiary's property or assets to the Company or to
any other Subsidiary; other than as disclosed in the Prospectus, the Company
does not own, directly or indirectly, any capital stock or other equity
securities of any other corporation or any ownership interest in any
partnership, joint venture or other association;

          (iv)  the Company and its Subsidiaries are in compliance in all
material respects with all applicable laws, orders, rules, regulations and
orders, including those relating to transactions with affiliates;

          (v)   neither the Company nor any of its Subsidiaries is in breach of,
or in default under (nor has any event occurred which with notice, lapse of
time, or both would constitute a breach of, or default under), any license,
indenture, mortgage, deed of trust, loan or credit agreement or any other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which any of them or their respective properties may be bound or
affected or under any law, regulation or rule or any decree, judgment or order
applicable to the Company or any of its Subsidiaries, except such breaches or
defaults which would not have a material adverse effect on the assets, business,
operations, earnings, prospects, properties or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole;

          (vi)  the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated by
this Agreement do not and will not (A) conflict with, or result in any breach
of, or constitute a default under (nor constitute any event which with notice,
lapse of time, or both would constitute a breach of or default under), (i) any
provisions of the articles of incorporation, charter or by-laws of the Company
or any Subsidiary, (ii) any provision of any license, indenture, mortgage, deed
of trust, loan, credit or other agreement or instrument to which the Company or
any Subsidiary is a party or by which any of them or their respective properties
or assets may be bound or affected, (iii) any law or regulation binding upon or
applicable to the Company or any Subsidiary or any of their respective
properties or assets, or (iv) any decree, judgment or order applicable to the
Company or

                                      -19-
<PAGE>

any Subsidiary; or (B) result in the creation or imposition of any lien, charge,
claim or encumbrance upon any property or assets of the Company or its
Subsidiaries;

          (vii)  this Agreement has been duly authorized, executed and delivered
by the Company and is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, and by general principles of equity, and except
that enforceability of the indemnification and contribution provisions set forth
in Section 9 of this Agreement may be limited by the federal or state securities
laws of the United States or public policy underlying such laws;

          (viii) no approval, authorization, consent or order of or filing with
any federal or state governmental or regulatory commission, board, body,
authority or agency is required in connection with the execution, delivery and
performance of this Agreement, the consummation of the transaction contemplated
hereby, and the sale and delivery of the Shares by the Company as contemplated
hereby, other than such as have been obtained or made under the Securities Act
and the Securities Act Regulations, and except that such counsel need express no
opinion as to any necessary qualification under the state securities or blue sky
laws of the various jurisdictions in which the Shares are being offered by the
Underwriters or any approval of the underwriting terms and arrangements by the
National Association of Securities Dealers, Inc.;

          (ix)   each of the Company and its Subsidiaries has all necessary
licenses, authorizations, consents and approvals and has made all necessary
filings required under any federal, state or local law, regulation or rule, and
has obtained all necessary authorizations, consents and approvals from other
persons, required to conduct their respective businesses, as described in the
Prospectus; to such counsel's knowledge neither the Company nor any Subsidiaries
is in violation of, in default under, or has received any notice regarding a
possible violation, default or revocation of any such license, authorization,
consent or approval or any federal, state, local or foreign law, regulation or
decree, order or judgment applicable to the Company or any of its Subsidiaries;

          (x)    the Shares have been duly authorized and when the Shares have
been issued and duly delivered against payment therefor as contemplated by this
Agreement, the Shares will be validly issued, fully paid and nonassessable, and
the Underwriters will acquire the good and marketable title to the Shares, free
and clear of any pledge, lien, encumbrance, security interest, or other claim;

          (xi)   the issuance and sale of the Shares by the Company is not
subject to preemptive or other similar rights arising by operation of law, under
the articles of incorporation, charter or by-laws of the Company, or under any
agreement to which the Company or any of its Subsidiaries is a party or, to such
counsel's knowledge, otherwise;

                                      -20-
<PAGE>

          (xii)   there are no persons with registration or other similar rights
to have any equity securities, including securities which are convertible into
or exchangeable for equity securities, registered pursuant to the Registration
Statement or otherwise registered by the Company under the Securities Act,
except for those registration or similar rights which have been waived with
respect to the offering contemplated by this Agreement;

          (xiii)  the Shares conform in all material respects to the
descriptions thereof contained in the Registration Statement and Prospectus;

          (xiv)   the form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the articles of incorporation and by-laws of
the Company and the requirements of the Nasdaq National Market;

          (xv)    the Registration Statement has become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement has been issued and, to such counsel's knowledge, no
proceedings with respect thereto have been commenced or threatened;

          (xvi)   as of the effective date of the Registration Statement, the
Registration Statement and the Prospectus (except as to the financial statements
and other financial and statistical data contained therein, as to which such
counsel need express no opinion) complied as to form in all material respects
with the requirements of the Securities Act and the Securities Act Regulations;

          (xvii)  the statements under the captions "Risk Factors,"
"Capitalization," "Business - Government Regulation," "Description of Capital
Stock," and "Shares Eligible for Future Sale," in the Registration Statement and
the Prospectus, insofar as such statements constitute a summary of the legal
matters referred to therein, constitute accurate summaries thereof in all
material respects;

          (xviii) to such counsel's knowledge, there are no actions, suits or
proceedings, inquiries, or investigations pending or threatened against the
Company or any of its Subsidiaries or any of their respective officers and
directors or to which the properties, assets or rights of any such entity are
subject, at law or in equity, before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority, arbitral panel or
agency which are required to be described in the Prospectus but are not so
described;

          (xix)   there are no contracts or documents of a character which are
required to be filed as exhibits to the Registration Statement or required to be
described or summarized in the Prospectus which have not been so filed,
summarized or described,

                                      -21-
<PAGE>

and all such summaries and descriptions, in all material respects, fairly and
accurately set forth the material provisions of such contracts and documents;

          (xx)    the Company and each Subsidiary owns or possesses adequate
license or other rights to use all patents, trademarks, service marks, trade
names, copyrights, software and design licenses, trade secrets, manufacturing
processes, other intangible property rights and know-how (collectively
"Intangibles") necessary to entitle the Company and each Subsidiary to conduct
its business as described in the Prospectus, and neither the Company, nor any
Subsidiary, has received notice of infringement of or conflict with (and knows
of no such infringement of or conflict with) asserted rights of others with
respect to any Intangibles which could materially and adversely affect the
business, prospects, properties, assets, results of operations or condition
(financial or otherwise) of the Company or any Subsidiary;

          (xxi)   each of the Company, and the Subsidiaries has filed on a
timely basis all necessary federal, state, local and foreign income and
franchise tax returns required to be filed through the date hereof and have paid
all taxes shown as due thereon; and no tax deficiency has been asserted against
any such entity, nor does any such entity know of any tax deficiency which is
likely to be asserted against any such entity which if determined adversely to
any such entity, could materially adversely affect the business, prospects,
properties, assets, results of operations or condition (financial or otherwise)
of any such entity, respectively.

     In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company, independent
public accountants of the Company, representatives of the Representatives, at
which the contents of the Registration Statement and Prospectus were discussed
and, although such counsel is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or Prospectus (except as and to the
extent stated in subparagraphs (xiii), (xvii), and (xix) above), they have no
reason to believe that the Registration Statement, the Preliminary Prospectus or
the Prospectus, as of their respective effective or issue date, and as of the
date of such counsel's opinion, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that, in each case, such counsel need express no view with respect to the
financial statements and other financial and statistical data included in the
Registration Statement, Preliminary Prospectus or Prospectus).

          (b)     The Representatives shall have received from Arthur Andersen
LLP, letters dated, respectively, as of the date of this Agreement, the Closing
Time and each Date of Delivery, as the case may be, addressed to the
Representatives, in form and substance satisfactory to the Representatives,
relating to the financial statements,

                                      -22-
<PAGE>

including any pro forma financial statements, of the Company and its
Subsidiaries, and such other matters customarily covered by comfort letters
issued in connection with registered public offerings.

          (c)     The Representatives shall have received at the Closing Time
and on each Date of Delivery the favorable opinion of Jenkens & Gilchrist, a
Professional Corporation, dated the Closing Time or such Date of Delivery,
addressed to the Representatives and in form and substance satisfactory to the
Representatives.

          (d)     No amendment or supplement to the Registration Statement or
Prospectus shall have been filed to which the Underwriters shall have objected
in writing.

          (e)     Prior to the Closing Time and each Date of Delivery (i) no
stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or
Prospectus has been issued, and no proceedings for such purpose shall have been
initiated or threatened, by the Commission, and no suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes, has
occurred; and (ii) the Registration Statement and the Prospectus shall not
contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

          (f)     Between the time of execution of this Agreement and the
Closing Time or the relevant Date of Delivery (i) no material and unfavorable
change in the assets, business, operations, earnings, prospects, properties or
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole shall occur or become known (whether or not arising in the ordinary
course of business), and (ii) no transaction which is material and unfavorable
to the Company shall have been entered into by the Company or any of its
Subsidiaries.

          (g)     The Shares shall have been approved for inclusion in the
Nasdaq National Market.

          (h)     The NASD shall not have raised any objection with respect to
the fairness and reasonableness of the underwriting terms and arrangements.

          (i)     The Representatives shall have received lock-up agreements
from each stockholder of the Company, in the form of Exhibit B attached hereto,
and such letter agreements shall be in full force and effect.

          (j)     The Company will, at the Closing Time and on each Date of
Delivery, deliver to the Underwriters a certificate of its Chairman of the Board
and Chief

                                      -23-
<PAGE>

Executive Officer, its President, its Vice President of Operations and its Chief
Financial Officer, to the effect that, to each of such officer's knowledge, the
representations and warranties of the Company set forth in this Agreement are
true and correct and the conditions set forth in paragraphs (g), (h) and (i)
have been satisfied, in each case as of such date.

          (k)     The Company shall have furnished to the Underwriters such
other documents and certificates as to the accuracy and completeness of any
statement in the Registration Statement and the Prospectus, the representations,
warranties and statements of the Company contained herein, and the performance
by the Company of its covenants contained herein, and the fulfillment of any
conditions contained herein, as of the Closing Time or any Date of Delivery as
the Underwriters may reasonably request.

          (l)     The Company shall have performed such of its obligations under
this Agreement as are to be performed by the terms hereof at or before the
Closing Time or the relevant Date of Delivery.

     7.   Termination:  The obligations of the several Underwriters hereunder
          -----------
shall be subject to termination in the absolute discretion of the
Representatives, at any time prior to the Closing Time or any Date of Delivery,
(i) if any of the conditions specified in Section 6 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, or (ii) if
there has been since the respective dates as of which information is given in
the Registration Statement, any material adverse change, or any development
involving a prospective material adverse change, in or affecting the assets,
business, operations, earnings, prospects, properties, condition (financial or
otherwise) or management of the Company or any Subsidiary, whether or not
arising in the ordinary course of business, or (iii) if there has occurred
outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic, political or other conditions the
effect of which on the financial markets of the United States is such as to make
it, in the judgment of the Representative, impracticable to market the Shares or
enforce contracts for the sale of the Shares, or (iv) if trading in any
securities of the Company has been suspended by the Commission or by Nasdaq, or
if trading generally on the New York Stock Exchange or in the Nasdaq over-the-
counter market has been suspended (including automatic halt in trading pursuant
to market-decline triggers other than those in which solely program trading is
temporarily halted), or limitations on prices for trading (other than
limitations on hours or numbers of days of trading) have been fixed, or maximum
ranges for prices for securities have been required, by such exchange or the
NASD or Nasdaq or by order of the Commission or any other governmental
authority, or (v) any federal or state statute, regulation, rule or order of any
court or other governmental authority has been enacted, published, decreed or
otherwise promulgated which in the reasonable opinion of the Representatives
materially adversely affects or will materially adversely affect the business or
operations of the Company, or (vi) any action has been taken by any federal,
state or local government or agency in respect of its

                                      -24-
<PAGE>

monetary or fiscal affairs which in the reasonable opinion of the
Representatives has a material adverse effect on the securities markets in the
United States.

     If the Representatives elect to terminate this Agreement as provided in
this Section 7, the Company and the Underwriters shall be notified promptly by
telephone, promptly confirmed by facsimile.

     If the sale to the Underwriters of the Shares, as contemplated by this
Agreement, is not carried out by the Underwriters for any reason permitted under
this Agreement or if such sale is not carried out because the Company shall be
unable to comply in all material respects with any of the terms of this
Agreement, the Company shall not be under any obligation or liability under this
Agreement (except to the extent provided in Sections 5 and 9 hereof) and the
Underwriters shall be under no obligation or liability to the Company under this
Agreement (except to the extent provided in Section 9 hereof) or to one another
hereunder.

     8.   Increase in Underwriters' Commitments:  If any Underwriter shall
          -------------------------------------
default at the Closing Time or on a Date of Delivery in its obligation to take
up and pay for the Shares to be purchased by it under this Agreement on such
date the Representatives shall have the right, within 36 hours after such
default, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Shares which such Underwriter shall have agreed but failed to take up and
pay for (the "Defaulted Shares"). Absent the completion of such arrangements
within such 36 hour period, (i) if the total number of Defaulted Shares does not
exceed 10% of the total number of Shares to be purchased on such date, each non-
defaulting Underwriter shall take up and pay for (in addition to the number of
Shares which it is otherwise obligated to purchase on such date pursuant to this
Agreement) the portion of the total number of Shares agreed to be purchased by
the defaulting Underwriter on such date in the proportion that its underwriting
obligations hereunder bears to the underwriting obligations of all non-
defaulting Underwriters; and (ii) if the total number of Defaulted Shares
exceeds 10% of such total, the Representatives may terminate this Agreement by
notice to the Company, without liability to any non-defaulting Underwriter.

     Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Shares hereunder on such date unless all of the Shares to be
purchased on such date are purchased on such date by the Underwriters (or by
substituted Underwriters selected by the Representatives with the approval of
the Company or selected by the Company with the approval of the
Representatives).

     If a new Underwriter or Underwriters are substituted for a defaulting
Underwriter in accordance with the foregoing provision, the Company or the non-
defaulting Underwriters shall have the right to postpone the Closing Time or the
relevant Date of

                                      -25-
<PAGE>

Delivery for a period not exceeding five business days in order that any
necessary changes in the Registration Statement and Prospectus and other
documents may be effected.

     The term Underwriter as used in this Agreement shall refer to and include
any Underwriter substituted under this Section 8 with the like effect as, if
such substituted Underwriter had originally been named in this Agreement.

     9.   Indemnity and Contribution by the Company and the Underwriters:
          --------------------------------------------------------------

          (a) The Company agrees to indemnify, defend and hold harmless each
Underwriter and any person who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any loss, expense, liability, damage or claim (including the reasonable
cost of investigation) which, jointly or severally, any such Underwriter or
controlling person may incur under the Securities Act, the Exchange Act or
otherwise, insofar as such loss, expense, liability, damage or claim arises out
of or is based upon (A) any breach of any representation, warranty or covenant
of the Company contained herein, (B) any failure on the part of the Company to
comply with any applicable law, rule or regulation relating to the offering of
securities being made pursuant to the Prospectus, or (C) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or in a Prospectus (the term Prospectus for
the purpose of this Section 9 being deemed to include any Preliminary
Prospectus, the Prospectus and the Prospectus as amended or supplemented by the
Company), or arises out of or is based upon any omission or alleged omission to
state a material fact required to be stated in either such Registration
Statement or Prospectus or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as any such loss, expense, liability, damage or claim arises out of or
is based upon any untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in and in conformity with
information furnished in writing by the Underwriters through the Representatives
to the Company expressly for use in such Registration Statement or such
Prospectus, provided, however, that the indemnity agreement contained in this
subsection (a)(i) with respect to the Preliminary Prospectus or the Prospectus
shall not inure to the benefit of an Underwriter (or to the benefit of any
person controlling such Underwriter) with respect to any person asserting any
such loss, expense, liability, damage or claim which is the subject thereof if
the Prospectus or any supplement thereto prepared with the consent of the
Representatives and furnished to the Underwriters prior to the Closing Time
corrected any such alleged untrue statement or omission and if such Underwriter
failed to send or give a copy of the Prospectus or supplement thereto to such
person at or prior to the written confirmation of the sale of Shares to such
person, unless such failure resulted from noncompliance by the Company with
Section 4(b) above).

                                      -26-
<PAGE>

          (b)     If any action is brought against an Underwriter or controlling
person in respect of which indemnity may be sought against the Company pursuant
to subsection (a) above, such Underwriter shall promptly notify the Company in
writing of the institution of such action, and the Company shall assume the
defense of such action, including the employment of counsel and payment of
expenses, provided, however, that any failure or delay to so notify the Company
will not relieve the Company of any obligation hereunder, except to the extent
that its ability to defend is actually impaired by such failure or delay. Such
Underwriter or controlling person shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such Underwriter or such controlling person unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action, or the Company shall not have
employed counsel to have charge of the defense of such action within a
reasonable time or such indemnified party or parties shall have reasonably
concluded (based on the advice of counsel) that there may be defenses available
to it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the Company and paid as
incurred (it being understood, however, that the Company shall not be liable for
the expenses of more than one separate firm of attorneys for the Underwriters or
controlling persons in any one action or series of related actions in the same
jurisdiction (other than local counsel in any such jurisdiction) representing
the indemnified parties who are parties to such action). Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable for
any settlement of any such claim or action effected without its written consent.

          (c)     Each Underwriter agrees, severally and not jointly, to
indemnify, defend and hold harmless the Company, the Company's directors, the
Company's officers that signed the Registration Statement, and any person who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any loss, expense, liability,
damage or claim (including the reasonable cost of investigation) which, jointly
or severally, the Company or any such person may incur under the Securities Act,
the Exchange Act or otherwise, but only insofar as such loss, expense,
liability, damage or claim arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in and in conformity
with information furnished in writing by such Underwriter through the
Representatives to the Company expressly for use in the Registration Statement
(or in the Registration Statement as amended by any post-effective amendment
thereof by the Company) or in a Prospectus, or arises out of or is based upon
any omission or alleged omission to state a material fact in connection with
such information required to be stated either in such Registration Statement or
Prospectus or necessary to make such information, in the light of the
circumstances under which made, not misleading. The statements set forth (i) in

                                      -27-
<PAGE>

the last paragraph on the cover page and (ii) under the caption "Underwriting"
in the Preliminary Prospectus and the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by or on
behalf of any Underwriter through the Representatives to the Company for
purposes of Section 3(j) and this Section 9.

     If any action is brought against the Company or any such person in respect
of which indemnity may be sought against any Underwriter pursuant to the
foregoing paragraph, the Company or such person shall promptly notify the
Representatives in writing of the institution of such action and the
Representatives, on behalf of the Underwriters, shall assume the defense of such
action, including the employment of counsel and payment of expenses. The Company
or such person shall have the right to employ its own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of the Company
or such person unless the employment of such counsel shall have been authorized
in writing by the Representatives in connection with the defense of such action
or the Representatives shall not have employed counsel to have charge of the
defense of such action within a reasonable time or such indemnified party or
parties shall have reasonably concluded (based on the advice of counsel) that
there may be defenses available to it or them which are different from or
additional to those available to the Underwriters (in which case the
Representatives shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by such Underwriter and paid as incurred (it being
understood, however, that the Underwriters shall not be liable for the expenses
of more than one separate firm of attorneys in any one action or series of
related actions in the same jurisdiction (other than local counsel in any such
jurisdiction) representing the indemnified parties who are parties to such
action). Anything in this paragraph to the contrary notwithstanding, no
Underwriter shall be liable for any settlement of any such claim or action
effected without the written consent of the Representatives.

          (d)     If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsections (a), (b) and (c) of this
Section 9 in respect of any losses, expenses, liabilities, damages or claims
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, expenses,
liabilities, damages or claims (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the

                                      -28-
<PAGE>

Underwriters from the offering of the Shares or (ii) if (but only if) the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
of the Underwriters in connection with the statements or omissions which
resulted in such losses, expenses, liabilities, damages or claims, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Underwriters shall be deemed to be in the same proportion
as, the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company bear to the
underwriting discounts and commissions received by the Underwriters. The
relative fault of the Company and of the Underwriters shall be determined by
reference to, among other things, whether the untrue statement or alleged untrue
statement of a material fact or omission or alleged omission relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any claim or action.

          (e)     The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in subsection (d)(i) and, if
applicable (ii), above. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to their respective underwriting commitments
and not joint.

     10.  Survival:  The indemnity and contribution agreements contained in
          --------
Section 9 and the covenants, warranties and representations of the Company
contained in Sections 3, 4 and 5 of this Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter, or any person who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, or by or on
behalf of the Company, its directors and officers or any person who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and shall survive any termination of this Agreement or the
sale and delivery of the Shares. The Company and each Underwriter agree promptly
to notify the others of the commencement of any litigation or proceeding against
it and, in the case of the Company, against any of the Company's officers and
directors, in connection with the sale and delivery of the Shares, or in
connection with the Registration Statement or Prospectus.

     11.  Notices:  Except as otherwise herein provided, all statements,
          -------
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered to Friedman,
Billings, Ramsey & Co., Inc.,

                                      -29-
<PAGE>

1001 19th Street North, Arlington, Virginia 22209, Attention: Syndicate
Department; if to the Company, shall be sufficient in all respects if delivered
to the Company at the offices of the Company at 420 Lapp Road, Malvern,
Pennsylvania 19355.

     12.  Governing Law; Headings:  THIS AGREEMENT SHALL BE GOVERNED BY, AND
          -----------------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES. The section headings in this Agreement
have been inserted as a matter of convenience of reference and are not a part of
this Agreement.

     13.  Parties at Interest:  The Agreement herein set forth has been and is
          -------------------
made solely for the benefit of the Underwriters, the Company and the controlling
persons, directors and officers referred to in Sections 9 and 10 hereof, and
their respective successors, assigns, executors and administrators. No other
person, partnership, association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.

     14.  Counterparts and Facsimile Signatures:  This Agreement may be signed
          -------------------------------------
by the parties in counterparts which together shall constitute one and the same
agreement among the parties. A facsimile signature shall constitute an original
signature for all purposes.


                                      -30-
<PAGE>

          If the foregoing correctly sets forth the understanding among the
Company and the Underwriters, please so indicate in the space provided below for
the purpose, whereupon this Agreement shall constitute a binding agreement among
the Company and the Underwriters.

                                 Very truly yours,

                                 INNOVATIVE SOLUTIONS AND
                                 SUPPORT, INC.

                                 By:_____________________________
                                    By:
                                    Title:

Accepted and agreed to as
of the date first above written:

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By:_______________________________
Title:

For itself and as Representatives of the other
Underwriters named on Schedule I hereto.

                                      -31-
<PAGE>

                                  Schedule I


                                      Number of Initial  Number of Option
Name of Party Selling Shares          Shares to be Sold  Shares to be Sold
- --------------------------------------------------------------------------

  Innovative Solutions and Support,
    Inc.                                  3,000,000             450,000

<PAGE>

                                  Schedule II

                                           Number of Initial
Underwriter                                Shares to be Purchased
- -----------------------------------------------------------------

Friedman, Billings, Ramsey & Co., Inc.

Stifel, Nicolaus & Company, Incorporated

Janney Montgomery Scott LLC


  Total................................

                                      S-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>ARTICLES OF INCORPORATION OF IS&S
<TEXT>

<PAGE>

                                                                     Exhibit 3.1


                 AMENDED AND RESTATED ARTICLES OF INCORPORATION
                   OF INNOVATIVE SOLUTIONS AND SUPPORT, INC.


     The Amended and Restated Articles of Incorporation of Innovative Solutions
and Support, Inc. (the "Corporation") are as follows:

     FIRST.  The name of the Corporation is Innovative Solutions and Support,
Inc.

     SECOND.  The address of the Corporation's registered office in the
Commonwealth of Pennsylvania and the county of venue is 420 Lapp Road, Malvern,
PA 19355 (Chester County).

     THIRD.  The Corporation is incorporated under the provisions of the
Business Corporation Law of 1988.

     FOURTH.  A.  The aggregate number of shares for which the Corporation shall
have authority to issue is 85,000,000, of which 75,000,000 shall be designated
as Common Stock, par value $0.001 per share, and 10,000,000 shall be designated
as Preferred Stock, par value $0.001 per share.

     The Board of Directors may issue in one or more class or series, or both,
shares of Preferred Stock, with full, limited, multiple, fractional or no voting
rights, and with such designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights or other special or
relative rights as shall be fixed from time to time by the Board of Directors.

              B.  Of the 10,000,000 shares of Preferred Stock authorized by this
Corporation, 200,000 shares shall be designated as Series A Convertible
Preferred Stock with a par value of $.001 per share ("Series A Preferred
Stock"), which shall have such rights, preferences and characteristics in
relation to the Common Stock as set forth below:

                    (1)  Voting Rights.
                         -------------

                         (a)  Voting in General.  The holders of Common Stock
                              -----------------
shall be entitled to one vote per share of Common Stock on all matters on which
shareholders are entitled to vote thereon. Except as expressly provided by law,
the holders of Series A Preferred Stock shall have full voting rights and
powers; they shall be entitled to vote on all matters as to which holders of
Common Stock shall be entitled to vote, and shall vote together with the holders
of Common Stock and not separately as one class, and they shall be entitled to
one vote for each share of Common Stock into which each share of Series A
Preferred Stock may be converted in accordance with subsection B(4) herein, as
adjusted from time to time as provided in Section 4 hereof.
<PAGE>

                         (b)  Super Majority Voting.  Notwithstanding anything
                              ---------------------
herein contained to the contrary, the affirmative vote of the holders of not
less than sixty-five percent (65%) of the Series A Preferred Stock and Common
Stock then issued and outstanding and voting as a single class shall be required
for: (i) any merger, consolidation or sale of all or substantially all of the
assets of the Corporation; (ii) any acquisition of the capital stock of another
entity as a result of which such entity's financial results of operations are
required by generally accepted accounting principles to be consolidated with the
financial results of operations of the Corporation, or the acquisition of all or
substantially all of the assets of another entity; (iii) any issuance by the
Corporation of non-trade funded indebtedness or the issuance by the Corporation
of capital stock for a consideration per share which is less than the fair
market value of the capital stock as determined in good faith by the Board of
Directors; (iv) any amendment to the Corporation's Articles of Incorporation, as
amended after the date hereof; and (v) the authorization by the Corporation of a
class or series of capital stock having rights and preferences which are pari
passu with or superior to the rights and preferences of the Series A Preferred
Stock.

                    (2) Dividends.  The holders of the Common Stock and the
                        ---------
holders of the Series A Preferred Stock shall be entitled to receive, when and
as declared in the discretion of the Board of Directors, such cash dividends as
the Board of Directors may from time to time determine out of funds that are
legally available therefor; provided, however, that no cash dividends shall be
declared or paid on one class of capital stock unless parallel action shall be
taken simultaneously therewith with respect to the other class of capital stock.

                    (3) Preemptive Rights; No Cumulative Voting.  Shareholders
                        ---------------------------------------
shall not have preemptive rights to purchase additional shares of capital stock
(except as may be expressly set forth in a separate agreement between the
Corporation and one or more holders of the Series A Preferred Stock) and shall
not have the right to vote cumulatively in the election of directors.

                    (4) Conversion.  The holders of Series A Preferred Stock
                        ----------
shall have conversion rights as follows (the "Conversion Rights"):

                         (a) Right to Convert.  Each share Series A Preferred
                             ----------------
Stock shall be convertible, at the option of the holder thereof, at any time and
from time to time, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $24.00 (the "Original Series A Issue
Price") by the Conversion Price (as defined below) in effect at the time of
conversion. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of Series A Preferred Stock without the payment of
additional consideration by the holder thereof (the "Conversion Price") shall
initially be $2.40 per share. Such initial Conversion Price, and the rate at
which shares of Series A Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below.

          In the event of a liquidation of the Corporation, the Conversion
Rights shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on liquidation to
the holders of Series A Preferred Stock.

                                       2
<PAGE>

                         (b) Fractional Shares.  No fractional shares of
                             -----------------
Common Stock shall be issued upon conversion of Series A Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.

                         (c)  Mechanics of Conversion.
                              -----------------------

                              (i) In order for a holder of Series A Preferred
Stock to convert shares of Series A Preferred Stock into shares of Common Stock,
such holder shall surrender the certificate or certificates for such shares of
Series A Preferred Stock, at the principal office of the Corporation, together
with written notice that such holder elects to convert all or any number of the
shares of the Series A Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the Corporation
shall be the conversion date ("Conversion Date"). The Corporation shall, as soon
as practicable after the Conversion Date, issue and deliver at such office to
such holder of Series A Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share.

                              (ii)  The Corporation shall at all times when the
Series A Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series A Preferred Stock. Before taking any action
which would cause an adjustment reducing the Conversion Price below the then par
value of the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, the Corporation will take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of Common Stock at
such adjusted Conversion Price.

                              (iii)  On the Conversion Date, all shares of
Series A Preferred Stock which shall have been surrendered for conversion as
herein provided shall no longer be deemed to be outstanding and all rights with
respect to such shares, including the rights, if any, to receive notices and to
vote, shall immediately cease and terminate on the Conversion Date, except only
the right of the holders thereof to receive shares of Common Stock in exchange
thereof.

                              (iv)  If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may at the option of any holder tendering
Series A Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of Series A Preferred Stock shall not be deemed to have

                                       3
<PAGE>

converted such Series A Preferred Stock until immediately prior to the closing
of the sale of securities.

                         (d)  Adjustments to Conversion Price for Diluting
                              --------------------------------------------
Issues.
- ------

                              (i) Special Definitions.  For purposes of this
                                  -------------------
Section 4(d), the following definitions shall apply:

                                   (A) "Option" shall mean rights, options or
                                       --------
          warrants to subscribe for, purchase or otherwise acquire Common Stock
          or Convertible Securities, excluding rights or options to acquire
          shares of Common Stock now or hereafter granted to employees and
          officers of the Corporation as part of the compensation payable to
          such employees and officers.

                                   (B) "Original Issue Date" shall mean the
                                       ---------------------
          date on which a share of Series A Preferred Stock was first issued.

                                   (C) "Convertible Securities" shall mean any
                                       ------------------------
          evidences of indebtedness, shares or other securities directly or
          indirectly convertible into or exchangeable for Common Stock.

                                   (D) "Additional Shares of Common Stock"
                                       -----------------------------------
          shall mean all shares of Common Stock issued (or, pursuant to Section
          4(d)(iii) below, deemed to be issued) by the Corporation after the
          Original Issue Date, other than shares of Common Stock issued or
          issuable:

                                        (I) upon the conversion of shares of
               Series A Preferred Stock or as a dividend or distribution on
               Series A Preferred Stock; or

                                        (II)  upon the exercise of options
               excluded from the definition of "Option" in Section 4(d)(i)(A).

                              (ii)  No Adjustment of Conversion Price.  No
                                    ---------------------------------
adjustment in the number of shares of Common Stock into which the Series A
Preferred Stock is convertible shall be made pursuant to this Section 4(d)
unless the consideration per share (determined pursuant to Section 4(d)(v)) for
an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Conversion Price in effect on the date
of, and immediately prior to, the issue of such Additional Shares .

                              (iii)  Issue of Securities Deemed Issue of
                                     -----------------------------------
Additional Shares of Common Stock.  If the Corporation at any time or from time
- ---------------------------------
to time after the Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set forth in
the instrument relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of

                                       4
<PAGE>

Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 4(d)(v) hereof) of
such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:

                                   (A)  No further adjustment in the Conversion
          Price shall be made upon the subsequent issue of Convertible
          Securities or shares of Common Stock upon the exercise of such Options
          or conversion or exchange of such Convertible Securities;

                                   (B)  If such Options or Convertible
          Securities by their terms provide, with the passage of time or
          otherwise, for any increase in the consideration payable to the
          Corporation, or decrease in the number of shares of Common Stock
          issuable upon the exercise, conversion or exchange thereof, the
          Conversion Price computed upon the original issue thereof (or upon the
          occurrence of a record date with respect thereto), and any subsequent
          adjustment based thereon, shall, upon any such increase or decrease
          becoming effective, be recomputed to reflect such increase or decrease
          insofar as it affects such Options or the rights of conversion or
          exchange under such Convertible Securities;

                                   (C)  No readjustment pursuant to clause (B)
          above shall have the effect of increasing the Conversion Price to an
          amount which exceeds the lower of (i) the Conversion Price on the
          original adjustment date, or (ii) the Conversion Price resulting from
          any issuance of Additional Shares of Common Stock between the original
          adjustment date and such readjustment date;

                                   (D)  If any Option or conversion privilege
          represented by a Convertible Security shall expire or terminate
          without having been exercised, the Conversion Price adjusted upon the
          issuance of such Option or Convertible Security shall be readjusted to
          the Conversion Price that would have been in effect had the Option or
          Convertible Security not been issued; provided, however, that nothing
          contained in this subsection (D) shall in any way whatsoever have an
          effect upon any Common Stock which has been issued upon conversion of
          the Series A Preferred Stock prior to such readjustment;

                                   (E)  In the event of any change in the number
          of shares of Common Stock issuable upon the exercise, conversion or
          exchange of any Option or Convertible Security, including, but not
          limited to, a change resulting from the antidilution provisions
          thereof, the Conversion Price then in effect shall forthwith be
          readjusted to such Conversion Price as would have obtained had the
          adjustment which was made upon the issuance of such

                                       5
<PAGE>

          Option or Convertible Security not exercised or converted prior to
          such change been made upon the basis of such change, but no further
          adjustment shall be made for the actual issuance of Common Stock upon
          the exercise or conversion of any such Option or Convertible Security.

                              (iv)  Adjustment of Conversion Price Upon
                                    ------------------------------------
Issuance of Additional Shares of Common Stock.  Subject to the provisions of
- ---------------------------------------------
Section 4(d)(ii) above, in the event the Corporation shall at any time after the
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
4(d)(iii), but excluding shares issued as a dividend or distribution as provided
in Section 4(f) or upon a stock split or combination as provided in Section 4(e)
and excluding shares of Common Stock issuable upon the exercise of Options or
the conversion or exchange of Convertible Securities as contemplated by Section
4(d)(iii)), without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, (x) the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price, and
(y) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued.

          Notwithstanding the foregoing, the applicable Conversion Price shall
not be reduced at such time if the amount of such reduction would be an amount
less than $.01, but any such  amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.01 or more.

                              (v) Determination of Consideration.  For purposes
                                  ------------------------------
of this Section 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:

                                    (A) Cash and Property.  Such consideration
                                        -----------------
          shall:

                                        (I)  insofar as it consists of cash, be
               computed at the aggregate of cash received by the Corporation,
               excluding amounts paid or payable for accrued interest or accrued
               dividends;

                                        (II)  insofar as it consists of property
               other than cash, be computed at the fair market value thereof at
               the time of such issue, as determined in good faith by the Board
               of Directors; and

                                       6
<PAGE>

                                        (III)  in the event Additional Shares of
               Common Stock are issued together with other shares or securities
               or other assets of the Corporation for consideration which covers
               both, be the proportion of such consideration so received,
               computed as provided in clauses (I) and (II) above, as determined
               in good faith by the Board of Directors.

                                   (B) Options and Convertible Securities.  The
                                       ----------------------------------
          consideration per share received by the Corporation for Additional
          Shares of Common Stock deemed to have been issued pursuant to Section
          4(d)(iii), relating to Options and Convertible Securities, shall be
          determined by dividing:

                                        (x) the total amount, if any, received
               or receivable by the Corporation as consideration for the issue
               of such Options or Convertible Securities, plus the minimum
               aggregate amount of additional consideration (as set forth in the
               instruments relating thereto, without regard to any provision
               contained therein for a subsequent adjustment of such
               consideration) payable to the Corporation upon the exercise of
               such Options or the conversion or exchange of such Convertible
               Securities, or in the case of Options for Convertible Securities,
               the exercise of such Options for Convertible Securities and the
               conversion or exchange of such Convertible Securities, by

                                        (y) the maximum number of shares of
               Common Stock (as set forth in the instruments relating thereto,
               without regard to any provision contained therein for a
               subsequent adjustment of such number) issuable upon the exercise
               of such Options or the conversion or exchange of such Convertible
               Securities.

                         (e) Adjustment for Stock Splits and Combinations.  If
                             --------------------------------------------
the Corporation shall at any time or from time to time after the Original Issue
Date effect a subdivision of the outstanding Common Stock, the Conversion Price
then in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection shall become
effective at the close of business on the date the subdivision or combination
becomes effective.

                         (f) Adjustment for Certain Dividends and Distributions.
                             --------------------------------------------------
In the event the Corporation at any time, or from time to time after the
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price then in effect shall be decreased as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the Conversion
Price then in effect by a fraction:

                                       7
<PAGE>

                              (x) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and

                              (y) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution;

provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this subsection as of the time of actual payment of such
dividends or distributions.

                         (g) Adjustments for Other Dividends and Distributions.
                             -------------------------------------------------
In the event the Corporation at any time or from time to time after the Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event to and including the
Conversion Date, retained such securities receivable by them as aforesaid during
such period giving application to all adjustments called for during such period,
under this paragraph with respect to the rights of the holders of Series A
Preferred Stock.

                         (h) Adjustment for Reclassification, Exchange or
                             ---------------------------------------------
Substitution.  If the Common Stock issuable upon the conversion of the Series A
- ------------
Preferred Stock shall be changed into the same or a different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise, (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of such share of Series A Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.

                         (i) Adjustment for Merger or Reorganization, Etc.  In
                             ---------------------------------------------
case of any consolidation or merger of the Corporation with or into another
corporation or the sale of all or substantially all of the assets of the
Corporation to another corporation (other than a consolidation, merger or sale
which is treated as a liquidation pursuant to Section 6), each share of Series A
Preferred Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock

                                       8
<PAGE>

of the Corporation deliverable upon conversion of such Series A Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 4 with respect to the rights and interest thereafter of the holders of
Series A Preferred Stock, to the end that the provisions set forth in this
Section 4 (including provisions with respect to changes in and other adjustments
of the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series A Preferred Stock.

                         (j) No Impairment.  The Corporation will not, by
                             -------------
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Series A Preferred Stock against impairment.

                         (k) Certificate as to Adjustments.  Upon the
                             -----------------------------
occurrence of each adjustment of the Conversion Price pursuant to this Section
4, the Corporation at its expense shall promptly compute such adjustment in
accordance with the terms hereof and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment and showing in
detail the facts upon which such adjustment is based. The Corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments, (ii) the Conversion Price then in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which then would be received upon the conversion of Series A Preferred Stock.

                         (l) Notice of Record Date.  In the event:
                             ---------------------

                              (i)  that the Corporation declares a dividend (or
any other distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;

                              (ii)  that the Corporation subdivides or combines
its outstanding shares of Common Stock;

                              (iii)  of any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of the Corporation; or

                              (iv)  of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;

                                       9
<PAGE>

then the Corporation shall cause to be filed at its principal office and shall
cause to be mailed to the holders of Series A Preferred Stock at their last
addresses as shown on the records of the Corporation, at least 10 days prior to
the record date specified in (A) below or 10 days before the date specified in
(B) below, a notice stating:

          (A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or

          (B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to become effective,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.

                         (m) Notices.  Any notice required by the provisions of
                             -------
this Section 4 to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at its address appearing on the books of
the Corporation.

                    (5)  Mandatory Conversion.
                         --------------------

                         (a) Mandatory Conversion Right.  All holders of shares
                             --------------------------
of Series A Preferred Stock then outstanding shall convert their shares of
Series A Preferred Stock into shares of Common Stock, at the then effective
conversion rate pursuant to Section 4, upon (i) the agreement of the holders of
at least 65% of the outstanding shares of Series A Preferred Stock that all of
the Series A Preferred Stock shall be converted into shares of Common Stock, or
(ii) upon the closing of the sale of shares of Common Stock in a public offering
of the registration statement under the Securities Act of 1933, as amended
(other than a public offering in connection with the offer and sale of Common
Stock pursuant to a stock option plan, employee benefit plan or similar plan),
where the aggregate sales price of such securities (before deduction of
underwriting discounts, commissions and expenses of sale) is not less than
$10,000,000, and the accreted value per share of the Series A Preferred Stock
then outstanding, giving effect to the public offering, is at least $10.00,
subject to adjustment to reflect stock splits, reverse stock splits or
combinations.

                         (b) Procedure.  All holders of record of shares of
                             ---------
Series A Preferred Stock will be given at least 10 days' prior written notice of
the date fixed and the place designated for mandatory conversion of all such
shares of Series A Preferred Stock pursuant to this Section 5. Such notice will
be sent by first class certified or registered mail, postage prepaid, to each
record holder of Series A Preferred Stock at such holder's address last shown on
the records of the Corporation for the Series A Preferred Stock. On or before
the date fixed for conversion, each holder of shares of Series A Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 5. On the date fixed for conversion,
all rights with respect to the Series A Preferred Stock so converted, including
the rights, if any, to

                                       10
<PAGE>

receive notices and vote, will terminate, except only the rights of the holders
thereof, upon surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock into which such
Series A Preferred Stock has been converted (and cash with respect to any
fraction of a share as provided in Section 4(b)). If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly authorized in writing. As soon as
practicable after the date of such mandatory conversion and the surrender of the
certificate or certificates for Series A Preferred Stock, the Corporation shall
cause to be issued and delivered to such holder a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions thereof and cash as provided in Section 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.

                         (c) Retirement and Cancellation of Shares.  All
                             -------------------------------------
certificates evidencing shares of Series A Preferred Stock which are required to
be surrendered for conversion in accordance with the provisions hereof shall,
from and after the date such certificates are so required to be surrendered, be
deemed to have been retired and cancelled and the shares of Series A Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date.

                    (6) Liquidation Rights.  In the event of any liquidation,
                        ------------------
dissolution or winding up (either voluntary or involuntary) of the Corporation
(which for purposes of this subsection (B)5 shall include a sale of all or
substantially all of the assets of the Corporation or a merger, consolidation or
other corporate reorganization as a result of which the Corporation is not the
surviving entity), the holders of Series A Preferred Stock shall be entitled to
receive, after payment by the Corporation of all sums due creditors, an amount
equal to Twenty-Four Dollars ($24.00) per share plus all declared but unpaid
dividends before any amount shall be paid to holders of Common Stock. If the
assets and funds thus distributable among the holders of Series A Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of Series A Preferred Stock in proportion to the amount of
such stock owned by each such holder. After such payment shall have been made in
full to the holders of Series A Preferred Stock, the holders of Common Stock and
Series A Preferred Stock shall be entitled to receive the remaining assets and
funds of the Corporation in proportion to the number of shares of Common Stock
held by holders of Common Stock, and the number of shares of Common Stock held
by holders of Series A Preferred Stock assuming the Series A Preferred Stock had
been converted into Common Stock immediately prior to the liquidation,
dissolution or winding up of the Corporation.

                                       11
<PAGE>

     FIFTH.  The shareholders of the Corporation shall not have the right to
cumulate their shares in voting for the election of directors.

     SIXTH.  Subchapter E (Sections 2541 through 2548), Subchapter G (Sections
2561 through 2568) and Subchapter H (Section 2571 through 2578) of the
Pennsylvania Business Corporation Law, as amended, shall not be applicable to
the Corporation.

                                       12
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>BYLAWS OF IS&S
<TEXT>

<PAGE>

                                                                     Exhibit 3.2

                             AMENDED AND RESTATED

                                    BYLAWS

                                      OF

                    INNOVATIVE SOLUTIONS AND SUPPORT, INC.


                              ARTICLE I. - OFFICE
                              -------------------

     Section 1-1.  Registered Office. The registered office of the Corporation
                   -----------------
shall be located within the Commonwealth of Pennsylvania at such place as the
Board of Directors (hereinafter referred to as the "Board of Directors" or the
"Board") shall determine from time to time.

                    ARTICLE II. - MEETINGS OF SHAREHOLDERS
                    --------------------------------------

     Section 2-1.  Place of Meetings of Shareholders. Meetings of shareholders
                   ---------------------------------
shall be held at such places, within or without the Commonwealth of
Pennsylvania, as may be fixed from time to time by the Board of Directors. If no
such place is fixed by the Board of Directors, meetings of the shareholders
shall be held at the registered office of the Corporation.

     Section 2-2.  Annual Meeting of Shareholders.
                   ------------------------------

          (a)  Time.  A meeting of the shareholders of the Corporation shall be
               ----
held in each calendar year, commencing with the year 2000, at such time as the
Board of Directors may determine.

          (b)  Election of Directors. At such annual meeting, there shall be
               ---------------------
held an election of Directors.

          (c)  Alternate Directors. At any meeting at which shareholders may
               -------------------
elect Directors, shareholders may elect an Alternate Director for each Director
elected at such meeting by the affirmative vote of such shareholders as would be
required to elect a Director.

     Section 2-3.  Special Meetings of Shareholders. Except as expressly
                   --------------------------------
required by law, special meetings of the shareholders may be called at any time
only by:

          (a)  the Chairman of the Board, if any, if such officer is serving as
the chief executive officer of the Corporation; or

          (b)  the Board of Directors.

     Upon the written request of any person who has called a special meeting,
under these Bylaws or applicable law, which request specifies the general nature
of the business to be transacted at such meeting, it shall be the duty of the
Secretary to fix the time and place of such
<PAGE>

meeting, which shall be held not less than five nor more than 60 days after the
receipt of such request, and to give due notice thereof as required by
Section 2-4 hereof. If the Secretary neglects or refuses to fix the time and
place of such meeting, the person or persons calling the meeting may do so.

     Section 2-4.  Notices of Meetings of Shareholders. Written notice,
                   -----------------------------------
complying with Article VI of these Bylaws, stating the place and time and, in
the case of special meetings, the general nature of the business to be
transacted at any meeting of the shareholders, shall be given to each
shareholder of record entitled to vote at the meeting, except as provided in
Section 1707 of the Pennsylvania Business Corporation Law of 1988, as amended
(the "Pennsylvania BCL"), at least five days prior to the day named for the
meeting, provided that notice shall be given at least ten days prior to the day
named for a meeting to consider a fundamental change under Chapter 19 of the
Pennsylvania BCL. Such notices may be given by, or at the direction of, the
Secretary or other authorized person. If the Secretary or other authorized
person neglects or refuses to give notice of a meeting, the person or persons
calling the meeting may do so.

     Section 2-5.  Quorum of and Action by Shareholders.
                   ------------------------------------

          (a)  General Rule.  Except as provided in subsections (c), (d) and (e)
               ------------
of this Section 2-5, the presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter to be acted upon at the meeting shall
constitute a quorum for the purpose of consideration and action on the matter.
To the extent that a quorum is present with respect to consideration of any
action or particular matter or matters but a quorum is not present as to any
other matter or matters, consideration of an action on the matter or matters for
which a quorum is present may occur and, after such consideration and action,
the meeting may be adjourned for purposes of the consideration of and action on
a matter or matters for which a quorum is not present. Unless the Pennsylvania
BCL permits otherwise, this Section 2-5(a) may be modified only by a Bylaw
amendment adopted by the shareholders.

          (b)  Action by Shareholders. Except as otherwise provided by law,
               ----------------------
whenever any corporate action is to be taken by vote of the shareholders of the
Corporation at a duly organized meeting of shareholders, it shall be authorized
upon receiving the affirmative vote of a majority of the votes properly cast at
the meeting with respect to such matter and, if any shareholders are entitled to
vote thereon as a class, upon receiving the affirmative vote of a majority of
the votes properly cast by the shareholders entitled to vote as a class. Unless
the Pennsylvania BCL permits otherwise, this Section 2-5(b) may be modified only
by a Bylaw amendment adopted by the shareholders.

          (c)  Withdrawal.  The shareholders present at a duly organized meeting
               ----------
can continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.

          (d)  Election of Directors at Adjourned Meetings. In the case of any
               -------------------------------------------
meeting called for the election of Directors, those shareholders who attend a
meeting called for the election of Directors that has been previously adjourned
for lack of a quorum (whether with respect to a particular matter or all matters
to be considered and acted upon at such meeting),

                                      -2-
<PAGE>

although less than a quorum as fixed in subsection (a), shall nevertheless
constitute a quorum for the purpose of electing Directors.

          (e)  Conduct of Other Business at Adjourned Meetings. Those
               -----------------------------------------------
shareholders entitled to vote who attend a meeting of shareholders that has been
previously adjourned for one or more periods aggregating at least 15 days
because of an absence of a quorum (whether with respect to a particular matter
or all matters to be considered and acted upon at such meeting), although less
than a quorum as fixed in subsection (a), shall nevertheless constitute a quorum
for the purpose of acting upon any matter set forth in the notice of meeting if
the notice states that those shareholders who attend the adjourned meeting shall
nevertheless constitute a quorum for the purpose of acting upon the matter.

     Section 2-6.  Adjournments.
                   ------------

          (a)  General Rule.  Any regular or special meeting of the
               ------------
shareholders, including one at which directors are to be elected, may be
adjourned for such period as the shareholders present and entitled to vote shall
direct.

          (b)  Lack of Quorum.  If a meeting cannot be organized because a
               ---------------
quorum has not attended, those present may, except as otherwise provided in this
Section 2-6, adjourn the meeting to such time and place as they may determine.

          (c)  Notice of an Adjourned Meeting.  When a meeting of shareholders
               ------------------------------
is adjourned, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted at an adjourned meeting, other than
by announcement at the meeting at which the adjournment is taken, unless the
Board fixes a new record date for the adjourned meeting.

     Section 2-7.  Voting List, Voting and Proxies.
                   -------------------------------

          (a)  Voting List. The officer or agent having charge of the transfer
               -----------
books for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purposes thereof, except that, if the Corporation has
5,000 or more shareholders, in lieu of making the list, the Corporation may make
the information therein available at the meeting by any other means.

          (b)  Voting.  Except as otherwise specifically provided by law, all
               ------
matters coming before the meeting shall be determined by a vote of shares. Such
vote shall be taken by voice unless the presiding officer determines, or a
shareholder demands, before the vote begins, that it be taken by ballot.

          (c)  Proxies.  At all meetings of shareholders, shareholders entitled
               -------
to vote may attend and vote either in person or by proxy. Every proxy shall be
executed in writing by the shareholder or by such shareholder's duly authorized
attorney-in-fact and filed with the Secretary of the Corporation. A proxy,
unless coupled with an interest (as defined in Section 1759(d) of the
Pennsylvania BCL), shall be revocable at will, notwithstanding any
other agreement or any

                                      -3-
<PAGE>

provision in the proxy to the contrary, but the revocation of a proxy shall not
be effective until written notice thereof has been given to the Secretary of the
Corporation. An unrevoked proxy shall not be valid after three years from the
date of its execution unless a longer time is expressly provided therein. A
proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of the
death or incapacity is given to the Secretary of the Corporation.

          (d)  Judges of Election. In advance of any meeting of shareholders of
               ------------------
the Corporation, the Board of Directors may appoint one or three Judges of
Election, who need not be shareholders and who will have such duties as provided
in Section 1765(a)(3) of the Pennsylvania BCL, to act at the meeting or any
adjournment thereof. If one or three Judges of Election are not so appointed,
the presiding officer of the meeting may, and on the request of any shareholder
shall, appoint one or three Judges of Election at the meeting. In case any
person appointed as a Judge of Election fails to appear or refuses to act, the
vacancy may be filled by appointment made by the Board of Directors in advance
of the convening of the meeting or at the meeting by the presiding officer. A
person who is a candidate for office to be filled at the meeting shall not act
as a Judge of Election. Unless the Pennsylvania BCL permits otherwise, this
Section 2-7(d) may be modified only by a Bylaw amendment adopted by the
shareholders.

     Section 2-8.  Participation in Meetings by Conference Telephone.  The Board
                   -------------------------------------------------
may provide by resolution, or the presiding officer may permit, with respect to
a particular meeting of shareholders that one or more persons may participate in
that meeting of the shareholders, be counted for the purposes of determining a
quorum and exercise all rights and privileges to which such person might be
entitled were such person personally in attendance, including the right to vote,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other. Unless the
Board so provides, or the presiding officer so permits, no person may
participate in a meeting of the shareholders by means of conference telephone or
similar communications equipment.

     Section 2-9.  No Consents in Lieu of Meeting.  No action of the
                   ------------------------------
shareholders shall be taken by either unanimous or partial written consent or
other consent in lieu of a meeting.

     Section 2-10.  Business at Meetings of Shareholders. Except as otherwise
                    ------------------------------------
provided by law (including but not limited to Rule 14a-8 of the Securities
Exchange Act of 1934, as amended, or any successor provision thereto) or in
these Bylaws, the business which shall be conducted at any meeting of the
shareholders shall (a) have been specified in the written notice of the meeting
(or any supplement thereto) given by the Corporation, (b) be brought before the
meeting at the direction of the Board of Directors, (c) be brought before the
meeting by the presiding officer of the meeting unless a majority of the
Directors then in office object to such business being conducted at the meeting,
or (d) in the case of an annual meeting of shareholders, have been specified in
a written notice given to the Secretary of the Corporation, by or on behalf of
any shareholder who shall have been a shareholder of record on the record date
for such meeting and who shall continue to be entitled to vote thereat (the
"Shareholder Notice"), in accordance with all of the following requirements:

          (a)  Each Shareholder Notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation (i) in the case
of an annual meeting that is called

                                      -4-
<PAGE>

for a date that is within 30 days before or after the anniversary date of the
immediately preceding annual meeting of shareholders, not less than 120 days nor
more than 150 days prior to the date of the Corporation's proxy statement was
released to shareholders in connection with the previous year's annual meeting
of shareholders, and (ii) in the case of an annual meeting that is called for a
date that is not within 30 days before or after the anniversary date of the
immediately preceding annual meeting, not later than the close of business on
the tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever
occurs first; and

          (b)  Each such Shareholder Notice must set forth: (i) the name and
address of the shareholder who intends to bring the business before the meeting;
(ii) the general nature of the business which such shareholder seeks to bring
before the meeting and, if a specific action is to be proposed, the text of the
resolution or resolutions which the proposing shareholder proposes that the
shareholders adopt; and (iii) a representation that the shareholder is a holder
of record of the stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to bring the business
specified in the notice before the meeting. The presiding officer of the meeting
may, in such officer's sole discretion, refuse to acknowledge any business
proposed by a shareholder not made in compliance with the foregoing procedure.

          (c)  Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2-10. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 2-10, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing provisions of
this Section 2-10, a shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this Section
2-10 and any shareholder proposal not required to be considered by such rules
need not be considered.

                       ARTICLE III. - BOARD OF DIRECTORS
                       ---------------------------------

     Section 3-1.

          (a)  General Powers.  Except as otherwise provided by law and these
               --------------
Bylaws, all powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. Unless the Pennsylvania BCL
permits otherwise, this Section 3-1(a) may be modified only by a Bylaw amendment
adopted by the shareholders.

          (b)  Number.  The number of members of the Board of Directors shall be
               ------
the number of Directors serving at the time of adoption of this Section 3-1, or
such other number as may thereafter from time to time (i) be determined by the
Board of Directors, or (ii) be set forth in a notice of a meeting of
shareholders called for the election of a full Board of Directors; provided,
that if such notice contemplates a change in the size of the Board of Directors,
such change shall take effect as of the time the election called for by the
notice is held.

                                      -5-
<PAGE>

          (c)  Classified Board of Directors.  The Directors shall be
               -----------------------------
classified, with respect to the duration of the term for which they severally
hold office, into three classes (denominated Class I, Class II and Class III) as
nearly equal in number as reasonably possible. The Board of Directors shall
increase or decrease the number of Directors in one or more classes as may be
appropriate whenever it increases or decreases the number of Directors in order
to ensure that the three classes shall be as nearly equal in number as
reasonably as possible. The term of office of the initial Class I Directors
shall expire at the annual meeting of shareholders in 2001, the term of office
of the initial Class II Directors shall expire at the annual meeting of
shareholders in 2002 and the term of office of the initial Class III directors
shall expire at the annual meeting of shareholders in 2003. At the annual
meeting of shareholders, beginning in 2000, the successors of the class of
Directors whose term expires at the meeting shall be elected to hold office for
a term expiring at the annual meeting of shareholders held in the third year
following the year of their election. When a Director is elected, such
director's class shall be identified.

          (d)  Term; Vacancies.  Each Director shall hold office until the
               ---------------
expiration of the term for which he was selected and until his successor has
been selected and qualified or until his earlier death, resignation or removal.
Any vacancies on the Board of Directors, including vacancies resulting from an
increase in the number of Directors, may be filled by a majority vote of the
remaining members of the Board (though less than a quorum) or by a sole
remaining Director or by the shareholders and each person so selected shall be a
Director to serve for the balance of the unexpired term. A director elected to
fill a vacancy on the Board shall be elected for a term expiring at the annual
meeting when the term of a Director in such class would naturally expire.

          (e)  Qualification.  A Director must be a natural person at least 18
               -------------
years of age.

     Section 3-2.  Place of Meetings.  Meetings of the Board of Directors may be
                   -----------------
held at such place within or without the Commonwealth of Pennsylvania as a
majority of the Directors may determine from time to time or as may be
designated in the notice of the meeting.

     Section 3-3.  Regular Meetings.  A regular meeting of the Board of
                   ----------------
Directors shall be held annually, immediately following the annual meeting of
the shareholders, at the place where such meeting of the shareholders is held or
at such other place and time as a majority of the Directors in office after the
annual meeting of shareholders may designate. At such meeting, the Board of
Directors shall elect officers of the Corporation. In addition to such regular
meeting, the Board of Directors shall have the power to fix by resolution the
place and time of other regular meetings of the Board.

     Section 3-4.  Special Meetings.  Special meetings of the Board of
                   ----------------
Directors shall be held whenever ordered by the Chairman of the Board, if any,
by the President, by a majority of the executive committee of the Board, if any,
or by a majority of the Directors in office.

     Section 3-5.  Participation in Meetings by Conference Telephone. Any
                   -------------------------------------------------
Director may participate in any meeting of the Board of Directors or of any
committee (provided such Director is otherwise entitled to participate), be
counted for the purpose of determining a quorum thereof and exercise all rights
and privileges to which such Director might be entitled were he or she
personally in attendance, including the right to vote, or any other rights
attendant to presence in

                                      -6-
<PAGE>

person at such meeting, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.

     Section 3-6.  Notices of Meetings of Board of Directors.
                   -----------------------------------------

          (a)  Regular Meetings.  No notice shall be required to be given of any
               ----------------
regular meeting, unless the same is held at other than the place or time for
holding such meeting as fixed in accordance with Section 3-3 of these Bylaws, in
which event five days' notice shall be given of the place and time of such
meeting complying with Article VI of these Bylaws.

          (b)  Special Meetings. Written notice stating the place and time of
               ----------------
any special meeting of the Board of Directors shall be sufficient if given at
least one day, as provided in Article VI, in advance of the time fixed for the
meeting.

     Section 3-7.  Quorum; Action by the Board of Directors. A majority of the
                   ----------------------------------------
Directors in office shall be necessary to constitute a quorum for the
transaction of business and the acts of a majority of the Directors present and
voting at a meeting at which a quorum is present shall be the acts of the Board
of Directors. If there is no quorum present at a duly convened meeting of the
Board of Directors, the majority of those present may adjourn the meeting from
time to time and place to place.

     Section 3-8.  Action by Unanimous Consent of the Board of Directors. Any
                   -----------------------------------------------------
action required or permitted to be taken at a meeting of the Directors, or of
the members of any committee of the Board of Directors, may be taken without a
meeting if, prior or subsequent to the action, a written consent or consents
thereto by all of the Directors in office (or all of the members of the
committee with respect to committee action) is filed with the Secretary of the
Corporation. In addition to other means of filing with the Secretary, insertion
of such consent in the minute book of the Corporation shall be deemed filing
with the Secretary regardless of whether the Secretary or some other authorized
person has actual possession of the minute book. Written consents by all of the
directors or committee members, as the case may be, executed pursuant to this
Section 3-8 may be executed in any number of counterparts and shall be deemed
effective as of the date set forth therein.

     Section 3-9.  Committees.
                   ----------

          (a)  Establishment and Powers. The Board of Directors of the
               ------------------------
Corporation may, by resolution adopted by a majority of the Directors in office,
establish one or more committees to consist of one or more Directors of the
Corporation. Any committee, to the extent provided in the resolution of the
Board of Directors or in the Bylaws, shall have and may exercise all of the
powers and authority of the Board of Directors, except that a committee shall
not have any power or authority as to the following:

                    (i)    The submission to shareholders of any action
requiring approval of shareholders under the Pennsylvania BCL.

                    (ii)   The creation or filling of vacancies in the Board of
Directors.

                    (iii)  The adoption, amendment or repeal of the Bylaws.

                                      -7-
<PAGE>

                    (iv)   The amendment or repeal of any resolution of the
Board of Directors that by its terms is amendable or repealable only by the
Board of Directors.

                    (v)    Action on matters committed by the Bylaws or
resolution of the Board of Directors to another committee of the Board of
Directors.

          (b)  Alternate Members.  The Board of Directors may designate one or
               -----------------
more Directors as alternate members of any committee who may replace any absent
or disqualified member at any meeting of the committee or for the purpose of any
written action by the committee. In the absence or disqualification of a member
and alternate member or members of a committee, the member or members thereof
present at a meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of the absent or disqualified member.

          (c)  Term.  Each committee of the Board of Directors shall serve at
               ----
the pleasure of the Board of Directors.

          (d)  Status of Committee Action.  The term "Board of Directors" or
               --------------------------
"Board," when used in any provision of these Bylaws relating to the organization
or procedures of or the manner of taking action by the Board of Directors, shall
be construed to include and refer to any executive or other committee of the
Board of Directors. Any provision of these Bylaws relating or referring to
action to be taken by the Board of Directors or the procedure required therefor
shall be satisfied by the taking of corresponding action by a committee of the
Board of Directors to the extent authority to take the action has been delegated
to the committee pursuant to this Section.

     Section 3-10.  Nominations.  Notwithstanding the provisions of Section 2-10
                    -----------
of these Bylaws (dealing with business at meetings of shareholders), nominations
for the election of Directors may be made by only the Board of Directors, a
committee appointed by the Board of Directors or by any shareholder of record
entitled to vote in the election of Directors who is a shareholder at the record
date of the meeting and also on the date of the meeting at which Directors are
to be elected; provided, however, that with respect to a nomination made by a
shareholder, such shareholder must provide timely written notice to the
President of the Corporation in accordance with the following requirements,
except as otherwise provided by law:

          (a)  To be timely, a shareholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Corporation
addressed to the attention of the President (i) in the case of an annual meeting
that is called for a date that is within 30 days before or after the anniversary
date of the immediately preceding annual meeting of shareholders, not less than
120 days nor more than 150 days prior to the date the Corporation's proxy
statement was released to shareholders in connection with the previous year's
annual meeting of shareholders, and (ii) in the case of an annual meeting that
is called for a date that is not within 30 days before or after the anniversary
date of the immediately preceding annual meeting, or in the case of a special
meeting of shareholders called for the purpose of electing Directors, not later
than the close of business on the tenth day following the day on which notice of
the date of

                                      -8-
<PAGE>

the meeting was mailed or public disclosure of the date of the meeting was made,
whichever occurs first; and

          (b)  Each such written notice must set forth: (i) the name and address
of the shareholder who intends to make the nomination; (ii) the name and address
of the person or persons to be nominated; (iii) a representation that the
shareholder is a holder of record of shares of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iv) a description of
all arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (v) such other
information regarding each nominee proposed by such shareholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, by the Board of Directors; and (vi) the written
consent of each nominee to serve as a Director of the Corporation if so elected.
The presiding officer of the meeting may refuse, in such officer's sole
discretion, to acknowledge the nomination of any person as not made in
compliance with the foregoing procedure.

          (c)  No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3-10. The Chairman of the meeting shall, as the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 3-10, and if he should do determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Section 3-10, a
shareholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 3-10 and any shareholder
proposal not required to be considered by such rules need not be considered.

     Section 3-11.  Alternate Directors.  In the absence of a Director from any
                    -------------------
meeting of the Board of Directors, the Alternate Director of such Director,
elected pursuant to Section 2-2(c) of these Bylaws, may attend the meeting or
execute written consent to exercise all powers, rights and privileges of the
absent Director.  For the purposes of these Bylaws, the term "Directors" shall
include the Alternate Directors except that an Alternate Director shall be
entitled to exercise the powers, rights and privileges of a Director only upon
the absence of the Director whom the Alternate Director represents.

     Section 3-12.  Payments to Directors.  Directors may be reimbursed for the
                    ---------------------
expenses of attending Board meetings and committee meetings and may be paid a
fixed sum for attendance at each meeting or such other compensation for their
services as may, from time to time, be fixed by the Board of Directors.  No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.

     Section 3-13.  Distributions.  The Directors may, to the extent permitted
                    -------------
by law, authorize and the Corporation may make distributions from time to time.

                                      -9-
<PAGE>

                            ARTICLE IV.  - OFFICERS
                            -----------------------

     Section 4-1.   Election and Office.  The Corporation shall have a
                    -------------------
President, a Secretary and a Treasurer who shall be elected by the Board of
Directors. The Board of Directors may elect as additional officers a Chairman of
the Board, one or more Vice Chairmen of the Board, one or more Vice Presidents,
a Chief Financial Officer, and one or more other officers or assistant officers.
Any number of offices may be held by the same person. The President and the
Secretary shall be natural persons of the age of 18 years or older. The
Treasurer may be a corporation, but if a natural person shall be of the age of
18 years or older.

     Section 4-2.   Term.  The officers and assistant officers shall each serve
                    ----
at the pleasure of the Board of Directors until the first meeting of the Board
of Directors following the next annual meeting of shareholders, unless removed
from office by the Board of Directors during their respective tenures. Officers
may, but need not, be Directors.

     Section 4-3.   Powers and Duties of the President.  Unless otherwise
                    ----------------------------------
determined by the Board of Directors, the President shall have the usual duties
of an executive officer with general supervision over and direction of the
affairs of the Corporation. The President shall be the chief executive officer
of the Corporation unless the Chairman of the Board is serving as chief
executive officer, in which event the President shall be chief operating officer
of the Corporation. In the exercise of these duties and subject to the actions
and directions of the Board of Directors, the President may appoint, suspend,
and discharge employees, agents and assistant officers, fix the compensation of
all officers and assistant officers, shall preside at all meetings of the
shareholders at which the President shall be present and, unless there is a
Chairman of the Board, shall preside at all meetings of the Board of Directors.
The President shall also do and perform such other duties as from time to time
may be assigned to the President by the Board of Directors.

     Unless otherwise determined by the Board of Directors, the President shall
have full power and authority on behalf of the Corporation to attend and to act
and to vote at any meeting of the shareholders of any corporation in which this
Corporation may hold stock and, at any such meeting, shall possess and may
exercise any and all the rights and powers incident to the ownership of such
stock and which, as the owner thereof, the Corporation might have possessed and
exercised. The President shall also have the right to delegate such power.

     Section 4-4.   Powers and Duties of the Secretary.  Unless otherwise
                    ----------------------------------
determined by the Board of Directors, the Secretary shall be responsible for the
keeping of the minutes of all meetings of the Board of Directors and the
shareholders, in books provided for that purpose, and for the giving and serving
of all notices for the Corporation. The Secretary shall perform all other duties
ordinarily incident to the office of Secretary and shall have such other powers
and perform such other duties as may be assigned to the Secretary by the Board
of Directors. The minute books of the Corporation may be held by a person other
than the Secretary.

     Section 4-5.   Powers and Duties of the Treasurer.  Unless otherwise
                    ----------------------------------
determined by the Board of Directors, the Treasurer shall have charge of all the
funds and securities of the Corporation which may come into such officer's
hands. When necessary or proper, unless otherwise determined by the Board of
Directors, the Treasurer shall endorse for collection on

                                      -10-
<PAGE>

behalf of the Corporation checks, notes and other obligations, and shall deposit
the same to the credit of the Corporation to such banks or depositories as the
Board of Directors may designate and may sign all receipts and vouchers for
payments made to the Corporation. The Treasurer shall sign all checks made by
the Corporation, except when the Board of Directors shall otherwise direct. The
Treasurer shall be responsible for the regular entry in books of the Corporation
to be kept for such purpose of a full and accurate account of all funds and
securities received and paid by the Treasurer on account of the Corporation.
Whenever required by the Board of Directors, the Treasurer shall render a
statement of the financial condition of the Corporation. The Treasurer shall
have such other powers and shall perform the duties as may be assigned to such
officer from time to time by the Board of Directors. The Treasurer shall give
such bond, if any, for the faithful performance of the duties of such office as
shall be required by the Board of Directors. If the Corporation has a Chief
Financial Officer, the Chief Financial Officer shall have such power and
authority as determined by the Board of Directors, including without limitation,
the powers provided herein of the Treasurer.

     Section 4-6.   Powers and Duties of the Chairman of the Board.  Unless
                    ----------------------------------------------
otherwise determined by the Board of Directors, the Chairman of the Board, if
any, shall preside at all meetings of Directors. The Chairman of the Board shall
have such other powers and perform such further duties as may be assigned to
such officer by the Board of Directors, including, without limitation, acting as
chief executive officer of the Corporation. To be eligible to serve, the
Chairman of the Board must be a Director of the Corporation.

     Section 4-7.   Powers and Duties of Vice Chairmen of the Board, Vice
                    -----------------------------------------------------
Presidents and Assistant Officers. Unless otherwise determined by the Board of
- ---------------------------------
Directors, each Vice Chairman, Vice President and each assistant officer shall
have the powers and perform the duties of his or her respective superior
officer. Vice Presidents and assistant officers shall have such rank as may be
designated by the Board of Directors. Vice Presidents may be designated as
having responsibility for a specific area of the Corporation's affairs, in which
event such Vice President shall be superior to the other Vice Presidents in
relation to matters within his or her area. The President shall be the superior
officer of the Vice Presidents. The Chairman of the Board shall be the superior
officer of the Vice Chairmen. The Treasurer and Secretary shall be the superior
officers of the Assistant Treasurers and Assistant Secretaries, respectively.

     Section 4-8.   Delegation of Office.  The Board of Directors may delegate
                    --------------------
the powers or duties of any officer of the Corporation to any other person from
time to time.

     Section 4-9.   Vacancies.  The Board of Directors shall have the power to
                    ---------
fill any vacancies in any office occurring for any reason.

                          ARTICLE V. - CAPITAL STOCK
                          --------------------------

     Section 5-1.   Share Certificates.
                    ------------------

               (a)  Execution.  Except as otherwise provided in Section 5-5, the
                    ---------
shares of the Corporation shall be represented by certificates. Unless otherwise
provided by the Board of Directors, every share certificate shall be signed by
two officers and sealed with the corporate seal, which may be a facsimile,
engraved or printed, but where such certificate is signed by a

                                      -11-
<PAGE>

transfer agent or a registrar, the signature of any corporate officer upon such
certificate may be a facsimile, engraved or printed. In case any officer who has
signed, or whose facsimile signature has been placed upon, any share certificate
shall have ceased to be such officer because of death, resignation or otherwise,
before the certificate is issued, it may be issued with the same effect as if
the officer had not ceased to be such at the date of its issue. The provisions
of this Section 5-1 shall be subject to any inconsistent or contrary agreement
at the time between the Corporation and any transfer agent or registrar.

          (b)  Designations, etc. To the extent the Corporation is authorized to
               -----------------
issue shares of more than one class or series, every certificate shall set forth
upon the face or back of the certificate (or shall state on the face or back of
the certificate that the Corporation will furnish to any shareholder upon
request and without charge) a full or summary statement of the designations,
voting rights, preferences, limitations and special rights of the shares of each
class or series authorized to be issued so far as they have been fixed and
determined and the authority of the Board of Directors to fix and determine the
designations, voting rights, preferences, limitations and special rights of the
classes and series of shares of the Corporation.

          (c)  Fractional Shares.  Except as otherwise determined by the Board
               -----------------
of Directors, shares or certificates therefor may be issued as fractional shares
for shares held by any dividend reinvestment plan or employee benefit plan
created or approved by the Corporation's Board of Directors, but not by any
other person.

     Section 5-2.   Transfer of Shares. Transfer of certificated shares shall be
                    ------------------
made on the books of the Corporation only upon surrender of the share
certificate, duly endorsed or with duly executed stock powers attached and
otherwise in proper form for transfer, which certificate shall be cancelled at
the time of the transfer. In the event the Board authorizes uncertificated
shares, as permitted by the Corporation's Articles of Incorporation, the Board
shall adopt alternative procedures for registration of transfers of such
uncertificated shares.

     Section 5-3.   Determination of Shareholders of Record.
                    ---------------------------------------

          (a)  Fixing Record Date.  The Board of Directors of the Corporation
               ------------------
may fix a time prior to the date of any meeting of shareholders as a record date
for the determination of the shareholders entitled to notice of, or to vote at,
the meeting, which time, except in the case of an adjourned meeting, shall be
not more than 90 days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the Corporation after any record date
fixed as provided in this subsection. The Board of Directors may similarly fix a
record date for the determination of shareholders of record for any other
purpose. When a determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the Board of Directors fixes a new
record date for the adjourned meeting.

          (b)  Determination when No Record Date Fixed.  If a record date is not
               ---------------------------------------
fixed:

                    (i)  The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the day next preceding

                                      -12-
<PAGE>

the day on which notice is given or, if notice is waived, at the close of
business on the day immediately preceding the day on which the meeting is held.

               (ii) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.

          (c)  Certification by Nominee.  The Board of Directors may adopt a
               ------------------------
procedure whereby a shareholder of the Corporation may certify in writing to the
Corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. The
resolution of the Board of Directors may set forth:

               (i)    the classification of shareholder who may certify;

               (ii)   the purpose or purposes for which the certification may be
made;

               (iii)  the form of certification and information to be contained
therein;

               (iv)   if the certification is with respect to a record date, the
time after the record date within which the certification must be received by
the Corporation; and

               (v)    such other provisions with respect to the procedure as are
deemed necessary or desirable.

     Upon receipt by the Corporation of a certification complying with the
procedure, the persons specified in the certification shall be deemed, for the
purposes set forth in the certification, to be the holders of record of the
number of shares specified in place of the shareholder making the certification.

     Section 5-4.   Lost Share Certificates.  Unless waived in whole or in part
                    -----------------------
by the Board of Directors, any person requesting the issuance of a new
certificate in lieu of an alleged lost, destroyed, mislaid or wrongfully taken
certificate shall (a) give to the Corporation his or her bond of indemnity with
an acceptable surety, and (b) satisfy such other requirements as may be imposed
by the Corporation. Thereupon, a new share certificate shall be issued to the
registered owner or his or her assigns in lieu of the alleged lost, destroyed,
mislaid or wrongfully taken certificate, provided that the request therefor and
issuance thereof have been made before the Corporation has notice that such
shares have been acquired by a bona fide purchaser.

                ARTICLE VI. - NOTICES - COMPUTING TIME PERIODS
                ----------------------------------------------

     Section 6-1.   Contents of Notice.  Whenever any notice of a meeting is
                    ------------------
required to be given pursuant to these Bylaws, the Corporation's Articles of
Incorporation (the "Articles") or otherwise, the notice shall specify: (a) the
place, date and time of the meeting; (b) in the case of a special meeting of
shareholders or where otherwise required by law or the Bylaws, the general
nature of the business to be transacted at such meeting; and (c) any other
information required by law.

                                      -13-
<PAGE>

     Section 6-2.   Method of Notice.  Whenever written notice is required to be
                    ----------------
given to any person under the provisions of the Articles or these Bylaws, it may
be given to the person either personally or by sending a copy thereof by first
class or express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answerback received) or courier service, charges
prepaid, or by facsimile transmission, to such person's address (or to such
person's telex, TWX, telecopier or telephone number) appearing on the books of
the Corporation or, in the case of Directors, supplied by such Director to the
Corporation for the purpose of notice. If the notice is sent by mail, telegraph
or courier service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
courier service for delivery to that person or, in the case of telex or TWX,
when dispatched. Except as otherwise provided herein, or as otherwise directed
by the Board of Directors, notices of meetings may be given by, or at the
direction of, the Secretary.

     Section 6-3.   Computing Time Periods.
                    ----------------------

          (a)  Days to be Counted.  In computing the number of days for purposes
               ------------------
of these Bylaws, all days shall be counted, including Saturdays, Sundays or a
holiday on which national banks are or may elect to be closed ("Holiday");
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or Holiday, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or Holiday. In computing the number of days for the
purpose of giving notice of any meeting, the date upon which the notice is given
shall be counted but the day set for the meeting shall not be counted.

          (b)  One Day Notice.  In any case where only one day's notice is being
               --------------
given, notice must be given at least 24 hours in advance of the date and time
specified for the meeting in question, by delivery in person, telephone, telex,
TWX, facsimile or similar means of communication.

     Section 6-4.   Waiver of Notice.  Whenever any notice is required to be
                    ----------------
given by law or the Articles or these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to the notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of the notice.
Except as otherwise required by law or the next sentence, neither the business
to be transacted at, nor the purpose of, a meeting need be specified in the
waiver of notice of the meeting. In the case of a special meeting of
shareholders, the waiver of notice shall specify the general nature of the
business to be transacted. Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.

     Section 6-5.   Modification of Proposal Contained in Notice.  Whenever the
                    --------------------------------------------
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Pennsylvania BCL or the
Articles or these Bylaws, the meeting considering the resolution may, without
further notice, adopt it with such clarifying or other amendments as do not
enlarge its original purpose.

     Section 6-6.   Bulk Mail.  If the Corporation has more than 30
                    ---------
shareholders, notice of any regular or special meeting of the shareholders, or
any other notice required by the

                                      -14-
<PAGE>

Pennsylvania BCL or by the Articles of these Bylaws to be given to all
shareholders or to all holders of a class or a series of shares, may be given by
any class of post-paid mail if the notice is deposited in the United States mail
at least 20 days prior to the day named for the meeting or any corporate or
shareholder action specified in the notice.

     Section 6-7.   Shareholder without Forwarding Addresses.  Notice or other
                    ----------------------------------------
communications need not be sent to any shareholder with whom the Corporation has
been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the Corporation with a current address.  Whenever
the shareholder provides the Corporation with a current address, the Corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.

             ARTICLE VII. - LIMITATION OF DIRECTORS' LIABILITY AND
             -----------------------------------------------------
           INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
           --------------------------------------------------------

     Section 7-1.   Limitation of Directors' Liability.  No Director of the
                    ----------------------------------
Corporation shall be personally liable for monetary damages as such for any
action taken or any failure to take any action unless: (a) the Director has
breached or failed to perform the duties of his or her office under the
Pennsylvania BCL, and (b) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness; provided, however, that the
provisions of this Section shall not apply to the responsibility or liability of
a Director pursuant to any criminal statute, or to the liability of a Director
for the payment of taxes pursuant to local, Pennsylvania or federal law.

     Section 7-2.   Indemnification and Insurance.
                    -----------------------------

          (a)  Indemnification of Directors and Officers.
               -----------------------------------------

                    (i)    Each Indemnitee (as defined below) shall be
indemnified and held harmless by the Corporation for all actions taken by him or
her and for all failures to take action (regardless of the date of any such
action or failure to take action) to the fullest extent permitted by
Pennsylvania law against all expense, liability and loss (including without
limitation attorneys fees, judgments, fines, taxes, penalties, and amounts paid
or to be paid in settlement) reasonably incurred by or imposed upon the
Indemnitee in connection with any Proceeding (as defined below). No
indemnification pursuant to this Section shall be made, however, in any case
where the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.

                    (ii)   The right to indemnification provided in this Section
shall include the right to have the expenses incurred by the Indemnitee in
defending any Proceeding paid by the Corporation in advance of the final
disposition of the Proceeding to the fullest extent permitted by Pennsylvania
law; provided that, if Pennsylvania law continues so to require, the payment of
such expenses incurred by the Indemnitee in advance of the final disposition of
a Proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of the Indemnitee, to repay all amounts so advanced
without interest if it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified under this Section or otherwise.

                                      -15-
<PAGE>

                    (iii)  Indemnification pursuant to this Section shall
continue as to an Indemnitee who has ceased to be a Director or officer and
shall inure to the benefit of his or her heirs, executors and administrators.

                    (iv)   For purposes of this Article, (A) "Indemnitee" shall
mean each Director or officer of the Corporation who was or is a party to, or is
threatened to be made a party to, or is otherwise involved in, any Proceeding,
by reason of the fact that he or she is or was a Director or officer of the
Corporation or is or was serving in any capacity at the request or for the
benefit of the Corporation as a director, officer, employee, agent, partner, or
fiduciary of, or in any other capacity for, another corporation or any
partnership, joint venture, trust, employee benefit plan, or other enterprise;
and (B) "Proceeding" shall mean any threatened, pending or completed action,
suit or proceeding (including without limitation an action, suit or proceeding
by or in the right of the Corporation), whether civil, criminal, administrative,
investigative or through arbitration.

          (b)  Indemnification of Employees and Other Persons.  The Corporation
               ----------------------------------------------
may, by action of its Board of Directors and to the extent provided in such
action, indemnify employees and other persons as though they were Indemnitees.
To the extent that an employee or agent of the Corporation has been successful
on the merits or otherwise in defense of any Proceeding or in defense of any
claim, issue or matter therein, the Corporation shall indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.

          (c)  Non-Exclusivity of Rights.  The rights to indemnification and to
               -------------------------
the advancement of expenses provided in this Article shall not be exclusive of
any other rights that any person may have or hereafter acquire under any
statute, provision of the Articles or Bylaws, agreement, vote of shareholders or
Directors, or otherwise.

          (d)  Insurance.  The Corporation may purchase and maintain insurance,
               ---------
at its expense, for the benefit of any person on behalf of whom insurance is
permitted to be purchased by Pennsylvania law against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person under Pennsylvania or other law. The Corporation may also purchase and
maintain insurance to insure its indemnification obligations whether arising
hereunder or otherwise.

          (e)  Fund For Payment of Expenses.  The Corporation may create a fund
               ----------------------------
of any nature, which may, but need not be, under the control of a trustee, or
otherwise may secure in any manner its indemnification obligations, whether
arising hereunder, under the Articles, by agreement, vote of shareholders or
Directors, or otherwise.

     Section 7-3.   Amendment.  The provisions of this Article VII relating to
                    ---------
the limitation of Directors' liability, to indemnification and to the
advancement of expenses shall constitute a contract between the Corporation and
each of its Directors and officers which may be modified as to any Director or
officer only with that person's consent or as specifically provided in this
Section. Notwithstanding any other provision of these Bylaws relating to their
amendment generally, any repeal or amendment of this Article VII which is
adverse to any Director or officer shall apply to such Director or officer only
on a prospective basis, and shall not reduce

                                      -16-
<PAGE>

any limitation on the personal liability of a Director of the Corporation, or
limit the rights of an Indemnitee to indemnification or to the advancement of
expenses with respect to any action or failure to act occurring prior to the
time of such repeal or amendment. Notwithstanding any other provision of these
Bylaws, no repeal or amendment of these Bylaws shall affect any or all of this
Article so as either to reduce the limitation of Directors' liability or limit
indemnification or the advancement of expenses in any manner unless adopted by
(a) the unanimous vote of the Directors of the Corporation then serving, or (b)
the affirmative vote of shareholders entitled to cast not less than a majority
of the votes that all shareholders are entitled to cast in the election of
Directors; provided that no such amendment shall have retroactive effect
inconsistent with the preceding sentence.

     Section 7-4.   Changes in Pennsylvania Law.  References in this Article VII
                    ---------------------------
to Pennsylvania law or to any provision thereof shall be to such law as it
existed on the date this Article VII was adopted or as such law thereafter may
be changed; provided that (a) in the case of any change which expands the
liability of Directors or limits the indemnification rights or the rights to
advancement of expenses which the Corporation may provide, the rights to limited
liability, to indemnification and to the advancement of expenses provided in
this Article shall continue as theretofore to the extent permitted by law; and
(b) if such change permits the Corporation without the requirement of any
further action by shareholders or Directors to limit further the liability of
Directors (or limit the liability of officers) or to provide broader
indemnification rights or rights to the advancement of expenses than the
Corporation was permitted to provide prior to such change, then liability
thereupon shall be so limited and the rights to indemnification and the
advancement of expenses shall be so broadened to the extent permitted by law.

                          ARTICLE VIII. - FISCAL YEAR
                          ---------------------------

     Section 8-1.   Determination of Fiscal Year.  The Board of Directors shall
                    ----------------------------
have the power by resolution to fix the fiscal year of the Corporation. If the
Board of Directors shall fail to do so, the President shall fix the fiscal year.

                           ARTICLE IX. - AMENDMENTS
                           ------------------------

     Section 9-1.   Except as otherwise expressly provided in Section 7-3:

          (a)  Shareholders.  The shareholders entitled to vote thereon shall
               ------------
have the power to alter, amend, or repeal these Bylaws, by the vote of
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast thereon, at any regular or special meeting,
duly convened after notice to the shareholders of such purpose. In the case of a
meeting of shareholders to amend or repeal these Bylaws, written notice shall be
given to each shareholder that the purpose, or one of the purposes, of the
meeting is to consider the adoption, amendment or repeal of the Bylaws.

          (b)  Board of Directors.  The Board of Directors (but not a committee
               ------------------
thereof), by a vote of the majority of Directors then in office, shall have the
power to alter, amend, and repeal these Bylaws, regardless of whether the
shareholders have previously adopted the Bylaw being amended or repealed,
subject to the power of the shareholders to change such action, provided

                                      -17-
<PAGE>

that the Board of Directors shall not have the power to amend these Bylaws on
any subject that is expressly committed to the shareholders by the express terms
hereof, by Section 1504 of the Pennsylvania BCL or otherwise.

             ARTICLE X. - INTERPRETATION OF BYLAWS - SEPARABILITY
             ----------------------------------------------------

     Section 10-1.  Interpretation.  All words, terms and provisions of these
                    --------------
Bylaws shall be interpreted and defined by and in accordance with the
Pennsylvania BCL. If any provision of these Bylaws shall be inconsistent with
any provision of the Articles, the provision of the Articles shall prevail.
Where any provision of these Bylaws refers to a rule or process as set forth in
these Bylaws, the reference shall be construed to include and be satisfied by
any rule or process on the same subject set forth in the Articles.

     Section 10-2.  Separability.  The provisions of these Bylaws are
                    ------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.

                  ARTICLE XI. - DETERMINATIONS BY THE BOARD
                  -----------------------------------------

     Section 11-1.  Effect of Board Determinations.  Any determination involving
                    ------------------------------
interpretation or application of these Bylaws made in good faith by the Board of
Directors shall be final, binding and conclusive on all parties in interest.

                                      -18-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>OPINION OF COZEN AND O'CONNOR.
<TEXT>

<PAGE>

                                                                       Exhibit 5

                        [LETTERHEAD OF COZEN AND O'CONNOR]


                                 July 12, 2000


Innovative Solutions and Support, Inc.
420 Lapp Road
Malvern, PA  19355

          Re:  Registration Statement on Form S-1
               File No. 333-36584
               ----------------------------------

Ladies and Gentlemen:

     We have acted as counsel to Innovative Solutions and Support, Inc., a
Pennsylvania corporation (the "Company"), in connection with the preparation of
the Company's Registration Statement on Form S-1, File No. 333-36584 (the
"Registration Statement"), relating to the registration by the Company under the
Securities Act of 1933 of 3,450,000 shares (the "Shares") of the Company's
common stock, $.001 par value, to be sold by the Company, including up to
450,000 Shares which the underwriters will have an option to purchase from the
Company solely for the purpose of covering over-allotments.

     In rendering our opinion set forth below, we have examined such documents,
corporate records, certificates and other instruments as we have deemed
relevant. In our examination of such documents, records, certificates and other
instruments, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity to original
documents of all copies submitted to us as conformed, photostatic or other
copies. As to matters of fact which have not been independently established, we
have relied upon representations of officers of the Company.

     Based upon the foregoing, it is our opinion that the Shares, when sold in
accordance with the plan of distribution set forth in the Registration
Statement, will be validly issued, fully paid and nonassessable.

     We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the prospectus
caption "Legal Matters" in the
<PAGE>

Innovative Solutions and Support, Inc.
July 12, 2000
Page 2

- -------------------------------


Registration Statement. In giving such opinion, we do not thereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.

                                    Very truly yours,



                                    /s/ COZEN AND O'CONNOR
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>FORM OF WARRANT AGREEMENT
<TEXT>

<PAGE>

                                                                    Exhibit 10.7

                            [SEE LEGENDS ON PAGE 12]

No. W-__            No. of Shares Subject to Warrant: _________


     Void after 5:00 p.m. Philadelphia, Pennsylvania Time on June 24, 2004.


                       WARRANT TO PURCHASE OF COMMON STOCK

                                       OF

                 INNOVATIVE SOLUTIONS AND SUPPORT, INCORPORATED




                  This is to certify that, for value received,


     [See Schedule "A" hereto setting forth the parties to warrants]

("Holder") is entitled to purchase, subject to the provisions of this Warrant,
from Innovative Solutions and Support, Incorporated, a Pennsylvania corporation
("Company"), ______ shares of Common Stock, $.001 par value, of the Company
("Common Stock"), at a price per share equal to $2.40 at any time during the
period beginning June 24, 1997 and ending 5:00 p.m., Philadelphia, Pennsylvania
time, on June 24, 2004. The number of shares of Common Stock to be received upon
the exercise of this Warrant and the price to be paid for a share of Common
Stock may be adjusted from time to time as hereinafter set forth. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares," and the exercise
price of a share of Common Stock in effect at any time and as adjusted from time
to time is hereinafter sometimes referred to as the "Exercise Price."

     (a) EXERCISE OF WARRANT. Subject to the provision of Section (h) hereof,
this Warrant may be exercised in whole or in part at any time or from time to
time on or after June 24, 1997 and until 5:00 p.m., Philadelphia, Pennsylvania
time, on June 24, 2004 or, if either such day is a day on which banking
institutions in the Commonwealth of Pennsylvania are authorized by law to close,
then on the next succeeding day which shall not be such a day, by presentation
and surrender hereof to the Company at its principal office, or at the office of
its stock transfer agent, with the Purchase Form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of shares
specified in such form, in lawful money of the United States of America in cash
or by official bank or certified check made payable to Innovative Solutions and
Support, Incorporated. If this Warrant shall be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable thereunder. Upon receipt by the Company of
this Warrant at its office, or by the
<PAGE>

stock transfer agent of the Company at is office, in proper form for exercise
and together with payment of the Exercise Price in the manner provided herein,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock or other securities issuable upon such exercise, provided, however, that
if at the date of surrender of such Warrants and payment of such Exercise Price,
the transfer books for the Common Stock or such other securities shall be
closed, the certificates for the shares of other securities in respect of which
such Warrants are then exercised shall be issuable as of the date on which such
books shall next be opened and until such date the Company shall be under no
duty to deliver any certificate for such shares or other securities and the
Holder shall not be deemed to have become a holder of record of such shares or
the owner of any such other securities.

     (b) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance and delivery upon exercise of this Warrant.

     (c) FRACTIONAL SHARES. The Company shall not be required to issue fractions
of shares on the exercise of Warrants. If any fraction of a share would, except
for the provisions of this Section, be issuable on the exercise of any Warrant,
the Company will (1) if the fraction of a share otherwise issuable is equal to
or less than one-half, round down and issue to the Holder only the largest whole
number of shares of Common Stock to which the Holder is otherwise entitled, or
(2) if the fraction of a share otherwise issuable is greater than one-half,
round-up and issue to the Holder one additional share of Common Stock in
addition to the largest whole number of shares of Common Stock to which the
holder is otherwise entitled.

     (d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to the provisions of Section (h), upon
surrender of this Warrant to the Company or at the office of its stock transfer
agent, if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any applicable transfer tax, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be cancelled. This
Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation hereof at the office of the Company or at the office of
its stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of such
indemnification as the Company may in its discretion impose, and upon surrender
and cancellation of this Warrant, if mutilated, the Company will execute and
deliver a new Warrant of like tenor and date.

     (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of

                                      -2-
<PAGE>

the Holder are limited to those expressed in the warrant and are not enforceable
against the Company except to the extent set forth herein.

     (f) ANTI-DILUTION PROVISIONS. The Exercise Price and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time as hereinafter provided:

         (1) In the case of Company shall issue Common Stock as a dividend upon
Common Stock or in payment of a dividend thereon, shall subdivide the number of
outstanding shares of its Common Stock into a greater number of shares or shall
contract the number of outstanding shares of its Common Stock into a lesser
number of shares, the Exercise Price then in effect shall be adjusted, effective
at the close of business on the record date for the determination of
stockholders entitled to receive such dividend or be subject to such subdivision
or contraction, to the price (computed to the nearest cent) determined by
dividing (A) the product obtained by multiplying the Exercise Price in effect
immediately prior to the close of business on such record date by the number of
shares of Common Stock outstanding prior to such dividend, subdivision or
contraction, by (B) the sum of the number of shares of Common Stock outstanding
immediately after such dividend, subdivision, or contraction.

         (2) If any capital reorganization or reclassification of the capital
stock of the Company (other than as set forth in subsection (1) of this Section
(f)), or consolidation or merger of the Company with another corporation, or the
sale of all or substantially all of its assets to another corporation shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder of each Warrant shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified in the
Warrant and in lieu of the shares of Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by such Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented by such Warrant had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interest of the Holder to
the end that the provisions of the Warrant (including, without limitation,
provisions for adjustment of the Exercise Price and of the number of shares
issuable upon the exercise of Warrants) shall thereafter be applicable as nearly
as may be practicable in relation to any shares of stock, securities, or assets
thereafter deliverable upon exercise of Warrants. The Company shall not effect
any such consolidation, merger or sale unless prior to or simultaneously with
the consummation thereof, the successor corporation purchasing such assets shall
assume, by written instrument, the obligation to deliver to the Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase.

         (3) Upon each adjustment of the Exercise Price pursuant to subsection
(1) of this Section (f), the number of shares of Common Stock specified in each
Warrant shall thereupon evidence the right to purchase that number of shares of
Common Stock (calculated to the nearest hundredth of a share of Common Stock)
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock

                                      -3-
<PAGE>

purchasable immediately prior to such adjustment upon exercise of such Warrant
and dividing the product so obtained by the Exercise Price in effect after such
adjustment.

         (4) Irrespective of any adjustments of the number or kind of securities
issuable upon exercise of warrants or the Exercise Price, Warrants theretofore
or thereafter issued may continue to express the same number of shares of Common
Stock and Exercise Price as are stated in similar Warrants previously issued.

         (5) The Company may, at its sole option, retain the independent public
accounting firm regularly retained by the Company, or another firm of
independent public accountants of recognized standing selected by the Company's
Board of Directors, to make any computation required under this Section (f), and
a certificate signed by such firm shall be conclusive evidence of any
computation made under this Section (f).

         (6) Whenever there is an adjustment in the Exercise Price or in the
number or kind of securities issuable upon exercise of the Warrants, or both, as
provided in this Section (f), the Company shall (i) promptly file in the custody
of its Secretary or Assistant Secretary a certificate signed by the Chairman of
the Board of the President or Vice President of the Company and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Company, setting forth the facts requiring such adjustment and the number and
kind of securities issuable upon exercise of each Warrant after such adjustment;
and (ii) cause a notice stating that such adjustment has been effected and
stating the Exercise Price then in effect and the number and kind of securities
issuable upon exercise of each Warrant to be send to each registered holder of a
Warrant.

         (7) The Exercise Price and the number of shares issuable upon exercise
of a Warrant shall not be adjusted except in the manner and only upon the
occurrence of the events heretofore specifically referred to in this Section
(f).

         (8) The Board of Directors of the Company may, without the prior
consent of the Holder, reduce the Exercise Price or increase the number of
shares of Common Stock or other securities issuable upon exercise of the
Warrant.

     (g) REGISTRATION RIGHTS.

         (1) As used in this Section (g), the following terms shall have the
following respective meanings:

             (i)   Act means the Securities Act or any successor federal
                   ---
statute, and the rules and regulations of the Commission issued under the Act,
as they each may, from time to time, be in effect.

             (ii)  Commission means the Securities and Exchange Commission, or
                   ----------
any other federal agency at the time administering the Act.

             (iii) Exchange Act means the Securities Exchange Act or any
                   ------------
successor federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.

                                      -4-
<PAGE>

             (iv)  Holder means any person who holds Registrable Shares
                   ------
including any person to whom the rights granted under this Section (g) are
transferred pursuant to subsection 2 of this Section (g) hereof, and Holders
means all of them.

             (v)   Registration Statement means a registration statement filed
                    ---------------------
by the Company with the Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).

             (vi)  Registration Expenses means the expenses described in
subsection 5 of this Section (g).

             (vii) Registrable Shares means the shares of Common Stock issued or
                   ------------------
issuable upon conversion of the Company's Preferred Stock and any other shares
of Common Stock of the Company issued in respect of such shares (because of
stock splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares upon any sale pursuant to a
Registration Statement or any sale in any manner to a person or entity which, by
virtue of subsection 2 of this Section (g) of this Agreement, is not entitled to
the rights provided by Section (g). Wherever reference is made in this Section
(g) to a request or consent of Holders of a certain percentage of Registrable
Shares, the determination of such percentage shall include shares of Common
Stock issued or issuable upon conversion of the Preferred Stock even if such
conversion has not yet been effected.

         (2) The rights to cause the Company to register Registrable Shares
pursuant to this Section (g) may be assigned (but only with all related
obligations) by a Holder to a transferee of such securities, provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee is
restricted under the Act.

         (3) (i) Whenever the Company proposes to file a Registration Statement
at any time and from time to time, it will, prior to such filing, give written
notice to all Holders of its intention to do so and, upon the written request of
a Holder or Holders given within 20 days after the Company provides such notice,
the Company shall use its best efforts to cause all Registrable Shares which the
Company has been requested by such Holder or Holders to register to be
registered under the Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Holder or Holders; provided that the Company shall have the
right to postpone or withdraw any registration effected pursuant to this
subsection 3 of this Section (g) without obligation to any Holder.

             (ii) In connection with any offering under this subsection 3 of
this Section (g) involving an underwriting, the Company shall not be required to
include any Registrable Shares in such underwriting unless the Holders thereof
accept the terms of the

                                      -5-
<PAGE>

underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If, in the
opinion of the managing underwriter, the registration of all, or part of, the
Registrable Shares which the Holders have requested to be included would
materially and adversely affect such public offering, then the Company shall be
required to include in the underwriting only that number of Registrable Shares,
if any, which the managing underwriter believes may be sold without causing such
adverse effect. If the number of Registrable Shares to be included in the
underwriting in accordance with the foregoing is less than the total number of
Registerable Shares which the Holders of Registrable Shares have requested to be
included, then the Holders of Registrable Shares who have requested registration
and other Holders of shares of Common Stock entitled to include shares of Common
Stock in such registration shall participate in the underwriting pro rata based
upon their total ownership of shares of Common Stock of the Company (including
shares of Common Stock issuable upon conversion of the Preferred Stock, on an
as-converted basis). If any Holder would thus be entitled to include more shares
than such Holder requested to be registered, the excess shall be allocated among
other requesting Holders pro rata based upon their total ownership of
Registrable Shares.

             (iii) All Holders of Registrable Shares proposing to distribute
their securities in an offering under this subsection 3 of this Section (g)
involving an underwriting shall (together with the Company and other
shareholders of securities distributing their shares through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting.

         (4) If and whenever the Company is required by the provisions of this
Section (g) to use its best efforts to effect the registration of any of the
Registrable Shares under the Act, the Company shall:

             (i) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;

             (ii) as soon as reasonably practicable prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective until the earlier of (A) the period of time
required by the Commission, or (B) 120 days from the effective date;

             (iii) as soon as reasonably practicable furnish to each selling
Holder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and such
other documents as the selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Holder;

             (iv) as soon as reasonably practicable use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Holders
shall reasonably request; provided, however,

                                      -6-
<PAGE>

that the Company shall not be required in connection with this subsection 4(iv)
of this Section (g) to (A) qualify as a foreign corporation, (B) execute a
general consent to service of process in any jurisdiction, (C) subject itself to
taxation in such jurisdiction, or (D) register in any state requiring, as a
condition to registration, escrow or surrender of any Company securities held by
and security holder other than a selling Holder; and

             (v) if an underwritten public offering, obtain a comfort letter
from the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by comfort letters and an opinion
from the Company's counsel in customary form and covering such matters of the
type customarily covered in public issuances of securities, in each case
addressed to the selling Holders.

     If the Company has delivered a preliminary or final prospectus to the
selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Act, the Company shall promptly notify the selling
Holders and, if requested, the selling Holders shall immediately cease making
offers of Registrable Shares and return all prospectuses to the Company. The
Company shall promptly provide the selling Holders with revised prospectuses
and, following receipt of the revised prospectuses, the selling Holders shall be
free to resume making offers of the Registrable Shares.

         (5) The Company will pay all Registration Expenses of all registrations
under this Agreement. For purposes of this Section (g), the term "Registration
Expenses" shall mean all expenses incurred by the Company in complying with this
Section (g), including without limitation, all registration and filing fees,
exchange listing fees, printing expenses, the fees and disbursements of counsel
for the Company and the fees and disbursements of one counsel selected by the
selling Holders, the fees and disbursements of the Company's accountants, state
Blue Sky fees and expenses, and the expense of any special audits incident to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of the selling Holders' own counsel.

         (6) (i) In the event of any registration of any of the Registrable
Shares under the Act pursuant to this Section (g), the Company will indemnify
and hold harmless the seller of such Registrable Shares, each of its directors,
officers or partners and each other person, if any, who controls such seller
within the meaning of the Act or the Exchange Act against any losses, claims,
damages or liabilities, joint or several, to which such seller or controlling
person may become subject under the Act, the Exchange Act, Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
and the Company will reimburse such seller and each such controlling person for
any legal or any other expenses reasonably incurred by such seller or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the

                                      -7-
<PAGE>

extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such seller or controlling person specifically for
use in the preparation thereof; and provided further, however, that any
indemnification contained in this paragraph with respect to any preliminary
prospectus shall not inure to the benefit of any person who otherwise is
entitled to indemnification hereunder on account of any loss, liability, claim,
damage or expense if a copy of an amended or supplemental preliminary
prospectus, or the final prospectus, shall have been delivered or sent to such
person within the time required by the Act, and the untrue statement or omission
of a material fact was corrected in such amended or supplemental preliminary
prospectus or final prospectus and provided that such person did not deliver
such amended or supplemental preliminary prospectus or final prospectus on a
timely basis.

             (ii) In the event of any registration of any of the Registrable
Shares under the Act pursuant to this Section (g), each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each person, if any, who controls the
Company within the meaning of the Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers or controlling persons may become subject under the Act,
Exchange Act, Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller, specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of each Holder hereunder
shall be limited to an amount equal to the gross proceeds to each Holder of
Registrable Shares sold as contemplated herein.

             (iii) Each party entitled to indemnification under this subsection
6 of this Section (g) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this subsection 6 of this Section
(g) unless the failure to provide such notice materially prejudices the defense
by the Indemnifying Party against such claim. The Indemnified Party may
participate in such defense at such party's expense (provided that the counsel
of the Indemnifying Party shall control the defense of such claim or
proceeding); provided, however, that the Indemnifying Party shall pay

                                      -8-
<PAGE>

such expense if representation of such Indemnified Party by the counsel retained
by the Indemnifying Party would, in the opinion of counsel of the Indemnified
Party, be inappropriate due to actual or potential differing interests between
the Indemnified Party and any other party represented by such counsel in such
proceeding, it being understood, however, that in such event, the Indemnifying
Party shall be liable for the reasonable fees and expenses of only one counsel
for the Indemnified Parties. No Indemnifying Party, in the defense of any such
claim or litigation shall as to an Indemnified Party, except with the consent of
such Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.

         (7) In the event that Registrable Shares are sold pursuant to a
Registration Statement in an underwritten offering, the selling Holders agree to
enter into an underwriting agreement containing customary representations and
warranties with respect to the selling holder, including without limitation
customary provisions with respect to indemnification by the selling Holders of
the underwriters of such offering.

         (8) Each Holder of Registrable Shares included in any registration
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Section (g). Any failure by such Holder to make
available such information shall constitute a waiver by such Holder of its
rights to include such Holder's Registrable Shares in the registration.

         (9) Each Holder, if requested by the Company and an underwriter of
Common Stock or other securities of the Company, shall agree not to sell or
otherwise transfer or dispose of any Registrable Shares or other securities of
the Company held by such Holder for a specified period of time (not to exceed
180 days) following the effective date of a Registration Statement. Such
agreement shall be in writing in a form satisfactory to the Company and such
underwriter. The Company may impose stop transfer instructions with respect to
the Registrable Shares or other securities subject to the foregoing restriction
until the end of the stand-off period.

         (10) The Company shall not, without the prior written consent of the
Holders holding at least 51% of the Registrable Shares enter into any agreement
(other than this Warrant or Warrants of similar tender or series issued
concurrently with this Warrant) with any holder or prospective holder of any
securities of the Company which would allow such holder or prospective holder to
(i) receive registration rights which could conflict with the rights granted to
the Purchasers hereunder, or (ii) make a demand registration which could result
in such registration statement being declared effective prior to the Company's
initial public offering.

     (h) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933 AND OTHER APPLICABLE
SECURITIES LAWS. This Warrant or the Warrant Shares or any other security issued
or issuable upon exercise of this Warrant may not be sold or otherwise disposed
of unless the Holder provides the Company with an opinion of counsel
satisfactory to the Company in form satisfactory to the Company that this
Warrant or the

                                      -9-
<PAGE>

Warrant Shares may be legally transferred without violating the Act and any
other applicable securities law and then, if such opinion states that
certificates representing the Warrants or Warrant Shares being transferred shall
be required to bear a legend restricting further transfer, only against receipt
of an agreement of the transferee to comply with the provisions of this Section
(h) with respect to any resale or other disposition of such securities.




                 INNOVATIVE SOLUTIONS AND SUPPORT, INCORPORATED




                      By:_________________________________





THE WARRANT REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE WARRANT REPRESENTED BY THIS CERTIFICATE HAS BEEN
TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF WITHOUT AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION
DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND
REGULATIONS THEREUNDER.

PURSUANT TO SECTION 203(d) OF THE PENNSYLVANIA SECURITIES ACT OF 1972 AND TO THE
EXTENT, IF ANY, REQUIRED THEREBY, THE PURCHASER OF THIS SECURITY WHICH IS A
RESIDENT OF THE COMMONWEALTH OF PENNSYLVANIA HEREBY AGREES NOT TO SELL THIS
SECURITY WITHIN TWELVE MONTHS AFTER THE DATE OF PURCHASE.

                                     -10-
<PAGE>

                                  PURCHASE FORM
                                  -------------

                                               Dated:____________, 19

     The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ____ shares of Common Stock and hereby makes payment
of _______ in payment of the Exercise Price thereof.



                     INSTRUCTIONS FOR REGISTRATION OF STOCK
                     --------------------------------------

Name __________________________________________________________________
            (Please typewrite or print in block letters.)

Address________________________________________________________________

_______________________________________________________________________

Signature______________________________________________________________





                                 ASSIGNMENT FORM
                                 ---------------

     FOR VALUE RECEIVED _____________________ hereby sells, assigns and
transfers unto

Name __________________________________________________________________
                 (Please typewrite or print in block letters.)

Address _______________________________________________________________

_______________________________________________________________________



The right to purchase Common Stock represented by this Warrant to the extent of
___ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ______________, Attorney, to transfer the on the books of
the Company with full power of substitution in _________________ the premises.



Date ____________ , 19

Signature ________________________


                                     -11-
<PAGE>

                                   Schedule A
                                   ----------
<TABLE>
<CAPTION>
            WARRANT HOLDERS OF INNOVATIVE SOLUTIONS AND SUPPORT, INC.

- ------------------------------------------------------------------------------------------------------

NAME                                                                              NO. OF SHARES
- ------------------------------------------------------------------------------------------------------
<S>                                                                               <C>
The P/A Fund                                                                         119,120
- ------------------------------------------------------------------------------------------------------

Myron Cohen                                                                          48,000
- ------------------------------------------------------------------------------------------------------

Trust for the Children of George F. Congdon, Jr. - Michael Dean, Trustee              2,134
- ------------------------------------------------------------------------------------------------------

B.A. Cosgrove                                                                        20,000
- ------------------------------------------------------------------------------------------------------

James M. Draper                                                                      20,000
- ------------------------------------------------------------------------------------------------------

James M. Draper, Trustee F/B/O Stephanie H. Hedrick                                  20,000
- ------------------------------------------------------------------------------------------------------

Trust for the Children of David C. Hammers - Michael Dean, Trustee                    2,134
- ------------------------------------------------------------------------------------------------------

Geoffrey S.M. Hedrick                                                                136,000
- ------------------------------------------------------------------------------------------------------

Robert E. Mittelstaedt, Jr. and Mary E. Mittelstaedt                                  8,560
- ------------------------------------------------------------------------------------------------------

NEPA Venture Fund, L.P.                                                              120,000
- ------------------------------------------------------------------------------------------------------

Allan O. Olin and Connie Olin, JTROS                                                 20,000
- ------------------------------------------------------------------------------------------------------

Thomas C. Pontani                                                                    40,000
- ------------------------------------------------------------------------------------------------------

Trust for Anne W. Rouse - Michael Dean, Trustee                                       1,067
- ------------------------------------------------------------------------------------------------------

Trust for Mary P. Rouse - Michael Dean, Trustee                                       1,067
- ------------------------------------------------------------------------------------------------------

CIP Capital, L.P.                                                                    80,000
- ------------------------------------------------------------------------------------------------------

Lance J. Lieberman                                                                   32,000
- ------------------------------------------------------------------------------------------------------
</TABLE>

                                     -12-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>SUBSIDIARIES OF IS&S
<TEXT>

<PAGE>

                                                                      Exhibit 21

                         Subsidiaries of the Registrant
                         ------------------------------


     Innovative Solutions and Support, LLC, a Pennsylvania limited liability
company

     IS&S Delaware, Inc., a Delaware corporation

     IS&S Holdings, Inc., a Delaware corporation

     IS&S Aviation, Inc., a Delaware corporation

     IS&S Aviation, LLC, a Delaware limited liability company
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN
<TEXT>

<PAGE>

                                                                    Exhibit 23.1




                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement.


/s/ ARTHUR ANDERSEN LLP

Philadelphia, Pa,
July 13, 2000

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>RESTATED FINANCIAL DATA SCHEDULE-SEPTEMBER 30, 1999
<TEXT>

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          SEP-30-1999
<PERIOD-START>                             OCT-01-1998
<PERIOD-END>                               SEP-30-1999
<CASH>                                       4,638,607
<SECURITIES>                                         0
<RECEIVABLES>                                3,413,771
<ALLOWANCES>                                         0
<INVENTORY>                                  3,496,773
<CURRENT-ASSETS>                            11,638,785
<PP&E>                                       2,037,906
<DEPRECIATION>                             (1,292,716)
<TOTAL-ASSETS>                              12,612,189
<CURRENT-LIABILITIES>                        3,081,733
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                        177
<COMMON>                                         6,766
<OTHER-SE>                                   8,935,272
<TOTAL-LIABILITY-AND-EQUITY>                12,612,189
<SALES>                                     22,487,882
<TOTAL-REVENUES>                            22,487,882
<CGS>                                       10,570,009
<TOTAL-COSTS>                                5,249,611
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             (30,137)
<INCOME-PRETAX>                              6,698,399
<INCOME-TAX>                                 2,517,764
<INCOME-CONTINUING>                          4,180,635
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 4,180,635
<EPS-BASIC>                                        .68
<EPS-DILUTED>                                      .50


</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.2
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE-MARCH 31, 2000
<TEXT>

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          MAR-31-2000
<PERIOD-START>                             OCT-01-1999
<PERIOD-END>                               MAR-31-2000
<CASH>                                       6,456,285
<SECURITIES>                                         0
<RECEIVABLES>                                3,803,267
<ALLOWANCES>                                         0
<INVENTORY>                                  3,596,353
<CURRENT-ASSETS>                            13,975,881
<PP&E>                                       2,331,372
<DEPRECIATION>                             (1,445,119)
<TOTAL-ASSETS>                              15,328,305
<CURRENT-LIABILITIES>                        2,310,242
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                        177
<COMMON>                                         7,180
<OTHER-SE>                                  12,400,118
<TOTAL-LIABILITY-AND-EQUITY>                15,328,305
<SALES>                                     13,558,787
<TOTAL-REVENUES>                            13,558,787
<CGS>                                        6,399,879
<TOTAL-COSTS>                                3,408,945
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             137,093
<INCOME-PRETAX>                              3,887,056
<INCOME-TAX>                                 1,402,642
<INCOME-CONTINUING>                          2,466,414
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 2,466,414
<EPS-BASIC>                                        .35
<EPS-DILUTED>                                      .25


</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
