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Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0000950116-04-001361.txt : 20040504
<SEC-HEADER>0000950116-04-001361.hdr.sgml : 20040504
<ACCEPTANCE-DATETIME>20040504153420
ACCESSION NUMBER:		0000950116-04-001361
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20040331
FILED AS OF DATE:		20040504

FILER:

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

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-31157
		FILM NUMBER:		04777555

	BUSINESS ADDRESS:	
		STREET 1:		420 LAPP RD
		CITY:			MALVERN
		STATE:			PA
		ZIP:			19355
		BUSINESS PHONE:		6108899898

	MAIL ADDRESS:	
		STREET 1:		420 LAPP ROAD
		CITY:			MALVERN
		STATE:			PA
		ZIP:			19355
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>tenq.htm
<DESCRIPTION>10-Q
<TEXT>
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Prepared and filed by St Ives Burrups
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<p align="center"><font face="serif" size="2"><b><font face="serif" size="5">UNITED STATES <br>
  SECURITIES AND EXCHANGE COMMISSION<br>
</font></b></font><font face="serif" size="2"><b>Washington, D.C. 20549 </b></font></p>
<hr width="200" size="1" noshade>
<p align="center"><font face="serif" size="2"><b><font face="serif" size="5">FORM 10-Q </font></b></font></p>
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<td align="left" width="4%"><font size="2" face="serif"><img src="tickedbox.gif" width="12" height="12"></font></td>
<td align="left"><font size="2" face="serif"><b>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </b></font></td>
</tr>
</table>
<p align="center"><font size="2" face="serif">For the quarterly period ended March 31, 2004</font></p>
<p align="center"><font size="2" face="serif">OR</font></p>  <table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left" width="4%"><font size="2" face="serif"><img src="emptybox.gif" width="12" height="12"></font></td>
<td align="left"><font size="2" face="serif"><b>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </b></font></td>
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<p align="center"><font size="2" face="serif">For the transition period from <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u> to <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>.</font></p>
<p align="center"><font size="2" face="serif">Commission File No. 0-31157</font></p> <p align="center"><font face="serif" size="2"><b><font face="serif" size="6">INNOVATIVE SOLUTIONS AND SUPPORT, INC. </font></b></font></p> <p align="center"><font face="serif" size="2"><b><font face="serif" size="1">(Exact name of registrant as specified in its charter) </font></b></font></p>
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<td align="left"><font size="1" face="serif">&nbsp;</font></td>
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<td align="center"><font size="2" face="serif"><b>PENNSYLVANIA</b></font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="46%" align="center"><font size="2" face="serif"><b>23-2507402</b></font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
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<td align="center"><font size="2" face="serif"><b><font face="serif" size="1">(State or other jurisdiction<br>of incorporation)</font></b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="2" face="serif"><b><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(IRS Employer<br>Identification No.)</font></b></font></td>
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<td align="center"><font size="2" face="serif"><b>720 Pennsylvania Drive, Exton, Pennsylvania</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="2" face="serif"><b>19341</b></font></td>
<td align="left">&nbsp;</td>
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<td align="center"><font size="2" face="serif"><b><font face="serif" size="1">(Address of principal executive offices)</font></b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="2" face="serif"><b><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Zip Code)</font></b></font></td>
<td align="left">&nbsp;</td>
</tr>
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<p align="center"><b>(610) 646-9800 <br><font face="serif" size="1">(Registrant&#8217;s telephone number, including area code)</font></b></p>
<hr align="center" width="200" size="1" noshade>
<p><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check
    mark whether registrant (1) has filed all reports required to be filed by
    Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
    12 months (or for such shorter period that the registrant was required to
    file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes <img src="tickedbox.gif" width="12" height="12"> No <img src="emptybox.gif" width="12" height="12"></font></p>
<p><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).&nbsp;Yes&nbsp;<img src="emptybox.gif" width="12" height="12">&nbsp;No&nbsp;<img src="tickedbox.gif" width="12" height="12"></font></p>
<p><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of April 21, 2004, there were 11,566,028 shares of the Registrant&#8217;s Common Stock, with par value of $.001, outstanding.</font></p>
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<p align="center">&nbsp;</p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b>INNOVATIVE SOLUTIONS AND SUPPORT, INC. <br>FORM 10-Q March 31, 2004 <br>INDEX </b></font></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
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<td align="left">&nbsp;</td>
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<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b><u>Page&nbsp;No.</u></b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">PART&nbsp;I.</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="82%" align="left"><font size="2" face="serif">FINANCIAL INFORMATION</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="4%" align="left"></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Item&nbsp;1.</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">FINANCIAL STATEMENTS (unaudited)</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><a href="#p3"><font size="2" face="serif">Condensed Consolidated
    Balance Sheets&#150;September 30, 2003 and March 31, 2004</font></a></td>
<td align="left"><a href="#p3"></a></td>
<td align="right"><a href="#p3"></a></td>
<td align="right"><a href="#p3"><font size="2" face="serif">3</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><div style="margin-left: 3%; text-indent: -3%"><a href="#p4"><font size="2" face="serif">Condensed
      Consolidated Statements of Operations&#150;</font><br>
      <font size="2" face="serif"> Three Months and Six Months Ended March 31,
    2003 and 2004</font></a></div></td>
<td align="left"><a href="#p4"></a></td>
<td align="right"><a href="#p4"></a></td>
<td align="right" valign="bottom"><a href="#p4"><font size="2" face="serif">4</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><a href="#p5"><font size="2" face="serif">Condensed Consolidated
    Statements of Cash Flows&#150;Six Months Ended March 31, 2003 and 2004</font></a></td>
<td align="left"><a href="#p5"></a></td>
<td align="right"><a href="#p5"></a></td>
<td align="right"><a href="#p5"><font size="2" face="serif">5</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><a href="#p6"><font size="2" face="serif">Notes to Condensed Consolidated Financial Statements</font></a></td>
<td align="left"><a href="#p6"></a></td>
<td align="right"><a href="#p6"></a></td>
<td align="right"><a href="#p6"><font size="2" face="serif">6-8</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif"><a href="#p9">Item&nbsp;2.</a></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><a href="#p9"><font size="2" face="serif">MANAGEMENT&#8217;S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</font></a></td>
<td align="left"><a href="#p9"></a></td>
<td align="right"><a href="#p9"></a></td>
<td align="right" valign="bottom"><a href="#p9"><font size="2" face="serif">9-13</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif"><a href="#p13a">Item&nbsp;3.</a></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><a href="#p13a"><font size="2" face="serif">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</font></a></td>
<td align="left"><a href="#p13a"></a></td>
<td align="right"><a href="#p13a"></a></td>
<td align="right"><a href="#p13a"><font size="2" face="serif">13</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><a href="#p13b"><font size="2" face="serif">Item&nbsp;4.</font></a></td>
<td align="left"><a href="#p13b"></a></td>
<td align="right"><a href="#p13b"></a></td>
<td align="left"><a href="#p13b"><font size="2" face="serif">CONTROLS AND PROCEDURES</font></a></td>
<td align="left"><a href="#p13b"></a></td>
<td align="right"><a href="#p13b"></a></td>
<td align="right"><a href="#p13b"><font size="2" face="serif">13</font></a></td>
<td align="left">&nbsp;</td>
</tr>
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  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
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  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">PART&nbsp;II</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">OTHER INFORMATION</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><a href="#p14"><font size="2" face="serif">Item&nbsp;6.</font></a></td>
<td align="left"><a href="#p14"></a></td>
<td align="right"><a href="#p14"></a></td>
<td align="left"><a href="#p14"><font size="2" face="serif">EXHIBITS AND REPORTS ON FORM 8-K</font></a></td>
<td align="left"><a href="#p14"></a></td>
<td align="right"><a href="#p14"></a></td>
<td align="right"><a href="#p14"><font size="2" face="serif">14</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td colspan="4" align="left"><a href="#p15"><font size="2" face="serif">Signatures</font></a></td>
<td align="left"><a href="#p15"></a></td>
<td align="right"><a href="#p15"></a></td>
<td align="right"><a href="#p15"><font size="2" face="serif">15</font></a></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="center"><font face="serif" size="2">2</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b><a name="p3" id="p3"></a>PART I&#150;FINANCIAL INFORMATION <br>Item 1&#150;Financial Statements <br>INNOVATIVE SOLUTIONS AND SUPPORT, INC. <br>CONDENSED CONSOLIDATED BALANCE SHEETS <br>(unaudited) </b></font></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>As of<br>September 30,<br>2003</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>As of<br>March 31,<br>2004</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
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<tr valign="top" bgcolor="#FFFFFF">
<td align="center"><font size="1" face="serif"><b>ASSETS</b></font></td>
<td align="left" width="2%"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="left"><font size="1">&nbsp;</font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="left"><font size="1">&nbsp;</font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="serif">Current Assets:</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Cash
    and cash equivalents</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">48,789,744</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">53,069,748</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Accounts
        receivable, less allowance for doubtful accounts of $100,000 at September
    30, 2003 and March 31, 2004</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,955,207</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,633,766</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Inventories</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,840,648</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,062,529</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Deferred
    income taxes</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;673,134</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;673,134</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Prepaid
    expenses</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;660,430</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;642,512</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="1" face="serif">Total
    current assets</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;59,919,163</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;65,081,689</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="serif">Property and Equipment:</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Computers
    and test equipment</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,309,852</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,627,188</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Corporate
    airplane</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,998,161</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,998,161</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Furniture
    and office equipment</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;520,973</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;642,041</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Manufacturing
    facility</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,368,690</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,414,986</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Land</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,021,245</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,021,245</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Total
    property and equipment</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,218,921</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,703,621</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Less-accumulated
    depreciation and amortization</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3,670,430</font></td>
<td align="left"><font size="1" face="serif">)</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3,996,116</font></td>
<td align="left"><font size="1" face="serif">)</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Net
    property and equipment</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,548,491</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,707,505</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="1" face="serif">Deposits and Other Assets</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;408,971</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;143,114</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Total
    Assets</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">69,876,625</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">74,932,308</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="center"><font size="1" face="serif"><b>LIABILITIES AND SHAREHOLDERS&#8217; EQUITY</b></font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="serif">Current Liabilities</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Current
    portion of note payable</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">100,000</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">100,000</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Current
    portion of capitalized lease obligations</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&#151;&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,257</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Accounts
    payable</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;578,306</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,101,914</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Accrued
    expenses</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,146,409</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,856,652</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Deferred
    revenue</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;98,036</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;182,848</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="1" face="serif">Total
    current liabilities</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,922,751</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,248,671</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="1" face="serif">Note Payable</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,235,000</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,235,000</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="serif">Capitalized Lease Obligations</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&#151;&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24,348</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="1" face="serif">Deferred Revenue</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;332,407</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;297,170</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="serif">Deferred Income Taxes</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;328,177</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;320,089</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="1" face="serif">Commitments and Contingencies</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;&nbsp;&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;&nbsp;&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="serif">Shareholders&#8217; Equity:</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%; text-indent: -3%"><font size="1" face="serif">Preferred
        stock, 10,000,000 shares authorized&#150;Class A Convertible stock, $.001
        par value; 200,000 shares authorized, no shares issued and outstanding
    at September 30, 2003 and March 31, 2004</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%; text-indent: -3%"><font size="1" face="serif">Common
        stock, $.001 par value; 75,000,000 shares authorized, 13,080,717 and
    13,244,525 shares issued at September 30, 2003 and March 31, 2004, respectively</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right" valign="bottom"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,081</font></td>
<td align="left" valign="bottom"><font size="1">&nbsp;</font></td>
<td align="right" valign="bottom"><font size="1">&nbsp;</font></td>
<td align="right" valign="bottom"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,245</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Additional
    paid-in capital</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;46,248,224</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;46,815,369</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Retained
    earnings</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25,410,742</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29,592,173</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Treasury
    stock, at cost, 1,690,026 shares</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(10,613,757</font></td>
<td align="left"><font size="1" face="serif">)</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(10,613,757</font></td>
<td align="left"><font size="1" face="serif">)</font></td>
</tr>
<tr valign="top">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="1" face="serif">Total
    shareholders&#8217; equity</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;61,058,290</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;65,807,030</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="1" face="serif">Total
    Liabilities and Shareholders&#8217; Equity</font></div></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">69,876,625</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1" face="serif">$</font></td>
<td align="right"><font size="1" face="serif">74,932,308</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="1">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><hr noshade size="1">
</td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right">
  <hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
</table>
<p align="center"><font size="2" face="serif">The accompanying notes are an integral part of these statements.</font></p>
<p align="center"><font face="serif" size="2">3</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b><a name="p4" id="p4"></a>INNOVATIVE SOLUTIONS AND SUPPORT, INC. <br>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS <br>(unaudited) </b></font></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top">
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center" valign="bottom"><font size="1" face="serif"><b>Three Months<br>Ended</b><br><b>March 31,</b><br><b>2003</b></font></td>
<td align="left" valign="bottom">&nbsp;</td>
<td align="right" valign="bottom">&nbsp;</td>
<td align="center" valign="bottom"><font size="1" face="serif"><b>Three Months Ended</b><br><b>March 31, 2004</b></font></td>
<td align="left" valign="bottom">&nbsp;</td>
<td align="right" valign="bottom">&nbsp;</td>
<td align="center" valign="bottom"><font size="1" face="serif"><b>Six Months Ended</b><br><b>March 31,</b><br><b>2003</b></font></td>
<td align="left" valign="bottom">&nbsp;</td>
<td align="right" valign="bottom">&nbsp;</td>
<td align="center" valign="bottom"><font size="1" face="serif"><b>Six Months Ended</b><br><b>March 31,</b><br><b>2004</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Net Sales</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">7,122,425</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">10,895,287</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">11,545,220</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">19,418,623</font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Cost of Sales</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">2,964,740</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">3,662,841</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">5,007,738</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">7,144,252</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Gross Profit</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">4,157,685</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">7,232,446</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">6,537,482</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,274,371</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Operating expense:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Research
    and development</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">838,586</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,488,893</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,765,888</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">2,498,169</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Selling,
    general and administrative</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,478,191</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,869,484</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">2,732,333</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">3,510,103</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Operating Income</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,840,908</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">3,874,069</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">2,039,261</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">6,266,099</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Interest Income</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">146,314</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">117,204</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">329,242</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">229,875</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Interest Expense</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">31,441</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">31,148</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">68,590</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">63,003</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Income Before Income Taxes</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,955,781</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">3,960,125</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">2,299,913</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">6,432,971</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Income Tax Expense</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">684,523</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,386,044</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">804,969</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">2,251,540</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Net Income</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">1,271,258</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">2,574,081</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">1,494,944</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">4,181,431</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left" bgcolor="#ffffff">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1">
  </td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Net Income per Common Share</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Basic</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.10</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.22</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.12</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.36</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Diluted</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.10</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.22</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.12</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">0.35</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Weighted Average Shares Outstanding</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Basic</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,630,220</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,513,478</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,667,281</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,462,771</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Diluted</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,837,461</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,862,085</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,887,832</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,819,584</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="center"><font size="2" face="serif">The accompanying notes are an integral part of these statements.</font></p>
<p align="center"><font face="serif" size="2">4</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b><a name="p5" id="p5"></a>INNOVATIVE SOLUTIONS AND SUPPORT, INC. <br>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <br>(unaudited) </b></font></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>For the Six<br>Months&nbsp;Ended<br>March 31,<br>2003</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>For the Six<br>Months&nbsp;Ended<br>March 31,<br>2004</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Cash Flows From Operating Activities:</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Net
    income</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">1,494,944</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">4,181,431</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Adjustments
    to reconcile net income to net cash provided by (used in) operating activities:</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Depreciation
    and amortization</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">357,152</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">347,694</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Write-off
    of software deposit</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">101,738</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">&#151;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Loss
    on disposal of fixed assets</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">__</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,037</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Excess
    and obsolete inventory expense</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">42,194</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Compensation
    expense for stock issued to directors</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">71,009</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">102,073</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Tax
    benefit from exercise of stock options</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">48,716</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">(Increase)/decrease
    in&#150;</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Accounts
    receivable</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(798,949</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">321,441</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Inventories</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(106,617</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(1,264,075</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Prepaid
    expenses and other</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(236,791</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">277,775</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Increase/(decrease)
    in&#150;</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Accounts
    payable</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">371,413</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">523,607</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Accrued
    expenses</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(188,296</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(297,844</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 6%"><font size="2" face="serif">Deferred
    revenue</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(12,637</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">49,575</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Net
    cash provided by operating activities</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,052,966</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">4,333,624</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Cash
    Flows From Investing Activities:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Purchases
    of property and equipment</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(65,661</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(501,745</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Net
    cash used in investing activities</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(65,661</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(501,745</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Cash Flows From Financing Activities:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Proceeds
    from exercise of stock options</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">&#151;&nbsp;&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">128,425</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Proceeds
    from exercise of warrants</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">&#151;&nbsp;&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">288,095</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Purchase
    of treasury stock</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(2,324,847</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">&#151;&nbsp;&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Capital
    lease obligations</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">&#151;&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">39,119</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Repayments
    of capitalized lease obligations</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(10,016</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(7,514</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Net
    cash provided by (used in) financing activities</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(2,334,863</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">448,125</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Net Increase (Decrease) in Cash and Cash Equivalents</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(1,347,558</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">4,280,004</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Cash and Cash Equivalents, Beginning of Year</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">52,245,754</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">48,789,744</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Cash and Cash Equivalents, End of Period</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">50,898,196</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">53,069,748</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1">
</td>
<td align="left"><hr noshade size="1">
</td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="center"><font size="2" face="serif">The accompanying notes are an integral part of these statements.</font></p>
<p align="center"><font face="serif" size="2">5</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b><a name="p6" id="p6"></a>Innovative Solutions &amp; Support Inc. <br>Notes to Condensed Consolidated Financial Statements </b></font></p>
<p align="left"><font size="2" face="serif"><b>1. Basis of Presentation:</b></font></p>
<p align="left"><font size="2" face="serif">Innovative Solutions and Support, Inc. (the &#8220;Company&#8221;) was incorporated in Pennsylvania on February 12, 1988. The Company&#8217;s primary business is the design, manufacture and sale of flight information computers, flat panel displays and advanced monitoring systems for the military, government, commercial air transport and corporate aviation markets.</font></p>
<p align="left"><font size="2" face="serif">The balance sheet as of March 31, 2004, the statement of operations for the three months and six months ended March 31, 2003 and 2004 and the statements of cash flows for the six months ended March 31, 2003 and 2004 have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows at March 31, 2004 and for all periods presented have been made.</font></p>
<p align="left"><font size="2" face="serif">Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company&#8217;s Form 10K for the year ended September 30, 2003 as filed with the Securities and Exchange Commission. The results of operations for the three months and six months ended March 31, 2004 are not necessarily indicative of the operating results for the full year.</font></p>
<p align="left"><font size="2" face="serif"><b>2. Net income per Share</b></font></p>
<p align="left"><font size="2" face="serif">Net income per share (&#8220;EPS&#8221;) is calculated using the principles of SFAS No. 128.</font></p>
<p align="left"><font size="2" face="serif">A reconciliation of weighted average shares outstanding appears below:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Three&nbsp;Months<br>Ended<br>March&nbsp;31,&nbsp;2003</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Three&nbsp;Months<br>Ended<br>March&nbsp;31,&nbsp;2004</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Six&nbsp;Months<br>Ended<br>March&nbsp;31,&nbsp;2003</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Six&nbsp;Months<br>Ended<br>March&nbsp;31,&nbsp;2004</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Weighted average shares outstanding:</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"><hr noshade size="1"></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"><hr noshade size="1"></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"><hr noshade size="1"></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"><hr noshade size="1"></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,630,220</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,513,478</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,667,281</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,462,771</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Effect of dilutive securities:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee stock options</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">28,190</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">222,537</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">31,508</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">210,100</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warrants</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">179,051</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">126,070</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">189,043</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">146,713</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Weighted average shares outstanding:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,837,461</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,862,085</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">12,887,832</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">11,819,584</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="serif">For the six-month period ended March 31, 2004, there were 58,414 options outstanding that were excluded from the computation of diluted earnings per share as the effect would be antidilutive.</font></p>
<p align="left"><font size="2" face="serif"><b>3. Concentrations</b></font></p>
<p align="left"><font size="2" face="serif">For the three months ended March 31, 2004, four customers accounted for 13%, 12%, 11% and 10% of net sales or 46% on a combined basis. For the three months ended March 31, 2003, three customers accounted for 30%, 17%, and 12% of net sales or 59% on a combined basis.  For the six months ended March 31, 2004, three customers accounted for 20%, 14% and 10% of net sales or 44% on a combined basis.  For the six months ended March 31, 2003, three customers accounted for 25%, 15% and 10% of net sales or 50% on a combined basis.</font></p>
<p align="left"><font size="2" face="serif"><b>4. Inventories</b></font></p>
<p align="left"><font size="2" face="serif">Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:</font></p>
<p align="center"><font face="serif" size="2">6</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>September&nbsp;30,<br>2003</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>March&nbsp;31,<br>2004</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Raw materials</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">1,412,242</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">2,068,868</font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Work-in-process</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">785,771</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">1,410,459</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Finished goods</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">642,635</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">583,202</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">2,840,648</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">4,062,529</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="serif"><b>5. Warranty</b></font></p>
<p align="left"><font size="2" face="serif">The Company provides for the estimated cost of product warranties at the time revenue is recognized. Warranty cost is recorded as cost of sales in the financial statements. While the Company engages in extensive product quality programs and processes, the Company&#8217;s warranty obligation is affected by product failure rates and the related material, labor and delivery costs incurred in correcting a product failure. During the period ended March 31, 2004, the Company changed its warranty accrual based upon favorable historical experience. Should actual product failure rates, material or labor costs differ from the Company&#8217;s estimates, further revisions to the estimated warranty liability would be required.</font></p>
<p align="left"><font size="2" face="serif">Warranty cost and accrual information for the three months ended March 31, 2004 is highlighted below:</font></p>
<table width="80%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Warranty accrual at December 31, 2003</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">890,168</font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Accrued expense for the quarter ended March 31, 2004</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">48,483   </font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Warranty costs for the quarter ended March 31, 2004</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(29,586</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Change in estimate of warranty liability</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(166,400</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Warranty accrual at March 31, 2004</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">742,665</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="serif">Warranty cost and accrual information for the six months ended March 31, 2004 is highlighted below:</font></p>
<table width="80%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Warranty accrual at September 30, 2003</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right"><font size="2" face="serif">$</font></td>
<td width="10%" align="right"><font size="2" face="serif">842,541</font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Accrued expense for the six months ended March 31, 2004</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">129,417</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Warranty costs for the six months ended March 31, 2004</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(62,893</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Change in estimate of warranty liability</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">(166,400</font></td>
<td align="left"><font size="2" face="serif">)</font></td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="serif">Warranty accrual at March 31, 2004</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">742,665</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="serif"><b>6. Stock Options</b></font></p>
<p align="left"><font size="2" face="serif">The Company&#8217;s 1988 Stock Incentive
  Plan terminated in 1998 consistent with its ten year life. The Company&#8217;s
  1998 Stock Option Plan provides for the granting of incentive and nonqualified
  stock options to employees, officers, directors and independent contractors
  and consultants. Through March 31, 2004, no stock options have been granted
  to directors, independent contractors or consultants under this plan.</font></p>
<p align="left"><font size="2" face="serif">Incentive stock options granted under the terminated 1988 Stock Incentive Plan and the 1998 Stock Option Plan (the &#8220;Plans&#8221;) must be at least equal to 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 has been combined due to the similarities in the Plans. The Company has reserved 1,259,350 shares of Common stock for awards under the 1998 plan.</font></p>
<p align="left"><font size="2" face="serif">Stock-based employee compensation is recognized using the intrinsic value method in accordance with Accounting Principles Board Opinion (&#8220;APB&#8221;) No. 25, &#8220;Accounting for Stock Issued to Employees.&#8221; For disclosure purposes, pro forma net income and net income per share data are provided in accordance with SFAS No. 123, &#8220;Accounting for Stock-Based Compensation,&#8221; as if the fair value method had been applied. Under SFAS No. 123, compensation cost related to stock options granted to employees is computed based on the fair value of the stock option at the date of grant using the Black-Scholes option pricing model. Had the Company recognized compensation cost for its stock option plans consistent with the provisions of
SFAS 123, the Company&#8217;s pro forma net income for the three-month and six-month periods ended March 31, 2003 and 2004 would have been as follows:</font></p>
<p align="center"><font face="serif" size="2">7</font></p>
<hr noshade align="center" width="100%" size="2">
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<page>
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<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top">
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Three Months<br>Ended<br>March 31,</b><br><b>2003</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Three Months<br>Ended<br>March 31,</b><br><b>2004</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Six Months<br>Ended<br>March 31,</b><br><b>2003</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><font size="1" face="serif"><b>Six Months<br>Ended<br>March 31,</b><br><b>2004</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right"><hr noshade size="1"></td>
  <td align="left"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Net income:</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="left"></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">As
    reported</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">1,271,258</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">2,574,081</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">1,494,944</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">4,181,431</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 6%; text-indent: -3%"><font size="2" face="serif">Deduct:
      Total stock based employee compensation expense determined under the fair
    value based method for all awards, net of related tax effects</font></div></td>
<td align="left">&nbsp;</td>
<td align="right" valign="bottom"><font size="2" face="serif">$</font></td>
<td align="right" valign="bottom"><font size="2" face="serif">93,618</font></td>
<td align="left" valign="bottom">&nbsp;</td>
<td align="right" valign="bottom"><font size="2" face="serif">$</font></td>
<td align="right" valign="bottom"><font size="2" face="serif">193,044</font></td>
<td align="left" valign="bottom">&nbsp;</td>
<td align="right" valign="bottom"><font size="2" face="serif">$</font></td>
<td align="right" valign="bottom"><font size="2" face="serif">187,236</font></td>
<td align="left" valign="bottom">&nbsp;</td>
<td align="right" valign="bottom"><font size="2" face="serif">$</font></td>
<td align="right" valign="bottom"><font size="2" face="serif">386,088</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left">
  <hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Pro
    forma</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">1,177,640</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">2,381,037</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">1,307,708</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">3,795,343</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
<td align="right"><hr noshade size="1"></td>
<td align="left"><hr noshade size="1"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Basic EPS:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">As
    reported</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.10</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.22</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.12</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.36</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Pro
    forma</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.09</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.21</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.10</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.33</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Diluted EPS:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">As
    reported</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.10</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.22</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.12</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.35</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div style="margin-left: 3%"><font size="2" face="serif">Pro
    forma</font></div></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.09</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.20</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.10</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">.32</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="serif"><b>7. New Accounting Pronouncements</b></font></p>
<div style="text-indent: 3%">
  <p><font size="2" face="serif">In January 2003, the FASB issued FIN 46, &#8220;Consolidation
    of Variable Interest Entities an Interpretation of ARB No. 51.&#8221; FIN
    46 addresses consolidation by business enterprises of variable interest entities.
    The FASB then issued FIN 46(R), &#8220;Consolidation of Variable Interest
    Entities an Interpretation of ARB No. 51,&#8221; which replaced FIN 46. Application
    of FIN 46(R) is required in financial statements of public entities that have
    interests in variable interest entities or potential variable interest entities
    commonly referred to as special-purpose entities for periods ending after
    December 15, 2003. Application by public entities for all other types of entities
    is required in financial statements for periods ending after March 15, 2004.
    The Company has adopted both FIN 46 and FIN 46(R), and their adoption had
    no impact on the Company&#8217;s financial position or results of operations.</font></p>
</div>
<div style="text-indent: 3%"><p><font size="2" face="serif">In May 2003, the FASB
    issued SFAS 150, &#8220;Accounting for Certain Financial Instruments with
    Characteristics of both Liabilities and Equity.&#8221; This Statement establishes
    standards for how an issuer classifies and measures certain financial instruments
    with characteristics of both liabilities and equity. It requires that an
    issuer classify a financial instrument that is within its scope as a liability
    (or an asset in some circumstances). This Statement is effective for financial
    instruments entered into or modified after May 31, 2003, and otherwise is
    effective at the beginning of the first interim period beginning after June
    15, 2003. The Company adopted the provisions of SFAS 150, including the deferral
    of certain effective dates as a result of the provisions of FASB Staff Position
    150-3, &#8220;Effective Date, Disclosures, and Transition for Mandatorily
    Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
    Mandatorily Redeemable Noncontrolling Interests Under FASB Statement No.
    150, &#8216;Accounting for Certain Financial Instruments with Characteristics
    of Both Liabilities and Equity.&#8217;&#8221; The Company does not have any
    significant financial instruments with characteristics of both liabilities
    and equity as of March 31, 2004.</font></p></div>
<p align="left">&nbsp;</p>
<p align="center"><font face="serif" size="2">8</font></p>
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<p align="left"><font size="2" face="serif"><b><a name="p9" id="p9"></a>Item&nbsp;2.</b> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Management&#8217;s Discussion and Analysis of Financial Condition and Results of Operations </b></font></p>
<p align="left"><font size="2" face="serif">Overview</font></p>
<p align="left"><font size="2" face="serif">We design, manufacture and sell flight information computers, flat panel displays and advanced monitoring systems to the Department of Defense (DOD), government agencies, commercial air transport carriers and corporate/general aviation markets.</font></p>
<p align="left"><font size="2" face="serif">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 sell our products to commercial customers for end use in government and military programs.</font></p>
<p align="left"><font size="2" face="serif">Since fiscal 1997, the majority of our revenues have come from the sale of Reduced Vertical Separation Minimum (RVSM) compliant air data systems.</font></p>
<p align="left"><font size="2" face="serif">We continue to invest in and seek additional opportunities for our Flat Panel Display product line. To date, we have been selected by the U.S. Navy for Flat Panel applications on their Landing Craft Air Cushion (LCAC) platforms. In addition we were selected by Boeing to provide Flat Panels for the Boeing 767 tanker program. Both of these programs have multi-year requirements that we believe will provide a solid base for future awards.</font></p>
<p align="left"><font size="2" face="serif">Our cost of sales is comprised of material components purchased through our supplier base and direct in-house assembly labor and overhead costs. 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, and outside service costs related to our production, purchasing, customer service, material control and quality departments as well as warranty costs.</font></p>
<p align="left"><font size="2" face="serif">We continue to invest in the development of new products and the enhancement of our existing product line. We expense research and development costs related to future product development as they are incurred.</font></p>
<p align="left"><font size="2" face="serif">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, recruiting, legal, accounting, and other general corporate expenses.</font></p>
<p align="left"><font size="2" face="serif"><b>Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31, 2003</b></font></p>
<p align="left"><font size="2" face="serif"><i>Net sales. </i>Net sales increased $3.8 million, or 53%, to $10.9 million for the three months ended March 31, 2004 from $7.1 million in the three months ended March 31, 2003. This increase in net sales was mainly due to increased RVSM system deliveries to both the commercial air transportation and general aviation market segments. The increase in net sales reflects an industry wide response to a Federal Aviation Administration (FAA) mandate. Essentially, the mandate requires RVSM equipment installations on aircraft flying between 29,000 and 41,000 feet by January 20, 2005. The Company&#8217;s equipment provides RVSM compliance and equipment deliveries related to the FAA&#8217;s mandate are increasing as both air transport and general aviation
industry segments begin to meet the new FAA mandate.  </font></p>
<p align="left"><font size="2" face="serif"><i>Cost of sales.</i> Cost of sales increased $0.7 million or 24%, to $3.7 million, or 34% of net sales, in the three months ended March 31, 2004 from $3.0 million, or 42% of net sales, in the three months ended March 31, 2003. The absolute dollar increase in cost of sales was related to our increase in net sales. As a percentage, the decrease was the result of both higher net sales in the period coupled with a favorable change in estimate of the Company&#8217;s accrued warranty liability in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Research and development</i>. Research and development expenses increased $0.7 million or 78% to $1.5 million or 14% of net sales in the three months ended March 31, 2004 from $0.8 million or 12% of net sales in the three months ended March 31, 2003. Both the absolute dollar and percent to sales increase was principally due to increased spending on the flat panel program as the Company prepares to submit its Technical Standard Order (TSO) application to the FAA. </font></p>
<p align="left"><font size="2" face="serif"><i>Selling, general, and administrative</i>. Selling, general, and administrative expenses increased $0.4 million, or 26%, to $1.9 million, or 17% of net sales, in the three months ended March 31, 2004 from $1.5 million or 21% of net sales, in the three months ended March 31, 2003. The increase in the dollar amount was the result of higher commissions due to increased net sales and salaries, including the salary of an additional executive officer hired by the Company on March 31, 2003. The decrease as a percent of net sales was the result of higher net sales in the period.</font></p>
<p align="center"><font face="serif" size="2">9</font></p>
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<p align="left"><font size="2" face="serif"><i>Interest Income.</i> Interest income was $117,000 in the three months ended March 31, 2004 as compared to interest income of $146,000 in the three months ended March 31, 2003. The decreased interest income in the three months ended March 31, 2004 was primarily the result of lower interest rates in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Interest Expense.</i> Interest expense was $31,000 in the three months ended March 31, 2004  and 2003.</font></p>
<p align="left"><font size="2" face="serif"><i>Income Tax Expense.</i> Income tax expense for the three months ended March 31, 2004 was $1.4 million. The income tax expense for the three months ending March 31, 2003 was $0.7 million. The effective tax rate for both periods was 35% and the increase in income tax expense was due to higher income in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Net Income</i>. As a result of the factors described above, our net income in the three months ended March 31, 2004 increased $1.3 million or 102%, to $2.6 million, or 24% of net sales.</font></p>
<p align="left"><font size="2" face="serif"><b>Six Months Ended March 31, 2004 Compared to the Six Months Ended March 31, 2003</b></font></p>
<p align="left"><font size="2" face="serif"><i>Net sales. </i>Net sales increased $7.9 million, or 68%, to $19.4 million for the six months ended March 31, 2004 from $11.5 million in the six months ended March 31, 2003. This increase in net sales was mainly due to increased RVSM system deliveries to both the commercial air transportation and general aviation market segments. The increase reflects an industry wide response to an FAA mandate requiring RVSM equipment installations on aircraft flying between 29,000 and 41,000 feet by January 20, 2005. The Company&#8217;s equipment provides RVSM compliance and equipment deliveries related to the FAA&#8217;s mandate are increasing as both air transport and general aviation industry segments begin to meet the new FAA mandate.</font></p>
<p align="left"><font size="2" face="serif"><i>Cost of sales.</i> Cost of sales increased $2.1 million or 43%, to $7.1 million, or 37% of net sales, in the six months ended March 31, 2004 from $5.0 million, or 43% of net sales, in the six months ended March 31, 2003. The absolute dollar increase in cost of sales was related to our increase in net sales. As a percentage, the decrease was the result of both higher net sales in the period coupled with a favorable change in the Company&#8217;s estimate of accrued warranty liability in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Research and development</i>. Research and development expenses increased $0.7 million or 41% to $2.5 million or 13% of net sales in the six months ended March 31, 2004 from $1.8 million or 15% of net sales in the six months ended March 31, 2003. Both the absolute dollar and percent to sales increase was principally due to increased spending on the flat panel program as the Company prepares to submit its TSO application to the FAA. </font></p>
<p align="left"><font size="2" face="serif"><i>Selling, general, and administrative</i>. Selling, general, and administrative expenses increased $0.8 million or 28%, to $3.5 million, or 18% of net sales, in the six months ended March 31, 2004 from $2.7 million or 24% of net sales, in the six months ended March 31, 2003. The increase in the dollar amount was the result of higher commissions due to increased net sales and salaries, including the salary of an additional executive officer hired by the Company on March 31, 2003. The decrease as a percent of net sales was the result of higher net sales in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Interest Income.</i> Interest income was $230,000 in the six months ended March 31, 2004 as compared to interest income of $329,000 in the six months ended March 31, 2003. The decreased interest income in the six months ended March 31, 2004 was primarily the result of lower interest rates in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Interest Expense.</i> Interest expense was $63,000 in the six months ended March 31, 2004 as compared to $69,000 in the six months ended March 31, 2003. The decrease was due to lower interest rates in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Income Tax Expense.</i> Income tax expense for the six months ended March 31, 2004 was $2.3 million. The income tax expense for the six months ending March 31, 2003 was $0.8 million. The effective tax rate for both periods was 35% and the increase in income tax expense was due to higher income in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Net Income</i>. As a result of the factors described above, our net income in the six months ended March 31, 2004 increased $2.7 million or 180%, to $4.2 million, or 22% of net sales. </font></p>
<p align="left"><font size="2" face="serif"><b>Liquidity and Capital Resources</b></font></p>
<p align="left"><font size="2" face="serif">Our main sources of liquidity have been cash flows from operations and the proceeds of our initial public offering (IPO) in August 2000. We require cash principally to finance inventory, accounts receivable and payroll.</font></p>
<p align="left"><font size="2" face="serif">Our cash flow provided from operating activities was $4.3 million for the six months ended March 31, 2004 as compared to $1.1 million for the six months ended March 31, 2003. The increase was due to higher net income while a $1.1 million improvement in accounts receivable was offset with a $1.1 million inventory increase. The increase in inventory was primarily due to additional purchases of raw material and increased production in response to increased order backlog and in anticipation of an increased demand for RVSM equipment in light of the industry wide response to the FAA&#8217;s
mandate discussed above.</font></p>
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<p align="left"><font size="2" face="serif">Our cash used in investing activities was $502,000 for the six months ended March 31, 2004 as compared to $66,000 for the six months ended March 31, 2003. The increase was primarily due to the purchase of additional manufacturing and engineering equipment.</font></p>
<p align="left"><font size="2" face="serif">Net cash flow from financing activities was $448,000 for the six months ended March 31, 2004 as compared to $2.3 million in usage in the six months ended March 31, 2003. The primary use of cash in the six month period ended March 31, 2003 was to acquire treasury stock. In the six month period ended March 31, 2004, the in-flow of cash was the result of proceeds from the exercise of stock options and warrants.</font></p>
<p align="left"><font size="2" face="serif">Our future capital requirements depend on numerous factors, including market acceptance of our products, the timing and rate of expansion of our business, acquisitions, joint ventures 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 our IPO 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 now anticipate either through acquisitions or organic growth. Further, we may need to 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.</font></p>
<p align="left"><font size="2" face="serif"><b>Backlog</b></font></p>
<p align="left"><font size="2" face="serif">At March 31, 2004 our backlog of released business was $27.0 million. This represents a $3.9 million or 17% increase from the March 31, 2003 backlog of $23.1 million. Our backlog consists solely of orders that we believe 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.</font></p>
<p align="left"><font size="2" face="serif"><b>Critical Accounting Policies</b></font></p>
<div style="text-indent: 3%"><p><font size="2" face="serif">The preparation of financial
    statements in conformity with accounting principles generally accepted in
    the United States of America requires management to make estimates and assumptions
    that affect the reported amounts of assets and liabilities, disclosure of
    contingent assets and liabilities at the date of the financial statements
    and the reported amount of revenues and expenses during the reporting period.
    The Company&#8217;s most critical accounting policies are revenue recognition,
    income taxes, allowance for doubtful accounts, inventory valuation and warranty
    reserves.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">The Company recognizes
    sales for products when the following revenue recognition criteria are met:
    persuasive evidence of an arrangement exists, product delivery and acceptance
    has occurred, pricing is fixed or determinable, and collection is reasonably
    assured. The Company recognizes sales upon shipment of products to customers.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">Sales related to certain
    long-term contracts requiring development and delivery of products over several
    years are accounted for under the American Institute of Certified Public
    Accountants (AICPA) Statement of Position (SOP) 81-1, <i>Accounting for Performance
    of Construction-Type and Certain Production-Type Contracts. </i>We consider
    the nature of these contracts as well as the types of products and services
    provided when determining the appropriate accounting treatment for a particular
    contract. Certain long-term contracts are recorded on a percentage of completion
    basis using cost-to-cost methodology to measure progress towards completion.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">The Company offers its
    customers extended warranties for additional fees. These warranty sales are
    recorded as deferred revenue and recognized as sales on a straight-line basis
    over the warranty period.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">The Company enters into
    certain sales arrangements that include multiple deliverables as defined
    in Emerging Issues Task Force (EITF) Issue No. 00-21, <i>Accounting for Revenue
    Arrangements with Multiple Deliverables</i>. Effective July 1, 2003, the
    Company identifies all goods and/or services that are to be delivered separately
    under a sales arrangement and allocates revenue to each deliverable based
    on fair value that is established with the customer during contract negotiations.
    In general, revenues are separated between product sales and non-recurring
    engineering services. The allocated revenue for each deliverable is then
    recognized using appropriate revenue recognition methods.</font></p></div>
<p align="left">&nbsp;</p>
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<div style="text-indent: 3%"><p><font size="2" face="serif">Effective for transactions
    entered into after October 1, 2003, the Company accounts for transactions
    with software and non-software components under EITF Issue 03-5, &#8220;Applicability
    of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software
    Deliverables in an Arrangement Containing More-Than-Incidental Software.&#8221;</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">Income taxes are recorded
    in accordance with SFAS No. 109, <i>Accounting for Income Taxes. </i>Provisions
    for federal and state income taxes are calculated on reported financial statement
    pre-tax income based on current tax law. The Company recognizes deferred
    tax assets and liabilities for temporary differences between the financial
    reporting basis and the tax basis of the Company&#8217;s assets and liabilities
    and expected benefits of utilizing net operating loss carryforwards. The
    impact on deferred taxes of changes in tax rates and laws, if any, applied
    to the years during which temporary differences are expected to be settled,
    are reflected in the consolidated financial statements in the period of enactment.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">We maintain an allowance
    for doubtful accounts for estimated losses resulting from the inability of
    our customers to make required payments. These allowances are determined
    by analyzing historical data and trends. If actual losses are greater than
    estimated amounts or if the financial condition of our customers were to
    deteriorate, resulting in an impairment of their ability to make payments,
    future results from operations could be adversely affected.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">Inventories are written
    down for estimated obsolescence equal to the difference between the cost
    of inventory and the estimated net realizable value based upon assumptions
    about future market conditions. If actual future demand or market conditions
    are less favorable than those projected by management, additional inventory
    write-downs may be required.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">We offer warranties
    on some products of various lengths. At the time of shipment, we establish
    a reserve for the estimated cost of warranties based on our best estimate
    of the amounts necessary to settle future and existing claims using historical
    data on products sold as of the balance sheet date. The length of the warranty
    period, the product&#8217;s failure rates and the customer&#8217;s usage
    affects warranty cost. If the actual cost of warranties differs from our
    estimated amounts, future results of operations could be adversely affected.</font></p></div>
<p align="left"><font size="2" face="serif"><b>Business Segments</b></font></p>
<p align="left"><font size="2" face="serif">We operate in one principal business segment which designs, manufactures and sells flight information computers, flat panel displays and advanced monitoring systems to the Department of Defense, government agencies, commercial air transport carriers and corporate/general aviation markets. We currently derive virtually all our net sales from the sale of this equipment. Almost all of the net sales, operating results and identifiable assets are in the United States.</font></p>
<p align="left"><font size="2" face="serif"><b>New Accounting Pronouncements</b></font></p>
<div style="text-indent: 3%"><p><font size="2" face="serif">In January 2003, the
    FASB issued FIN 46, <i>Consolidation of Variable Interest Entities an Interpretation
    of ARB No. 51</i>. FIN 46 addresses consolidation by business enterprises
    of variable interest entities. The FASB then issued FIN 46(R), <i>Consolidation
    of Variable Interest Entities an Interpretation of ARB No. 51</i>, which
    replaced FIN 46. Application of FIN 46(R) is required in financial statements
    of public entities that have interests in variable interest entities or potential
    variable interest entities commonly referred to as special-purpose entities
    for periods ending after December 15, 2003. Application by public entities for all other types of entities
    is required in financial statements for periods ending after March 15, 2004.
	 The Company has adopted both
    FIN 46 and FIN 46(R), and their adoption had no impact on the Company&#8217;s
    financial position or results of operations.</font></p></div>
<div style="text-indent: 3%"><p><font size="2" face="serif">In May 2003, the FASB
    issued SFAS 150, &#8220;Accounting for Certain Financial Instruments with
    Characteristics of both Liabilities and Equity.&#8221; This Statement establishes
    standards for how an issuer classifies and measures certain financial instruments
    with characteristics of both liabilities and equity. It requires that an
    issuer classify a financial instrument that is within its scope as a liability
    (or an asset in some circumstances). This Statement is effective for financial
    instruments entered into or modified after May 31, 2003, and otherwise is
    effective at the beginning of the first interim period beginning after June
    15, 2003. The Company adopted the provisions of SFAS 150, including the deferral
    of certain effective dates as a result of the provisions of FASB Staff Position
    150-3, &#8220;Effective Date, Disclosures, and Transition for Mandatorily
    Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
    Mandatorily Redeemable Noncontrolling Interests Under FASB Statement No.
    150, &#8216;Accounting for Certain Financial Instruments with Characteristics
    of Both Liabilities and Equity.&#8217;&#8221; The Company does not have any
    significant financial instruments with characteristics of both liabilities
    and equity as of March 31, 2004.</font><p></div>
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<p align="left"><font size="2" face="serif"><b>FORWARD-LOOKING STATEMENTS</b></font></p>
<p align="left"><font size="2" face="serif">This Form 10-Q contains statements, which, to the extent that they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words &#8220;believe,&#8221; &#8220;estimate,&#8221; &#8220;anticipate,&#8221; &#8220;project,&#8221; &#8220;intend,&#8221; &#8220;expect,&#8221; &#8220;plan,&#8221; &#8220;outlook,&#8221; &#8220;forecast&#8221; and similar expressions are intended to identify forward-looking statements. Numerous factors, including potentially the following factors, could affect the Company&#8217;s forward-looking statements and actual performance:</font></p>
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    <td><font size="2" face="serif">continued market acceptance of our air data
        systems products; </font> </td>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">the ability to obtain or the timing of obtaining
        future government awards; </font> </td>
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    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">the availability of government funding and
        customer requirements both domestically and internationally; </font> </td>
  </tr>
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    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">difficulties in developing and producing
        our flat panel display systems (CIP) or other planned products or product
        enhancements; </font> </td>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">market acceptance of our CIP system or other
        planned products or product enhancements; </font> </td>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">our ability to gain regulatory approval of
        our products in a timely manner; </font> </td>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">delays in receiving components from third
        party suppliers; </font> </td>
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    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">the competitive environment; </font> </td>
  </tr>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">the timing and customer acceptance of product
        deliveries and launches; </font> </td>
  </tr>
</table>
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    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">the termination of programs or contracts
        for convenience by customers; </font> </td>
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    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">failure to retain key personnel; </font> </td>
  </tr>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">new product offerings from competitors; </font> </td>
  </tr>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&nbsp;</font></td>
    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">potential future acquisitions; </font> </td>
  </tr>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
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    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">protection of intellectual property rights; </font> </td>
  </tr>
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    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">our ability to service the international
        market;</font> </td>
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    <td width="3%"><font size="2" face="serif">&#149;</font></td>
    <td><font size="2" face="serif">other factors disclosed from time to time
        in our filings with the Securities and Exchange Commission. </font> </td>
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<p align="left"><font size="2" face="serif">Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events, circumstances or changes in expectations after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act and 21E of the Exchange Act.</font></p>
<p align="left"><font size="2" face="serif">For a discussion identifying some important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see the Company&#8217;s Securities and Exchange Commission filings including, but not limited to, the discussions of &#8220;Risk Factors&#8221; contained in the Company&#8217;s Annual Report on Form 10-K for the fiscal year ended September 30, 2003.</font></p>
<p align="left"><font size="2" face="serif"><b><a name="p13a" id="p13a"></a>Item&nbsp;3.</b> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Quantitative and Qualitative Disclosures About Market Risk </b></font></p>
<p align="left"><font size="2" face="serif">The Company&#8217;s operations are exposed to market risks primarily as a result of changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes. The Company&#8217;s exposure to market risk for changes in interest rates relates to its cash equivalents and an industrial revenue bond. The Company&#8217;s cash equivalents consist of funds invested in money market accounts, which bear interest at a variable rate, while the industrial revenue bond carries an interest rate that is consistent with 30-day, tax-exempt commercial paper. As the interest rates are variable, and we do not engage in hedging activities, a change in interest rates earned on the cash equivalents or paid on the industrial
revenue bond would impact interest income and expense along with cash flows, but would not impact the fair market value of the related underlying instruments.</font></p>
<p align="left"><font size="2" face="serif"><b><a name="p13b" id="p13b"></a>Item&nbsp;4. </b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Controls and Procedures </b></font></p>
<p align="left"><font size="2" face="serif">An evaluation was performed under the supervision and with the participation of the Company&#8217;s management, including its Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the Company&#8217;s disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the &#8220;Exchange Act&#8221;) as of March 31, 2004. Based on that evaluation, the Company&#8217;s management, including the CEO and CFO, concluded that the Company&#8217;s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded,
processed, summarized and reported as specified in Securities and Exchange Commission rules and forms. There were no significant changes in the Company&#8217;s internal control over financial reporting that occurred during the Company&#8217;s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company&#8217;s internal control over financial reporting.</font></p>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b>PART II&#150;OTHER INFORMATION </b></font></p>
<p align="left"><font size="2" face="serif"><b><a name="p14" id="p14"></a>Item&nbsp;6.</b> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Exhibits and Reports on Form 8-K. </b></font></p>
<div style="margin-left: 3%"><font size="2" face="serif">(a) Exhibits</font><br>
  <br>
</div>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top" bgcolor="#ffffff">
  <td width="3%" align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">31.1</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)</font></td>
</tr>
<tr valign="top">
  <td align="left">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
  <td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">31.2</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)</font></td>
</tr>
<tr valign="top">
  <td align="left">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
  <td align="right">&nbsp;</td>
<td align="right"><font size="2" face="serif">32.1</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of</font><br><font size="2" face="serif">2002</font></td>
</tr>
</table>
<br>
<div style="margin-left: 3%"><font size="2" face="serif">(b) Reports on Form
    8-K.</font><br>
    <br>
</div>
<div style="margin-left: 3%"><font size="2" face="serif">None</font></div>
<p align="left">&nbsp;</p>
<p align="center"><font face="serif" size="2">14</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b><a name="p15" id="p15"></a>SIGNATURES</b></font></p>
<p align="left"><font size="2" face="serif">Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top"> <td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td colspan="2" align="left"><font size="2" face="serif">&nbsp;<b>INNOVATIVE SOLUTIONS &amp; SUPPORT, INC.</b></font></td>
</tr>
<tr valign="top"> <td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td> </tr>
<tr valign="top">
<td align="left" width="47%"><font size="2" face="serif">Date: April 26, 2004</font></td>
<td align="left" width="5%"><font size="2" face="serif">By:</font></td>
<td align="center"><font size="2" face="serif">/s/&nbsp;&nbsp;&nbsp;&nbsp;JAMES J. REILLY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"></td>
  <td align="left"></td>
  <td align="center"><hr size="1" noshade></td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left"></td>
<td align="center"><font size="2" face="serif"><b><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;James J. Reilly</font></b></font><br><font size="2" face="serif"><b><font face="serif" size="1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Financial Officer</font></b></font></td>
</tr>
</table>
<p align="center"><font face="serif" size="2">15</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font face="serif" size="2"><b>EXHIBIT INDEX </b></font></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top">
<td align="center"><font size="1" face="serif"><b>Exhibit<br>
  Number</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left" valign="bottom"><font size="1" face="serif"><b>Description of Exhibit</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"><hr size="1" noshade></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left"><hr size="1" noshade></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="center"><font size="2" face="serif">31.1</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="89%" align="left"><font size="2" face="serif">Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)</font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top">
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="center"><font size="2" face="serif">31.2</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="center"><font size="2" face="serif">32.1</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="center"><font face="serif" size="2">16</font></p>
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<DOCUMENT>
<TYPE>EX-31
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<FILENAME>ex31-1.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<PAGE>



                                                                    Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Geoffrey S. M. Hedrick, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Innovative Solutions
     and Support, Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     b)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   All significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     b)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.

Date: April 26, 2004                     By:   /s/ GEOFFREY S. M. HEDRICK
                                            ----------------------------------
                                                 Geoffrey S. M. Hedrick
                                               Chairman of the Board and
                                                Chief Executive Officer



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>5
<FILENAME>ex31-2.txt
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<PAGE>


                                                                    Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, James J. Reilly, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Innovative Solutions
     and Support, Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     b)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   All significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     b)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.

Date: April 26, 2004                     By: /s/    JAMES J. REILLY
                                             --------------------------------
                                                    James J. Reilly
                                                Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>6
<FILENAME>ex32-1.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<PAGE>


                                                                    Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Innovative Solutions and Support,
Inc. (the "Company") on Form 10-Q for the period ending March 31, 2004 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

        /s/    GEOFFREY S. M. HEDRICK
- ------------------------------------------------------
               Geoffrey S. M. Hedrick
  Chairman of the Board and Chief Executive Officer


April 26, 2004

           /s/    JAMES J. REILLY
- ------------------------------------------------------
                  James J. Reilly
              Chief Financial Officer

April 26, 2004



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