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Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0000950116-05-000459.txt : 20050208
<SEC-HEADER>0000950116-05-000459.hdr.sgml : 20050208
<ACCEPTANCE-DATETIME>20050208145103
ACCESSION NUMBER:		0000950116-05-000459
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20041231
FILED AS OF DATE:		20050208
DATE AS OF CHANGE:		20050208

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:		05583563

	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>ten-q.htm
<DESCRIPTION>10-Q
<TEXT>
<html>
<head><title>
Prepared and filed by St Ives Burrups
</title>
</head>
<body bgcolor="#FFFFFF"> <p align="center"><font size="2" face="serif"><b><font face="serif" size="5">UNITED STATES<br>SECURITIES AND EXCHANGE COMMISSION</font></b></font></p>
<p align="center"><font size="2" face="serif"><b>Washington, D.C. 20549</b></font></p>
<p align="center"><font size="2" face="serif"><b><font face="serif" size="5">FORM 10-Q</font></b></font></p>  <table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left" width="5%"><font size="2" face="serif"><font face="serif" size="3"><img src="tickedbox.gif" width="12" height="12"></font></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 December 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="5%"><font size="2" face="serif"><font face="serif" size="3"><img src="emptybox.gif"></font></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>
</tr>
</table>
<p align="left"><font size="2" face="serif">[For the transition period from_____________________ to ___________________________</font></p>
<p align="center"><font size="2" face="serif">Commission File No. 0-31157</font></p>
<p align="center"><b><font face="serif" size="5">INNOVATIVE SOLUTIONS AND SUPPORT, INC.</font></b></p>
<p align="center"><b><font face="serif" size="1">(Exact name of registrant as specified in its charter) </font></b></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div align="center"><font size="2" face="serif"><b>PENNSYLVANIA</b></font></div></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="49%" align="right"><div align="center"><font size="2" face="serif"><b>23-2507402</b></font></div></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div align="center"><font size="2" face="serif"><b><font face="serif" size="1">(State or other jurisdiction</font></b></font><br>
      <font size="2" face="serif"><b><font face="serif" size="1">of incorporation)</font></b></font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><div align="center"><font size="2" face="serif"><b><font face="serif" size="1">(IRS Employer</font></b></font><br>
      <font size="2" face="serif"><b><font face="serif" size="1">Identification No.)</font></b></font></div></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><div align="center"><font size="2" face="serif">&nbsp;</font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><div align="center"><font size="2" face="serif">&nbsp;</font></div></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div align="center"><font size="2" face="serif"><b>720 Pennsylvania Drive, Exton, Pennsylvania</b></font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><div align="center"><font size="2" face="serif"><b>19341</b></font></div></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div align="center"><font size="2" face="serif"><b><font face="serif" size="1">(Address of principal executive offices)</font></b></font></div></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><div align="center"><font size="2" face="serif"><b><font face="serif" size="1">(Zip Code)</font></b></font></div></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<br><br>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top" bgcolor="#ffffff">
<td align="left"><div align="center"><font size="2" face="serif"><b>(610) 646-9800</b></font></div></td>
<td align="left" width="2%">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><div align="center"><font size="2" face="serif"><b><font face="serif" size="1">(Registrant&#8217;s
    telephone number, including area code)</font></b></font></div></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><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. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes  <img src="tickedbox.gif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;<img src="emptybox.gif" width="12" height="12"></font></p>
<p align="left"><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).<br>
  Yes&nbsp;&nbsp;<img src="tickedbox.gif" width="12" height="12">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No <img src="emptybox.gif" width="12" height="12"></font></p>
<p align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of  January 31, 2005, there were 11,851,395 shares of the Registrant&#8217;s Common Stock, with par value of $.001, outstanding.</font></p>
<p align="center"><font face="serif" size="2"></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 size="2" face="serif"><b>INNOVATIVE SOLUTIONS &amp; SUPPORT, INC.<br>
FORM 10-Q December 31, 2004<br>INDEX</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="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif"><b>Page No.</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td></td>
    <td></td>
    <td></td>
    <td></td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td><hr noshade size="1">
    </td>
    <td></td>
  </tr>
  <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="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="1" face="serif">&nbsp;</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#ffffff">
    <td align="left"><font size="2" face="serif">PART I.</font></td>
    <td align="left" width="2%">&nbsp;</td>
    <td width="1%" align="right">&nbsp;</td>
    <td width="71%" 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="7%" align="right"><font size="2" face="serif">&#151;</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>
    <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">Item 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">
    <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>
    <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;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">Condensed Consolidated Balance
        Sheets &#150; September 30, 2004 </font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 3</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#FFFFFF">
    <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">and December 31, 2004</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">
    <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>
    <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;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">Condensed Consolidated Statements
        of Operations &#150;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 4</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#FFFFFF">
    <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">Three Months Ended December
        31, 2003 and 2004</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">
    <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>
    <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;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">Condensed Consolidated Statements
        of Cash Flows &#150;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 5</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#FFFFFF">
    <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">Three Months Ended December
        31, 2003 and 2004</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">
    <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>
    <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;</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">Notes to Condensed Consolidated
        Financial Statements</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 6 &#150; 9</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>
    <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">Item 2.</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">MANAGEMENT&#8217;S DISCUSSION
        AND ANALYSIS OF FINANCIAL</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 9 &#150; 13</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#FFFFFF">
    <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">CONDITION AND RESULTS OF OPERATIONS</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">
    <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>
    <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">Item 3.</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">QUANTITATIVE AND QUALITATIVE
        DISCLOSURES ABOUT</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 14</font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="#FFFFFF">
    <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">MARKET RISK</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">
    <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>
    <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">Item 4.</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">CONTROLS AND PROCEDURES</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 14</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>
    <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">PART 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="right"><font size="2" face="serif">&nbsp;&#150;</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>
    <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">Item 6.</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">EXHIBITS AND REPORTS ON FORM
        8-K</font></td>
    <td align="left">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size="2" face="serif"> 15</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>
    <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">SIGNATURES</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>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2" face="serif">&nbsp;</font></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>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font size="2" face="serif"><b>PART I&#150;FINANCIAL INFORMATION<br>Item 1&#150;Financial Statements<br>INNOVATIVE SOLUTIONS AND SUPPORT, INC.<br>CONDENSED CONSOLIDATED BALANCE SHEET<br>(unaudited)</b></font></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
  <tr>
    <td colspan="6">&nbsp;</td>
    <td colspan=2 rowspan="3" align="center"><b><font size=2 face="serif">As of</font></b><b><font size=2 face="serif"><br>
    September 30,<br>
    </font></b><b><font size=2 face="serif">2004</font></b></td>
    <td><font size="2">&nbsp;</font></td>
    <td colspan=2 rowspan="3" align="center"><b><font size=2 face="serif">As of<br>
    </font></b><b><font size=2 face="serif">December 31,<br>
    </font></b><b><font size=2 face="serif">2004</font></b></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><div align="center"><b><font size=2 face="serif"><u>ASSETS</u></font></b></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6">&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6">&nbsp;</td>
    <td>&nbsp;</td>
    <td><hr noshade size=1></td>
    <td>&nbsp;</td>
    <td><hr noshade size=1></td>
    <td><hr noshade size=1></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size=2 face="serif">Current Assets:</font></td>
    <td width="1%"><font size="2">&nbsp;</font></td>
    <td width="12%"><font size="2">&nbsp;</font></td>
    <td width="2%"><font size="2">&nbsp;</font></td>
    <td width="1%"><font size="2">&nbsp;</font></td>
    <td width="12%"><font size="2">&nbsp;</font></td>
    <td width="2%">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size=2 face="serif">&nbsp;&nbsp;&nbsp;Cash and cash
        equivalents</font></td>
    <td><font size=2 face="serif">$</font></td>
    <td><div align="right"><font size=2 face="serif">65,867,167</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">$</font></div></td>
    <td><div align="right"><font size=2 face="serif">73,340,686</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=6><font size=2 face="serif">&nbsp;&nbsp;&nbsp;Accounts receivable, less allowance
        for doubtful accounts of</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=6><font size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$100,000 at September 30, 2004 and
        December 31, 2004</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">5,003,100</font></div>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div>
    </td>
    <td><div align="right"><font size=2 face="serif">5,196,164</font></div>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Inventories</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">5,191,628</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">5,543,742</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Deferred
          income taxes</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">984,111</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">984,111</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Prepaid
          expenses</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">665,276</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">580,648</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Total
          current assets</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">77,711,282</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">85,645,351</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size=2 face="serif">Property and Equipment:</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Computers
          and test equipment</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">3,933,326</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">4,011,126</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Corporate
          airplane</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">2,998,161</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">2,998,161</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Furniture
          and office equipment</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">622,364</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">649,931</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Manufacturing
          facility</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">5,414,986</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">5,420,741</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Land</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">1,021,245</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">1,021,245</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">13,990,082</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">14,101,204</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=6><font size=2 face="serif">&nbsp;&nbsp;&nbsp;Less- Accumulated depreciation and
        amortization</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(4,369,851)</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">(4,549,086)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=6><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Net
          property and equipment</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">9,620,231</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">9,552,118</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td width="34%"><font size="2">&nbsp;</font></td>
    <td width="9%"><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="serif">Deposits and other assets</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">137,114</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">134,114</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="serif">Total assets</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size=2 face="serif">$</font></td>
    <td><div align="right"><font size=2 face="serif">87,468,627</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">$</font></div></td>
    <td><div align="right"><font size=2 face="serif">95,331,583</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" size=2 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=2 noshade>
    </td>
    <td><hr align="right" size=2 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6"><font size="2">&nbsp;</font><b><font size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>LIABILITIES
            AND SHAREHOLDERS&#146; EQUITY</u></font></b></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td colspan=2>&nbsp;    </td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="serif">CURRENT LIABILITIES:</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="2"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Current portion of
          notes payable</font></font><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size=2 face="serif">$</font></td>
    <td><div align="right"><font size=2 face="serif">100,000</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">$</font></div></td>
    <td><div align="right"><font size=2 face="serif">100,000</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
<td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="2"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif"></font></font><font size=2 face="serif">Current portion of
    capitalized lease obligations</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">7,257</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">7,257</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Accounts payable</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">1,696,247</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">1,347,804</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Accrued expenses</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">4,754,641</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">6,381,509</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Deferred revenue</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">526,023</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">523,732</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Total
          current liabilities</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">7,084,168</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">8,360,302</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2"><font face="serif">Note payable</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">4,235,000</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">4,235,000</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
<td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="serif">Long-term portion of capitalized
    lease obligations</font></td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">20,681</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">18,819</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=5><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2"><font face="serif">Deferred revenue</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">261,934</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">244,316</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2"><font face="serif">Deferred income taxes</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">411,857</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">411,857</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="2"><font size="2"><font face="serif">Commitments and contingencies</font></font><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&#151;&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&#151;&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="serif">Shareholders&#146; Equity:</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="3"><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Preferred stock, </font><font size=2 face="serif">10,000,000
    shares authorized-Class A</font></font><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="serif">Convertible stock, $.001 par value; 200,000
    shares authorized,</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=6><font size=2 face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;no shares issued and outstanding
        at September 30, 2004 and December 31, 2004</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&#151;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&#151;&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=6><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=5><font size=2 face="serif">&nbsp;&nbsp;&nbsp;Common stock, $.001 par value: 75,000,000
        shares</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=5><font size=2 face="serif">authorized, 13,515,330 and 13,532,177
        shares issued and</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=5><font size=2 face="serif">outstanding at September 30, 2004
        and December 31, 2004</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">13,515</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">13,536</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2"><font face="serif">Additional paid-in
          capital</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">48,712,289</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">49,125,767</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2"><font face="serif">Retained earnings</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">37,342,940</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">43,535,743</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="serif">Treasury stock, at cost, 1,690,026 shares</font></td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(10,613,757)</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">(10,613,757)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=5><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">&nbsp;&nbsp;&nbsp;Total
          shareholders&#146; equity</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">75,454,987</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">82,061,289</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr noshade size=2>
    </td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=5><font size=2 face="serif">Total liabilities and shareholders&#146;
        equity</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size=2 face="serif">$</font></td>
    <td><div align="right"><font size=2 face="serif">87,468,627</font></div></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><div align="right"><font size=2 face="serif">$</font></div></td>
    <td><div align="right"><font size=2 face="serif">95,331,583</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan=5><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr noshade size=2>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr noshade size=2>
    </td>
    <td><hr noshade size=2>
    </td>
    <td>&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">3</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 size="2" face="serif"><b>INNOVATIVE SOLUTIONS AND SUPPORT, INC.<br>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<br>(unaudited)</b></font></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
  <tr>
    <td width="56%">&nbsp;</td>
    <td colspan=3 rowspan="4" align="center"><b><font size=2 face="serif">Three Months<br>
    </font></b><b><font size=2 face="serif">Ended<br>
    </font></b><b><font size=2 face="serif">December 31,<br>
    </font></b><b><font size=2 face="serif">2003</font></b></td>
    <td>&nbsp;</td>
    <td colspan=2 rowspan="4" align="center"><b><font size=2 face="serif">Three Months</font></b><b><font size=2 face="serif"><br>

      Ended<br>
    </font></b><b><font size=2 face="serif">December 31,<br>
    2004</font></b>      <div align="center"></div>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><hr noshade size=1></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=1></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Net sales</font></td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td colspan=2 align="right"><font size=2 face="serif">8,523,336</font></td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td width="16%" align="right"><font size=2 face="serif">18,978,804</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Cost of sales</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">3,481,411</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">6,182,143</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Gross profit</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">5,041,925</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">12,796,661</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Operating expenses:</font></td>
    <td width="6%" align="right">&nbsp;</td>
    <td colspan="2" align="right">&nbsp;</td>
    <td width="2%">&nbsp;</td>
    <td width="3%">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td width="2%">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Research and development</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">1,009,275</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">1,271,531</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Selling, general and administrative</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">1,640,620</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">2,028,467</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">2,649,895</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">3,299,998</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Operating income</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">2,392,030</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">9,496,663</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Interest income</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">(112,671)</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">(283,250)</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Interest expense</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">31,855</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">39,738</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Income before income taxes</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">2,472,846</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">9,740,175</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Income taxes</font></td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><font size=2 face="serif">(865,496)</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">(3,547,372)</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan=2 align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Net income</font></td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td colspan=2 align="right"><font size=2 face="serif">1,607,350</font></td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td align="right"><font size=2 face="serif">6,192,803</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;    </td>
    <td colspan=2 align="right"><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><hr noshade size=2>    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Net Income Per Common Share:</font></td>
    <td align="right">&nbsp;</td>
    <td width="0%" align="right">&nbsp;</td>
    <td width="15%">&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Basic</font></td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size=2 face="serif">0.14</font></td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td align="right"><font size=2 face="serif">0.52</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><hr noshade size=2>
    </td>
    <td align="right"><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><hr noshade size=2>    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Diluted</font></td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td align="right">&nbsp;</td>
    <td align="right"><font size=2 face="serif">0.14</font></td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">$</font></td>
    <td align="right"><font size=2 face="serif">0.51</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><hr noshade size=2>
    </td>
    <td align="right"><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=2>    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td colspan="2" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Weighted Average Shares Outstanding:</font></td>
    <td align="right">&nbsp;</td>
    <td colspan="2" align="right">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Basic</font></td>
    <td colspan=2 align="right">&nbsp;</td>
    <td align="right"><font size=2 face="serif">11,412,614</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">11,835,138</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><hr noshade size=2>
    </td>
    <td align="right"><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Diluted</font></td>
    <td colspan=2 align="right">&nbsp;</td>
    <td align="right"><font size=2 face="serif">11,776,015</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><font size=2 face="serif">12,180,275</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td align="right"><hr noshade size=2>
    </td>
    <td align="right"><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td align="right"><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
  </tr>
</table>
<p align="center">&nbsp;</p>
<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>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font size="2" face="serif"><b>INNOVATIVE SOLUTIONS AND SUPPORT, INC.<br>
</b></font><font size="2" face="serif"><b>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<br>
</b></font><font size="2" face="serif"><b>(unaudited)</b></font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td colspan=2 rowspan="3" align="center"><b><font size=2 face="serif">For the Three<br>
    </font></b><b><font size=2 face="serif">Months Ended<br>
    </font></b><b><font size=2 face="serif">December 31,<br>
    2003
    </font></b></td>
    <td><font size="2">&nbsp;</font></td>
    <td colspan=2 rowspan="3" align="center"><b><font size=2 face="serif">For the Three<br>
    </font></b><b><font size=2 face="serif">Months Ended<br>
    </font></b><b><font size=2 face="serif">December 31,<br>
    2004
    </font></b></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td align="center" colspan=2><hr noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td align="center" colspan=2><hr noshade></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">CASH FLOWS FROM OPERATING ACTIVITIES:</font></td>
    <td width="3%"><font size="2">&nbsp;</font></td>
    <td width="13%"><font size="2">&nbsp;</font></td>
    <td width="3%"><font size="2">&nbsp;</font></td>
    <td width="3%"><font size="2">&nbsp;</font></td>
    <td width="13%"><font size="2">&nbsp;</font></td>
    <td width="3%">&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Net income (loss)</font></font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$1,607,350</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$&nbsp;&nbsp;6,192,803</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="serif">Adjustments to reconcile
          net income to net cash</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">provided
          by (used in) operating activities:</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Depreciation
          and amortization</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">161,864</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">182,235</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Loss
          on Disposal of Fixed Assets</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">1,037</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;&#151;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Excess
          and obsolete inventory expense</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">42,194</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(6,017)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Compensation
          expense for stock issued to directors</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">39,609</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">57,990</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Tax
          benefit from exercise of stock options</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">10,047</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">116,741</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">(Increase)
          decrease in:</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Accounts
          receivable</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">1,310,917</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(193,064)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Inventories</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(504,899)</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(346,097)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Prepaid
          expenses and other</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">220,676</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">84,628</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Increase
          (decrease) in:</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Accounts
          payable</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">178,593</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(348,443)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Accrued
          expenses</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(61,704)</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">1,705,926</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Deferred
          revenue</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">75,439</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(19,909)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Net
          cash provided by operating activities</font></font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$&nbsp;&nbsp;3,081,123</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$&nbsp;&nbsp;7,426,793</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">CASH FLOWS FROM INVESTING ACTIVITIES:</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Purchases
          of property and equipment</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(274,283)</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">(111,122)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Net
          cash used in investing activities</font></font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">($274,283)</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">($111,122)</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">CASH FLOWS FROM FINANCING ACTIVITIES:</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Proceeds
          from exercise of stock options</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">85,193</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">157,848</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Proceeds
          from exercise of warrants</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">172,857</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&#151;&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right">
      <hr align="right" width="50%" size=1 noshade>
      </div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Net
          cash provided by financing activities</font></font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">258,050</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size=2 face="serif">157,848</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font face="serif">Net
          increase in cash and cash equivalents</font></font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$&nbsp;&nbsp;3,064,890</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$&nbsp;&nbsp;7,473,519</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Cash and cash equivalents, beginning of year</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$48,789,744</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$65,867,167</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
    <td><div align="right"><font size="2">&nbsp;</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Cash and cash equivalents, end of period</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$51,854,634</font></div></td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">$73,340,686</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=2 noshade>
    </td>
    <td><font size="2">&nbsp;</font></td>
    <td>&nbsp;    </td>
    <td><hr align="right" width="50%" size=2 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
</table>
<font size="2" face="serif">&nbsp;</font>


<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>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><font size="2" face="serif"><b>Innovative Solutions &amp; Support Inc.<br>
</b></font><font size="2" face="serif"><b>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 December 31, 2004, the statement of operations for the three months ended December 31, 2003 and 2004 and the statements of cash flows for the three months ended December 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 December 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, 2004 as filed with the Securities and Exchange Commission. The results of operations for the three months ended December 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%" align="center" border=0 cellspacing=0 cellpadding=0>
  <tr>
    <td>&nbsp;</td>
    <td width="22%"><div align="center"><font size=2 face="serif">Three Months</font></div></td>
    <td width="3%">&nbsp;</td>
    <td width="22%"><div align="center"><font size=2 face="serif">Three Months</font></div></td>
    <td width="3%">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><div align="center"><font size=2 face="serif">Ended</font></div></td>
    <td>&nbsp;</td>
    <td><div align="center"><font size=2 face="serif">Ended</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><div align="center"><font size=2 face="serif">December 31, 2003</font></div></td>
    <td>&nbsp;</td>
    <td><div align="center"><font size=2 face="serif">December 31, 2004</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Weighted average number of shares-basic</font></td>
    <td><div align="right"><font size=2 face="serif">11,412,614</font></div></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">11,835,138</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Effect of dilutive securities:</font></td>
    <td><div align="right"></div></td>
    <td>&nbsp;</td>
    <td><div align="right"></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Employee stock options</font></td>
    <td><div align="right"><font size=2 face="serif">196,044</font></div></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">345,137</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Warrants</font></td>
    <td><div align="right"><font size=2 face="serif">167,357</font></div></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">0</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Weighted average number of shares-diluted</font></td>
    <td><div align="right"><font size=2 face="serif">11,776,015</font></div></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">12,180,275</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
    <td><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
  </tr>
</table>
<p align="left">&nbsp;</p>
<p align="left"><font size="2" face="serif">For the three-month period ended December 31, 2004, there were 8000 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 December 31, 2004, three customers accounted for 16%, 15%, and 12% of net sales or 43% on a combined basis. For the three months ended December 31, 2003, two customers, one new and one repeat, accounted for 33% and 18%, respectively, of net sales or 51% on a combined basis. </font></p>
<p align="center"><font face="serif" size="2">6</font></p>
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<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>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
  <tr>
    <td>&nbsp;</td>
    <td colspan=2><div align="center"><font size=2 face="serif">September 30,</font></div></td>
    <td>&nbsp;</td>
    <td colspan=2><div align="center"><font size=2 face="serif">December 31,</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td colspan=2><div align="center"><font size=2 face="serif">2004</font></div></td>
    <td>&nbsp;</td>
    <td colspan=2><div align="center"><font size=2 face="serif">2004</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td colspan=2><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td colspan=2><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Raw materials</font></td>
    <td width="3%"><font size=2 face="serif">$</font></td>
    <td width="24%"><div align="right"><font size=2 face="serif">1,928,005</font></div></td>
    <td width="5%">&nbsp;</td>
    <td width="3%"><font size=2 face="serif">$</font></td>
    <td width="24%"><div align="right"><font size=2 face="serif">3,094,594</font></div></td>
    <td width="5%">&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Work-in-process</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">2,573,932</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">2,108,519</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Finished goods</font></td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">689,691</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div align="right"><font size=2 face="serif">340,629</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><hr align="right" size=1 noshade></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
    <td><hr align="right" size=1 noshade></td>
    <td><hr align="right" size=1 noshade>
    </td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="sans-serif">$</font></td>
    <td><div align="right"><font size=2 face="serif">5,191,628</font></div></td>
    <td>&nbsp;</td>
    <td><font size=2 face="sans-serif">$</font></td>
    <td><div align="right"><font size=2 face="serif">5,543,742</font></div></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><hr noshade size=2>
    </td>
    <td><hr noshade size=2>
    </td>
    <td>&nbsp;</td>
    <td><hr noshade size=2>
    </td>
    <td><hr noshade size=2>
    </td>
    <td>&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. 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>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top" bgcolor="#FFFFFF">
<td colspan="2" align="left"><font size="2" face="serif">Warranty cost and accrual information for the three months ended December 31, 2004 is highlighted below:</font><font size="2" face="serif">&nbsp;</font></td>
<td width="0%" align="left">&nbsp;</td>
<td width="5%" align="left"><font size="2" face="serif">&nbsp;</font></td>
<td width="25%" align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td colspan="2" align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warranty accrual at September 30,
    2004</font></td>
<td align="left"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif">757,476</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td colspan="2" align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expense for the quarter ended December 31, 2004</font><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">60,007</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td colspan="2" align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warranty costs for the quarter ended December 31, 2004</font><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="serif">(50,295</font></td>
<td align="left">)</td>
</tr>
<tr valign="top">
<td width="40%"></td>
<td width="30%"></td>
<td></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td colspan="2" align="left"><font size="2" face="serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warranty accrual at December 31, 2004</font></td>
<td align="left"><font size="2" face="serif">$</font></td>
<td align="right"><font size="2" face="serif"><b>767,188</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td></td>
<td></td>
<td></td>
<td><hr noshade size="1"></td>
<td></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 1998 Stock Option Plan (the &#8220;Plan&#8221;) provides for the granting of incentive and nonqualified stock options to employees, officers, directors and independent contractors and consultants. </font></p>
<p align="left"><font size="2" face="serif">Incentive stock options granted under the Plan must be at least equal to the fair value of the common stock on the date of grant. Nonqualified stock options granted under the Plan may be less than, equal to or greater than the fair value of the common stock on the date of grant.  The Company has reserved 1,259,350 shares of Common stock for awards under the 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 period ended December 31, 2003 and 2004 would have been as follows:</font></p>
<p align="center"><font face="serif" size="2">7</font></p>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
  <tr>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b><font size=2 face="serif">Three Months</font></b></td>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b><font size=2 face="serif">Three Months</font></b></td>
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  <tr>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b></b><b><font size=2 face="serif">Ended</font></b></td>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b><font size=2 face="serif">Ended</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b><font size=2 face="serif">December 31,</font></b></td>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b><font size=2 face="serif">December 31,</font></b></td>
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  <tr>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b><font size=2 face="serif">2003</font></b></td>
    <td>&nbsp;</td>
    <td colspan=2 align="center"><b><font size=2 face="serif">2004</font></b></td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Net Income:</font></td>
    <td width="2%"><hr noshade size=1></td>
    <td width="10%"><hr noshade size=1></td>
    <td width="3%">&nbsp;</td>
    <td width="2%"><hr noshade size=1></td>
    <td width="10%"><hr noshade size=1></td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">As reported</font></td>
    <td>&nbsp;</td>
    <td width="10%"><div align="right"><font size=2 face="serif">$1,607,350</font></div></td>
    <td width="3%">&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">$6,192,803</font></td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Deduct:
        Total stock based employee</font></td>
    <td>&nbsp;</td>
    <td width="10%">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size=2 face="serif">compensation
        expense determined under</font></td>
    <td>&nbsp;</td>
    <td width="10%">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size=2 face="serif">the fair
        value based method for all</font></td>
    <td>&nbsp;</td>
    <td width="10%">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size=2 face="serif">awards,
        net of related tax effects</font></td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">($181,085)</font></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">($183,411)</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><hr noshade size=1></td>
    <td width="10%"><hr noshade size=1></td>
    <td>&nbsp;</td>
    <td><hr noshade size=1>
</td>
    <td width="10%" align="right"><hr noshade size=1></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Pro forma</font></td>
    <td>&nbsp;</td>
    <td width="10%"><div align="right"><font size=2 face="serif">$1,426,265</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">$6,009,392</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><hr noshade size=1></td>
    <td width="10%"><hr noshade size=1>
    </td>
    <td>&nbsp;</td>
    <td><hr noshade size=1></td>
    <td width="10%" align="right"><hr noshade size=1>
    </td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><div align="right"></div>      <div align="right"></div>
    </td>
    <td width="10%">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Basic EPS:</font></td>
    <td>&nbsp;</td>
    <td width="10%">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">As reported</font></td>
    <td>&nbsp;</td>
    <td width="10%"><div align="right"><font size=2 face="serif">$0.14</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">$0.52</font></td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Pro forma</font></td>
    <td>&nbsp;</td>
    <td width="10%"><div align="right"><font size=2 face="serif">$0.12</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">$0.51</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%">&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td><font size=2 face="serif">Diluted EPS:</font></td>
    <td>&nbsp;</td>
    <td width="10%"><div align="right"></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">As reported</font></td>
    <td>&nbsp;</td>
    <td width="10%"><div align="right"><font size=2 face="serif">$0.14</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">$0.51</font></td>
  </tr>
  <tr>
    <td>&nbsp;&nbsp;&nbsp;<font size=2 face="serif">Pro forma</font></td>
    <td>&nbsp;</td>
    <td width="10%"><div align="right"><font size=2 face="serif">$0.12</font></div></td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td width="10%" align="right"><font size=2 face="serif">$0.49</font></td>
  </tr>
</table>
<p align="left">&nbsp;</p>
<p align="left"><font size="2" face="serif"><b>New Accounting Pronouncements</b></font></p>
<p align="left"><font size="2" face="serif">In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 151, &#8220;Inventory Costs&#8221;.  This Statement amends the guidance in ARB No. 43, Chapter 4 &#8220;Inventory Pricing&#8221;, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Paragraph 5 of ARB 43, Chapter 4 previously stated that &#8220;&#8230; under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges&#8230;&#8221;.  This Statement requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of &#8220;so abnormal&#8221;.  In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The Company does not expect the adoption of this statement will have a material impact on its consolidated financial position or results of operations.</font></p>
<p align="left"><font size="2" face="serif">In December 2004, The FASB issued SFAS No. 123(R), &#8220;Share Based Payment&#8221;.  Statement No. 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share based payments granted to employees.  This statement is effective for the first reporting period beginning after June 15, 2005.  The Company will adopt Statement No. 123(R) beginning with the fourth quarter of fiscal 2005.  Adoption of the statement will require the Company to record compensation expense relating to the issuance of employee stock options.  Currently, the Company follows APB No. 25 which does not require the recognition of compensation expense relating to the issuance of stock options so long as the quoted market price of
the Company&#8217;s stock at the date of grant is less than or equal to the amount an employee must pay to acquire the stock.</font></p>
<p align="left"><font size="2" face="serif">In December 2004, the FASB issued FASB Staff Position (FSP) FAS 109-1, &#8220;Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004&#8221;.  This FSP provides guidance on the application of Statement 109 to the provisions within the American Jobs Creation Act of 2005 (the Act), which provides tax relief to U.S. domestic manufacturers.  The proposed FSP states that a manufacturer&#8217;s deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 and not as a tax rate reduction.  The proposed FSP also reminds preparers that the special deduction should be considered by an
enterprise in (a) measuring deferred taxes when the enterprise is subjected to graduated tax rates, and (b) assessing whether a valuation allowance is necessary as required by Statement 109.  This statement is effective immediately.  The Company has adopted this statement and it did not have a material impact on the Company&#8217;s financial position or results of operations.</font></p>
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<p align="left"><font size="2" face="serif"><b>Item 2. Management&#8217;s Discussion and Analysis of Financial Condition and Results of Operations </b></font></p>
<p align="left"><font size="2" face="serif"><b>Overview</b></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.  The Company&#8217;s flat panel display received certification from the Federal Aviation Administration (FAA) in the form of a Technical Standard Order (TSO) on July 2, 2004.To date, we have been selected by the U.S. Navy for Flat Panel applications on their Landing Craft Air Cushion (LCAC) platforms. The Navy program has multi-year requirements that we believe will provide a solid base for future awards. Further, we were selected by Boeing to provide Flat Panels for the Boeing 767 tanker program. While Boeing&#8217;s contract with the US Air Force was recently cancelled, the program is expected to be re-competed in the future. In the near term,
the Company will continue to provide Boeing with flat panels for installation on 767 tanker planes that will be sold to foreign customers. In addition, Lockheed Martin selected us to provide flat panel systems for the retrofit of C-130 airplanes.  </font></p>
<p align="left"><font size="2" face="serif">Our &#8220;cost of sales&#8221; 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 December 31, 2004 Compared to the Three Months Ended December 31, 2003</b></font></p>
<p align="left"><font size="2" face="serif"><i>Net sales. </i>Net sales increased $10.5 million, or 123%, to $19.0 million for the three months ended December 31, 2004 from $8.5 million in the three months ended December 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. 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>
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<p align="left"><font size="2" face="serif"><i>Cost of sales.</i> Cost of sales increased $2.7 million or 78%, to $6.2 million, or 33% of net sales, in the three months ended December 31, 2004 from $3.5 million, or 41% of net sales, in the three months ended December 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 higher net sales in the period.</font></p>
<p align="left"><font size="2" face="serif"><i>Research and development</i>. Research and development expenses increased $0.3 million or 26% to $1.3 million or 7% of net sales in the three months ended December 31, 2004 from $1.0 million or 12% of net sales in the three months ended December 31, 2003. The absolute dollar increase was principally due to increased staffing as the Company supports its flat panel and other ongoing development programs.  The decrease as a percent to sales was due to the increase in net sales in the current period.</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 24%, to $2.0 million, or 11% of net sales, in the three months ended December 31, 2004 from $1.6 million or 19% of net sales, in the three months ended December 31, 2003. The increase in the dollar amount was primarily the result of higher commissions and compensation expense.  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 $283,000 in the three months ended December 31, 2004 as compared to interest income of $113,000 in the three months ended December 31, 2003. The increase in  interest income in the three months ended December 31, 2004 was primarily the result of higher interest rates in the current period and an increase in our cash balance over the prior period.  </font></p>
<p align="left"><font size="2" face="serif"><i>Interest expense.</i> Interest expense was $40,000 in the three months ended December 31, 2004 as compared to interest expense of $32,000 in the three months ended December 31, 2003. The increase in interest expense in the three months ended December 31, 2004 was primarily the result of higher 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 three months ended December 31, 2004 was $3.5 million. The income tax expense for the three months ending December 31, 2003 was $0.9 million. The increase in tax expense was primarily due to higher income in the period. The effective tax rate in the December 31, 2004 quarter was 36%. In the December 31, 2003 quarter the effective tax rate was 35%. In each quarter, the effective tax rate differs from the statutory rate due to the utilization of research and development tax credits.  Although the credits utilized in each period were similar, the effective tax rate was lower in 2003 due to lower pre-tax income in the period ended December 31, 2003.</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 December 31, 2004 increased $4.6 million or 285%, to $6.2 million, or 33% of net sales, from $1.6 million or 19% of net sales in the three months ended December 31, 2003.</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. 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 $7.4 million for the three months ended December 31, 2004 as compared to $3.1 million for the three months ended December 31, 2003. The increase was due to higher net income in the period. </font></p>
<p align="left"><font size="2" face="serif">Our cash used in investing activities was $111,000 for the three months ended December 31, 2004 primarily consisted of laboratory test equipment, computer equipment and office furniture.  Cash used in investing activities was $274,000 for the three months ended December 31, 2003 and primarily consisted of production equipment, laboratory test equipment, computer equipment and office furniture.</font></p>
<p align="left"><font size="2" face="serif">Net cash flow from financing activities was $158,000 for the three months ended December 31, 2004 as compared to $258,000 in the three months ended December 31, 2003. In the three month period ended December 31, 2004, the in-flow of cash was the result of proceeds from the exercise of stock options.  In the period ended December 31, 2003, the in-flow was the result of the exercise of both stock options and warrants.  All remaining warrants were exercised during the fiscal year ended September 30, 2004.  </font></p>
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<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 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 December 31, 2004 our backlog was $36.2 million. This represents a $10.2 million or 39% increase from the December 31, 2003 backlog of $26.0 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>
<p align="left"><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>
<p align="left"><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>
<p align="left"><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>
<p align="left"><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>
<p align="left"><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.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>
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<p align="left"><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>
<p align="left"><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>
<p align="left"><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>
<p align="left"><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>
<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>
<p align="left"><font size="2" face="serif">In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 151, &#8220;Inventory Costs&#8221;.  This Statement amends the guidance in ARB No. 43, Chapter 4 &#8220;Inventory Pricing&#8221;, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Paragraph 5 of ARB 43, Chapter 4 previously stated that &#8220;&#8230; under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges&#8230;&#8221;.  This Statement requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of &#8220;so abnormal&#8221;.  In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The Company does not expect the adoption of this statement will have a material impact on its consolidated financial position or results of operations.</font></p>
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<p align="left"><font size="2" face="serif">In December 2004, The FASB issued SFAS No. 123(R), &#8220;Share Based Payment&#8221;.  Statement No. 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share based payments granted to employees.  This statement is effective for the first reporting period beginning after June 15, 2005.  The Company will adopt Statement No. 123(R) beginning with the fourth quarter of fiscal 2005.  Adoption of the statement will require the Company to record compensation expense relating to the issuance of employee stock options.  Currently, the Company follows APB No. 25 which does not require the recognition of compensation expense relating to the issuance of stock options so long as the quoted market price of
the Company&#8217;s stock at the date of grant is less than or equal to the amount an employee must pay to acquire the stock.</font></p>
<p align="left"><font size="2" face="serif">In December 2004, the FASB issued FASB Staff Position (FSP) FAS 109-1, &#8220;Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004&#8221;.  This FSP provides guidance on the application of Statement 109 to the provisions within the American Jobs Creation Act of 2005 (the Act), which provides tax relief to U.S. domestic manufacturers.  The proposed FSP states that a manufacturer&#8217;s deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 and not as a tax rate reduction.  The proposed FSP also reminds preparers that the special deduction should be considered by an
enterprise in (a) measuring deferred taxes when the enterprise is subjected to graduated tax rates, and (b) assessing whether a valuation allowance is necessary as required by Statement 109.  This statement is effective immediately.  The Company has adopted this statement and it did not have a material impact on the Company&#8217;s financial position or results of operations.</font></p>
<p align="center"><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>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> continued market acceptance of our air data systems products;</font></td>
</tr>
</table>
<div align="center"></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> the ability to obtain or the timing of obtaining future government awards;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> the availability of government funding and customer requirements;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<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>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> market acceptance of our CIP system or other planned products or product enhancements;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> our ability to gain regulatory approval of our products in a timely manner;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> delays in receiving components from third party suppliers;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> the competitive environment;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> the timing and customer acceptance of product deliveries and launches;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> the termination of programs or contracts for convenience by customers;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> failure to retain key personnel;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> new product offerings from competitors;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> potential future acquisitions;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> protection of intellectual property rights;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> our ability to service the international market;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><div align="center"><font size="2" face="serif">&#149;</font></div></td>
<td align="left">
<font size="2" face="serif"> other factors disclosed from time to time in our filings with the Securities and Exchange Commission.</font></td>
</tr>
</table>
<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="center"><font face="serif" size="2">13</font></p>
<hr noshade align="center" width="100%" size="2">
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<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></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, 2004.</font></p>
<p align="left"><font size="2" face="serif"><b>Item 3. 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>Item 4. 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-15e under the Securities Exchange Act of 1934, as amended (the &#8220;Exchange Act&#8221;) as of December 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 provide reasonable assurance 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>
<p align="center"><font face="serif" size="2">14</font></p>
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<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 size="2" face="serif"><b>PART II&#150;OTHER INFORMATION</b></font></p>
<p align="left"><font size="2" face="serif"><b>Item 6. Exhibits and Reports on Form 8-K.</b></font></p>
<table width="100%" cellspacing="0" cellpadding="0" align="center" border="0">
<tr valign="top" bgcolor="#FFFFFF">
<td colspan="4" align="left"><font size="2" face="serif">(a) Exhibits</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td colspan="4" 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">31.1</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="85%" 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" bgcolor="#FFFFFF">
<td align="left"><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" bgcolor="#ffffff">
<td align="left"><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 2002</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="serif">(b) Reports on Form 8-K.</font></p>
<p align="left"><font size="2" face="serif">None</font></p>
<p align="center"><font face="serif" size="2">15</font></p>
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<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 size="2" face="serif"><b>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" 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 colspan="4" align="left"><font size="2" face="serif"><b>INNOVATIVE SOLUTIONS &amp; SUPPORT, INC.</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<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="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="1" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif">Date: February 7, 2005</font></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="5%" align="left"><font size="2" face="serif">By:</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="53%" align="left"><font size="2" face="serif">/s/ JAMES J. REILLY</font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top">
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<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>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif"><b><font face="serif" size="2">James J. Reilly</font></b><b><font face="serif" size="2"> Chief Financial Officer</font></b></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>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="serif">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="center"><font face="serif" size="2">16</font></p>
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<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.



                                            By:  /s/   GEOFFREY S. M. HEDRICK
Date: February 7, 2005                         ---------------------------------
                                                  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: February 7, 2005                         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 December 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 result of operations of the
      Company.

   /s/    GEOFFREY S. M. HEDRICK
- --------------------------------------------------
          GEOFFREY S. M. HEDRICK
 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER


February 7, 2005

      /s/    JAMES J. REILLY
- -------------------------------------------
              JAMES J. REILLY
          CHIEF FINANCIAL OFFICER

February 7, 2005




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