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<SEC-DOCUMENT>0001104659-07-015922.txt : 20070420
<SEC-HEADER>0001104659-07-015922.hdr.sgml : 20070420
<ACCEPTANCE-DATETIME>20070302151422
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001104659-07-015922
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20070302

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:		CORRESP

	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>
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<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
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<head>







</head>

<body lang="EN-US">

<div>

<p style="margin:0in 0in 12.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">VIA
EDGAR AND OVERNIGHT DELIVERY</font></u></b></p>

<p style="margin:0in 0in 12.0pt;text-indent:4.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">March
2, 2007</font></p>

<p style="margin:0in 0in 12.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">United
States Securities and Exchange Commission<br>
100 F Street NE<br>
Washington, D.C.&#160; 20549 -4561</font></p>

<p style="margin:0in 0in 12.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Attn:
Ms. Kathleen Collins</font></p>

<table border="0" cellspacing="0" cellpadding="0" style="border-collapse:collapse;font-family:Times New Roman;margin-left:1.0in;">
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  <p style="font-size:10.0pt;margin:0in 0in .0001pt;"><!-- SET mrlHTMLTableLeft --><!-- SET mrlNoTableShading --><b>RE:</b></p>
  </td>
  <td width="14" valign="top" style="padding:0in .7pt 0in 0in;width:10.2pt;">
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
  </td>
  <td width="532" valign="top" style="padding:0in .7pt 0in 0in;width:399.15pt;">
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Innovative Solutions and Support, Inc.</font></b></p>
  </td>
 </tr>
 <tr style="page-break-inside:avoid;">
  <td width="30" valign="top" style="padding:0in .7pt 0in 0in;width:22.8pt;">
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
  </td>
  <td width="14" valign="top" style="padding:0in .7pt 0in 0in;width:10.2pt;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="532" valign="top" style="padding:0in .7pt 0in 0in;width:399.15pt;">
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Form 10-K for Fiscal Year Ended September 30,
  2006</font></b></p>
  </td>
 </tr>
 <tr style="page-break-inside:avoid;">
  <td width="30" valign="top" style="padding:0in .7pt 0in 0in;width:22.8pt;">
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:1.0pt;font-weight:bold;">&nbsp;</font></b></p>
  </td>
  <td width="14" valign="top" style="padding:0in .7pt 0in 0in;width:10.2pt;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="532" valign="top" style="padding:0in .7pt 0in 0in;width:399.15pt;">
  <p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">File No. 000-31157</font></b></p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt;text-indent:1.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in 12.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dear
Ms. Collins:</font></p>

<p style="margin:0in 0in 12.0pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On
behalf of Innovative Solutions and Support, Inc. (the &#147;Company&#148;), we respond to
the written comments of the staff (the &#147;Staff&#148;) of the Securities and Exchange
Commission (the &#147;Commission&#148;) contained in your letter dated February 5, 2007
(the &#147;Comment Letter&#148;), with respect to Form 10-K for Fiscal Year Ended
September 30, 2006, filed by the Company with the Commission on December 7,
2006 (File No. 000-31157).</font></p>

<p style="margin:0in 0in 12.0pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
headings and numbered items of this letter correspond to the headings and
numbered items contained in the Comment Letter. For the convenience of the
Staff, each of the comments from the Comment Letter is restated in bold italics
prior to the Company&#146;s response.</font></p>

<p style="margin:0in 0in 12.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Management&#146;s Discussion and Analysis of Financial Conditions and
Results of Operations Results of Operations</font></u></b></p>

<p style="margin:0in 0in 12.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Liquidity and Capital Resources, page 22</font></u></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;text-indent:-.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">1.</font></i></b><b><i><font size="1" style="font-size:3.0pt;font-style:italic;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></i></b><b><i style="font-weight:bold;">Clarify for us the nature of the
significant increase in inventories at September 30, 2006. Tell us what portion
of your inventory relates to air data products associated with the FAA&#146;s RVSM
mandate. If&#160; material, clarify for us,
how the Company determined that no adjustment was needed to write-down these
amounts to reflect potential obsolescence, excess quantities and declines in
market value given the fact that peak demand associated with this mandate has
now been accommodated.</i></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Response:</font></u></b><b>  </b>The FAA&#146;s RVSM mandate became effective on
January 20, 2005. RVSM is a mandate to have equipment on board an aircraft that
can accurately measure altitude so that aircraft flying in opposite directions,
between 29,000 and 41,000 feet, can safely maintain 1,000 foot vertical
separations. The Company sells Air Data equipment that provides accurate
altitude measurements, which allows aircraft to be compliant with the RVSM
mandate. In addition, the Company sells Air Data products, principally air data
computers and altimetry systems, as replacement equipment for air transport,
general aviation and military market segments. The replacement portion of Air
Data sales is continuous and on-going in support of approximately 40,000
aircraft flying in the United States.</p>

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<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The $2.6 million increase in inventory in FY
2006 over FY 2005 was for both Air Data and Flat Panel Display products.
Approximately $1.4 million of the increase specifically relates to satisfying
three independent Department of Defense (DoD) requirements that would replace
Solid State Barometric Altimeters (&#147;SSBA&#148;) on A-10 and F-16 USAF airplanes and
on F-16 airplanes under a Foreign Military Sales agreement. These orders were
initially expected in the fourth quarter of FY 2006 and, because of DoD
initiatives to prioritize spending, these orders were delayed and are now
expected in subsequent periods. Equipment that allows aircraft to be compliant
with the RVSM mandate continues to be sold into this market.&#160;&#160; The balance of the increase, $1.2 million,
was primarily in anticipation of Flat Panel Display System orders for C-130
military airplanes and Boeing 757 and 767 commercial airplanes.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company continually reviews its physical
inventory and compares actual inventory to part number requirements that are
loaded into the Company&#146;s Material Resource Planning (MRP) system. Part numbers
that show no requirements are reviewed and written off if appropriate. The
inventory levels reported on the Company&#146;s balance sheet as of September 30,
2006 show active requirements, and as a result the Company determined no
adjustment was needed.&#160; None of this
inventory is obsolete or has declined in value now that peak demand associated
with the RVSM mandate has been accommodated.</font></p>

<p style="margin:0in 0in 12.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Consolidated Statements of Operations, page 31</font></u></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;text-indent:-.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">2.</font></i></b><b><i><font size="1" style="font-size:3.0pt;font-style:italic;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></i></b><b><i style="font-weight:bold;">We note that the Company enters
into multiple element arrangements that include product sales and non-recurring
engineering services. Tell us how you considered presenting separate line items
for revenue earned from the sale of your products and services, as well as cost
of revenue, in your consolidated statements of operations. Refer to Rule
5-03(b)(1) and (2) of Regulation S-X.</i></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Response:</font></u></b> Occasionally, the Company receives orders
that encompass both non- recurring engineering services and hardware
deliverables. The non-recurring engineering service portion of an order
represents a small percentage of the total order. For example, in FY 2006
combined sales were $16.7 million and non-recurring engineering sales were $0.8
million, or 5% of the total. In FY 2005 combined sales totaled $63.3 million.
Non-recurring engineering sales that year totaled $1.2 million, or 2% of the
total. In FY2004 total sales were $46.1 million and non-recurring engineering
sales were $0.9 million or 2% of the total.</p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Regulation S-X Rule 5-03 (b) (1), states that
if income is derived from more than one of the sub captions described under
&#167;210.5-03.1, each class which is not more than 10% of the sum of the items may
be combined with another class. The Company believes it is appropriate to
aggregate sales as one line item based on the percentages discussed above.
Additionally, because sales are presented as one line item, the Company
believes it is also acceptable to aggregate cost of sales as one line item.</font></p>

<p style="margin:0in 0in 12.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Note 3. Summary of Significant Accounting Policies</font></u></b></p>

<p style="margin:0in 0in 12.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Revenue Recognition </font></u></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;text-indent:-.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">3.</font></i></b><b><i><font size="1" style="font-size:3.0pt;font-style:italic;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></i></b><b><i style="font-weight:bold;">We note your disclosure on page
24 where you indicate that for multiple element arrangements, the Company
allocates revenue to each deliverable based on fair</i></b></p>

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<p style="margin:0in 0in 12.0pt .75in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">value that is &#147;established
with the customer during contact negotiations.&#148; Tell us how you considered
paragraph 9 of EITF-00-21 in determining that such arrangements include
multiple deliverables. Also, tell us how you considered paragraph 16 of EITF
00-21 which states, contractually stated prices in an arrangement with multiple
deliverables should not be presumed to be representative of fair value. In this
regard, explain how your determination of fair values based on customer
negotiations complies with guidance. Furthermore, tell us when you recognize
revenue for each element and explain your revenue recognition policy for
multiple element arrangements if fair value of all elements does not exist.</font></i></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Response:</font></u></b><b>  </b>In determining whether an arrangement with
multiple deliverables consists of more than one unit of accounting, the Company
reviews the contract to ensure compliance with the guidelines as set forth in paragraph
9 of EITF 00-21, &#147;Revenue Arrangements with Multiple Deliverables.&#148;
Specifically, the Company determines that the delivered items should be
considered a separate unit of accounting if all of the following criteria are
met:</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The delivered items have value to the
customer on a standalone basis.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>There is objective and reliable evidence of
the fair value of the undelivered items.</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>If
the arrangement includes a general right of return relative to the delivered
item, delivery or performance of the undelivered item is considered probable
and substantially in the Company&#146;s control.</p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As stated in the Company&#146;s filing, the first
step in its analysis is to identify all of the deliverables in a contract and
then determine whether each has value on a standalone basis. In the Company&#146;s
contracts with multiple deliverables, there are generally two deliverables. One
is for non-recurring engineering services and the other for product or
equipment. Each of these items has value on a standalone basis as each could be
sold separately by a third party.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As it relates to step two of the Company&#146;s
analysis, in most, if not all of the cases, the non-recurring engineering
services are fully delivered prior to any product or equipment sales being
delivered. The product or equipment is the undelivered item and there is
objective and reliable evidence of the fair value of any undelivered
items.&#160; The fair value of the delivered
item, the non-recurring engineering services, is determined based on the
residual method per paragraph 12 of EITF 00-21.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In complying with the guidance in paragraph
16 of EITF 00-21, the Company does not presume that the stated prices for the
individual products/equipment are representative of fair value. The Company
applies vendor-specific objective evidence, which includes (1) the price
charged when the same element is sold separately or (2) for an element not yet
being sold separately, the price established by management having the relevant
authority with knowledge of the price being charged by competitors; it must be
probable that the price, once established, will not change before the separate
introduction of the element into the marketplace.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Finally, although the arrangement includes a
general right of return, delivery of the products is considered probable and
substantially in the Company&#146;s control.</font></p>

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<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Once the Company has established that an
arrangement with multiple deliverables consists of more than one unit of
accounting, it determines how to recognize revenue for each deliverable.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The non-recurring engineering services
revenue are recognized using the percentage-of- completion method. In
accordance with SOP 81-1, &#147;Accounting for Performance on Construction-Type and
Certain Production-Type&#148; Contracts,&#148; percentage-of-completion method is an
appropriate revenue recognition method because (1) there is an enforceable
agreement between parties who can fulfill their obligations and (2) there are
reasonably reliable estimates of total revenue, total cost, and the progress
toward completion.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company recognizes revenue for products
when the revenue is realized and earned and all of the following criteria are
met per SOP&nbsp;97-2 (refer to the responses to comment&nbsp;#4 below).</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;text-indent:-.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">4.</font></i></b><b><i><font size="1" style="font-size:3.0pt;font-style:italic;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></i></b><b><i style="font-weight:bold;">We note your disclosures on page
24 and your reference to EITF 03-5. Do the Company&#146;s products include software
that is more than incidental to the products? If so, please explain how your
accounting for such product sales complies with EITF 03-5 and SOP 97-2. If not,
than please explain the reference to this guidance in your disclosures.</i></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Response:</font></u></b><b>  </b>Software is imbedded in the Company&#146;s
products and is more than incidental to the product. The Company&#146;s reference to
EITF Issue 03-5, &#147;Applicability of AICPA Statement of Position 97-2 to
Non-Software Deliverables in an Arrangement Containing More-Than-Incidental
Software,&#148; was initially included to make the reader aware that the Company had
reviewed the Issue along with SOP 97-2, &#147;Software Revenue Recognition,&#148; and
used the guidance to determine applicability to the Company.</p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In reviewing the
applicability of EITF Issue 03-5 and SOP 97-2 to its products, the Company
considered indicators of whether software is incidental to a product as a
whole, including whether the software is a significant focus of the marketing
effort or is sold separately. The technology and engineering design of the
products offered by the Company are the marketing focus. A customer purchasing
one of the Company&#146;s products recognizes the software it acquires is more than
incidental to that product. The interest in acquiring the Company&#146;s product is
in the interoperability between the hardware and software as it combines to
meet their specific objective.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Based on the considerations of the above
guidance, the Company&#146;s product sales (non-long term) should be accounted for
under the guidance of SOP 97-2. Per SOP 97-2 revenue is recognized when all of
the following criteria are met:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.75in;text-indent:-.75in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Persuasive evidence of an arrangement exists;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Delivery has occurred or services have been
rendered;</p>

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<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The seller&#146;s price to the buyer is fixed or
determinable; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Collectibility
is reasonably assured.</p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The requirements of SOP 97-2 are consistent
with the general requirements of SAB 104 noted above. As noted in SOP 97-2,
software contracts may include post contract support and other related
services. Although the Company&#146;s product sales fall within the scope of SOP
97-2, the current product sales transactions do not include post contract
support and other related services. As such, these portions of SOP 97-2 are not
applicable to the Company. For product sales, the Company recognizes revenue
upon shipment from the corporate warehouse when each of the above criteria of
SOP 97-2 is met.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In future filings, the Company will revise
its disclosure to clarify its accounting for such product sales in accordance
with EITF 03-5 and SOP 97-2. The Company proposes the following language: The
Company accounts for transactions with software that is more than incidental to
the products under SOP 97-2, &#147;Software Revenue Recognition,&#148; and EITF Issue
03-5, &#147;Applicability of AICPA Statement of Position 97-2, Software
Revenue Recognition, to Non-Software Deliverables in an Arrangement
Containing More-Than-Incidental Software.&#148; Accordingly, revenue is
recognized when all of the following criteria are met:</font></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.75in;text-indent:-.75in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Persuasive evidence of an arrangement exists;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Delivery has occurred or services have been
rendered;</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in .0001pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The seller&#146;s price to the buyer is fixed or
determinable; and</p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt 1.25in;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Collectibility
is reasonably assured.</p>

<p style="margin:0in 0in 12.0pt .25in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Note 8. Notes Payable,
page 42</font></u></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;text-indent:-.5in;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">5.</font></i></b><b><i><font size="1" style="font-size:3.0pt;font-style:italic;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></i></b><b><i style="font-weight:bold;">Clarify for us why the current
and long-term portion of the notes payable to Chester County Pennsylvania
Industrial Development Authority have not changed since inception of the loan.
Tell us how the Company has determined the current and long-term portion at
September 30, 2006 and 2005, respectively and the 5-year schedule of maturities
included in note 8 to the audited financial statements. Tell us whether there
have been any amendments to the loan that have effected the Company&#146;s repayment
requirement.</i></b></p>

<p style="font-family:Times New Roman;font-size:10.0pt;margin:0in 0in 12.0pt .75in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Response:</font></u></b> The Company&#146;s loan
agreement with the Chester County, Pennsylvania Industrial Development
Authority was funded with Industrial Development Bonds in the amount of
$4,335,000. The loan agreement includes an &#147;optional redemption schedule&#148; that
allows the Company the option of forgoing any principal pay-down until such time
the bonds expire in 2015. The Company has exercised its option not to pay-down
the outstanding balance. The $100,000 current portion of notes payable on the
balance sheet represents the optional pay-down in year one, and the balance of
$4,235,000 is the long-term portion of the notes payable. The five year
schedule of maturities shown on the balance sheet uses the optional redemption
schedule amounts for years one through five with the balance shown as
&#147;thereafter.&#148; </p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">After further consideration, the Company has
determined that the first year pay-down of $100,000 in the option redemption
schedule should be classified as long-term unless the Company believes it will
be remitting payment within one year from the balance sheet date. </font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In future filings (beginning with our Form
10-Q for Quarterly Period Ended March 31, 2007), we intend to change the
classification of the notes payable to include the full amount of $4,335,000 as
long-term note payable on the balance sheet. We will reclassify all periods
presented to conform to the current period presentation and disclose such
reclassification of prior years in the notes to the financial statements and
elsewhere in Form 10-Q.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The
$100,000 reclassification is approximately 2% and 1% of total current
liabilities and total liabilities, respectively and the reclassification does
not have a significant impact on working capital. Additionally, the
reclassification has no impact on the financial covenants associated with the
note payable agreement as the lender suspended the existing covenants through
the fiscal quarter ending on June 30, 2008.</font></p>

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<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We will address the impact of the
reclassification in Form 10-Q and future filings as follows:</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations</font></p>

<p style="margin:0in 0in .5pt .75in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Reclassification</font></i></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The balance sheet as of September 30, 2006
presented has been reclassified to include the $100,000 optional first-year pay
down as long-term debt. For fiscal 2006, the impact of the reclassification was
a decrease to current portion of notes payable of $100,000 and a corresponding
increase to long-term notes payable of $100,000. The reclassification does not
have a significant impact on working capital and has no impact on the financial
covenants associated with the notes payable agreement as the lender suspended
the existing covenants through the fiscal quarter ending on June 30, 2008.</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We will address the impact of the
reclassification in Form 10-K for the Fiscal Year ended September 30, 2007&#160; as follows:</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Footnote 3. Summary of Significant Accounting
Policies</font></p>

<p style="margin:0in 0in .0001pt .75in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Reclassification</font></i></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The balance sheet as of September 30, 2006
presented has been reclassified to include the $100,000 optional first-year pay
down as long-term debt. For fiscal 2006, the impact of the reclassification was
a decrease to current portion of notes payable of $100,000 and a corresponding
increase to long-term notes payable of $100,000. The reclassification does not
have a significant impact on working capital and has no impact on the financial
covenants associated with the notes payable agreement as the lender suspended
the existing covenants through the fiscal quarter ending on June 30, 2008.</font></p>

<p style="margin:0in 0in 12.0pt .75in;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Footnote 8. Notes Payable</font></p>

<p style="margin:0in 0in 12.0pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company entered into a $4,335,000 loan
agreement dated August 1, 2000 with the Chester County, Pennsylvania Industrial
Development Authority. The purpose of the loan was to fund the construction of
the Company&#146;s new office and manufacturing facility. The loan matures in 2015
and carries an interest rate set by the remarketing agent that is consistent
with 30-day tax-exempt commercial paper. The loan agreement
includes an optional redemption schedule that allows the Company the option of
foregoing any principal pay-down until such time the bonds expire in 2015. The
Company has exercised its option not to pay-down the outstanding balance and,
accordingly, the balance of the notes payable will be due in 2015. </font></p>

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<p style="margin:0in 0in 12.0pt;page-break-after:avoid;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If
you have any questions, please feel free to contact Henry N. Nassau at
215.994.2138 or the undersigned at 215.994.2621.&#160; Thank you for your cooperation and attention
to this matter.</font></p>

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  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Sincerely,</font></p>
  </td>
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  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
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  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
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  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Stephen M. Leitzell, Esq.</font></p>
  </td>
 </tr>
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  <td width="47%" colspan="2" valign="top" style="padding:0in .7pt 0in 0in;width:47.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
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  <td width="47%" colspan="2" valign="top" style="padding:0in .7pt 0in 0in;width:47.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
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  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">cc:</font></p>
  </td>
  <td width="41%" valign="top" style="padding:0in .7pt 0in 0in;width:41.58%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Geoffrey S. M.
  Hedrick</font></p>
  </td>
  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="41%" valign="top" style="padding:0in .7pt 0in 0in;width:41.58%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">James J. Reilly</font></p>
  </td>
  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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  <td width="5%" valign="top" style="padding:0in .7pt 0in 0in;width:5.48%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="41%" valign="top" style="padding:0in .7pt 0in 0in;width:41.58%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Henry N. Nassau,
  Esq.</font></p>
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  <td width="52%" valign="top" style="padding:0in .7pt 0in 0in;width:52.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
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</table>

<p style="line-height:1.0pt;margin:0in 0in 12.0pt;"><font size="1" face="Times New Roman">&nbsp;</font></p>

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