UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2008
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

Commission File No. 0-31157

INNOVATIVE SOLUTIONS AND SUPPORT, INC.
(Exact name of registrant as specified in its charter)


Pennsylvania (State or other jurisdiction of incorporation)		23-2507402 (IRS Employer Identification No.)
720 Pennsylvania Drive, Exton, Pennsylvania (Address of principal executive offices)		19341 (Zip Code)

(610) 646-9800
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Name of each exchange on which registered

Common Stock par value $.001 per share		The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes o No ý

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act from their obligations under those sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "smaller reporting company," in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer ý		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant as of March 31, 2008 (the last business day of the registrant's most recently completed second quarter) was approximately $136.0 million. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of our outstanding common stock have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of December 5, 2008, there were 16,734,149 outstanding shares of the Registrant's Common Stock

Documents Incorporated by Reference

Portions of the Registrant's Proxy Statement for the 2009 Annual Meeting of Shareholders to be filed prior to January 28, 2009 are incorporated by reference into Part III of this Report. Such Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed "filed" for the purposes of this Report on Form 10-K.

Table of Contents

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

2008 Annual Report on Form 10-K

Table of Contents

		Page

	Part I
Item 1.	Business	3
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	18
	Part II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	52
Item 9A.	Controls and Procedures	52
	Part III
Item 10.	Directors, Executive Officers and Corporate Governance	55
Item 11.	Executive Compensation	55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	55
Item 13.	Certain Relationships and Related Transactions and Director Independence	56
Item 14.	Principal Accounting Fees and Services	56
	Part IV
Item 15.	Exhibits, Financial Statement Schedules	56

Table of Contents

FORWARD LOOKING STATEMENTS

This report contains forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We have based these forward looking statements largely on our current expectations and projections about future events and trends affecting our business. In this report, the words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "forecast," "expect," "plan," "should," "is likely" and similar expressions, as they relate to our business or our management, are intended to identify forward looking statements, but they are not exclusive means of identifying them.

The forward looking statements in this report are only predictions and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause our actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of this Annual Report on Form 10-K and the following factors:

•: market acceptance of our flat panel display systems, or COCKPIT/IP™ system or other planned products for product enhancements;
•: difficulties in developing and producing our COCKPIT/IP™ system or other planned products for product enhancements;
•: continued market acceptance of our air data systems and products;
•: the availability of government funding and customer requirements;
•: our ability to gain regulatory approval of our products in a timely manner;
•: delays in receiving components from third party suppliers;
•: the competitive environment;
•: the impact of general economic trends on our business;
•: the bankruptcy or insolvency of one or more key customers;
•: the termination of programs or contracts for convenience by customers;
•: failure to retain key personnel;
•: new product offerings from competitors;
•: potential future acquisitions;
•: protection of intellectual property rights;
•: our ability to service the international market; and
•: other factors disclosed from time to time in our filings with the Securities and Exchange Commission.

Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise after the date of this report. Our results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of our common stock.

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of Innovative Solutions and Support, Inc.

Table of Contents

PART I

Item 1. Business

Overview

Innovative Solutions and Support, Inc. (the "Company," "IS&S" or "We") was founded in 1988. The Company designs, manufactures and sells Flat Panel Display Systems, Flight Information Computers and advanced monitoring systems to the Department of Defense (DoD), government agencies, defense contractors, commercial air transport carriers, original equipment manufacturers (OEMs), and the corporate/general aviation markets. The Company is increasingly positioning itself as a system integrator; this capability provides the Company with the potential to generate more substantive orders over a broader product base. The Company has demonstrated the ability to incorporate added functionality such as electronic flight bags, charting and mapping systems into its Flat Panel Display Systems' product line. Our strategy as both a manufacturer and integrator is to leverage the latest technologies developed for the personal computer and telecommunications industries into advanced, cost-effective solutions for both the aviation industry and DoD. We believe this approach, combined with our industry experience, enables us to develop high-quality products and systems, substantially reduce product time to market and achieve cost advantages over the products offered by our competitors.

For several years the Company has been working with advances in technology that have the potential to provide pilots increasing amounts of information that will enhance both the safety and efficiency of flying. These advances have come together in the Company's COCKPIT/IP™ (Cockpit Information Portal or CIP) or Flat Panel Display System product line that incorporates proprietary technology, low cost, reduced power consumption and weight as well as diverse functionality. The Company's Flat Panel Display System product line is suited to address market demand that we believe will be driven by regulatory mandates, new technologies and aging equipment on airplanes that have been in service for up to fifty years. We believe the transition to Flat Panel Display Systems as part of airplane retrofit requirements is underway.

In fiscal 2008 IS&S announced an addition to its Cockpit/IP™ product line: the IS&S Vantage, an open architecture flat panel cockpit display system capable of interfacing with most third party avionics. The Vantage system can be retrofitted into a variety of airframes. The Company launched a Wide Area Augmentation System (WAAS) program with Lateral and Vertical Precision Performance with a fully coupled auto-pilot for its PC-12 Flat Panel Display System. WAAS capability allows PC-12 operators to fly precision approaches at smaller airports. This capability is available on other aircraft platforms as well. IS&S received amended Supplemental Type Certificates (STC) for the Boeing 757, 767 platform from the FAA adding increased functionality to the Cockpit/IP Flat Panel Display System. The Company increased the work it is conducting for Homeland Security's Pilatus PC-12 and Lockheed Martin C-130 fleets.

Fiscal 2007 saw the COCKPIT/IP™ or Flat Panel Display System product line gain significant recognition and acceptance in the industry with the Federal Aviation Administration (FAA) issuing two additional Flat Panel Display System STC's; one for Boeing 757 aircraft and one for the Pilatus PC-12 with E-Chart Capability. Also in fiscal 2007 we entered into four strategic agreements with four different internationally recognized customers. Early in 2007 the Cessna Aircraft Company entered into an agreement with us to provide Flat Panel Display Systems on legacy Cessna Citation aircraft. Later in the year the Company announced that Eclipse Aviation entered into a five year OEM agreement to provide Flat Panel Display Systems for their Eclipse 500 VLJ (Very Light Jet) aircraft. Under this agreement the Company will be the exclusive provider of Flat Panel Display Systems to Eclipse. Eclipse Aviation filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code on November 25, 2008. The Company established inventory and accounts receivable reserves in September 30, 2008 as more fully discussed in Item 7 of this report. In the third quarter American

Table of Contents

Airlines awarded the Company an order to retrofit its entire fleet of Boeing 757 and 767 aircraft with the Company's Flat Panel Display Systems. The Company's fourth major agreement was recorded in September as a premier international cargo carrier entered an agreement with the Company to retrofit their fleet of Boeing 757 aircraft with Flat Panel Display Systems.

In fiscal 2006 the Flat Panel Display System product line expanded in terms of both FAA certifications and additional customer orders. The FAA awarded the Company two new Technical Standard Orders (TSO) and two new STC's for 15" and 10" Flat Panel Display System installations on Pilatus PC-12 airplanes. The Company also received orders from two Pilatus distributors for 15" installations. Further, Kalitta Air placed an order with the Company for Flat Panel Engine Instrument Display Systems (FP/EIDS) for B-747 retrofit applications. FAA certification relating to this display application is in process. Also, Marshalls of Cambridge, who in fiscal 2005 chose us as their common core avionics upgrade, placed their first order with us in fiscal 2006. Their initial award was for C-130 retrofits.

Our Industry

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

There are three general types of flight data: flight critical aircraft control data, aircraft heading and altitude data and navigation data. Flight critical aircraft control information such as air data includes aircraft speed, altitude and rates of ascent and descent. Aircraft heading and altitude information includes engine data such as fuel and oil quantity and other engine measurements, and navigation data includes radio position, flight management, Global Positioning System (GPS) and alternative source information, which is information not originating on the aircraft, including weather depiction maps, GPS navigation and surface terrain maps. Air data calculations are based primarily on air pressure measurements derived from sensors on the aircraft. Engine data are determined by measuring various indices such as temperature, volume, revolutions per minute (RPM) and pressure within an aircraft's engines and other mechanical equipment. Alternative source information is typically derived from satellites or equipment located on land and fed by satellite or radio signals to the aircraft. Pilots can then display this information in the cockpit for reference and enhanced position awareness.

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

Equipment data, such as engine and fuel related information, were traditionally displayed on conventional solid-state displays. Engine and fuel displays provide information on engine activity, including oil and hydraulic pressures and temperature. This instrumentation includes individual and multiple displays clustered throughout an aircraft's cockpit. Engine and fuel displays tend to be replaced more frequently than other displays due to increased obsolescence problems and normal wear-and-tear. As information displayed by this instrumentation is vital for safe and efficient flight,

Table of Contents

aircraft operators continue to purchase individual conventional engine and fuel displays to replace older or non-functioning displays. Increasingly, operators are beginning to replace their individual instruments with integrated Flat Panel Display Systems.

Strategy

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

•: Retrofit focus. We believe offering cockpit avionics upgrades for existing aircraft is of great interest in today's economic environment. The cost of retrofitting an aircraft to the Flat Panel Display System is cost effective compared to the acquisition of a new aircraft and yet can provide the same functionality. When the economy returns to more robust levels, the lead time to acquire a new aircraft lengthens and demand for retrofits continues as operators update their existing fleet to provide the needed lift capacity.
•: Establishing leadership in the flat panel display market. We expect that over the next several years, many aircraft will be retrofitted with flat panel displays. Given the versatility, visual appeal and lower cost of displaying a series of instruments and other flight-relevant information on a single flat panel, we believe flat panel displays will increasingly replace individual analog and digital instruments. We also believe our COCKPIT/IP™ has significant benefits over flat panel displays currently offered by our competitors, including lower cost, larger size and enhanced viewing angles. Our patented and proprietary Integrity Checking Processor and Zooming features provide increased reliability, performance, and utility to the owner/operator. Accordingly, we believe these advantages will allow us to generate significant revenues from our COCKPIT/IP™ and increase market share. According to Avionics Magazine (January 2007 issue) cockpit electronics for both new (OEM) and used (Retrofit) aircraft will grow into a $130 billion industry over the next ten years. Demand for new aircraft, FAA mandates to upgrade older aircraft and obsolescence issues on older aircraft will fuel this growth.
•: Continuing our engineering and product development successes. We developed innovative products by combining our avionics, engineering and design expertise with commercially available technologies, components and products from non-aviation applications, including the personal computer and telecommunications industries. Our COCKPIT/IP™ is an example of our ability to engineer a superior product through the selective application of non-avionic technology. Our research and development expenses were $10.3 million, $5.2 million and $6.7 million for fiscal years ended September 30, 2008, 2007 and 2006, respectively.
•: Maintaining our leadership in air data markets. We believe we are one of the largest suppliers of air data products to the U.S. retrofit market. Significant demand remains in retrofitting aging aircraft with newer, more advanced and more supportable air data systems. Additionally upgrading business jets with higher performance engines is driving a need for more sophisticated air data products supplied by us.
•: Increasing our sales to the DoD, other government agencies, defense contractors, commercial air transport and corporate/general aviation markets. We strengthened efforts to diversify our sales to include all end user markets of the aviation industry, particularly legacy military aircraft programs and the commercial air transport market. This includes national and regional carriers and other fleet operators, the corporate/general aviation market, primarily through aircraft modification centers, and the OEM market. We continue to build a sales and marketing force dedicated to expanding our sales efforts to these markets while at the same time maintaining our position as a provider of avionics products for the DoD.

Table of Contents

•: Expanding our international presence. We plan to increase our international sales by adding sales and marketing personnel and foreign offices. As large flat panel displays become more prevalent, we believe European and other international aircraft operators and aircraft modification centers will accelerate retrofitting activities, thereby increasing the demand for large flat panel displays.
•: Growth through acquisitions or joint ventures. We may pursue strategic acquisitions or joint ventures as a means of growing our business with respect to technology, distribution, customers or products. We may seek to acquire developers or suppliers of complementary products, technology or information, or we may acquire suppliers of similar products as a means of increasing our product offerings and market share.

Our Products

Our current line of products includes:

Flat Panel Display Systems

In the last several years color flat panel displays have been introduced into aircraft cockpits. Flat panel displays are Liquid Crystal Display (LCD) screens that can replicate the display of one or a suite of analog or digital displays on one screen. Like other instrumentation, flat panel displays can be installed in new aircraft or used to replace existing displays in aircraft already in use. LCDs are also used for security monitoring on-board aircraft and as tactical workstations on military aircraft. The flat panel product line also presents numerous advantages for presentation of engine performance data. During fiscal 2008, 2007 and 2006 we derived 77%, 53% and 38% respectively, of our revenues from sales of Flat Panel Display Systems.

We developed a Flat Panel Display System that can replace conventional analog and digital displays currently used in a cockpit and can display additional information that is not now commonly displayed in the cockpit. Our Cockpit Information Portal is capable of displaying nearly all types of air data, engine and fuel data, altitude, heading and navigational data, and alternative source information. As technology and information delivery systems further develop, additional information, such as surface terrain maps and data link messaging, will be displayed in the cockpit. We designed our COCKPIT/IP™ to be capable of displaying information generated from a variety of sources, including our Reduced Vertical Separation Minimum (RVSM) air data system, engine and fuel instrumentation, and third-party data and information products.

From time to time customers may order one or more flat panel display systems customized to their particular requirements. Depending on the amount of non-recurring engineering effort needed to accommodate the customized request, the Company has and will continue to charge a fee for added development cost. This will result in revenue to the Company that is characterized as Engineering- modification and development on the income statement. Consistent with this approach, engineering cost incurred in the performance of customizing the flat panel display system will be allocated from Operating expenses (Research and development) to Cost of Sales (Engineering—modification and development) and will be included in the Company's gross profit calculations.

Air Data Systems and Components

Our air data products calculate and display various measures such as aircraft speed, altitude and rate of ascent and descent. The functionality of our air data systems use advanced sensors to gather air pressure data and use customized algorithms to interpret data, thus allowing the system to more accurately calculate altitude. During fiscal 2008, 2007, and 2006 we derived 23%, 47%, and 62%, respectively, of our revenues from sales of air data systems and related products.

Table of Contents

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

•: digital air data computers, which calculate various air data parameters such as altitude, airspeed, vertical speed, angle of attack and other information derived from the measure of air pressure;
•: integrated air data computers and display units, which calculate and convey air data information;
•: altitude displays, which convey aircraft altitude measurements;
•: airspeed displays, which convey various types of airspeed measurements including vertical airspeed and rates of ascent and descent; and
•: altitude alerter, which allow the pilot to select a desired cruising altitude that the aircraft will reach and maintain, and also provide warnings to pilots when an unacceptable deviation occurs.

Engine and Fuel Displays

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

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

We believe our engine and fuel displays are extremely reliable, and we have designed them to be programmable to adapt easily without major modification to most modern aircraft. Our products have been installed on C-130H, DC-9, DC-10, P3 and A-10 aircraft.

Customers

Our customers include, the United States government (including DoD and Homeland Security), ABX Air, American Airlines, The Boeing Company, Bombardier Aerospace, Cessna Aircraft Corporation, Federal Express Corporation, L-3 Spar Aerospace, Lockheed Martin Corporation, Northwest Airlines, Raytheon, Rockwell Collins, Marshalls of Cambridge, United Kingdom, and the Department of National Defense, Canada.

Retrofit Market

Historically, a majority of our sales have come from the retrofit market. Among other reasons, we have pursued the retrofit market specifically because of its continued rapid growth in response to the increasing need to support the world's aging fleet of aircraft. During fiscal year 2008 we derived 26% of our revenues from three retrofit customers, DoD, Federal Express and American Airlines. We derived 47% of our revenues during fiscal year 2007 from three retrofit customers, DoD, Eclipse and Western Aircraft.

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

•: the DoD and defense contractors;

Table of Contents

•: aircraft operators; and
•: aircraft modification centers.

Department of Defense and Defense Contractors. We sell our products directly to the DoD as well as to domestic and international defense contractors for end use on military aircraft retrofit programs. DoD programs generally take one of two forms, a subcontract with a prime government contractor, such as Boeing or Rockwell Collins, or a direct contract with the appropriate government agency such as the U.S. Air Force to satisfy its requirement for replacing Central Air Data Computers on its fleet of A-10 aircraft. The government's desire for cost-effective retrofitting of aircraft has led it to purchase commercial off-the-shelf equipment rather than requiring the development of specially designed products, which are usually more costly and take longer to develop. These contracts tend to be on arms length commercial terms, although some termination and other provisions of government contracts described below are typically applicable to these contracts. Each government agency or general contractor retains the right to terminate a contract at any time at its convenience. Upon such alteration or termination, we would be entitled to an equitable adjustment to the contract price and receive the purchase price for already delivered items and reimbursement for allowable costs incurred.

Aircraft Operators. We also sell our products to aircraft operators, including commercial airlines, cargo carriers and business and general aviation. Our products are used mostly in retrofitting aircraft owned or operated by these customers, which generally retrofit and maintain their aircraft themselves. Our commercial fleet customers include, among others, American Airlines, Northwest Airlines, Air Canada, ABX Air and Federal Express. We sell these customers a range of products from flat panel display systems to air data systems.

Aircraft Modification Centers. The primary retrofit market for private and corporate jets is through aircraft modification centers, which repair and retrofit private aircraft in a manner similar to the way auto mechanics service a person's car. We have established relationships with a number of aircraft modification centers throughout the United States. These modification centers essentially act as distribution outlets for our products. We believe our air data systems and related components are being promoted by aircraft modification centers to update older or outdated equipment. Our large modification center customers include Bombardier Learjet, Garrett Aviation, Star Aviation, Duncan Aviation, Plain Avionics and Raytheon Aircraft Services.

OEM Market

In fiscal 2008 the Company suspended work on the Eclipse VLJ program in line with the suspension of requirements from the OEM. Eclipse Aviation filed for Chapter 11 Bankruptcy on November 25, 2008.

We also market our products to other original equipment manufacturers, particularly manufacturers of corporate and private jets as well as to contractors manufacturing military jets. Customers of our products have included Bombardier (the manufacturer of Learjet), Gulfstream, Boeing, Raytheon, Piaggio and Lockheed.

Backlog

As of September 30, 2008 and 2007, our backlog was $57.3 million and $70.4 million, respectively. The year over year decrease of $13.1 million or 19% was the result of $17.4 million in new business offset by $30.5 million of recognized revenue. Air Data product backlog increased by $3.3 million from September 2007, while Flat Panel Display Systems backlog as of September 30, 2008 decreased by $16.3 from September 30, 2007.

Table of Contents

Sales and Marketing

We focus our sales efforts on passenger and cargo carrying aircraft operators, general aviation operators, aircraft modification centers, the DoD, DoD contractors and OEMs. We continually evaluate our sales and marketing efforts with respect to these focus areas and, where appropriate, have made use of third-party sales representatives who receive compensation through commissions based on performance.

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

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

Almost all of the Company's sales, operating results and identifiable assets are in the United States. In fiscal year 2008, 2007, and 2006 net sales outside the United States amounted to $1.7 million, $1.1 million and $2.8 million, respectively.

Government Regulation

The manufacture and installation of our products in aircraft owned and operated in the United States is governed by FAA regulations. We maintain an FAA certified production facility. The most significant of the product and installation regulations focus on Technical Standard Order and Supplemental Type Certificate certifications. These certifications set forth minimum general standards a certain type of equipment should meet. As required, we deliver our product in accordance with FAA regulations.

Sales of our products to European or other non-U.S. owners of aircraft also typically require approval of the European Aviation Safety Agency (EASA), the European counterpart of the FAA, or another appropriate governmental agency. EASA certification requirements for manufacturing and installation of our products in European-owned aircraft mirror FAA regulations. Much like the FAA certification process, the EASA has established a process for granting European Certifications.

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

Manufacturing, Assembly and Materials Acquisition

Our manufacturing activities consist primarily of assembling and testing components and subassemblies and integrating them into a fully tested finished system. We believe this method allows us

Table of Contents

to achieve relatively flexible manufacturing capacity while minimizing expenses. We typically purchase components for our products from third-party suppliers and assemble them in a clean room environment to reduce impurities and improve the performance of our products. Many of the components we purchase are standard products, although certain parts are made to our specifications.

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

Quality Assurance

Product quality is of vital importance to our customers, and we have taken steps to enhance the overall quality of our products. We are ISO 9001 and AS 9100 certified. ISO 9001 and AS 9100 standards are an international consensus on effective management practices with the goal of ensuring a company can consistently deliver its products and related services in a manner that meets or exceeds customer quality requirements. These standards allow us to represent to our customers that we maintain high quality industry standards in the education of our employees and the design and manufacture of our products. In addition, our products undergo extensive quality control testing prior to being delivered to customers. As part of our quality assurance procedures, we maintain detailed records of test results and our quality control processes.

Our Competition

The market for our products is highly competitive and characterized by several industry niches in which a number of manufacturers specialize. Our competitors vary in size and resources, and substantially all of our competitors are much larger and have substantially greater resources than us. With respect to air data systems and related products, our principal competitors include Honeywell International Inc., Kollsman Inc., Rockwell Collins, Inc., Thales, and GE Aviation. With respect to flat panel displays, our principal competitors currently include Honeywell, Rockwell Collins, Inc., L-3 Communications and GE Aviation. However, because the flat panel display industry is a new and evolving market, as the demand for flat panel displays increases we may face competition in this area from additional companies in the future.

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

Intellectual Property and Proprietary Rights

We rely on patents to protect our proprietary technology. As of September 30, 2008 the Company holds 19 U.S. patents and has 6 U.S. patent applications pending relating to our technology. In addition, we hold 16 international patents and have 30 international patent applications pending. Certain of these patents and patent applications cover technology relating to air data measurement systems and calibration techniques while others cover technology relating to flat panel display systems and other aspects of our COCKPIT/IP™ solution. While we believe these patents have significant value in protecting our technology, we also believe the innovative skill, technical expertise and know-how of our personnel in applying the technology reflected in our patents would be difficult, costly and time

Table of Contents

consuming to reproduce. The company recently settled litigation related to a trade secret misappropriation as more fully described in Legal Proceedings, Item 3 of this report.

While we are not aware of any pending lawsuits against us regarding patent infringement or other intellectual property rights, we cannot be certain such infringement claims will not be asserted against us in the future.

Innovative Solutions and Support Website

Our primary website is http://www.innovative-ss.com . We make available, free of charge, at our corporate website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our Employees

As of September 30, 2008, we had 165 employees, 52 were in engineering, research and development, 78 in manufacturing and assembly operations, 9 in quality and 26 in selling and general administrative positions.

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

Executive Officers of the Registrant

The following is a list of our executive officers, their ages and their positions:

Name	Age	Position

Geoffrey S.M. Hedrick	66	Chairman of the Board and Chief Executive Officer
Roman G. Ptakowski	60	President
John C. Long	43	Chief Financial Officer

Geoffrey S. M. Hedrick has been Chief Executive Officer since he founded IS&S in February 1988 through June 4, 2007 and was reappointed September 8, 2008. He has also been Chairman of the Board since 1997. Prior to founding IS&S, Mr. Hedrick served as President and Chief Executive Officer of Smiths Industries North American Aerospace Companies. He also founded Harowe Systems, Inc. in 1971, which was subsequently acquired by Smiths Industries. Mr. Hedrick has over 35 years of experience in the avionics industry, and he holds a number of patents in the electronics, optoelectric, electromagnetic, aerospace and contamination-control fields.

Roman G. Ptakowski has been President since March 2003. Prior to that, Mr. Ptakowski served as a Group Vice President and General Manager and, before that, as a Vice President of Sales and Marketing at B/E Aerospace, Inc. Previously, Mr. Ptakowski held a number of positions with increasing responsibility within ASEA Brown Boveri Power T&D Company, Inc. There, he was General Manager of the Protective Relay Division before leaving to join B/E Aerospace, Inc. Mr. Ptakowski received a B.S. in Electrical Engineering from New York University and a MBA from Duke University.

John C. Long has been Chief Financial Officer since January 2008. Prior to joining the Company, Mr. Long served in a variety of positions with Arrow International, Inc., including as Vice President from January, 2003 to January, 2008 as Treasurer from January, 2003 to October, 2007, as Secretary

Table of Contents

from April, 2004 to October, 2007 and as Assistant Treasurer from 1995 to January 2003. Prior to joining Arrow International, Mr. Long served as Controller for the Jaindl Companies, a group of privately held companies involved in agribusiness and real estate development, from 1989 to 1995. From 1986 to 1989, Mr. Long was employed in the Allentown, Pennsylvania office of the accounting firm, Concannon, Gallagher, Miller & Co. Mr. Long also serves as a director and Audit Committee Chairman of D&E Communications, Inc., an integrated communications provider. Mr. Long received a B.S. in Accounting from Wilkes University and a MBA from Columbia University.

Other

The public may read and copy any materials filed by us with the SEC at the SEC's public reference room located at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information about the operation of the SEC's public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information about issuers such as that file electronically with the SEC.

Our primary website is http://www.innovative-ss.com . We make available, free of charge, at our corporate website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our web site is not incorporated as part of this annual report.

Item 1A. Risk Factors

You should carefully consider the risks, uncertainties and other factors described below, in addition to the other information set forth in this report, because they could materially and adversely affect our business, operating results, financial condition, cash flows and prospects as well as adversely affect the value of an investment in our common stock.

Risks Related to Our Business

Our sales principally relate to flat panel display systems and air data products, and we cannot be certain that the market will continue to accept these or other products.

During fiscal 2008, 2007, and 2006 we derived 77%, 53% and 38% of our revenues from the sale of flat panel display systems, respectively. We expect that revenues from our air data products will continue to decline as a percent of total sales as peak demand associated with the FAA's RVSM mandate has been accommodated. Our revenues and profitability will decrease if new products such as our Flat Panel Display Systems do not receive market acceptance or if our existing customers do not continue to incorporate our products in their retrofitting or manufacturing of aircraft. In seeking new customers, it may be difficult for our products to displace competing products. Accordingly, we cannot assure you that potential customers will accept our products or that existing customers will not abandon them.

A global recession and continued credit tightening could adversely affect us.

Concerns about a potential global recession and continued credit tightening, including failures of financial institutions has initiated unprecedented government intervention in the U.S., Europe and other regions of the world. If these concerns continue or worsen, risks to us include:

•: Declines in revenues and profitability from reduced orders, payment delays or other factors caused by the economic problems of customers;
•: reprioritization of government spending away from defense programs in which we participate;
•: adverse impacts on our access to credit sources; and
•: supply problems associated with any financial constraints faced by our vendors.

Table of Contents

A portion of our sales have been, and we expect will continue to be, to defense contractors or government agencies in connection with government aircraft retrofit or original manufacturing contracts. Sales to government contractors and government agencies could decline as a result of DoD spending cuts and general budgetary constraints which may become more frequent as tax revenues decline due to the continued weakening of general economic conditions.

The loss of a key customer or a significant deterioration in the financial condition of a key customer could have a material adverse effect on our results of operations.

Our revenue is concentrated with a limited number of customers. During fiscal year 2008 we derived 68% of revenues from four customers, American Airlines, DoD, Eclipse, and Federal Express. We derived 47% of revenue during fiscal year 2007 from three customers, DoD, Eclipse and Western Aircraft. We derived 47% of our revenues during fiscal year 2006 from five customers, ABX Air, Boeing, DoD, Department of National Defense-Canada, and Star Aviation. We expect a relatively small number of customers to account for a majority of our revenues for the foreseeable future. As a result of our concentrated customer base, a loss of one or more of these customers could have a material adverse effect on our revenue and results of operations. In addition, we continually monitor and evaluate the credit status of our customers and attempt to adjust sales terms as appropriate. Despite these efforts, a significant deterioration in the financial condition or bankruptcy filing of a key customer could have a material adverse effect on our business, results of operations and financial condition.

On November 25, 2008, Eclipse Aviation filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Given the early stages if the bankruptcy proceedings, it is unclear at this time what the precise impact the Eclipse's bankruptcy will have. The Company may not receive any payment on its pre-petition claims. In addition, Eclipse may choose to reject its contract with the Company, which could result in a larger pre-petition claim.

Growth of our customer base could be limited by delays or difficulties in completing development and introduction of our planned products or product enhancements. If we fail to enhance existing products or to develop and achieve market acceptance for flat panel displays and other new products that meet customer requirements, our business will be adversely affected.

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

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

Our manufacturing process consists primarily of assembling components purchased from our supply chain. These suppliers may not continue to be available to us. If we are unable to maintain relationships with key third party suppliers, the development and distribution of our products could be delayed until equivalent components can be obtained and integrated into our products. In addition, substitution of certain components from other manufacturers may require FAA or other approval, which could delay our ability to ship products.

Table of Contents

Government contracts can be terminated by the government at any time and therefore may not result in sales.

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

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

Our success depends on the efforts, abilities and expertise of our senior management and other key personnel. There can be no assurance we will be able to retain such employees, the loss of some of whom could hurt our ability to execute our business strategy. We intend to continue hiring key management and sales and marketing personnel. Competition for such personnel is intense, and we may not be able to attract or retain additional qualified personnel.

Our future success will depend in part on our ability to implement and improve our operational, administrative and financial systems and controls and to manage, train and expand our employee base. We cannot assure you that after giving effect to our recent cost containment initiatives that our current and planned personnel levels, systems, procedures and controls will be adequate to support our future operations. If inadequate, we may not be able to exploit existing and potential market opportunities. Any delays or difficulties we encounter could impair our ability to attract new customers or enhance our relationships with existing customers.

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

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

•: demand for our products and or schedule delivery changes by our customers;
•: capital expenditure budgets of aircraft owners and operators and appropriation cycles of the U.S. government;
•: changes in the use of our products, including air data systems and flat panel displays;
•: delays in introducing or obtaining government approval for new products;
•: new product introductions by competitors;
•: changes in our pricing policies or pricing policies of our competitors, and
•: costs related to possible acquisition of technologies or businesses.

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

Table of Contents

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

The markets for our products are intensely competitive and subject to rapid technological change. Our competitors include Kollsman, Inc., Honeywell International Inc., Rockwell Collins Inc., GE Aviation and L-3 Communications. Substantially all of our competitors have significantly greater financial, technical and human resources than we do. In addition, our competitors have much greater experience in and resources for marketing their products. As a result, our competitors may be able to respond more quickly to new or emerging technologies and customer preferences or devote greater resources to development, promotion and sale of their products than we can. Our competitors may also have greater name recognition and more extensive customer bases that they can use to their benefit. This competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share.

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

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

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

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

We currently hold 19 U.S. patents and have 6 U.S. patent applications pending. In addition, we hold 16 international patents and have 30 international patent applications pending. We cannot be certain that patents will be issued on any of our present or future applications. In addition, our existing patents or any future patents may not adequately protect our technology if they are not broad enough, are successfully challenged or other entities are able to develop competing methods without violating our patents. If we are not successful in protecting our intellectual property, competitors could begin to offer products that incorporate our technology. Patent protection involves complex legal and factual questions and, therefore, is highly uncertain, and litigation relating to intellectual property is often very time consuming and expensive. If a successful claim of patent infringement were made against us or we are unable to develop non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, we might not be able to make some of our products. In addition, we have in the past and may continue in the future to incur significant legal and other costs in defense of our intellectual property.

Potential lenders may have suffered losses related to the weakening economy and may not be able to provide us with needed financing.

Potential lenders may have suffered losses related to their lending and other financial relationships, especially because of the general weakening of the national economy and increased financial instability

Table of Contents

of many borrowers. As a result, lenders may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow or to obtain new financing on favorable terms or at all. Our financial condition and results of operations would be adversely affected if we were unable to obtain cost-effective financing in the future.

Risks Related to Our Industry

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

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

•: adapt to rapidly changing technologies;
•: adapt our products to evolving industry standards; and
•: develop and introduce a variety of new products and product enhancements to address the increasingly sophisticated needs of our customers.

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

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

Significant delay in receiving certification for newly developed products or enhancements to our products or losing certification for our existing products could result in lost sales or delays in sales. Furthermore, adoption of additional regulations or product standards, as well as changes to existing product standards, could require us to change our products and underlying technology. We cannot assure you that we will receive regulatory approval on a timely basis or at all.

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

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

•: delay or loss of revenues;

Table of Contents

•: cancellation of customer contracts;
•: diversion of development resources;
•: damage to our reputation;
•: increased service and warranty costs; or
•: litigation costs.

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

We have limited experience in marketing and distributing our products internationally.

We expect to derive an increasing amount of our revenues from sales outside the United States, particularly in Europe. There are certain risks inherent in doing business on an international basis, such as:

•: differing regulatory requirements for products being installed in aircraft;
•: legal uncertainty regarding liability;
•: tariffs, trade barriers, and other regulatory barriers;
•: political and economic instability;
•: changes in diplomatic and trade relationships;
•: potentially adverse tax consequences;
•: the impact of recessions in economies outside the United States; and
•: variance and unexpected changes in local laws and regulations.

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

Item 1B. Unresolved Staff Comments.

None

Item 2. Properties.

In fiscal 2001 we purchased 7.5 acres of land in the Eagleview Corporate Park in Exton, Pennsylvania. There we constructed a 44,800 square foot design, manufacturing and office facility. Land development approval allows for expansion of up to 20,400 additional square feet. This would provide for a 65,200 square foot facility. The construction was principally funded with a Chester County, Pennsylvania, Industrial Revenue Bond. The building serves as security for the Industrial Revenue Bond.

Item 3. Legal Proceedings.

Table of Contents

On September 13, 2005 the Company filed a lawsuit in the United States District Court for the Western District of Tennessee against J2, Inc., a company founded and jointly owned by Joseph Cesar, a former employee of the Company, and James Zachary, a former sales consultant for the Company. The complaint alleged that the J2/Kollsman/Air Data Computer then being marketed by J2 and manufactured by Kollsman, Inc. infringed a patent assigned to IS&S.

On November 7, 2007 the Company received a favorable jury verdict in its trade secret misappropriation case against Kollsman, Inc. (a subsidiary of Elbit Systems Ltd.), J2 Inc., Joseph Caesar, James Zachary and Zachary Technologies, Inc. in the United States District Court for the Western District of Tennessee. The jury unanimously found that each of the defendants had misappropriated IS&S's air data computer technology. The jury found that IS&S had suffered damages of just over $4.4 million in lost profits and $1.6 million in defendants' net profits, for a total of over $6 million. The jury also found in favor of IS&S's claims for breach of duty and contract, and unfair competition against J2 Inc., Joseph Caesar, James Zachary and Zachary Technologies, Inc.

On December 18, 2007, the court entered a temporary injunction aimed at preventing further use of the Company's trade secret and proprietary information. On March 14, 2008, the judge presiding over the case heard the Company's claims for a permanent injunction as well as punitive and exemplary damages and attorneys' fees against Kollsman and the other defendants.

On July 7, 2008, the court issued several rulings in the case. In the rulings, the court awarded damages, interest and fees in addition to the more than $6 million in compensatory damages awarded by the jury when it rendered its verdict in the case in November 2007. The additional awards bring the damages assessed against Kollsman, Inc. to a total or more than $23 million. The court also entered an order granting the Company's request for permanent injunctive relief.

On August 27, 2008, the Company entered into a Settlement Agreement (the Settlement Agreement) with Kollsman, Inc. On August 29, 2008, the settlement became effective with respect to all claims filed by the Company and Kollsman against each other in the United States District Court for the Western District of Tennessee and a Consent Order was entered. Under the Settlement Agreement, all claims between the Company and Kollsman have been dismissed with prejudice, a final agreed injunction has been entered and the matter has been fully and finally mutually settled without any admission of guilt by either party. In addition, an agreed settlement payment of $17 million has been made by Kollsman to the Company.

On October 9, 2008, Zachary and ZTI consented to the entry of judgment against and to a permanent injunction, which resulted in the conclusion of all claims with respect to those parties. On November 17, 2008, the court granted the Company's motion to dismiss its patent infringement claims against Caesar and J2, and dismissed Caesar and J2's counterclaims for noninfringement, invalidity and unenforceability because there was no longer a justifiable claim or controversy with respect to those counterclaims.

On January 17, 2007 the Company filed suit in Pennsylvania state court against Strathman Associates, a former software consultant for IS&S, alleging that Strathman had improperly used IS&S trade secret and proprietary information in assisting J2 and Kollsman in developing the J2/Kollsman Air Data Computer. The case is ongoing.

Through September 30, 2008 and 2007 the Company has incurred approximately $13.6 million and $8.0 million, respectively, in legal fees in connection with the two matters discussed above.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of our shareholders during the three months ended September 30, 2008.

Table of Contents

Part II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities.

Our common stock has been traded on the Nasdaq Stock Market, LLC under the symbol "ISSC" since our initial public offering on August 4, 2000. The following table lists the high and low per share sale prices for our common stock for the periods indicated:

	Fiscal 2008				Fiscal 2007

Period	High		Low		High		Low
First Quarter	$	22.20	$	9.00	$	18.19	$	14.14
Second Quarter		12.61		7.73		27.21		16.01
Third Quarter		12.00		6.39		29.42		21.74
Fourth Quarter		9.18		4.52		23.99		14.26

On December 5, 2008, there were 20 holders of record of the shares of outstanding common stock. This does not reflect beneficial shareholders who hold their stock in nominee or "street" name through brokerage firms.

We paid a special cash dividend of $1.00 per share on September 29, 2008 on our common stock. The amounts necessary to pay the special dividend were funded in cash from the proceeds received in connection with the Company's settlement with Kollsman, Inc. We do not expect to declare or pay cash dividends on our common stock in the near future. We intend to retain any earnings to finance the growth of our business.

On February 21, 2008 the Company's Board of Directors approved a common stock repurchase program to acquire up to 1,000,000 shares of our outstanding common stock. Purchases of the stock were to be made from time to time, subject to market conditions and at prevailing market prices. The program will remain in effect until February 21, 2009, unless extended by the Board of Directors. During fiscal year 2008 we purchased 173,000 shares of common stock under the program at a cost of $1.0 million, or an average market price of $6.06 per share. We financed these purchases through our available cash. We did not make any common stock repurchases during the fiscal year ended September 30, 2007. The following table sets forth the purchases made each month of the three months ended September 30, 2008:

Period		Average Price Paid per Share

July 2008	—		—	—	993,000
August 2008	—		—	—	993,000
September 2008	166,000	$	5.97	166,000	827,000

Total	166,000			166,000

Table of Contents

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Innovative Solutions and Support, Inc., The NASDAQ Composite Index
And The Russell 2000 Index



Innovative Solutions and Support, Inc.	100.00	300.61	285.48	267.10	348.71	120.42
NASDAQ Composite	100.00	107.78	122.80	131.27	158.39	118.78
Russell 2000	100.00	118.77	140.09	154.00	173.00	147.94

*: $100 invested on 9/30/03 in stock or index—including reinvestment of dividends.
Fiscal year ending September 30.

The graph above shows the cumulative shareholder return on $100 invested at the market close on September 30, 2003 through and including September 30, 2008, the last trading day before the end of our most recently completed fiscal year, with the cumulative total return over the same time period of the same amount invested in the Nasdaq Composite Index and the Russell 2000 Index.

Item 6. Selected Consolidated Financial Data.

The following tables present portions of our consolidated financial statements. You should read the following selected consolidated financial data set forth below together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes to our financial statements appearing elsewhere herein. The selected statement of operations data for the fiscal years ended September 30, 2008, 2007 and 2006 and the balance sheet data as of September 30, 2008 and 2007 are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected statements

Table of Contents

of operations data for the fiscal years ended September 30, 2005 and 2004 and the balance sheet data as of September 30, 2006, 2005 and 2004 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K.

		Fiscal year ended September 30,

		2008			2007			2006			2005		2004
Statement of Operations Data:
Net sales		$	30,533,311		$	18,348,128		$	16,721,967		$	63,264,359	$	46,099,777
Cost of sales			20,551,857			14,154,425			8,631,761			20,888,729		15,663,108

Gross profit			9,981,454			4,193,703			8,090,206			42,375,630		30,436,669
Research and development			10,304,279			5,180,360			6,749,426			6,057,889		4,811,156
Selling, general and administrative			22,306,016			15,840,255			9,863,758			8,898,622		7,567,959
Asset impairment			2,475,000			—			—			—		—

	Total operating expenses		35,085,295			21,020,615			16,613,184			14,956,511		12,379,115
Operating income (loss)			(25,103,841	)		(16,826,912	)		(8,522,978	)		27,419,119		18,057,554
Interest income, net			1,415,732			2,886,602			3,091,986			1,764,246		404,727
Other income			17,300,000			—			—			—		—

Income (loss) before income taxes			(6,388,109	)		(13,940,310	)		(5,430,992	)		29,183,365		18,462,281
Income tax expense (benefit), net			1,509,139			(5,095,022	)		(2,548,600	)		10,598,563		6,530,084

Net income (loss)		$	(7,897,248	)	$	(8,845,288	)	$	(2,882,392	)	$	18,584,802	$	11,932,197

Net income (loss) per common share:
Basic		$	(0.47	)	$	(0.52	)	$	(0.17	)	$	1.04	$	0.69
Diluted		$	(0.47	)	$	(0.52	)	$	(0.17	)	$	1.02	$	0.67
Weighted average shares outstanding
Basic			16,887,049			16,865,028			17,388,524			17,873,780		17,400,380
Diluted			16,887,049			16,865,028			17,388,524			18,259,856		17,928,180

	As of September 30,

	2008		2007		2006		2005		2004
Balance Sheet Data:
Cash and cash equivalents	$	35,031,932	$	49,151,078	$	62,984,829	$	83,172,582	$	65,867,167
Working capital		42,491,253		62,453,234		73,751,866		93,455,475		70,627,114
Total Assets		59,896,714		84,585,785		87,232,880		107,034,878		87,468,627
Debt and capital lease obligations, less current portion		4,362,725		4,382,542		4,339,587		4,248,113		4,255,681
Total shareholders' equity		59,896,714		70,733,779		78,201,353		97,866,098		75,454,987

Table of Contents

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and our financial statements and the related notes included in this report.

Overview

Innovative Solutions and Support was founded in 1988. The Company designs, develops, manufactures and sells flight information computers, large flat-panel displays and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude as well as engine and fuel data measurements.

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

Our cost-of-sales related to product sales is comprised of material components purchased through our supplier base and direct in-house assembly labor and overhead costs. Many of the components we use in assembling our products are standard, although certain parts are manufactured to meet our specifications. The overhead portion of cost of sales is primarily comprised of salaries and benefits, building occupancy, supplies, and outside service costs related to our production, purchasing, material control and quality departments, and warranty costs.

Our cost of sales related to Engineering—modification and development (EMD) is comprised of engineering labor, consulting services, and other cost associated with specific design and development projects.

We intend to continue investing in the development of new products that complement our current product offerings and will expense associated research and development costs as they are incurred.

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

We sell our products to agencies of the United States and foreign governments, aircraft operators, aircraft modification centers and original equipment manufacturers. Our customers have been and may continue to be affected by the ongoing adverse economic conditions that currently exist both in the United States and abroad. Such conditions may cause our customers to curtail or delay their spending on both new and existing aircraft. Factors that can impact general economic conditions and the level of spending by our customers include but are not limited to general levels of consumer spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting spending behavior. In addition, spending by government agencies may in the future be further reduced due to declining tax revenues associated with this economic downturn. If our customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations due to continuing adverse economic conditions, our revenues and results of operations will be adversely affected. However, we believe that in a declining economic environment customers that may have otherwise elected to purchase newly manufactured aircraft will instead be interested in retrofitting existing aircraft as a cost effective alternative, which will create a market opportunity for our products.

On November 25, 2008, Eclipse Aviation filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Given the early stages if the bankruptcy proceedings, it is unclear at this

Table of Contents

time what the precise impact the Eclipse's bankruptcy will have. During the fiscal year ended September 30, 2008, Eclipse accounted for approximately 42% of the Company's overall revenues.

During the fourth quarter of fiscal 2008, the Company took steps to limit its overall exposure to Eclipse, including by increasing the allowance for doubtful accounts and inventory obsolescence specifically for Eclipse by $4.1 million and $1.9 million, respectively. In response to the lost future revenues from Eclipse and the overall downward turn in the economy, the Company reduced its overall headcount by 52 people. The reductions affect most of the departments in the Company with the majority of the reductions coming from the engineering department. The Company expects to see a significant reduction in its overall headcount costs in fiscal 2009 as a result of these actions.

Results of Operations

Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended September 30, 2007

Net sales. Net sales increased $12.2 million or 66% to $30.5 million for fiscal 2008 from $18.3 million for fiscal 2007. Flat panel display system sales for fiscal 2008 grew by $13.9 million or 142% from fiscal 2007 while air data sales for fiscal 2008 declined by $1.7 million or 20% from fiscal 2007. The increase in net sales was the result of a $1.3 million increase in EMD flat panel display system sales associated with the Eclipse 500, Pilatus PC-12 and C-130 airplanes. The increase in product sales of $10.9 million for fiscal 2008 was the result of increased shipments of flat panel display systems associated with the Eclipse 500, and the 757/767 product sold to American Airlines and Federal Express as these programs moved from development into production. The decline in air data product sales was a result of variability in customer demand that is not directly attributable to any particular customer or specific product.

Cost of sales. Cost of sales increased $6.4 million or 45% to $20.6 million, or 67% of net sales, for fiscal 2008 from $14.2 million, or 77% of net sales, for fiscal 2007. The increase in the dollar amount was mainly due to increased volume and the establishment of an inventory reserve associated with the suspension of activity related to the Eclipse program (Eclipse Aviation filed under Chapter 11 of the US Bankruptcy Code on November 25, 2008), offset by a decrease in the direct costs associated with various EMD projects. The dollar amount of product cost of sales increased by $8.6 million or 96% in fiscal 2008 from fiscal 2007. On a percent to product sales basis the increase amounted to eight percentage points from the prior fiscal year.

Research and development. Research and development expenses increased $5.1 million, or 99% to $10.3 million, or 34% of net sales for fiscal 2008 from $5.2 million or 28% of net sales for fiscal 2007. The dollar increase was a result of a significant increase in staffing and other project costs in order to bring a variety of projects to completion in fiscal 2008. When you combine research and development expenses with EMD cost of sales, combined engineering research and development related expenses increased by $2.9 million or 29% to $13.3 million in fiscal 2008 from $10.4 million in fiscal 2007. The combined increase was due to increased salaries and associated benefits tied to employee additions, consultants and supplies.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $6.5 million or 41% to $22.3 million, or 73% of net sales, for fiscal 2008 from $15.8 million, or 86% of net sales, for fiscal 2007. The increase in the dollar amount was principally due to the establishment of a bad debt reserve related to the Company's decision to suspend activity related to the Eclipse program (Eclipse Aviation filed under Chapter 11 of the US Bankruptcy Code on November 25, 2008) and expenses associated with the termination of the former CEO and the retirement of the former CFO.

Interest (income) expense, net. Net interest income decreased $1.5 million or 51% to $1.4 million for fiscal 2008 from $2.9 million for fiscal 2007. The net interest income decline in fiscal 2008 was due to lower average cash balances during the year.

Table of Contents

Other income. Other income was $17.3 million for fiscal 2008 primarily as a result of the receipt of $17.0 million in proceeds related to the settlement of the Company's trade secret litigation and $0.3 million related to short-swing profit disgorgement proceeds from a shareholder.

Income tax. The income tax expense for fiscal 2008 was $1.5 million and the income tax benefit for fiscal 2007 was $5.1 million. The effective tax rate for fiscal 2008 was an expense of 24% and for fiscal 2007 the effective tax rate was a benefit of 37%. For fiscal 2008 there was no tax benefit due to the inability of the Company, per the provisions of FAS 109, to recognize the tax benefits associated with the current year pretax loss and the need to establish a valuation allowance to eliminate the book value of all deferred tax assets based upon the negative evidence that exists. The effective tax rate for fiscal 2007 differs from the statutory rate due to state tax expense, partially offset by the utilization of research and development tax credits.

Net income (loss). As a result of the factors described above, our net loss for fiscal 2008 was $7.9 million. The net loss for fiscal 2007 was $8.8 million. On a fully diluted basis, the loss per share of $0.47 for fiscal 2008 compares to a loss per share of $0.52 for fiscal 2007.

Fiscal Year Ended September 30, 2007 Compared to Fiscal Year Ended September 30, 2006

Net sales. Net sales increased $1.6 million or 10% to $18.3 million for fiscal 2007 from $16.7 million for fiscal 2006. Flat panel display system sales for fiscal 2007 grew by $3.4 million or 53% while air data sales for fiscal year 2007 declined by $1.8 million or 17% from fiscal 2006. The increase in net sales was the result of a $2.5 million increase in EMD flat panel display system sales associated with the Eclipse 500 and Boeing KDC10 airplanes. The increase in EMD sales more than offset a $0.9 million or 5% year over year decline in product sales that resulted because of a decline in demand for air data products as well as certification delays on hardware transitioning from development to production.

Cost of sales. Cost of sales increased $5.6 million or 64% to $14.1 million, or 77% of net sales, for fiscal 2007 from $8.6 million, or 51% of net sales, for fiscal 2006. The increase in the dollar amount and percent to sales was mainly due to higher EMD sales in fiscal 2007 as well as incurring higher cost on the Eclipse program, over and above the amount Eclipse paid the Company for system development. The dollar amount of product cost of sales increased by $1.0 million or 12% in fiscal 2007 from fiscal 2006. On a percent to product sales basis the increase amounted to nine percentage points from the prior fiscal year.

Research and development. Research and development expenses decreased $1.5 million, or 24% to $5.2 million, or 28% of net sales for fiscal 2007 from $6.7 million or 40% of net sales for fiscal 2006. The dollar decrease was principally due to allocating $5.2 million of research and development expense to EMD cost of sales. The allocation was necessary to match non recurring engineering cost with corresponding non recurring engineering sales in the year. When you combine research and development expenses with EMD cost of sales, combined engineering research and development related expenses have increased by $3.1 million or 44% to $10.4 million in fiscal 2007 from $7.3 million in fiscal 2006. The combined increase was due to increased salaries and associated benefits tied to employee additions, consultants and supplies.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $5.9 million or 60% to $15.8 million, or 86% of net sales, for fiscal 2007 from $9.9 million, or 59% of net sales, for fiscal 2006. The increase in both the dollar amount and percent to sales was principally due to legal and other fees relating to defense of our intellectual property.

Interest (income) expense, net. Net interest income decreased $0.2 million or 7% to $2.9 million for fiscal 2007 from $3.1 million for fiscal 2006. The net interest income decline in fiscal 2007 was due to lower average cash balances in the year.

Table of Contents

Income tax. The income tax benefit for fiscal 2007 was $5.1 million. The income tax benefit for fiscal 2006 was $2.5 million. The increase in the amount of tax benefit in fiscal 2007 was the result of a higher loss before income tax in fiscal 2007.

The effective tax rate for fiscal 2007 was a benefit of 37% and for fiscal 2006 the effective tax rate was a benefit of 47%. For fiscal 2007 the effective tax rate differs from the statutory rate due to state tax expense, partially offset by the utilization of research and development tax credits. For fiscal 2006 the effective tax rate differs from the statutory rate due to the benefit for state income taxes and an adjustment to the tax payable accounts, partially offset by the loss of benefit from the deduction for domestic production activities and the exclusion for extraterritorial income due to the taxable loss for the year.

Net income (loss). As a result of the factors described above, our net loss for fiscal 2007 was $8.8 million. The net loss for fiscal 2006 was $2.9 million. On a fully diluted basis, the loss per share of $0.52 for fiscal 2007 compares to a loss per share of $0.17 for fiscal 2006.

Related-Party Transactions:

The Company incurred legal fees of $129,000, $146,000 and $357,000 with a law firm that is a shareholder of the Company for the years ended September 30, 2008, 2007 and 2006, respectively. The fees paid and services rendered were comparable with the fees paid and services rendered prior to the law firm's investment in the Company.

For the years ended September 30, 2008, 2007 and 2006, respectively, we incurred service fees of $67,000, $18,000 and $25,000 with a commercial graphics firm controlled by an individual who is married to a shareholder and daughter of the Company's Chairman and Chief Executive Officer.

Liquidity and Capital Resources

Our primary source of liquidity was cash flow generated in prior fiscal years. We require cash principally to finance inventory, payroll and accounts payable.

Cash flow provided by operating activities was $4.2 million in fiscal 2008 as compared to $10.6 million used in operating activities in fiscal 2007. The $14.8 million difference was attributable to a $17.0 million legal settlement, a decrease in accounts receivable of $0.9 million (principally the Eclipse reserve) and a decrease of $6.9 million in the change in prepaid expenses and other assets partially offset by a $5.4 million decrease in the change in accounts payable. The Company had negative operating cash flow of $1.6 million in fiscal 2006 primarily as a result of the net operating loss realized.

Cash used in investing activities was $0.6 million, $3.9 million and $0.7 million for fiscal year 2008, 2007, and 2006 and consisted of spending for licensing fees, production equipment and laboratory test equipment.

Cash used in financing activities was $17.7 million for fiscal year 2008 and consisted primarily of the special dividend of $16.7 million paid along with share repurchases of $1.0 million. Cash provided by financing activities was $0.6 million for fiscal year 2007 and consisted primarily of proceeds from stock option exercises. Cash used in financing activities was $17.9 million for fiscal 2006. The primary use of cash for financing activities in fiscal year 2006 was attributable to share repurchases of $18.1 million.

To accommodate future growth, in 2001 we purchased 7.5 acres of land in the Eagleview Corporate Park, Exton, Pennsylvania, where we built a 44,800 square foot facility that is expandable to 65,200 square feet. Both the land and building cost approximate $6.5 million, $4.3 million of which was funded through an Industrial Development Bond (IDB) and the remainder from cash from operations.

Table of Contents

The IDB previously required the Company to maintain certain financial covenants including a ratio of liabilities to earnings before interest, taxes and depreciation and amortization (EBITDA), fixed charge ratio and a minimum tangible net worth. As of June 30, 2006, the Company was in violation of certain of these financial covenants. The defaults were subsequently waived and an amendment to the agreement was entered into with the lender whereby the defaulted covenants were modified. Effective November 30, 2007 prior loan agreement covenants were changed to only require the Company to maintain at all times unencumbered cash and marketable securities having a market value of at least $20.0 million and a minimum Tangible Net Worth of $65.0 million. The lender, however, agreed on January 10, 2008 to discontinue the Tangible Net Worth covenant so that the only remaining requirement is that the Company maintain at all times unencumbered cash and marketable securities having a value of at least $20.0 million. As of September 30, 2008, the Company was in compliance with this requirement.

Our future capital requirements depend on numerous factors, including market acceptance of our products (in particular flat panel display systems), 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 operations and 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 financing or other arrangements in order to support more rapid expansion of our business than we currently anticipate. Potential lenders may have suffered losses related to their lending and other financial relationships, especially because of the general weakening of the national economy and increased financial instability of many borrowers. As a result, lenders may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow or to obtain new financing on favorable terms or at all. Our financial condition and results of operations would be adversely affected if we were unable to obtain cost-effective financing in the future. Further, we may 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.

Our contractual obligations of as of September 30, 2008 mature as follows:

	Payments Due by Period

Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Interest on loan from Chester County Industrial Dev. Auth.(1)	$	1,207,731	$	172,533	$	345,066	$	345,066	$	345,066
Principal on Chester County Industrial Loan		4,335,000		—		—		—		4,335,000
Operating Lease		39,065		39,065		—		—		—
Capital Leases, including interest		55,152		13,788		27,576		13,788		—
Puchase Obligations(2)		3,215,641		2,673,858		109,447		432,336		—

	$	8,852,589	$	2,899,244	$	482,089	$	791,190	$	4,680,066

(1): The interest on the Industrial Development Bond assumes the current rate of 3.98%. The interest rate set by the remarketing agent is consistent with 30-day tax-exempt commercial paper.
(2): A "purchase obligation" is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. These amounts are primarily comprised of open purchase order commitments entered in the ordinary course of business vendors and subcontractors pertaining to fulfillment of our current order backlog.

Table of Contents

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Inflation

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

Critical Accounting Policies

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's most critical accounting policies are revenue recognition, income taxes, inventory valuation, share-based compensation, and warranty reserves.

Revenue recognition

The Company recognizes revenue under the provisions of Staff Accounting Bulletin No. 104, "Revenue Recognition" (SAB 104).

The Company enters into certain sales arrangements that include multiple deliverables as defined in Emerging Issues Task Force (EITF) Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." 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. In general, revenues are separated between product sales and EMD sales. The allocated revenue for each deliverable is then recognized using appropriate revenue recognition methods.

The Company accounts for transactions with software that is more than incidental to the products under Statement of Position (SOP) 97-2. "Software Revenue Recognition" and EITF Issue 03-5, "Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software." For Software arrangements that include multiple elements, revenue is allocated to the various elements, including post contract customer support (PCS), if applicable, based on vendor-specific objective evidence of fair value. Revenue for each element other than PCS is recognized when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller's price to the buyer is fixed or determinable; and 4) collectability is reasonably assured. The portion of revenue allocated to PCS should be recognized as revenue ratably over the term of the PCS arrangement because PCS services are assumed to be provided ratably.

Sales related to certain long-term contracts requiring development and delivery of products over several accounting periods are accounted for under the American Institute of Certified Public Accountants (AICPA) SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." We consider the nature of these contracts as well as the types of products and services provided when determining appropriate accounting treatment for a particular contract. We recognize our construction-type contracts using either the percentage-of-completion method or completed contract method of accounting. We record sales relating to these contracts using the percentage-of-completion method when we determine that progress toward completion is reasonable and reliably estimable and the contract is long-term in nature; we use the competed contract method for all others.

Table of Contents

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.

Income taxes

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

As required by SFAS 109, we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence, including our operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction by jurisdiction basis. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

Effective October 1, 2007 (the first day of fiscal 2008), we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is "more likely than not" that the position is sustainable based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having full knowledge of all relevant information. A tax benefit from an uncertain position was previously recognized if it was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as noncurrent unless the liability is expected to be settled in cash within 12 months of the reporting date. We have elected to record any interest or penalties from the uncertain tax position as income tax expense (see Note 9).

We prepare and file tax returns based on our interpretation of tax laws and regulations, and we record estimates based on these judgments and interpretations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities and we record a liability when we believe that it is probable that we will be assessed. We adjust our estimates periodically because of ongoing examinations by and settlements with the various taxing authorities, as well as changes in tax laws, regulations and precedent. The consolidated tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any related estimated interest. We believe adequate accruals have been made for income taxes. Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on our consolidated financial position but could possibly be material to our consolidated results of operations or cash flow of any one period.

Inventories

We value our inventory at the lower of cost (first-in, first-out) or market through the establishment of inventory reserves. Inventories are written down for estimated obsolescence equal to the difference

Table of Contents

between inventory cost and estimated net realizable value based upon assumptions about future market conditions. Our reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding inventory aging, forecasted future demand, market conditions and technological obsolescence. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Share-based compensation

Effective October 1, 2005 the Company adopted the provisions of SFAS No. 123R, "Share-Based Payment" (SFAS 123R), using the modified prospective approach and now accounts for share-based compensation applying the fair value method for expensing stock options. Accordingly, adoption of SFAS 123R's fair value method results in recording compensation costs under the Company's 1998 Stock Option Plan. We determine the fair value of our stock option awards at the date of grant using the Black-Scholes option pricing model. Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating future volatility of our stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors. Changes in these assumptions can materially affect fair value estimates. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material.

Warranty reserves

We offer warranties on some products of various lengths. At the time of shipment, we establish a reserve for estimated costs 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's failure rates and the customer's usage affects warranty cost. If actual costs of warranties differs from our estimated amounts, future results of operations could be adversely affected.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" (SFAS 141R), which replaces SFAS No. 141, "Business Combinations." SFAS 141R, among other things, establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any controlling interests in the acquired entity; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Costs of the acquisition will be recognized separately from the business combination. SFAS 141R applies prospectively, except for taxes, to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2008.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; however, application of this Statement may change current practice for some entities. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this pronouncement.

Table of Contents

Business Segments

The Company operates in one principal business segment which designs, manufactures and sells flight information computers, large flat-panel displays and advanced monitoring systems to the DoD, government agencies, defense contractors, commercial air transport carriers and corporate/general aviation markets. The Company currently derives virtually all of its revenues from the sale of this equipment. Almost all of the Company's sales, operating results and identifiable assets are in the United States. Net sales, operating results, and identifiable assets outside the U.S. are not significant.

In fiscal year 2008, 2007, and 2006 net sales outside the United States amounted to $1.7 million, $1.1 million and $2.8 million respectively.

Item 7A. Quantitative and qualitative disclosures about market risk.

The Company'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's exposure to market risk for changes in interest rates relates to its cash equivalents and an industrial revenue bond. The Company'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, 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.

Item 8. Financial statements and supplementary data.

The financial statements of Innovative Solutions and Support, Inc. listed in the index appearing under Item 8 herein are filed as part of this Report.

Table of Contents

Innovative Solutions and Support, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		32
Consolidated Balance Sheets		33
Consolidated Statements of Operations		34
Consolidated Statements of Shareholders' Equity		35
Consolidated Statements of Cash Flows		36
Notes to Consolidated Financial Statements		37-51

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Innovative Solutions and Support, Inc. and subsidiaries (the "Company") as of September 30, 2008 and 2007, and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the three years in the period ended September 30, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2008, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 9 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes , effective October 1, 2007.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of September 30, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 9, 2008 expressed an unqualified opinion on the Company's internal control over financial reporting.

DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
December 9, 2008

Table of Contents

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONSOLIDATED BALANCE SHEETS

				As of September 30, 2008			As of September 30, 2007

ASSETS
Current Assets:
	Cash and cash equivalents			$	35,031,932		$	49,151,078
	Accounts receivable, net				4,218,443			6,248,606
	Inventories				9,361,257			9,363,795
	Deferred income taxes				414,636			899,895
	Prepaid expenses and other current assets				1,406,260			6,208,804

		Total current assets			50,432,528			71,872,178

Property and Equipment:
	Computers and test equipment				5,879,362			5,444,737
	Corporate airplane				3,076,400			3,058,627
	Furniture and office equipment				1,074,029			1,016,954
	Manufacturing facility				5,576,536			5,557,048
	Land				1,021,245			1,021,245

					16,627,572			16,098,611
	Less-Accumulated depreciation and amortization				(7,669,226	)		(6,721,274	)

		Net property and equipment			8,958,346			9,377,337

	Deferred income taxes				—			328,060
	Other assets				505,840			3,008,210

Total assets				$	59,896,714		$	84,585,785

			LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
	Current portion of capitalized lease obligations			$	9,908		$	9,908
	Accounts payable				2,349,981			4,077,789
	Accrued expenses				5,130,463			4,670,832
	Deferred revenue				450,923			660,415

		Total current liabilities			7,941,275			9,418,944

	Note payable				4,335,000			4,335,000

	Long-term portion of capitalized lease obligations				37,633			47,542

	Deferred revenue				114,075			50,520

	Deferred income taxes				414,636			—

	Other liabilities				249,969

	Commitments and contingencies				—			—

Shareholders' Equity:
	Preferred stock, 10,000,000 shares authorized, $.001 par value, of which 200,000 shares are authorized as Class A Convertible stock. No shares issued and outstanding at September 30, 2008 and 2007				—			—
	Common stock, $.001 par value: 75,000,000 shares authorized, 18,177,024 and 18,161,172 shares issued at September 30, 2008 and 2007				18,177			18,161
	Additional paid-in capital				45,767,960			44,607,993
	Retained earnings				20,152,615			44,194,053
	Treasury stock, at cost, 1,445,510 and 1,272,510, shares at September 30, 2008 and 2007				(19,134,626	)		(18,086,428	)

		Total shareholders' equity			46,804,126			70,733,779

Total liabilities and shareholders' equity				$	59,896,714		$	84,585,785

The accompanying notes are an integral part of these statements.

Table of Contents

INNOVATIVE SOLUTIONS & SUPPORT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

			For the Fiscal Year Ended September 30,

			2008			2007			2006
Net sales:
	Product		$	25,946,917		$	15,083,465		$	15,940,721
	Engineering—modification and development			4,586,394			3,264,663			781,246

		Total net sales		30,533,311			18,348,128			16,721,967

Cost of sales
	Product			17,584,314			8,968,939			8,006,406
	Engineering—modification and development			2,967,543			5,185,486			625,355

		Total cost of sales		20,551,857			14,154,425			8,631,761

Gross profit				9,981,454			4,193,703			8,090,206

Operating expenses:
	Research and development			10,304,279			5,180,360			6,749,426
	Selling, general and administrative			22,306,016			15,840,255			9,863,758
	Asset impairment			2,475,000			—			—

		Total operating expenses		35,085,295			21,020,615			16,613,184

Operating loss				(25,103,841	)		(16,826,912	)		(8,522,978	)
Interest income				1,576,599			3,090,919			3,280,179
Interest expense				(160,867	)		(204,317	)		(188,193	)
Other income				17,300,000			—			—

	Loss before income taxes			(6,388,109	)		(13,940,310	)		(5,430,992	)
Income taxes expense (benefit)				1,509,139			(5,095,022	)		(2,548,600	)

Net loss			$	(7,897,248	)	$	(8,845,288	)	$	(2,882,392	)

Net loss per common share:
	Basic		$	(0.47	)	$	(0.52	)	$	(0.17	)

	Diluted		$	(0.47	)	$	(0.52	)	$	(0.17	)

Weighted average shares outstanding:
	Basic			16,887,049			16,865,028			17,388,524

	Diluted			16,887,049			16,865,028			17,388,524

The accompanying notes are an integral part of these statements.

Table of Contents

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Common Stock		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Total

Balance, September 30, 2005	$	18,047	$	41,926,318	$	55,921,733		$	—		$	97,866,098
Exercise of options to purchase common stock		25		408,779		—			—			408,804
Share-based compensation		—		655,351		—						655,351
Issuance of stock to directors		16		239,904		—			—			239,920
Purchase of treasury stock		—		—		—			(18,086,428	)		(18,086,428	)
Net loss		—		—		(2,882,392	)		—			(2,882,392	)

Balance, September 30, 2006		18,088		43,230,352		53,039,341			(18,086,428	)		78,201,353
Exercise of options to purchase common stock		58		652,060		—			—			652,118
Share-based compensation		—		505,652		—			—			505,652
Issuance of stock to directors		15		219,929								219,944
Net loss		—		—		(8,845,288	)		—			(8,845,288	)

Balance, September 30, 2007		18,161		44,607,993		44,194,053			(18,086,428	)		70,733,779
Exercise of options to purchase common stock		5		22,055		—			—			22,060
Share-based compensation				938,013		—			—			938,013
Issuance of stock to directors		11		199,899		—			—			199,910
Purchase of treasury stock		—		—		—			(1,048,198	)		(1,048,198	)
Cumulative effect of adoption of FIN 48		—		—		587,324			—			587,324
Dividends						(16,731,514	)					(16,731,514	)
Net loss		—		—		(7,897,248	)		—			(7,897,248	)

Balance, September 30, 2008	$	18,177	$	45,767,960	$	20,152,615		$	(19,134,626	)	$	46,804,126

The accompanying notes are an integral part of these statements.

Table of Contents

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the Fiscal Year Ended September 30,

					2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss				$	1,509,139		$	(8,845,288	)	$	(2,882,392	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation and amortization				1,048,267			946,215			858,641
		Share-based compensation expense:
			Stock options			938,013			505,652			655,351
			Nonvested stock awards			199,910			219,944			239,920
		Tax benefit (expense) from share-based arrangements:
			Stock options			10,497			162,985			227,965
			Nonvested stock awards			(21,655	)		(3,588	)		(8,456	)
		Provision for losses on accounts receivable				4,077,319			—			—
		Excess tax benefits from share-based payments arrangements				(11,424	)		(154,873	)		(44,504	)
		Loss on disposal of fixed assets				9,531			7,278			22,066
		Excess and obsolete inventory expense				1,856,827			100,000			38,861
		Asset impairment				2,475,000			—			—
		Deferred income taxes				1,227,955			(635,096	)		(272,756	)
		(Increase) decrease in:
			Accounts receivable			(2,047,156	)		(2,915,475	)		2,146,805
			Inventories			(1,854,289	)		(2,997,639	)		(2,593,391	)
			Prepaid expenses and other current assets			4,802,544			(2,143,108	)		(35,348	)
			Other non current assets			(41,080	)		(88,446	)		—
		Increase (decrease) in:
			Accounts payable			(1,727,808	)		3,718,971			53,302
			Accrued expenses			1,046,955			1,548,291			(381,272	)
			Deferred revenue			(145,937	)		(1,682	)		344,504
			Other non current liabilities			249,969			—			—

				Net cash provided by (used in) operating activities		13,602,577			(10,575,859	)		(1,630,704	)

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					(573,357	)		(1,276,508	)		(456,528	)
	Purchases of other assets								(2,616,500	)		(240,000	)
	Proceeds on sale of fixed assets					3,000

	Net cash used in investing activities					(570,357	)		(3,893,008	)		(696,528	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from exercise of stock options					33,218			492,721			189,295
	Purchase of treasury stock					(1,048,198	)		—			(18,086,428	)
	Dividend paid					(16,731,514	)		—			—
	Repayment of capitalized lease obligations					(9,909	)		(12,478	)		(7,892	)
	Excess tax benefits from share-based payments arrangements					11,424			154,873			44,504

	Net cash (used in) provided by financing activities					(17,744,979	)		635,116			(17,860,521	)

Net decrease in cash and cash equivalents						(4,712,759	)		(13,833,751	)		(20,187,753	)
Cash and cash equivalents, beginning of year						49,151,078			62,984,829			83,172,582

Cash and cash equivalents, end of year					$	44,438,319		$	49,151,078		$	62,984,829

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
	Cash paid for interest				$	120,650		$	164,091		$	147,332

	Cash paid for income taxes				$	9,073		$	—		$	457,672

	Cash received from income tax refund				$	(5,107,269	)	$	(2,424,704	)	$	(3,278,844	)

The accompanying notes are an integral part of these statements.

Table of Contents

1. Background:

Innovative Solutions and Support, Inc., (the "Company"), was incorporated in Pennsylvania on February 12, 1988. The Company's primary business is the design, manufacture and sale of flight information computers, large flat panel displays and advanced monitoring systems to the Department of Defense (DoD), defense contractors, commercial air transport and corporate/general aviation markets.

2. Concentrations:

Major Customers and Products

In fiscal 2008, 2007, and 2006 the Company derived 72%, 58%, and 47% of net sales from five customers, although not all the same customers in each year. Accounts receivable related to those top five customers was $2.3 million, $4.7 million, and $1.8 million for fiscal 2008, 2007, and 2006, respectively.

The Company recorded sales with two customers that individually accounted for 42% and 10% of total sales for fiscal year 2008, three customers that individually accounted for 20%, 16% and 11% of net sales for fiscal year 2007 and one customer that accounted for 17% of net sales for fiscal year 2006.

Sales of air data systems and components were 23%, 47%, and 62% of total sales for the years ended September 30, 2008, 2007, and 2006 respectively. Flat Panel sales were 77%, 53%, and 38% of net sales in the years ended September 30, 2008, 2007. and 2006 respectively. Sales to government contractors and agencies accounted for approximately 23%, 36%, and 51% of total sales during fiscal years 2008, 2007, and 2006, respectively.

Major Suppliers

The Company currently buys several of its components from sole source suppliers. Although there are a limited number of manufacturers of particular components, management believes other suppliers could provide similar components on comparable terms.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances and accounts receivable. The Company invests its excess cash where preservation of principal is the major consideration. The Company's customer base principally consists of companies within the aviation industry. The Company routinely requests advance payments and/or letters of credit from new customers.

The Company has maintained a reserve for doubtful accounts in the amount of $4.1 million, $0 and $0.1 million for fiscal year 2008, 2007 and 2006, respectively. The large increase in the reserve for doubtful accounts in fiscal year 2008 was directly related to accounts receivable from Eclipse Aviation, a customer that filed for bankruptcy under Chapter 11 subsequent to the Company's year end. There were no accounts receivable write-offs in fiscal 2008, 2007, and 2006, respectively.

3. Summary Of Significant Accounting Policies:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation.

Table of Contents

3. Summary Of Significant Accounting Policies: (Continued)

Use of Estimates

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

Cash and Cash Equivalents

Highly liquid investments purchased with an original maturity of three months or less are classified as cash equivalents. Cash equivalents at September 30, 2008 and 2007 consist of funds invested in money market accounts with financial institutions.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:

	September 30,

	2008		2007
Raw materials	$	4,705,134	$	6,420,184
Work-in-process		3,046,451		2,216,111
Finished goods		1,609,672		727,500

	$	9,361,257	$	9,363,795

The growth in Finished goods is a result of contractual requirements to hold inventory prior to scheduled delivery.

Property and Equipment

Property and equipment is stated at cost. Depreciation is provided using an accelerated method over estimated useful lives of the assets (the lesser of three to seven years or over the lease term), except for the airplane and manufacturing facility, which are depreciated over a straight-line method. Major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the life of assets are charged to expense as incurred. Depreciation expense was $1.0 million, $0.9 million and $0.8 million for the fiscal years ended September 30, 2008, 2007, and 2006.

Long-Lived Assets

The Company assesses the impairment of long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Also, in general, long-lived assets to be disposed of should be reported at the lower of the carrying amount or fair value less cost to sell. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to estimated future cash flows expected to result from use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting

Table of Contents

3. Summary Of Significant Accounting Policies: (Continued)

expected future cash flows. The Company recorded an asset impairment of $2.5 million, the full carrying value of previously acquired engineering software which is no longer part of the Company's product offering and will generate no future cash flows. No impairment charges were recorded in fiscal years 2007 and 2006.

Revenue Recognition

The Company recognizes revenue under the provisions of Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition" (SAB 104).

The Company enters into certain sales arrangements that include multiple deliverables as defined in EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." 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. In general, revenues are separated between product sales and EMD sales. The allocated revenue for each deliverable is then recognized using appropriate revenue recognition methods.

The Company accounts for transactions with software that is more than incidental to products under SOP 97-2 "Software Revenue Recognition" and EITF Issue 03-5, "Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software." For Software arrangements that include multiple elements revenue is allocated to the various elements, including the post contract customer support (PCS), if applicable, based on vendor-specific objective evidence of fair value. Revenue for each element other than PCS is recognized when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller's price to the buyer is fixed or determinable; and 4) collectability is reasonably assured. The portion of the revenue allocated to PCS should be recognized as revenue ratably over the term of the PCS arrangement, because the PCS services are assumed to be provided ratably.

Sales related to certain long-term contracts requiring development and delivery of products over several accounting periods are accounted for under the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." The Company considers 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. The Company recognizes its construction-type contracts using either the percentage-of-completion method or completed contract method of accounting. The Company records sales relating to these contracts using the percentage-of-completion method when the Company determines that progress toward completion is reasonable and reliably estimable and the contract is long-term in nature; the Company uses the competed contract method for all others. Sales related to these types of contracts were $1.4 million, $3.3 million and $.8 million for fiscal years ended September 30, 2008, 2007, and 2006 respectively.

Warranty

Estimated cost to repair or replace products under warranty is provided when sales of product are recorded.

Table of Contents

3. Summary Of Significant Accounting Policies: (Continued)

Income Taxes

Income taxes are recorded in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109), which principally utilizes a balance sheet approach to provide for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company'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. The Company files a consolidated United States federal income tax return (see Note 9).

Effective October 1, 2007 (the first day of fiscal 2008), the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The Company has elected to record any interest or penalties from the uncertain tax position as income tax expense (see Note 9).

Research and Development

Research and development charges incurred for product enhancements and future product development are recorded as expense as incurred.

Comprehensive Income

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

Fair Value of Financial Instruments

The estimated fair value amounts presented in these consolidated financial statements were determined by the Company using available market information and appropriate methodologies. The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and debt instruments. The carrying values of these assets and liabilities are considered to be representative of respective fair values based on pertinent information available to management as of September 30, 2008 and 2007.

Stock-Based Compensation

We account for stock-based compensation under SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). SFAS 123(R) requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

Table of Contents

3. Summary Of Significant Accounting Policies: (Continued)

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; however, the application of this Statement may change current practice for some entities. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this pronouncement.

4. Net Income (Loss) Per Share:

Net income (loss) per share is calculated pursuant to SFAS No. 128, "Earnings per Share" (SFAS 128). Basic earnings per share EPS excludes potentially dilutive securities and is computed by dividing net income by the weighted-average number of Common shares outstanding for the period. Diluted EPS is computed assuming the conversion or exercise of all dilutive securities such as preferred stock, options and warrants.

There is no difference between basic weighted average shares outstanding and diluted weighted-average shares outstanding used to compute diluted EPS for fiscal years 2008, 2007 and 2006 because the Company is in a net loss position.

The number of incremental shares from the assumed exercise of stock options is calculated by using the treasury stock method. For the fiscal years ended September 30, 2008, 2007 and 2006, there were 750,608, 572,959 and 701,854 options to purchase common stock outstanding, respectively, that were excluded from the computation of diluted earnings per share as the effect would be anti-dilutive.

5. Prepaid Expenses and Other Current Assets:

Prepaid expenses consist of the following:

	September 30,

	2008		2007
Prepaid income taxes	$	—	$	5,017,794
Other		1,406,260		1,191,010

	$	1,406,260	$	6,208,804

Table of Contents

6. Other Assets:

Other assets consist of the following:

	September 30,

	2008		2007
Intangible assets, net of accumulated amortization of $89,950 and $36,000 at September 30, 2008 and 2007	$	289,050	$	2,820,500
Other		216,790		187,710

	$	505,840	$	3,008,210

Intangible assets consist of licensing and certification rights which are amortized over a defined number of units. During the fiscal year ended September 30, 2008, the Company recorded an asset impairment of $2.5 million, the full carrying value of previously acquired engineering software which is no longer part of the Company's product offering and will generate no future cash flows. No impairment charge was recorded in fiscal year 2007. Total amortization expense was $68,450 and $14,400 for the fiscal years ended September 30, 2008 and 2007, respectively. Because the intangible assets are being amortized over a defined number of units, the future amortization expense over the next five years cannot be determined at this time.

7. Accrued Expenses:

Accrued expenses consist of the following:

	September 30,

	2008		2007
Salary, benefits and payroll taxes	$	904,904	$	603,565
Warranty		736,815		592,524
Income taxes payable		798,801		959,227
Professional fees		474,730		1,515,630
Reduction in workforce / Severance		904,163		—
Materials on order		467,759		137,245
Other		843,291		862,641

	$	5,130,463	$	4,670,832

During the fiscal year ended September 30, 2008, the Company incurred $904,163 in severance and other costs associated with the reduction in workforce and the September termination of its Chief Executive Officer.

8. Warranty:

The Company provides for 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'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 Company estimates, revisions to estimated warranty liability would be required.

Table of Contents

8. Warranty: (Continued)

Warranty cost and accrual information for the fiscal years ended September 30, 2008 and 2007:

	2008			2007

Warranty accrual at October 1,	$	592,524		$	617,116
Accrued expense for the fiscal year ended September 30		317,968			210,555
Warranty costs for the fiscal year ended September 30		(173,677	)		(235,147	)

Warranty accrual at September 30	$	736,815		$	592,524

9. Income Taxes:

The Company accounts for income taxes under SFAS No. 109, which generally provides that deferred tax assets and liabilities be recognized for temporary differences between financial reporting and tax basis of the Company's assets and liabilities and expected benefits of utilizing net operating loss (NOL) carry forwards. 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 financial statements in the period of enactment.

Components of income taxes are as follows:

		For the Fiscal Year Ended September 30,

		2008			2007			2006
Current provision (benefit):
	Federal	$	236,170		$	(4,463,302	)	$	(1,943,991	)
	State		(30,708	)		3,377			—

			205,462			(4,459,925	)		(1,943,991	)

Deferred provision (benefit):
	Federal		883,439			(639,263	)		(158,789	)
	State		420,238			4,166			(445,820	)

			1,303,677			(635,097	)		(604,609	)

		$	1,509,139		$	(5,095,022	)	$	(2,548,600	)

Following is a reconciliation of the statutory federal rate to the Company's effective income tax rate:

	For the Fiscal Year Ended September 30,

	2008			2007			2006
Federal statutory tax rate		34.0	%		34.0	%		35.0	%
State income taxes, net of federal benefit		7.3	%		0.0	%		5.3	%
Research and development tax credits		1.8	%		5.1	%		0.5	%
Increase in valuation allowance		(74.5	)%		—			—
Additional benefit from federal amended and carryback		6.3	%		—			—
Other		1.5	%		(2.6	)%		6.1	%

		(23.6	)%		36.5	%		46.9	%

In October of 2008, an extension of the Research and Experimentation ("R&E") tax credit was enacted into law. This retroactive extension is for amounts paid or incurred after December 31, 2007.

Table of Contents

9. Income Taxes: (Continued)

The entire impact of this retroactive extension will be recognized in the first quarter of the fiscal year ending September 30, 2009 as required by SFAS 109.

The deferred tax effect of temporary differences giving rise to the Company's deferred tax assets and liabilities consists of the components below.

		September 30,

		2008						2007
		Current			Non Current			Current			Non Current
Deferred tax assets:
	Deferred revenue	$	77,920		$	—		$	45,504		$	—
	Reserves and accruals		3,172,061			237,460			657,250			198,456
	Research and development credit		184,837						462,267
	Software					596,469			—			—
	NOL carryforwards—state		—			1,050,052			—			824,573
	Stock options		—			687,353			—			362,894
	Other		—			55,131			—			—

			3,434,818			2,626,465			1,165,021			1,385,923
	Less: Valuation allowance		(3,002,107	)		(2,295,589	)		(246,325	)		(293,032	)

Deferred tax asset			432,711			330,876			918,696			1,092,891

Deferred tax liabilities:
	Depreciation		—			(745,512	)		—			(764,831	)
	Other		(18,075	)		—			(18,801	)		—

Deferred tax liability			(18,075	)		(745,512	)		(18,801	)		(764,831	)

Net deferred tax asset (liability)		$	414,636		$	(414,636	)	$	899,895		$	328,060

During the fiscal year ended September 30, 2007 the Company generated a federal net operating loss (NOL) of approximately $14.2 million. The NOL was carried-back to previous tax years and the Company received a refund of previously paid federal income tax of approximately $5.1 million during the quarter ended March 31, 2008. As of September 30, 2008, the Company had state net operating losses of $17.8 million which expire in varying amounts beginning in 2026. In addition, the Company has research and development tax credit carryforwards of approximately $214,049, which expire in varying amounts beginning 2027.

The Company's financial statements contain certain deferred tax assets which have arisen primarily as a result of tax benefits associated with the loss before income tax incurred during the twelve months ended September 30, 2008, as well as deferred income tax assets resulting from temporary differences in prior tax years. SFAS 109 requires the consideration of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. The Company considered all available positive and negative evidence, including significant operating losses incurred in 2006 and 2007, continued operating losses in 2008, uncertainty as to the extent and timing of profitability in future periods, and ongoing tax planning strategies. Based on the weight of available evidence, the Company recorded a full valuation allowance against net deferred tax assets during the quarter ended March 31, 2008. There were no significant changes in management's judgment during the quarter ended September 30, 2008 and the Company continues to carry a full valuation allowance against its net deferred tax assets.

Table of Contents

9. Income Taxes: (Continued)

If realization of deferred tax assets in the future is considered more likely than not, a reduction to the valuation allowance related to deferred tax assets would increase net income in the period such determination is made. The amount of deferred tax assets considered realizable is based on significant estimates, and it is possible that changes in these estimates could materially affect the financial condition and results of operations. The Company's effective tax rate may vary from period to period based on changes in estimated taxable income or loss; changes to the valuation allowance; changes to federal or state tax laws; and as a result of acquisitions.

The Company adopted provisions of FASB Interpretation 48, " Accounting for Uncertainty in Income Taxes" (FIN 48), on October 1, 2007. Previously, the Company accounted for tax contingencies in accordance with SFAS No. 5, " Accounting for Contingencies". At the adoption date of October 1, 2007, the Company applied FIN 48 to all tax positions for which the statute of limitations remained open. As a result of implementation of FIN 48, the Company recognized a decrease of approximately $587,000 in the liability for unrecognized tax benefits, which was accounted for as an increase to the October 1, 2007 balance of retained earnings.

The amount of unrecognized tax benefits as of October 1, 2007 was approximately $435,000, all of which, if ultimately recognized, would reduce the Company's annual effective tax rate.

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of related tax laws and regulations and require significant judgment to apply. During the fiscal year ended September 30, 2008, the Internal Revenue Service concluded an examination for tax years through September 30, 2006. The Company also files income tax returns in various state jurisdictions, as appropriate, with varying statutes of limitation. There are no state income tax examinations in process at this time.

The Company's policy is to recognize interest accrued and, if applicable, penalties related to unrecognized tax benefits in income tax expense for all periods presented. The Company has accrued approximately $21,000 for the payment of interest, net of tax benefits, at September 30, 2008 ($27,000 at October 1, 2007). There is no accrual recorded for penalties.

For the fiscal year ended September 30, 2008, the Company recognized a benefit of $6,000 of interest (net of federal impact) within income tax expense.

Following is a reconciliation of beginning and ending balances of total amounts of gross unrecognized tax benefits:


Balance at October 1, 2007	$	435,000
Unrecognized tax benefits related to prior years		(125,000	)
Unrecognized tax benefits related to the current year		72,000
Settlements		—
Decrease in unrecognized tax benefits due to the lapse of applicable statute of limitations		(58,000	)

Balance at September 30, 2008	$	324,000

It is not anticipated that unrecognized tax benefits taken regarding previously filed returns will change significantly over the next twelve months.

10. Notes Payable:

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's new office and manufacturing facility. The loan matures in 2015 and

Table of Contents

10. Notes Payable: (Continued)

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 allowing 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 and accordingly, the balance of the notes payable will be due in 2015.

The loan agreement previously required the Company to maintain certain financial covenants including a ratio of liabilities to earnings before interest, taxes and depreciation and amortization (EBITDA), fixed charge ratio and a minimum tangible net worth. As of June 30, 2006, the Company was in violation of certain of these financial covenants. The defaults were subsequently waived and an amendment to the agreement was entered into with the lender whereby the defaulted covenants were modified. Effective November 30, 2007 prior loan agreement covenants were changed to only require the Company to maintain at all times unencumbered cash and marketable securities having a market value of at least $20.0 million and a minimum Tangible Net Worth of $65.0 million. The lender, however, agreed on January 10, 2008 to discontinue the Tangible Net Worth covenant so that the only remaining requirement is that the Company maintain at all times unencumbered cash and marketable securities having a value of at least $20.0 million.

The interest cost related to this debt for fiscal years 2008 and 2007 was $117,000 and $164,000 respectively. The interest rate on this debt was 3.98% at September 30, 2008. The Company is also required to maintain a letter of credit in the amount of $5,000,000 covering the debt.

11. Savings Plan:

The Company sponsors a voluntary defined contribution savings plan covering all employees. The Company made contributions of $172,000, $0 and $0 for the fiscal years ended September 30, 2008, 2007 and 2006, respectively.

12. Share-Based Compensation:

Effective October 1, 2005 the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) 123R using the modified prospective approach and now accounts for share-based compensation applying the fair value method for expensing stock options and non-vested stock awards.

Total share-based compensation expense was $1,138,000, $726,000 and $895,000 for the fiscal years ended September 30, 2008, 2007, and 2006, respectively. The total income tax (expense) benefit recognized in the statement of operations for share-based compensation arrangements was ($11,000), $265,000 and $420,000 for the fiscal years ended September 30, 2008, 2007, and 2006, respectively. Compensation expense related to share-based awards is recorded as a component of general and administrative expense.

The Company maintains the 1998 Stock Option Plan (the "Plan") and the 2003 Restricted Stock Plan (the "Restricted Plan"). These plans were approved by the Company's shareholders. The Plan expired on November 13, 2008.

Stock Options

The Plan allows granting of incentive and nonqualified stock options to employees, officers, directors and independent contractors and consultants. Through September 30, 2008 no stock options have been granted to independent contractors or consultants under this Plan. Total compensation expense was $938,000, $506,000, and $655,000 for fiscal years ended September 30, 2008, 2007, and 2006 respectively. Incentive stock options granted under the Plan have exercise prices that must be at

Table of Contents

12. Share-Based Compensation: (Continued)

least equal to fair value of the common stock on grant date. Nonqualified stock options granted under the Plan have exercise prices that 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 3,389,000 shares of Common Stock for awards under the plan. At September 30, 2008 there were 1,502,173 shares remaining and available for grant under the Plan, however the Plan expired on November 13, 2008 and no additional shares may be granted under the Plan after that date.

Following is a summary of option activity under the Plan for fiscal years ended September 30, 2008, 2007, and 2006 and changes during the periods then ended:

				Weighted Average Exercise Price		Aggregate Intrinsic Value

Outstanding at September 30, 2005		594,253		$	8.76
	Granted	204,000			14.36
	Exercised	(25,300	)		7.48
	Cancelled	(71,099	)		13.70

Outstanding at September 30, 2006		701,854		$	8.76
	Granted	49,000			24.42
	Exercised	(57,995	)		8.50
	Cancelled	(119,900	)		14.79

Outstanding at September 30, 2007		572,959		$	10.30
	Granted	409,000			10.16
	Exercised	(4,497	)		7.31
	Cancelled	(226,854	)		11.88

Outstanding at September 30, 2008		750,608		$	9.76	$	250,455

Vested and expected to vest		735,848		$	8.04	$	250,455

Options exercisable at September 30, 2008		455,408		$	8.04	$	250,289

The weighted-average grant date fair value of individual options granted during the fiscal years ended September 30, 2008, 2007 and 2006 was $5.05, $14.38 and $7.53, respectively. The total intrinsic value of options exercised during the fiscal years ended September 30, 2008, 2007 and 2006 were $33,000, $620,000 and $187,000, respectively.

Following table summarizes information about stock options under the Plan at September 30, 2008:

Options Outstanding							Options Exercisable

Range of Exercise Prices	Outstanding As of September 30, 2008		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		As of September 30, 2008		Weighted- Average Exercise Price
$— -$5.00		201,909		3.3	$	4.22		201,909	$	4.22
$5.01-$10.00		209,099		5.6	$	7.82		121,599	$	7.69
$10.01-$15.00		251,200		8.0	$	11.70		88,000	$	11.73
$15.01-$20.00		40,600		6.1	$	16.84		30,500	$	16.84
$20.01-$26.97		47,800		6.1	$	25.53		13,400	$	24.52

		750,608		6.3	$	9.76		455,408	$	8.04

Table of Contents

12. Share-Based Compensation: (Continued)

Fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Options are exercisable over a maximum term of ten years from date of grant and typically vest over periods of five years from the grant date. The expected term of options represents the period of time that options granted are expected to be outstanding and is based on historical experience. Expected volatility is based on historical volatility of the Company's stock. The risk free interest rate is based on U.S. Treasuries with constant maturities in effect at the time of grant. Compensation expense for employee stock options also includes an estimate for forfeitures and is recognized ratably over the vesting term. Below are fair value assumptions used to record compensation expense for the period identified:

	Fiscal Year Ended September 30,

	2008			2007			2006
Expected dividend rate		—			—			—
Expected volatility		61.9	%		64.4	%		63.7	%
Weighted average risk-free interest rate		2.1	%		2.3	%		2.4	%
Expected lives (years)		8.00			8.62			8.41

At September 30, 2008, there was approximately $1.6 million of unrecognized compensation cost, net of forfeitures, related to non-vested stock options, which is expected to be recognized over a period of approximately 5 years.

Non-vested Stock

The Restricted Plan for non-employee directors was approved by shareholders at the Company's February 26, 2004 Annual Meeting of Shareholders. It calls for an annual award of non-vested stock having a fair market value of $40,000 at close of business on October 1 of the current fiscal year for all eligible non-employee directors. The stock is awarded in four quarterly installments during the fiscal year provided the director is still serving on the board on the quarterly issue date. Total expense was $200,000, $220,000 and $220,000 for the fiscal years ended September 30, 2008, 2007, and 2006, respectively. The following outlines restricted stock awards for fiscal years ended September 30, 2008, 2007, and 2006:

				Weighted Average Share Price

Balance at September 30, 2005		3,588		$	16.68
	Granted	15,738			15.25
	Issued	(15,396	)		15.58
	Cancelled	(655	)		15.25

Balance at September 30, 2006		3,275		$	15.25
	Granted	15,939			14.43
	Issued	(15,056	)		14.61
	Cancelled	(693	)		14.43

Balance at September 30, 2007		3,465		$	14.43
	Granted	10,525			19.00
	Issued	(11,355	)		17.61
	Cancelled	—			—

Balance at September 30, 2008		2,635		$	19.00

Table of Contents

13. Commitments and Contingencies:

Capital Lease

The Company leases certain equipment under capital leases with terms of five years and implicit interest rate of 7.2%. The capitalized cost of $57,450 and related accumulated amortization of $22,816 and $8,207 have been included in property and equipment at September 30, 2008 and 2007 respectively. The balance due on these leases was $47,542 and $57,450 as of September 30, 2008 and 2007 respectively. Future payments, including interest relating to these leases are $13,788 annually for the next four years.

Operating Leases

Rent expense under operating leases totaled $196,000, $109,000 and $11,000 for the years ended September 30, 2008, 2007 and 2006, respectively. As of September 30, 2008, future minimum payments related to all non-cancelable operating leases is $11,000 in fiscal 2009.

Product Liability

The Company has product liability insurance of $50,000,000, which management believes is adequate to cover potential liabilities that may arise.

Legal Proceedings

In the ordinary course of business, we are at times subject to various legal proceedings. Except with respect to the fees incurred in connection with the matters described below, we do not believe that any of the current legal proceedings will have a material adverse effect on our results of operations or financial position. On September 13, 2005 the Company filed a lawsuit in the United States District Court for the Western District of Tennessee against J2, Inc., a company founded and jointly owned by Joseph Cesar, a former employee of the Company, and James Zachary, a former sales consultant for the Company. The complaint alleged that the J2/Kollsman/Air Data Computer then being marketed by J2 and manufactured by Kollsman, Inc. infringed a patent assigned to IS&S.

Table of Contents

13. Commitments and Contingencies: (Continued)

On January 17, 2007 the Company filed suit in Pennsylvania state court against Strathman Associates, a former software consultant for the Company, alleging that Strathman had improperly used IS&S trade secret and proprietary information in assisting J2 and Kollsman in developing the J2/Kollsman Air Data Computer. The case is ongoing.

Through September 30, 2008 and 2007 the Company has incurred approximately $13.6 million and $8.0 million, respectively, in legal fees in connection with the two matters discussed above.

14. Related-Party Transactions:

The Company incurred legal fees of $129,000, $146,000 and $357,000 with a law firm which is a shareholder of the Company for the years ended September 30, 2008, 2007 and 2006, respectively. The fees paid and services rendered were comparable with the fees paid and services rendered prior to the law firm's investment in the Company.

For the years ended September 30, 2008, 2007 and 2006, respectively, the Company incurred service fees of $67,000, $18,000 and $25,000 with a commercial graphics firm controlled by an individual who is married to a shareholder and daughter of the Company's Chairman and Chief Executive Officer.

15. Quarterly Financial Data (unaudited):

Summarized quarterly results of operations of the Company for the years ended September 30, 2008 and September 30, 2007 are presented below:

		Year Ended September 30, 2008

		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Net sales		$	4,725,647		$	6,824,360		$	8,751,309		$	10,221,995
Cost of sales			3,659,059			3,790,661			4,568,303			8,533,834
Gross profit			1,066,588			3,033,699			4,183,006			1,688,161
Operating loss			(6,599,986	)		(4,477,323	)		(4,795,875	)		(9,230,657	)
Net (Loss) Income			(4,121,941	)		(7,060,157	)		(4,288,871	)		7,573,721
Net loss per common share
	Basic	$	(0.24	)	$	(0.42	)	$	(0.25	)	$	0.45
	Diluted	$	(0.24	)	$	(0.42	)	$	(0.25	)	$	0.45

Table of Contents

15. Quarterly Financial Data (unaudited): (Continued)

		Year Ended September 30, 2007

		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Net sales		$	3,428,648		$	3,955,298		$	5,844,405		$	5,119,777
Cost of sales			2,033,945			3,018,028			3,639,235			5,463,217
Gross profit			1,394,703			937,270			2,205,170			(343,440	)
Operating loss			(2,988,666	)		(4,417,238	)		(3,094,228	)		(6,326,780	)
Net loss			(1,098,444	)		(2,359,146	)		(1,350,857	)		(4,036,841	)
Net loss per common share
	Basic	$	(0.07	)	$	(0.14	)	$	(0.08	)	$	(0.24	)
	Diluted	$	(0.07	)	$	(0.14	)	$	(0.08	)	$	(0.24	)

Quarterly and total year earnings per share are calculated independently based on the weighted average number of shares outstanding during each period.

16. Business Segments

The Company operates in one principal business segment which designs, manufactures and sells flight information computers, flat panel displays and advanced monitoring systems to the DoD, government agencies, commercial air transport carriers and corporate/general aviation markets. The Company currently derives virtually all of its revenues from the sale of this equipment. Almost all of the Company's sales, operating results and identifiable assets are in the United States. Net sales, operating results and identifiable assets outside the U.S. are not material. During fiscal 2008, 2007 and 2006 we derived 77%, 53% and 38%, respectively, of our revenues from the sale of Flat Panel Display Systems. During fiscal 2008, 2007, and 2006 we derived 23%, 47% and 62% respectively, of revenues from the sale of air data systems related products.

Geographic Data

Almost all of the Company's sales, operating results and identifiable assets are in the United States. Net sales, operating results and identifiable assets outside the U.S. are not material. In fiscal year 2008, 2007 and 2006 net sales outside the United States amounted to $1.7 million, $1.1 million, and $2.8 million, respectively.

Product Data

Our current product line includes flat panel display systems and air data systems and components, During fiscal 2008, 2007 and 2006, the Company derived 77%, 53% and 38%, respectively, of its revenue from sales of flat panel display systems. The remaining revenue for each of the fiscal years was from sales of air data systems and components.

Table of Contents

Item 9. Changes in and disagreements with accountants on accounting and financial disclosure.

None

Item 9A. Controls and procedures

(a): An evaluation was performed under supervision and with participation of the Company's management, including its Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the Company's disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of September 30, 2007. Based on that evaluation, the Company's management, including the CEO and CFO, concluded the Company's disclosure controls and procedures are effective to 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 and that such information is accumulated and communicated by the Company's management, including the CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b): Management's annual report on internal control over financial reporting and the attestation report of our independent registered public accounting firm are set forth below on this Annual Report on Form 10-K.
(c): There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation of such controls that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Management's Report on Internal Control over financial reporting

Management of Innovative Solutions & Support, Inc. and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and preparation of the Company's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company's internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Company assets that could have a material effect on financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.

As of September 30, 2008, management assessed the effectiveness of the Company's internal control over financial reporting based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company's internal control over financial reporting as of September 30, 2008 is effective.

Our internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the internal control over financial reporting of Innovative Solutions and Support, Inc. and subsidiaries (the "Company") as of September 30, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Table of Contents

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended September 30, 2008 of the Company and our report dated December 9, 2008 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the Company's adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes , effective October 1, 2007.

DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
December 9, 2008

Table of Contents

PART III

Item 10. Directors, executive officers and corporate governance.

This information (other than information relating to executive officers included in Part I Item 1.) will be included in our Proxy Statement relating to our Annual Meeting of Shareholders, which will be filed within 120 days after the close of our fiscal year covered by this Report, and is hereby incorporated by reference to such Proxy Statement. We have adopted a written code of business conduct and ethics, known as our code of conduct, which applies to all of our directors, officers, and employees, including our chief executive officer, our president and our chief financial officer. Our code of conduct is available on our Internet website, www.innovative-ss.com . Our code of conduct may also be obtained by contacting investor relations at (610) 646-9800. Any amendments to our code of conduct or waivers from provisions of the code for our directors and our officers will be disclosed on our Internet website promptly following the date of such amendment or waiver.

Item 11. Executive compensation.

This information will be included in our Proxy Statement relating to our Annual Meeting of Shareholders, which will be filed within 120 days after close of our fiscal year covered by this Report, and is hereby incorporated by reference to such Proxy Statement.

Item 12. Security ownership of certain beneficial owners and management and related stockholder matters.

Equity Compensation Plan Information

The following table gives information about our common stock that may be issued upon the exercise of options and rights under all of our existing equity compensation plans and arrangements as of September 30, 2008, including the 1998 Stock Option Plan.

Plan Category		Weighted-average exercise price of outstanding options and rights

Equity compensation plans approved by security holders	753,243	$	9.79	1,570,982
Equity compensation plans not approved by security holders	—	$	—	—

	753,243	$	9.79	1,570,982

The 2003 Restricted Stock Plan for non-employee directors was approved by shareholders at the Company's February 26, 2004 Annual Meeting of Shareholders. The Plan called for an annual award of restricted stock having a fair market value of $25,000 as of the close of business on October 1 of the current fiscal year for all eligible non-employee directors. The stock is awarded in four installments quarterly during the fiscal year provided the director is still serving on the board on the quarterly issue date. In fiscal year 2005 the annual award was increased to $40,000 effective the fourth quarter of the fiscal year.

Table of Contents

In the fiscal years ended September 30, 2008, 2007 and 2006, awards to our non-employee directors under the Plan were 11,355, 15,056 and 15,396 shares respectively.

Item 13. Certain relationships and related transactions and Director independence.

Item 14. Principal accounting fees and services

PART IV

Item 15. Exhibits, financial statement schedules.

(a)

The following documents are filed as part of this report:

(1): Financial Statements

See index to Financial Statements at Item 8 on page 29 of this report.

(2): Financial Statement Schedules

Schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the financial statements or notes thereto.

(3): The following exhibits are filed as part of, or incorporated by reference into this report:

Exhibit Number			Exhibit Title

	3.1^		Articles of Incorporation of IS&S.
	3.2^#		Bylaws of IS&S.
	10.1*#		IS&S 1988 Incentive Stock Option Plan.
	10.2*&		IS&S 1998 Stock Option Plan.
	10.3*!		IS&S 2003 Restricted Stock Plan
	10.4*@		Bond Purchase Agreement.
	10.5*		Employment Agreement by and between IS&S and John C. Long dated January 28, 2008
	10.6*		Employment Agreement by and between IS&S and Raymond J. Wilson dated January 24, 2008
	10.7*%		Release Agreement by and between IS&S and Raymond J. Wilson dated November 10, 2008
	10.8		Settlement Agreement by and between IS&S and Kollsman, Inc. dated August 27, 2008
	10.9@		Reimbursement, Credit and Security Agreement.
	10.11@		Trust Indenture.

Table of Contents

Exhibit Number			Exhibit Title

	10.12*†		Employment Agreement by and between Roman G. Ptakowski and IS&S dated March 29, 2003.
	21		Subsidiaries of IS&S.
	23.1		Consent of Deloitte and Touche LLP.
	31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
	31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
	32.1		Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99.1*		Amendment to the IS&S 1998 Stock Option Plan
	99.2		Amendment to Reimbursement, Credit and Security Agreement dated November 29, 2002.
	99.3		Amendment to Loan Documents dated March 30, 2004.
	99.4		Third Amendment to Reimbursement, Credit and Security Agreement dated July 25, 2006.
	99.5		Fourth Amendment to Reimbursement, Credit and Security Agreement dated January 29, 2007.
	99.6		Fifth Amendment to Reimbursement, Credit and Security Agreement dated January 10, 2008.

*: Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form.
^: Incorporated by reference from the Registrant's Current Report on Form 8-K filed with the Commission on September 19, 2007.
#: Incorporated by reference from the Registrant's Registration Statement on Form S-1 (File No. 333-96584) filed with the Commission on May 9, 2000, as amended.
&: Incorporated by reference from the Registrant's Proxy Statement filed with the Commission on March 1, 2005.
@: Incorporated by reference from the Registrant's Form 10-K filed with the Commission for fiscal year 2000.
†: Incorporated by reference from the registrant's Form 10-Q filed with the Commission for the quarter ended March 31, 2003.
!: Incorporated by reference from the Registrant's Proxy Statement filed with the Commission on January 26, 2004
%: Incorporated by reference from the Registrant's Current Report on Form 8-K filed with the Commission on November 13, 2008.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


		INNOVATIVE SOLUTIONS AND SUPPORT, INC.
		By:		/s/ GEOFFREY S.M. HEDRICK Geoffrey S.M. Hedrick Chairman & Chief Executive Officer
		Dated: December 11, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date


/s/ GEOFFREY S. M. HEDRICK Geoffrey S. M. Hedrick	Chairman & Chief Executive Officer	December 11, 2008
/s/ ROMAN G. PTAKOWSKI Roman G. Ptakowski	President	December 11, 2008
/s/ JOHN C. LONG John C. Long	Chief Financial Officer (Principal Accounting Officer)	December 11, 2008
/s/ GLEN R. BRESSNER Glen R. Bressner	Director	December 11, 2008
/s/ WINSTON J. CHURCHILL Winston J. Churchill	Director	December 11, 2008
/s/ IVAN M. MARKS Ivan M. Marks	Director	December 11, 2008
/s/ ROBERT E. MITTELSTAEDT, JR. Robert E. Mittelstaedt, Jr.	Director	December 11, 2008
/s/ ROBERT H. RAU Robert H. Rau	Director	December 11, 2008

Exhibit 10.5

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 4 ^th day of January, 2008 (the “Effective Date”) between INNOVATIVE SOLUTIONS AND SUPPORT, INCORPORATED, a Pennsylvania corporation (the “Company”) and JOHN C. LONG, a resident of Pennsylvania (“Employee”).

RECITALS

A. Employee has served in various financial capacities with other companies over the past several years and has extensive managerial and administrative experience and possesses skills vital to the Company’s continued growth and prosperity.

B. The Company desires Employee to serve as an employee of the Company and Employee wishes to serve as employee of the Company.

C. The parties wish to set forth herein the terms and conditions on which Employee will serve as an employee of the Company.

The parties agree as follows:

1. Employee’s Position. Subject to the terms and conditions of this Agreement, during the term of this Agreement the Company agrees to employ Employee, and the Employee agrees to be employed by the Company and to serve the Company as the Chief Financial Officer of the Company.

2. Duties of Employee

2.1. General Duties . As Chief Financial Officer of the Company, Employee will direct the organization’s financial planning and accounting practices as well as its relationship with lending institutions, shareholders, and the financial community. Employee will report to the CEO. Employee agrees that the Employee’s duties may be changed by the Board and that Employee will cooperate with the Board and serve the Company in such other capacities and with such other duties and responsibilities as are typically accorded to the position of Chief Financial Officer subject to the Company’s Bylaws. The duties and services to be performed by the Employee under this agreement are collectively referred to herein as the “Services.”

2.2. Other Duties and Obligations . In addition to performing the duties and Services described in Section 2.1, Employee further agrees with the Company that, during the term of this Agreement:

(a) Employee will perform the Services and his duties hereunder, and will manage and operate the business of the Company, subject to, and in accordance with, the directions of the CEO and/or the Board.

(b) Employee will comply with and be bound by the operating policies, procedures, standards, regulations and practices of the Company that are generally

(c) applicable to executives of the Company and in effect from time to time during the Employee’s employment with the Company.

(d) Employee will be generally available and readily accessible by telephone, e-mail and facsimile at all reasonable times.

(e) Employee will not: (i) engage in any unethical, dishonest, or other fraudulent behavior that could be expected to result in harm to the Company; (ii) intentionally or deliberately cause or attempt to cause an injury to the Company; or (iii) steal, convert, misappropriate or wrongfully and willfully use or disclose any proprietary information, technology or trade secret of the Company.

2.3. Working Facilities . Employee shall have a private office, secretarial help, a personal computer and other facilities and services that are suitable for his position and appropriate for the performance of his duties.

2.4. Representation of Employee . Employee represents and warrants to the Company that he is free to enter into and fully perform this Agreement and the agreements referred to herein without breach of any other agreement or contract to which Employee is a party or by which Employee is bound.

3. Exclusive Service . Employee will devote his full working time, energy, skill and efforts exclusively to the performance of the Services for the Company and will apply all his skill and experience to the performance of the Services and advancing the Company’s interests and will do nothing inconsistent with the performance of the Services hereunder. Notwithstanding the foregoing, Company agrees that Employee may continue his service as director to D&E Communications, Inc. and engage in other, noncompetitive activities that do not otherwise interfere with Employee’s obligation to provide services hereunder.

4. Compensation and Benefits

4.1. Salary . During the term of the Agreement, The Company will pay Employee a gross base salary at a rate of $250,000 (“Employee’s Salary”) per year payable bi-weekly. The Company will review the Employee’s Salary at least once each year and may, at its discretion, increase the Employee’s Salary.

4.2. Additional Benefits . Employee and eligible family members will be eligible to participate in the Company’s employee benefit plans of general application, including without limitation any pension plans, 401(k), and any life, health and dental insurance plans in accordance with the rules established for individual participation in any such plan and applicable law, including health and dental for spouse. Medical benefits will begin upon start date. In addition, Employee will be entitled to 4 weeks vacation.

4.3. Stock Options . Employee has been granted stock options (the “Options”) for 120,000 shares of the Company’s common stock at an option price to be fixed at NASDAQ market close on the first day of employment. The Options shall vest at the rate of 40,000 shares at the end of each 12 month period provided Employee is in accordance with the Company’s 1998 Stock Option Plan. Employee expressly acknowledges and agrees that, to the extent of

any inconsistency between the terms of this Agreement and the 1998 Incentive Stock Option Plan, the terms of the 1998 Incentive Stock Option Plan shall govern and control; provided however, that to the extent that the terms of the stock option agreement issued to Employee on account of the Options contain terms and conditions which, by the terms of the 1998 Incentive Stock Option Plan, may be included therein, the terms set forth in such stock option agreement shall govern and control.

4.4. Expenses . All reasonable and necessary expenses incurred by Employee in connection with Employee’s performance of the Services shall be reimbursed provided that such expenses are in accordance with the Company’s policies, as determined from time to time by the Board, and properly documented and accounted for.

5. Term and Termination

5.1. Term of Agreement . Unless this Agreement is terminated in accordance with the provision of this Section 5, the term of this Agreement will commence on the Effective Date and end on the two year anniversary of such date (the “Initial Term”). Thereafter, this Agreement shall be renewed yearly for one-year periods (each, a “Renewal Term”) unless either party provides the other party with written notice of termination of this agreement not later than ninety (90) days prior to the end of the then current term of the Agreement. If this written notification of termination is issued by the Company less than 6 months prior to the Expiration Date, the Salary and Additional Benefits in effect will be continued for 6 months from the date of notification. The expiration of this Agreement at the end of the Initial Term or the then current Renewal Term is hereafter called the “Expiration Date”.

5.2. Events of Termination . Employee’s employment with the Company will terminate immediately upon any one of the following occurrences:

(a) the giving of a written notice by the Company to Employee other than pursuant to Section 5.1 stating that Employee’s employment with the Company is being terminated without Cause, which notice may be given by the Company at any time at the sole discretion of the Company (“Termination without Cause”).

(b) the Company’s termination of Employee’s employment hereunder due to Employee’s death or Employee’s becoming “Disabled” as defined in Section 5.4 below (“Termination for Death or Disability”);

(c) any resignation by Employee of his employment with the Company or any other voluntary termination or abandonment by Employee of his employment with the Company other than as provided in Section 5.1 (“Voluntary Termination”); or

(d) the Company’s termination of Employee’s employment hereunder for “Cause” as defined in Section 5.3 below (“Termination for Cause”).

5.3. “Cause” Defined . For purposes of this Agreement, the term “Cause” means (i) the conviction of Employee of any felony or other crime of moral turpitude, (ii) conduct in violation of Section 2.2(d), (iii) a material breach by Employee of this Agreement, or

(iv) gross negligence or malfeasance by Employee in the performance of the Services and duties hereunder.

5.4. “Disabled” Defined . For purposes of this Agreement, Employee will be deemed to be “Disabled” if Employee is unable to engage in any substantial gainful activity or is receiving income replacement benefits for a period of not less than 3 months under the Company’s accident and health plan by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than 12 months.

5.5. Date of Termination . The effective date of Employee’s termination pursuant to Section 5.2 (a), (b), (c) or (d) is referred to herein as the “Termination Date.”

5.6. Successorship Provision . If a Change of Control (defined in Section 5.7 below) occurs during the Term of Agreement and, as a result of such Change of Control, this Agreement or the Employee’s employment is terminated without Cause, or the Employee resigns his employment because any of the Employee’s position, powers, duties or responsibilities under Sections 1 and 2 are changed without his agreement, or any Compensation and Benefits payable or otherwise extended under Section 4 are eliminated or reduced, the Company or its successor shall:

(a) give prompt notice to the Employee of any such termination, change, elimination or reduction;

(b) within thirty (30) days after the Termination Date (provided that, if immediately prior to the Termination Date, Employee is a “Specified Employee,” as defined in Section 409A of the Code, such thirty (30) day period shall not commence until the date that is six months following Employee’s Termination Date), pay to the Employee (or in the event of the Employee’s subsequent death, such person as the Employee shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate) a lump sum amount equal to the Employee’s Salary in effect as of the Termination Date, which lump sum amount shall not be pro-rated and shall be paid in addition to the Salary due and payable under (c) below;

(c) until the Termination Date, continue to pay to the Employee (or in the event of the Employee’s subsequent death, such person as the Employee shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate) his Compensation and Benefits payable or otherwise extended under Section 4; and (d) all Options shall vest as of the date of such termination or resignation.

5.7 For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the following events after the date of this Agreement:

(a) The acquisition after the Effective Date by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 30% of the combined voting power of the voting securities of the Company entitled to vote generally in the election of directors (the “Voting Securities”); provided, however, that the

following acquisitions shall not constitute a Change in Control: (a) any acquisition, directly or indirectly by or from the Company or any subsidiary of the Company, or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, (b) any acquisition by any underwriter in connection with any firm commitment underwriting of securities to be issued by the Company, or (c) any acquisition by any corporation if, immediately following such acquisition, 70% or more of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation (entitled to vote generally in the election of directors), are beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who, immediately prior to such acquisition, were the beneficial owners of the then outstanding common stock of the Company (“Common Stock”) and the Voting Securities in substantially the same proportions, respectively, as their ownership, immediately prior to such acquisition, of the Common Stock and Voting Securities; or

(b) The occurrence after the Effective Date of a reorganization, merger or consolidation, other than a reorganization, merger or consolidation with respect to which all or substantially all of the individuals and entities who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of the Common Stock and Voting Securities, beneficially own, directly or indirectly, immediately after such reorganization, merger or consolidation, 70% or more of the then outstanding common stock and voting securities (entitled to vote generally in the election of directors) of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their respective ownership, immediately prior to such reorganization, merger or consolidation, of the Common Stock and Voting Securities; or

(c) The occurrence after the Effective Date of (a) a complete liquidation or substantial dissolution of the Company, or (b) the sale or other disposition of all or substantially all of the assets of the Company, in each case other than to a subsidiary, wholly-owned, directly or indirectly, by the Company or to a holding company of which the Company is a direct or indirect wholly owned subsidiary prior to such transaction; or

(d) During any period of twelve (12) consecutive months commencing upon the Effective Date, the individuals at the beginning of any such period who constitute the Board and any new director (other than a director designated by a person or entity who has entered into an agreement with the Company or other person or entity to effect a transaction described in Sections 5.7(a), (b) or (c) above) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of any such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board.

Notwithstanding the above, a “Change in Control” shall not include any event, circumstance or transaction which results from the action of any entity or group which includes, is affiliated with or is wholly or partially controlled by one or more executive officers of the Company and in which the Employee actively and materially participates.

6. Effect of Termination .

6.1. Termination Without Cause . In the event of the termination of Employee’s employment pursuant to Section 5.2(a) prior to the end of the then current term of this Agreement, Company will pay Employee the compensation and benefits otherwise payable to Employee under Section 4 until the Expiration Date. In all cases of Termination without Cause, the Employee shall be entitled to a minimum of 6 months of current Salary and Additional Benefits in effect at the time of termination. To the extent Employee receives compensation from any source for services rendered during the period following the Termination Date during which the Company is obligated to continue payments to Employee hereunder, whether for full-time or part-time employment or for consulting or similar services, such compensation shall be offset against payments otherwise due Employee under this Section 6.1. All of the Options will be considered vested and the Employee will have exercise rights to all Options in accordance with the Company’s 1998 Stock Option Plan. Employee will be entitled to no other payment or compensation upon any such termination.

6.2. Termination for Death or Disability . In the event of any termination of Employee’s employment pursuant to Section 5.2(b), the Company will pay Employee, or to such person as the Employee shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to the Employee’s estate, the compensation and benefits otherwise payable to Employee under Section 4 through the Termination Date. Employee’s rights under the Company’s benefit plans for general application in which Employee then participates, will be determined under the provision of such plans. All Options vested as of the Termination Date shall be exercisable to the extent set forth in the option agreement. Employee will be entitled to no other payment or compensation upon any such termination.

6.3. Voluntary Termination . In the event of the termination of Employee’s employment pursuant to Section 5.2 (c), Company will pay the Employee compensation and benefits otherwise payable to Employee through the Termination Date and all of Employee’s unexercised stock options shall be cancelled. Employee will be entitled to no other payment or compensation upon any such termination.

6.4. Termination for Cause . In the event of the termination of Employee’s employment pursuant to Section 5.2 (d), the Company will pay the Employee compensation and benefits otherwise payable to Employee through the Termination Date and all of Employee’s unexercised stock options shall be cancelled. Employee will be entitled to no other payment or compensation upon any such termination.

6.5. Certain Delays in Payment . Notwithstanding anything to the contrary in Section 6 hereof, to the extent Employee is, immediately prior to the Termination Date, a Specified Employee, and to the extent necessary to avoid imposition of a 20% penalty tax on

payments to Employee under this Section 6, such payments shall commence no earlier than the date that is six months following the Employee’s Termination Date.

7. Noncompetition, Trade Secrets, Etc. Employee hereby acknowledges that during his employment by the Company, Employee will have access to confidential information and business and professional contacts. In consideration of Employee’s employment and the special and unique opportunities afforded by the Company to Employee as a result of Employee’s employment, the Employee hereby agrees as follows:

7.1. Non-Competition . For so long as Employee remains an employee of the Company and for the Restricted Period (as defined in subsection 7.3 below) after the termination of employment with Company, as such period may be extended as hereinafter set forth, Employee shall not directly or indirectly engage in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any enterprise which competes with the Business of the Company. “Business” shall mean: (i) the design, manufacture and sale of flight information computers, large flat panel displays and advanced monitoring systems to the Department of Defense, defense contractors, commercial air transport and corporate/general aviation markets; and (ii) any other line of business disclosed in Note 1 of any financial statements publicly filed by the Company during Employee’s employment by the Company. Nothing contained in this subsection 7.1 shall prevent Employee from holding for investment up to three percent (3%) of any class of equity securities of a company whose securities are publicly traded on a national securities exchange or in a national market system.

7.2. Non-Solicitation . For so long as the Employee remains an employee of the Company and for a period of twelve months after the termination of employment with Company for any reason, Employee shall not directly or indirectly (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) induce or attempt to influence any employee, customer, independent contractor or supplier of Company to terminate employment or any other relationship with Company.

7.3. Restricted Period Defined; Extension of Restricted Period . For purposes of this Agreement, the term “Restricted Period” shall mean (A) the period during which the Company continues to pay Employee upon termination of employment pursuant to Section 5.2(a); (B) three (3) months following termination of Employee’s employment pursuant to Section 5.2 (b); or (C) six (6) months following termination of Employee’s employment pursuant to Section 5.2 (c) or Section 5.2 (d). In addition to the foregoing, Company shall have the option, by delivering written notice to Employee within sixty (60) days from the Termination Date, to extend the Restricted Period to a total of twelve (12) months under clause (C) above by paying Employee an amount equal to the monthly portion of the Employee’s annual salary as of the Termination Date for the additional months by which the Restricted Period is extended, which payments shall be made bi-weekly during the extended period.

7.4. Non-Disclosure . Employee shall not use for Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any “Confidential Information,” which term shall mean any information regarding the business methods, business policies, policies, procedures, techniques, research or development projects or results, historical or projected

financial information, budgets, trade secrets, or other knowledge or processes of, or developed by, Company or any other confidential information relating to or dealing with the business operations of Company, made known to Employee or learned or acquired by Employee while in the employ of Company, but Confidential Information shall not include information otherwise lawfully known generally by or readily accessible to the general public. The foregoing provisions of this subsection 7.4 shall apply during and after the period when the Employee is an employee of the Company and shall be in addition to (and not a limitation of) any legally applicable protections of Company interest in confidential information, trade secrets, and the like. At the termination of Employee’s employment with Company, Employee shall return to the Company all copies of Confidential Information in any medium, including computer tapes and other forms of data storage.

7.5. Intellectual Property & Company Creations.

(a) Employee shall execute the IS&S Intellectual Property Agreement at signing of this employment agreement.

(b) Ownership . All right, title and interest in and to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development techniques, discoveries, computer programs or instructions (whether in source code, object code, or any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to written form or otherwise), patents, patent applications, formats, test results, marketing and business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names, fictitious names, brand names, corporate names, original works of authorship, copyrights, copyrightable works, mask works, computer software, all other similar intangible personal property, and all improvements, derivative works, know-how, data, rights and claims related to the foregoing that have been or are conceived, developed or created in whole or in part by the Employee (a) during the course of his employment hereunder or while otherwise performing services for the Company that relates directly or indirectly to the Business or (b) as a result of tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become and remain the sole and exclusive property of the Company and shall be considered “works made for hire” as that term is defined pursuant to applicable statutes and law.

(c) Assignment . To the extent that any of the Company Creations may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, Employee retains any interest in or to the Company Creations, Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that Employee has or may have, either now or in the future, in and to the Company Creations, and any derivatives thereof, without the necessity of further consideration. Employee shall promptly and fully disclose all Company Creations to the Company and shall have no claim for additional compensation for Company Creations. The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to such Company Creations.

(d) Disclosure & Cooperation . Employee shall keep and maintain adequate and current written records of all Company Creations and their development by

Employee (solely or jointly with others), which records shall be available at all times to and remain the sole property of the Company. Employee shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations. Employee further agrees to execute and deliver to the Company or its designee(s) any and all formal transfers and assignments and other documents and to provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Company Creations. Employee hereby designates and appoints the Company or its designee as Employee’s agent and attorney-in-fact to execute on Employee’s behalf any assignments or other documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s rights in any Company Creations.

7.6. Remedies .

(a) Employee acknowledges that the restrictions contained in the foregoing Subsections 7.1 through 7.5, are reasonable and necessary to protect the legitimate interests of the Company, that their enforcement will not impose a hardship on the Employee or significantly impair Employee’s ability to earn a livelihood, and that any violation thereof would result in irreparable injuries to the Company. Employee therefore acknowledges that, in the event of Employee’s violation of any of these restrictions, Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief, as well as damages and an equitable accounting of all earnings, profits, and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which Company may be entitled.

(b) If any of the restrictions specified in Subsections 7.1 or 7.2 above should be adjudged unreasonable in any proceeding, then such restrictions shall be modified so that they may be enforced for such time and in such are as is adjudged to be reasonable.

(c) If Employee violates any of the restrictions contained in Subsection 7.1, the Restricted Period shall be extended by a period equal to the length of time from the commencement of any such violation until such time as such violation shall be cured by Employee to the satisfaction of Company.

8. Miscellaneous .

8.1. Arbitration . Employee and the Company will submit to mandatory binding arbitration any controversy or claim arising out of, or relating to, this Agreement or any breach hereof as well as all claims under federal, state or local anti-discrimination laws, provided, however, that each party will retain its right to, and will not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief (such as injunctive relief) from a court having jurisdiction over the parties. Such arbitration will be conducted in accordance with the commercial arbitration rules of the American Arbitration Association in effect at that time, and judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

8.2. Severability . If any provision of this Agreement is found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable. Such provision will, to the extent allowable by law and the preceding sentence, not be voided or cancelled but will instead be enforced as any other provision hereof, all the other provision continuing in full force and effect.

8.3. No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligation or agreements will in no way affect the right to require such performance or compliance at any time thereafter. The waiver of either party of a breach of any provision hereof will not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind will be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.

8.4. Assignment . This Agreement and all rights hereunder are personal to Employee and may not be transferred or assigned by Employee at any time.

8.5. Entire Agreement . This Agreement constitutes the entire and only agreement between the parties relating to employment of Employee with the Company, and this Agreement supersedes and cancels all previous contracts, arrangements or understandings with respect thereto.

8.6. Amendment; Waiver . No provision of this agreement may be modified, waived, terminated or amended except by a written instrument executed by the parties hereto. No waiver of a breach of any provision of this Agreement shall constitute a waiver of any subsequent breach of the same or other provisions hereof.

8.7. Notices . All notices and other communications required or permitted under this Agreement will be in writing and hand delivered, sent by telecopier, sent by certified first class mail, postage prepaid, or sent by nationally recognized express courier service. Such notices and other communications will be effective upon receipt of hand delivery five (5) days after mailing – if sent by mail, or by express courier, to the following addresses, or such other addresses as any party may notify the other parties in accordance with this Section:

Employee:		Company:

John C. Long		Chief Executive Officer
5222 Wagonwheel Drive		Innovative Solutions and Support, Inc
Schnecksville, PA 18078		720 Pennsylvania Drive
		Exton, PA 19341

8.8. Successors and Assigns . This Agreement will be binding upon, and inure to the benefit of, the successors and personal representatives of the respective parties hereto.

8.9. Waiver of Personal Liability . To the extent permitted by applicable law, Employee hereby agrees that he shall have recourse only to the Company (and its successors in

interest) with respect to any claims he may have for compensation or benefits arising in connection with his employment, whether or not under this Agreement or any other plan, program, or arrangement, including, but not limited to, any agreements related to the grant or exercise of equity options or other equity rights in the Company. To the extent permitted by applicable law, the Employee hereby waives any such claims for compensation, benefits and equity rights against officers, directors, managers, members, stockholders, or other representatives in their personal or separate capacities.

8.10. Headings . The headings contained in this Agreement are for reference purposes only and will in no way affect the meaning or interpretation of this agreement. In this agreement, the singular includes the plural, the plural includes the singular, and the masculine gender includes both male and female referents, and the word “or” is used in the inclusive sense.

8.11. Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original but all of which, taken together, constitute one and the same agreement.

8.12. Survival . The provision of Sections 4, 5, 6 and 7 will survive the termination or expiration of this Agreement.

8.13. Governing Law . The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the Commonwealth of Pennsylvania.

IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of the date first above written.

JOHN C. LONG		RAY WILSON
		CHIEF EXECUTIVE OFFICER

Exhibit 10.6

EMPLOYMENT AGREEMENT

This Employment Agreement (this “ Agreement ”), signed on January , 2008 and effective as of the date hereof (the “ Commencement Date ”) is made by and between Innovative Solutions and Support, Inc., a Pennsylvania corporation, having its principal offices at 720 Pennsylvania Drive, Exton, PA 19341 (the “ Company ”), and Mr. Raymond J. Wilson (the “ Executive ”).

Recitals

1. The Company desires to employ Executive as the Chief Executive Officer of the Company, and to enter into this Agreement embodying the terms of employment.

2. The Executive is willing to serve as Chief Executive Officer of the Company on the terms set forth herein.

Agreement

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and other good and valuable consideration, and intending to be legally bound hereby, the Company and the Executive hereby agree as follows:

1. Definitions .

1.1. “ Affiliate ” means any person or entity controlling, controlled by or under common control with the Company.

1.2. “ Board ” means the Board of Directors of the Company.

1.3. “ Cause ” means (a) the Executive, in carrying out his duties under this Agreement, engages in intentional and continued gross misconduct or gross negligence directly resulting in demonstrable and material financial injury to the Company, (b) the Executive willfully embezzles the Company’s assets, (c) the Executive is convicted (including a plea of guilty or nolo contendere ) of a felony or a misdemeanor involving moral turpitude, (d) any willful acts of fraud or misappropriation, (e) Executive’s material breach of Section 4 or Section 11 of this Agreement; or (f) any failure to adhere or to carry out lawful duties, directives or policies of the Board, consistent with Executive’s position and duties described in Section 4 below, except for any such failure to carry out a direction which Executive in believes, in good faith, would violate his fiduciary obligations to the Company or any of its Affiliates.

1.4. “ Change of Control ” shall have the meaning ascribed thereto in the Company’s 1998 Stock Option Plan, as amended from time to time.

1.5. “ Code ” means the Internal Revenue Code of 1986, as amended.

1.6. “ Disability ” means that Executive is unable to engage in any substantial gainful activity or is receiving income replacement benefits for a period of not less than 3 months under the Company’s accident and health plan by reason of any medically determinable physical

or mental impairment that can be expected to result in death or last for a continuous period of not less than 12 months.

1.7 . “ Good Reason ” means and shall be deemed to exist if, without the prior express written consent of the Executive, (a) the Executive suffers a material reduction in the duties, responsibilities or effective authority associated with his titles and positions, as set forth and described in Section 4 of this Agreement; (b) the Executive’s Base Salary or target bonus opportunity (as contemplated by Section 5.2) is decreased by the Company; (c) the Company fails to pay the Executive’s compensation or to provide for the Executive’s benefits when due, other than as a result of a mistake in processing payroll or other inadvertent error; (d) the Company materially breaches the terms of this Agreement; (e) the Executive’s office location is moved to a location more than 25 miles outside of Exton, Pennsylvania; and/or (f) the Executive’s employment is terminated for any reason following a Change of Control of the Company; provided , however, that Good Reason shall not be deemed to exist unless the Executive provides written notice to the Company, indicating the circumstances that constitute Good Reason, within 90 days following the occurrence of such circumstances, and the Company fails to remedy such circumstances within thirty (30) days after the receipt of such notice.

2. Employment . Subject to the terms and provisions set forth in this Agreement, the Company hereby agrees that the Executive shall be employed as the Chief Executive Officer of the Company as well as certain Affiliates as set forth in Annex 1 , and the Executive hereby accepts such employment.

3. Term of Employment . The term of employment under this Agreement shall commence on the Commencement Date and shall continue until December 31, 2009 unless earlier terminated pursuant to Section 6 of this Agreement (the “ Term of Employment ”).

4. Positions, Responsibilities and Duties .

4.1. Positions . During the Term of Employment, the Executive shall be employed and serve as Chief Executive Officer of the Company as well as certain Affiliates as set forth in Annex 1 . In such position, the Executive shall have the duties, responsibilities and authority normally associated with the office and position of Chief Executive Officer of a corporation, and shall have such duties as the Board, in its discretion, designates, consistent with those of a Chief Executive Officer. In addition, during the Term of Employment, the Executive shall be nominated for election as a member of the Board and agrees to serve if so elected.

4.2. Duties . During the Term of Employment, the Executive shall devote substantially all of his business time, during normal business hours, to the business and affairs of the Company and the Executive shall use his reasonable best efforts to perform the duties and responsibilities contemplated by this Agreement; provided , however , that the Executive shall be allowed, to the extent such activities do not substantially interfere with the performance by the Executive of his duties and responsibilities hereunder, to (a) manage the Executive’s personal, financial and legal affairs, and (b) serve on civic or charitable boards or committees.

5. Compensation and Other Benefits .

5.1. Annual Base Salary . During the Term of Employment, the Executive shall receive an annual base salary (“ Base Salary ”) payable in accordance with the Company’s normal payroll practices of no less than US$400,000. The Board shall review the Executive’s Base Salary annually, for the first time effective from October 1, 2008, and may, at its sole discretion, increase (but not decrease) the Executive’s Base Salary.

5.2. Annual Bonus . In respect of each fiscal year during the Term of Employment, the Executive shall be eligible to receive an annual bonus (the “ Bonus ”), depending on the extent to which Company financial goals established by the Company’s management and approved by the Company’s Compensation Committee of the Board of Directors (the “ Committee ”) in consultation with Company management (the “ Annual Budget ”) are attained. The Committee may, in its discretion, increase the Bonus payable to Executive hereunder; provided, that the following shall apply:

5.2.1. if the Company achieves 90% or less of the Annual Budget, no Bonus shall be required to be paid to Executive hereunder;

5.2.2. if the Company achieves 100% of the Annual Budget, Executive shall be entitled to a Bonus of $300,000;

5.2.3. if the Company achieves 120% of the Annual Budget, Executive shall be entitled to a Bonus of $600,000;

5.2.4. if the Company achieves more than 90% but less than 100% of the Annual Budget, Executive shall be entitled to a pro rated Bonus such that, for example, if the Company achieves 95% of the Annual Budget, Executive shall be entitled to a Bonus of $150,000; and

5.2.5. if the Company achieves more than 100% but less than 120% of the Annual Budget, Executive shall be entitled to a pro rated Bonus such that, for example, if the Company achieves 110% of the Annual Budget, Executive shall be entitled to a Bonus of $450,000.

The Bonus, if any, shall be paid as soon as practicable after the end of each fiscal year (but not later than December 31), provided Executive remains continuously employed hereunder by the Company through the date such Bonus is paid to Executive.

5.3. Retirement and Savings Plans . During the Term of Employment, the Executive shall be eligible – subject to the terms and conditions of the applicable plans – to participate, not later than the Commencement Date, in all incentive, pension, retirement, savings, 401(k) and other employee pension benefit plans, policies and programs (the “ Retirement Plans ”) established or maintained by the Company from time to time for the benefit of senior executives and/or other employees.

5.4. Welfare Benefit Plans . During the Term of Employment, the Executive, the Executive’s spouse, if any, and their dependents, if any, shall be eligible – subject to the terms and conditions of the applicable plans – to participate, not later than the Commencement Date, in and be covered on the same basis as other senior executive officers of the Company

under all the welfare benefit plans, policies and/or programs maintained by the Company from time to time including, without limitation, all medical, hospitalization, dental, disability, life, accidental death and dismemberment and travel accident insurance plans, policies and/or programs (the “ Welfare Plans ”).

5.5. Expense Reimbursement .

5.5.1. General . During and in respect of the Term of Employment, the Executive shall be entitled to receive prompt reimbursement for expenses incurred by the Executive in performing his duties and responsibilities hereunder in accordance with the Company’s expense reimbursement policy for senior executives of the Company.

5.5.2. Moving Expenses .

5.5.2.1. The Executive shall be entitled to reimbursement for moving expenses incurred by the Executive in relocating from the United Kingdom to the vicinity of Exton, Pennsylvania in connection with his employment hereunder to the extent such expenses are incurred and appropriate receipts submitted to the Company for reimbursement prior to February 15, 2008. Such reimbursement shall be paid to Executive as soon as practicable following receipt of appropriate documentation from Executive, but in no event later than March 15, 2008.

5.5.2.2. In addition, the Executive shall be entitled to reimbursement for moving expenses incurred by the Executive in relocating from the vicinity of Exton, Pennsylvania to the United Kingdom upon the termination of his employment hereunder; provided, that the Executive shall not be entitled to reimbursement for moving expenses hereunder in the event that (i) the Executive voluntarily terminates his employment without Good Reason, or (ii) the Executive’s employment is terminated for Cause. Notwithstanding anything herein or in the Company’s expense reimbursement policy for senior executives, expenses incurred by Executive following termination of his employment by the Company or its Affiliates shall only be eligible for reimbursement to the extent they are: (A) incurred on or before the last day of the second calendar year following the calendar year during which the Executive’s employment terminates, and (B) reimbursed on or before the last day of the third calendar year following the calendar year during which the Executive’s employment terminates.

5.5.2.3. The maximum amount of aggregate expenses to be reimbursed under this Section 5.5.2 shall in no event exceed US$75,000.

5.5.3. Legal Fees . The Executive shall be entitled to receive prompt reimbursement for legal fees and expenses incurred by the Executive in negotiating this Agreement; provided that the aggregate amount of expenses eligible to be reimbursed under this Section 5.5.3 shall not exceed US$15,000.

5.6. Vacation. During the Term of Employment, the Executive shall be entitled to six weeks paid vacation each calendar year. If the Term of Employment commences or terminates during a calendar year, the vacation shall be adjusted pro rata for such calendar year.

5.7. Automobile Allowance . During the Term of Employment, the Company shall provide Executive with a suitable leased automobile, or, in the Company’s discretion, an automobile allowance of US$2,000 per month (payable on or before the last day of the month), in accordance with the Company’s standard practice for the administration of Company automobile allowances.

6. Termination .

6.1. Termination Due to Death . In the event of the Executive’s death, the Executive’s beneficiary (designated in writing to the Company) or estate, as the case may be, shall be entitled to: (a) any Base Salary accrued but unpaid as of the date of the Executive’s death, (b) continued payment of the Executive’s Base Salary for an additional period of six months after the date of the Executive’s death; (c) an amount equal to Executive’s Bonus for the year of such death, multiplied by a fraction, the numerator of which is the number of days transpired in the fiscal year up to and including the date of the death of the Executive, and the denominator of which is 365, which amount shall be determined and payable pursuant to the terms of Section 5.2; (d) payment, on the tenth day following such termination, of any unpaid expense reimbursements and unused accrued vacation days through the date of the Executive’s death; and (e) any other benefits which the Executive, the Executive’s estate or the Executive’s executor is entitled to receive under any of the Retirement Plans or Welfare Plans

6.2. Termination Due to the Executive’s Disability . Upon thirty (30) days prior written notice to the Executive, the Company may terminate the Executive’s employment hereunder due to Disability. In such event, the Executive or his executor, as the case may be, shall be entitled to: (a) any Base Salary accrued but unpaid as of the date of the Executive’s termination due to Disability; (b) continued payment of the Executive’s Base Salary for an additional period of six (6) months after the date of the Executive’s Disability, provided that each month’s continued Base Salary shall be reduced, dollar-for-dollar, by any amounts received by Executive during such month under the Company’s short-term disability plan, if applicable; (c) an amount equal to Executive’s Bonus for the year of such Disability, multiplied by a fraction, the numerator of which is the number of days transpired in the fiscal year up to and including the date of the Executive’s Disability, and the denominator of which is 365, which amount shall be determined and payable pursuant to the terms of Section 5.2; (d) payment, on the tenth day following such termination, of any unpaid expense reimbursements and unused accrued vacation days through the date of termination; and (e) any other payments and/or benefits which the Executive or the Executive’s estate is entitled to receive under any of the Retirement Plans or Welfare Plans.

6.3. Termination Without Cause or by the Executive for Good Reason . Upon thirty (30) days prior written notice to the Executive, the Company may terminate the Executive’s employment hereunder without Cause. Upon thirty (30) days prior written notice to the Company, the Executive may terminate his employment hereunder with the Company for Good Reason. In either such event, the Executive shall be entitled to: (a) any Base Salary accrued but unpaid through the date of termination; (b) Executive’s Base Salary for the remainder of the Term of Employment; (c) an amount equal to Executive’s Bonus for the year of such termination, multiplied by a fraction, the numerator of which is the number of days transpired in the fiscal year up to and including the date of the Executive’s termination, and the

denominator of which is 365, which amount shall be determined and payable pursuant to the terms of Section 5.2; (d) payment, on the tenth day following such termination, of any unpaid expense reimbursements and unused accrued vacation days through the date of termination; and (e) any other payments and/or benefits which the Executive is entitled to receive under any of the Retirement Plans or Welfare Plans. The Company may terminate the Executive with immediate effect pursuant to this Section, without providing thirty (30) days prior written notice, in which case it will pay the Executive thirty (30) days’ Base Salary in addition to the amounts set forth in clauses (a) through (e) above. For the purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), each monthly payment described in 6.3(b) shall be considered a separate payment. Notwithstanding anything to the contrary herein, if any of the payments provided for in this Section 6.3 would be subject to an additional 20% tax pursuant to Section 409A of the Code by reason of Executive’s status as a “specified employee” as that term is defined for purposes of Section 409A of the Code, such payments shall be delayed for the shortest period practicable (no less than 6 months following Executive’s termination of employment without Cause or for Good Reason) in order to avoid such additional tax. The payments made pursuant to this Section 6.3 are in consideration of Executive’s covenants set forth in Section 11.3.

6.4. Termination For Cause . Upon written notice to the Executive, the Company may terminate the Executive’s employment for Cause. In such event, the Executive shall be entitled to: (a) any Base Salary accrued but unpaid through the date of termination; (b) payment, on the tenth day following such termination, of any unpaid expense reimbursements and unused accrued vacation days through the date of termination; and (c) any other payments and/or benefits which the Executive is entitled to receive under any of the Retirement Plans or Welfare Plans. The Executive shall be given the opportunity within thirty (30) calendar days of the receipt of such notice to cure such act or failure to act which constitutes Cause, but only if the Board deems such act or failure to act amenable to cure; otherwise, the termination for Cause is with immediate effect. Upon failure of the Executive to correct such act or failure to act within such thirty (30) day cure period, if applicable, the Company may proceed to terminate the Executive for Cause with immediate effect.

6.5. Termination Without Good Reason . Upon thirty (30) days prior written notice to the Company, the Executive shall have the right to terminate his employment hereunder without Good Reason. In such event, the Executive shall be entitled to: (a) any Base Salary accrued but unpaid through the date of termination; (b) payment of any unpaid expense reimbursements and unused accrued vacation days through the date of termination; and (c) any other payments and/or benefits which the Executive is entitled to receive under any of the Retirement Plans or Welfare Plans.

6.6. Effect of Notice . Upon either party’s delivery of a notice of termination of Executive’s employment to the other, the Board, in its absolute discretion, may relieve Executive of all his duties, responsibilities and authority with respect to the Company and restrict Executive’s access to Company property.

6.7. Payment . Except as otherwise provided in this Agreement, any payments to which the Executive shall be entitled under this Section 6 shall be made as promptly as possible following the date of termination.

6.8. General Release . The Executive’s receipt of the payments under Section 6.3(b) is contingent upon his timely execution, delivery and non-revocation of a general release in a form satisfactory to the Company, which, among other things, shall include a general release of the Company from all liability and other terms deemed reasonably necessary by the Company for its protection.

6.9. Excise Tax Limitation . Notwithstanding any other provisions of this Agreement to the contrary, in the event that any payments or benefits received or to be received by the Executive in connection with the Executive’s employment with the Company (or termination thereof) would subject the Executive to the excise tax imposed under Sections 280G or 4999 of the Code (the “Excise Tax”), and if the net-after tax amount (taking into account all applicable taxes payable by the Executive, including any Excise Tax) that the Executive would receive with respect to such payments or benefits does not exceed the net-after tax amount the Executive would receive if the amount of such payment and benefits were reduced to the maximum amount which could otherwise be payable to the Executive without the imposition of the Excise Tax, then, to the extent necessary to eliminate the imposition of the Excise Tax, (i) such cash payments and benefits shall first be reduced (if necessary, to zero) and (ii) all other non-cash payments and benefits shall next be reduced.

7. Non-exclusivity of Rights . Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plan, policy or program provided or maintained by the Company and/or any Affiliate and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other existing or future agreements with the Company and/or any Affiliate, including, without limitation, any equity agreements or plans. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plans or programs of the Company and/or any Affiliate at or subsequent to the date of termination shall be payable in accordance with such plans or programs.

8. Full Settlement . The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others.

9. Successors .

9.1. The Executive . This Agreement is personal to the Executive and, without the prior express written consent of the Company, shall not be assignable by the Executive, except that the Executive’s rights to receive any compensation or benefits under this Agreement may be transferred or disposed of pursuant to testamentary disposition, intestate succession or pursuant to a domestic relations order. This Agreement shall inure to the benefit of and be enforceable by the Executive’s heirs, beneficiaries and/or executors.

9.2. The Company . This Agreement shall inure to the benefit of and be binding upon the Company and its respective successors and assigns.

10. Indemnification . The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”), by reason of the fact that he is or was a director or officer of the Company and/or any Affiliate or is or was serving at the request of the Company and/or any Affiliate as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not the basis of such Proceeding is alleged action in an official capacity as a director, officer, member, employee or agent while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Company to the fullest extent authorized by Pennsylvania law, as the same exists or may hereafter be amended, against all expenses or losses incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if the Executive has ceased to be an officer, director or agent, or is no longer employed by the Company and shall inure to the benefit of his heirs, executors and administrators. Any reimbursement in any taxable year pursuant to indemnification under this Section 10 shall not affect the expenses eligible for reimbursement in any other taxable year.

11. Restrictive Covenants .

11.1. Protection of the Company’s Interests . To the fullest extent permitted by law, all rights worldwide with respect to any intellectual or other property of any nature conceived, developed, produced, created, suggested or acquired by Executive as a result of Executive’s employment with the Company or any Affiliate, or through the use of the Company’s or such Affiliate’s equipment, facilities, trade secrets or confidential information during the period commencing on the date of Executive’s employment with the Company and ending upon termination of the Term of Employment shall be the sole and exclusive property of the Company and any such intellectual or other property shall be deemed to be works made for hire. Executive agrees to execute, acknowledge and deliver to the Company at the Company’s request, such further documents as the Company finds appropriate to evidence the Company’s rights in such property. In addition to the above, you agree that upon signing this Agreement you will execute an Intellectual Property Agreement in the form supplied by the Company.

11.2. Confidentiality . Executive shall keep confidential and not disclose to any other person or entity or use for his own benefit or the benefit of any other person or entity any confidential information, proprietary information, technology, know-how, trade secrets (including all results of research and development), product formulas, industrial designs, customer lists, franchises, inventions or other intellectual property regarding the Company and/or its affiliates or the business and operation of the Company and/or its affiliates (“ Confidential Information ”) in his possession or control. The obligations of Executive under this Section 11.2 shall not apply to Confidential Information which (i) is or becomes generally available to the public without breach of the commitment provided for in this Section; or (ii) is required to be disclosed by law, order or regulation of a court or tribunal or governmental authority; provided, however, that, in any such case, Executive shall notify the Board as early as reasonably practicable prior to disclosure to allow the Board to take appropriate measures to preserve the confidentiality of such Confidential Information.

11.3. Non-Compete .

11.3.1. During the period beginning on the Effective Date and ending 12 months following termination of the Executive’s employment (the “ Non-Compete Period ”), the Executive covenants and agrees not to, and shall cause his controlled affiliates not to, directly or indirectly and anywhere in the United States or the world, conduct, manage, operate, be employed by or otherwise connected in any manner with, or engage in, or have an ownership interest in any business or enterprise engaged in, whether as principal, manager, employee, agent, consultant, officer, equity holder, partner, investor, lender or member or in any other capacity, any business or enterprise (or subsidiary or division thereof) which at any relevant time during the Non-Compete Period directly or indirectly competes with the Business of the Company or its Affiliates (collectively, the “ Protected Companies ”), in any geographic location in which the Protected Companies are conducting business. For purposes of this Agreement, “ Business ” shall mean any business or enterprise engaged in (i) the development, design, engineering, manufacture, sale and provision of flat panel display systems, flight information computers and advanced monitoring systems to the U.S. Department of Defense, government agencies, defense contractors, commercial air transport carriers, original equipment manufacturers, and the corporate/general aviation markets, and the integration of any such systems or computers with other flight information systems (ii) any business that uses any trademark, tradenames or slogan similar to the “Innovative Solutions and Support, Inc.” or “IS&S” trademarks, tradenames or slogans, or (iii) any activities that are otherwise competitive with the business of the Company and/or its affiliates, including any products or services that are being created, developed or modified or any new end market entries that are being planned with respect to existing products or services, at any relevant time during the Term of Employment.

11.3.2. During the Non-Compete Period, the Executive shall not, directly or indirectly, call-on, solicit or induce, or attempt to solicit or induce, any customer or other business relationship of any of the Protected Companies for the provision of products or services, related to the Business engaged in by any of the Protected Companies prior to the termination of the Term of Employment, or in any other manner that would interfere with the business relationship between any such Protected Company and its customers and other business relationships.

11.3.3. During the Non-Compete Period, the Executive shall not, directly or indirectly, call-on, solicit or induce, or attempt to solicit or induce, any employee, staff, independent contractor or consultant of any of the Protected Companies to leave his or her employ or service with the Company or any of its Affiliates for any reason whatsoever, nor shall the Executive offer or provide employment (whether such employment is for the Executive or any other business or enterprise), either on a full-time, part-time or consulting basis, to any person who then currently is, or who within six months immediately prior thereto was, an employee of or staffed with any of the Protected Companies; provided, however , that the Executive shall not be restricted from conducting any general solicitation for employees or public advertising of employment opportunities (including through the use of employment agencies) not specifically directed at any such persons, provided further, however , that the Executive shall not, and shall cause his affiliates not to, hire any such person who responds to any such general solicitation or public advertising.

11.3.4. During the Term of Employment and thereafter, Executive, on the one hand, and the Company, on the other hand, shall not directly (or through any other person or entity) make any public or private statements (whether orally or in writing) that disparage, denigrate or malign the other, their respective businesses, activities, operations, affairs, reputations or prospects or any of their respective affiliates (including, in the case of the Company, its Affiliates, officers, employees, directors, partners (limited and general), agents, members or shareholders); provided that Executive may comment generally on industry matters in response to inquiries from the press and in other public speaking engagements. For purposes of clarification, and not limitation, a statement shall be deemed to disparage, denigrate or malign the Executive, the Company or any of its Affiliates, as applicable, if such statement could be reasonably construed to adversely affect the opinion any other person may have or form of such person.

11.3.5. The Executive acknowledges and agrees that the provisions of this Section 11 are reasonable and necessary to protect the legitimate business interests of the Protected Companies. The Executive shall not contest that the Protected Companies’ remedies at law for any breach or threat of breach by the Executive or any of his affiliates of the provisions of this Section 11 will be inadequate, and that the Protected Companies shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section 11 and to enforce specifically such terms and provisions, in addition to any other remedy to which they may be entitled at law or equity. The restrictive covenants contained in this Section 11 are covenants independent of any other provision of this Agreement or any other agreement among the parties hereunder and the existence of any claim which the Executive may allege against any of the Protected Companies under any other provision of the Agreement or any other agreement will not prevent the enforcement of these covenants.

11.3.6. If any of the provisions contained in this Section 11 shall for any reason be held to be excessively broad as to duration, scope, activity or subject, then such provision shall be construed by limiting and reducing it, so as to be valid and enforceable to the extent compatible with the applicable law or the determination by a court of competent jurisdiction.

12. Miscellaneous .

12.1. Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, applied without reference to principles of conflict of laws.

12.2. Amendments . This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

12.3. Notices . All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

To the Executive:
		Mr. Raymond J. Wilson
		1431 Hampton Drive
		Downingtown, PA 19335
with a copy to:
		Drinker Biddle and Reath LLP
		One Logan Square
		18th and Cherry Streets
		Philadelphia, PA 19103-6996
		Attn: F. Douglas Raymond, III

To the Company:
		Innovative Solutions and Support, Inc.
		720 Pennsylvania Drive
		Exton, PA 19341
		Attn: Chairman of the Board of Directors
with a copy to:
		Dechert LLP
		Cira Centre
		2929 Arch Street
		Philadelphia, PA 19104
		Attn: Henry N. Nassau, Esq. & John D. LaRocca, Esq.

or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee.

12.4. Withholding . The Company may withhold from any amounts payable under this Agreement such federal, state or local income taxes to the extent the same is required to be withheld pursuant to any applicable law or regulation.

12.5. Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

12.6. Captions . The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

12.7. Beneficiaries/References . The Executive shall be entitled to select (and change) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive’s death, and may change such election, in either case by giving the Company written notice thereof. In the event of the Executive’s death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or other executor(s).

12.8. Entire Agreement . This Agreement contains, except as expressly stated otherwise herein, the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings,

whether written or oral, between the parties with respect thereto. The Company has made no promises to the Executive regarding the subject matter hereof other than those set forth in this Agreement. .

12.9. Representations . The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement.

12.10. Survivorship . The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement or the Executive’s term of employment hereunder for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.

12.11. Arbitration of Disputes . In the event that any disputes of any kind arise under or with respect to this Agreement, the Executive and the Company agree to submit any such dispute to confidential and final binding arbitration in Philadelphia, Pennsylvania in accordance with the rules of the American Arbitration Association then in effect. In the event that Executive prevails in any such final arbitration, the Company shall reimburse Executive for his reasonable costs incurred in such arbitration, including reasonable attorneys’ fees. Notwithstanding the foregoing or anything to the contrary herein, the Company shall be entitled to bring an action in any court of competent jurisdiction in order to enforce or prevent the breach of any of the covenants of Section 11 hereof.

IN WITNESS WHEREOF , the Executive has hereunto set the Executive’s hand and the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

INNOVATIVE SOLUTIONS
AND SUPPORT, INC


By:
	Name:	RAYMOND J. WILSON
	Title:

Exhibit 10.8

SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is by and between Innovative Solutions and Support, Inc. (referred to herein as “IS&S”), which is incorporated under the laws of the State of Pennsylvania, with a principal place of business at 720 Pennsylvania Drive, Exton, Pennsylvania, and Kollsman, Inc. (referred to herein as “Kollsman”), which is incorporated under the laws of Delaware, with a principal place of business at 220 Daniel Webster Highway, Merrimack, New Hampshire.

RECITALS

A. IS&S and Kollsman have been engaged in litigation in the United States District Court for the Western District of Tennessee (Civil Action No. 05-2665-MI P) (referred to herein as the “Lawsuit”), relating to IS&S’ claims for misappropriation of trade secrets and patent infringement.

B. The jury has returned a verdict in favor of IS&S, and the United States District Court for the Western District of Tennessee has issued certain rulings relating to the award of exemplary damages, attorneys’ fees, and prejudgment interest, and entered permanent and head start injunctions against Kollsman.

C. IS&S has asserted a claim in the Lawsuit against Kollsman for infringement of U.S. Patent No. 6,584,839 (the “839 Patent”), which claim was stayed pending reexamination. Kollsman has asserted counterclaims for non-infringement, invalidity, and unenforceability of the ‘839 Patent.

D. IS&S and Kollsman desire to compromise the above claims and to enter into a settlement agreement on the terms set forth in this Agreement.

NOW, THEREFORE, in consideration of the above recitals and the mutual covenants hereinafter contained, the parties agree as follows.

1. DEFINITIONS

As used herein, capitalized terms not otherwise defined herein shall have the following meanings:

1.1 “Change of Control” with respect to IS&S or Kollsman, as the case may be (referred to for convenience in this Section as the “affected party”), means a transaction or series of related transactions in which (1) any Person is or becomes the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the voting securities of the affected party; or (2) a merger or consolidation of the affected party or any direct or indirect subsidiary of the affected party is consummated with any other Person wherein the voting securities of the affected party outstanding immediately prior to such merger or consolidation represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) less than 50% of the voting securities of the affected party or such surviving entity or

Confidential

any parent thereof outstanding immediately after such merger or consolidation; or (3) an agreement for the sale or disposition by the affected party of more than 50% of the affected party’s assets. However, no transaction will be considered to constitute a Change of Control with respect to a party if under said transaction the ultimate parent company of the respective party remains the same as its ultimate parent company on the Execution Date of this Agreement.

1.2 “Control” (including the terms “Controlling,” “Controlled by” and “under common Control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting shares or of other voting rights entitled to elect directors or other managing authority, by contract, or otherwise, except that ownership of less than twenty percent (20%) of the voting shares or of other voting rights entitled to elect directors or other managing authority for such Person or rights to fifty percent (50%) or less of the profits and losses of such Person shall conclusively be deemed not to constitute “Control” (or the terms “Controlling,” “Controlled by” and “under common Control with”) as defined herein.

1.3 “Court” means the United States District Court for the Western District of Tennessee.

1.4 “Effective Date” means the date upon which IS&S receives the payment described in Section 8.1.

1.5 “Execution Date” means the date upon which this Agreement becomes signed by all parties.

1.6 “Injunction” means the Order entering permanent and head start injunctions against Kollsman and in favor of IS&S dated June 30, 2008.

1.7 “Consent Order” means the document attached hereto as Exhibit A, which will be filed with the Court in two versions, (1) a redacted version as shown and (2) an unredacted version in which the redacted portions will correspond to the redacted portions in the Injunction and which the parties will request to remain sealed by the Court.

1.8 “Person” means an individual, trust, corporation, partnership, joint venture, limited liability company, association, unincorporated organization or other legal or governmental entity.

1.9 “Settlement Payment” shall mean the payment described in Section 8.1 of this Agreement.

1.10 “Trade Secrets” means the trade secrets that the jury in the Lawsuit found Kollsman had misappropriated.

2. DISMISSALS, RELEASES, AND CONDUCT AGREEMENTS

2.1 In consideration of the mutual promises set forth herein, within two (2) business days of the Execution Date, IS&S and Kollsman shall jointly file with the Court a motion and proposed order for entry of the Consent Order attached as Exhibit A. To the extent the consent of other parties to the Lawsuit is necessary to effectuate the entry of the Consent Order, IS&S and Kollsman agree jointly to seek such consent. Should the Court refuse to enter the Consent Order in the form attached as Exhibit A or in a form that is mutually acceptable to the parties, IS&S will not be entitled to the Settlement Payment, and the parties will have no further obligation under this Agreement, which shall be null and void.

3. MUTUAL RELEASE OF CLAIMS

3.1 Effective upon receipt by IS&S of the Settlement Payment described below and subject to the Consent Order and to their obligations herein, the parties hereby release and forever discharge each other and their past and present directors, managers, officers, and employees, parents, subsidiaries, partners, joint venturers and affiliated entities and each of them, separately and collectively, from any and all claims, liens, demands, causes of action, obligations, damages, and liabilities of any nature whatsoever, whether known or unknown and now existing, arising out of actions or inactions of any kind from the beginning of time through the Effective Date of this Agreement that are based upon the claims and counterclaims brought in the Lawsuit or arise out of the same allegations asserted in the Lawsuit (the “Released Claims”).

4. NO SETTLEMENT, RELEASE, OR DISMISSAL OF CLAIMS AGAINST OTHER DEFENDANTS

4.1 This Agreement, including the release of Kollsman herein, is made in good faith based upon good and valuable consideration given to IS&S. Subject to the terms of this Agreement above, nothing in this Agreement will be construed to release or reduce any claim, cause of action, or judgment IS&S has or may have against any person, entity, or individual that is not a party to this Agreement. Specifically, this Agreement will not be construed to release or reduce any claim, cause of action, or judgment IS&S has or may have against J2, Inc. or its subsidiaries, affiliates, or successors in interest; ZTI, Inc., or its subsidiaries, affiliates, or successors in interest; Strathmann & Associates, or its subsidiaries, affiliates, or successors in interest; Joseph Caesar; James Zachary; Steven Tomlinson; or Frederick Strathmann.

4.2 The parties agree that for solely for purposes of T.C.A. 29-11-105, and without any admission of liability whatsoever by Kollsman, in connection with the enforcement of any award against the remaining defendants, the Settlement Payment will be apportioned so as to provide the maximum available award against the remaining defendants. Nothing in this Agreement shall release J2, Inc., Joe Caesar, James Zachary or Zachary Technologies, Inc. (the “J2 Defendants”) from satisfying their responsibilities, obligations and indebtedness for any compensatory damages award, the attorneys’ fees award, or the pre-judgment interest award pursuant to the Court’s rulings in the Lawsuit. Finally, the parties acknowledge that the Settlement Payment by Kollsman is not a payment or satisfaction of any claims, judgments,

orders or rulings rendered against any of the J2 Defendants, including any such claims, judgments, orders, or rulings rendered solely against any of the J2 Defendants.

5. CONDUCT REGARDING FUTURE PRODUCTS

5.1 As an integral part of this Agreement, Kollsman agrees to abide by the restrictions in the Consent Order with respect to future products.

5.2 As a further integral part of this Agreement, Kollsman shall be granted a limited, royalty-free license to use the Trade Secrets as necessary to repair and return to service any previously sold air data computer model numbers 24471, 50042, or 49970 or parts or attachments previously sold with such air data computers. In connection with such repairs, Kollsman agrees that the Kollsman personnel performing such repairs will only be provided the Trade Secrets on a need-to-know basis and only to the extent necessary to perform such repairs and will maintain necessary and sufficient safeguards so that Trade Secrets are not disclosed to others who are not performing such repairs. The Trade Secrets shall not be used for other purposes.

5.3 As a further integral part of this Agreement, Kollsman agrees and acknowledges that any violation of the provisions of this section shall be deemed to cause irreparable harm, entitling IS&S to injunctive relief to halt any such breaches.

6. NO ADMISSION OF LIABILITY

6.1 The parties agree that the settlement of the Lawsuit is intended solely as a compromise of disputed claims. Neither the fact of a party’s entry into this Agreement nor the terms hereof nor any acts undertaken pursuant hereto shall constitute an admission or concession by any party relating to liability or the validity of any claim, counterclaim, or defense in the Lawsuit.

7. COSTS AND EXPENSES

7.1 Except as expressly provided herein, as between the parties to this Agreement, each party shall be responsible for and shall pay its own attorneys’ fees and costs incurred in connection with the Lawsuit, the settlement of the Lawsuit, and the preparation and execution of this Agreement, and the dismissals.

8. PAYMENTS

8.1 Settlement Amount

8.1.1 In consideration of the rights granted herein, upon execution of this Agreement, Kollsman will deposit by wire transfer $17,000,000.00 (Seventeen Million and No/100 US Dollars) with Greenberg Traurig, LLP as escrow agent. Within one (1) business day after the entry by the Court of the Consent Order described above and in the form requested by

the parties and after IS&S has provided an executed IRS Form W-9 to the escrow agent, the escrow agent shall transfer to IS&S such Settlement Payment, which payment shall be nonrefundable and irrevocable. Should the Court not enter the Consent Order in the form requested by the parties or such other form as is mutually acceptable to the parties, the escrow agent shall return the Settlement Payment to Kollsman and this Settlement Agreement shall be null and void.

8.2 Payment Instructions

8.2.1 Kollsman will make the Settlement Payment under this Agreement to Greenberg Traurig, LLP by wire transfer to:

Beneficiary:		Greenberg Traurig, LLP IOLTA Account
Bank:		Compass Bank
Bank Address:		Medical City
		7777 Forest Lane, Suite C130
		Dallas, TX ^. 75230
Account Number:		25405994
ABA or Routing No.:		113010547
Swift:

8.2.2 Subject to the requirements of Section 8.1, Greenberg Traurig, LLP will transfer the settlement payment to IS&S by wire transfer to:

Beneficiary:		Innovative Solutions & Support, Inc.
Bank:		PNC Bank - Treasury Management
Account Number:		1006795363
Bank Address:		Two PNC Plaza
		Pittsburgh, PA 15265
		John DiNapoli
		Telephone: 610-725-5760
		Fax: 610-725-5799

ABA or Routing No.:		ACH Routing Number: 043000096
Swift:

9. ASSIGNMENT AND CHANGE OF CONTROL

9.1 Assignment: General Rule

9.1.1 Except as is expressly provided in this Section, Kollsman may not assign, voluntarily, by operation of law, or otherwise, this Agreement or any rights under this Agreement, or delegate any duties under this Agreement, without the prior written consent of IS&S. Any assignment or attempted assignment or other transfer not in compliance with the

terms and conditions of this Agreement will be null and void. As used herein, an “assignment” includes without limitation a transfer of rights under this Agreement by reason of merger, acquisition or consolidation in which a party participates. If a party consents, which consent may be granted or withheld in such party’s sole discretion, to an assignment of this Agreement, (i) the successor-in-interest must agree in writing to be bound by the terms and conditions of this Agreement; and (ii) Kollsman, as the assigning party, shall retain no rights under this Agreement, but shall remain liable for all of its obligations hereunder.

9.2 Exceptions From General Prohibition Against Assignment

9.2.1 Notwithstanding Section 9.1, Kollsman may assign this Agreement without the prior consent of IS&S to an entity which is under the Control of Elbit Systems Ltd., as part of a transfer of substantially all of the assets of a Kollsman business unit or shares of Kollsman, provided that Kollsman provides written notice to IS&S of such assignment, the assignee agrees in writing to be bound by Kollsman’s obligations under this Agreement and the Consent Order, and Kollsman remains bound by all of its obligations under this Agreement and the Consent Order.

10. TERMINATION

10.1 Term

10.1.1 The term of this Agreement shall commence on the Effective Date and remain in effect for a period of ten (10) years, unless sooner terminated as provided herein. If the Effective Date does not occur within thirty (30) days after the Execution Date (or any mutually agreed upon extension), the Agreement will be deemed null and void, without constituting a waiver of either party’s respective rights, claims or defenses with respect to the Lawsuit.

10.2 Termination for Material Breach

10.2.1 Either party shall have the right to terminate this Agreement, by reason of the occurrence of an Event of Default. As used herein, an “Event of Default” shall mean (a) a failure by Kollsman to timely make the payment required by this Agreement; (b) the disclosure or use by Kollsman of the Trade Secrets or breach by Kollsman of its agreement as described above; or (c) the breach by a party of any material provision in this Agreement. Notwithstanding the foregoing, and without derogating from any other rights and remedies a party may have for the other party’s breach of this Agreement, under no circumstances will Kollsman be entitled to a refund of the Settlement Payment.

10.3 Effect of Expiration and Termination

10.3.1 Upon the expiration of the term of this Agreement, all rights granted pursuant to this Agreement shall cease, except that this shall not release Kollsman from its obligation to maintain the confidentiality of the Trade Secrets or comply with the Consent Order.

10.3.2 Notwithstanding the above, the rights granted to the non-defaulting party will continue in full force and effect through the expiration of the term of this Agreement as if this Agreement remained in full force and effect, provided the Agreement is not earlier terminated as to the non-defaulting party.

10.3.3 Without limiting the foregoing, the payment described in Section 8.1 is fully earned and nonrefundable as of the Effective Date.

11. REPRESENTATIONS, WARRANTIES & DISCLAIMERS

11.1 Representations and Warranties

11.1.1 IS&S and Kollsman each represent and warrant that each has the power and authority to enter into this Agreement, to perform all of its duties and obligations under this Agreement; and

11.1.2 IS&S and Kollsman each represent and warrant that the execution and delivery of this Agreement does not violate, conflict with, or constitute a default under such party’s charter or similar organization document, its bylaws or the terms or provisions of any material agreement or other instrument to which it is a party or by which it is bound as it relates to any intellectual property rights or to any order; award, judgment or decree to which it is a party or by which it is bound.

11.1.3 Kollsman represents that Kollsman Part No. 20148, is a 2.5-inch square circuit card, to be provided to the United States Air Force through Raytheon Company in connection with the Miniature Airborne Light Decoy (“MALD”) for the United States Air Force program. The product has an air data module, which provides airspeed and altitude information to a small Raytheon navigation module inside the MALD. Kollsman represents that this product is based on air data products developed by CIC in the mid-1990s for military applications (Unmanned Air Vehicles and Tactical Fighter Aircraft), and that the air data module uses a Raytheon specified RS 422 communication. Kollsman further represents that the air data module has no altitude rate change algorithm and does not include and is not based on any of the Trade Secrets.

11.2 Disclaimers

11.2.1 Nothing contained in this Agreement shall be construed as:

a warranty or representation by any party as to the validity, enforceability or scope of any patents;

an agreement by any party to bring or prosecute actions or suits against any third party for infringement, or conferring any right to any other party to bring or prosecute actions or suits against any third party for infringement;

conferring upon any party or any related entity any right to include in advertising, packaging or other commercial activities related to any product, any reference to another party (or its subsidiaries or affiliates), its trade names, trademarks or service marks in a manner which would be likely to cause confusion or to indicate that such product is in any way certified by any other party or its subsidiaries or affiliates; or

an obligation to furnish any technical information, copyrights, mask works or know-how, or any tangible embodiments thereof.

12. CONFIDENTIALITY, NONDISPARAGEMENT AND EXPLORATION OF FUTURE BUSINESS COOPERATION

12.1 General

12.1.1 No party shall disclose the terms of this Agreement without the prior written consent of the other party except:

in connection with the Lawsuit or other litigation based upon the allegations which form the basis of the Lawsuit;

to the extent such matters have been disclosed in press releases already issued by the parties or in the press release attached as Exhibit B;

to any governmental body having jurisdiction;

in response to a valid subpoena or as otherwise may be required by law, the official rules of a court or tribunal, or court order, provided that the party receiving such judicial process shall provide reasonably prompt notice thereof to the other party, and the parties shall reasonably cooperate to seek a protective order or otherwise prevent or restrict such disclosure;

as otherwise may be required by law or legal process (including legal requirements and regulations of the U.S. Securities and Exchange Commission or rules of the NYSE or NASDAQ) and subject to the requirements herein with respect to public releases;

when disclosed by the disclosing party for bona fide business reasons, which information is included within the scope of a nondisclosure agreement executed by the recipient of such information; and

to counsel and accountants for the party.

12.2 Seal

12.2.1 Notwithstanding any provision to the contrary herein, any party is permitted to file this Agreement under seal with and disclose under seal this Agreement, in whole or in part, and information relating to this Agreement to a court, tribunal, or government agency of competent jurisdiction in an action or proceeding brought by or against a party when reasonably necessary for such action or proceeding, subject to written notice to the other party and an opportunity to obtain a protective order or other restriction as described above.

12.3 Press Release

12.3.1 Any public release or announcement by a party or any of its respective affiliates with respect to the settlement of the Lawsuit will contain the substance of the form of announcement contained in Exhibit B hereto. Following the Effective Date of this Agreement, IS&S and/or Kollsman and their respective affiliates will be entitled to issue a public release containing the substance set forth in Exhibit B. Any change to that substance will require the prior written consent of the other party, which consent shall not be unreasonably withheld.

12.4 Non-Disparagement and Non-Disclosure regarding Dispute and Lawsuit

12.4.1 The parties agree that neither will engage in any conduct or communication designed to disparage the other with respect to any allegations made in the Lawsuit, the outcome of the Lawsuit, the findings of the Court, or the contents or impact of this Agreement.

12.4.2 The parties further agree that neither will furnish, reveal, make available, mention, discuss, or disclose to any third party, in relation to matters relating to the other party, any allegations in the Lawsuit, the outcome of the Lawsuit, the findings of the jury or the Court, the jury verdict, the orders and rulings entered by the Court, including but not limited to any of the contents of the Court’s orders concerning punitive damages, the award of attorneys’ fees, the award of prejudgment interest, and the granting and issuance of temporary, permanent and head start injunctions (“Breaching Disclosure”), except:

in connection with the Lawsuit or other litigation based upon the allegations which form the basis of the Lawsuit;

to the extent such matters have been disclosed in press releases already issued by the parties or in the press release attached as Exhibit B;

with the written consent of the other party;

to any governmental body having jurisdiction;

when disclosed by the disclosing party for bona fide business reasons, which information is included within the scope of a nondisclosure agreement executed by the recipient of such information;

to counsel and accountants for the party; and

IS&S may provide notice of the Consent Order under Rule 65 as necessary to enforce the provisions of the Consent Order.

Under no circumstances, except as otherwise agreed between the parties, will the parties disclose, disseminate or publicize the contents of the Court’s rulings with respect to the temporary injunction, the permanent injunction, exemplary damages, attorney’s fees or prejudgment interest, and the parties will not refer to these rulings in marketing, promotional or other sales efforts.

12.4.3 The parties agree that the obligations of confidentiality and non-disclosure regarding the dispute and the Lawsuit are fundamental to this Agreement, that irreparable injury will result if there is a breach of said obligations, that in the event of a breach or threatened breach of said obligations there will be no adequate remedy at law, and that in the event of an intentional breach of said obligations, the non-breaching party shall be entitled to seek immediate and other equitable relief and shall be entitled to recover liquidated damages of $10,000 (Ten Thousand and No/100 Dollars) per breaching disclosure.

12.5 Future Cooperation.

12.5.1 The parties may explore potential areas for future business cooperation, but are under no obligation to do so under this Agreement.

13. SIDE LETTER

13.1 Within one business day of the Execution Date, Kollsman will provide IS&S with a letter signed by an authorized representative of Elbit Systems of America, LLC, which states as follows:

Elbit Systems of America, LLC (“Elbit”) is aware of the terms of the Settlement Agreement between Innovative Solutions and Support and Kollsman, Inc, dated August , 2008, and the proposed Consent Order and Permanent Injunction. Elbit, on behalf of itself and its subsidiaries, agrees to abide by the Settlement Agreement and Consent Order and Permanent Injunction.

14. MISCELLANEOUS

14.1 Entire Agreement

14.1.1 This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof, and supersedes all prior proposals, agreements, representations, and other communications, if any, between the parties with respect to the subject matter hereof.

14.2 Modification; Waiver

14.2.1 No modification or amendment to this Agreement will be effective unless it is in writing and executed by authorized representatives of the parties, nor will any waiver of any rights be effective unless assented to in writing by the party to be charged. The failure or delay of either party in exercising any of its rights hereunder, including any rights with respect to a breach or default by the other party, will in no way operate as a waiver of such rights or prevent the assertion of such rights with respect to any later breach or default by the other party.

14.3 Exhibits

14.3.1 Any exhibits referred to herein will be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein.

14.4 Headings

14.4.1 The headings used in this Agreement are for reference and convenience only and will not be used in interpreting the provisions of this Agreement.

14.5 Notices

14.5.1 All notices required or permitted to be given hereunder shall be in writing and shall be deemed received as follows: (a) if by personal delivery, then upon actual receipt, or (b) if by prepaid, overnight courier, then one business day after delivery to such courier, or (c) if by registered or certified airmail, postage prepaid, then five (5) business days after delivery to the post office; all addressed as follows or to such other address as a party will designate by written notice given to another party in accordance with the terms of this Section:

To IS&S:		President
		Innovative Solutions & Support, Inc.
		720 Pennsylvania Drive
		Exton, Pennsylvania 19341-1149
		U.S.A.

To Kollsman:		Chief Operating Officer
		220 Daniel Webster Highway
		Merrimack, New Hampshire 03054
		U.S.A.

14.6 Governing Law

14.6.1 This Agreement will be governed by and construed in accordance with the laws of the State of Tennessee without regard to choice of law provisions or rules. The parties further agree that this Agreement was mutually drafted by all parties and that any interpretation of this Agreement or any terms thereof will not be interpreted against one party as the drafting party

14.6.2 The Court shall retain jurisdiction over disputes arising out of this Agreement and the Consent Order, and the parties stipulate that the state and federal courts located in Memphis, Tennessee, have personal jurisdiction over the parties.

14.7 Counterparts

14.7.1 This Agreement may be executed in counterparts by any of the parties hereto on any number of counterparts, each of which will be deemed an original, but all such respective counterparts will together constitute one and the same agreement. The parties agree that electronically transmitted signature pages will be treated as if they were originals.

14.8 Additional Provisions

14.8.1 Each party hereby declares and represents that it is executing this Agreement after consultation with its own independent legal counsel.

14.8.2 Any rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in the construction or interpretation of this Agreement. As used in this Agreement, the words “include” and “including,” “for example,” “such as,” and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.”

14.8.3 Each party acknowledges to the other party that it has been represented by independent legal counsel of its own choice throughout all of the negotiations which preceded the execution of this Agreement. Each party further acknowledges that it and its counsel have had adequate opportunity to make whatever investigation or inquiry they may deem necessary or desirable in connection with the subject matter of this Agreement prior to the execution hereof and that in entering into this Agreement it is not relying on any representations of the other party in connection therewith.

In Witness Whereof, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as undersigned:

Kollsman, Inc.				Innovative Solutions & Support, Inc.


By:	/s/ Yuval Ramon			By:	/s/ Ray Wilson
Printed Name:			Yuval Ramon	Printed Name:			Ray Wilson
Title:		VP & COO		Title:		Chief Executive Officer
Date:		8/25/08		Date:		8/27/08

EXHIBIT A

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TENNESSEE

WESTERN DIVISION

INNOVATIVE SOLUTIONS AND	§
SUPPORT, INC.,	§
Plain tiff	§	No. 05-2665-JPM/tmp
v.	§
J2, INC., JOSEPH CAESAR, JAMES	§
ZACHARY, ZACHARY TECHNOLOGIES,	§
INC., and KOLLSMAN, INC.,	§
Defendants	§

CONSENT ORDER AND PERMANENT INJUNCTION

Innovative Solutions and Support (“IS&S”) and Kollsman, Inc. (“Kollsman”) have been engaged in litigation relating to IS&S’ claims for misappropriation of trade secrets and patent infringement before this Court;

Whereas IS&S and Kollsman have entered into a settlement agreement, dated August , 2008 (the “Settlement Agreement”) and are desirous of dismissing the litigation on the terms stated herein;

NOW THEREFORE, the parties agree as follows:

1. The Court’s previously entered Order granting IS&S’ request for a permanent and head start injunction and associated redacted version of that Order (Docket Nos. 763 and 775-2) shall be modified as to Kollsman in accord with the parties’ Settlement Agreement as follows:

A. IT IS HEREBY ORDERED and DECREED that pursuant to Federal Rule of Civil Procedure 65, all Defendants and their officers, agents, servants, employees, and

attorneys, and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, are enjoined and restrained from using or disclosing in any manner the following six trade secrets (“Trade Secrets”) of IS&S tried to a jury verdict in this matter:

(1) IS&S’ checksum source code;

(2) IS&S’ checksum algorithm;

(3) IS&S’ altitude rate algorithm,

REDACTED

and as described herein:

REDACTED

b. The “new” Kollsman altitude rate algorithm used in the 24471, 50042, and 49970 air data computers;

(4) IS&S’ combined recipe incorporated in the IS&S ADDU and AIU interface;

(5) IS&S’ RS422 logical message protocol; and

(6) IS&S’ testing and calibration procedures relating to pressure transducer stability, i.e., the pressure transducer stability problem and how to solve the problem, specifically:

a. The IS&S testing and calibration procedure

REDACTED

and

b. The Kollsman testing and calibration procedure

REDACTED

B. IT IS FURTHER ORDERED and DECREED that pursuant to Federal

Rule of Procedure 65 Defendant Kollsman and its officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with it who receive actual notice of this Order by personal service or otherwise, are enjoined and restrained for two years from the date of this Order from manufacturing, marketing, developing, selling, qualifying, or certifying by similarity with any governmental entity any air data products that are based on or derived from any use of the Trade Secrets in the 24471, 49970, or 50042 ADCs, and/or any derivatives thereof.

C. IT IS FURTHER ORDERED AND DECREED THAT the Head Start Injunction described in the preceding paragraph will not prohibit Kollsman from supplying Kollsman Part No. 20148 to the United States Air Force through Raytheon Company in connection with the Miniature Airborne Light Decoy for the United States Air Force program, so long as Kollsman Part No. 20148 does not use and is not based on the Trade Secrets.

D. IT IS FURTHER ORDERED and DECREED that Kollsman is permitted to use the Trade Secrets as necessary to repair and return to service any previously sold air data computer model numbers 24471, 50042, or 49970 or parts thereof or attachments thereto. In connection with such repairs, Kollsman personnel performing such repairs may be provided the Trade Secrets only on a need-to-know basis and only to the extent necessary to perform such repairs and will maintain necessary and sufficient safeguards so that Trade Secrets are not disclosed or used in any other way.

E. This Order does not supplement or modify in any way the permanent and head start injunctions currently in place against the other Defendants in this lawsuit.

2. Pursuant to the Settlement Agreement, the terms of which are incorporated herein, all claims and counterclaims brought by IS&S and Kollsman against the other in this matter are

hereby dismissed with prejudice to the re-filing of same.

3. As between them, IS&S and Kollsman shall each bear their own costs of court.

4. The dismissal of IS&S’ claims against Kollsman shall not be construed as releasing any claim, cause of action, or judgment IS&S may have against any person, entity or individual other than Kollsman.

5. The parties waive any right of appeal to this Consent Order.

6. The Protective Order entered by the Court in this action shall remain in full force and effect.

7. The Court retains jurisdiction over disputes arising out of the Settlement Agreement and the enforcement of this Consent Order and Permanent Injunction.

So ORDERED this day of August 2008.


	UNITED STATES DISTRICT JUDGE

EXHIBIT B

FORM OF PRESS RELEASE

On August ,2008, a settlement between Innovative Solutions and Support, Inc. (“IS&S”) and Kollsman, Inc. (“Kollsman”) became effective with respect to all claims filed by IS&S and Kollsman against each other in the United States District Court for the Western District of Tennessee and a Consent Order has been entered. This release is further to previous announcements by the [the applicable party or its affiliate] regarding this litigation dated and . Under the settlement agreement, all claims between IS&S and Kollsman have been dismissed with prejudice, a final agreed injunction has been entered, and the matter has been fully and finally mutually settled without any admission of guilt by either party. In addition, an agreed settlement payment of $17 million dollars has been made by Kollsman to IS&S. Kollsman and IS&S may explore opportunities for future business collaboration.

[To the extent required by law, each party may add any required explanation of the impact of the Settlement Agreement on its financial results.]

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Innovative Solutions and Support, LLC, a Pennsylvania limited liability company
IS&S Delaware, Inc., a Delaware corporation
IS&S Holdings, Inc., a Delaware corporation
IS&S Aviation, Inc., a Delaware corporation

QuickLinks

Exhibit 21

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-70468 and 333-146223 on Forms S-8 and Registration Statement No. 333-140018 on Form S-3 of our reports dated December 9, 2008, relating to the consolidated financial statements of Innovative Solutions and Support, Inc. and subsidiaries (the "Company") (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes , effective October 1, 2007), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of Innovative Solutions and Supports, Inc. and subsidiaries for the year ended September 30, 2008.

DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
December 9, 2008

QuickLinks

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

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

1.

I have reviewed this annual report on Form 10-K of Innovative Solutions and Support, Inc.;

2.

Based on my knowledge, this annual 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 annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual 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 officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a): Designed such disclosure controls and procedures or caused such disclosure controls 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 annual report is being prepared;
b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c): 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;
d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth 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 officers 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 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.

December 11, 2008


/s/ GEOFFREY S.M. HEDRICK Geoffrey S.M. Hedrick Chairman & Chief Executive Officer

QuickLinks

Exhibit 31.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.2

I, John C. Long, certify that:

1.

I have reviewed this annual report on Form 10-K of Innovative Solutions and Support, Inc.;

2.

3.

4.

a): Designed such disclosure controls and procedures or caused such disclosure controls 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 annual report is being prepared;
b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c): 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;
d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

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.

December 11, 2008


/s/ JOHN C. LONG John C. Long Chief Financial Officer

QuickLinks

Exhibit 31.2

QuickLinks -- Click here to rapidly navigate through this document

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 Annual Report of Innovative Solutions and Support, Inc. (the "Company") on Form 10-K for the period ending September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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


/s/ GEOFFREY S.M. HEDRICK Geoffrey S.M. Hedrick Chief Executive Officer and Director December 11, 2008


/s/ JOHN C. LONG John C. Long Chief Financial Officer December 11, 2008

QuickLinks

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

Exhibit 99.1

AMENDMENT TO THE

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

1998 STOCK OPTION PLAN

Pursuant to the authority reserved to it under Section 11 of the Innovative Solutions and Support, Inc. 1998 Stock Option Plan, as amended (the “Plan”), the Company hereby amends the Plan, effective October , 2008, as follows:

1. Section 8(b) of the Plan is hereby amended and restated in its entirety to read as follows:

“b. Option Price . Each Option Document shall, subject to adjustment as provided in Section 10 of the Plan, state the Option Price which, for any Option shall be at least than 100% of the Fair Market Value of the Shares on the date the Option is granted; provided, however, that if an ISO is granted to an Optionee who then owns, directly or by attribution under Section 424(d) of the Code, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate, then the Option Price of such ISO shall be at least 110% of the Fair Market Value of the Shares on the date the Option is granted. “ Fair Market Value ” means, on any given date (i) if the Shares are then listed on a national securities exchange, including the Nasdaq Global Select Market (“NASDAQ”), the closing sales price per Share on the exchange for such date, or if no sale was made on such date on the exchange, on the last preceding day on which a sale occurred; (ii) if Shares are not then listed on a national securities exchange but are then quoted on another stock quotation system, the closing price for the Shares as quoted on such quotation system on such date, or if no sale was made on such date on such quotation system, on the last preceding day on which a sale was made; or (iii) if (i) and (ii) do not apply, such value as the Committee in its discretion may in good faith determine in accordance with Section 409A of the Code (and, with respect to Incentive Stock Options, Section 422 of the Code) and the applicable guidance thereunder.”

2. Section 8(d) of the Plan is hereby amended and restated in its entirety to read as follows:

“d. Medium of Payment . Upon exercise of an Option, the aggregate Option Price for the Shares as to which the Option is being exercised shall, in the discretion of the Committee, be (i) paid in U.S. funds by cash (including a check, draft or wire transfer made payable to the order of the Company), or delivery of stock certificates for Shares of the Company’s Common Stock, free of all liens, claims and encumbrances of every kind, and endorsed in blank or accompanied by executed stock powers with signatures guaranteed by a national bank or trust company or a member of a national securities exchange evidencing Shares (in which case the value of such Shares shall be deemed to be their Fair Market Value on the date of exercise of the Option), (ii) deemed to be paid provided the notice of exercise of the Option is accompanied to the Committee’s satisfaction by a copy of irrevocable instructions to a broker to promptly deliver to the Company an amount of sales or loan proceeds sufficient to pay the Option Price in full, or (iii) a combination of the foregoing or such other consideration as the Committee may, in its discretion, permit.”

To record the adoption of this Amendment to the Plan, the Company has caused its authorized officer to affix its corporate name hereto effective as of the day and year first written above.

	INNOVATIVE SOLUTIONS AND SUPPORT, INC.

	By:

	Name:

	Title:

Exhibit 99.2

AMENDMENT

THIS AMENDMENT (this “Amendment”) is made as of this 29 day of November, 2002, by and between INNOVATIVE SOLUTIONS AND SUPPORT, LLC (the “Borrower”) and PNC BANK, NATIONAL ASSOCIATION (the “Bank”).

RECITALS:

A. The Bank and the Borrower entered into a Reimbursement, Credit and Security Agreement dated as of August 1, 2000 (the “Agreement”), pursuant to which the Bank agreed to issue a letter of credit for the account of the Borrower in connection with the issuance of certain industrial development revenue bonds on behalf of the Borrower.

B. In order to clarify their original understanding and to make certain other changes to the Agreement, the Borrower and the Bank have agreed to amend the Agreement on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the legality and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

1. Definitions . Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

2. Amendment to Agreement . The Agreement is hereby amended effective as of September 30, 2001 (the “Effective Date”) as follows:

(a) The definitions of “EBITDA” and “Fixed Charge Ratio” in Section 1.01 are amended and restated to read in full as follows:

“EBITDA” means on the date of determination the sum of (i) net income (or loss) plus (ii) interest expense plus (iii) income tax expense plus depreciation expense plus amortization expense, in each case determined on a consolidated basis for IS&S, Inc. and its subsidiaries for the previous four consecutive fiscal quarters.

“Fixed Charge Ratio” means on the date of determination the ratio of (i) EBITDA to (ii) the sum of interest expense plus Current Maturities plus unfunded capital expenditures plus dividends plus income tax expense, in each case determined for IS&S, Inc. and its subsidiaries on a consolidated basis for the previous four consecutive fiscal quarters.

(b) The following definition of “Current Maturities” is added to Section 1.01 in the appropriate alphabetical order:

“Current Maturities” means the scheduled payments of principal on all indebtedness for borrowed money having an original term of more than one year (including but not limited to amortization of capitalized lease obligations), as shown on IS&S, Inc.’s consolidated financial statements as of one year prior to the date of determination.

(d) Section 6.21(b) is hereby amended and restated to read in full as follows:

“(b) IS&S, Inc., on a consolidated basis, shall maintain at all times a Fixed Charge Ratio equal to or greater than 1.25:1.00, calculated at the end of each fiscal quarter of IS&S, Inc.”

3. Amendments to the Other Documents . All references to the Agreement in the Collateral Documents or the Bond Documents and in any documents executed in connection therewith shall be deemed to refer to the Agreement as amended by this Amendment.

4. Ratification of the Other Documents . Notwithstanding anything to the contrary herein contained or any claims of the parties to the contrary, the Bank and the Borrower agree that the Agreement and the Collateral Documents and each of the documents executed in connection therewith are in full force and effect and each such document shall remain in full force and effect, as further amended by this Amendment, and the Borrower hereby ratifies and confirms its obligations thereunder.

5. Representations and Warranties .

(a) The Borrower hereby certifies that (i) the representations and warranties of the Borrower in the Agreement are true and correct in all material respects as of the date hereof, as if made on the date hereof and (ii) no Event of Default and no event which could become an Event of Default with the passage of time or the giving of notice, or both, under the Agreement or the Collateral Documents exists on the date hereof.

(b) The Borrower further represents that it has all the requisite power and authority to enter into and to perform its obligations under this Amendment, and that the execution, delivery and performance of this Amendment have been duly authorized by all requisite action and will not violate or constitute a default under any provision of any applicable law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect or of the organizational documents of the Borrower, or of any indenture, note, loan or credit agreement, license or any other agreement, lease or instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound.

(c) The Borrower also further represents that the Borrower’s reimbursement obligation under the Agreement is absolute and unconditional, and there exists no right of set off

or recoupment, counterclaim or defense of any nature whatsoever to payment of such obligations.

6. Conditions Precedent . The amendments set forth herein shall be effective as of the Effective Date upon the fulfillment, to the satisfaction of the Bank and its counsel, of the following conditions precedent:

(a) The Borrower shall have delivered to the Bank the following, all of which shall be in form and substance satisfactory to the Bank and shall be duly completed and executed:

(i) a fully executed counterpart of this Amendment, including the Consent of Guarantors; and

(ii) such additional documents, certificates and information as the Bank may reasonably request.

(b) The representations and warranties set forth in the Agreement shall be true and correct on and as of the date hereof.

(c) No Event of Default hereunder, and no event which, with the passage of time or the giving of notice, or both, would become such an Event of Default shall have occurred and be continuing as of the date hereof.

7. No Waiver . This Amendment does not and shall not be deemed to constitute a waiver by the Bank of any Event of Default, or of any event which with the passage of time or the giving of notice or both would constitute an Event of Default, nor does it obligate the Bank to agree to any further modifications to the Agreement or the Collateral Documents or constitute a waiver of any of the Bank’s other rights or remedies.

8. Release and Indemnity . (a) Recognizing and in consideration of the Bank’s agreement to the amendments provided herein, the Borrower hereby waives and releases the Bank and its officers, attorneys, agents, directors, and employees from any liability, suit, damage, claim, actions, counterclaims or offsets, loss or expense of any kind or nature whatsoever and howsoever arising, whether known or unknown and whether based on facts now known or unknown, direct or derivative, that the Borrower, or anyone claiming in a derivative capacity from the Borrower, ever had or has as of the date of this Amendment against any of them including, without limitation, any of the foregoing arising out of or relating to the Bank’s or such other Persons’ acts or omissions with respect to this Amendment, the other documents executed in connection herewith, the Agreement, the Collateral Documents, the Bond Documents or any other matters described or referred to herein or therein.

(b) The Borrower further hereby agrees to indemnify and hold the Bank and its respective officers, attorneys, agents, directors and employees harmless from any loss, damage, judgment, liability or expense (including counsel fees) suffered by or rendered against the Bank or any of them on account of anything arising out of this Amendment, the Agreement, the Collateral Documents, the Bond Documents or any other document or instrument delivered pursuant hereto or thereto up to and including the date of this Amendment; provided that , the

Borrower shall not have any obligation hereunder to the Bank or such other Person with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Bank or such other Person.

9. Miscellaneous .

(a) All terms, conditions, provisions and covenants in the Agreement and the Collateral Documents and all other documents delivered to the Bank in connection therewith shall remain unaltered and in full force and effect except as modified or amended hereby. To the extent that any term or provision of this Amendment is or may be deemed expressly inconsistent with any term or provision in the Agreement or any Collateral Document or any other document executed in connection therewith, the terms and provisions hereof shall control.

(b) This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements.

(c) In the event any provisions of this Amendment shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

(d) This Amendment shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania.

(e) This Amendment, and the Agreement and Collateral Documents as amended hereby, shall inure to the benefit of, and be binding upon, the parties hereto and thereto and their respective successors and assigns and may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(f) The headings used in this Amendment are for convenience of reference only, do not form a part of this Amendment and shall not affect in any way the meaning or interpretation of this Amendment.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written.

INNOVATIVE SOLUTIONS AND SUPPORT, LLC

By:	Innovative Solutions and Support, Incorporated, its sole member and manager

	By:	/s/ James Reilly
	Name: James Reilly
	Title: CFO


PNC BANK, NATIONAL ASSOCIATION


By:	/s/ John M DiNapoli
Name: John M DiNapoli
Title: V.P.

Exhibit 99.3

Amendment to Loan Documents

THIS AMENDMENT TO LOAN DOCUMENTS (this “Amendment” ) is made as of March 30, 2004, by and between INNOVATIVE SOLUTIONS AND SUPPORT, LLC (the “Borrower” ), and PNC BANK, NATIONAL ASSOCIATION (the “Bank” ).

BACKGROUND

A. The Borrower has executed and delivered to the Bank (or a predecessor which is now known by the Bank’s name as set forth above), one or more promissory notes, letter agreements, loan agreements, security agreements, mortgages, pledge agreements, collateral assignments, and other agreements, instruments, certificates and documents, some or all of which are more fully described on attached Exhibit A, which is made a part of this Amendment (collectively as amended from time to time, the “Loan Documents” ) which evidence or secure some or all of the Borrower’s obligations to the Bank for one or more loans or other extensions of credit (the “Obligations” ).

B. The Borrower and the Bank desire to amend the Loan Documents as provided for in this Amendment.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

1. Certain of the Loan Documents are amended as set forth in Exhibit A. Any and all references to any Loan Document in any other Loan Document shall be deemed to refer to such Loan Document as amended by this Amendment. This Amendment is deemed incorporated into each of the Loan Documents. Any initially capitalized terms used in this Amendment without definition shall have the meanings assigned to those terms in the Loan Documents. To the extent that any term or provision of this Amendment is or may be inconsistent with any term or provision in any Loan Document, the terms and provisions of this Amendment shall control.

2. The Borrower hereby certifies that: (a) all of its representations and warranties in the Loan Documents, as amended by this Amendment, are, except as may otherwise be stated in this Amendment: (i) true and correct as of the date of this Amendment, (ii) ratified and confirmed without condition as if made anew, and (iii) incorporated into this Amendment by reference, (b) no Event of Default or event which, with the passage of time or the giving of notice or both, would constitute an Event of Default, exists under any Loan Document which will not be cured by the execution and effectiveness of this Amendment, (c) no consent, approval, order or authorization of, or registration or filing with, any third party is required in connection with the execution, delivery and carrying out of this Amendment or, if required, has been obtained, and (d) this Amendment has been duly authorized, executed and delivered so that it constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. The Borrower confirms that the Obligations remain outstanding without defense, set off, counterclaim, discount or charge of any kind as of the date of this Amendment.

3. The Borrower hereby confirms that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Borrower or third parties (if applicable), shall continue unimpaired and in full force and effect, and shall cover and secure all of the Borrower’s existing and future Obligations to the Bank, as modified by this Amendment.

Form 17A – Multistate Rev. 1/02

4. As a condition precedent to the effectiveness of this Amendment, the Borrower shall comply with the terms and conditions (if any) specified in Exhibit A.

5. To induce the Bank to enter into this Amendment, the Borrower waives and releases and forever discharges the Bank and its officers, directors, attorneys, agents, and employees from any liability, damage, claim, loss or expense of any kind that it may have against the Bank or any of them arising out of or relating to the Obligations. The Borrower further agrees to indemnify and hold the Bank and its officers, directors, attorneys, agents and employees harmless from any loss, damage, judgment, liability or expense (including attorneys’ fees) suffered by or rendered against the Bank or any of them on account of any claims arising out of or relating to the Obligations. The Borrower further states that it has carefully read the foregoing release and indemnity, knows the contents thereof and grants the same as its own free act and deed.

6. This Amendment may be signed in any number of counterpart copies and by the parties to this Amendment on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Amendment by facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by facsimile transmission.

7. This Amendment will be binding upon and inure to the benefit of the Borrower and the Bank and their respective heirs, executors, administrators, successors and assigns.

8. This Amendment has been delivered to and accepted by the Bank and will be deemed to be made in the State where the Bank’s office indicated in the Loan Documents is located. This Amendment will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State where the Bank’s office indicated in the Loan Documents is located, excluding its conflict of laws rules.

9. Except as amended hereby, the terms and provisions of the Loan Documents remain unchanged, are and shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms, and are hereby ratified and confirmed. Except as expressly provided herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any default or Event of Default under any Loan Document, or a waiver or release of any of the Bank’s rights and remedies (all of which are hereby reserved). The Borrower expressly ratifies and confirms the confession of judgment (if applicable) and waiver of jury trial provisions contained in the Loan Documents.

WITNESS the due execution of this Amendment as a document under seal as of the date first written above.

WITNESS / ATTEST:		INNOVATIVE SOLUTIONS AND SUPPORT, LLC

		By	Innovative Solutions and Support, Inc., its sole member and manager:


/s/ Jan Donovan		By:	/s/ James J. Reilly
		(SEAL)
Print Name:	Jan Donovan	Print Name:		James J. Reilly
Title:		Title:		C.F.O.
(Include title only if an officer of entity signing to the right)


		PNC BANK, NATIONAL ASSOCIATION


		By:	/s/ Kristine Manili
		(SEAL)
		Print Name:		Kristine Manili
		Title:		Vice President

EXHIBIT A TO
AMENDMENT TO LOAN DOCUMENTS
DATED AS OF March 30, 2004

A. The “Loan Documents” that are the subject of this Amendment include the following (as any of the foregoing have previously been amended, modified or otherwise supplemented):

1. Reimbursement, Credit and Security Agreement dated as of August 1, 2000, as amended (the “Reimbursement Agreement”)

2. Letter of Credit No. S231762NWP dated August 8, 2000

3. Guaranty and Surety Agreement dated as of August 1, 2000

4. Security Agreement dated as of August 1, 2000 from Borrower and each Guarantor

5. Mortgage and Security Agreement dated as of August 1, 2000

6, All other documents, instruments, agreements, and certificates executed and delivered in connection with the Loan Documents listed in this Section A.

B. The Loan Documents are amended as follows:

1. The Reimbursement Agreement is hereby amended as follows:

(a) Section 2.02(b) is amended to reduce the commitment fee on the Letter of Credit Amount from one and one-half percent (1.5%) per annum to three-quarters of one percent (.75%) per annum, effective as of the date this Amendment is fully executed.

(b) Section 6.10(b) is amended to change the lead-in phrase thereof to read in full as follows:

“Within 45 days after the end of each of the first three fiscal quarters of each Fiscal Year of IS&S, Inc.:”

C. Conditions to Effectiveness of Amendment: The Bank’s willingness to agree to the amendments set forth in this Amendment are subject to the prior satisfaction of the following conditions:

1. Execution by all parties and delivery to the Bank of this Amendment, including the attached Consent.

CONSENT OF GUARANTOR

Each of the undersigned guarantors (jointly and severally if more than one, the “Guarantor” ) consents to the provisions of the foregoing Amendment (the “Amendment” ) and all prior amendments (if any) and confirms and agrees that: (a) the Guarantor’s obligations under its Guaranty and Surety Agreement dated as of August 1, 2000 (collectively if more than one, the “Guaranty” ), relating to the Obligations mentioned in the Amendment, shall be unimpaired by the Amendment; (b) the Guarantor has no defenses, set offs, counterclaims, discounts or charges of any kind against the Bank, its officers, directors, employees, agents or attorneys with respect to the Guaranty; and (c) all of the terms, conditions and covenants in the Guaranty remain unaltered and in full force and effect and are hereby ratified and confirmed and apply to the Obligations, as modified by the Amendment. The Guarantor certifies that all representations and warranties made in the Guaranty are true and correct.

The Guarantor hereby confirms that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Guarantor or third parties (if applicable), shall continue unimpaired and in full force and effect, shall cover and secure all of the Guarantor’s existing and future Obligations to the Bank, as modified by this Amendment.

By signing below, each Guarantor who is an individual provides written authorization to the Bank or its designee (and any assignee or potential assignee hereof) to obtain the guarantor’s personal credit profile from one or more national credit bureaus. Such authorization shall extend to obtaining a credit profile for the purposes of update, renewal or extension of such credit or additional credit and for reviewing or collecting the resulting account. A photocopy or facsimile copy of this authorization shall be valid as the original. By signature below, each such Guarantor affirms his/her identity as the respective individual(s) identified in the Guaranty.

The Guarantor ratifies and confirms the indemnification, confession of judgment (if applicable) and waiver of jury trial provisions contained in the Guaranty.

WITNESS the due execution of this Consent as a document under seal as of the date of this Amendment, intending to be legally bound hereby.

WITNESS / ATTEST:		INNOVATIVE SOLUTIONS AND SUPPORT, INC.

/s/ Jan Donovan		By:	/s/ James J. Reilly
		(SEAL)
Print Name:	Jan Donovan	Print Name:		James J. Reilly
Title:		Title:		C.F.O.
(Include title only if an officer of entity signing to the right)


		IS&S DELAWARE, INC.

/s/ Jan Donovan		By:	/s/ James J. Reilly
		(SEAL)
Print Name:	Jan Donovan	Print Name:		James J. Reilly
Title:		Title:		C.F.O.
(Include title only if an officer of entity signing to the right)

Exhibit 99.4

THIRD AMENDMENT TO REIMBURSEMENT, CREDIT AND SECURITY
AGREEMENT AND WAIVER

THIS THIRD AMENDMENT TO REIMBURSEMENT, CREDIT, AND SECURITY AGREEMENT AND WAIVER (this “Amendment”) is made as of this 25 th day of July, 2006, by and between INNOVATIVE SOLUTIONS AND SUPPORT, LLC (the “Borrower”) and PNC BANK, NATIONAL ASSOCIATION (the “Bank”).

RECITALS:

A. The Bank and the Borrower entered into a Reimbursement, Credit and Security Agreement dated as of August 1, 2000, as amended by an Amendment dated as of November 29, 2002 and as further amended by an Amendment dated as of March 20, 2004 (as the same may be amended, restated or further modified and in effect from time to time, the “Agreement”), pursuant to which the Bank agreed to issue a letter of credit for the account of the Borrower in connection with the issuance of certain industrial development revenue bonds on behalf of the Borrower.

B. The Borrower has requested the Bank waive compliance with certain financial covenants and amend certain reporting requirements and financial covenants in the Agreement and the Bank has agreed to provide said waiver and amend the Agreement on the terms and subject to the conditions Set forth herein.

1. Definitions . Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

2. Waivers . The Borrower has advised the Bank that IS&S, Inc. was in violation of (i) the total liabilities to EBITDA covenant contained in Section 6.21(a) of the Agreement, (ii) the Fixed Charge Ratio covenant contained in Section 6.21(b) of the Agreement, and (iii) the minimum Tangible Net Worth covenant contained in Section 6.21(c) of the Agreement each as of the end of the fiscal quarter of IS&S, Inc. ending on June 30, 2006. At the Borrower’s request, the Bank hereby waives IS&S, Inc’s violation of the covenants contained in Section 6 21(a), Section 6.21(b) and Section 6.21(c) for the fiscal quarter ending on June 30, 2006 and the resulting Events of Default arising there from. The foregoing waivers shall not be deemed to operate as or obligate the Bank to grant any future waiver or modification of the provisions of Section 6.21(a), Section 6.21(b) or Section 6.21(c) for any other fiscal period or of any other term, condition or Event of Default under the Agreement.

3. Amendment to Agreement . The Agreement is hereby amended effective as of the date hereof as follows:

(a) Section 6.10(a)(1) is hereby amended and restated to read in full as follows:

“(1) audited consolidated and consolidating financial statements for IS&S, Inc. and its subsidiaries, including a consolidated balance sheet and related consolidated statements of income, retained earnings, cash flows, and changes in financial position as of the end of such Fiscal Year and for such Fiscal Year, audited by independent certified public accountants acceptable to the Bank and prepared in accordance with GAAP, which shall fairly present the consolidated financial condition of IS&S, Inc. and its subsidiaries as at the end of such Fiscal Year, and”

(b) Section 6.21 is hereby amended and restated to read in full as follows:

“Section 6.21 Financial covenants . The Borrower shall cause IS&S, Inc. to observe the following covenants:

(a) IS&S, Inc. will maintain, on a consolidated basis, as of the end of each fiscal quarter of IS&S, Inc. beginning with the fiscal quarter ending on June 30, 2007, a ratio of total liabilities to EBITDA of not greater than 2.25:1.00.

(b) IS&S, Inc. will maintain, on a consolidated basis, as of the end of each fiscal quarter of IS&S, Inc. beginning with the fiscal quarter ending on June 30, 2007, a Fixed Charge Ratio equal to or greater than 1.25:1.00.

4. Amendments to the Other Docum ents . All references to the Agreement in the Collateral Documents or the Bond Documents and in any documents executed in connection therewith shall be deemed to refer to the Agreement as amended by this Amendment.

5. Ratification of the Other Documents . Notwithstanding anything to the contrary herein contained or any claims of the parties to the contrary, the Bank and the Borrower agree that the Agreement and the Collateral Documents and each of the documents executed in connection therewith are in full force and effect and each such document shall remain in full force and effect, as further amended by this Amendment, and the Borrower hereby ratifies and confirms its obligations thereunder.

6. Representations and Warranties .

Event of Default with the passage of time or the giving of notice, or both, under the Agreement or the Collateral Documents exists on the date hereof.

(c) The Borrower also further represents that the Borrower’s reimbursement obligation under the Agreement is absolute and unconditional, and there exists no right of set off or recoupment, counterclaim or defense of any nature whatsoever to payment of such obligations.

7. Conditions Precedent . The amendments set forth herein shall be effective as of the date hereof upon the fulfillment, to the satisfaction of the Bank and its counsel, of the following conditions precedent:

(a) The Borrower shall have delivered to the Bank the following, all of which shall be in form and substance satisfactory to the Bank and shall be duly completed and executed:

(i) a fully executed counterpart of this Amendment, including the Consent of Guarantors; and

(ii) such additional documents, certificates and information as the Bank may reasonably request.

(b) The representations and warranties set forth in the Agreement shall be true and correct on and us of the date hereof.

8. No Waiver . This Amendment does not and shall not be deemed to constitute a waiver by the Bank of any Event of Default, or of any event which with the passage of time or the giving of notice or both would constitute an Event of Default, nor does it obligate the Bank to agree to any further modifications to the Agreement or the Collateral Documents or constitute a waiver of any of the Bank’s other rights or remedies.

9. Release and Indemnity . (a) Recognizing and in _. consideration of the Bank’s agreement to the amendments provided herein, the Borrower hereby waives and releases the Bank and its officers, attorneys, agents, directors, and employees from any liability, suit,

damage, claim, actions, counterclaims or offsets, loss or expense of any kind or nature whatsoever and howsoever arising, whether known or unknown and whether based on facts now known or unknown, direct or derivative, that the Borrower, or anyone claiming in a derivative capacity from the Borrower, ever had or has as of the date of this Amendment against any of them including, without limitation, any of the foregoing arising out of or relating to the Bank’s or such other Persons’ acts or omissions with respect to this Amendment, the other documents executed in connection herewith, the Agreement, the Collateral Documents, the Bond Documents or any other matters described or referred to herein or therein.

10. Miscellaneous .

(b) This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements.

(d) This Amendment shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania.

(f) The headings used in this Amendment are for convenience of reference only, do not form a part of this Amendment and shall not affect in any way the meaning or interpretation of this Amendment.

IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Reimbursement, Credit and Security Agreement and Waiver as of the day and year first above written.

INNOVATIVE SOLUTIONS AND SUPPORT, LLC

By:		Innovative Solutions and Support, Incorporated, its sole member and manager

		By:	/s/ James Reilly
		Name: James Reilly
		Title: CFO


PNC BANK, NATIONAL ASSOCIATION


By:	/s/ John M DiNapoli
Name: John M DiNapoli
Title: Senior Vice President

S-1

CONSENT OF GUARANTORS

Each of the undersigned guarantors (the “Guarantors”) consents to the provisions of the foregoing Third Amendment to Reimbursement, Credit and Security Agreement and Waiver (the “Amendment”) and confirms and agrees that: (a) such Guarantor’s obligations under its Guaranty dated as of August 1, 2000 (as the same may be amended, restated or further modified and in effect from time to time, the “Guaranty”), relating to the obligations of the Borrower to the Bank shall be unimpaired by the Amendment; (b) such Guarantor has no defenses, set offs, counterclaims, discounts or charges of any kind against the Bank, its officers, directors, employees, agents or attorneys with respect to the Guaranty; and (c) all of the terms, conditions and covenants in the Guaranty remain unaltered and in full force and effect and are hereby ratified and confirmed and apply to the obligations of the Borrower to the Bank, as modified by the Amendment. Each of the Guarantors certifies that all representations and warranties made by it in the Guaranty are true and correct as of the date of the Amendment.

Each of the Guarantors ratifies and confirms the indemnification, confession of judgment and waiver of jury trial provisions, if any, contained in the Guaranty.

WITNESS the due execution of this Consent as a document under seal as of the date of the Amendment, intending to be legally bound hereby of Guarantors.

	INNOVATIVE SOLUTIONS AND SUPPORT, INCORPORATED


	By:	/s/ James Reilly


	IS&S DELAWARE, INC.


	By:	/s/ James Reilly
	Name: James Reilly
	Title: CFO

Exhibit 99.5

FOURTH AMENDMENT TO REIMBURSEMENT,
CREDIT AND SECURITY AGREEMENT

THIS FOURTH AMENDMENT TO REIMBURSE MENT, CREDIT AND SECURITY AGREEMENT (this “Amendment”) is made as of this 29 th day of January, 2007, by and between INNOVATIVE SOLUTIONS AND SUPPORT, LLC (the “Borrower”) and PNC BANK, NATIONAL ASSOCIATION (the “Bank”).

RECITALS:

A. The Bank and the Borrower entered into a Reimbursement, Credit and Security Agreement dated as of August 1, 2000, as amended by an Amendment dated as of November 29, 2002, an Amendment to Loan Documents dated as of March 30, 2004 and as further amended by a Third Amendment to Reimbursement, Credit and Security Agreement and Waiver dated as of July 25, 2006 (as so amended, the “Agreement”), pursuant to which the Bank has issued a letter of credit for the account of the Borrower in connection with the issuance of certain industrial development revenue bonds on behalf of the Borrower.

B. The Borrower has requested that the Bank amend certain financial covenants in the Agreement and the Bank has agreed to amend the Agreement on the terms and subject to the conditions set forth herein.

1. Definitions . Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

2. Amendment to Agreement . The Agreement is hereby amended effective as of the date hereof as follows:

(a) Section 6.21(a) is hereby amended and restated to read in full as follows:

“(a) IS&S, Inc. will maintain, on a consolidated basis, as of the end of each fiscal quarter of IS&S, Inc. beginning with the fiscal quarter ending on June 30, 2008, a ratio of total liabilities to EBITDA of not greater than 2.25:1.00.”

(b) Section 6.21(b) is hereby amended and restated to read in full as follows:

“(b) IS&S, Inc. will maintain, on a consolidated basis, as of the end of each fiscal quarter of IS&S, Inc. beginning with the fiscal quarter ending on June 30, 2008, a Fixed Charge Ratio equal to or greater than 1.25:1.00.”

3. Amendments to the Other Documents . All references to the Agreement in the Collateral Documents or the Bond Documents and in any documents executed in connection therewith shall be deemed to refer to the Agreement as amended by this Amendment.

5. Representations and Warranties .

6. Conditions Precedent . The amendments set forth herein shall be effective as of the date hereof upon the fulfillment, to the satisfaction of the Bank and its counsel, of the following conditions precedent:

(a) The Borrower shall have delivered to the Bank the following, all of which shall be in form and substance satisfactory to the Bank and shall be duly completed and executed:

(i) a fully executed counterpart of this Amendment, including the Consent of Guarantors; and

(ii) such additional documents, certificates and information as the Bank may reasonably request.

(b) The Borrower shall have paid to the Bank a nonrefundable modification fee in the amount of $2,500.

(c) The representations and warranties set forth in the Agreement shall be true and correct on and as of the date hereof.

(d) No Event of Default, and no event which, with the passage of time or the giving of notice, or both, would become such an Event of Default shall have occurred and be continuing as of the date hereof.

7. No Waiver . This Amendment does not and shall not be deemed to constitute a waiver by the Bank of any Event of Default, or of any event which with the passage of time or the giving of notice or both would constitute an Event of Default, nor does it obligate the Bank to agree to any further modifications to the Agreement or the Collateral Documents or constitute a waiver of any of the Bank’s other rights or remedies.

8. Release and Indemnity . (a) Recognizing and in consideration of the Bank’s agreement to the amendments provided herein, the Borrower hereby waives and releases the Bank and its officers, attorneys, agents, directors, and employees from any liability, suit, damage, claim, actions, counterclaims or offsets, loss or expense of any kind or nature whatsoever and howsoever arising, whether known or unknown and whether based on facts now known or unknown, direct or derivative, that the Borrower, or anyone claiming in a derivative capacity from the Borrower, ever had or has as of the date of this Amendment against any of them including, without limitation, any of the foregoing arising out of or relating to the Bank’s or such other Persons’ acts or omissions with respect to this Amendment, the other documents executed in connection herewith, the Agreement, the Collateral Documents, the Bond Documents or any other matters described or referred to herein or therein.

(b) The Borrower further hereby agrees to indemnify and hold the Bank and its officers, attorneys, agents, directors and employees harmless from any loss, damage, judgment, liability or expense (including counsel fees) suffered by or rendered against the Bank or any of them on account of anything arising out of this Amendment, the Agreement, the Collateral Documents, the Bond Documents or any other document or instrument delivered pursuant hereto or thereto up to and including the date of this Amendment; provided that , the Borrower shall not have any obligation hereunder to the Bank or such other Person with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Bank or such other Person.

9. Costs and Expenses . The Borrower will pay to the Bank on demand all costs and expenses of the Bank incurred in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and expenses of counsel for the Bank with respect thereto.

10. Miscellaneous .

(b) This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements.

(d) This Amendment shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania.

(f) The headings used in this Amendment are for convenience of reference only, do not form a part of this Amendment and shall not affect in any way the meaning or interpretation of this Amendment.

[Signatures to appear on the following page]

IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment to Reimbursement, Credit and Security Agreement as of the day and year first above written.

	INNOVATIVE SOLUTIONS AND SUPPORT, LLC

	By:	Innovative Solutions and Support,
		Incorporated, its sole member and
		manager

		By:	/s/ James Reilly
		Name: James Reilly
		Title: CFO

	PNC BANK, NATIONAL ASSOCIATION


	By:	/s/ John M DiNapoli
	Name:	John M DiNapoli
	Title:	Sr. Vice President

S-1

CONSENT OF GUARANTORS

Each of the undersigned guarantors (the “Guarantors”) consents to the provisions of the foregoing Fourth Amendment to Reimbursement, Credit and Security Agreement (the “Amendment”) and confirms and agrees that: (a) such Guarantor’s obligations under its Guaranty and Surety Agreement dated as of August 1, 2000 (as the same has teen amended, the “Guaranty”), relating to the obligations of the Borrower to the Bank shall be unimpaired by the Amendment; (b) such Guarantor has no defenses, set offs, counterclaims, discounts or charges of any kind against the Bank, its officers, directors, employees, agents or attorneys with respect to the Guaranty; and (c) all of the terms, conditions and covenants in the Guaranty remain unaltered and in full force and effect and are hereby ratified and confirmed and apply to the obligations of the Borrower to the Bank, as modified by the Amendment. Each of the Guarantors certifies that all representations and warranties made by it in the Guaranty are true and correct as of the date of the Amendment.

Each of the Guarantors ratifies and confirms the indemnification, confession of judgment and waiver of jury trial provisions, if any, contained in the Guaranty.

WITNESS the due execution of this Consent as a document under seal as of the date of the Amendment, intending to be legally bound hereby.

	INNOVATIVE SOLUTIONS AND SUPPORT, INC.


	By:	/s/ James Reilly
	Name: James Reilly
	Title: CFO

	IS&S DELAWARE, INC.


	By:	/s/ James Reilly
	Name: James Reilly
	Title: CFO

THIRD AMENDMENT TO REIMBURSEMENT, CREDIT AND SECURITY
AGREEMENT AND WAIVER

THIS THIRD AMENDMENT TO REIMBURSEMENT, CREDIT AND SECURITY AGREEMENT AND WAIVER (this “Amendment”) is made as of this 25 th day of July, 2006, by and between INNOVATIVE SOLUTIONS AND SUPPORT, LLC (the “Borrower”) and PNC BANK, NATIONAL ASSOCIATION (the “Bank”).

RECITALS:

1. Definitions . Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

3. Amendment to Agreement . The Agreement is hereby amended effective as of the date hereof as follows:

(a) Section 6.10(a)(1) is hereby amended and restated to read in full as follows:

(b) Section 6.21 is hereby amended and restated to read in full as follows:

“Section 6.21 Financial Covenants . The Borrower shall cause IS&S, Inc. to observe the following covenants:

4. Amendments to the Other D ocuments . All references to the Agreement in the Collateral Documents or the Bond Documents and in any documents executed in connection therewith shall be deemed to refer to the Agreement as amended by this Amendment.

6. Representations and Warranties .

Event of Default with the passage of time or the giving of notice, or both, under the Agreement or the Collateral Documents exists on the date hereof.

(a) The Borrower shall have delivered to the Bank the following, all of which shall be in form and substance satisfactory to the Bank and shall be duly completed and executed:

(i) a fully executed counterpart of this Amendment, including the Consent of Guarantors; and

(ii) such additional documents, certificates and information as the Bank may reasonably request

(b) The representations and warranties set forth in the Agreement shall be true and correct on and as of the date hereof.

9. Release and Indemnity . (a) Recognizing and in consideration of the Bank’s agreement to the amendments provided herein, the Borrower hereby waives and releases the Bank and its officers, attorneys, agents, directors, and employees from any liability, suit,

10. Miscellaneous .

(b) This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements.

(d) This Amendment shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania.

(f) The headings used in this Amendment are for convenience of reference only, do not form a part of this Amendment and shall not affect in any way the meaning or interpretation of this Amendment.

[Signatures to appear on the following page]

IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Reimbursement, Credit and Security Agreement and Waiver as of the day and year first above written.

INNOVATIVE SOLUTIONS AND SUPPORT, LLC

By:		Innovative Solutions and Support,
		Incorporated, its sole member and
		manager

		By:	/s/ James Reilly
		Name: James Reilly
		Title: CFO


PNC BANK, NATIONAL ASSOCIATION


By:	/s/ John M DiNapoli
Name: John M DiNapoli
Title: Senior Vice President

S-1

CONSENT OF GUARANTORS

Each of the Guarantors ratifies and confirms the indemnification, confession of judgment and waiver of jury trial provisions, if any, contained in the Guaranty.

WITNESS the due execution of this Consent as a document under seal as of the date of the Amendment, intending to be legally bound hereby of Guarantors.

	INNOVATIVE SOLUTIONS AND
	SUPPORT, INCORPORATED


	By:	/s/ James Reilly

	IS&S DELAWARE, INC.


	By:	/s/ James Reilly
	Name: James Reilly
	Title: CFO

Exhibit 99.6

FIFTH AMENDMENT TO REIMBURSEMENT,
CREDIT AND SECURITY AGREEMENT

THIS FIFTH AMENDMENT TO REIMBURSEMENT, CREDIT AND SECURITY AGREEMENT (this “Amendment”) is made as of this 10 TH day of January, 2008, by and between INNOVATIVE SOLUTIONS AND SUPPORT, LLC (the “Borrower”) and PNC BANK, NATIONAL ASSOCIATION (the “Bank”).

RECITALS:

A. The Bank and the Borrower entered into a Reimbursement, Credit and Security Agreement dated as of August 1, 2000, as amended by an Amendment dated as of November 29, 2002, an Amendment to Loan Documents dated as of March 30, 2004, a Third Amendment to Reimbursement, Credit and Security Agreement and Waiver dated as of July 25, 2006, and by a Fourth Amendment to Reimbursement, Credit and Security Agreement dated as of January 29, 2007 (as so amended, the “Agreement”), pursuant to which the Bank has issued a letter of credit for the account of the Borrower in connection with the issuance of certain industrial development revenue bonds on behalf of the Borrower.

1. Definitions . Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

2. Amendment to Agreement . The Agreement is hereby amended effective as of the date hereof as follows:

(a) Section 6.21(a) is hereby amended and restated to read in full as follows:

“(a) IS&S, Inc. will maintain at all times unencumbered cash and marketable securities having a market value of at least $20,000,000.”

(b) Section 6.21(b) is hereby deleted in its entirety and replaced with the words “Intentionally Deleted”.

3. Amendments to the Other Documents . All references to the Agreement in the Collateral Documents or the Bond Documents and in any documents executed in connection therewith shall be deemed to refer to the Agreement as amended by this Amendment.

5. Representations and Warranties.

(a) The Borrower shall have delivered to the Bank the following, all of which shall be in form and substance satisfactory to the Bank and shall be duly completed and executed:

(i) a fully executed counterpart of this Amendment, including the Consent of Guarantors; and

(ii) such additional documents, certificates and information as the Bank may reasonably request.

(b) The Borrower shall have paid to the Bank (i) a nonrefundable modification fee in the amount of $2,500, and (ii) a document services fee of $500 for documenting this transaction (which includes, among other things, fees and expenses of the Bank’s outside and in-house counsel).

(c) The representations and warranties set forth in the Agreement shall be true and correct on and as of the date hereof.

7. No Waiver . This Amendment does not and shall not be deemed to constitute a waiver by the Bank of any Event of Default, or of any event which with the passage of time or the giving of notice or both would constitute an Event of Default, nor does it obligate the Bank to agree to any further modifications to the Agreement or the Collateral Documents or constitute a waiver of any of the Bank’s other rights or remedies.

9. Miscellaneous.

(b) This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements.

(d) This Amendment shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania.

(f) The headings used in this Amendment are for convenience of reference only, do not form a part of this Amendment and shall not affect in any way the meaning or interpretation of this Amendment.

[Signatures to appear on the following page]

CONSENT OF GUARANTORS

Each of the undersigned guarantors (the “Guarantors”) consents to the provisions of the foregoing Fifth Amendment to Reimbursement, Credit and Security Agreement (the “Amendment”) and confirms and agrees that: (a) such Guarantor’s obligations under its Guaranty and Surety Agreement dated as of August 1, 2000 (as the same has been amended, the “Guaranty”), relating to the obligations of the Borrower to the Bank shall be unimpaired by the Amendment; (b) such Guarantor has no defenses, set offs, counterclaims, discounts or charges of any kind against the Bank, its officers, directors, employees, agents or attorneys with respect to the Guaranty; and (c) all of the terms, conditions and covenants in the Guaranty remain unaltered and in full force and effect and are hereby ratified and confirmed and apply to the obligations of the Borrower to the Bank, as modified by the Amendment. Each of the Guarantors certifies that all representations and warranties made by it in the Guaranty are true and correct as of the date of the Amendment.

Each of the Guarantors ratifies and confirms the indemnification, confession of judgment and waiver of jury trial provisions, if any, contained in the Guaranty.

WITNESS the due execution of this Consent as a document under seal as of the date of the Amendment, intending to be legally bound hereby.

	INNOVATIVE SOLUTIONS AND SUPPORT, INC.


	By:	/s/ James Reilly
	Name:	JAMES REILLY
	Title:	CFO


	IS&S DELAWARE, INC.


	By:	/s/ James Reilly
	Name:	JAMES REILLY
	Title:	CFO

IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment to Reimbursement, Credit and Security Agreement as of the day and year first above written.

INNOVATIVE SOLUTIONS AND SUPPORT, LLC

By:	Innovative Solutions and Support, Incorporated, its sole member and manager

	By:	/s/ James Reilly
	Name:	JAMES REILLY
	Title:	CFO


PNC BANK, NATIONAL ASSOCIATION


By:	/s/ John M Dinapoli
Name:	JOHN M DINAPOLI
Title:	SENIOR V.P.

S-1