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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2003



OR



 ̈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                                                                         |  | 23-2507402                       
|------------------------------------------------------------------------------------ |  | ---------------------------------
|(State or other jurisdiction of incorporation)                                       |  | (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)



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



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ̈No x



As of April 23, 2003, there were 12,157,169 shares of the Registrants
Common Stock, with par value of $.001, outstanding.



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INNOVATIVE SOLUTIONS AND SUPPORT, INC.

FORM 10-Q March 31, 2003

INDEX



|           |  |                                                                                                          |  | Page No.
|---------- |  | -------------------------------------------------------------------------------------------------------- |  | --------
|          
|PART I.    |  | FINANCIAL INFORMATION                                                                                    |  |         
|          
|Item 1.    |  | FINANCIAL STATEMENTS (unaudited)                                                                         |  |         
|          
|           |  | Condensed Consolidated Balance SheetsSeptember 30, 2002 and March 31, 2003                              |  | 3       
|          
|           |  | Condensed Consolidated Statements of OperationsThree Months and Six Month Ended March 31, 2002 and 2003 |  | 4       
|          
|           |  | Condensed Consolidated Statements of Cash FlowsSix Months Ended March 31, 2002 and 2003                 |  | 5       
|          
|           |  | Notes to Condensed Consolidated Financial Statements                                                     |  | 6-8     
|          
|Item 2.    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                    |  | 8-13    
|          
|Item 3.    |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                               |  | 13      
|          
|Item 4.    |  | CONTROLS AND PROCEDURES.                                                                                 |  | 13      
|          
|PART II    |  | OTHER INFORMATION.                                                                                       |  |         
|          
|Item 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                                     |  | 13-14   
|          
|Item 6.    |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                         |  | 14      
|          
|Signatures |  | 15                                                                                                      



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PART
IFINANCIAL INFORMATION

Item 1Financial Statements

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                                                                                                                 |  | September 30, 2002 |            |   | March 31, 2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---------- | - | -------------- | -
|ASSETS                                                                                                                                                                                           |  |                    |            |   |                |  
|Current Assets:                                                                                                                                                                                  |  |                    |            |   |                |  
|Cash and cash equivalents                                                                                                                                                                        |  | $                  | 52,245,754 |   |                | $
|Accounts receivable, less allowance for doubtful accounts of $100,000 at September 30,
2002 and March 31, 2003, respectively                                                                     |  |                    | 5,300,421  |   |                |  
|Inventories                                                                                                                                                                                      |  |                    | 3,352,649  |   |                |  
|Deferred income taxes                                                                                                                                                                            |  |                    | 650,384    |   |                |  
|Prepaid income taxes                                                                                                                                                                             |  |                    |           |   |                |  
|Prepaid expenses                                                                                                                                                                                 |  |                    | 655,869    |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Total current assets                                                                                                                                                                             |  |                    | 62,205,077 |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Property and Equipment:                                                                                                                                                                          |  |                    |            |   |                |  
|Computers and test equipment                                                                                                                                                                     |  |                    | 3,261,588  |   |                |  
|Corporate airplane                                                                                                                                                                               |  |                    | 2,998,161  |   |                |  
|Furniture and office equipment                                                                                                                                                                   |  |                    | 517,129    |   |                |  
|Manufacturing facility                                                                                                                                                                           |  |                    | 6,389,935  |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Total property and equipment                                                                                                                                                                     |  |                    | 13,166,813 |   |                |  
|Less-Accumulated depreciation and amortization                                                                                                                                                   |  |                    | (3,021,918 | ) |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Net property and equipment                                                                                                                                                                       |  |                    | 10,144,895 |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Deposits and Other Assets                                                                                                                                                                        |  |                    | 266,713    |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Total Assets                                                                                                                                                                                     |  | $                  | 72,616,685 |   |                | $
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|                                                                                                                                                                                                
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                             |  |                    |            |   |                |  
|Current Liabilities                                                                                                                                                                              |  |                    |            |   |                |  
|Current portion of note payable                                                                                                                                                                  |  | $                  | 100,000    |   |                | $
|Current portion of capitalized lease obligations                                                                                                                                                 |  |                    | 17,111     |   |                |  
|Accounts payable                                                                                                                                                                                 |  |                    | 246,814    |   |                |  
|Accrued expenses                                                                                                                                                                                 |  |                    | 2,544,909  |   |                |  
|Deferred revenue                                                                                                                                                                                 |  |                    | 137,936    |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Total current liabilities                                                                                                                                                                        |  |                    | 3,046,770  |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Note Payable                                                                                                                                                                                     |  |                    | 4,235,000  |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Deferred Revenue                                                                                                                                                                                 |  |                    | 402,877    |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Deferred Income Taxes                                                                                                                                                                            |  |                    | 205,828    |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Commitments and Contingencies                                                                                                                                                                    |  |                    |            |   |                |  
|Shareholders Equity:                                                                                                                                                                            |  |                    |            |   |                |  
|Preferred stock, 10,000,000 shares authorized  Class A Convertible
stock, $.001 par value; 200,000 shares authorized, no shares issued and outstanding at September 30, 2002 and March 31, 2003 |  |                    |           |   |                |  
|Common stock, $.001 par value; 75,000,000 shares authorized, 12,802,069 and 12,457,169
shares issued at September 30, 2002 and March 31, 2003, respectively                                      |  |                    | 13,052     |   |                |  
|Additional paid-in capital                                                                                                                                                                       |  |                    | 46,093,605 |   |                |  
|Retained earnings                                                                                                                                                                                |  |                    | 19,869,553 |   |                |  
|Treasury stock, at cost                                                                                                                                                                          |  |                    | (1,250,000 | ) |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Total shareholders equity                                                                                                                                                                       |  |                    | 64,726,210 |   |                |  
|                                                                                                                                                                                                 |  |                    |            |   |                |  
|Total Liabilities and Shareholders Equity                                                                                                                                                       |  | $                  | 72,616,685 |   |                | $
|                                                                                                                                                                                                 |  |                    |            |   |                |  

The accompanying notes are an integral part of these statements.



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INNOVATIVE
SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                    |  | Three months ended March 31, 2002 |            |   | Three months ended March 31, 2003 |   |            | Six months ended March 31, 2002 |  |   | Six months ended March 31, 2003 |  
|----------------------------------- |  | --------------------------------- | ---------- | - | --------------------------------- | - | ---------- | ------------------------------- |  | - | ------------------------------- | -
|Revenues                            |  | $                                 | 6,597,567  |   |                                   | $ | 7,122,425  |                                 |  | $ | 13,906,033                      |  
|Cost of Sales                       |  |                                   | 2,789,538  |   |                                   |   | 2,964,740  |                                 |  |   | 5,519,666                       |  
|                                    |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Gross Profit                        |  |                                   | 3,808,029  |   |                                   |   | 4,157,685  |                                 |  |   | 8,386,367                       |  
|                                    |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Research and Development            |  |                                   | 1,066,477  |   |                                   |   | 838,586    |                                 |  |   | 2,194,211                       |  
|Selling, general and administrative |  |                                   | 1,303,665  |   |                                   |   | 1,478,191  |                                 |  |   | 2,941,549                       |  
|                                    |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Operating income                    |  |                                   | 1,437,887  |   |                                   |   | 1,840,908  |                                 |  |   | 3,250,607                       |  
|                                    |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Interest income                     |  |                                   | 189,900    |   |                                   |   | 146,314    |                                 |  |   | 431,343                         |  
|Interest expense                    |  |                                   | (33,892    | ) |                                   |   | (31,441    | )                               |  |   | (60,136                         | )
|                                    |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Income before income taxes          |  |                                   | 1,593,895  |   |                                   |   | 1,955,781  |                                 |  |   | 3,621,814                       |  
|Income tax expense                  |  |                                   | 589,742    |   |                                   |   | 684,523    |                                 |  |   | 1,340,071                       |  
|                                    |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Net income                          |  | $                                 | 1,004,153  |   |                                   | $ | 1,271,258  |                                 |  | $ | 2,281,743                       |  
|                                    |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Net income per common share         |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Basic                               |  | $                                 | 0.08       |   |                                   | $ | 0.10       |                                 |  | $ | 0.18                            |  
|Diluted                             |  | $                                 | 0.08       |   |                                   | $ | 0.10       |                                 |  | $ | 0.17                            |  
|Weighted Average Shares Outstanding |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |  
|Basic                               |  |                                   | 12,780,035 |   |                                   |   | 12,630,220 |                                 |  |   | 12,855,215                      |  
|Diluted                             |  |                                   | 13,024,374 |   |                                   |   | 12,837,461 |                                 |  |   | 13,089,204                      |  



The accompanying notes
are an integral part of these statements.



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INNOVATIVE
SOLUTIONS AND SUPPORT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  | For the Six Months Ended March 31, 2002 |            |   | For the Six Months Ended March 31, 2003 |  
|--------------------------------------------------------------------------------- |  | --------------------------------------- | ---------- | - | --------------------------------------- | -
|Cash Flows From Operating Activities:                                             |  |                                         |            |   |                                         |  
|Net income                                                                        |  | $                                       | 2,281,743  |   |                                         | $
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                                         |            |   |                                         |  
|Depreciation and amortization                                                     |  |                                         | 453,920    |   |                                         |  
|Write-off of software deposit                                                     |  |                                         |           |   |                                         |  
|Loss on disposal of fixed assets                                                  |  |                                         | 35,720     |   |                                         |  
|Stock issued to directors                                                         |  |                                         | 39,000     |   |                                         |  
|(Increase)/decrease in                                                           |  |                                         |            |   |                                         |  
|Accounts receivable                                                               |  |                                         | 29,744     |   |                                         |  
|Inventories                                                                       |  |                                         | 767,951    |   |                                         |  
|Prepaid expenses and other                                                        |  |                                         | (318,941   | ) |                                         |  
|Increase/(decrease) in                                                           |  |                                         |            |   |                                         |  
|Accounts payable                                                                  |  |                                         | 66,615     |   |                                         |  
|Accrued expenses                                                                  |  |                                         | 938,897    |   |                                         |  
|Deferred revenue                                                                  |  |                                         | (31,247    | ) |                                         |  
|                                                                                  |  |                                         |            |   |                                         |  
|Net cash provided by operating activities                                         |  |                                         | 4,263,402  |   |                                         |  
|                                                                                  |  |                                         |            |   |                                         |  
|Cash Flows From Investing Activities:                                             |  |                                         |            |   |                                         |  
|Purchases of property and equipment                                               |  |                                         | (2,987,034 | ) |                                         |  
|Restricted cash                                                                   |  |                                         | 317,465    |   |                                         |  
|                                                                                  |  |                                         |            |   |                                         |  
|Net cash used in investing activities                                             |  |                                         | (2,669,569 | ) |                                         |  
|                                                                                  |  |                                         |            |   |                                         |  
|Cash Flows From Financing Activities:                                             |  |                                         |            |   |                                         |  
|Repayments of capitalized lease obligations                                       |  |                                         | (8,556     | ) |                                         |  
|Purchase of treasury stock                                                        |  |                                         | (1,250,000 | ) |                                         |  
|                                                                                  |  |                                         |            |   |                                         |  
|Net cash used in financing activities                                             |  |                                         | (1,258,556 | ) |                                         |  
|                                                                                  |  |                                         |            |   |                                         |  
|Net Increase (Decrease) In Cash and Cash Equivalents                              |  |                                         | 335,277    |   |                                         |  
|Cash and Cash Equivalents, Beginning of Year                                      |  |                                         | 42,769,837 |   |                                         |  
|                                                                                  |  |                                         |            |   |                                         |  
|Cash and Cash Equivalents, End of Period                                          |  | $                                       | 43,105,114 |   |                                         | $
|                                                                                  |  |                                         |            |   |                                         |  



The accompanying notes
are an integral part of these statements.



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Innovative
Solutions & Support Inc,

Notes to Condensed Financial Statements



1.    Basis of Presentation:



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,
electronic displays and advanced monitoring systems to the military, government, commercial air transport and corporate aviation markets.



The balance sheet as of March 31, 2003, the statements of operations for the three months and six months ended March 31, 2002 and 2003 and the statements
of cash flows for the six months ended March 31, 2002 and 2003 have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows at March 31, 2003 and for all periods presented have been made.



Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Companys Form 10K for the year ended September 30, 2002 as filed with the Securities
and Exchange Commission. The results of operations for the three months and six months ended March 31, 2003 are not necessarily indicative of the operating results for the full year.



2.    Initial Public Offering and Treasury Stock



In August 2000, the Company completed its initial public offering of 3,450,000
shares of Common Stock at a price of $11.00 per share. The Company received net proceeds of approximately $34 million from the offering. Upon the closing of the offering, the outstanding shares of Preferred stock were converted into 1,941,353 shares
of Common stock.



On June 6, 2002, the board of directors
authorized an open-market stock repurchase program of up to 2,000,000 shares of its common stock. In the quarter ended March 31, 2003 the Company purchased 253,600 shares at a cost of $1,517,201. For the six month period ended March 31,2003, the
Company purchased 359,900 shares at a cost of $2,324,847.



3.    Net income per Share



Net income per share (EPS) is calculated using the principles of SFAS No. 128. On July 7, 2000, the Companys Board of Directors approved a split of the Companys common shares on a 1.09624-to-1 basis. All
references in the financial statements to the number of common shares and to per share amounts have been retroactively stated to reflect the common share split.



A reconciliation of weighted average shares outstanding appears below:



|                                     |  | Three months ended March 31, 2002 |  | Three months ended March 31, 2003 |  | Six months ended March 31, 2002 |  | Six months ended March 31, 2003
|------------------------------------ |  | --------------------------------- |  | --------------------------------- |  | ------------------------------- |  | -------------------------------
|Weighted average shares outstanding: |  |                                   |  |                                   |  |                                 |  |                                
|Basic                                |  | 12,780,035                        |  | 12,630,220                        |  | 12,855,215                      |  | 12,667,281                     
|                                    
|Potentially dilutive securities:     |  |                                   |  |                                   |  |                                 |  |                                
|Employee stock options               |  | 44,170                            |  | 28,190                            |  | 40,847                          |  | 31,508                         
|Warrants                             |  | 200,169                           |  | 179,051                           |  | 193,142                         |  | 189,043                        
|                                     |  |                                   |  |                                   |  |                                 |  |                                
|Weighted average shares outstanding: |  |                                   |  |                                   |  |                                 |  |                                
|Diluted                              |  | 13,024,374                        |  | 12,837,461                        |  | 13,089,204                      |  | 12,887,832                     
|                                     |  |                                   |  |                                   |  |                                 |  |                                



The weighted average
number of shares for potentially antidilutive employee stock options was 319,030 as of March 31, 2003.



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4.    Concentrations



During
the three months ended March 31, 2003 and 2002, the Company derived 1% and 73% of its revenues from one customer, respectively. Accounts receivable related to this customer totaled $56,000 at March 31, 2003. The Companys supply arrangement
with this customer was completed in the third quarter of fiscal 2002. Should a new supply arrangement not be obtained after the expiration of the existing arrangement, the Company may experience a significant reduction in sales. This result may have
a material adverse effect on the Companys operating results and financial condition. In the three months and six months ended March 31, 2003 the Company derived 30% and 25%, respectively, of revenue from one customer.



5.    Inventories



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



|                |  | September 30, 2002 |           | March 31, 2003
|--------------- |  | ------------------ | --------- | --------------
|Raw materials   |  | $                  | 1,981,989 |               
|Work-in-process |  |                    | 836,017   |               
|Finished goods  |  |                    | 534,643   |               
|                |  |                    |           |               
|                |  | $                  | 3,352,649 |               
|                |  |                    |           |               



|6. |  | Warranty
|-- |  | --------



The Company provides for the estimated cost of product warranties at the time revenue is recognized. 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 usage, labor and delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or labor costs differ from the
Companys estimates, revisions to the estimated warranty liability would be required.



Warranty cost and accrual information is as follows for the six months ended March 31,2003:



|Warranty accrual at September 30, 2002 |  | $ | 675,640 |  
|-------------------------------------- |  | - | ------- | -
|Warranty expense                       |  |   | 112,212 |  
|Warranty costs                         |  |   | (52,583 | )
|                                       |  |   |         |  
|Warranty accrual at March 31, 2003     |  | $ | 735,269 |  
|                                       |  |   |         |  



7.    Stock Options



The
Companys 1988 Stock Incentive Plan provides for the granting of incentive stock options to employees. The Companys 1998 Stock Option Plan provides for the granting of incentive and nonqualified stock options to employees, officers,
directors and independent contractors and consultants. Through March 31, 2003, no stock options have been granted to independent contractors or consultants under this plan.



Incentive stock options granted under the 1988 Stock Incentive Plan and the 1998 Stock Option Plan (the Plans)
must be at least equal to the fair value of the Common stock on the date of grant. Nonqualified stock options granted under the 1998 Plan may be less than, equal to or greater than the fair value of the Common stock on the date of grant. Required
disclosure information regarding the Plans has been combined due to the similarities in the Plans. The Company has reserved 1,360,228 shares of Common stock for awards under the Plans.



Under SFAS No. 123, compensation cost related to stock options granted to employees is computed based on the fair value of
the stock option at the date of grant using the Black-Scholes option pricing model. The Company has elected the disclosure method of SFAS No. 123. Had the Company recognized compensation cost for its stock option plans consistent with the provisions
of SFAS 123, the Companys pro forma net income for the three month and six month periods ended March 31, 2003 would have been as follows:



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|             |  | Three Months Ended March 31, 2003 |           | Six Months Ended March 31, 2003
|------------ |  | --------------------------------- | --------- | -------------------------------
|Net income:  |  |                                   |           |                                
|As reported  |  | $                                 | 1,271,258 |                                
|Pro forma    |  | $                                 | 1,177,640 |                                
|Basic EPS:   |  |                                   |           |                                
|As reported  |  | $                                 | .10       |                                
|Pro forma    |  | $                                 | .09       |                                
|Diluted EPS: |  |                                   |           |                                
|As reported  |  | $                                 | .10       |                                
|Pro forma    |  | $                                 | .09       |                                



8.    New Accounting Pronouncements



In November 2002, the FASB issued Interpretation No. 45 Guarantors Accounting Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 established
requirements for accounting and disclosure of guarantees issued to third parties for various transactions. The accounting requirements of FIN 45 are applicable to guarantees issued after December 31, 2002. The disclosure requirements of FIN 45 are
applicable to financial statements issued for periods ending after December 15, 2002. The Company has included the required disclosure within the notes to the financial statements.



In January 2003, the FASB issued Financial Interpretation (Interpretation) No. 46 Consolidation of Variable Interest
Entities an Interpretation of ARB No. 51. FIN No. 46 addresses consolidation by business enterprises of variable interest entities. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. Management does not believe adoption of the Interpretation will have a material impact on its results of operations.



In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement 123. SFAS No. 148 addresses alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of Statement No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The Company has included the required
disclosures within the notes to the financial statements.



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



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



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



We record revenues when our products are shipped. Since fiscal year 1998, the majority of our revenues have come from the sale of Reduced Vertical Separation Minimum (RVSM) compliant air data systems,
including sales to commercial contractors in connection with the United States Air Force KC-135 retrofit program. We were the sole supplier of these systems and components under subcontracts with various commercial contractors for the retrofit
program, which covers the approximately 600 KC-135 aircraft currently in use. With the exception of spare part and on-going repair effort, the Companys supply arrangement with this customer was completed in the quarter ended June 30, 2002.



The company continues to invest in and seek additional
opportunities for its Flat Panel product line. To date we have been successful in being selected by the U.S. Navy for Flat Panel applications on their Landing Craft Air Cushion (LCAC) platforms. In addition we were selected by Boeing to provide Flat
Panels for the Boeing 767 tanker program. Both of these programs have multi year requirements that will provide a solid base for future awards.



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



We intend to continue to invest in the development of new products and the enhancement of our existing product line. We expense research and development
costs related to future product development as they are incurred.



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



Three Months
Ended March 31, 2003 Compared to the Three Months Ended March 31, 2002



Revenues. Revenues increased $0.5 million, or 8%, to $7.1 million for the three months ended March 31, 2003 from $6.6 million in the three months ended March 31, 2002. The increase in revenue was primarily the result of additional
business jet revenue



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more than offsetting KC-135 deliveries that were essentially completed in the quarter ended March 31,
2002. Revenue unrelated to the KC-135 program increased $5.2 million or 288% to $7.0 million for the three months ended March 31, 2003 from $1.8 million in the three months ended March 31, 2002.



Cost of Sales. Cost of sales increased $175,000 or 6%, to $3.0 million, or
41.6% of revenues, in the three months ended March 31, 2003 from $2.8 million, or 42.3% of revenues, in the three months ended March 31, 2002. The absolute dollar increase in cost of sales was related to our increase in revenues. As a percentage of
revenue, cost of sales remained relatively unchanged period over period.



Research and development. Research and development expenses decreased $228,000 or 21% to $839,000 or 12% of revenue in the three months ended March 31, 2003 from $1.1 million or 16% of revenue in the three months ended March 31,
2002. The decrease in dollars and as a percentage of revenue was the result of lower spending on selected programs.



Selling, general and administrative. Selling, general and administrative expenses increased $175,000, or 13%, to $1.5 million, or 20.8% of revenues, in
the three months ended March 31, 2003 from $1.3 million or 19.8% of revenues, in the three months ended March 31, 2002. The increase in both the dollar amount and percent to revenue was mostly the result of expensing material resource planning
software in the current period.



Interest income. Interest income
was $146,000 in the three months ended March 31, 2003 as compared to interest income of $190,000 in the three months ended March 31, 2002. The decreased interest income in the three months ended March 31, 2003 was primarily the result of lower
interest rates in the current period.



Interest expense. Interest
expense was $31,000 in the three months ended March 31, 2003 as compared to $34,000 in the three months ended March 31, 2002. The decrease was due to lower interest rates in the current period.



Income tax expense. Income tax expense was $685,000 in the three months ended
March 31, 2003 as compared to income tax expense of $590,000 in the three months ended March 31, 2002. The increase was primarily due to higher income before taxes in the period more than offsetting a two percentage point decline in the effective
tax rate in the current period.



Net income. As a result of the
factors described above, our net income increased $267,000 or 27%, to $1.3 million, or 18% of revenues.



Six Months Ended March 31, 2003 Compared to the Six Months Ended March 31, 2002



Revenues. Revenues decreased $2.4 million, or 17%, to $11.5 million for the six months ended March 31, 2003 from $13.9 million in the six months ended
March 31, 2002. The decrease in revenue was primarily the result of $6.9 million in new business jet revenue being more than offset with the KC-135 delivery decline of $9.3 million. The KC-135 program was essentially completed in the six month
period ended March 31, 2002. Revenue related to the business jet market increased $6.9 million or 157% to $11.4 million for the six months ended March 31, 2003 from $4.4 million in the six months ended March 31, 2002.



Cost of Sales. Cost of sales decreased $512,000, or 9%, to $5.0 million, or
43.4% of revenues, in the six months ended March 31, 2003 from $5.5 million, or 39.7% of revenues, in the six months ended March 31, 2002. The absolute dollar decrease in cost of sales was related to a decrease in revenue. The percentage of revenue
increase was the result of fixed manufacturing cost being absorbed over fewer sales.



Research and development. Research and development expenses decreased $428,000 or 20% to $1.8 million or 15% of revenue in the six months ended March 31, 2003 from $2.2 million or 16% of revenue in the six months ended March
31, 2002. The decrease in dollars was the result of $150,000 of Non Recurring Engineering (NRE) direct cost deferred on the balance sheet as it relates to future revenue recognition associated with customer paid NRE. The remainder of the reduction
was due to reduced consultant cost coupled with lower recruitment and relocation expenses.



Selling, general and administrative. Selling, general and administrative expenses decreased $209,000, or 7%, to $2.7 million, or 23.7% of revenues, in the six months ended March 31, 2002 from $2.9
million or 21.1% of revenues, in the six months ended March 31, 2002. The decrease in dollar amount was the result of lower consulting and commission expenses. The percent to revenue increase was due to lower revenue in the period.



Interest income. Interest income was $329,000 in the six months ended March
31, 2003 as compared to interest income of $431,000 in the six months ended March 31, 2002. The decrease in interest income was primarily the result of lower interest rates in the period.



9



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Interest expense. Interest
expense was $69,000 in the six months ended March 31, 2003 as compared to $60,000 in the six months ended March 31, 2002. The increase was due to the fact that interest is no longer being capitalized as part of the cost of the companys new
manufacturing facility. The facility was placed into service in November 2001.



Income tax expense. Income tax expense was $805,000 in the six months ended March 31, 2003 as compared to income tax expense of $1.3 million in the six months ended March 31, 2002. The decrease was primarily due to lower income
before taxes in the period. Of the $495,000 reduction, however, $46,000 was the result of lowering the effective tax rate from 37% in the six months ended March 31, 2002 to 35% in the six months ended March 31, 2003.



Net income. As a result of the factors described above, our net income
declined $787,000 or 34%, to $1.5 million, or 13% of revenues.



Liquidity and Capital Resources



Our main sources
of liquidity have been cash flows from operations, borrowings and the proceeds of our initial public offering in August 2000. We require cash principally to finance inventory, accounts receivable and payroll.



Our cash flow provided from operating activities was $1.1 million for the six
months ended March 31, 2003 as compared to $4.3 million for the six months ended March 31, 2002. The decrease was mainly the result of lower net income ($0.8 million), higher inventory ($0.9 million), lower accrued expenses ($1.1 million) and higher
receivables ($0.8 million).



Our cash used in investing
activities was $66,000 for the six months ended March 31, 2003 as compared to $2.7 million for the six months ended March 31, 2002. The decrease in the six months ended March 31, 2003 was primarily due to the Companys completion of its new
manufacturing facility in the prior year.



Net cash flow used in
financing activities was $2.3 million for the six months ended March 31, 2003 as compared to $1.3 million in the six months ended March 31, 2002. This primary use of cash in both periods was to acquire treasury stock; $2.3 million in the six month
period ended March 31, 2003 for 359,900 shares and $1,250,000 for 250,000 shares in the six month period ended March 31, 2002.



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



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 most significant estimates and assumptions relate to our allowance for doubtful accounts, valuation of inventory and warranty reserves.



We maintain an allowance for doubtful accounts for customer returns and for estimated losses resulting from the inability of our customers to make
required payments. These allowances are determined by analyzing historical data and trends. If actual losses are greater than estimated amounts or if the financial condition of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, future results from operations could be adversely affected.



Inventories are written down for estimated obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about market conditions. If actual future demand or
market conditions are less favorable than those projected by management, additional inventory write-downs may be required.



We offer warranties on some products of various lengths. At the time of shipment, we establish a reserve for the estimated cost of



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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 cost of warranties is affected by the length of the warranty, the products failure rates and the
customers usage. If the actual cost of warranties differs from our estimated amounts, future results of operations could be affected.



Business Segments



The Company operates in one principal business segment which designs, manufactures and sells flight information computers, electronic displays and advanced monitoring systems to the Department of
Defense, 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.



New
Accounting Pronouncements



In November 2002, the FASB issued
Interpretation No. 45 Guarantors Accounting Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 established requirements for accounting and disclosure of
guarantees issued to third parties for various transactions. The accounting requirements of FIN 45 are applicable to guarantees issued after December 31, 2002. The disclosure requirements of FIN 45 are applicable to financial statements issued for
periods ending after December 15, 2002. The Company has included the required disclosure within the notes to the financial statements.



In January 2003, the FASB issued Financial Interpretation (Interpretation) No. 46  Consolidation of Variable Interest Entities an Interpretation of
ARB No. 51. FIN No. 46 addresses consolidation by business enterprises of variable interest entities. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1,
2003. Management does not believe adoption of the Interpretation will have a material impact on its results of operations.



In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure, an amendment of FASB Statement 123. SFAS No. 148 addresses alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method
used on reported results. The transition guidance and annual disclosure provisions of Statement No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The Company has
included the required disclosures within the notes to the financial statements.



Risk Factors



This report includes a number of
forward-looking statements that reflect our current views with respect to future events and financial performance. We use words such as anticipates, believes, expects, future, and intends, and similar expressions to identify forward-looking
statements. There are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including:



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



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



| |  |  | our business derived a large portion of its revenues from one military retrofit program, which was substantially completed in the third quarter of fiscal 2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the growth of our customer base could be limited by delays or difficulties in completing the development and introduction of our CIP or other planned products or
product enhancements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | our government retrofit projects allow the government agency or government contractor to terminate or modify their contracts with us.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | our revenues and operating results may vary significantly from quarter to quarter due to a number of factors, including:
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | variations in demand for our products;
| | - |  | --------------------------------------



| |  |  | the timing of the introduction of RVSM requirements on various flight routes;
| | - |  | -----------------------------------------------------------------------------



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



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



| |  |  | delays in introducing or obtaining government approval for new products;
| | - |  | ------------------------------------------------------------------------



| |  |  | new product introductions by competitors;
| | - |  | -----------------------------------------



| |  |  | changes in our pricing policies or the pricing policies of our competitors;
| | - |  | ---------------------------------------------------------------------------



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| |  |  | costs related to possible acquisitions of technologies or businesses;
| | - |  | ---------------------------------------------------------------------



| |  |  | our inability to replace the KC-135 RVSM contract;
| | - |  | --------------------------------------------------



| |  |  | our competition includes other manufacturers of air data systems and flight information displays against whom we may not be able to compete successfully;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may not be able to identify or complete acquisitions or we may consummate an acquisition that adversely affects our operating results;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Risks Related to Our Industry



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



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



| |  |  | adapt to rapidly changing technologies;
| | - |  | ---------------------------------------



| |  |  | adapt our products to evolving industry standards; and
| | - |  | ------------------------------------------------------



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



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



Our products must obtain government approval.



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



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



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



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



| |  |  | the delay or loss of revenues;
| | - |  | ------------------------------



| |  |  | the cancellation of customer contracts;
| | - |  | ---------------------------------------



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| |  |  | the diversion of development resources;
| | - |  | ---------------------------------------



| |  |  | damage to our reputation;
| | - |  | -------------------------



| |  |  | increased service and warranty costs; or
| | - |  | ----------------------------------------



| |  |  | litigation costs.
| | - |  | -----------------



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



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



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



| |  |  | differing regulatory requirements for products being installed in aircraft;
| | - |  | ---------------------------------------------------------------------------



| |  |  | legal uncertainty regarding liability;
| | - |  | --------------------------------------



| |  |  | tariffs, trade barriers and other regulatory barriers;
| | - |  | ------------------------------------------------------



| |  |  | political and economic instability;
| | - |  | -----------------------------------



| |  |  | changes in diplomatic and trade relationships;
| | - |  | ----------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | the impact of recessions in economies outside the United States; and
| | - |  | --------------------------------------------------------------------



| |  |  | variance and unexpected changes in local laws and regulations.
| | - |  | --------------------------------------------------------------



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



Item 3. 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, and we do not engage in hedging activities, a change in interest rates earned on the cash
equivalents or paid on the industrial revenue bond would impact interest income and expense along with cash flows, but would not impact the fair market value of the related underlying instruments.



Item 4. CONTROLS AND PROCEDURES.



(a) Our
principal executive officer and principal financial officer have conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act), within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and principal accounting officer concluded that our disclosure controls and procedures are effective.



(b) There have been no significant changes (including corrective
actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.



PART IIOTHER INFORMATION



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



At the Companys annual meeting of stockholders held on February 27, 2003, the following proposals were approved by the margins indicated.



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|                                                                                              |  | Number of Shares
|--------------------------------------------------------------------------------------------- |  | ----------------
|                                                                                              |  | Voted For       
|1. To elect three Class III directors to the board of directors for a term of three (3)
years |  |                 
|Geoffrey S. M. Hedrick                                                                        |  | 10,749,472      
|Winston J. Churchill                                                                          |  | 10,753,547      
|Benjamin A. Cosgrove                                                                          |  | 10,749,472      



Ivan M. Marks, Robert H.
Rau, Glenn R. Bressner, and Robert E. Mittelstaedt, Jr. constitute Class I and II directors whose terms continued after the annual meeting.



Item 6. Exhibits and Reports on Form 8-K.



(a)       Exhibits



10.1    Employment agreement



99.1    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.



(b)       Reports on Form 8-K.



None



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



INNOVATIVE SOLUTIONS & SUPPORT, INC.



|                  
|------------------
|Date: May 12, 2003



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CERTIFICATIONS



CERTIFICATION OF CHIEF EXECUTIVE OFFICER



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



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



2. Based on my knowledge, this quarterly
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 quarterly report;



3. Based on my knowledge, the
financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures 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 quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and



6. The
registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



May 12 , 2003



/s/ Geoffrey S. M. HedrickGeoffrey S. M. Hedrick Chairman of the Board and Chief Executive Officer




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CERTIFICATION OF CHIEF
FINANCIAL OFFICER



I, James J. Reilly, certify that:



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



2. Based on my knowledge,
this quarterly 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 quarterly report;



3. Based on my
knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures 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 quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;



5. The registrants other certifying
officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



May 12, 2003



/s/ James J. ReillyJames J. Reilly Chief Financial Officer




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EXHIBIT INDEX



|ExhibitNumber |  | Description of Exhibit                                                                                                
|------------- |  | ----------------------------------------------------------------------------------------------------------------------
|             
|10.1          |  | Employment Agreement with Roman G. Ptakowski                                                                          
|             
|99.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002