8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  November 19, 2008

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	0-31157	23-2507402
(State or other jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

720 Pennsylvania Drive

Exton, Pennsylvania 19341

(Address of principal executive offices)  (Zip Code)

(610) 646-9800

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02               Results of Operations and Financial Condition.

On November 19, 2008, Innovative Solutions and Support, Inc. issued a press release announcing its financial results for its fourth quarter and year ended September 30, 2008.  A copy of that press release and the attached financial schedules are attached as Exhibit 99.1 to this report and incorporated herein by reference.

The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

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SIGNATURE

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 AND SUPPORT, INC.
Date: November 19, 2008	By:	/s/ John C. Long
		John C. Long
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated November 19, 2008 announcing financial results for the fourth quarter and year ended September 30, 2008.

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:	John Long, Chief Financial Officer
	Innovative Solutions & Support, Inc.
	610-646-0350

Innovative Solutions & Support, Inc. Announces Financial Results for the Fourth Quarter and Year Ended September 30, 2008

Exton, Pa – November 19, 2008 – Innovative Solutions & Support, Inc. (NASDAQ: ISSC) today announced financial results for the fourth quarter and year ended September 30, 2008.

Net sales for the fourth quarter of 2008 were $10.2 million, up 100% from $5.1 million in the fourth quarter of the previous year.  The Company reported fourth quarter 2008 net income of $7.6 million, or $0.45 per fully diluted share, which includes the receipt of a $17 million legal settlement, compared to a fourth quarter 2007 net loss of $4.0 million, or ($0.24) per fully diluted share.  Fourth quarter 2008 results also include approximately $6 million in charges associated with the suspension of production on a large, general aviation OEM contract.

Geoffrey Hedrick, Chairman and Chief Executive Officer of Innovative Solutions & Support, Inc. said, “This has been a transitional period for ISSC with the successful production ramp on a number of our contracts offset by

the untimely suspension of a large, general aviation OEM contract.  Results in the fourth quarter reflect the financial impact of the actions we undertook based upon our assessment of the current risks associated with this customer.  During the quarter we also collected $17 million in our trade secret legal case.”

“We are entering the new fiscal year with a healthy backlog from a well-diversified customer base.  The production schedules we have been furnished provide visibility to revenues that we expect will enable us to achieve revenue growth this year.  As revenues increase, margin performance should begin to benefit from better absorption of fixed overhead.  In addition, we have a strong balance sheet with minimal debt, providing us with the resources needed to execute our growth strategy.  Retrofit demand to extend the life of existing aircraft has tended to improve in weaker economic conditions.  Consequently, we believe the current economic environment is favorable to aggressively market our new and improved Cockpit/IP^TM products to each of our military, commercial air transport and general aviation markets.”

For the fourth quarter of 2008, the Company incurred a number of one-time or otherwise unusual gains and expenses.   Attached tables 3, 4, and 5 to this press release provide further details of these events and show our Adjusted Net Loss, Adjusted Diluted Loss Per Share, Adjusted Gross Profit, Adjusted Gross Margin and Adjusted Selling, General & Administrative Expenses for the quarter after excluding these unusual gains and expenses.  Among these charges were:

·        An aggregate $6.0 million charge to reflect the suspension of production on a large, general aviation OEM contract.  This charge consists of a $4.1 million increase in the allowance for doubtful accounts and a $1.9 million increase in the reserve for obsolete inventory.

·        Approximately $900,000 of costs associated with the reduction in workforce, including the Company’s September termination of its CEO.

In the tables attached to this release, financial measures are presented both in accordance with United States generally accepted accounting principles (“GAAP”) and also on a non-GAAP basis.  The measures for Adjusted Net Loss, Adjusted Diluted Loss Per Share, Adjusted Gross Profit, Adjusted Gross Margin and Adjusted Selling, General & Administrative Expenses contained in the tables attached to this release are non-GAAP financial measures. The Company believes that the use of these non-GAAP financial measures enables the Company and its investors and potential investors to evaluate and compare the Company’s results from operations generated from its business in a more meaningful and consistent manner and provides an analysis of operating results using the same measures used by the Company’s chief operating decision makers to measure the performance of the Company. Please see the financial summary in the tables attached to this press release for the definitions of these non-GAAP financial measures and information reconciling these non-GAAP financial measures to the most directly comparable GAAP financial measures.

Backlog

As of September 30, 2008, the Company’s released backlog was $57.3 million.

Business Outlook

Despite current uncertain global economic conditions and the loss of general aviation OEM revenues, the Company expects in Q1 2009 net sales of $9.5 - $10.5 million, diluted earnings per share in the range of $0.03-$0.06, and to generate positive operating cash flow.

The Company will be hosting a conference Thursday, November 20, 2008 at 9:30 AM local time to discuss these results and its business outlook.  Please use the following dial in number to register your name and company affiliation for the conference call: 888-562-3654. The conference ID# is 70933827. The call will also be carried live on the Investor Relations page of the Company web site at www.innovative-ss.com.

About Innovative Solutions & Support, Inc.

Headquartered in Exton, PA. Innovative Solutions & Support, Inc. (www.innovative-ss.com) is a systems integrator engaged in the design, manufacture and marketing of Flat Panel Display Systems, Air Data equipment, Flight Information Computers, Engine and Fuel Measurement and Control Computers, and advanced monitoring systems that measure and display critical flight information. This includes data relative to aircraft

separation, airspeed and altitude as well as fuel and instrument measurements.

Certain matters contained herein that are not descriptions of historical facts are “forward-looking” (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in filings made by the Company with the Securities and Exchange Commission. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflects management’s views only as of the date hereof. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

TABLES FOLLOW

Table 1 - Consolidated Balance Sheets

Table 2 - Consolidated Statements of Operations

Table 3 - Reconciliation of Fourth Quarter 2008 GAAP to Adjusted Net Income (Loss) and Diluted Earnings (Loss) Per Share

Table 4 - Reconciliation of GAAP Gross Margin to Adjusted Gross Margin

Table 5 - Reconciliation of GAAP Selling, General & Administrative Expenses to Adjusted Selling, General & Administrative Expenses

Table 1

Innovative Solutions and Support, Inc.

Consolidated Balance Sheets

(unaudited)

	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			4,077,780
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, $.001par 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

Table 2

Innovative Solutions and Support, Inc.
Consolidated Statements of Operations
(unaudited)

	Three Months Ended September 30, 2008			Three Months Ended September 30, 2007			Twelve Months Ended September 30, 2008			Twelve Months Ended September 30, 2007
Net sales:
Product	$	8,655,944		$	4,766,986		$	25,946,917		$	15,083,465
Engineering - Modification & Development	1,566,051			352,791			4,586,394			3,264,663
Total net sales	10,221,995			5,119,777			30,533,311			18,348,128
Cost of sales
Product	7,252,576			2,941,612			17,584,314			8,968,939
Engineering - Modification & Development	1,281,258			2,521,605			2,967,543			5,185,486
Total cost of sales	8,533,834			5,463,217			20,551,857			14,154,425
Gross profit	1,688,161			(343,440		)	9,981,454			4,193,703
Operating expenses:
Research and development	2,565,337			1,267,880			10,304,279			5,180,360
Selling, general and administrative	8,353,481			4,715,460			22,306,016			15,840,255
Asset impairment	—			—			2,475,000			—
Total operating expenses	10,918,818			5,983,340			35,085,295			21,020,615
Operating loss	(9,230,657		)	(6,326,780		)	(25,103,841		)	(16,826,912		)
Interest income- net	222,696			651,884			1,415,732			2,886,602
Other income	17,000,000			—			17,300,000			—
Income (loss) before income taxes	7,992,039			(5,674,896		)	(6,388,109		)	(13,940,310		)
Income tax expense (benefit)	418,318			(1,638,055		)	1,509,139			(5,095,022		)
Net income (loss)	$	7,573,721		$	(4,036,841	)	$	(7,897,248	)	$	(8,845,288	)
Net income (loss) per common share:
Basic	$	0.45		$	(0.24	)	$	(0.47	)	$	(0.52	)
Diluted	$	0.45		$	(0.24	)	$	(0.47	)	$	(0.52	)
Weighted average shares outstanding:
Basic	16,865,036			16,888,362			16,887,049			16,865,028
Diluted	16,936,804			16,888,362			16,887,049			16,865,028

Table 3

Innovative Solutions and Support Inc.

Reconciliation of Fourth Quarter 2008 GAAP to Adjusted Net Income (Loss) and Diluted Earnings (Loss) Per Share

	Three Months Ended September 30,
	2008						2007
	Amount			Per share			Amount			Per share
Reported GAAP Net Income (Loss)	$	7,573,721		$	0.45		$	(4,036,841	)	$	(0.24	)
Items impacting comparability:
Legal and other expenses - Trade secret matter	306,500			0.02			2,099,906			0.12
Settlement proceeds - Trade secret matter	(17,000,000		)	(1.01		)
Reserve for obsolete inventory *	1,940,812			0.11			—			—
Allowance for doubtful accounts *	4,077,118			0.24			—			—
Engineering *	170,000			0.01			—			—
Reduction in force/severance costs	897,000			0.05
Adjusted Net (Loss)	$	(2,034,849	)	$	(0.13	)	$	(1,936,935	)	$	(0.12	)

* Represents charge arising from suspension of production on a large, general aviation OEM contract.

Adjusted Net Loss is defined as Net Income (Loss) before (i) legal fees and settlement proceeds relating to trade secret matter, (ii) reserve for obsolete inventory, allowance for doubtful accounts and Engineering arising from suspension of production on a large, general aviation OEM contract, and (iii) reduction in force / severance costs. Adjusted diluted earnings per share is defined as earnings per share before (i) legal fees and settlement proceeds related to trade secret, (ii) reserve for obsolete inventory, allowance for doubtful accounts and Engineering arising from suspension of production on a large, general aviation OEM contract, and (iii) reduction in force / severance costs.

Besides GAAP Net Income, these numbers do not consider the effect of taxes.

Table 4

Innovative Solutions and Support, Inc.

Reconcilation of Fourth Quarter 2008 GAAP Gross Margin to Adjusted Gross Margin

	GAAP			ADJUSTED
GAAP Net Sales	$	10,221,995		$	10,221,995
GAAP Cost of Sales	8,533,834			8,533,834
Less: Reserve for Obsolete Inventory*	—			(1,940,812		)
Gross Profit	$	1,688,161		$	3,628,973
Gross Margin	16.5		%	35.5		%

* Represents charge arising from suspension of production on a large, general aviation OEM contract

Adjusted Gross Profit means Gross Profit before Reserve for Obsolete Inventory relating to suspension of production on a large, general aviation OEM contract. Adjusted Gross Margin means Gross Margin before Reserve for Obsolete Inventory relating to suspension of production on a large, general aviation OEM contract.

Table 5

Innovative Solutions and Support, Inc.

Reconciliation of Fourth Quarter 2008 GAAP Selling, General & Administrative Expenses to Adjusted Selling, General & Administrative Expenses

GAAP Selling, General & Administrative Expense		$	8,353,481
Less:	Allowance for Doubtful Accounts *	(4,077,118		)
	Legal and Other Expenses - Trade Secret Matter	(306,500		)
	Reduction in force-severance costs	(897,000		)
Adjusted Selling, General & Administrative Expense		$	3,072,863

* Represents charge arising from suspension of production on a large, general aviation OEM contract

Adjusted Selling, General and Administrative Expenses means Selling, General and Administrative Expenses before (i) legal fees relating to trade secret matter, (ii) allowance for doubtful accounts and Engineering arising from suspension of production on a large, general aviation OEM contract, and (iii) reduction in force / severance costs

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