Good morning and welcome to the Innovative Solutions and Support Third Quarter Fiscal 2012 Earnings Conference Call. [Operator instructions] Now I would like to turn the conference over to Geoff Hedrick, Chairman and CEO. Please go ahead.

Good morning. This is Geoff Hedrick. I want to welcome you to our quarterly conference call. And before I start I would like our Chief Financial Officer Ron Albrecht to read our safe harbor message. Thanks, Ron, go ahead.

Thank you, Geoff, and good morning everyone. I would like to remind our listeners that certain matters discussed in the conference call today, including operational and financial results for future periods, are forward-looking statements that are subject to the risks and uncertainties that could cause actual results to differ materially, either better or worse than those discussed including other risks and uncertainties reflected in our company’s 10-K which is on file with the SEC. Now I will turn the call back to Geoff.

Thank you, Ron. In last evening’s release we reported third quarter revenues of $6.1 million, a modest increase from a year ago. Although these margins were down a bit as a result of the shift to more funded engineering, we remained profitable with a net income of $260,000 or $0.02 a share. With the higher level of engineering revenues and related spending, we were pleased that we met the engineering resource requirements of our new products. These products that we were developing for the future have also generated profits for our shareholders in the near term. We are engaged in a number of programs that we believe that will enhance our business and increase shareholder value. During the third fiscal quarter, we completed development of the first stage of the NNSA Boeing 737 classic Flat Panel Display System. Since the end of the quarter we have completed the STC flight test for the FPDS and expect to receive the FAA certification shortly. The Flat Panel Display System for the Boeing 737 is the first of several new products to arrive from the NNSA program. We have developed a turnkey solution that can provide an operator with a complete FPDS installation and return it to service in 24 hours. This installation time is 5 to 10x savings in out of service of similar competitive systems. This 737 is based on our 757 system successfully operating on more than 160 aircraft. In June, Eclipse Aerospace announced that it had launched initial production of its twin-engine E550 jet for which we have an advanced avionics contract. Upon completion of the engineering modification and development or EMD phase, we expect production to commence in Q2 of 2013 in accordance with the production requirements of the Eclipse Aerospace. The utility management system under development for a new production aircraft is progressing well with recent completion of the customer’s preliminary design review project milestone and receipt of the initial year’s production commitment. This program will generate substantial revenues well into the next decade. In context of the changing economic conditions, we are focused on developing these new platforms. The 737 STC and the Eclipse Aerospace initial production plans are positive signs for opportunities to supplement our current production volumes. The potential production value of various development contracts on hand is significant, almost none of which is included in our backlog. Now, let me turn this over to Ron for more detailed discussions of our financial performance.

Thank you, Geoff, and thank you all for joining our call this morning. Revenues for the third quarter were $6.1 million, slightly above those in the third quarter a year ago. From a product standpoint, flat panel display revenues in the quarter were approximately $4.8 million, while Air Data product shipments in the quarter were about $1.3 million, approximately 79% and 21% of total shipments respectively. We experienced a slight increase in Air Data volume this past quarter as the military appears to be increasing spending somewhat on repairs and improvements to equipment. Gross profits in the third quarter were $2.6 million, or 42.6%, reflecting the anticipated shift in mix towards lower margin engineering development revenues. At the same time, total operating expenses for the quarter were $2.3 million, down approximately $1 million from $3.2 million last year. Most of the decrease resulted from lower internally funded research and development which totaled $400,000 in the quarter compared to $1.4 million in the third quarter a year ago as engineering resources this year were focused on funded programs. Our engineering spend is growing in relation to historical levels because more of our resource is used to support customer funded programs. Selling, general and administrative spending in the quarter was $1.8 million down slightly from $1.9 million a year ago. For the quarter we reported operating income of approximately $355,000 compared to an operating loss of $105,000 in the same quarter last year. Net income for the quarter was $260,000 or $0.02 a share and we are profitable for the year-to-date. Our balance sheet remains strong with $41.8 million in cash and virtually no debt. Operating cash used in the third quarter reflects primarily the impact of timing difference between our expenditures and customer reimbursements on the engineering development programs. For the full year fiscal 2012 we expect to be profitable on modestly reduced sales compared to 2011. A result that would represent a third consecutive profitable year. Now I will turn the call over to Shahram Askarpour, our President for some comments on the current market conditions and our business development efforts. Shahram?

Thank you, Ron. As discussed last quarter the company is executing on its growth strategy focusing and managing 4 separate engineering modification and development programs through the engineering phases, bringing the related new product and capabilities to market. We believe that our execution of this strategy will increase our addressable markets both OEM and retrofit. This increase is expected to result in the sizable top line growth over the next 5 years. Let me briefly review the status of our engineering modification and development projects. The system integration and cockpit avionics upgrade of the national nuclear security administration, Boeing 737-400 is proceeding. As Geoff mentioned we have completed successfully the STC flight test with the FAA for the first phase of the program and expect to receive an STC shortly. The first phase includes the primary and standby flight display systems. This STC will enable us to sell the same flat panel display system upgrade the market of approximately a 1000 aircraft. We are now in the process of adding the ISNS flight management system to this aircraft. At the conclusion of the contract we will have the capability to offer to Boeing 737 traffic operators, a modern flat panel display system, an RNP compliant flight management system, SATCOM radios, and AGSP compliant transponder, and TCAS system. The effect of this capability will be to enhance the performance of the Boeing 737 classic aircraft to beat upcoming next gen mandates and to increase significantly the value of our system offerings. One June 4, Eclipse Aviation announced formally that it’s initiating productions of its new twin engine E550 jet with deliveries expected to begin next year. That is welcome news because ISNS is under contract to supply the E550s advanced avionics suite for the aircraft. We anticipate participating in the success…

Thank you, Shahram. I’d like to close with a few comments and observations. Simultaneously undertaking significant EMD contracts has made this an unusually challenging year. The year in which we’ve invested about 15% more in engineering than last year while still maintaining revenues and profits. We were several quarters into the challenge of creating 4 new products for 4 different customers and platforms. I am pleased with the skill that we have shown in the planning, executing and managing these new opportunities, as our successful 757-67 cockpit IP programs helped to create these 4 opportunities we believe similarly that the success of these new programs will lead to new opportunities with wider variety of operators and OEMs in all of our market. This is very exciting. For the fiscal year ending September 30, our goal remains to manage the business prudently and maintain its profitability. Longer term, we believe we are positioned to grow profitably and deliver very attractive growth and returns to our shareholders. Operator, will you please open the call for questions.

[Operator Instructions] Our first question will come from Jim Fronda, Sidoti & Company.

With the flat panel displays for the Boeing 737 program, so that’s still in the testing certification phase. When do you expect to begin receiving revenues from this program?

Well we’re already generating revenues from the program. Contracts for the initial 2 -- for the 2 aircrafts was a full systems integration project which included not only the flat panel display system, but as we mentioned 16 other systems in the aircraft. The program is well over 5 million -- 2 aircraft, and we are already receiving revenues based on -- for this year, on that program. We will proceed with another phase of the program near the end of our fiscal year which substantially complete the first aircraft, and the second aircraft will have substantially no engineering but just the installation and the profitability from that. So we are already there. The STC now allows us to go out to the field and start offering it to the rest of the world.

Okay. And with the shift to more EMD programs and the engineering costs associated there. Is the R&D spent for this quarter, what we can expect going forward or if you have less of these funded projects you will direct more of your resources towards R&D.

Well the answer is that going forward we expect to spend more on R&D. In the short term what you see in the quarter is probably what you’ll see for the next quarter or so.

We’re going to try to track the best we can, revenues with investment in the engineering so that we continue while making major substantial investments into the engineering development. I guess, we’re talking about, close to 25% of revenues are being invested in engineering. We are still able to maintain a small profit, and we’re going to continue to hold that kind of line. And we’ve been very successful in managing schedule and achievement on our project.

Final question, you’ve done very well maintaining profitability even when revenues have been down. Are there more cost cutting measures you can make or at this point you really need a boost in revenues to see big improvements.

Clearly, there is always cost cutting opportunities and I don’t mean that just sort of vaguely. Shahram has done a remarkable job in assessing the business and has taken a number of actions that are maintaining this profitability with the massive increase in engineering investment. But we believe that we’re going to focus on getting the top line and going forward it’s going to be the top line growth that we’re targeting to be substantial that will fund additional investment in product development and generate profits. So it’s going to be focused on the top line. Remember, we’re spending more than double what our rule of thumb standard of engineering investment. The good news is that we’ve been able to get funding for a substantial portion of it, but that funding generates very little margin. We don’t seek to generate a lot of margin from our customer funded engineering. We are more focused on covering our costs so that the customer is covering the cost of their requirements, but not generating huge profits to the company. So the profits are coming from substantial margins of our production and that’s -- it’s a very good sign actually.

Our next question comes from David Campbell of Thompson, Davis & Co.

Well, I was trying to come up with some good questions although that’s debatable whether I could do it or not. But I do have a couple of questions as usual. Shahram, I just wanted to clarify some of your comments. The first thing he said was that the design review for the Boeing installation has been completed and I heard you say you were going to deliver 7 of the units in your fourth fiscal, 7 out of eventually 139, is that what you meant to say?

Well, first of all, it’s 179.

179, okay.

Secondly, the 70s are preproduction units. For that evaluation and they are paid for. But no, the 179 remains, those are really actually final production units.

So do you get revenues from these 7 units in the fourth fiscal quarter?

That’s correct.

But despite that significant amount of revenues from the press release, it sounded like you’ll have very modest increases in company revenues in fourth quarter compared to last year, was that -- am I reading that right?

That’s correct. Again the key here is that the firm [ph] line of the revenues is coming from the engineering development programs which we’re not facing a lot of margin for.

Okay. And then as for Boeing you do have to do design review of something else. And I couldn’t understand what you were talking about, I guess that’s the fourth new product you are working on.

Yes, so this is the electronic monitoring and control system. They actually completed the preliminary design review on that product, a critical design review is scheduled for around December-January timeframe.

When will it be completed?

At that time we expect it to be completed and then we proceed with the final design and giving it to production of that product. Now we have received the first year production contract for that…

Commitment for that.

Commitment for that product.

And what is -- I mean, is this commercial aviation? What is this?

It’s a really nice airplane, that’s all. We can’t comment on the airplane, but we will shortly.

Is it as big a potential program as Eclipse?

I mean we don’t want to comment, but it’s that kind of program. It will be an ongoing production program and as I commented, it will generate revenues well into the next decade. We see this is a long-term, 10 -- basically foreseeable future kind of a program.

Okay. Eclipse has published their plans saying that they are going to take a year to produce the first aircraft and then ramping up to full production in 2014. Does that mean that you will get anything from this in fiscal 2013?

Absolutely, yes. We are going to produce production units, but not at full volume. I mean, they are going to ramp up unlike the last try. They are doing it in a very structured and planned way. So yes, it will start -- I think the first aircraft is still planned for about mid-year calendar ’13 and we will obviously be supplying equipment prior to that. It is going to be an amazing aircraft. Just what I didn’t comment on in my speech because the information just came in, but I can now, is the -- we have just finished initial flight testing on our auto throttle system. It will be the most advanced aircraft probably for -- if not only in its price range, probably in the price range double or triple its cost. It will have an auto throttle and we are doing flight testing as we speak. So it’s going to be quite a remarkable airplane. Dual FMS flight management systems, synthetic vision systems, auto throttle and electronic circuit breakers. A truly, truly advanced aircraft.

I mean, 50 to 100 aircraft in calendar -- I guess that’s calendar 2014. That’s a lot of potential revenues. I mean, the revenues per unit for this aircraft comparable to your revenues you are getting on flat panel sales? Just for flat panel.

David, I would prefer not to comment at this point, but we will obviously give you some information for your guidance so that you can put your charts together. But right now we are not prepared to comment on it. We are still -- with the development of the auto throttle and the various other things as part of this new aircraft program, there is a cost and schedule flux. So we are not prepared to comment right now.

But David, you need to keep in mind that Geoff did preface comments on Eclipse by saying that it would be a slow production ramp-up. They weren’t going into full production immediately.

I know, right. Okay, back to the 737 installations, is there any commonality with your avionics package there and the new 737s that are coming off the production line of Boeing or is that not important?

I guess it’s not relevant. I don’t know if it’s important. Obviously if we have the production flight deck for the new 737 we would be very happy and so would you. It is different, it is designed so that you can install it in existing aircraft in a matter of 24 hours. If you were to try to install the new system in an aircraft, it would take probably a month and a half -- and recognize the importance of a short installation time. Leaving an airplane on the ground, depending on the size of the airplane costs the operator anywhere from $35,000 to $75,000 a day. So when you have a 5-day installation, you are talking about costs that may exceed the cost of the equipment that you are putting in the airplane. So by us reducing the installation time, we are reducing the installed cost of the equipment in less than half. So it’s quite an achievement.

But you’ll offer these installations for other 737s? Are they -- the 737-200s, 300s and up or just the 200s and 300s?

300s, 400s and 500s.

So a lot of those is -- is a lot of those still in operation? You mentioned a 1,000.

There is a lot more than 1,000, but we are saying 1,000 we think are applicable.

This concludes our question and answer session, I would like to turn the conference back over to Mr. Geoff Hedrick for any closing remarks.

David, do you have any other questions so that I can answer them with everybody else on the phone.

[Operator Instructions]

Geoff and everybody, Shahram, you’ve mentioned there are other OEM programs related to the Eclipse development. Are you marketing that to any other OEM program yet or is that something in the future.

We are in process of doing it. We’re not marketing it right now, but we’ll be marketing essentially an Eclipse cockpit to other aircraft. It will be and it is with, with Eclipse's endorsement and enthusiastic support. So yes, we hope to make that available to a number of other manufacturers. Both on an OEM basis and on a retrofit.

Yes. And Ron, you mentioned $1.2 million of cash was used to fund operations, does that mean it comes back into the company in the fourth fiscal quarter?

I don’t think you can draw that conclusion, David. Some of it was advanced payments that we had received prior to the quarter and some of the outflow was a result of spend but not yet billable receivables. So you can’t make that distinction precisely.

Okay. We won’t be using any cash in the fourth quarter or don’t you know yet?

Well, we do make projections, but I don’t think we typically share projections. Our hope is to be positive for the year-end cash, operating cash.

We’re not trying to generate a lot of cash. Remember, we took cash and we bought back stock over this past year. We have an active and increasingly aggressive program to repurchase stock. We are -- the board is very committed to the repurchase plan. So we do use some cash in that area. Our interest is to take the cash we have and utilize it in sensible and prudent ways. And if we purchase or small amounts invested in longer-term projects, we’ll do it; but we, as you see, we’ve accumulated a substantial cash reserve and we want to make sure that we - when appropriate, we could use it. To-date we haven’t. We try to maintain -- keep profitable and keep at least cash neutral. Those are both objectives that we tried and I am happy to say we’ve been very successful at it.

My last question is the backlogs, Shahram, I think you touched on it, includes the Advanced Electronic Monitoring and Control System or the first year production, that’s Eclipse, right?

No, no, that is the unnamed OEM.

That’s the unnamed OEM. Okay.

Mystery, mystery.

Unnamed potential boom?

No potential, it's there. Yes, it is a significant portion that doesn’t appear in our backlog which has to do with production programs that we intend to go on, on a longer term. You may have a program that you expect revenues and actually plan revenues for other purposes that could run 5 or 10 years. But we do not have in our backlogs because we don’t have a firm order for delivery of that component. As an example, as we were supplying on an OEM contract to Boeing as an example, or Airbus, we would get an annual purchase order and that’s all that would appear on our backlog, although the program for the airplane could be hundreds of millions of dollars we’d only show the backlog for that released order. And we don’t want to go into, we don’t want go into how much in relative and all that -- because it’s obviously inappropriate. But we do want to tell you that we are, our focus in this company over the next year is to try to build top line now. We have a good solid base, we are investing strongly into product development and that is we are doing that specifically to look at larger, longer term repetitive programs that will supply revenues to us, that we can build on, that will provide a foundation for production so that we will have OEM business that is repeatable, predictable, revenues upon which you build your retrofit business and match both of us. And that’s the strategy on it starting to work. Thank you all for joining us today. I hope we were able to give a little bit clearer picture of where we are going and what our strategy is. It’s uncertain economic times we all know, we don’t need to hear that again. But the answer is you can't win the race if you are not in the race. So we are determined to be in the race and build a strong foundation for future. Thanks again for joining us. Bye-bye.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.