Ray Wilson - Chief Executive Officer Roman Ptakowski - President and Chief Operating Officer John Long - Chief Financial Officer

Steve Denault - Northland Securities David Campbell - Thompson Davis & Co [Reed Alison – William D. Ritter] Howard Katz – Smith Barney Alex Hamilton - Jesup & Lamont Michael Ciarmoli - Boenning and Scattergood

Welcome to the Innovative Solutions conference call. (Operator Instructions) At this time I would like to turn the event over to Ray Wilson, Chief Executive Officer.

Joining me today from our corporate office in Exton, Pennsylvania is Roman Ptakowski our President and COO and John Long our Chief Financial Officer. The purpose of the call this morning is purely to discuss our revised Q4 and 2009 impact. At this time we really do not want to discuss the wide arrange of questions and we’ll try and contain the subjects to those pertinent for today. Before we get started let me remind you that this conference call may contain forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and that represent our expectation of at least about future events and financial performance. Forward-looking statements are subject to known and unknown risks and uncertainties including those described in our Annual Report and Form 10-K for the year ended September 30, 2007, and other filings we make with the Securities and Exchange Commission. Actual results could differ materially from those suggested by forward-looking statements. We do not make any new commitment to revise or update any forward-looking statements to reflect new information, events, or circumstances occurring or existing after the date of any forward-looking statement is made. As we announced last night we are revising our financial expectations for the fourth quarter and fiscal year ended September 30, 2008. This was necessitated by a change in delivery schedules recently communicated to us by a major customer. The result of the change is a decrease in our forecast fourth quarter revenues and consequently profit due to the limited time available to adapt to planned production. In light of this development we’re also reducing our expense base. We had built resources over the past 18 months to support customer production plans and we’re taking actions to align resources with the production requirements. Our new forecast for the fourth quarter is as follows. Revenues are now expected to be in range $10 to $12 million with our revenue for the year now forecast to be between $30 and $32 million, an increase of 64% over the prior fiscal year sales of $18.3 million. Gross margins are expected to be in the order of 42% to 46%. As noted in our press release we have begun cutting costs. A number of people left the company yesterday and we’ll continue to identify efficiency opportunities to align our overall resources with production requirements to achieve profitability in fiscal year 2009. Our management team is intensely focused on delivering profitability and we are disappointed that we will not achieve that goal this quarter. Despite this setback we continue to believe that our existing backlog of diversified mix of commercial, general aviation and military order and improving operational efficiency will enable us to achieve profitability in fiscal 2009. We are prepared to take any further hard actions to achieve our objective. Our business is strong and should grow significantly next year. We have momentum with a range of other customers including American Airlines, FedEx, Cessna, US Military, floor board flat panels, displays and their data products. Our adjusted current backlog as of now is $62 million. That takes out the said customer for the whole of next year and beyond. Not only marginally from June 30, because as we have clearly articulated we only carry about eight weeks of production from this major customer in our backlog. We believe that the cost cutting efficiency enhancing efforts that are underway coupled with our backlog will allow us to achieve profitability in our 2009 fiscal year with this level of business. With that we’ll take your questions.

(Operator Instructions) Your first question comes from Steve Denault - Northland Securities. Steve Denault - Northland Securities: Can you give us a sense, a couple things you mentioned, one was that you thought, I think you said, your verbal remarks you thought business could grow substantially in 2009 over 2008 including the most recent developments. Considering that can you help us understand, what do you need to do from a cost structure perspective, how easy are the changes and the cost cuts in order to get yourself back to some level of profitability?

You started off talking about business growth and then went on to talk about how we view cost cuts. Can I just mention that in terms of business growth I mentioned already in my script the backlog and where it stands and you can see it’s still very substantial. Beyond that, in that firm backlog there’s around $30 million of deliveries for next year, on top of which as you know and we’ve explained several times in the past we have customers who actually just roll their orders forward. A good example is FedEx where they place orders with us three months ahead of their schedule requirement. Consequently if we roll up people like FedEx into this forward looking situation we get to around $37 million firm and quasi firm order for the financial year. I’ll leave it to you to work out, you guys are better than we are what the total revenues for the year might be. As you can see even that would be substantial growth over what we’re now seeing for this year. There’s more to come I think. In terms of the ability to cut costs efficiently to turn it into profit, quite honestly the week we’ve had we haven’t got all the answers. We have done a lot of work and I think it’s safe to say at this juncture that we could turn the year into profit. What our objective is to get profit in Q1, whether or not that’s possible we’ll have to tell you some other time probably at the end of Q1. I can assure you the management team is very focused on getting back to profitability despite this setback. Steve Denault - Northland Securities: Can you provide us with any sort of initial targeted cost cuts?

I would prefer not to do that quite honestly.

Your next question comes from David Campbell - Thompson Davis & Co. David Campbell - Thompson Davis & Co: I wanted to ask about the American Airlines business, is that 757 and 767. I think you’ve got 200 planes eventually to be delivered over what four years?

Yes, that’s right, it is 757 and 767 and it’s 214 airplanes in the period through four years. David Campbell - Thompson Davis & Co: Is all of that in the backlog?

All of American has been in the backlog since we got the contract. It’s a full firm commitment from them unlike FedEx which rolls forward. David Campbell - Thompson Davis & Co: Can you give us how much Eclipse revenues will be in the September quarter?

We don’t want to comment on specific customers. I know you mentioned a customer name. The decline for the quarter is approximately $4 million and again we’d like to refrain from commenting on specific customers. David Campbell - Thompson Davis & Co: Four million dollar decrease from plan is that what you’re talking about?

Yes, we had 14 out there and I think we said anywhere between a $2 to $4 million decline for this quarter, 14 down to 10 to 12. David Campbell - Thompson Davis & Co: All of it is because of the one customer?

Yes. David Campbell - Thompson Davis & Co: Can you give us any idea what did that customer say about next year or fiscal ’09? Obviously you don’t have any in the backlog do you still expect to deliver some to them in fiscal ’09?

It’s a very digital issue. We’re making a plan that assumes there are none. If we get some then we will be upside to the plan. David Campbell - Thompson Davis & Co: We really don’t know, the company hasn’t said that but that’s what you’re planning for in your year.

Given that we’ve had to change our plan very significantly more than once in this past fiscal year we think we should make a plan that assumes that there are zero. Despite what they have said there will be quite a lot.

Our capacity is such that we can quickly ramp up if required so for that program or for any other program. We’re not cutting our ability to respond to customer needs. David Campbell - Thompson Davis & Co: What about writing off software and that sort of thing, engineering costs that you’ve already incurred for that customer.

As you know, we write off our NRE expenses as we go except in cases where its customer funded and there’s a very small outstanding amount of work that’s being completed but not paid for.

On the balance sheet there’s nothing to speak of on that front related to this particular customer. David Campbell - Thompson Davis & Co: No receivables.

I’m sorry on intangibles; you spoke about the software from the customer yes. David Campbell - Thompson Davis & Co: Yes, but there’s also no receivables.

Yes, there are receivables but there’s no write off.

Your next question comes from [Reed Alison – William D. Ritter]. [Reed Alison – William D. Ritter]: Going back a little bit to the receivables question, what’s the collection been like on those receivables and what is that on a going forward basis?

At this juncture, I’m not trying to be standoffish I’d really prefer not to dwell into that issue. This is a customer that obviously has cut their production requirements to us back so we want to watch carefully and naturally there are other parties involved so we want to be very careful and respectful of the other customer’s relationships in many ways.

The payment behavior has been very good.

It’s been very good, in the past has been very good. We’re being very cautious as we move forward. [Reed Alison – William D. Ritter]: Could you break out how much of the accounts receivable come from that one customer?

No, not right now.

Not at this juncture, we’ll leave it at that.

Your next question comes from Howard Katz – Smith Barney. Howard Katz – Smith Barney: From what I’m hearing these orders that are coming from this customer are fully cancelled are not being rescheduled is that correct?

They’re pushed back, they want a new product to speak of between the announcement and the end of our fiscal year and we had a lot of product planned to be delivered they just pushed it back. The near terms they pushed it back. Howard Katz – Smith Barney: What is affecting the gross margin so much that it could be coming down 20% from where you were? Before you were recording like 50%.

Simply the lack of recovery base. We’ve taken four out of 14 that percentage reduction in revenues which would have carried their proportion of fixed cost and some variable costs which can’t be moved that fast it just disappears consequently that burden falls on the $10 million and changes its profitability, its gross margin. Howard Katz – Smith Barney: In other words, whatever is being cancelled has a higher gross margin than product that are remaining?

No. Howard Katz – Smith Barney: I’m not quite sure why we go from 50% to 40% if it’s the same product.

It’s a volume issue.

It’s important to, I’m referring back to the press release 42% to 46% was the range so I think when you are indicating a 40% I think that’s below, I don’t know if you’re speaking to the year or the quarter, we’re focused on the quarter and 42% to 46% is where we see we are in the middle of the quarter. We’re doing our best to put a range out there that we believe will be the case. As we all know in business there are moving parts and we’re driving to get to that mid 40% range and we believe we’ll be able to do that but right now we want to be safe and put a 42% to 46% out there. Howard Katz – Smith Barney: Has any stock been bought back from which you had authorized?

No. Howard Katz – Smith Barney: You haven’t bought any. Do you still plan on doing that?

The Board had us on hold; we’ve got a Board committee who is giving us guidance on that because of other things that are in our world. We don’t expect to buy any in the next coming days. Quite honestly, we have a board meeting next month to review the situation.

Your next question comes from Alex Hamilton - Jesup & Lamont. Alex Hamilton - Jesup & Lamont: It looks like you’ve done a little kitchen sink accounting in terms of your backlog. You’ve taken out that particular customer which I think is always a good thing especially when there is uncertainty. Can you talk about, I don’t want you to guide us but can you talk about the future, you have a $62 million backlog how much of that should we expect to burn next fiscal year?

I said we expect to burn $29 million. Alex Hamilton - Jesup & Lamont: Are there any other businesses that you’re looking to enter or any other drivers of the business or you’re just sitting there trying to get your fingers around what’s going on now?

The story we’ve been presenting before that we are playing in a $5 billion retrofit market potential. You take the programs that we’ve now either gotten STCs for or in the final stages of ground and flight testing. We’re referring to things like the Boeing 757 and 767, the DC10, the TriStar, the L1011s, Citations, PC12s. We’ve now got product offering in a $600 million market segment. Additionally we’ve now got proposals out in another $180 million segment for three other aircraft families. This covers both commercial and the military. We continue to have the great potential in the retrofit market. We’ve got a setback here with one given customer but our success is never going to be based on just one customer. We have a wide customer base. We continue to diversify. Our product offering is more and more acceptable. As mentioned on the last call the people doing the flight testing believe our display product, our system is outstanding. I’d like to emphasize that because we don’t normally receive great comments like that. They’re becoming spokesmen for our product because they’re all very good about sharing their experience with other operators. We do expect continued growth and continued success for the company. Alex Hamilton - Jesup & Lamont: On the after market side, as a little anecdotal evidence what are you seeing in terms of business momentum while there is some uncertainty around the OE cycle has the momentum remained strong?

Yes it has. One of the things that we offer is our cockpit information portal is the gateway, if you will, to these increasing safety and situational awareness requirements the FAA is imposing in the North American airspace. Referring to things like the improved navigation performance R&P, the programs has gone on with ADSB which allows aircraft pilots to go with the free flight so that type of situational awareness information is easily presentable on our cockpit display systems. That’s what’s really creating the interest in the product it’s not just upgrading what they have but positioning themselves for their future. There are things that we do with our cockpits that benefit more than just operational economics they also take into account, we talked about the green effect, the fact that we reduced fuel emissions through more efficient flight patterns is a plus for the environment and the operators do take that type of thing into account also. Just a correction, I accused you of not listening and reading the wrong line. I had said that there would be $26 million coming out of the $62 million backlog during next fiscal year. On top of that I said there would be approximately $10 million from things to be considered to be extremely certain, adding up to around $37 million if you’ll recall.

Your next question comes from Michael Ciarmoli - Boenning and Scattergood. Michael Ciarmoli - Boenning and Scattergood: I thought I was clear, just to clarify, the backlog on the next 12 months I thought you said $30 million at first then it was $29 million, so its $26 million over the next 12 months will be recognized from the backlog?

Roman is telling me I did say $30 million, I apologize for that. Coming out of the backlog is $26.5 million. Michael Ciarmoli - Boenning and Scattergood: Related to the backlog I’m trying to get an understanding of your book and ship business in the year. How much book and ship have you done year to date related to your air data that hasn’t been in your backlog and do you expect that same level to continue throughout ’09 or to increase?

We do book and ship other than air data, that’s the first thing to say. To some degree FedEx are book and ship because they give us three months. What we’ve done this year, the guys are just looking at our expectation next year would be to do $5 million plus in book and ship air data. Michael Ciarmoli - Boenning and Scattergood: What about the other portion of the business?

The very obvious is all built into the $10 million that I said we could add to the $26.5 million. There’s probably a little bit more after that.

That’s historical for us; air data book and build opportunities, customer service support opportunities, and flat panel opportunities so we’re not speculating here. We know what the trends are; we know how that business comes in so we feel very comfortable with that. Michael Ciarmoli - Boenning and Scattergood: I would imagine you’ll probably get a little bit of a pop with the favorable court ruling that might take out some of your competitors in that space you could even see some upside there potentially on the air data side.

It’s not impossible. Michael Ciarmoli - Boenning and Scattergood: On the gross margin without this large customer are these the levels assuming maybe this type of run rate $10 to $12 million are you looking at the 42% to 46% gross margins or do you envision the cost cutting initiatives can get you to that 50% level or is it just going to be purely based on volumes.

We do firmly believe that we will be in the 50% plus gross margin range into next year. We’re going to look at both sides of the equation, the growth opportunities, making sure that we bring new growth in that it’s that kind of margins. Second, to the extent there needs to be cost taking wherever appropriate without damaging our ability to service customers, we’re going to drive at that 50%. The business has clearly demonstrated in past years it’s capable of that. There’s absolutely no question we can get there, it’s really a matter of paying attention to the detail. Michael Ciarmoli - Boenning and Scattergood: You mentioned that the compelling benefits of the technology of your flat panels you guys have been at this product transition for not a lengthy period of time but it seems like it would be very desirable product and technology to the bigger players, to the Garmin, Honeywell, Rockwell, private companies, Universal. Is there anything going through your mind in terms of strategic alternatives thinking about possibly approaching this business in a different way going forward, anything that you would consider at this time.

I don’t think our Board of Directors would be doing their job if they didn’t consider strategic alternatives. I can assure you it’s continuously on our agenda.

Your last question comes from David Campbell - Thompson Davis & Co. David Campbell - Thompson Davis & Co: Can you tell us if the customers business in the September quarter is down from the June quarter in terms of revenues, deliveries to them?

It’s relatively flat, I should say it’s slightly down. It is down.

It should have been substantially up. David Campbell - Thompson Davis & Co: Receivables are normal so at this point there’s no concern about those because you said the receivables have been paid on time.

Hitherto they have been there are some outstanding amounts right now. Historically the customer has been pretty good at paying within a few days of being on time.

We watch that very closely, any credit relationship you have the ability when there are forward looking shipments to use that as leverage and again with the decline here that leverage isn’t there but again we’re going to take every step to protect those receivables and be sure they ultimately turn into cash.

They did a lot in July which payment is in June. A lot in June which is just becoming June, which is yet to be paid.

We’ll keep close watch and do our best to make sure we translate that into cash as quickly as possible.

We’re just about out of questions then. Thank you.

At this time I would like to conclude today’s conference call.