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Now, I would like to discuss the results of the first quarter. Net sales and contract revenues in the June '10 quarter were $53.6 million or 2% below the first quarter revenues in the prior year of $54.7 million. This decrease in revenues is attributable to decreases in cargo and Z Backscatter systems, offset somewhat by increases in parcel, field service and contract research and development.The breakout of revenue by product line was as follows: Cargo was $8.2 million; Z Backscatter Systems was $17 million; Field Service was $22.6 million; Parcel was $5.1 million; and Contract Research and Development was $793,000. Also, revenue in the current quarter increased substantially over the prior year due to one multi-unit order that was fulfilled in the current quarter. The gross profit in the June '10 quarter was $23.8 million, down 7% as compared to the June '09 quarter. This decrease in gross profit is a result of the 2% decrease in revenues noted earlier, and the gross margin contribution decrease of 2.4 percentage points in the current quarter as compared to the same quarter in the prior year. The decrease in gross margin contribution is primarily attributable to product mix. As a percentage of total sales, the current quarter had less higher-margin Z Backscatter system revenue and substantially more lower-margin parcel revenues. Selling, general and administrative expenses were $9.8 million or 18% of revenue in the June '10 quarter, as compared to $8.7 million or 16% of revenue in the June '09 quarter. The increase in SG&A expense is a result of salaries and benefits related to headcount increases and increased marketing-related expenses. Legal expenses decreased in the current quarter, as the company had significant legal expenses in the prior year attributable to a Patent Litigation Suit in which we were the plaintiff that were offset by due diligence (effects) in the first quarter that have since been discontinued.
Company-funded research and development expenditures in the current quarter were $5 million or 9% of revenue as compared to the prior-year expenditure of $5.8 million or 11% of revenues. Our plan for the current quarter was below last year's actual spend in anticipation of efforts directed toward non-research and development activities.Other income increased by $1.1 million, primarily due to the mark-to-market gain recognized on a foreign currency put, which appreciated during the quarter due to the volatility of the euro. The company recorded income tax provision of $3.6 million in the current quarter as compared to a $4 million provision in the June '09 quarter. The decrease from the June '09 quarter is due to the reduced taxable income attributable to the factors noted earlier, and a reduction in the effective tax rate from 35.5% in the prior year quarter to 34.5% in the current year quarter. The reduction in the effective tax rate in the current quarter is primarily attributable to a reduced state tax apportionment, and an increase in the qualifying manufacturing deduction in the current year. At this time we anticipate the effective tax rate to be 34.5% for the current year. Fully diluted earnings per share in the June '10 quarter were $0.74 as compared to earnings per share in the June '09 quarter of $0.81. Now let's take a look at the balance sheet. The balance in cash, restricted cash, and short-term investments at June 30, 2010 was $161 million or $18.1 million below the March 31, 2010 balance, while cash used by operating activities was $13.7 million, which was driven by a $5.7 million decrease in accrued expenses, primarily related to the payment of year-end incentive compensation programs, a $6.8 million reduction of deferred revenue, related to the recognition of revenues for which payment was received in a prior period, and a $2.5 million reduction in customer deposits as the revenue related to those pre-payments was recognized in the current quarter. Read the rest of this transcript for free on seekingalpha.com