Second-quarter Engineering and Development expense was approximately $500,000 compared with $400,000 a year ago. As a percentage of sales, Q2 2011 Engineering and Development was at about 2.6% of sales compared with 1.8% last year. Our target range for Engineering and Development expenses is 2.4% to 2.6% of sales.

SG&A expenses decreased on a real-dollar basis to $3.3 million in the quarter from $3.4 million a year ago as a result of lower commissions in the Systems business. SG&A was 17.2% of sales in Q2 of fiscal 2011, compared with 14.2% of sales in Q2 last year. Our target range for SG&A expense is between 16.1% to 16.6%.

Our effective tax rate for the quarter was 33%. We expect our effective tax rate will be approximately 37% for the third quarter of fiscal 2011.

Net income for the second quarter was $300,000, or $0.08 per diluted share, compared with net income of $1 million, or $0.28 per share, in the second quarter of fiscal 2010.

Let’s now turn to the balance sheet . . .

Cash and short-term investments decreased by approximately $1.1 million from fiscal year end September 30, 2010 to $14.4 million as of March 31, 2011. The decrease was primarily due to an increase in inventory of $2.3 million to support sales to our large hosting customer, and the purchase of $395,000 in CSP stock.

As we have discussed in the past, CSP’s cash position can vary significantly from quarter to quarter due to the high working capital requirements needed to fund large projects at both our Systems and our Services and Systems Integration segments. This was the case this quarter with the significant increase in our inventory.

Going forward, our financial priorities remain the same. We will manage the company cautiously with a strict focus on controlling expenses and efficient working capital management, all while driving toward long-term profitable growth.

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