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In a challenging quarter we reported solid earnings despite decreases in product sales and total revenue, net income was $0.52 per diluted share on total revenue of $6.6 million.Now I’ll turn the call over to Curt for details. Curt A. Reynders Thanks Dan. Total revenue for the second quarter of fiscal 2012 decreased 16% to $6.6 million due to a 13% decrease in product sales and a 26% decrease in contract, research and development revenue. Product sales were $5.56 million with lower sales into industrial markets. According to industry analysts chip sales have been slowing rapidly and supply chain inventory levels have been elevated. Other analysts have reported that capital intensive industries including our core industrial manufacturing markets appear to be canceling or pushing back their spending until there is more certainty in the global economy. Additionally, there appear to have been inventory adjustments by certain of our medical device customers perhaps in response to revised sales forecast. Also contributing to the product sales decline the past quarter, shipments of certain types of couplers were delayed by manufacturing process changes that ultimately increased production efficiency, and we believe those changes have now been successfully implemented. Although we would have liked to have seen year-over-year growth of course, we were pleased to have solid profits as we have through good times and bad for 38 consecutive quarters, that's every quarter for nearly 10 years. Despite the difficult comparisons, our order backlog is strong especially for medical device markets and some customer orders shifted from the past quarter into the current quarter. So although we faced a variety of factors that reduced product sales in the most recent quarter, we see the challenges as temporary and continue to see a bright future for existing and potential new products. Contract R&D revenue decreased 26% to $1.04 million due to the completion of certain contracts and contract activities. It has been a challenging environment for government funding.
Gross margin remained strong although it decreased to 65% of revenue compared to 67% last year due to lower volume and increased labor costs. The increased labor costs were from adding production personnel needed to support future products.Total expenses increased 29% for the second quarter of fiscal 2012 compared to the second of fiscal 2011, due to a near doubling of a 97% increase in research and development expenditures. The increase in research and development expense was due to increased product development activities. We redeployed resources from contract R&D to company sponsored R&D. We believe the investment in R&D will pay off in future revenues and profits. Dan will give R&D highlights in a few minutes. Interest income increased to 20% due to an increase in interest bearing marketable securities. Income before taxes for the quarter was $3.7 million and pre-tax margin was 56%. The provision for income taxes was a slightly lower percentage than the prior year quarter. 31% of income before taxes compared to 33% last year, because of lower state and federal effective tax rates. Net income for the second quarter was $2.56 million or $0.52 per diluted share compared to $0.66 last year and net margin was 39%. September 30 was the halfway point in our 2012 fiscal year. For the first half of the fiscal year, product sales were about the same as last year and total revenue was down slightly 2% due to a decrease in contract R&D. Read the rest of this transcript for free on seekingalpha.com