UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended OctoberApril 30, 20102011

OR

For the transition period from                      to

Commission file number 0-13200

Astro-Med, Inc.

(Exact name of registrant as specified in its charter)

(401) 828-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.05 Par Value – 7,229,7957,289,888 shares

(excluding treasury shares) as of December 3, 2010May 20, 2011

ASTRO-MED, INC.

ASTRO-MED, INC.INDEX

INDEX

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Part I. FINANCIAL INFORMATION

ASTRO-MED, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See Notes to condensed consolidated financial statements (unaudited).

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ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

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ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

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ASTRO-MED, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(1) Overview

Headquartered in West Warwick, Rhode Island, Astro-Med Inc. develops and manufactures a broad range of specialty printers and data acquisition systems. The Company’sOur products are distributed through itsour own sales force and authorized dealers in the United States. We also sell to customers outside of the United States Canada, and Western Europe andprimarily by using authorized dealers elsewhere in the world.and international sales representatives, who are managed from our foreign sales offices. Astro-Med, Inc. products are sold under the brand names Astro-Med^® Test & Measurement, Grass^® Technologies and QuickLabel^® Systems and are employed around the world in a wide range of aerospace, automotive, communications, chemical, food and beverage, medical, military, industrial, and packaging applications.

Unless otherwise indicated, references to “Astro-Med,” the “Company,” “we,” “our,” and “us” in this Quarterly Report on Form 10-Q refer to Astro-Med, Inc. and its consolidated subsidiaries.

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Astro-Med pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods included herein. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2010.2011.

Results of operations for the interim periods presented herein are not necessarily indicative of the results that may be expected for the full year.

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Some of the more significant estimates relate to the allowances for doubtful accounts and credits, inventory valuation, impairment of long-lived assets and goodwill, income taxes, share-based compensation and warranty reserves. Management’s estimates are based on the facts and circumstances available at the time estimates are made, past historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcome of these matters. Consequently, actual results could differ from those estimates.

Subsequent events have been evaluated by management through the filing of this form 10-Q with the SEC.

(3) Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

(4) Net Income Per Common Share

Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of shares and, if dilutive, common equivalent shares for stock options outstanding during the period. A reconciliation of the shares used in calculating basic and diluted net income per share is as follows:

For the three and nine months ended OctoberApril 30, 2011 and May 1, 2010, the diluted per share amounts do not reflect options outstanding of 782,346. For the three730,872 and nine months ended October 31, 2009, the diluted per share amounts do not reflect options outstanding of 794,727 and 800,686, respectively. These outstanding options were not included632,897, respectively, due to their anti-dilutive effect, as the exercise price of the options was greater than the average market price of the underlying stock during the periods presented.

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(5) Revenue Recognition

The majority of Astro-Med’s product sales are recorded at the time of shipment, when legal title has transferred and risk of loss passes to the customer, when persuasive evidence of an arrangement exists, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured in accordance with the requirements in Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition in Financial Statements.” When a sale arrangement involves training or installation, the deliverables in the arrangement are evaluated to determine whether they represent separate units of accounting in accordance with SAB 104 and FASB’s Accounting Standards Codification (ASC) 605-25, “Revenue Recognition-Multiple-Element Arrangements.” This evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered. The total fee from the arrangement is allocated to each unit of accounting based on its relative fair value. Fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately. Revenue is recognized when revenue recognition criteria for each unit of accounting are met. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled. All of our equipment contains embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole, as it is not sold or marketed separately and its production costs are minor as compared to those of the hardware system. Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Discounts from list prices are recorded as a reduction to sales. Amounts billed to customers for shipping and handling fees are included in sales while related shipping and handling costs are included in cost of sales.

Infrequently, Astro-Med recognizes revenue for non-recurring engineering (NRE) fees for product modification orders upon completion of agreed-upon milestones. Revenue is deferred for any amounts received prior to completion of milestones. Certain of our NRE arrangements include formal customer acceptance provisions. In such cases, we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue. NRE fees have not been significant in the periods presented herein.

Infrequently, Astro-Med receives requests from customers to hold product being purchased from us for the customers’ convenience. Revenue is recognized for such bill and hold arrangements in accordance with the requirements of SAB 104 which requires, among other things, the existence of a valid business purpose for the arrangement; the transfer of ownership of the purchased product; a fixed delivery date that is reasonable and consistent with the buyer’s business purpose; the readiness of the product for shipment; the use of customary payment terms; no continuing performance obligation by us; and segregation of the product from our inventories. Bill and hold arrangements have not been significant in the periods presented herein.

(6) Share-Based Compensation

Astro-Med has one equity incentive plan (the “Plan”) under which incentive stock options, non-qualified stock options, restricted stock and other equity based awards may be granted to officers and certain employees. To date, only options have been granted under the Plan. Options granted to employees vest over four years. An aggregate of 1,000,000 shares were authorized for awards under the Plan. The exercise price of each stock option will be established at the discretion of the Compensation Committee; however, any incentive stock options granted must be at an exercise price of not less than fair market value at the date of grant. The Plan provides for an automatic annual grant of ten-year options to purchase 5,000 shares of stock to each non-employee director upon the adjournment of each annual shareholders’ meeting. Each such option is exercisable at the fair market value as of the grant date and vests immediately prior to the next succeeding annual shareholders’ meeting. At OctoberApril 30, 2010, 726,5002011, 694,175 shares were available for grant under the Plan.

We have estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model. Our estimate of share-based compensation requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), the risk-free interest rate and the Company’s dividend yield. The stock price volatility assumption is based on the historical weekly price data of our common stock over a period equivalent to the weighted average expected life of our options. Management evaluated whether there were factors during that period which were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. In determining the expected life of the option grants, the Company has observed the actual terms of prior grants with similar characteristics and the actual vesting schedule of the grant and has assessed the expected risk tolerance of different option groups. The risk-free interest rate is based on the actual U.S. Treasury zero coupon rates for bonds matching the expected term of the option as of the option grant date.

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The fair value of stock options granted during the ninethree months ended OctoberApril 30, 20102011 and October 31, 2009May1, 2010 was estimated using the following assumptions:

The weighted average fair value per share for options granted was $2.03 during the first quarter of fiscal 2011 compared to $2.12 during the first quarter of fiscal 2011 and $2.06 during the second quarter of fiscal 2011 compared to $2.40 and $2.28 during the first and second quarters of fiscal 2010. No options were granted during the third quarter of fiscal 2011 and 2010.

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Aggregated information regarding stock options granted under the Plan for the ninethree months ended OctoberApril 30, 20102011 is summarized below:

Share-based compensation expense was recognized as follows:

As of OctoberApril 30, 20102011 there was $370,929$288,988 of unrecognized compensation expense related to unvested options.

Astro-Med has an Employee Stock Purchase Plan allowing eligible employees to purchase shares of common stock at a 15% discount from fair value on the date of purchase. A total of 247,500 shares were reserved for issuance under this plan. During the quartersquarter ended OctoberApril 30, 2011 and May 1, 2010, 1,718 and October 31, 2009, 1,993 and 2,331 shares respectively, were purchased under this plan. During the nine months ended October 30, 2010 and October 31, 2009, 5,660 and 7,4161,728 shares respectively, were purchased under this plan. As of OctoberApril 30, 2010, 78,8582011, 75,290 shares remain available.

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(7)(6) Comprehensive Income

The Company’s comprehensive income is as follows:

(8)(7) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories are as follows:

(9)(8) Income Taxes

The Company’s effective tax rates, which are based on the projected effective tax rate for the full year, are as follows:

During the third quarter of fiscal 2011, we recognized an income tax benefit of approximately $61,000, which included an expense of $340,000 on the quarter’s pre-tax income, a benefit of $251,000 related to the favorable resolution of a previously uncertain tax position and a benefit of $150,000 related to the difference between the prior year’s tax provision and the actual returns as filed. During the third quarter of fiscal 2010, we recognized an income tax expense of approximately $353,000, which included an expense of $378,000 on the quarter’s pre-tax income and a benefit of $25,000 related to the difference between the prior year’s tax provision and the actual return as filed.

During the nine months ended October 30, 2010, we recognized an income tax expense of approximately $462,000, which included an expense of $863,000 on the nine month’s pre-tax income, a benefit of $251,000 related to the favorable resolution of a previously uncertain tax position and a benefit of $150,000 related the difference between the prior year’s tax provision and the actual returns as filed. During the nine months ended October 31, 2009, we recognized an income tax expense of approximately $544,000, which included an expense of $569,000 on the nine month’s pre-tax income and a benefit of $25,000 related to the difference between the prior year’s tax provision and the actual return as filed.

		Three Months Ended
Fiscal 2012			39.0	%
Fiscal 2011			41.0	%

As of OctoberApril 30, 2010,2011 and January 31, 2011, the Company’s cumulative unrecognized tax benefits totaled $667,469 compared to $875,225 as of January 31, 2010. During the third quarter of the current year, we recognized $251,000 of a previously unrecognized tax benefit as a result of the expiration of statutes of limitations. We continue to accrue interest and penalties to$726,661. There were no developments affecting unrecognized tax benefits induring the income tax provision.quarter ended April 30, 2011.

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(10)(9) Segment Information

The Company reports three segments consistent with its sales product groups: Test & Measurement (T&M); QuickLabel Systems (QuickLabel) and Grass Technologies (Grass). The Company evaluates segment performance based on the segment profit before corporate expenses.

Summarized below are the Net Sales and Segment Operating Profit for each reporting segment:

(11)(10) Recent Accounting Pronouncements

Fair Value Measurements

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, “Improving Disclosures About Fair Value Measurement,” which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-06 is effective for annual periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which arewere effective for annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial position or results of operations.

Revenue Recognition

In October 2009, the FASB issued ASU 2009-13, “Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” and ASU 2009-14, “Software (Topic 985)—Certain Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force.” ASU 2009-13 provides amendments to the criteria in Subtopic 605-25 for separating consideration in multiple-deliverable arrangements. The amendments in this update established a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 also eliminates the residual method of allocating arrangement consideration.consideration and significantly expands the disclosures required for multiple-element revenue arrangements. ASU 2009-14 removes (1) tangible products containing software components and (2) non-software components that function together to deliver the tangible products essential functionality from the scope of software revenue guidance (ASC 965-605). ASU 2009-14 also provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. We adopted ASU 2009-13 and ASU 2009-14 should be applied on a prospective basisprospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluatingFebruary 1, 2011. Adoption of the impact of adopting these updates on our consolidated financial position and results of operations.

Other Accounting Changes

In May 2009, the FASB issuednew guidance included in ASC 855, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. In particular, the guidance addresses: the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. This guidance became effective for interim and annual reporting periods ending after June 15, 2009. The adoption did not have a material impact on our consolidated financial position orand results of operations.

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Except for the ASU’s discussed above, all other ASUs issued by the FASB as of the filing date of this Quarterly Report on Form 10-Q are not expected to have a material effect on our consolidated financial statements.

(12)(11) Securities Available for Sale

Pursuant to our investment policy, securities available for sale include state and municipal securities with various contractual or anticipated maturity dates ranging from twoone to twentythirty months. During the second quarter of this year, our remaining auction rate security was settled by our investment advisor at par value. Securities available for sale are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity until realized. Realized gains and losses from the sale of available for sale securities, if any, are determined on a specific identification basis. A decline in the fair value of any available for sale security below cost that is determined to be other than temporary will result in a write-down of its carrying amount to fair value. No such impairment charges were recorded for any period presented. All short-term investment securities have original maturities greater than 90 days at the time of purchase. The fair value, amortized cost and gross unrealized gains and losses of the securities are as follows:

(13)(12) Fair Value

We measure our financial assets at fair value on a recurring basis in accordance with the guidance provided in ASC 820, “Fair Value Measurement and Disclosures” which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, ASC 820 establishes a three-tiered hierarchy for inputs used in management’s determination of fair value of financial instruments that emphasizes the use of observable inputs over the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect management’s belief about the assumptions market participants would use in pricing a financial instrument based on the best information available in the circumstances.

The fair value hierarchy is summarized as follows:

The following table represents the fair value hierarchy for our financial assets (cash equivalents and investments) measured at fair value on a recurring basis:

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At January 31, 2010, the Level 3 asset consisted of an auction rate security whose underlying assets were backed by municipal assets. While we were continuing to earn interest at the maximum contractual rate, this investment was not trading and therefore did not have a readily determinable market value. The Company used the services of a global investment management and advisory firm to manage its auction rate security position. This investment management firm had developed and implemented a proprietary methodology for pricing auction rate securities using a disciplined discounted cash flow approach to establish fair market valuation.

During the second quarter of the current year, the remaining auction rate security held by the Company was redeemed by our investment advisor at par value. Accordingly, we recorded an unrealized gain of $11,330 related to the settlement of the remaining auction rate security as of October 30, 2010.

The following table provides a summary of changes in fair value of our auction rate securities for the nine months ended October 30, 2010:

(14) Litigation Settlement

In November 2009, Astro-Med was awarded a $1,391,000 judgment related to a lawsuit filed by the Company against a former employee and a competitor business. At issue in the lawsuit was the violation of a non-competition agreement which the former employee had signed as a condition of employment with Astro-Med. The $1,391,000 judgment included both punitive and exemplary damages, as well as attorney fees (all of which have been previously expensed) and related interest earned on the judgment and was recorded as a gain on legal settlement in the consolidated statement of operations and as a receivable in prepaid and other current assets in the consolidated balance sheet for the fiscal year ended January 31, 2010. In November 2009, the Company also filed a motion to amend the original judgment to include additional legal fees of $73,000. This motion was granted on February 12, 2010. On February 17, 2010, the Company collected a total of $1,495,000 related to this legal proceeding, which included the $1,391,000 gain on legal settlement recorded in the fourth quarter of fiscal 2010 and $104,000 for interest and the additional attorney fees as granted pursuant to the February 12, 2010 motion. The $104,000 was recorded as an additional gain on legal settlement in the first quarter of fiscal 2011 and is included in other income in the accompanying consolidated statement of operations for the nine month period ended October 30, 2010.

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Item 2.

ASTRO-MED, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Business Overview

This section should be read in conjunction with Astro-Med’s Condensed Consolidated Financial Statements included elsewhere herein and our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.2011.

Astro-Med is a multi-national enterprise, which designs, develops, manufactures, distributes and services a broad range of products that acquire, store, analyze and present data in multiple formats. The Company organizes its structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. We market and sell our products and services through the following three sales product groups:

Astro-Med markets and sells its products and services globally through a diverse distribution structure of sales personnel, manufacturing representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets.

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Results of Operations

Three Months Ended OctoberApril 30, 20102011 vs. Three Months Ended October 31, 2009May 1, 2010

Net sales by product group and current quarter percentage change over prior year for the three months ended OctoberApril 30, 20102011 and October 31, 2009,May, 2010, were:

The Company’s current year thirdfirst quarter sales were $18,329,000,$18,860,000, representing a 10.0%10.4% increase as compared to the previous year’s thirdfirst quarter sales of $16,658,000 and a 3.2% improvement over current year second quarter sales of $17,753,000.$17,077,000. Sales through the domestic channels for the current quarter were $13,336,000,$12,574,000, an increase of 16.7%3.3% over the prior year. International shipments for the secondfirst quarter of the current year were $4,993,000,$6,286,000, representing a 4.6% decrease28.2% increase from the previous year. TheFavorable foreign exchange contributed 3.0% to the current year’s third quarter decreasegrowth in international sales is primarily due to the $207,000 negative impact due to foreign exchange rates.sales.

Hardware sales in the current quarter were $7,782,000,$7,902,000, an increase of 9.9%33.2% over the prior year’s thirdfirst quarter hardware sales of $7,079,000.$5,931,000. The increase in hardware sales in the current quarter as compared to the prior year was evident in all three product groups and primarily duedriven by a 40.0% increase in Grass Technologies’ clinical line of diagnostic systems, especially EEG Systems, as well as a 39.3% increase in sales of QuickLabel digital printers. Also contributing to the increase in current quarter sales was the increased demand for T&M’sthe new TMX line as well asand the 20.3% increase in sales of the Ruggedized product line within T&M product group. Also contributing to the increase in current quarter sales was the 14.9% increase in sales of QuickLabel printers and the 19.2% increase in Grass Technologies’ clinical line of diagnostic systems, especially Long Term Epilepsy Monitoring Systems. The increase in the current quarter’s hardware sales was somewhat tempered by lower sales of T&M’s recorder and data acquisition product lines, as well as lower sales of Grass Technologies’ research line of products.

Consumables sales in the current quarter were $9,215,000,$9,740,000, an increase of 10.3%1.6% over the prior year’s thirdfirst quarter consumable sales of $8,353,000. The overall$9,587,000. A key driver of the increase in consumable sales for the current quarter was primarilyis a due to the 1.9% increase in sales in the QuickLabel product group which were up 12.3% as compared to prior year’s third quarter sales. QuickLabel’s increased levela result of consumable sales in the current quarter is due to an increase in consumable demand fromfor Vivo! and Zeo! printer supplies related to the growth of the Company’s installed base of printer customers,installed printers. Also contributing to the increase was an 8.6% increase in sales of electrodes and cream products in the Grass product group. The current quarter increment in consumable sales was tempered by the 43.7% decrease in chart paper sales in the T&M product group as well as label shipments fromcompared to the Asheboro, North Carolina business, acquired in December 2009.prior year’s first quarter.

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Service and other revenues of $1,332,000$1,218,000 in the current quarter were up 8.6%down 21.8% from prior year’s thirdfirst quarter service and other revenue of $1,226,000.$1,558,000. The current quarter increase was shared among all three product groups with T&M up 6.2%, Quick Label up 13.7% and Grass Technology up 3.5% anddecrease was primarily due to the increasedecrease in freightparts and repair revenue as well as parts and repairservice revenue which were up 13.1%down 29.0% and 9.8%22.4%, respectively, as compared to prior year’s thirdfirst quarter.

Current year thirdfirst quarter gross profit was $7,401,000, reflecting$7,501,000, an improvement over both the current year secondprior year’s first quarter gross profit of $7,024,000 and the prior year’s third quarter gross profit of $7,059,000,$6,865,000, and is as a resultan outgrowth of higher sales. The Company’s gross profit margin of 40.4%39.8% in the current quarter reflects a decrease from the prior year’s thirdfirst quarter gross profit margin of 42.4%40.2%. The lower gross profit margin for the current quarter as compared to prior year is primarily attributable to unfavorable sales product mix as well as higher manufacturing costs due to unfavorable factory absorption.increased material costs.

Operating expenses for the current quarter were $6,694,000, a 9.8%$6,944,000, an 11.2% increase from prior year’s thirdfirst quarter operating expenses of $6,098,000.$6,244,000. Specifically, selling and marketing expenses for the current quarter increased 10.2%18.9% to $4,232,000$4,566,000 as compared to the previous year’s thirdfirst quarter selling and marketing expenses of $3,840,000.$3,841,000. The increase in selling and marketing for the current quarter was primarily the result of increases in commissions, wages and wagesbenefits due to personnel additionssales and increased sales.marketing initiatives, as well as foreign exchange. The increase in salesselling and marketing was also due to increasedimpacted by the increase in travel spending.spending in the current quarter. General and administrative (G&A) expenses decreased 1.5%23.1% to $1,079,000$911,000 in the thirdfirst quarter of the current year as compared to prior year’s thirdfirst quarter G&A expenses of $1,095,000.$1,184,000. The decrease in G&A was primarily due to a decrease in banking and professional service fees and outside services as compared to the prior year.year’s first quarter spending. Spending on research & development (R&D) in the thirdfirst quarter of the current year of $1,383,000$1,468,000 represents an 18.9%a 20.4% increase compared to prior year’s thirdfirst quarter spending of $1,163,000$1,219,000 primarily due to the increase in outsourced development services fees.prototype spending. The current quarter spending in R&D represents 7.5%7.8% of sales, an increase from the prior year’s thirdfirst quarter level of 7.0%7.1%.

Third

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First quarter income from operations is $707,000,$557,000, a 26.4%10.5% decrease as compared to the prior year’s thirdfirst quarter operating income of $961,000.$622,000. Operating margin for the thirdfirst quarter of the current year of 3.9%3.0% is also down compared to the prior year’s thirdfirst quarter margin of 5.8%3.6%. The lower operating income and related margin is primarily attributable to unfavorable sales product mix; higher manufacturing cost due to unfavorable factory absorption;material cost increases and increased selling and marketing and R&D expenses during the current quarter.

Other income during the thirdfirst quarter was $24,000$150,000 compared to $76,000$107,000 in the thirdfirst quarter of the previous year. The decreaseincrease for the current quarter was primarily due to lowerhigher investment income, due to lower overall interest rates, as well as foreign exchange lossesgain recognized in the current quarter due to the continuing strengtheningweakening of the USU.S. dollar as compared to the same period in the prior year.

In the third Prior year first quarter of the current year, the Company recognized an income tax benefit of $61,000, reflecting an effective tax rate of negative 8.4%. The current quarter tax benefit is due to the recognition of $251,000 related to the favorable resolution of a previously uncertain tax position and $150,000 related to the difference between the prior year’s tax provision and the actual returns as filed. This result compares to the prior year’s third quarter income tax expense of $353,000, reflecting an effective tax rate of 34.1%.

The Company reported $792,000 in net income for the third quarter of the current year, reflecting a return on sales of 4.3% and generating EPS of $0.11 per diluted share. Included in net income is a tax benefit of $401,000, or $0.05 per diluted share, related to the favorable resolution of a previously uncertain tax position and favorable adjustment in the filing of the prior year’s tax returns. On a comparative basis, prior year’s third quarter recognized net income of $683,000, reflecting a return on sales of 4.1% and an EPS of $0.09 per diluted share.

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Nine Months Ended October 30, 2010 vs. Nine Months Ended October 31, 2009

Net sales by product group and current quarter percentage change over prior year for the nine months ended October 30, 2010 and October 31, 2009 were:

Net sales for the nine month period of the current fiscal year were $53,159,000, an 11.3% increase as compared to $47,751,000 reported for the nine months of the prior fiscal year. Sales through the domestic channels for the nine months of the current year were $38,112,000, a 13.7% increase from the prior year. International sales for the nine months of the current year of $15,047,000 reflects a 5.8% increase as compared to the prior year and is net of a $184,000 unfavorable impact due to foreign exchange rates.

The Company’s hardware sales were $20,732,000 in the nine months of fiscal 2011, a 2.3% decrease as compared to the same period in the prior year. The decrease in hardware sales is primarly due to lower sales in T&M’s recorder and data acquisition product lines and lower sales in Grass Technologies’ research product lines. The Company did realize growth in certain hardware product lines including T&M’s TMX line, Grass Technologies’ Long- Term Monitoring systems and Sleep product lines and QuickLabel’s line of color printers. Consumable sales for the nine months of the current year of $28,266,000 increased 23.3% from the prior year nine month period. The increase was evident in all product groups, but was dominated by QuickLabel which was up 25.9% as compared to the same period in the prior year. The increased level of consumable sales for QuickLabel in the nine months of fiscal 2011 is due to increased demand for supplies from the current installed base of printer customers, as well as label sales from the Company’s recent acquisition of the Asheboro, North Carolina label manufacturer. Service and other sales revenues for the nine months ended October 30, 2010, were $4,161,000, an increase of 15.4% from the prior year. The increase in service and other sales was evident in all three product groups.

The Company achieved $21,290,000 in gross profit for the nine months of fiscal 2011 and generated a gross profit margin of 40.0% as compared to prior year’s gross profit margin of 41.5%. The decline in gross profit margin for the nine months of the current year is due to unfavorable sales product mix as well as higher manufacturing costs.

Operating expenses in the nine months of the current year were $19,413,000, representing a 5.3% increase from the prior year. Selling and marketing expenses for the nine months of the current year increased 7.9% from the prior year to $12,349,000 with the increase traceable primarily to wages and benefits due to personnel additions as well as higher travel and outside service spending. R&D spending for the current nine months of $3,737,000 represents a 4.8% increase as compared to prior year R&D of $3,566,000. Current year spending in R&D represents 7.0% of the current year’s sales compared to 7.5% of sales in the prior year. General and administrative (G&A) expenses for the nine months of the current year were $3,327,000, a 2.8% decrease from the prior year. The lower spending level for G&A in the current year is mainly attributed to the lower professional service fees.

The Company earned $1,877,000 in operating income during the nine months of fiscal 2011, a 35.3% improvement as compared to operating income of $1,387,000 for the same period in the prior year. On a margin basis, this year’s operating income reflects an operating margin of 3.5% on sales compared to prior year’s operating margin of 2.9%.

Other income realized during the nine months of the current fiscal year is $130,000, a decrease of 33.0% as compared to the other income reported in the previous year. This lower level of other income isincludes a result of lower investment income, due to lower overall interest rates, as well as foreign exchange losses recognized in the current year due to the continued strengthening of the US dollar. The overall decline in other income for the nine months of fiscal 2011 is tempered by the $104,000 gain on legal settlement recognized in the second quarter for interest and attorney fees recognized as a result of damages collected from a lawsuit filed against a former employee and competitor business.

TheIn the first quarter of the current year, the Company has provided federal, state, and foreignrecognized an income tax expense of $462,000 for the nine month period ended October 30, 2010. This year’s provision reflects an effective tax rate of 23.0%, and includes a $251,000 benefit related to the favorable resolution of a previously uncertain tax position and a $150,000 benefit related to the difference between the prior year’s tax provision and the actual returns as filed. This result compares to the prior year’s third quarter year to date income tax expense of $544,000$276,000, reflecting an effective tax rate of 34.4%39.0%, as compared to the prior year’s first quarter income tax expense of $299,000, reflecting an effective tax rate of 41.0%. The lower effective tax rate for the current quarter is related to the R&D tax credit that is available to the Company this year.

NetThe Company reported $431,000 in net income earned duringfor the nine monthsfirst quarter of the current fiscal year, was $1,545,000 reflecting a return on sales of 2.9%2.3% and generating EPS of $0.21$0.06 per diluted share. Included in net income is a tax benefit of $401,000, or $0.05 per diluted share, related to the favorable resolution of a previously uncertain tax position and favorable adjustment in the filing of the prior year’s tax returns. On a comparative basis, prior year’s thirdfirst quarter year to daterecognized net income was $1,037,000of $430,000, reflecting a return on sales of 2.2%2.5% and an EPS of $0.14$0.06 per diluted share.

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Segment Analysis

The Company reports three segments consistent with its sales product groups: Test & Measurement (T&M); QuickLabel Systems (QuickLabel) and Grass Technologies (Grass). The Company evaluates segment performance based on the segment profit before corporate and financial administration expenses.

Summarized below are the Net Sales and Segment Operating Profit for each reporting segment:

Test & Measurement – Measurement—T&M

Sales revenues from the Test & MeasurementT&M product group were $4,137,000$3,749,000 for the thirdfirst quarter of the current fiscal year, representing a 12.8%16.8% increase as compared to sales of $3,667,000$3,210,000 for the same period in the prior year. The increase is primarily attributable to the demand for the new TMX product line as well as the double-digit growth in the Ruggedized printer product line. Despite T&M’s higher sales in the thirdfirst quarter, segment operating profit decreased 50.6%96.0% to $192,000,$12,000, resulting in a 4.6%0.3% profit margin as compared to the prior year’s first quarter segment operating profit of $389,000$301,000 and related operating margin of 10.6%9.4%. The decline in bothlower segment operating profit and related margin for the current quarter was due to higher manufacturing costs, and higher operating expenses, specifically research and development.

For the nine months of the current fiscal year, sales revenues of the T&M product group were $10,964,000 representing a 2.2% decrease as compared to $11,213,000 for the same period of the previous year. The decrease in sales stems from lower sales in the recorder and data acquisition product linesmaterial cost, which increased $74,000 as compared to the prior year. The decrease in current year to date sales was tempered by the demand for the new TMX product line, as well as increases in Ruggedized and consumables product line sales and an increase in repair revenue. For the first nine monthsquarter of the currentprior year, T&M’s segment operating profit was $910,000, resulting in an 8.3% segment operating profit margin,and higher R&D expenses related to new product development costs which increased $243,000 as compared to segment operating profitthe first quarter of $1,025,000 and related margin of 9.1% for the same period in the prior year. The decrease in T&M’s segment operating profit and related margin is traceable to lower sales and higher manufacturing costs due to unfavorable factory absorption, as well as higher operating expenses, specifically, research and development, in the current fiscal year.

QuickLabel Systems—QuickLabel

Sales revenues from the QuickLabel Systems product group were $9,851,000$10,774,000 in the thirdfirst quarter of the current fiscal year, representing a 12.8%6.1% increase as compared to sales of $8,737,000$10,153,000 in the same quarter of the prior year. The increase in sales is primarily due to the label and tag product lines which increased 34.2% over last year. Aside from sales growth from our existing customer base, the Company’s recently acquired label and tag manufacturerincrease in North Carolina contributed to the increment. Current quarter revenues from QuickLabel’s hardware line of printers, driven by the growth in the digital color printer line with particular contribution of sales from the new Vivo! Touch product line. Current quarter revenue from QuickLabel’s consumable product line also reported a double-digit growth rateincreased over the same period in the previous year.year and was driven by an increase in the sales of Vivo! and Zeo! supplies. QuickLabel’s current quarter segment operating profit was $575,000,$781,000, reflecting a profit margin of 5.8% and a decrease from7.2% compared to prior year’s secondfirst quarter segment profit of $871,000$652,000 and related profit margin of 10.0%6.4%. The declineincrease in QuickLabel’s current year’s segment operating profit and related margin is due to unfavorableincreased sales and favorable product mix, higher manufacturing costs due to unfavorable factory absorption, as well as higher operating expenses.

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The QuickLabel product group had sales revenue of $30,107,000 for the nine months of the current fiscal year as compared with $24,378,000 in sales revenues reported for the same period in the prior year. The increase in current year’s sales is primarily attributed to the consumable product lines which increased $4,944,000 or 25.9% from the prior year. Within the consumable line, label and tag product line sales made a significant contribution to the overall growth rate for the first nine months of the current year, primarily due to the newly acquired Asheboro, North Carolina business, as well as the increased base of installed printers placed in service. Revenues from QuickLabel’s hardware line also reported a double-digit growth rate over the previous year driven by growth in the color printer product line. Segment operating profit margin for the nine months of the current year is 5.4%, a decrease as compared to a 7.3% for the same period of the previous year. The decline in segment operating profit margin is due to unfavorable sales product mix, higher manufacturing costs from unfavorable factory absorption, as well as higher operating expenses.mix.

Grass Technologies—Grass

Sales revenues in the thirdfirst quarter of the current year for the Grass Technologies group were $4,341,000$4,337,000, representing a 2.0%16.8% increase as compared to prior year’s thirdfirst quarter sales of $4,254,000.$3,714,000. The increase in sales is primarily attributable to the Grass Technologies’ Clinical products lines, where sales were up 19.2%40.0% over the prior year, as particularly evident in the SleepEEG and Long Term Monitoring product lines sales. TheDespite the increase is tempered by lowerin sales, of Grass’ Research product line which has been adversely affected by the economic downturn and lower funding sources currently being experienced by hospitals, laboratories and research facilities. Segmentsegment operating profits increased 33.8%decreased 5.0% in the current quarter, with the segment achieving an operating profit margin of 20.6%15.3% as compared to a segment operating profit margin of 15.7%18.8% reported in the thirdfirst quarter of the prior year. This increasedecrease in segment operating profit and related margin for the current quarter is primarily due to favorable product mix, lowerhigher manufacturing costs and lower operating expenses.

Grass sales were $12,088,000 for the nine months of the current yeardue to material cost, which increased $70,000 as compared to $12,160,000 for the same periodfirst quarter of the prior year. This year’s sales ran nominally behind the prior year’s sales as the Research line of products were lower than the prior years; however the Clinical line of diagnostic products including EEG, Sleepyear and Long Term Monitoring, reported growth of approximately 5.6% from the previous year’s sales volume. Also making a positive contribution to sales volume during the current year was the line of consumable products of electrodeshigher operating expenses, particularly selling and creamsR&D expenses which reported a 6.0% increase in sales over last year. Notwithstanding Grass’ lower sales in the nine months of the current year, segment operating profit increased 41.1 % to $2,250,000, resulting in an 18.6% segment operating profit margin$55,000 as compared to the first quarter of the prior year’s segment operating profit margin of 13.1%. The improvement in both segment operating profit and related margin is due to product mix, lower manufacturing and research and development costs.year.

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