UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended November 2, 2013May 3, 2014

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  x    No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company. 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 – 7,512,8037,679,142 shares

(excluding treasury shares) as of December 9, 2013May 23, 2014

ASTRO-MED, INC.

INDEX

Part I. FINANCIAL INFORMATION

ASTRO-MED, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Except Share Data)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, Except Per Share Data)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See Notes to condensed consolidated financial statements (unaudited).

ASTRO-MED, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Overview

Headquartered in West Warwick, Rhode Island, Astro-Med Inc. designs, develops, manufactures and distributes a broad range of specialty printers and data acquisition and analysis systems. Our products are distributed through our own sales force and authorized dealers in the United States. We also sell to customers outside of the United States primarily through our branchCompany offices in Canada and Europe as well as with independent dealers and representatives. Astro-Med, Inc. products are sold under the brand names Astro-Med ^® Test & Measurement and QuickLabel^® Systems and are employed around the world in a wide range of aerospace, apparel, automotive, avionics, chemical, computer peripherals, communications, chemical,distribution, food and beverage, military, industrial,general manufacturing, packaging and packaging applications.transportation.

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, 2013.2014.

On January 31, 2013, wethe Company completed the sale of substantially all of the assets of ourits Grass Technologies Product Group.Group (Grass). Consequently, we havethe Company has classified the results of operations of theits Grass Technologies Product Groupsegment as discontinued operations for all periodsthe first quarter fiscal 2014 period presented. Refer to Note 14,15, “Discontinued Operations,” for further discussion.details.

On January 22, 2014, Astro-Med completed the acquisition of the ruggedized printer product line from Miltope Corporation (Miltope). Astro-Med’s ruggedized printer product line is part of the Test & Measurement (T&M) product group and is reported as part of the T&M segment. The results of the Miltope’s ruggedized printer product line operations have been included in the condensed consolidated financial statements of the Company for the first quarter fiscal 2015. Refer to Note 4, “Acquisition,” for further details.

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 condensed 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, accrued expenses 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.

Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.

(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) Acquisition

On January 22, 2014, Astro-Med completed the acquisition of the Ruggedized Printer Product line from Miltope Corporation (Miltope), a company of VT Systems, which is engaged in the design, development, manufacture and testing of ruggedized computers and computer peripheral equipment for military, industry and commercial applications. Astro-Med’s ruggedized printer product line is part of the Test & Measurement (T&M) product group and is reported as part of the T&M segment. The results of the Miltope’s ruggedized printer product line operations have been included in the condensed consolidated financial statements for the first quarter fiscal 2015 as presented.

The purchase price of the acquisition was $6,732,000 which was funded using existing cash on hand. Of the $6,732,000 purchase price, $500,000 will be held in escrow for twelve months following the acquisition date to provide an indemnity to the Company in the event of any breach in the representation, warranties and covenants of Miltope. The assets acquired consist of all of the assets of the Miltope ruggedized printer product line excluding plant and equipment and personnel. The acquisition was accounted for under the acquisition method in accordance with the guidance provided by FASB ASC 805, “Business Combinations.”

As part of the acquisition, Miltope and Astro-Med have entered into a manufacturing services agreement under which Miltope will provide transition services and continue to manufacture printers for Astro-Med for up to six months until the Company transitions the manufacturing to its West Warwick, Rhode Island facility.

The purchase price of the acquisition has been allocated on the basis of the estimated fair value as follows:

The following unaudited pro forma information assumes the acquisition of Miltope occurred on February 1, 2013. This information has been prepared for informational purposes only and does not purport to represent the results of operations that would have happened had the acquisition occurred as of the date indicated, nor of future results of operations.

The impact on net income and earnings per share would not have been material to the Company in fiscal 2014.

(5) Net Income (Loss) 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, restricted stock awards and restricted stock units outstanding during the period. A reconciliation of the shares used in calculating basic and diluted net income (loss) per share is as follows:

For the three and nine months ended November 2,May 3, 2014 and May 4, 2013, the diluted per share amounts do not reflect common equivalent shares outstanding of 131,60075,600 and 172,100, respectively, because their effect would have been anti-dilutive, as the exercise price was greater than the average market price of the underlying stock during the period presented. For the three and nine months ended October 27, 2012, the diluted per share amounts do not reflect common equivalent shares outstanding of 595,394 and 654,194,155,900, respectively, because their effect would have been anti-dilutive, as the exercise price was greater than the average market price of the underlying stock during the period presented.

(5)For the three months ended May 4, 2013, diluted net loss per common share is the same as basic net loss per common share, as the inclusion of the effect of the common share equivalents then outstanding would be anti-dilutive. For this reason, excluded from the calculation of diluted net loss per common share for the three month period ended May 4, 2013 were “in the money” options to purchase 175,951 shares of the Company’s common stock.

(6) Share-Based Compensation

Astro-Med has one equity incentive plan (the “Plan”) under which incentive stock options, non-qualified stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and other equity based awards may be granted to directors, officers and certain employees. An aggregate of 1,000,000 shares were authorized for awards under the Plan. At November 2, 2013, 356,350May 3, 2014, 290,609 shares were available for grant under the Plan. Options granted to employees vest over four years. 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. In fiscal year 2013, a portion of the Company’s executive’s long-term incentive compensation was awarded in the form of RSUs.RSUs (“2013 RSUs”). The 2013 RSUs vestwere earned based on the Company achieving specific thresholds of net sales and annual operating income as established under the fiscal 2013 Domestic Management Bonus Plan and vested fifty percent on the first anniversary of the grant date and fifty percent on the second anniversary of the grant date provided that the grantee iswas employed on each vesting date by Astro-Med or an affiliate company and provided the Company achieves specific thresholds of net sales and annual operating income as established under the fiscal 2013 Domestic Management Bonus Plan.company. All such 2013 RSUs were earned in fiscal 2013 and fifty percent vested inas of March 2013; the balance will vest in March 2014, subject to the grantee’s continued employment.2014. In April 2013, the Company granted options and RSUs to officers (“2014 RSUs”). Each 2014 RSU will be earned and vest as follows: twenty-five percent of the 2014 RSU vests on the third anniversary of the grant date, fifty percent of the 2014 RSU vests upon the Company achieving its cumulative budgeted net sales target for fiscal years 2014 through 2016 (the “Measurement Period”), and twenty-five percent of the total 2014 RSU vests upon the Company’s achieving a target average annual ORONA (operating income return on net assets as calculated under the Domestic Management Bonus Plan) for the Measurement Period. The grantee may not sell, transfer or otherwise dispose of more than fifty percent of the common stock issued upon vesting of the RSU until the first anniversary of the vesting date.

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 shareholdersshareholders’ 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 shareholdersshareholders’ meeting. In addition to the automatic option grant under Plan, the Company has a Non-Employee Director Annual Compensation Program (the “Program”) which provides that each non-employee director is entitled to an annual cash retainer of $7,000 (the “Cash“Annual Cash Retainer”), plus $500 for each Board and committee meeting attended, provided that if more than one meeting occurs onattended. In addition, effective August 1, 2014, the same day, no more than $500 shall be paid for such day.Chairman of the Board will receive an annual retainer of $6,000 and the Chair of the Audit Committee and Compensation Committee will each receive an annual retainer of $4,000 each (“Chair Retainer”). The non-employee director may elect for any fiscal year to receive all or a portion of the Annual Cash Retainer and/or Chair Retainer (collectively the “Cash Retainer”) in the form of common stock of the Company, which will be issued under the Plan. If a non-employee director elects to receive all or a portion of the Cash Retainer in the form of common stock, such shares shall be issued in four quarterly installments on the first day of each fiscal quarter, and the number of shares of common stock to be issued shall be based on the fair market value of such common stock on the date such installment is payable. The common stock received in lieu of such Cash Retainer will be fully vested. However, a non-employee director who receives common stock in lieu of all or a portion of the Cash Retainer may not sell, transfer, assign, pledge or otherwise encumber the common stock prior to the first anniversary of the date on which such shares were issuable. In the event of the death or disability of a nonemployee director, or a change in control of the Company, any shares of common stock issued in lieu of such Cash Retainer, shall no longer be subject to such restrictions on transfer.transfer and/or Chair Retainer (collectively the “Cash Retainer”).

In addition, under the Program, each non-employee director receives RSAs with a value equal to $20,000 (the “Equity Retainer”) upon adjournment of each annual shareholders meeting. If a non-employee director is first appointed or elected to the Board of Directors effective on a date other than at the annual shareholders meeting, on the date of such appointment or election, the director shall receive a pro rata award of restricted common stock having a value based on the number of days remaining until the next annual meeting. The Equity Retainer will vest on the earlier of 12 months after the grant date or the date immediately prior to the next annual meeting of the shareholders following the meeting at which such RSAs were granted. However, a non-employee director may not sell, transfer, assign, pledge or otherwise encumber the vested common stock prior to the second anniversary of the vesting date. In the event of the death or disability of a non-employee director, or a change in control of the Company, the RSAs shall immediately vest and shall no longer be subject to such restrictions on transfer.

We account for compensation cost related to share-based payments based on fair value of the stock options, RSUs and RSAs when awarded to an employee or director. We have estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model. Our estimate 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. The dividend assumption is based upon the prior year’s average dividend yield. Reductions in compensation expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. Our accounting for share-based compensation for RSUs and RSAs is also based on the fair value method. The fair value of the RSUs and RSAs is based on the closing market price of the Company’s common stock on the grant date of the RSU or RSA.

Share-based compensation expense was recognized as follows:

Stock Options

The fair value of stock options granted during the ninethree months ended November 2,May 3, 2014 and May 4, 2013 and October 27, 2012 was estimated using the following assumptions:

The weighted average fair value per share for options granted was $2.93 during the first quarter of fiscal 2015 as compared to $2.79 during the first and second quarters of fiscal 2014. No options were granted during the third quarter of fiscal 2014. This compares the weighted average fair value per share for options granted of $2.09, $2.01 and $1.93 during the first, second and third quarters of fiscal 2013, respectively.

Aggregated information regarding stock options granted under the Plan for the ninethree months ended November 2, 2013May 3, 2014 is summarized below:

As of November 2, 2013,May 3, 2014, there was $305,646$419,000 of unrecognized compensation expense related to unvested options, which will be recognized through March 2017.2018.

Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs)

Aggregated information regarding RSUs and RSAs granted under the Plan for the ninethree months ended November 2, 2013May 3, 2014 is summarized below:

		RSAs & RSUs				Weighted Average Grant Date Fair Value
Unvested at January 31, 2014			106,496			$	9.12
Granted			—				—
Vested			(15,618	)			8.53
Forfeited			(5,834	)			10.07
Unvested at May 3, 2014			85,044			$	9.16

As of November 2, 2013,May 3, 2014, there was $457,878$300,000 of unrecognized compensation expense related to unvested RSUs and RSAs which will be recognized through April 2016.

Employee Stock Purchase Plan

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 November 2,May 3, 2014 and May 4, 2013, and October 27, 2012, there were 886815 and 1,535 shares respectively, purchased under this plan. During the nine months ended November 2, 2013 and October 27, 2012, there were 3,152 and 4,0821,212 shares respectively, purchased under this plan. As of November 2, 2013, 61,709May 3, 2014, 59,427 shares remain available.

(6)(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:

(7)(8) Income Taxes

The Company’s effective tax rates for income (loss) from continuing operations based on the projected effective tax rate for the full year, are as follows:

During the three months ended November 2, 2013,first quarter of fiscal 2015, the Company recognized a benefit of $187,000 recorded as a result of a favorable adjustment in the filing of the prior year’s tax returns. Of the $187,000 benefit, $18,000 relates to taxes on income from continuing operations.

During the nine months ended November 2, 2013, the Company recognizedan income tax expense on income from continuing operations of approximately $446,000$449,000 which included an expense of $464,000$549,000 on nine monthsthe quarter’s pretax income from continuing operations and a benefit of $18,000 related to the favorable adjustment in the filing of the prior year’s tax returns.

During the nine months ended October 27, 2012, the Company recognized income tax expense on income from continuing operations of approximately $542,000 which included an expense of $844,000 on the nine month’s pretax income from continuing operations and a benefit of $302,000$100,000 related to the favorable resolution of a previously uncertain tax position. During the first quarter of fiscal 2014, the Company recognized an income tax benefit on the loss from continuing operations of approximately $319,000.

As of November 2, 2013,May 3, 2014, the Company’s cumulative unrecognized tax benefits totaled $931,000$651,000 compared to $941,000$715,000 as of January 31, 2013. There were no developments affecting unrecognized tax benefits during the quarter ended November 2, 2013.2014.

(8)

(9) Note Receivable and Line of Credit and Note ReceivableIssued

On January 30, 2012, the Company completed the sale of its label manufacturing operations in Asheboro, North Carolina to Label Line Ltd. The net salessale price of $1,000,000 was received in the form of a promissory note issued by Label Line Ltd. and is fully secured by a first lien on various collateral, including the Asheboro plant and plant assets. The note bears interest at a rate equal to the lesser of (i) the United States prime rate as of January 30, 2013 plus 50 basis points or (ii) six percent per annum and3.75% is payable in sixteen quarterly installments of principal and interest commencing on January 30, 2013. The Note Receivable is disclosed at its present value on the accompanying condensed consolidated balance sheets. As of May 3, 2014, $690,000 remains outstanding on this note.

The terms of the Asheboro sale also included an agreement for Astro-Med to provide Label Line Ltd. with additional financing in the form of a revolving line of credit in the amount of $600,000. This line of credit is fully secured by a first lien on various collateral of Label Line Ltd., including the Asheboro plant and plant assets and bears interest at a rate equal to the United States prime rate plus an additional margin of two percent of the outstanding credit balance. The line of credit had anAlthough the initial term was for a period of one-year from the date of the sale, which may bethe agreement has been extended for consecutive one-year terms on mutual agreement of both parties. On March 27, 2013, Astro-Med signed an agreement to extend this line of credit through January 30, 2014.31, 2015. As of November 2, 2013, $288,000May 3, 2014, $220,000 remains outstanding on this revolving line of credit.

(9)(10) Segment Information

Astro-Med reports two segments consistent with its sales product groups: QuickLabel Systems (QuickLabel) and Test & Measurement (T&M) and QuickLabel Systems (QuickLabel). On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) in order to focus on its existing core businesses. Consequently, the Company has classified the results of operations of Grass as discontinued operations for all periods presented.the first quarter of fiscal 2014. Refer to Note 14, “Discontinued Operations” for a further discussion.

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:

(10)

(11) Recent Accounting Pronouncements

Comprehensive IncomeDiscontinued Operations

In FebruaryApril 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. In addition, this ASU expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. We are currently evaluating the impact of the adoption of ASU 2014-08 and do not expect it to have a material effect on the Company’s financial position or results of operations.

Income Taxes

In July 2013, the Financial Standards Accounting BoardFASB issued Accounting Standard Update 2013-02, (“ASU-2013-02”) “ReportingASU 2013-11, “Income Taxes (Topic 740)—Presentation of Amounts Reclassified Out of Accumulated Other Comprehensive Income,an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires entitiesan unrecognized tax benefit, or a portion of an unrecognized tax benefit, to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income isbe presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income byfinancial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the respective line items ofextent that a net income but only ifoperating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the amount reclassified is required under U.S. GAAP toreporting date, the unrecognized tax benefit should be reclassified to net income in its entiretypresented in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures that provide additional detail on these amounts.financial statements as a liability. This ASU 2013-02 wasis effective prospectively for reportingannual and interim periods beginning after December 15, 2012. We adopted this guidance in our first quarter ending May 4, 2013, and have provided the disclosure required in Note 13. Since ASU 2013-02 only impacts presentation and disclosure requirements, thewith early adoption permitted. The adoption of this guidance did not have a material impacteffect on the Company’s financial position or results of operations.

No other new accounting pronouncements, issued or effective during the first ninethree months of the current year, have had or are expected to have a material impact on our consolidated financial statements.

(11)(12) 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 1one to 3334 months. 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 (classified as cash equivalents) securities have original maturities greater than 90 days.

The fair value, amortized cost and gross unrealized gains and losses of the securities are as follows:

(12)(13) 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 (exit price). 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:

Cash and cash equivalents;equivalents (including short term investment money market funds with original maturity of less than 90 days), accounts receivables; line of credit receivable; notes receivable;receivables, accounts payable;payable, accrued compensation and other expenses and income tax payable are reflected in the condensed consolidated balance sheet at carrying value, which approximates fair value due to the short term nature of the these instruments.

Assets measured at fair value on a recurring basis are summarized below:

For our money market funds and state and municipal obligations, we utilize the market approach to measure fair value. The market approach is based on using quoted market prices for identical or similar assets.

(13)(14) Accumulated Other Comprehensive Income (Loss)

The changes in the balance of accumulated other comprehensive income (loss) by component are as follows:

The amounts presented above in other comprehensive income (loss) are net of taxes.

(14)

(15) Discontinued Operations

On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) which manufactured polysomnography and electroencephalography systems and related accessories and propriety electrodes for use in both research and clinical settings.settings for $18.6 million in cash, of which $1.8 million was held in escrow and received in the first quarter of the current year. The assets sold consisted primarily of working capital (exclusive of inventory and accounts payable related to manufacturing), the engineering, sales and support workforce, intellectual property and certain other related assets. The proceeds from the sale consisted of $18.6 million in cash, of which $1.8 million is being held in escrow as restricted cash, for twelve months following the closing date of the transaction in order to provide indemnity to the purchaser in the event of any breach in the representations, warranties and covenants of Astro-Med. The Company has fully reserved the $1.8 million in Other Accrued Expenses in the accompanying condensed consolidated balance sheets.

As part of this transaction, Astro-Med entered into a Transition Service Agreement (TSA) with the purchaser pursuant to which the Company willagreed to provide transition services and continue to manufacture Grass products for the purchaser. The TSA will expire January 31, 2014 at which time the purchaser will acquire any remaining inventory. On September 20, 2013, the Company entered into a new contract manufacturing agreement with the purchaser to become an exclusive manufacturer of certain medical devices. The effective date of this agreement is February 1, 2014 and the agreement is for a period two years fromnot to exceed twelve months following the effectivesale closing date. The Company has determined that cash flows from this activity willwas not be significant and therefore Grass has been presenteddisclosed as a discontinued operation for all periodsthe first quarter fiscal 2014 period presented. The TSA officially expired on January 31, 2014 and the Company is no longer reporting discontinued operations in fiscal 2015.

In accordance with the terms of the TSA agreement, the purchaser was obligated to acquire the remaining Grass inventory upon expiration of the TSA on January 31, 2014. In connection with the disposition of the inventory previously included in discontinued operations, the Company received $2,355,000 in the first quarter of fiscal 2015 from the purchaser of Grass related to the disposition of this inventory. Any future services related to Grass post fiscal 2014 are not expected to be material.

Results for discontinued operations are as follows:

During the three months ended November 2, 2013, the Company recognized a tax benefit of $89,000 on income from discontinued operations, which included an expense of $80,000 on three months pretax income from discontinued operations and a benefit of $169,000 recorded as a result of a favorable adjustment in the filing of the prior year’s tax returns. During the nine months ended November 2, 2013, the Company recognized a tax benefit of $2,000 on income from discontinued operations, which included an expense of $167,000 and a benefit of $169,000 recorded as a result of a favorable adjustment in the filing of the prior years tax returns.

As a result of the sale of the Grass assets, the Company is in the process of selling its facility located in Rockland, Massachusetts, which was the former location of Grass production. This property is being actively marketed with sale considered probable within the next twelve months and as such,accordingly, the property is classified as an Asset Held for Sale in the accompanying condensed consolidated balance sheets.

(15)(16) Commitments and Contingencies

Product Replacement Program

In April 2013, tests conducted by the Company revealed that one of its suppliers had been using a non-conforming material in the cover of the power supply usedpart in certain models of Astro-Med’s Test & Measurement printers. No malfunctions have been reported by customers as a result of the non-conforming material.

Upon identifying this issue, Astro-Med immediately suspended production of the printers, notified all customers and contacted the supplier who confirmed the problem. Astro-Med is workingcontinuing to work with its customers to replace the non-conforming material on existing printers with conforming material and will do this on a gradual basis over several months.material. The estimated costs associated with the replacement program arewere $672,000, which was based upon the number of printers shipped during the period the non-conforming material was used. Those estimated costs have beenwere recognized and recorded as a reserve in the first quarter of fiscal 2014 and are included in the cost of sales in the accompanying condensed consolidated statement of operations for the ninethree months ended November 2,May 4, 2013. As of May 3, 2014, the Company had expended $221,000 in replacement costs which have been charged against this reserve. The related remaining reserve amount of $520,000$451,000 is included in Other Accrued Expenses in the accompanying condensed consolidated balance sheet dated November 2, 2013.May 3, 2014.

Astro-Med is currently receiving power supplies with compliant materials and has resumed printer production and shipments to customers.

Since Astro-Med’sthe supplier deviated from the agreed upon specifications for the power supply while providing certificates of conformance to the original specifications, the Company is currently in negotiations withJanuary 2014, Astro-Med received a $450,000 settlement from the supplier and is seekingfor recovery forof the costs and expense associated with this issue. This settlement was recorded in cost of sales during the fourth quarter of the fiscal year ended January 31, 2014. In addition to this cash settlement, the Company will receive lower product prices from the supplier for a period of three years.

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, 2013.2014.

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 two product groups:

On January 31, 2013, the Company completed the sale of substantially all of the assets of its Grass Technologies Product Group (Grass) in order to focus on its existing core businesses. Grass manufactured polysomnography and electroenecephalography systems for both clinical and research use along with the related accessories and proprietary electrodes. Consequently, the Company has classified the results of operations of its Grass segment as discontinued operations for all periodsthe first quarter fiscal 2014 period presented.

On January 22, 2014, Astro-Med completed the acquisition of the Ruggedized Printer Product line from Miltope Corporation (Miltope), which is engaged in the design, development, manufacture and testing of ruggedized computers and computer peripheral equipment for military, industry and commercial applications. Astro-Med’s ruggedized printer product line is part of the Test & Measurement (T&M) product group and is reported as part of the T&M segment. Miltope sales for the first quarter of fiscal 2015 were approximately $2.2 million and the results of the Miltope’s ruggedized printer product line operations have been included in the condensed consolidated financial statements for the first quarter fiscal 2015.

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

Results of Operations

Three Months Ended November 2, 2013May 3, 2014 vs. Three Months Ended October 27, 2012May 4, 2013

Net sales by product group and current quarter percentage change over prior year for the three months ended November 2,May 3, 2014 and May 4, 2013 and October 27, 2012 were:

Net sales for the thirdfirst quarter of the current year were $18,179,000,$20,774,000, representing a 13.3%34.2% increase as compared to the previous year’s thirdfirst quarter sales of $16,039,000 as well as a 5.7% increase as compared to current year second quarter sales of $17,194,000.$15,485,000. Sales through the domestic channels for the current quarter were $13,198,000,$14,623,000, an increase of 11.3%36.7% over the prior year’s thirdfirst quarter. International shipmentssales for the thirdfirst quarter of the current year were $4,981,000,$6,151,000, representing a 19.2%28.4% increase from the previous year. Current year’s thirdfirst quarter international sales include favorable foreign exchange rate impact of $111,000.$146,000.

Hardware sales in the current quarter were $7,762,000,$8,563,000, an increase as compared to both prior year’s thirdfirst quarter sales of $7,243,000 and current year’s second quarter sales of $7,701,000.$5,638,000. Both segments contributed to the current quarter increase, as hardware sales were up 7.5%55.7% in the QuickLabel product group and 49.8% in the T&M product group and 6.4% in the Quick Labels product group compared to prior year thirdfirst quarter. The increase in current quarter sales.hardware sales is primarily due to $1,775,000 in sales of Ruggedized printers due to the January 2014 acquisition of Miltope, as well as approximately a $991,000 million increase in sales of QuickLabel’s Kiaro! printers compared to first quarter of the prior year. Consumables sales in the current quarter were $9,419,000,$10,838,000, representing a 19.0%21.7% increase over prior year’s thirdfirst quarter consumable sales of $7,913,000 and a slight increase over current year’s second quarter sales of $9,205,000.$8,902,000. The current quarter increase in consumable sales as compared to the thirdfirst quarter of the prior year is primarily due to the double-digit increase in sales of label and tag products and digital color printer supplies in the QuickLabel segment.

Service and other revenues of $998,000$1,373,000 in the current quarter were up 13.1%45.3% from prior year’s thirdfirst quarter service and other revenues of $882,000,$945,000, primarily due to the increase in servicerepairs and parts revenue during the quarter.

Current year thirdfirst quarter gross profit was $7,363,000,$8,635,000, representing a 6.4% improvement over current year’s second quarter gross profit of $6,923,000 and a 13.6%69.1% improvement as compared to prior year’s thirdfirst quarter gross profit of $6,484,000.$5,105,000. The Company’s gross profit margin of 40.5%41.6% in the current quarter also reflects a nominalan increase from the prior year’s thirdfirst quarter gross profit margin of 40.4%33.0%. The higher gross profit and related margin for the current quarter as compared to prior year is primarily attributable ato the contribution of the Miltope acquisition, higher sales, favorable product mix.mix and $672,000 of product replacement costs recognized in the first quarter of the prior year related to replacing materials on certain T&M Ruggedized printers after the Company discovered that one of its suppliers was using a non-conforming part in certain models.

Operating expenses for the current quarter were $6,180,000,$6,936,000, which increased as compared to prior year’s thirdfirst quarter operating expenses of $5,283,000.$5,827,000. The Company increased its spending in selling and market activities due to additional personnel and related costs;commission and benefit costs, as well as increased spending on trade shows; expanded its R&D investments with new product programs; and incurred higher G&A costs from healthcare anddue to higher professional service fees. TheAlthough R&D expenses increased in the current quarter as compared to the prior year, current quarter spending in R&D represents 6.8%6.6% of sales, an increase asa decrease compared to prior year’s thirdfirst quarter level of 5.6%7.2%.

Third quarter operating income of $1,183,000, resulted in operating profit margin of 6.5%, a decrease compared to the prior year’s third quarter operating income of $1,201,000 and related operating margin of 7.5%. The decrease in operating income and related margin is primarily attributable to increased operating expenses.

Other expense during the thirdfirst quarter was $2,000$121,000 compared to other income of $47,000$36,000 in the thirdfirst quarter of the previous year. The higher expense was primarily due to the decrease in foreign exchange gain recognized in$251,000 write-down on the third quarterdisposition of inventory related to the conclusion and settlement of the current year as compared to the prior year.Grass Transition Service Agreement.

The provision for federal, state and foreign taxes on continuing operations for the thirdfirst quarter of the current year were $436,000,$449,000, reflecting an effective tax rate of 36.9%28.5%. Included in the current year income tax expense for continuing operations is a tax benefit of $18,000$100,000 related to the favorable adjustment in the filingresolution of the prior year’sa previously uncertain tax returns.position. This compares to the prior year’s thirdfirst quarter tax expense forbenefit on the loss from continued operations of $499,000,$319,000, reflecting ana negative effective tax rate of 40.0%42.1%.