ASTRO MED INC /NEW/, 10-K filed on 4/4/2012
Annual Report
Document And Entity Information (USD $)
12 Months Ended
Jan. 31, 2012
Mar. 30, 2012
Jul. 29, 2011
Document And Entity Information [Abstract]
Document Type
Amendment Flag
Document Period End Date
Jan. 31, 2012 
Document Fiscal Year Focus
Document Fiscal Period Focus
Entity Registrant Name
Entity Central Index Key
Entity Filer Category
Smaller Reporting Company 
Trading Symbol
Current Fiscal Year End Date
Entity Common Stock, Shares Outstanding
Entity Well-known Seasoned Issuer
Entity Public Float
$ 43,368,741 
Entity Current Reporting Status
Entity Voluntary Filers
Consolidated Balance Sheets (USD $)
Jan. 31, 2012
Jan. 31, 2011
Cash and Cash Equivalents
$ 11,703,621 
$ 7,720,135 
Securities Available for Sale
Accounts Receivable, net of reserves of $428,409 in 2012 and $546,870 in 2011
Deferred Tax Assets
Prepaid Expenses and Other Current Assets
Total Current Assets
Land and Improvements
Buildings and Improvements
Machinery and Equipment
Total Property, Plant and Equipment, gross
Less Accumulated Depreciation
Total Property, Plant and Equipment, net
Intangible Assets, net
Note Receivable
Total Other Assets
Accounts Payable
Accrued Compensation
Other Accrued Expenses
Deferred Revenue
Income Taxes Payable
Total Current Liabilities
Deferred Tax Liabilities
Other Long Term Liabilities
Preferred Stock, $10 Par Value, Authorized 100,000 shares, None Issued
Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued 8,956,488 shares in 2012 and 8,660,270 shares in 2011
Additional Paid-in Capital
Retained Earnings
Treasury Stock, at Cost, 1,542,276 shares in 2012 and 1,414,981 shares in 2011
Accumulated Other Comprehensive Income
Total Shareholders' Equity
$ 67,062,136 
$ 64,999,213 
Consolidated Balance Sheets (Parenthetical) (USD $)
Jan. 31, 2012
Jan. 31, 2011
Consolidated Balance Sheets [Abstract]
Accounts Receivable, reserves
$ 428,409 
$ 546,870 
Preferred stock, par value
$ 10 
$ 10 
Preferred stock, shares authorized
Preferred stock, shares issued
Common stock, par value
$ 0.05 
$ 0.05 
Common stock, shares authorized
Common stock, shares issued
Treasury stock, shares
Consolidated Statements Of Operations (USD $)
12 Months Ended
Jan. 31, 2012
Jan. 31, 2011
Consolidated Statements Of Operations [Abstract]
Net Sales
$ 79,193,202 
$ 71,016,111 
Cost of Sales
Gross Profit
Costs and Expenses:
Selling and Marketing
General and Administrative
Research and Development
Operating Expenses
Loss on Sale of Asheboro Operations
Gain on Legal Settlement
Operating Income
Other Income:
Investment Income
Other, Net
Other Income (Expense)
Income before Income Taxes
Income Tax Provision
Net Income
$ 3,131,691 
$ 2,061,769 
Net Income Per Common Share-Basic
$ 0.43 
$ 0.28 
Net Income Per Common Share-Diluted
$ 0.42 
$ 0.28 
Weighted Average Number of Common Shares Outstanding-Basic
Dilutive effect of options outstanding
Weighted Average Number of Common Shares Outstanding-Diluted
Dividends Declared Per Common Share
$ 0.28 
$ 0.28 
Consolidated Statements Of Comprehensive Income And Changes In Shareholders' Equity (USD $)
Comprehensive Income: [Member]
Common Stock: [Member]
Additional Paid-In Capital: [Member]
Retained Earnings: [Member]
Treasury Stock: [Member]
Accumulated Other Comprehensive Income: [Member]
Balance at beginning of year at Jan. 31, 2010
$ 416,146 
$ 34,712,369 
$ 26,816,899 
$ (8,030,335)
$ 317,468 
Net Income
Other Comprehensive Loss, net of taxes and reclassification adjustments:
Foreign currency translation adjustments
Unrealized gain on securities available for sale
Other comprehensive loss
Comprehensive Income
Par value (proceeds) from the exercise of employee stock options
Employee option exercise and buyback
Share-based compensation
Tax benefit of employee stock options
Shares issued to employee stock ownership plan
Contribution of treasury shares to employee stock options plan
Dividends paid
Purchase of treasury stock
Purchase of common stock from related parties
Balance at end of year at Jan. 31, 2011
Net Income
Other Comprehensive Loss, net of taxes and reclassification adjustments:
Foreign currency translation adjustments
Unrealized gain on securities available for sale
Other comprehensive loss
Comprehensive Income
Par value (proceeds) from the exercise of employee stock options
Employee option exercise and buyback
Share-based compensation
Tax benefit of employee stock options
Shares issued to employee stock ownership plan
Contribution of treasury shares to employee stock options plan
Dividends paid
Purchase of common stock from related parties
Balance at end of year at Jan. 31, 2012
$ 447,829 
$ 37,964,204 
$ 27,919,367 
$ (10,789,805)
$ 121,271 
$ 55,662,866 
Consolidated Statements Of Cash Flows (USD $)
12 Months Ended
Jan. 31, 2012
Jan. 31, 2011
Cash Flows from Operating Activities:
Net Income
$ 3,131,691 
$ 2,061,769 
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation and Amortization
Employee Stock Ownership Plan Contribution
Share-Based Compensation
Deferred Income Tax Benefit
Excess Tax Benefit From Share-Based Compensation
Legal Settlement Receivable
Loss on Sale of Asheboro Operations
Loss on Sale of Securities Available for Sale
Changes in Assets and Liabilities, Net of Impact of Divestiture:
Accounts Receivable
Accounts Payable and Accrued Expenses
Income Taxes Payable
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Proceeds from Sales/Maturities of Securities Available for Sale
Purchases of Securities Available for Sale
Additions to Property, Plant and Equipment
Net Cash Provided by/Used in Investing Activities
Cash Flows from Financing Activities:
Proceeds (Contributions) from Common Shares Issued Under Employee Benefit Plans and Employee Stock Option Plans, Net of Payment of Minimum Tax Withholdings
Cash Settlement of Stock Options
Purchases of Treasury Stock
Excess Tax Benefit from Share-Based Compensation
Dividends Paid
Net Cash Used in Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Supplemental Information:
Cash Paid During the Period for: Income Taxes, Net of Refunds
$ 740,041 
$ 1,080,994 
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies

Note 1—Summary of Significant Accounting Policies

Basis of Presentation: The accompanying financial data has been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and is in conformity with U.S. generally accepted accounting principles. Our fiscal year end is January 31. Unless otherwise stated, all years and dates refer to our fiscal year.

Principles of Consolidation: The consolidated financial statements include the accounts of Astro-Med, Inc. and its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

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

Use of Estimates: The presentation of financial statements in conformity with generally accepted accounting principles in the U.S. requires management to make estimates and assumptions that affect these 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.

Cash and Cash Equivalents: Highly liquid investments with an original maturity of 90 days or less are considered to be cash equivalents. Similar investments with original maturities beyond three months are classified as securities available for sale. Cash of $1,929,000 and $1,103,000 was held in foreign bank accounts at January 31, 2012 and 2011, respectively.

Securities Available for Sale: Securities available for sale are carried at fair value based on quoted market prices, where available. The difference between cost and fair value, net of related tax effects, is recorded as a component of accumulated other comprehensive income in shareholders' equity.

Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets (land improvements—10 to 20 years; buildings and improvements—10 to 45 years; machinery and equipment—3 to 10 years). Depreciation expense was $1,510,000 for fiscal 2012 and $1,504,000 for 2011.

Revenue Recognition: Astro-Med's product sales are recognized when all of the following criteria have been met: persuasive evidence of an arrangement exists; price to the buyer is fixed or determinable; delivery has occurred and legal title and risk of loss have passed to the customer; and collectability is reasonably assured. 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.

In October 2009, the Financial Accounting Standards Board ("FASB") amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product's essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple-element revenue arrangements to:

(i) provide updated guidance on how the elements in a multiple-element arrangement should be separated, and how the consideration should be allocated;


(ii) require an entity to allocate revenue amongst the elements in an arrangement using estimated selling prices ("ESP") if a vendor does not have vendor-specific objective evidence ("VSOE") of the selling price or third-party evidence ("TPE") of the selling price; and

(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.

We adopted this accounting guidance for applicable transactions originating on or materially modified after February 1, 2011. The impact of this adoption was not material to our financial position and results of operations during fiscal 2012.

The majority 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 separately or marketed separately and its production costs are minor as compared to those of the hardware system. Therefore, the Company's hardware appliances are considered non-software elements and are not subject to the industry-specific software revenue recognition guidance.

Our multiple-element arrangements are generally comprised of a combination of equipment, software, installation and/or training services. Hardware and software elements are typically delivered at the same time and revenue is recognized when all the revenue recognition criteria for each unit are met. Delivery of installation and training services will vary based on certain factors such as the complexity of the equipment, staffing availability in a geographic location and customer preferences, and can range from a few days to a few months. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer. 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 system as a whole as it is not sold separately or marketed separately and its production costs are minor as compared to those of hardware system.

We have evaluated the deliverables in our multiple-element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices. We determine the selling price for each deliverable based on a selling price hierarchy. The selling price for a deliverable is based on VSOE if available, third-party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available. Revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met.

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 purchased from us for the customer's convenience. Revenue is recognized for such bill and hold arrangements in accordance with the requirements of SAB No. 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.

Research and Development Costs: The Company complies with the guidance provided in FASB ASC 730, "Research and Development" by charging any costs to expense when incurred, as well as by disclosing in the financial statements the amount of R&D charged to expense. These charges include: salaries and benefits, external engineering service costs, engineering related information costs and supplies. The Company also complies with ASC 985-20, "Costs of Computer Software to be Sold, Leased or Marketed" and ASC 350-40, "Internal-Use Software" in accounting for the costs of software either developed or acquired.

Foreign Currency: The financial statements of foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars at year-end exchange rates with the translation adjustment recorded as a component of accumulated comprehensive income in shareholders' equity. Revenues and costs are translated at average exchange rates during the year. We do not provide for U.S. income taxes on foreign currency translation adjustments associated with our German subsidiary since its undistributed earnings are considered to be permanently invested. Our net foreign exchange losses were $27,000 and $44,000 for fiscal 2012 and 2011, respectively.

Advertising: Astro-Med expenses advertising costs as incurred. Advertising costs including advertising production, trade shows and other activities are designed to enhance demand for our products and amounted to approximately $1,128,000 and $1,187,000 in fiscal 2012 and 2011, respectively.

Health Insurance Reimbursement Reserve: Astro-Med reimburses a portion of employee health insurance deductibles and co-payments. The total reimbursement amounted to approximately $613,000 and $538,000 in 2012 and 2011, respectively. We accrued approximately $150,000 and $135,000 at January 31, 2012 and 2011, respectively, for estimated outstanding reimbursements due to employees, including a reserve for incurred but not reported amounts.

Long-Lived Assets: Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with the guidance provided in ASC 360, "Property, Plant and Equipment." Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.

Goodwill: Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. During the fourth quarter of fiscal 2012, we adopted new accounting guidance which simplifies goodwill impairment testing. Under the new guidance, goodwill is first qualitatively assessed to determine whether further impairment testing is necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a two step process is then performed. Step one compares the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, step two is required to determine if there is an impairment of the goodwill. Step two compares the implied fair value of the reporting unit goodwill to the carrying amount of the goodwill. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow model. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit's expected long –term operating cash flow performance. In addition, the Company uses the market approach, which compares the reporting unit to publicly-traded companies and transactions involving similar business, to support the conclusions based upon the income approach. The income approach requires the use of many assumptions and estimates including future revenue, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates.

We performed a qualitative assessment for our 2012 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying value of the reporting units exceed their fair values. Accordingly, no further testing was performed as management believes that there are no impairment issues in regards to goodwill at this time.


Income Taxes: Astro-Med uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of the assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. At January 31, 2012 and 2011, a valuation allowance was provided for deferred tax assets attributable to certain state R&D credit carryforwards.

Astro-Med accounts for uncertain tax positions in accordance with the guidance provided in ASC 740, "Accounting for Income Taxes." This guidance describes a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken in a tax return and requires recognition of tax benefits that satisfy a more-likely-than-not threshold. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Net Income Per Common Share: Net income per common share has been computed and presented in accordance with the guidance provided in ASC 260, "Earnings per Share." Basic net income per share is based on the weighted average number of shares outstanding during the period. Diluted net income per share is based on the basic weighted average number of shares and potential common shares for stock options outstanding during the period using the treasury stock method. In fiscal years 2012 and 2011, there were 664,690 and 752,397 options that were not included in the computation of diluted net income per common share because their inclusion would be anti-dilutive.

Allowance for Doubtful Accounts: In circumstances where we are aware of a customer's inability to meet its financial obligations, an allowance is established. The majority of accounts are individually evaluated on a regular basis and allowances are established to state such receivables at their net realizable value. The remainder of the allowance is based upon historical write-off experience and current market assessments.

Fair Value of Financial Instruments: Our financial instruments consist of cash and cash equivalents, investment securities, accounts receivable, a note receivable and accounts payable. The carrying amount reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term nature of these items. Investment securities, all of which are available for sale, are carried in the consolidated balance sheets at fair value based on quoted market prices, when available. The note receivable is a long-term asset and is carried in the consolidated balance sheets at fair value based on the present value of the discounted cash flows over the life of the note.

Comprehensive Income: In accordance with the guidance provided in ASC 220, "Comprehensive Income," we report the change in net assets during the period from non-owner sources by major components and as a single total. The consolidated statement of comprehensive income has been included with the consolidated statement of shareholders' equity on page 33. Accumulated other comprehensive income at January 31, 2012 consists of net unrealized gains on available for sale securities of $15,121 and net translation gains on foreign operations of $106,150.

Share-Based Compensation: We account for stock options granted to employees and directors using the FASB guidance included in ASC 718, "Stock Compensation." Effective as of February 1, 2006, we adopted the "modified prospective" transition method provided in ASC 718. Under this method, share-based compensation is recognized in the consolidated statement of operation for share-based payment awards granted prior to, but not yet vested as of February 1, 2006, based on the grant date fair value estimated in accordance with prior authoritative guidance and for share-based payment awards granted subsequent to February 1, 2006, based on the grant date fair value estimated in accordance with the provisions of ASC 718.

In accordance with ASC 718, share-based compensation expense is based on the estimated 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. The dividend assumption is based upon the prior year's average dividend yield. No compensation expense is recognized for options that are forfeited for which the employee does not render the requested service.

The cash flow from the tax benefits that are a result of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as a cash inflow from financing activities and a cash outflow from operating activity in accordance with the guidance provided by ASC 718. Tax deductions from certain stock option exercises are treated as being realized when they reduce taxes payable in accordance with relevant tax law.

Recent Accounting Pronouncements:


In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2011-08, "Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment" which is intended to reduce the complexity and costs related to the testing goodwill for impairment. ASU 2011-08 allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment in order to determine whether it is necessary to perform the two-step quantitative goodwill impairment test already included in Topic 350. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. ASU 2011-08 also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This amended guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, however early adoption is permitted. We have elected to early adopt ASU-2011-08 and have applied the provisions to our fiscal 2012 analysis of goodwill. The adoption of ASU 2011-08 did not have a material effect on our consolidated financial position or results of operations.

Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, "Presentation of Comprehensive Income," which requires entities to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. While ASU 2011-05 changes the presentation of comprehensive income, it does not change the components that are recognized in net income or comprehensive income under current accounting guidance. ASU 2011-05 also requires entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. In December 2011, the FASB issued ASU 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standard Update No. 2011-05," which indefinitely defers the guidance related to the presentation of reclassification adjustments. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011, and must be applied retrospectively. We will adopt this guidance in our first quarter ended April 28, 2012. Since ASU 2011-05 impacts presentation only, the adoption of this guidance will not have any effect on our consolidated financial position or results of operations.


Fair Value Measurements

In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs," which is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. ASU 2011-04 does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRSs. ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU 2011-04 clarifies the FASB's intent about the application of existing fair value measurement. This update is effective for interim and annual periods beginning after December 15, 2011. We do not expect the provisions of ASU 2011-04 to have a material effect on our consolidated financial position or results of operations.

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


Note 2—Divestiture

On January 30, 2012, we completed the sale of our label manufacturing operations in Asheboro, North Carolina to Label Line Ltd., the original owner of the Asheboro operations. The Asheboro operations were part of the QuickLabel System segment. The net sales price of $1,000,000 was received in the form of a promissory note in consideration for the inventory and equipment of the Asheboro operations. The promissory note issued by the Buyer is fully secured by a first lien on various collateral of the Buyer, including the Asheboro plant and plant assets. The note bears interest at a rate equal to the lesser of the United States prime rate as of January 30, 2013 plus 50 basis points or six percent per annum and is payable in sixteen quarterly installments of principal and interest commencing on January 30, 2013.

The divestiture resulted in a net book loss of $681,440, which is included in Operating Income in the accompanying consolidated statements of operations for the year ended January 31, 2012 and includes $64,000 related to closing costs and $265,000 related to the write-off of intangibles. As we have expanded our label manufacturing operations in Canada, Germany and West Warwick, Rhode Island, the sale of the Asheboro operations will not impact our continued involvement in label manufacturing within the QuickLabel segment.

The terms of the sale also include an agreement for Astro-Med to provide the Buyer with additional financing in form of a revolving line of credit in the amount of $600,000, which is fully secured by first lien on various collateral of the Buyer, including the Asheboro plant and plant assets. This line of credit bears interest at a rate equal to the United States prime rate plus an additional margin of two percent of the outstanding credit balance and has an initial term of one-year from the date of the sale which may be extended for consecutive one-year terms on mutual agreement of the parties. There were no outstanding borrowings due as of January 31, 2012. The terms of the sale also included a three-year purchase commitment for the Company to purchase $3,250,000 of inventory from the Buyer. The disposal did not qualify as a discontinued operation due to our continuing involvement with the Asheboro operation.

Securities Available For Sale
Securities Available For Sale

Note 3—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 one month to three years. These securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income 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.


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


    Fair Value  

January 31, 2012


State and Municipal Obligations

   $ 11,313,013       $ 22,933       $ (22   $ 11,335,924   












    Fair Value  

January 31, 2011


State and Municipal Obligations

   $ 12,897,221       $ 15,949       $ (2,938   $ 12,910,232   













The contractual maturity dates of these securities are as follows:


     January 31,  
     2012      2011  

Less than one year

   $ 8,494,269       $ 8,749,743   

One to three years

     2,841,655         4,160,489   






   $ 11,335,924       $ 12,910,232   







Actual maturities are expected to differ from contractual dates as a result of sales or earlier issuer redemptions.


Note 4—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:


     January 31,  
     2012      2011  

Materials and Supplies

   $ 9,204,853       $ 8,450,985   


     1,274,397         982,092   

Finished Goods

     3,649,349         4,971,837   






   $ 14,128,599       $ 14,404,914   







Included within finished goods inventory is $1,324,490 and $1,413,198 of demonstration equipment at January 31, 2012 and 2011, respectively.

Accrued Expenses
Accrued Expenses

Note 5—Accrued Expenses

Accrued expenses consisted of the following:


     January 31,  
     2012      2011  


   $ 343,102       $ 258,082   

Professional fees

     245,994         117,911   

R&D outsourcing

     167,400         165,750   

Health insurance reimbursement reserve

     150,000         135,000   

Dealer commissions

     148,645         187,733   


     752,534         886,039   






   $ 1,807,675       $ 1,750,515   








Line Of Credit
Line Of Credit

Note 6—Line of Credit

The Company has a $5,000,000 revolving bank line of credit with Wells Fargo Bank. Borrowings under this line of credit bear interest at either a fluctuating 75 basis points below the base rate, as defined in the agreement, or at a fixed rate 150 basis points above LIBOR. At January 31, 2012, there were no borrowings against this line and the entire line is currently available.

Shareholders' Equity
Shareholders' Equity

Note 7—Shareholders' Equity

Common Stock: During fiscal 2012, the Company did not repurchase any shares of its common stock. The Company repurchased 138,200 shares of its common stock for $975,682 in fiscal 2011. As of January 31, 2012, the Company's Board of Directors has authorized the purchase of up to an additional 500,000 shares Company's common stock on the open market.

During fiscal 2012 and 2011, certain of the Company's employees delivered a total of 139,895 and 132,475 shares respectively, of the Company's common stock to satisfy the exercise price for stock options exercised and related taxes. The shares delivered were valued at a total of $1,037,903 and $982,640 respectively and are included with the treasury stock in the accompanying consolidated balance sheet at January 31, 2012 and 2011. These transactions did not impact the number of shares authorized for repurchase under the Company's current repurchase program.

Astro-Med maintains the following benefit plans involving its common stock:

Stock Plans: As of January 31, 2012, Astro-Med has one equity incentive plan ("2007 Equity Incentive Plan") under which incentive stock options, non-qualified stock options, restricted stock and other equity-based awards may be granted to directors, officers and certain employees. To date, only options have been granted under this plan. Options granted to employees vest over four years. An aggregate of 1,000,000 shares were authorized for awards under the 2007 Equity Incentive Plan. The exercise price of each stock option will be established at the discretion of the Compensation Committee; however, any incentive stock options granted under the 2007 Equity Incentive Plan must be at an exercise price of not less than fair market value at the date of grant. The 2007 Equity Incentive 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 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 shareholders' meeting. During fiscal 2012 and 2011, 20,000 and 15,000 shares, respectively, were awarded each year to non-employee directors. At January 31, 2012, 683,444 shares were available for grant under the 2007 Equity Incentive Plan.

Summarized option data for all plans is as follows:


of Shares
    Option Price
Per Share
     Weighted Average
Option Price Per

Options Outstanding, January 31, 2011

     1,219,183      $ 2.40–11.90       $ 7.03   

Options Granted

     55,000      $ 7.36–8.10       $ 7.91   

Options Exercised

     (289,417   $ 2.40–7.36       $ 2.85   

Options Expired

     (96,669   $ 3.14–11.90       $ 8.64   










Options Outstanding, January 31, 2012

     888,097      $  2.40–11.90       $ 8.27   










Options Exercisable, January 31, 2012

     737,839      $ 2.40–11.90       $ 8.43   


Set forth below is a summary of options outstanding at January 31, 2012:




Range of

Exercise prices

   Options      Weighted Average
Exercise Price
Contractual Life
     Options      Weighted Average
Exercise Price

$ 2.40 - 5.78

     52,885       $ 3.46         3         52,885       $ 3.46   

$ 6.22 - $9.59

     681,106       $ 7.92         5         530,848       $ 8.04   

$ 9.81 - $11.90

     154,106       $ 11.49         5         154,106       $ 11.47   






     888,097               737,839      







The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:


     Years Ended January 31,
     2012    2011

Risk-free interest rate

   0.94%–2.00%    2.11%–2.42%

Expected life (years)

   5    5

Expected volatility

   39.07%–39.43%    40.66%–41.46%

Expected dividend yield

   3.50%–3.89%    3.35%–3.67%

The weighted average fair value of options granted during fiscal 2012 and 2011 was $2.02 and $2.11, respectively. As of January 31, 2012, there was $183,841 of unrecognized compensation expense related to the unvested stock options granted under the plans. The expense is to be recognized over a weighted average of two years. Share-based compensation expense has been recognized as follows:


     Years Ended January 31,  
     2012      2011  

Cost of Sales

   $ 35,749       $ 60,457   

Operating Expenses

     172,135         272,783   








   $ 207,884       $ 333,240   







As of January 31, 2012, the aggregate intrinsic value (the aggregate difference between the closing stock price of the Company's common stock on January 31, 2012, and the exercise price of the outstanding options) that would have been received by the option holders if all options had been exercised was $447,710 for all exercisable options and $547,874 for all options outstanding. The weighted average remaining contractual terms for these options are 4.0 years for options that are exercisable and 4.7 years for all options outstanding. The total aggregate intrinsic value of options exercised during fiscal 2012 and 2011 was $1,320,485 and $1,094,579, respectively.

Employee Stock Purchase Plan (ESPP): Astro-Med's ESPP allows eligible employees to purchase shares of common stock at a 15% discount from fair market value on the date of purchase. A total of 247,500 shares were initially reserved for issuance under this plan. Summarized plan activity is as follows:


     Years Ended January 31,  
             2012                     2011          

Shares reserved, beginning

     77,008        84,518   

Shares purchased

     (6,801     (7,510







Shares reserved, ending

     70,207        77,008   








Employee Stock Ownership Plan: Astro-Med has an Employee Stock Ownership Plan (ESOP) providing retirement benefits to all eligible employees. Annual contributions in amounts determined by the Company's Board of Directors are invested by the ESOP's Trustees in shares of common stock of Astro-Med. Contributions may be in cash or stock. Astro-Med's contributions (paid or accrued) amounted to $100,000 and $80,000 in fiscal 2012 and 2011, respectively which were recorded as compensation expense. All shares owned by the ESOP have been allocated to participants.

During the first quarter of fiscal 2011, the Company purchased approximately 200,000 stock options held by certain key executives. The options had an exercise price of $5.45 and were due to expire on March 20, 2010. The purchase price paid by the Company for the options was approximately $250,000, representing the closing price for the Astro-Med's common stock on March 3, 2010, less a 10% discount and the exercise price for each of the options. The original underlying stock options were granted during fiscal 2000 and there was no unrecognized compensation expense associated with the options. This transaction was charged to equity. The cash settlement of these options during the prior year was a one-time event, as the Company has not historically settled any options for cash and has no plans to do so again in the future.

Income Taxes
Income Taxes

Note 8—Income Taxes

The components of income before income taxes are as follows:


     Years Ended January 31,  
     2012      2011  


   $ 2,485,615       $ 1,772,680   


     1,746,878         1,010,934   






   $ 4,232,493       $ 2,783,614   







The components of the provision for income taxes are as follows:


     Years Ended January 31,  
     2012     2011  




   $ 707,637      $ 699,622   


     84,579        170,930   


     516,312        (14,321






     1,308,528        856,231   










     (216,322     (191,938


     (15,056     (27,024


     23,652        84,576   






     (207,726     (134,386






   $ 1,100,802      $ 721,845   








The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes due to the following:


     Years Ended January 31,  
     2012     2011  

Income tax provision at statutory rate

   $ 1,439,048      $ 946,428   

State taxes, net of federal tax effect

     77,330        201,992   

Officers life insurance

     (93,100     12,466   

Change in valuation allowance

     34,990        65,202   

Change in reserves related to ASC 740 liability

     60,957        (241,098

Meals and entertainment

     41,063        59,580   

Domestic product deduction

     (78,135     (44,162

Share-based compensation

     53,656        76,162   

Tax-exempt income

     (26,949     (21,983

Prior year tax filing true up adjustment

     (156,615     (143,014

R&D credits

     (175,059     (108,093

Other, net

     (76,384     (81,635






   $ 1,100,802      $ 721,845   







The components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of operations. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:


     January 31,  
     2012     2011  

Deferred Tax Assets:


Inventory Reserves

   $ 1,692,247      $ 1,507,591   

Stock-Based Compensation

     380,221        360,883   

R&D Credits

     279,938        244,948   

Vacation Accrual

     355,046        400,343   

Deferred Service Contract Revenue

     239,503        300,844   

Reserve for Doubtful Accounts

     150,555        190,578   


     806,987        554,397   






     3,904,497        3,559,584   

Deferred Tax Liabilities:


Accumulated Tax Depreciation in Excess of Book Depreciation

     911,255        980,925   

Deferred Tax Gain on Sale of Real Estate

     1,235,098        1,235,098   


     465,906        420,182   

Currency Translation Adjustment

     155,392        157,572   


     132,434        4,111   






     2,900,085        2,797,888   








     1,004,412        761,696   

Valuation Allowance

     (279,938     (244,948







Net Deferred Tax Assets

   $ 724,474      $ 516,748   







At January 31, 2012, we have state net operating loss carryforwards of $417,000, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2015. At January 31, 2012 we have state research and development credit carryforwards of approximately $424,000, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2012.


The valuation allowance at January 31, 2012 relates to certain state research and development tax credit carryforwards which are expected to expire unused. The change in the valuation allowance is approximately $35,000 and represents a reserve against the additional state research and development credits generated during the current year net of federal benefit.

The Company reasonably believes that it is possible that some unrecognized tax benefits, accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation. The Company estimates the reversal of the unrecognized tax benefit to be approximately $241,000, excluding interest and penalties. A reconciliation of unrecognized tax benefits, excluding interest and penalties follows:


     2012     2011  

Balance at February 1

   $ 726,661      $ 875,225   

Increases in prior period tax positions

     30,839        26,788   

Increases in current period tax positions

     78,571        72,140   

Reductions related to lapse of statute of limitations

     (56,528     (247,492







Balance at January 31

   $ 779,543      $ 726,661   







If the $779,543 is recognized, $443,337 would decrease the effective tax rate in the period in which each of the benefits is recognized and the remainder would be offset by a reversal of deferred tax assets.

During fiscal 2012 and 2011 the Company recognized $32,839 and $60,127, respectively, of potential interest and penalties, which are included as a component of income tax expense in the accompanying statement of operations. At January 31, 2012 and 2011, the Company had accrued potential interest and penalties of $453,000 and $420,000, respectively.

The Company and its subsidiaries file income tax returns in U.S. federal jurisdictions, various state jurisdictions, and various foreign jurisdictions. The Company is no longer subject to U.S. federal examinations prior to 2008.

At January 31, 2012, the Company has indefinitely reinvested $2,632,000 of the cumulative undistributed earnings of its foreign subsidiary in Germany, all of which would be subject to U.S. taxes if repatriated to the U.S. Through January 31, 2012, the Company has not provided deferred income taxes on the undistributed earnings of this subsidiary because such earnings are considered to be indefinitely reinvested. Non-U.S. income taxes are, however, provided on these undistributed earnings.

Contractual Obligations
Contractual Obligations

Note 9—Contractual Obligations

The following table summarizes our contractual obligations:


      Total      2013      2014      2015      2016      2017

Purchase Commitments*

   $ 8,746,353       $ 6,212,976       $ 1,533,377       $ 1,000,000         —           —     

Operating Lease Obligations

   $ 726,007       $ 335,145       $ 245,356       $ 110,688       $ 34,818         —     


















   $ 9,472,360       $ 6,548,121       $ 1,778,733       $ 1,110,688       $ 34,818       $ —     




















* Purchase commitments consists primarily of inventory and equipment purchase orders made in the ordinary course of business, including the purchase commitment agreement interest into with Buyer of the Asheboro operations as described in Note 2.

The Company incurred rent and lease expenses in the amount of $706,000 and $641,000 for the fiscal years 2012 and 2011, respectively.

Nature Of Operations, Segment Reporting And Geographical Information
Nature Of Operations, Segment Reporting And Geographical Information

Note 10—Nature of Operations, Segment Reporting and Geographical Information

The Company's operations consist of the design, development, manufacture and sale of specialty data recorder and acquisition systems, label printing and applicator systems, neuropsychological instrumentation systems and consumable supplies. The Company organizes and manages its business as a portfolio of products and services designed around a common theme of data acquisition and information output. The Company reports three reporting segments consistent with its sales product groups: Test & Measurement (T&M), QuickLabel Systems (QuickLabel), and Grass Technologies (Grass).

T&M produces data recording equipment used worldwide for a variety of recording, monitoring and troubleshooting applications for the aerospace, automotive, metal mill, power and telecommunications industries. QuickLabel produces an array of high-technology digital label printers, labeling software and consumables for a variety of commercial industries worldwide. Grass produces a range of instrumentation equipment and supplies for clinical neurophysiology (EEG and epilepsy monitoring), polysomnography (PSG—Sleep Monitoring) and biomedical research applications used worldwide by universities, medical centers and companies engaged in a variety of clinical and research activities. The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies herein. The Company evaluates segment performance based on the segment profit before corporate and financial administration expenses.

Business is conducted in the United States and through foreign affiliates in Canada and Europe. Manufacturing activities are primarily conducted in the United States. Sales and service activities outside the United States are conducted through wholly-owned entities and, to a lesser extent, through authorized distributors and agents. Transfer prices are intended to produce gross profit margins as would be associated with an arms-length transaction.

Summarized below are the Net Sales and Segment Operating Profit (both in dollars and as a percentage of Net Sales) for each reporting segment:


($ in thousands)    Net Sales      Segment Operating Profit      Segment Operating Profit %
of Net Sales
         2012              2011              2012             2011              2012             2011      


   $ 17,138       $ 14,837       $ 2,425      $ 1,200         14.1     8.1


     43,586         39,500         2,553        1,847         5.9     4.7


     18,469         16,679         3,592        3,358         19.5     20.1




















   $ 79,193       $ 71,016         8,570        6,405         10.8     9.0













Corporate Expenses

           3,972        3,749        

Loss on Sale of Asheboro*

           (681     —          

Gain on Legal Settlement

           —          104        







Operating Income

           3,917        2,760        

Other Income, Net

           316        24        







Income Before Income Taxes

           4,233        2,784        

Income Tax Provision

           1,101        722        







Net Income

         $ 3,132      $ 2,062        







* The Asheboro operations were part of the QuickLabel Systems segment.

No customer accounted for greater than 10% of net sales in fiscal 2012 and 2011.


Other information by segment is presented below:


($ in thousands)    Assets  
     2012      2011  


   $ 10,300       $ 10,205   


     21,260         21,714   


     11,054         11,780   


     24,448         21,300   








   $ 67,062       $ 64,999   







* Corporate assets consist of cash and cash equivalents, securities available for sale, income tax accounts and miscellaneous fixed assets.


($ in thousands)    Depreciation and
     Capital Expenditures  
     2012      2011      2012      2011  


   $ 567       $ 455       $ 497       $ 324   


     806         751         535         1,664   


     203         370         123         102   














   $ 1,576       $ 1,576       $ 1,155       $ 2,090   













Geographical Data

Presented below is selected financial information by geographic area:


($ in thousands)    Net Sales      Long-Lived Assets  
     2012      2011      2012      2011  

United States

   $ 55,004       $ 50,614       $ 10,031       $ 11,352   


     14,915         12,016         646         705   


     3,882         3,450         —           —     


     3,145         3,014         494         485   

Central and South America

     1,406         1,059         —           —     


     841         863         —           —     














   $ 79,193       $ 71,016       $ 11,171       $ 12,542   













Long-lived assets excludes goodwill assigned to the following segments: T&M $0.7 million and Grass $1.6 million at January 31, 2012 and 2011.

Profit-Sharing Plan
Profit-Sharing Plan

Note 11—Profit-Sharing Plan

Along with the ESOP described in Note 7, Astro-Med sponsors a Profit-Sharing Plan (the "Plan") which provides retirement benefits to all eligible domestic employees. The Plan allows participants to defer a portion of their cash compensation and contribute such deferral to the Plan through payroll deductions. The Company makes matching contributions up to specified levels. The deferrals are made within the limits prescribed by Section 401(k) of the Internal Revenue Code.

All contributions are deposited into trust funds. It is the policy of the Company to fund any contributions accrued. The Company's annual contribution amounts are determined by the Board of Directors. Contributions paid or accrued amounted to $259,290 and $253,362 in fiscal 2012 and 2011, respectively.

Product Warranty Liability
Product Warranty Liability

Note 12—Product Warranty Liability

Astro-Med offers a manufacturer's warranty for the majority of its hardware products. The specific terms and conditions of warranty vary depending upon the product sold and country in which the Company does business. For products sold in the United States, the Company provides a basic limited warranty, including parts and labor. The Company estimates the warranty costs based on historical claims experience and records a liability in the amount of such estimates at the time product revenue is recognized. The Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Activity in the product warranty liability is as follows:


     January 31,  
     2012     2011  

Balance, beginning of the year

   $ 258,082      $ 260,235   

Warranties issued

     660,756        499,906   

Settlements made

     (575,736     (502,059







Balance, end of the year

   $ 343,102      $ 258,082   






Concentration Of Risk
Concentration Of Risk

Note 13—Concentration of Risk

Credit is generally extended on an uncollateralized basis to almost all customers after review of credit worthiness. Concentration of credit and geographic risk with respect to accounts receivable is limited due to the large number and general dispersion of accounts which constitute the Company's customer base. The Company periodically performs on-going credit evaluations of its customers. The Company has not historically experienced significant credit losses on collection of its accounts receivable.

Excess cash is invested principally in investment grade government and state municipal securities. The Company has established guidelines relative to diversification and maturities that maintain safety of principal, liquidity and yield. These guidelines are periodically reviewed and modified to reflect changes in market conditions. The Company has not historically experienced any significant losses on its cash equivalents or investments.

Commitments And Contingencies
Commitments And Contingencies

Note 14—Commitments and Contingencies

Astro-Med is subject to contingencies, including legal proceedings and claims arising in the normal course of business that cover a wide range of matters including, among others, contract and employment claims, workers compensation claims, product liability, warranty and modification, adjustment or replacement of component parts of units sold.

Direct costs associated with the estimated resolution of contingencies are accrued at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the Company's control.

Fair Value Measurements
Fair Value Measurements

Note 15—Fair Value Measurements

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:



Level 1—Quoted prices in active markets for identical assets or liabilities;


Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and


Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

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


January 31, 2012

   Level 1      Level 2      Level 3      Total  

Money market funds (included in cash and cash equivalents)

   $ 5,922,179       $ —         $ —         $ 5,922,179   

State and municipal obligations (included in Securities available for sale)

     11,335,924         —           —           11,335,924   

Note Receivable

     —           969,700        —           969,700   














   $ 17,258,103       $ 969,700       $ —         $ 18,227,803   













January 31, 2011

   Level 1      Level 2      Level 3      Total  

Money market funds (included in cash and cash equivalents)

   $ 4,926,983       $ —         $ —         $ 4,926,983   

State and municipal obligations (included in Securities available for sale)

     12,910,232         —           —           12,910,232   














   $ 17,837,215       $ —         $ —         $ 17,837,215   













We did not have any transfers of investments into or out of Level 1 or Level 2 during fiscal 2012.

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 assets.

For our Note Receivable we utilized the income approach to measure fair value by discounting the present value of the Note. The discount rate used is based on similar rates used for high credit ratings and highly collateralized lending.

Life Insurance Proceeds
Life Insurance Proceeds

Note 16—Life Insurance Proceeds

During the second quarter of fiscal 2012, we recognized income on key-man life insurance proceeds of $300,000. This income is included in other income in the accompanying consolidated statements of operations for the year end January 31, 2012.

Schedule II - Valuation And Qualifying Accounts And Reserves
Schedule II - Valuation And Qualifying Accounts And Reserves





   Balance at
of Year
Charged to
     Deductions(2)     Balance
at End
of Year

Allowance for Doubtful Accounts(1):


Year Ended January 31,



   $ 546,870       $ 22,272       $ (140,733   $ 428,409   


   $ 518,789       $ 81,981       $ (53,900   $ 546,870   

(1) The allowance for doubtful accounts has been netted against accounts receivable as of the respective balance sheet dates.
(2) Uncollectible accounts written off, net of recoveries, also includes foreign exchange adjustment.