Astro-Med (ALOT)

(9) Income Taxes

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

As of May 2, 2009, the Company’s cumulative unrecognized tax benefits, as measured under the requirements of Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), are $1,133,458 compared to $1,127,452 as of January 31, 2009. There were no developments affecting unrecognized tax benefits during the quarter ended May 2, 2009.

-8-

Table of Contents

ASTRO-MED, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

(8) Income Taxes

The Company’s effective tax rates for the periods presented herein are as follows:

Effective February 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

During the third quarter of fiscal 2009, the Company recognized an income tax expense of approximately $203,000 which included 1) expense of $301,000 on the quarter’s pre-tax income, 2) benefit of $71,000 for the recently passed extension of the R&D tax credit and 3) benefit of $27,000 related to differences between the prior year tax provision and the actual returns as filed. During the third quarter of fiscal 2008, the Company recognized an income tax expense of approximately $346,000 which included 1) expense of $792,000 on the quarter’s pre-tax income, 2) benefit of $167,000 related to the completion of an IRS exam, 3) benefit of $319,000 related to changes in uncertain R&D and foreign tax credit positions and 4) expense of $40,000 related to differences between the prior year tax provision and the actual returns as filed.

During the nine months ended November 1, 2008, the Company recognized an income tax expense of approximately $1,612,000 which included 1) expense of $1,650,500 on the nine month’s pre-tax income, 2) expense of $59,500 related to discrete payment of additional state franchise tax, 3) benefit of $71,000 for the recently passed extension of the R&D tax credit and 4) benefit of $27,000 related to differences between the prior year tax provision and the actual returns as filed. During the nine months ended November 3, 2007, the Company recognized an income tax expense of approximately $1,285,000 which included 1) expense of $1,731,000 on the nine month’s pre-tax income, 2) benefit of $167,000 related to the completion of an IRS exam, 3) benefit of $319,000 related to changes in uncertain R&D and foreign tax credit positions and 4) expense of $40,000 related to differences between the prior year tax provision and the actual returns as filed.

As of November 1, 2008, the Company had cumulative unrecognized tax benefits of $1,336,972 compared to $1,372,767 as of January 31, 2008. During the third quarter of the current fiscal year, the Company reclassed $423,000 of the $1,336,972 unrecognized tax benefit to a current liability due to the expected settlement of a portion of the uncertain tax positions within the next twelve months. The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits in the income tax provision. As of November 1, 2008, approximately $60,000 of interest was accrued.

-8-

Table of Contents

ASTRO-MED, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

(8) Income Taxes

The Company’s effective tax rates for the periods presented herein are as follows:

The increase in the effective tax rate to 42.0% for the three months ended August 2, 2008 was due to a discrete charge of $59,484 related to the payment of additional state franchise taxes.

Effective February 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

As of August 2, 2008, the Company had cumulative unrecognized tax benefits of $1,367,985 compared to $1,372,767 as of January 31, 2008. The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits in the income tax provision. As of August 2, 2008 approximately $40,000 of interest was accrued.

-8-

Table of Contents

ASTRO-MED, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(8) Income Taxes

Income tax expense of $573,574 was recorded in the first quarter of the current year which is equal to an effective tax rate of 39%. This compares to an income tax expense of $348,033 in the first quarter of the prior year which is equal to an effective tax rate of 40%.

Effective February 1, 2007, the Company adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

As of May 3, 2008, the Company had cumulative unrecognized tax benefits of $1,326,063. As of January 31, 2008 the Company had cumulative unrecognized tax benefits of $1,372,767. The decrease in the cumulative unrecognized tax benefits is a result of decreases in tax positions for prior years resulting from the effect of the foreign currency translation. The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits in the income tax provision. During the three months ended May 3, 2008, approximately $20,000 of interest before tax benefits was accrued.

-8-

Table of Contents

ASTRO-MED, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(7) Income Taxes

The Company’s effective tax rates for the periods presented herein are as follows:

The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), effective February 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination by taxing authorities. If the tax position is deemed “more-likely-than-not” to be sustainable, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

As a result of implementing FIN No. 48, we recognized a cumulative effect adjustment of $1,147,633 to decrease the February 1, 2007 retained earnings balance. Prior to the adoption of FIN No. 48, our policy was to classify accruals for uncertain positions as a current liability. We reclassified $734,788 of income tax liabilities from current to non-current liabilities because a cash settlement of these liabilities is not anticipated within one year of the balance sheet date.

We recognize interest expense and penalties related to income tax matters in income tax expense. As of November 3, 2007 we had accrued $107,850 of interest and penalties.

We have concluded all U.S. federal income tax matters for years through fiscal 2004. During the fourth quarter of fiscal 2007 the Internal Revenue Service (IRS) commenced an examination of the Company’s income tax returns for fiscal 2005 and fiscal 2006. During the third quarter of fiscal 2008 the IRS effectively settled its examination of the Company’s income tax returns for the two years under examination which is expected to result in a refund to the Company of approximately $130,000 and the reduction of certain tax credit carryforwards.

During the third quarter of fiscal 2008, the Company recognized an income tax expense of approximately $346,000 which included 1) expense of $792,000 on the quarter’s pre-tax income 2) benefit of $167,000 related to the completion of the IRS exam 3) benefit of $319,000 related to changes in uncertain R&D and foreign tax credit positions and 4) expense of $40,000 related to differences between the prior year tax provision and the actual return as filed. During the third quarter of fiscal 2007 the Company recognized an income tax expense of approximately $2,251,000 which included 1) expense of $355,000 on the quarter’s pre-tax income, excluding the gain on the real estate sale 2) a $231,000 favorable adjustment related to differences between the prior year tax provision and the actual return as filed primarily relating to additional foreign tax credits, R&D credits and lower state income taxes and 3) expense of $2,127,000 related to the net gain on the sale of the Braintree real estate.

During the nine months ended November 3, 2007 the Company recognized an income tax expense of approximately $1,285,000 which included 1) expense of $1,731,000 on the nine months pre-tax income 2) benefit of $167,000 related to the completion of the IRS exam 3) benefit of $319,000 related to changes in uncertain R&D and foreign tax credit positions and 4) expense of $40,000 related to differences between the prior year tax provision and the actual return as filed. During the nine months ended October 28, 2006 the Company recognized an income tax expense of approximately $3,038,000 which included 1) expense of $1,141,000 on the nine months pre-tax income, excluding the gain on the real estate sale 2) a $231,000 favorable adjustment related to differences between the prior year tax provision and the actual return as filed primarily relating to additional foreign tax credits, R&D credits and lower state income taxes and 3) expense of $2,127,000 related to the net gain on the sale of the Braintree real estate.

As a result of the effective settlement of the IRS exam for fiscal 2005 and 2006, the Company’s liability for uncertain tax positions was reduced from $1,882,000 at February 1, 2007 (date of adoption of FIN 48) to $945,000 at November 3, 2007. As noted above, of the net reduction of $937,000, $319,000 was recognized as a reduction of the provision for income taxes for the third quarter ended November 3, 2007. The $319,000 reduction to the provision for income taxes related to the resolution of certain R&D tax credit positions, partially offset by an increase in the liability for uncertain state tax positions.

8

Table of Contents

ASTRO-MED, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) Income Taxes

The Company’s effective tax rates for the periods presented herein are as follows:

The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), effective February 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustainable, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

As a result of implementing FIN No. 48, we recognized a cumulative effect adjustment of $1,147,633 to decrease the February 1, 2007 retained earnings balance. Prior to the adoption of FIN No. 48, our policy was to classify accruals for uncertain positions as a current liability. We reclassified $734,788 of income tax liabilities from current to non-current liabilities because a cash settlement of these liabilities is not anticipated within one year of the balance sheet date.

We have concluded all U.S. federal income tax matters for years through fiscal 2003. During the fourth quarter of fiscal 2007, the Internal Revenue Service commenced an examination of the Company’s U.S. income tax returns for fiscal 2005 and fiscal 2006. We expect to have this examination completed in the current fiscal year. It is reasonably possible that the resolution of the matters raised in the examination could have a material effect on the Company’s unrecognized tax benefits.

We recognize interest expense and penalties related to income tax matters in income tax expense. In addition to the uncertain tax positions noted above, as of August 4, 2007 we had accrued $92,691 of interest and penalties.

-8-

Table of Contents

ASTRO-MED, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

August 4, 2007

(8) Income Taxes

An income tax expense of $348,033 was recorded in the first quarter of the current year which is equal to an effective tax rate of 40%. This compares to an income tax expense of $318,927 in the first quarter of the prior year which is equal to an effective tax rate of 37%.

The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), effective February 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustainable, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. It is reasonably possible that the resolution of the matters raised in the examination could have a material effect on the Company’s unrecognized tax benefits.

As a result of implementing FIN No. 48, we recognized a cumulative effect adjustment of $1,147,633 to decrease the February 1, 2007 retained earnings balance. Prior to the adoption of FIN No. 48, our policy was to classify accruals for uncertain positions as a current liability. We reclassified $734,788 of income tax liabilities from current to non-current liabilities because a cash settlement of these liabilities is not anticipated within one year of the balance sheet date.

We have concluded all U.S. federal income tax matters for years through fiscal 2003. During the fourth quarter of fiscal 2007, the Internal Revenue Service commenced an examination of the Company’s U.S. income tax returns for fiscal 2005 and fiscal 2006. We expect to have this examination completed in the current fiscal year. It is reasonably possible that the resolution of the matters raised in the examination could have a material effect on the Company’s unrecognized tax benefits.

We recognize interest expense and penalties related to income tax matters in income tax expense. In addition to the uncertain tax positions noted above, as of May 5, 2007 we had accrued $82,691 of interest and penalties.

-8-

Table of Contents

ASTRO-MED, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(8) Income Taxes

During the quarter ended October 28, 2006, the Company recognized an income tax expense of approximately $2,251,000. The quarter’s income tax expense includes 1) expense of $355,000 on the current quarter’s pre-tax income 2) a $231,000 favorable adjustment related to differences between the prior year tax provision and the actual tax return as filed primarily relating to additional foreign tax credits, R&D credits and lower state income taxes and 3) expense of $2,127,000 related to the net gain on the sale of the Braintree real estate. This compares to an income tax benefit of $177,000 in the prior year which includes 1) an income tax expense of $184,000 which equals an effective tax rate of 37% on the current quarter’s pre-tax income and 2) a $361,000 reversal of tax reserves related to the favorable resolution of certain income tax examinations.

During the nine months ended October 28, 2006, the Company recognized an income tax expense of $3,037,000. The nine month income tax expense includes 1) expense of $1,141,000 on the current quarter’s pre-tax income 2) a $231,000 favorable adjustment related to differences between the prior year tax provision and the actual tax return as filed primarily relating to additional foreign tax credits, R&D credits and lower state income taxes and 3) expense of $2,127,000 related to the net gain on the sale of the Braintree real estate. This compares to an income tax expense of $422,000 in the prior year which includes 1) an income tax expense of $783,000 on the period’s pre-tax income and 2) the $361,000 reversal of tax reserves noted above.

9

Table of Contents

ASTRO-MED, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) Income Taxes

For the second quarter ended July 29, 2006, the Company recognized an income tax expense of $467,580, resulting in an effective tax rate of 38.7%. For the second quarter ended July 30, 2005, the Company recognized and income tax expense of $375,262, resulting in an effective tax rate of 37.6%. For the six months ended July 29, 2006, the Company recognized an income tax expense of $786,506, resulting in an effective tax rate of 38.0%. For the six months ended July 30, 2005, the Company recognized an income tax expense of $599,386, resulting in an effective tax rate of 37.0%

-9-

Table of Contents

ASTRO-MED, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(8) Income Taxes

An income tax expense of $318,927 was recorded in the first quarter of the current year which is equal to an effective tax rate of 37%. This compares to an income tax expense of $224,124 in the first quarter of the prior year which is equal to an effective tax rate of 36%.

-9-

Table of Contents

ASTRO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4 – INCOME TAXES

During the quarter ended October 29, 2005, the Company recognized an income tax benefit of $177,000. The quarter’s income tax benefit includes 1) an income tax expense of $184,000 which equals an effective tax rate of 37% on the current quarter’s pre-tax income and 2) the $361,000 reversal of tax reserves related to the favorable resolution of certain income tax examinations. This compares to an income tax expense of $29,000 equaling an effective tax rate of 36% on the quarter’s pre-tax income recorded during the quarter ended October 30, 2004.

During the nine months ended October 29, 2005, the Company’s effective tax rate was 20%. The effective tax rate includes 1) an income tax expense of $783,000 which equals an effective tax rate of 37% on the period’s pre-tax income and 2) the $361,000 reversal of tax reserves noted above. This compares to an effective tax rate of 1% recorded during the nine months ended October 30, 2004. During the nine months ended October 30, 2004, the Company recorded 1) an income tax expense of $740,000 which equals an effective tax rate of 36% on the period’s pre-tax income and 2) a $939,000 non-cash tax benefit related to the release of the valuation allowance on the net deferred tax asset that was established in fiscal year 2003. In fiscal year 2003 the Company established a full valuation allowance on its net deferred tax asset as a result of the uncertainty as to whether these deferred tax assets would “more likely than not” be realized in the future. Based on the facts and circumstances at that time, it was determined that a full valuation allowance was required and it was stated that until an appropriate level of profitability could be sustained no tax benefits would be realized. As of the first quarter of fiscal year 2005, Management believed that an appropriate level of profitability had been established and maintained and it was more likely than not the deferred tax assets will be realized in the future.

8

Table of Contents

ASTRO-MED, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 – INCOME TAXES

During the quarter ended May 1, 2004, the Company recognized a $939,000 one-time non-cash tax benefit related to the release of the valuation allowance on the net deferred tax asset that was established in fiscal year 2003. In fiscal year 2003, as required by SFAS 109 “Accounting for Income Taxes”, the Company established a full valuation allowance on its net deferred tax asset as a result of the uncertainty as to whether these deferred tax assets would “more likely than not” be realized in the future. Based on the facts and circumstances at that time, it was determined that a full valuation allowance was required and it was stated that until an appropriate level of profitability could be sustained no tax benefits would be realized. As of the first quarter of fiscal year 2005, Management believed that an appropriate level of profitability has been established and maintained and it is more likely than not the deferred tax assets will be realized in the future.

-9-

Table of Contents

ASTRO-MED, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 4 - INCOME TAXES

An income tax expense of $224,124 was recorded in the first quarter of the current year which is equal to an effective tax rate of 36%. This compares to an income tax benefit of $567,102 in the first quarter of the prior year. The prior year income tax benefit includes 1) an income tax expense on the current quarter’s income of $372,000 which is equal to an effective rate of 36% and 2) a $939,000 one-time non-cash tax benefit related to the release of the valuation allowance on the net deferred tax asset that was established in fiscal year 2003. In fiscal year 2003, as required by SFAS 109 “Accounting for Income Taxes”, the Company established a full valuation allowance on its net deferred tax asset as a result of the uncertainty as to whether these deferred tax assets would “more likely than not” be realized in the future. Based on the facts and circumstances at that time, it was determined that a full valuation allowance was required and it was stated that until an appropriate level of profitability could be sustained no tax benefits would be realized. As of the first quarter of fiscal year 2005, Management believed that an appropriate level of profitability has been established and maintained and it is more likely than not the deferred tax assets will be realized in the future. Management made this determination based on a review of the facts and circumstances as of May 1, 2004. This review consisted of an analysis of the Company’s performance, the market environment in which the Company currently operates, the length of carryforward periods, the existing sales backlog and the future sales projections. The effective income tax rates used in the interim condensed financial statements are estimates of the full year’s rates.