Note 7.

Income Taxes

For the three months ended April 30, 2014 and 2013, our effective tax rates were 42.4% and 36.9%, respectively. Our effective tax rate increased 5.5% during the three months ended April 30, 2014 as compared to the same period in the prior fiscal year primarily due to the expiration of the federal research and development tax credit and a reduction of the domestic production activities deduction caused by the increased stock option activity during the quarter.

In July 2013, the FASB ratified ASU 2013-11 “Presenting an Unrecognized Tax Benefit (“UTB”) When a Net Operating Loss Carryforward Exists” (“ASU 2013-11”). ASU 2013-02 provides that an UTB, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. We adopted this ASU on February 1, 2014, and the impact was not significant on our condensed consolidated results of operations and financial position.

There were no material changes to our unrecognized tax benefits in the three months ended April 30, 2014, and we do not expect to have any significant changes to unrecognized tax benefits during the next twelve months. Net deferred tax assets were $0.4 million as of April 30, 2014 and are primarily federal net operating loss carryforwards and future tax consequences of differences between financial statement carrying amounts of assets and liabilities on their respective tax bases. The tax years from 2007 remain open to examination for both federal and California and 2009 for other states. The tax years from 2010 remain open to examination in our various foreign jurisdictions.

We maintain a valuation allowance against state and certain other foreign deferred tax assets.