Income tax provision

3 Months Ended

Jan. 31, 2012

Income tax provision

Note 9 - Income tax provision

The income tax provision reflected in the accompanying unaudited condensed consolidated statement of income for the three months ended January 31, 2012 is different than the expected tax provision computed based on the pre-tax income and the applicable statutory Federal income tax rate of 34% and the state income tax rate, net of Federal tax effects, of 6%. Interim tax provisions are determined using an estimate of the annual effective tax rate. As of January 31, 2012, the Company estimated that its effective annual tax rate for the year ending October 31, 2012 will be approximately 47%.

The provision for income taxes during the fiscal 2012 quarter was $104,102 (or an effective tax rate of approximately 47%), compared to $187,431 in the fiscal quarter ended January 31, 2011 (or an effective tax rate of approximately 35%). The increase in the tax rate in the first fiscal quarter of 2012 is primarily due to permanent tax differences related to non-deductible Incentive Stock Option compensation expense. Also contributing to the increase from prior year quarter was a one-time tax benefit of approximately $34,000 relating to a Federal research and development tax credit the Company was not able to recognize in its financial statements in 2010 due to the law not being enacted by October 31, 2010. On December 16, 2010, Congress passed the 2010 Tax Relief Act (the “Act”) which impacted the Company’s tax provision in the first quarter of fiscal 2011. Due to the passage of the Act into law, the Company claimed an increased net tax credit related to the year ended October 31, 2010 for research and development related to the year ended October 31, 2010 of approximately $34,000. The credit was recorded in the first quarter of fiscal 2011. Furthermore, the effective tax rate in the current fiscal quarter increased due to the fact that the deduction for Federal research and development tax credits expired in December of 2011 and has not been reenacted by Congress. As such, Federal research and development tax credit was allowed or taken by the Company during the quarter ended January 31, 2012.

Without the above noted adjustments and factors, the effective tax rate for the three months ended January 31, 2011 would have been comparable to the 2012 rate.