The Company has entered into two Subdivision Improvement Agreements with the City of Rio Rancho, New Mexico. In connection with these agreements, the Company has signed a promissory note for each subdivision and deposited restricted funds in a reserve bank account for each subdivision. Following successful completion and acceptance of the Company’s performance in a subdivision, the applicable promissory note will be cancelled and the related restricted funds will be returned to the Company’s general cash.

During the three months ended July 31, 2018, revenues2019, $664,000 of cash was released from one major customerrestrictions under the Subdivision Improvement Agreements. The total amount of restricted funds at July 31, 2019 was $305,000 and at April 30, 2019 was $969,000.

The following provides a reconciliation of the Company’s fulfillment services business totaled $1,154,000 or approximately 9.9%cash, cash equivalents and restricted cash as reported in the consolidated balance sheets to the amount reported in the statement of total revenuescash flows for the Company. As ofthree month period ending July 31, 2018, the Company’s fulfillment services business had $771,000 of outstanding accounts receivable from this customer, which was reduced by collections to $405,000 at September 7, 2018. This customer in-sourced a significant portion of its business from the Company’s fulfillment services business in August 2018, which transfer had been expected and previously disclosed.2019:

Property, plant and equipment,

Investment assets, net consist of:

Land held for long-term investment represents property located in areas that are not planned to be developed in the near term and thus has not been offered for sale. As of April 30, 2019, the Company held approximately 12,000 acres of land in New Mexico classified as land held for long-term investment.

The warehouse and office facilities are located in Palm Coast, Florida, aggregate 204,000 square feet and are leased to a third party with a lease term that expires in 2029. Depreciation associated with the warehouse and office facilities of property, plant$122,000 and equipment$122,000 was charged to operations was $287,000 and $321,000 for the three months ended July 31, 20182019 and 2017.July 31, 2018.

Other assets consist of:

Deferred order entry costs represent costs incurredThe Company recognized deferred purchase price upon the sale of the Company’s fulfillment services business in connectionApril 2019. The deferred purchase price is being amortized over the term of the two lease agreements, with $52,000 of tenant lease payments reducing the deferred purchase price for the three months ended July 31, 2019. Prepaid expenses and other, net includes property and equipment for which there was $4,000 charged to depreciation expense for the three months ended July 31, 2019 and July 31, 2018. Right-of-use assets associated with the data entryCompany’s leases, amount to $175,000, net of customer subscription information to database files and are$23,000 of depreciation expense charged directly to operations generally over a twelve month period.during the three months ended July 31, 2019.

Accounts payable and accrued expenses consist of:

As of July 31, 2018, accounts payable and accrued expenses for the Company’s fulfillment services business included customer postage deposits of $2,889,000, accrued expenses of $748,000, trade payables of $600,000 and other of $1,103,000. As of April 30, 2018, accounts payable and accrued expenses for the Company’s fulfillment services business included customer postage deposits of $3,223,000, accrued expenses of $515,000, trade payables of $388,000 and other of $1,322,000.

As of July 31, 2018,2019, accounts payable and accrued expenses for the Company’s real estate business included accrued expenses of $634,000,$439,000, trade payables of $681,000, and$590,000, real estate customer deposits of $1,422,000.$1,317,000 and other of $45,000. As of April 30, 2018,2019, accounts payable and accrued expenses for the Company’s real estate business included accrued expenses of $746,000,$491,000, trade payables of $773,000,$652,000, real estate customer deposits of $897,000$1,198,000 and other of $9,000.$18,000.

Notes payable, net consist of:

Lomas Encantadas Subdivision –

Refer to Note 87 to the consolidated financial statements contained in the 20182019 Form 10-K for detail about the loan agreement entered into with Main Bank in July 2018 with respect to the development of certain planned residential lots within the Hawksite subdivision located in Rio Rancho, New Mexico. The outstanding principal amount of the loan as of July 31, 2019 was $813,000 and the Company made principal repayments of $390,000 during the three months ended July 31, 2019. The interest rate on the loan at July 31, 2019 was 7.88%. The Company capitalized $20,000 and $0 of interest related documentationto this loan in the three months ended July 31, 2019 and July 31, 2018. In August 2019, the outstanding principal amount of the loan was fully repaid and the loan was terminated.

Refer to Note 7 to the consolidated financial statements contained in the 2019 Form 10-K for detail about the loan agreement entered into with BOKF, NA dba Bank of Albuquerque (“BoABQ”) in December 2017 with respect to the development of certain planned residential lots within the Lomas Encantadas subdivision (the “Lomas Property”) located in Rio Rancho, New Mexico.

Pursuant The Company made principal repayments of $182,000 during the three months ended July 31, 2019. The Company capitalized $4,000 and $26,000 of interest related to suchthis loan documentation, BOKF, NA agrees to lend up to $4,750,000 toin the borrower on a non-revolving line of credit basis to partially fund the development of the Lomas Property. Interest onthree months ended July 31, 2019 and July 31, 2018. In June 2019, the outstanding principal amount of the loan is payable monthly atwas fully repaid and the annual rate equalloan was terminated.

Refer to Note 15 to the London Interbank Offered Rateconsolidated financial statements contained in the 2019 Form 10-K for a thirty-day interest period plus a spreaddetail about the loan agreement entered into with BoABQ in June 2019 with respect to the development of 3.0%, adjusted monthly.certain planned residential lots within the Lomas Encantadas subdivision located in Rio Rancho, New Mexico. The outstanding principal amount of the loan as of July 31, 20182019 was $2,115,000$28,000 and the borrower made principal repayments of $774,000 during the three months ended July 31, 2018. The loan is scheduled to mature in December 2021. The total book value of the Lomas Property was $10,461,000 as of July 31, 2018. The Company capitalized $26,000 of interest related to this loan in the first quarter of 2019. At July 31, 2018, both the borrower and AMREP Southwest were in compliance with the covenants contained within the loan documentation.

Hawk Site Subdivision – In July 2018, Hawksite 27 Development Company, LLC (“HDC”), a subsidiary of AMREP Southwest, entered into a Business Loan Agreement with Main Bank. The loan under the Business Loan Agreement is evidenced by a Promissory Note and is secured by a Mortgage, between HDC and Main Bank with respect to certain planned residential lots within the Hawk Site subdivision (the “Hawk Property”). Pursuant to a Commercial Guaranty entered into by AMREP Southwest in favor of Main Bank, AMREP Southwest has guaranteed HDC’s obligations under each of the above agreements. The Business Loan Agreement, Promissory Note, Mortgage, Commercial Guaranty and other related transaction documents are collectively referred to as the “HS Loan Documentation.”

Pursuant to the HS Loan Documentation, Main Bank agrees to lend up to $1,800,000 to HDC on a non-revolving line of credit basis to partially fund the development of the Hawk Property. Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the Wall Street Journal Prime Rate plus a spread of 2.38%, adjusted annually. Main Bank is required to release the lien of its mortgage on any lot included in the Hawk Property upon HDC making a principal payment equal to the greater of $30,000 or 55% of the sales price of the lot. HDC is required to reduce the principal balance of the loan to a maximum of $1,700,000 at July 20, 2020. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature on July 20, 2021. HDC incurred customary costs and expenses and paid fees to Main Bank in connection with the loan. The outstanding principal amount of the loan as of July 31, 2018 was $42,000 and HDC made no principal repayments during the three months ended July 31, 2018.2019. The total book value of the Hawk Propertyproperty within the Lomas Encantadas subdivision mortgaged to BoABQ under this loan was $3,218,000$922,000 as of July 31, 2018. There2019. The interest rate on the loan at July 31, 2019 was no5.39%. The Company capitalized less than $1,000 of interest capitalized related to this loan during the first quarter of 2019.

HDC and AMREP Southwest have made certain representations and warranties in the HS Loan Documentation and are required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The HS Loan Documentation contains customary events of default for similar financing transactions, including: HDC’s failure to make principal, interest or other payments when due; the failure of HDC or AMREP Southwest to observe or perform their respective covenants under the HS Loan Documentation; the representations and warranties of HDC or AMREP Southwest being false; and the insolvency or bankruptcy of HDC or AMREP Southwest. Upon the occurrence and during the continuance of an event of default, Main Bank may declare the outstanding principal amount and all other obligations under the HS Loan Documentation immediately due and payable.three months ended July 31, 2019. At July 31, 2018, both HDC and AMREP Southwest were2019, the Company was in compliance with the financial covenants contained within the HS Loan Documentation.loan documentation.

Other revenues for the first quarter of 2019 and 2018 consist of:

Deferred revenue and other includes the recognition of deferred revenue related to an oil and gas lease noted below, as well as fees and forfeited deposits from customers earned by AMREP Southwest, together with miscellaneous other income items.

Refer to Note 9 to the consolidated financial statements contained in the 2018 Form 10-K for detail about the settlement agreement entered into between Palm Coast and the State of Florida in the first quarter of 2018. As a result of this settlement agreement, the Company’s fulfillment services business recognized a gain of $1,318,000 during the first quarter of 2018.

In addition, refer to Note 9 to the consolidated financial statements contained in the 2018 Form 10-K for detail about an oil and gas lease with respect to all minerals and mineral rights owned by the Company or for which the Company has executive rights in and under approximately 55,000 surface acres of land in Sandoval County, New Mexico. No royalties under the lease were received during$44,000 for the three months ended July 31, 2018. Revenue from this transaction is being recorded over the lease term and approximately $57,000 was recognized during the first quarter of each of 2019 and 2018. At$57,000 for the three months ended July 31, 2018 there was approximately $19,000and primarily consisted of forfeited deposits and amortization of deferred revenue remaining to be recognized before the end of the lease term in September 2018. On September 7, 2018, the oil and gas lease was amended pursuant to a lease extension agreement. The lease extension agreement extends the expiration date of the initial term of the lease from September 2018 to September 2020. No fee was paid by the lessee to the Company with respect to such extension. If lessee or any of its affiliates provides any consideration to obtain, enter into, option, extend or renew an interest in any minerals or mineral rights within Sandoval County, Bernalillo County, Santa Fe County or Valencia County in New Mexico at any time from September 2017 through September 2020, lessee shall pay the Company an amount equal to the amount of such consideration paid per acre multiplied by 54,793.24. The lease extension agreement further provides that the lessee shall assign, or shall cause their affiliate to assign, to the Company an overriding royalty interest of 1% with respect to the proceeds received by the lessee with respect to any minerals or minerals rights presently or hereinafter owned by, leased by, optioned by or otherwise subject to the control of lessee or any of its affiliates in any part of Sandoval County, Bernalillo County, Santa Fe County or Valencia County in New Mexico.revenue.

Pension Plan

The Company has a defined benefit pension plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. Refer to Note 1110 to the consolidated financial statements contained in the 20182019 Form 10-K for additional detail regarding the Company’s agreements with the Pension Benefit Guaranty Corporation (the “PBGC”). Pursuant to these agreements, the Company has secured $4,535,000 of accrued pension-related obligations with first lien mortgages on certain real property in favor of the PBGC. The total book value of the real property subject to the mortgages was approximately $7,874,000 as of July 31, 2018. On an annual basis, the Company is required to provide updated appraisals on each mortgaged property and, if the appraised value of the mortgaged properties is less than two times the amount of the accrued pension-related obligations secured by the mortgages, the Company is required to make a payment to its pension plan in an amount equal to one-half of the amount of the shortfall. During the first quarter of 2019, there was no change in the appraised value of the mortgaged properties that required the Company to make any additional payments to itsdefined benefit pension plan. In addition, following the end of the first quarter of 2019, the agreements with the PBGC terminated by their terms on August 30, 2018 with the PBGC being deemed to have released and discharged the Company and all other members of its controlled group from any claims under such agreements.

The Company recognizes the known changes in the funded status of the pension plan in the period in which the changes occur through other comprehensive income, net of the related deferred income tax effect. The Company recognized other comprehensive income of $154,000 and $157,000 for the three months ended July 31, 20182019 and $225,000 for the three months ended July 31, 2017,2018, related to the amortization of the plan’s unrecognized net loss included in Accumulated other comprehensive loss, net in the accompanying financial statements.

The Company funds the pension plan in compliance with IRS funding requirements. The Company did not make any contributions to the pension plan during the three months ended July 31, 2018 and made $563,000 of contributions for2019 or July 31, 2018.

In the three monthsquarter ended July 31, 2017.2019, the Company initiated a limited offer for certain former employees with vested benefits in the Company’s defined benefit pension plan to elect to receive a lump sum payout of their pension benefit. The Company completed these lump sum payments from the pension plan in September 2019 to 309 former employees for approximately $7,200,000. The Company expects to recognize a non-cash pre-tax pension settlement charge in the quarter ending October 31, 2019 of approximately $2,960,000.

Equity Compensation Plan

Refer to Note 1110 to the consolidated financial statements contained in the 20182019 Form 10-K for additional detail regarding the AMREP Corporation 2016 Equity Compensation Plan (the “2016 Equity Plan”) and the AMREP Corporation 2006 Equity Compensation Plan (together with the 2016 Equity Plan, the “Equity Plans”). The Company issued 9,000 shares and 29,200 shares of restricted common stock under the 2016 Equity Plan during the three months ended July 31, 2019 and July 31, 2018. During the three months ended July 31, 2019 and July 31, 2018, 10,000 shares and 8,750 shares of restricted common stock previously issued under the Equity Plans vested leavingvested. As of July 31, 2019 and July 31, 2018, 41,667 shares and 55,200 shares of restricted sharescommon stock previously issued under the Equity Plans that had not vested as of July 31, 2018.vested. For the three months ended July 31, 2019 and July 31, 2018, the Company recognized $28,000$25,000 and $25,000 of non-cash compensation expense related to the vesting of restricted shares of common stock, and $18,000 for the same period of 2018.stock. As of July 31, 2019 and July 31, 2018, there was $274,000$164,000 and $248,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the Equity Plans which had not vested as of that date,those dates, which is expected to be recognized over the remaining vesting term not to exceed three years. In addition, the Company recognized $20,000$23,000 of expense during the three months ended July 31, 20182019 related to deferred stock units expected to be issued to non-employee members of the Company’s Board of Directors in December 2018.2019.

The U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law in December 2017. The Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates. The Act reduced the federal corporate tax rate to 21.0% effective January 1, 2018. As the Company has an April 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in the Company having a blended federal tax rate of 29.7% for 2018. Effective May 1, 2018, the Company’s federal corporate tax rate is 21.0%.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Act. SAB 118 provides for a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). As of July 31, 2018, the Company had not completed its accounting for the tax effects of the Act and expects to complete the accounting during its third quarter of 2019, which could potentially affect the measurement of deferred tax balances or potentially give rise to new deferred tax balances.

The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both July 31, 2018 and April 30, 2018 was $58,000, which, if recognized, will have an impact on the effective tax rate and, as a result of the lapse of the statute of limitations, is expected to be recognized in the quarter ending January 31, 2019.

The following tables set forth summarized data relative to the industry segments in which the Company operated for the periods indicated (in thousands):Interest income, net consists of:

Disaggregation of Revenues

The Company presents revenues disaggregated by business segment and, in the case of fulfillment services, by service provided, and in the case of real estate, by type of lots sold. The Company believes this disaggregation best depicts how its various business segments perform and are affected by economic factors. The following table presents the Company’s revenues disaggregated by revenue source (in thousands):

INTRODUCTION

AMREP Corporation (the “Company”), through its subsidiaries, is primarily engaged in twoone business segments:segment: the real estate business operated by AMREP Southwest Inc. (“AMREP Southwest”) and its subsidiaries and the fulfillment services business operated by Palm Coast Data LLC (“Palm Coast”) and its affiliates. Data concerning industry segments is set forth in Note 10 of the notes to the consolidated financial statements included in this report on Form 10-Q. All significant intercompany accounts and transactions have been eliminated in consolidation.business. The Company’sCompany has no foreign sales andor activities are not significant.outside the United States.

The following provides information that management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. The information contained in this section should be read in conjunction with the consolidated financial statements and related notes thereto included in this report on Form 10-Q and with the Company’s annual report on Form 10-K for the year ended April 30, 2018,2019, which was filed with the Securities and Exchange Commission on July 20, 201826, 2019 (the “2018“2019 Form 10-K”). Many of the amounts and percentages presented in this Item 2 have been rounded for convenience of presentation. Unless the context otherwise indicates, all references to 20192020 and 20182019 are to the fiscal years ending April 30, 20192020 and 20182019 and all references to the first quarters of 20192020 and 20182019 mean the fiscal three month periods ended July 31, 20182019 and 2017.2018.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based on the accounting policies used and disclosed in the 20182019 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of the 20182019 Form 10-K and in Note 1 of the notes to the consolidated financial statements included in this report on Form 10-Q. The preparation of those consolidated financial statements required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those estimates and assumptions.

The Company’s critical accounting policies, assumptions and estimates are described in Item 7 of Part II of the 20182019 Form 10-K. There have been no changes in these critical accounting policies.

The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements contained in the 20182019 Form 10-K.10-K and in Note 1 of the notes to the consolidated financial statements included in this report on Form 10-Q. Information concerning the Company’s implementation and the impact of recent accounting standards issued by the Financial Accounting Standards Board is included in the notes to the consolidated financial statements contained in the 20182019 Form 10-K and in the notes to the consolidated financial statements included in this report on Form 10-Q. The Company did not adopt any accounting policy in the three months ended July 31, 20182019 that had a material impact on its consolidated financial statements.

The Company adopted the following accounting policies effective May 1, 2018.2019:

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers. Since that date, the FASB has issued additional ASUs providing further revenue recognition guidance (collectively, “Topic 606”). Topic 606 clarifies the principles for recognizing revenues and costs related to obtaining and fulfilling customer contracts, with the objective of improving financial reporting. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Topic 606 defines a five-step process to achieve this core principle, and more judgment and estimates are required under Topic 606 than were required under the prior generally accepted accounting principles of Topic 605,Revenue Recognition (“Topic 605”). In accordance with Topic 606, fulfillment services revenues are recognized as the services are performed in proportion to the transfer of control to the customer and real estate revenues are recognized at the time of sale when consideration has been exchanged and title has been conveyed to the buyer.

Topic 606 was effective for the Company’s fiscal year beginning May 1, 2018. The Company adopted Topic 606 using the modified retrospective method. Results for reporting periods beginning after May 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with Topic 605. The adoption of Topic 606 had no impact on the Company’s results of operations.

Statements of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 reduces the diversity in practice regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows, including classifying proceeds from company-owned life insurance proceeds as an investing activity. ASU 2016-15 was effective for the Company’s fiscal year beginning May 1, 2018.

RESULTS OF OPERATIONS

Prior to April 26, 2019, the Company had been engaged in the fulfillment services business. On April 26, 2019, the fulfillment services business was sold (refer to Item 1 of Part I of the 2019 Form 10-K for more detail). The Company’s fulfillment services business has been classified as discontinued operations in the financial statements included in this report on Form 10-Q. Financial information from prior periods has been reclassified to conform to this presentation.

For the first quarter of 2019,2020, the Company recorded a net loss of $196,000, or $0.02 per share, compared to net income of $61,000, or $0.01 per share, compared to net income of $1,448,000, or $0.18 per share, for the first quarter of 2018. 2019. Results from 2020 consisted entirely of continuing operations. For the first quarter of 2019, results consisted of (i) a net loss from continuing operations of $662,000, or $0.08 per share and (ii) net income from discontinued operations of $723,000, or $0.09 per share. A discussion of continuing operations follows.

Continuing Operations

Revenues were $11,715,000$4,767,000 for the first quarter of 20192020 compared to $11,326,000$4,238,000 for the same period of 2018.2019.

Revenues from land sales at AMREP Southwest and its subsidiaries were $4,181,000$4,382,000 for the first quarter of 20192020 compared to $2,677,000$4,181,000 for the same period of 2018. For 2018, $2,044,000 of the $2,677,000 of revenues from land sales was for an approximate five acre undeveloped commercial property in Colorado, which was sold with a gross profit percentage of 65%.

2019. For the first quarter of 20192020 and 2018,2019, the Company’s land sales in New Mexico were as follows (dollars in thousands):

The average gross profit percentage on land sales in New Mexico before indirect costs was 11%17% for the first quarter of 20192020 compared to 18%11% for the same period of 2018.2019. The profit percentage increase is attributable to the mix ofdemand for lots sold with developed lots having a lower profit percentage compared to undeveloped lots.by builders. As a result of many factors, including the nature and timing of specific transactions and the type and location of land being sold, revenues, average selling prices and related average gross profits from land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods.

Revenues

Rent revenues were $341,000 for the first quarter of 2020. There were no comparable rents from the prior year due to the applicable lease agreements being signed in April 2019 as part of the sale of the Company’s fulfillment services operationsbusiness.

Other revenues were $7,445,000$44,000 for the first quarter of 2020 compared to $57,000 for the same period of 2019. Other revenues included fees and forfeited deposits from customers and, for the first quarter of 2019, compared to $7,243,000 for the same period of 2018. The increased revenues were primarily attributable to new business, offset in part by reduced business volumes from existing customers, price concessions on renewed contracts and lost business. The Company’s fulfillment services business has been successful in obtaining new business partially as a result of a significant competitor announcing its intention to cease operations. Otherwise, magazine publishers are one of the principal customers of the Company’s fulfillment services operations, and these customers have continued to be negatively impacted by increased competition from new media sources, alternative technologies for the distribution, storage and consumption of media content, weakness in advertising revenues and increases in paper costs, printing costs and postal rates. The result has been reduced subscription sales, which has caused publishers to close some magazine titles, change subscription fulfillment providers and seek more favorable terms from the Company’s fulfillment services business and its competitors when contracts are up for bid or renewal. One customer of the Company’s fulfillment services business whose revenues were approximately 9.9% of the total Company revenues for the three months ended July 31, 2018 in-sourced a significant portion of its business from the Company’s fulfillment services business in August 2018, which transfer had been expected and previously disclosed.

Other revenues were $89,000 for the first quarter of 2019 compared to $1,406,000 for the same period of 2018. Other revenues for the first quarter of 2018 were primarily due to a pre-tax gain of $1,318,000 related to a settlement agreement with the State of Florida by Palm Coast (refer to Note 7 of the notes to the consolidated financial statements included in this report on Form 10-Q). In addition to the pre-tax gain in 2018, Other revenues in the first quarter of 2019 and 2018 includes the recognition of $57,000 of deferred revenue related to an oil and gas lease, as well as fees and forfeited deposits from customers earned by AMREP Southwest and miscellaneous other income items.lease.

Operating and selling expenses for real estate decreasedincreased from $511,000$276,000 for the first quarter of 20182019 to $276,000$559,000 for the same period of 2019,2020, primarily due to reduced commissions on sales activity and lowerincreased employee bonuses, new allocations of certain employee costs to operating expenses, increased accruals for real estate taxes and costs of storm water pollution prevention. Operating and selling expenses for fulfillment services increased from $6,094,000 for the first quarter of 2018 to $6,338,000 for the same period in 2019, primarily due to increased costs related to payroll andhealth care benefits bad debt expense, supplies expense and outside services.costs.

Real estate general and administrative expenses increaseddecreased from $114,000$188,000 for the first quarter of 20182019 to $188,000$113,000 for the same period of 2019,2020, primarily due to an increasea decrease in legal fees. Fulfillment servicesCorporate general and administrative expenses decreased from $349,000$927,000 for the first quarter of 20182019 to $346,000$894,000 for the same period of 2019, with no significant variances in specific expense line items. Corporate general and administrative expenses increased from $808,000 for the first quarter of 2018 to $822,000 for the same period of 2019,2020, primarily due to increasednew allocations of certain employee costs related to payrolloperating expenses and benefits, offset in part by lower travel and legal expenses.

Interest expense was $5,000income, net increased from $28,000 for the first quarter of 2019 compared to $13,000$124,000 for the same period of 2018. Interest expense2020, primarily due to management of excess funds in 2019 was related to borrowings for land development activities, whilehigher yielding savings accounts and a reduction in interest expense in 2018 was primarily related to the liability with the State of Florida noted above. The Company capitalized interest of $26,000 for the first quarter of 2019 compared to none for the same period of 2018.

The U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law in December 2017. The Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates. The Act reduced the federal corporate tax rate to 21.0% effective January 1, 2018. As the Company has an April 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in the Company having a blended federal tax rate of 29.7% for 2018. Effective May 1, 2018, the Company’s federal corporate tax rate is 21.0%.expense.

The Company had a benefit for income taxes of $52,000$134,000 in connection with $9,000 of incomea $330,000 loss from continuing operations before income taxes for the first quarter of 2019,2020, as compared to a provisionbenefit for income taxes of $766,000$194,000 in connection with $2,214,000 of incomean $856,000 loss from continuing operations before income taxes for the same period of 2018.2019. The (benefit) provisionbenefit for income taxes includesincluded expenses related to federal income tax as well as the net tax benefits related to state operating losses.

The total tax effect of gross unrecognized tax benefitschange in the accompanying financial statements at both July 31, 2018 and April 30, 2018 was $58,000, which, if recognized, will have an impact on the effective tax rate and, asin the first quarter of 2020 from the first quarter of 2019 was due to the effect of discontinued operations.

In the quarter ended July 31, 2019, the Company initiated a resultlimited offer for certain former employees with vested benefits in the Company’s defined benefit pension plan to elect to receive a lump sum payout of their pension benefit. The Company completed these lump sum payments from the lapse of the statute of limitations, is expectedpension plan in September 2019 to be recognized309 former employees for approximately $7,200,000. The Company expects to recognize a non-cash pre-tax pension settlement charge in the quarter ending JanuaryOctober 31, 2019.2019 of approximately $2,960,000.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funding for working capital requirements are cash flow from operations, bank financing for specific real estate projects and existing cash balances. The Company’s liquidity is affected by many factors, including some that are based on normal operations and some that are related to the industriesindustry in which the Company operates and the economy generally. Except as described below, there have been no material changes to the Company’s liquidity and capital resources as reflected in the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 20182019 Form 10-K.

Pension Plan

The Company has a defined benefit pension plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. Refer to Note 11 to the consolidated financial statements contained in the 2018 Form 10-K for additional detail regarding the Company’s agreements with the Pension Benefit Guaranty Corporation (the “PBGC”). Pursuant to these agreements, the Company has secured $4,535,000 of accrued pension-related obligations with first lien mortgages on certain real property in favor of the PBGC. The total book value of the real property subject to the mortgages was approximately $7,874,000 as of July 31, 2018. On an annual basis, the Company is required to provide updated appraisals on each mortgaged property and, if the appraised value of the mortgaged properties is less than two times the amount of the accrued pension-related obligations secured by the mortgages, the Company is required to make a payment to its pension plan in an amount equal to one-half of the amount of the shortfall. During the first quarter of 2019, there was no change in the appraised value of the mortgaged properties that required the Company to make any additional payments to its pension plan. In addition, following the end of the first quarter of 2019, the agreements with the PBGC terminated by their terms on August 30, 2018 with the PBGC being deemed to have released and discharged the Company and all other members of its controlled group from any claims under such agreements.

Operating Activities

Receivables, net

Real estate inventory decreased from $5,901,000$57,773,000 at April 30, 20182019 to $5,866,000$55,515,000 at July 31, 2018,2019, primarily due to the timing of collections. Realreal estate inventory increased from $58,874,000 at April 30, 2018 to $59,174,000 at July 31, 2018, primarily due toland sales, which were offset in part by an increase in land development activity, offset in part by real estate land sales. Property, plant and equipment,activity. Investment assets, net decreased from $9,745,000$17,227,000 at April 30, 20182019 to $9,492,000$17,108,000 at July 31, 2018,2019, primarily due to depreciation of fixed assets. Taxes receivable, net was $209,000 at April 30, 2018, and included an anticipated refund of federal taxes of $271,000. During the first quarter of 2019, the Company received the $271,000 refund, which resulted in a Taxes payable, net balance of $65,000 at July 31, 2018.depreciation.

Accounts payable and accrued expenses increased from $8,215,000$2,964,000 at April 30, 20182019 to $8,419,000$3,009,000 at July 31, 2018,2019, primarily due to an increase in land development activity. Notes payable, net increased from $1,843,000 at April 30, 2018 to $2,071,000new accounting for additional lease liabilities at July 31, 2018, primarily due to financing of land development2019, offset partially by a reduction in builder deposits in connection with sales activity. Other liabilities and deferred revenue decreased from $149,000 at April 30, 2018 to $122,000 at July 31, 2018, primarily due toTrade accounts payable also declined as construction activity was slower during the recognition of deferred revenue related to an oil and gas lease.period.

Financing Activities

Lomas Encantadas Subdivision – ReferNotes payable, net decreased from $1,319,000 at April 30, 2019 to Note 8 to the consolidated financial statements contained in the 2018 Form 10-K for detail about the loan agreement and related documentation entered into with BOKF, NA dba Bank of Albuquerque in December 2017 with respect to the development of certain planned residential lots within the Lomas Encantadas subdivision (the “Lomas Property”) located in Rio Rancho, New Mexico.

Pursuant to such loan documentation, BOKF, NA agrees to lend up to $4,750,000 to the borrower on a non-revolving line of credit basis to partially fund the development of the Lomas Property. Interest on the outstanding principal amount of the loan is payable monthly$842,000 at the annual rate equal to the London Interbank Offered Rate for a thirty-day interest period plus a spread of 3.0%, adjusted monthly. The outstanding principal amount of the loan as of July 31, 2018 was $2,115,000 and the borrower2019, primarily due to repayments made principal repayments of $774,000 during the three months ended July 31, 2018.on financings for land development activity. The outstanding principal amount of the loan as of September 7, 2018 was $1,900,000. The loan is scheduled to matureCompany’s financing arrangements in December 2021. The total book value of the Lomas Property was $10,461,000 as of July 31, 2018. The Company capitalized $26,000 of interest related to this loan in the first quarter of 2019. At July 31, 2018, both the borrower and AMREP Southwest were in compliance with the covenants contained within the loan documentation.

Hawk Site Subdivision – In July 2018, Hawksite 27 Development Company, LLC (“HDC”), a subsidiary of AMREP Southwest, entered into a Business Loan Agreement with Main Bank. The loan under the Business Loan Agreement is evidenced by a Promissory Note and is secured by a Mortgage, between HDC and Main Bank with respect to certain planned residential lots within the Hawk Site subdivision (the “Hawk Property”). Pursuant to a Commercial Guaranty entered into by AMREP Southwest in favor of Main Bank, AMREP Southwest has guaranteed HDC’s obligations under each of the above agreements. The Business Loan Agreement, Promissory Note, Mortgage, Commercial Guaranty and other related transaction documents are collectively referred to as the “HS Loan Documentation.”

Pursuant to the HS Loan Documentation, Main Bank agrees to lend up to $1,800,000 to HDC on a non-revolving line of credit basis to partially fund the development of the Hawk Property. Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the Wall Street Journal Prime Rate plus a spread of 2.38%, adjusted annually. Main Bank is required to release the lien of its mortgage on any lot included in the Hawk Property upon HDC making a principal payment equal to the greater of $30,000 or 55% of the sales price of the lot. HDC is required to reduce the principal balance of the loan to a maximum of $1,700,000 at July 20, 2020. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature on July 20, 2021. HDC incurred customary costs and expenses and paid fees to Main Bank in connection with the loan. The outstanding principal amount of the loan as of July 31, 2018 was $42,000 and HDC made no principal repayments during the three months ended July 31, 2018. The outstanding principal amount of the loan as of September 7, 2018 was $42,000. The total book value of the Hawk Property was $3,218,000 as of July 31, 2018. There was no interest capitalized related to this loaneffect during the first quarter of 2019.2020 are described below:

HDC and AMREP Southwest have made certain representations and warranties in the HS Loan Documentation and are required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The HS Loan Documentation contains customary events of default for similar financing transactions, including: HDC’s failure to make principal, interest or other payments when due; the failure of HDC or AMREP Southwest to observe or perform their respective covenants under the HS Loan Documentation; the representations and warranties of HDC or AMREP Southwest being false; and the insolvency or bankruptcy of HDC or AMREP Southwest. Upon the occurrence and during the continuance of an event of default, Main Bank may declare the outstanding principal amount and all other obligations under the HS Loan Documentation immediately due and payable. At July 31, 2018, both HDC and AMREP Southwest were in compliance with the covenants contained within the HS Loan Documentation.

Investing Activities

Capital expenditures for property, plant and equipment totaled $34,000$1,000 for the first quarter of 2019 and $10,0002020, primarily for computer equipment. There were no capital expenditures in the same period of 2018, primarily related to the Company’s fulfillment services business in both periods.2019.

The Company received life insurance proceeds of $85,000 during the first quarter of 2019, which is reflected in the accompanying Consolidated Statement of Cash Flows. The income associated with the life insurance proceeds was recognized in various years prior to the first quarter of 2019.

Statement of Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are “forward-looking”, including statements contained in this report and other filings with the Securities and Exchange Commission, reports to the Company’s shareholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, “forecasts”, “may”, “should”, variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements.

The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company’s expected liquidity sources, (2) the availability of bank financing for projects, (3) the expected utilization of existing bank financing, (4) the effect of recent accounting pronouncements, on the Company,(5) the timing of recognizing unrecognized compensation expense related to shares of restricted common stock issued under the AMREP Corporation 2006 Equity Plans,Compensation Plan or the AMREP Corporation 2016 Equity Compensation Plan, (6) the future issuance of deferred stock units to non-employee membersdirectors of the Company’s Board of Directors, the liability for unrecognized tax benefits changing in the next twelve months, the availability of bank financing for projects, the expected utilization of existing bank financing, the impact and the timing of completion of accounting for the tax effects of the of the U.S. Tax Cuts and Jobs Act on the Company, and(7) the future business conditions that may be experienced by the Company.Company and (8) the recognition of a non-cash pre-tax pension settlement charge in the quarter ending October 31, 2019. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statementsstatement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. As a result of such evaluation, the Company’s chief executive officer and chief financial officer have concluded that such disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure. The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

No change in the Company’s system of internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

PART II. OTHER INFORMATION

The following disclosure would otherwise be filed on Form 8-K under Item 1.01:

Refer to Note 9 to the consolidated financial statements contained in the 2018 Form 10-K for detail about an oil and gas lease with respect to all minerals and mineral rights owned by the Company or for which the Company has executive rights in and under approximately 55,000 surface acres of land in Sandoval County, New Mexico. On September 7, 2018, the oil and gas lease was amended pursuant to a lease extension agreement. The lease extension agreement extends the expiration date of the initial term of the lease from September 2018 to September 2020. No fee was paid by the lessee to the Company with respect to such extension. If lessee or any of its affiliates provides any consideration to obtain, enter into, option, extend or renew an interest in any minerals or mineral rights within Sandoval County, Bernalillo County, Santa Fe County or Valencia County in New Mexico at any time from September 2017 through September 2020, lessee shall pay the Company an amount equal to the amount of such consideration paid per acre multiplied by 54,793.24. The lease extension agreement further provides that the lessee shall assign, or shall cause their affiliate to assign, to the Company an overriding royalty interest of 1% with respect to the proceeds received by the lessee with respect to any minerals or minerals rights presently or hereinafter owned by, leased by, optioned by or otherwise subject to the control of lessee or any of its affiliates in any part of Sandoval County, Bernalillo County, Santa Fe County or Valencia County in New Mexico.

The foregoing description of the lease extension agreement is a summary only and is qualified in all respects by the provisions of the lease extension agreement, a copy of which is attached hereto as Exhibit 10.5 and is incorporated herein by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX