The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.

AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Three
Nine Months Ended JulyJanuary 31, 20192020 and 2018

2019
(Amounts in thousands)

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.

AMREP CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended JulyJanuary 31, 20192020 and 20182019

The accompanying unaudited consolidated financial statements have been prepared by AMREP Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The Company, through its subsidiaries, is primarily engaged in one business segment: the real estate business. The Company has no foreign sales or activities outside the United States. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, these unaudited consolidated financial statements include all adjustments, which are of a normal recurring nature, considered necessary to reflect a fair presentation of the results for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of what may occur in future periods. Unless the context otherwise indicates, all references to 2020 and 2019 are to the fiscal years ending April 30, 2020 and 2019 and all references to the third quarter and first quartersnine months of 2020 and 2019 mean the fiscal three month and nine month periods ended JulyJanuary 31, 20192020 and 2018.2019.

The unaudited consolidated financial statements contained herein should be read in conjunction with the Company’s annual report on Form 10-K for the year ended April 30, 2019, which was filed with the SEC on July 26, 2019 (the “2019 Form 10-K”). Certain 2019 balances in these financial statements have been reclassified to conform to the current year presentation with no effect on net income or loss(loss) or shareholders’ equity.

Summary of Significant Accounting Policies

The significant accounting policies used in preparing these consolidated financial statements are consistent with the accounting policies described in the 2019 Form 10-K, except for those adopted as described below.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,Leases. Since that date, the FASB has issued additional ASUs providing further guidance for lease transactions (collectively “ASU 2016-02”). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. During the first nine months of 2020, right-of-use assets obtained in exchange for operating lease liabilities amounted to $198,000 as a result of adoption of ASU 2016-02. In addition, ASU 2016-02 requires the lessor to recognize fixed lease payments under tenant leases to be recognized on a straight-line basis over the term of the related lease where the Company is lessor.lease. The cumulative difference between lease revenue recognized under the straight-line method and contractual lease payments is recorded within Other assets on the consolidated balance sheets. ASU 2016-02 was effective for the Company on May 1, 2019, with the Company recognizing and measuring leases at the beginning of the earliest period presented using a modified retrospective approach. In the quarter ended July 31, 2019, right-of-use assets obtained in exchange for operating lease liabilities amounted to $198,000 as a result of adoption of ASU 2016-02. The adoption of ASU 2016-02 by the Company did not have a material effect on its consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07,Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-based Payment Accounting. ASU 2018-07 addresses several aspects of the accounting for nonemployee share-based payment transactions, including share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 was effective for the Company on May 1, 2019. The adoption of ASU 2018-07 by the Company had no impact on its consolidated financial statements.

In January 2018, the FASB issued ASU No. 2018-02,Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits but does not require the reclassification to retained earnings of certain tax effects resulting from the U.S. Tax Cuts and Jobs Act related to items in accumulated other comprehensive income. ASU 2018-02 may be applied retrospectively to each period in which the effect of the U.S. Tax Cuts and Jobs Act is recognized or may be applied in the period of adoption. ASU 2018-02 was effective for the Company on May 1, 2019. The Company had no such tax effects andopted not to reclassify items from other comprehensive income to retained earnings, as was permitted by ASU 2018-02; therefore, the adoption of ASU 2018-02 had no impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements to improve the effectiveness of disclosures in the notes to financial statements. ASU 2018-13 will be effective for the Company’s fiscal year beginning May 1, 2020. The Company is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14,Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.ASU 2018-14 removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant for companies with defined benefit retirement plans. ASU 2018-14 will be effective for the Company’s fiscal year beginning May 1, 2020.The Company is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes –Simplifying the Accounting for Income Taxes, which removes certain exceptions for companies related to tax allocations and simplifies when companies recognize deferred tax liabilities in an interim period. ASU 2019-12 will be effective for the Company’s fiscal year beginning May 1, 2021. The Company is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

Refer to Note 2 to the consolidated financial statements contained in the 2019 Form 10-K for detail about the sale in 2019 of the Company’s fulfillment services business reported as discontinued operations in the accompanying financial statements. The following table provides a reconciliation of the carrying amounts of components of pretax income of the discontinued operations to the amounts reported in the accompanying consolidated statements of operations:

Refer to Note 11 for detail about a settlement agreement entered into in February 2020 with the Company’s former fulfillment services business and its buyer.

TheAs of April 30, 2019, the Company has entered intowas subject to two Subdivision Improvement Agreements with the City of Rio Rancho, New Mexico. In connection with these agreements, the Company hashad 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 willwould be cancelled and the related restricted funds willwould be returned to the Company’s general cash.

During the threefirst nine months ended July 31, 2019,of 2020, $664,000 of cash was released from restrictions under the Subdivision Improvement Agreements. The total amount of restricted funds at JulyJanuary 31, 20192020 was $305,000 and at April 30, 2019 was $969,000.

The following provides a reconciliation of the Company’s cash and cash equivalents and restricted cash as reported in the consolidated balance sheets to the amountamounts reported in the statement of cash flows for the three month period ending July 31, 2019:flows:

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. Construction in process relates to construction costs of a single tenant retail building in the Las Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico. Refer to Note 7 for detail about financing of these construction costs.

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 expiresscheduled to expire in 2029. Refer to Note 11 for detail about a settlement agreement entered into in February 2020 with the third party lessee. Depreciation associated with the warehouse and office facilities was $366,000 and $367,000 for the first nine months of $122,0002020 and 2019 and $87,000 and $122,000 was charged to operations for the three months ended July 31, 2019third quarters of 2020 and July 31, 2018.2019.

Other assets consist of:

The Company recognized deferred purchase price upon the sale of the Company’s fulfillment services business in April 2019. The deferred purchase price is being amortized over the lease term of(scheduled to expire in 2029) with respect to the two lease agreements,warehouse and office facilities included in investment assets, net, with $52,000$159,000 of tenant lease payments reducing the deferred purchase price for the threefirst nine months ended July 31, 2019. of 2020. Refer to Note 11 for detail about a settlement agreement entered into in February 2020 with the Company’s former fulfillment services business and its buyer regarding these warehouse and office facilities.

Prepaid expenses and other, net includes property and equipment for which there was $4,000 charged to$13,000 of depreciation expense forduring the threefirst nine months ended July 31,of 2020 and 2019 and July 31, 2018.$4,000 of depreciation during the third quarters of 2020 and 2019. Right-of-use assets associated with the Company’s leases amount to $175,000,of the Plymouth Meeting, PA and Rio Rancho, NM office facilities were $135,000 as of January 31, 2020, net of $23,000$80,000 of depreciation expense charged during the threefirst nine months ended July 31, 2019.of 2020 which included $28,000 of depreciation during the third quarter of 2020.

Accounts payable and accrued expenses consist of:

As of JulyJanuary 31, 2019,2020, accounts payable and accrued expenses for the Company’s real estate business included accrued expenses of $439,000,$417,000, trade payables of $590,000,$1,251,000, real estate customer deposits of $1,317,000$1,252,000 and other of $45,000.$36,000. As of April 30, 2019, accounts payable and accrued expenses for the Company’s real estate business included accrued expenses of $491,000, trade payables of $652,000, real estate customer deposits of $1,198,000 and other of $18,000.

Notes payable, net consist of:

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 Main Bank in July 2018 with respect to the development of certain planned residential lots within the HawksiteHawk Site 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 duringDuring the three months ended JulyOctober 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 to 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. The Company made principal repayments related to this loan of $1,203,000 during the first nine months of 2020.

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 located in Rio Rancho, New Mexico. The Company made principal repayments of $182,000 duringDuring the three months ended July 31, 2019. The Company capitalized $4,000 and $26,000 of interest related to this loan in the three months ended July 31, 2019 and July 31, 2018. In June 2019, the outstanding principal amount of the loan was fully repaid and the loan was terminated. The Company made principal repayments related to this loan of $182,000 during the first nine months of 2020. The Company capitalized $4,000 and $18,000 of interest related to this loan in the first nine months of 2020 and 2019.

Refer to Note 15 to the consolidated financial statements contained in the 2019 Form 10-K for detail about the loan agreement entered into with BoABQ in June 2019 with respect to the development of certain planned residential lots within the Lomas Encantadas subdivision located in Rio Rancho, New Mexico. The outstanding principal amount of the loan as of JulyJanuary 31, 20192020 was $28,000$965,000 and the Company made no principal repayments related to this loan during the threefirst nine months ended July 31, 2019.of 2020. The total book value of the property within the Lomas Encantadas subdivision mortgaged to BoABQ under this loan was $922,000$2,495,000 as of JulyJanuary 31, 2019.2020. The interest rate on the loan at JulyJanuary 31, 20192020 was 5.39%4.66%. The Company capitalized less than $1,000 of interest related to this loan of $5,000 in the threethird quarter of 2020 and $8,000 in the first nine months ended July 31, 2019. At July 31, 2019,of 2020.

In January 2020, Las Fuentes Village II, LLC (“LFV”), a subsidiary of the Company, wasentered into a Loan Agreement with BoABQ. The Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note and is secured by a Mortgage, Security Agreement and Financing Statement, between LFV and BoABQ with respect to the construction of an approximately 14,000 square foot, single tenant retail building on an approximately 1.3 acre property owned by LFV in compliance with the financial covenants contained withinLas Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico (the “Mortgaged Property”). Pursuant to a Limited Guaranty Agreement entered into by AMREP Southwest Inc. (“ASW”), a subsidiary of the loan documentation.Company, in favor of BoABQ, ASW has guaranteed LFV’s obligations under each of the above agreements.

Other revenues were $44,000$696,000 for the three months ended July 31, 2019third quarter of 2020 and $57,000$5,000 for the threethird quarter of 2019. Other revenues were $927,000 for the first nine months ended July 31, 2018of 2020 and primarily consisted$315,000 for the first nine months of 2019. Other revenues for the third quarter of 2020 and the first nine months of 2020 included $499,000 of royalties received during the third quarter of 2020 from oil and gas production for the period March 2019 through November 2019 by a third party lessee with respect to the Company’s mineral rights in Brighton, Colorado. Additional other revenue resulted from forfeited deposits and amortization of deferred revenue.

Pension Plan

Refer to Note 10 to the consolidated financial statements contained in the 2019 Form 10-K for detail regarding the Company’s defined benefit pension plan. 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$77,000 and $157,000 for the three months ended July 31,third quarters of 2020 and 2019, and July 31, 2018,$2,378,000 and $471,000 for the first nine months of 2020 and 2019 related to the amortization of the plan’s unrecognized net loss included in Accumulatedaccumulated 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 anymade voluntary contributions to the pension plan of $3,600,000 during the threefirst nine months ended July 31, 2019 or July 31, 2018.

Inof 2020 and $2,000,000 during the quarter ended July 31, 2019,first nine months of 2019. No contributions to the pension plan were made by the Company initiated a limited offerduring the third quarter of 2020 or 2019. Refer to Note 10 to the consolidated financial statements contained in the 2019 Form 10-K for certain former employees with vested benefits indetail regarding the acceleration of the funding of $5,194,000 of accrued pension-related obligations to the Company’s defined benefit pension plan and the Company’s election to electsatisfy this accelerated funding obligation over a period of seven years beginning in fiscal year 2021. Notwithstanding such election, the contribution to receive a lump sum payout of their pension benefit. The Company completed these lump sum payments from the pension plan in September 2019of $3,600,000 during 2020 eliminated any requirement for the Company to 309 former employees for approximately $7,200,000. further satisfy the $5,194,000 of accelerated accrued pension-related obligations to the pension plan.

The Company expects to recognizerecognized a non-cash pre-tax pension settlement charge of $2,929,000 in the first nine months of 2020, due to the Company’s defined benefit pension plan paying an aggregate of $7,280,000 in lump sum payouts of pension benefits to certain former employees. No pension settlement charge was recognized in the third quarter ending October 31, 2019 of approximately $2,960,000.2020.

Equity Compensation Plan

Refer to Note 10 to the consolidated financial statements contained in the 2019 Form 10-K for 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 threefirst nine months ended July 31, 2019of 2020 and July 31, 2018.2019. During the threefirst nine months ended July 31,of 2020 and 2019, and July 31, 2018, 10,00014,833 shares and 8,75016,583 shares of restricted common stock previously issued under the Equity Plans vested. No shares vested during the third quarter of 2020 or 2019. As of JulyJanuary 31, 2020 and January 31, 2019, and July 31, 2018, 41,66736,834 shares and 55,20047,367 shares of restricted common stock previously issued under the Equity Plans had not vested. For the threefirst nine months ended July 31,of 2020 and 2019, and July 31, 2018, the Company recognized $25,000$83,000 and $25,000$113,000 of non-cash compensation expense related to the vesting of restricted shares of common stock. As of JulyJanuary 31, 2020 and January 31, 2019, and July 31, 2018, there was $164,000$105,000 and $248,000$201,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the Equity Plans whichthat had not vested as of those dates, which is expected to be recognized over the remaining vesting term not to exceed three years. In addition,

On the last trading day of calendar year 2019, each non-employee member of the Company’s Board of Directors was issued the number of deferred common share units of the Company under the 2016 Equity Plan equal to $25,000 divided by the closing price per share of common stock reported on the New York Stock Exchange on such date. Based on the closing price per share of $5.98 on December 31, 2019, the Company issued a total of 16,720 deferred common share units to members of the Company’s Board of Directors. Director compensation expense is recognized $23,000for the annual grant of expensedeferred common share units ratably over the director’s service in office during the threecalendar year. The Company recognized $30,000 and $83,000 of non-cash director fee compensation during the third quarter and first nine months ended July 31, 2019of 2020 related to deferred stockcommon share units issued to non-employee members of the Company’s Board of Directors on December 31, 2019 and expected to be issued to non-employee members of the Company’s Board of Directors in December 2020. The Company recognized $20,000 and $60,000 of non-cash director fee compensation during the third quarter and first nine months of 2019.

Interest income, net consists of:

Loan Agreement with Sandia Laboratory Federal Credit Union

In February 2020, Mountain Hawk East Development Company LLC (“MHEDC”), a subsidiary of the Company, entered into a Business Loan Agreement with Sandia Laboratory Federal Credit Union (“SLFCU”). The Business Loan Agreement is evidenced by a Promissory Note, and is secured by a Line of Credit Mortgage, between MHEDC and SLFCU, with respect to certain planned residential lots within the Hawk Site subdivision located in Rio Rancho, New Mexico. Pursuant to a Commercial Guaranty entered into by ASW in favor of SLFCU, ASW has guaranteed MHEDC’s obligations under each of the above agreements.

Settlement Agreement

Refer to Note 2 to the consolidated financial statements contained in the 2019 Form 10-K for detail regarding the following agreements: the membership interest purchase agreement, dated as of April 26, 2019, between Palm Coast Data Holdco, Inc. (“Seller”) and Studio Membership Services, LLC (“Buyer”); the triple net lease agreement, dated as of April 26, 2019 (the “2 Commerce Lease Agreement”), between Palm Coast Data LLC (“PCD”) and Two Commerce LLC (“TC”), pursuant to which PCD leases from TC a 61,000 square foot facility located at 2 Commerce Boulevard, Palm Coast, Florida (the “2 Commerce Property”); and the triple net lease agreement, dated as of April 26, 2019 (the “11 Commerce Lease Agreement”), between PCD and Commerce Blvd Holdings, LLC (“CBH”), pursuant to which PCD leases from CBH a 143,000 square foot facility located at 11 Commerce Boulevard, Palm Coast, Florida (the “11 Commerce Property”). Seller, TC and CBH are subsidiaries of the Company.

On December 19, 2019, each of TC and CBH filed a complaint in the Circuit Court of the Seventh Judicial District in and for Flagler County, Florida against PCD and the guarantors under the 2 Commerce Lease Agreement and the 11 Commerce Lease Agreement. Each complaint included claims for damages and for the eviction of PCD from the 2 Commerce Property and the 11 Commerce Property. In connection with such lawsuits, PCD and the guarantors raised certain claims against the Company and certain of its subsidiaries, including with respect to the Purchase Agreement, the 2 Commerce Lease Agreement and the 11 Commerce Lease Agreement. The Company discontinued recognizing rent revenues for a portion of the third quarter of 2020 due to the collection uncertainty associated with this complaint.

In February 2020, Seller, Buyer and PCD entered into a settlement agreement (the “Settlement Agreement”) pursuant to which Seller, Buyer and PCD agreed to settle the outstanding claims among the parties in accordance with the following terms:

o    The 2 Commerce Lease Agreement will be amended to provide that (a) TC will be responsible for paying 2019 property taxes for the 2 Commerce Property and (b) beginning June 1, 2020, PCD will pay TC on the first day of each month all lease payments due and payable under the lease and 1/12th of the estimated annual property taxes for the 2 Commerce Property for 2020 and future years.

o    The 11 Commerce Lease Agreement will be amended to provide that (a) CBH will be responsible for paying 2019 property taxes for the 11 Commerce Property and (b) beginning April 1, 2020, PCD will pay CBH on the first day of each month all lease payments due and payable under the lease and 1/12th of the estimated annual property taxes for the 11 Commerce Property for 2020 and future years.

o    Contribution and Loan. At the closing of the purchase of the 11 Commerce Property pursuant to the Purchase Agreement and if all Settlement Payments have been timely received by Seller, (1) Seller will contribute $900,000 in cash to Property Purchaser to be credited against the cash portion of the purchase price to be provided by the Property Purchaser under the Purchase Agreement and (2) CBH will loan PCD $300,000 in cash which will be evidenced by a promissory note with an interest rate of the Wall Street Journal Prime Rate plus 5.0%, monthly interest-only payments during the term and a maturity date of October 31, 2020 and will be secured by a third lien mortgage on the 11 Commerce Property.

o     Amendment of Lease. At the closing of the purchase of the 11 Commerce Property pursuant to the Purchase Agreement, the 2 Commerce Lease Agreement will be further amended to provide (1) that base rent will be $545,470 per year, (2) an expiration date as of the last day of the month that is 6 months following the closing date of the purchase of the 11 Commerce Property; provided that, PCD may terminate the 2 Commerce Lease Agreement effective on the last day of any month prior to the new expiration date by providing TC written notice electing such termination 30 days in advance of such effective date and (3) all amounts due under the 2 Commerce Lease Agreement will be secured by a fourth lien mortgage on the 11 Commerce Property.

o     Forgiveness of Debt. If there have been no defaults by Buyer, PCD and each of their affiliates under the Settlement Agreement (including exhibits) through November 1, 2021, CBH will forgive $400,000 of the principal amount of the Purchase Note as of November 1, 2021.

INTRODUCTION

AMREP Corporation (the “Company”), through its subsidiaries, is primarily engaged in one business segment: the real estate business. The Company has no foreign sales or activities 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, 2019, which was filed with the Securities and Exchange Commission on July 26, 2019 (the “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 2020 and 2019 are to the fiscal years ending April 30, 2020 and 2019 and all references to the third quarter and first quartersnine months of 2020 and 2019 mean the fiscal three month and nine month periods ended JulyJanuary 31, 20192020 and 20182019.

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 2019 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 2019 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 2019 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 2019 Form 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 2019 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 threethird quarter of 2020 or the first nine months ended July 31, 2019of 2020 that had a material impact on its consolidated financial statements.

The Company adopted the following accounting policies effective May 1, 2019:

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 third quarter of 2020, the Company recorded net income of $338,000, or $0.04 per share, compared to a net loss of $32,000, or $0.00 per share, for the third quarter of 2019. For the first quarternine months of 2020, the Company recorded a net loss of $196,000,$2,027,000, or $0.02$0.25 per share, compared to net income of $61,000,$84,000, or $0.01 per share, for the first quarternine months of 2019. Results from 2020 consisted entirely of continuing operations. For the firstthird quarter of 2019, results consisted of (i) a net loss from continuing operations of $662,000,$1,455,000, or $0.08$0.18 per share and (ii) net income from discontinued operations of $723,000,$1,423,000, or $0.09$0.18 per share. A discussion of continuing operations follows.

Continuing Operations

Revenues were $4,767,000$5,287,000 and $14,014,000 for the third quarter and first quarternine months of 2020 compared to $4,238,000$2,381,000 and $9,239,000 for the same periodperiods of 2019.

Revenues from land sales were $4,382,000$4,477,000 and $12,291,000 for the third quarter and first quarternine months of 2020 compared to $4,181,000$2,376,000 and $8,924,000 for the same periodperiods of 2019. Revenues from land sales for the third quarter and first nine months of 2020 included revenue of $665,000 from the sale of two undeveloped properties in Palm Coast, Florida. For the third quarter and first quarternine months of 2020 and 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 17%19% and 18% for the third quarter and first quarternine months of 2020 compared to 11%17% and 12% for the same periodperiods of 2019. The profit percentage increase is attributable to the demand for lots by builders.builders resulting in higher revenue per developed lot. 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.

Rent revenues were $341,000$114,000 and $796,000 for the third quarter and first quarternine months 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 business. The Company discontinued recognizing rent revenues for a portion of the third quarter of 2020. Refer to Note 11 of the notes to the consolidated financial statements included in this report on Form 10-Q for detail about a settlement agreement entered into in February 2020 with the Company’s former fulfillment services business and its buyer.

Other revenues were $44,000$696,000 for the firstthird quarter of 2020 compared to $57,000and $5,000 for the same periodthird quarter of 2019. Other revenues included fees and forfeited deposits from customers and,were $927,000 for the first nine months of 2020 and $315,000 for the first nine months of 2019. Other revenues for the third quarter of 2019,2020 and the recognitionfirst nine months of $57,0002020 included $499,000 of deferred revenue related to anroyalties received during the third quarter of 2020 from oil and gas lease.production for the period March 2019 through November 2019 by a third party lessee with respect to the Company’s mineral rights in Brighton, Colorado. Additional other revenue resulted from forfeited deposits and amortization of deferred revenue.

Operating expenses for real estate increased from $276,000$258,000 and $779,000 for the third quarter and first quarternine months of 2019 to $559,000$471,000 and $1,473,000 for the same periodperiods of 2020, primarily due to increased employee hiring, bonuses, new allocations of certain employee costs to operatingpreviously classified as corporate general and administrative expenses, increased accruals for real estate taxes and increased health care benefits costs.

Real estate general and administrative expenses decreased from $188,000$111,000 for the firstthird quarter of 2019 to $113,000$93,000 for the same period of 2020, primarily due to reduced professional fees related to abandoned transactions. Real estate general and administrative expenses decreased from $415,000 in the first nine months of 2019 to $365,000 for the same period of 2020, primarily due to a decrease in legal and other professional fees. Corporate general and administrative expenses decreased from $927,000$811,000 and $2,604,000 for the third quarter and first quarternine months of 2019 to $894,000$494,000 and $1,978,000 for the same periodperiods of 2020, primarily due to new allocations of certain employee costs to operating expenses for real estate, reduced corporate headcount and lower travel and legal expenses. Refer to Note 11 of the notes to the consolidated financial statements included in this report on Form 10-Q for detail about a settlement agreement entered into in February 2020 with the Company’s former fulfillment services business and its buyer. The reduced corporate general and administrative expenses were partly offset by increased real estate taxes of $151,000 which the Company agreed to pay under the settlement agreement.

Interest income, net increased from $28,000$36,000 and $103,000 for the third quarter and first quarternine months of 2019 to $124,000$58,000 and $323,000 for the same periodperiods of 2020, primarily due to managementinvestment of excess funds in higher yielding savings accounts, interest earned in 2020 on the deferred purchase price related to the sale of the Company’s fulfillment services business and a reduction in interest expense. Beginning in December 2019, the Company discontinued recognizing interest from deferred revenue that originated from the sale of the Company’s fulfillment services business in April 2019. Refer to Note 11 of the notes to the consolidated financial statements included in this report on Form 10-Q for detail about a settlement agreement entered into in February 2020 with the Company’s former fulfillment services business and its buyer. The Company recognized interest from deferred revenue of $31,000 and $191,000 for the third quarter and first nine months of 2020.

The Company recognized a non-cash pre-tax pension settlement charge of $2,929,000 in the first nine months of 2020, due to the Company’s defined benefit pension plan paying an aggregate of $7,280,000 in lump sum payouts of pension benefits to certain former employees during the three months ended October 31, 2019. There were no such charges in the third quarter of 2020 or 2019 or in the first nine months of 2019.

The Company had a benefitprovision for income taxes of $134,000$396,000 in connection with a $330,000 loss$734,000 of income from continuing operations before income taxes for the firstthird quarter of 2020, as compared to a benefitprovision for income taxes of $194,000$730,000 in connection with an $856,000a $725,000 loss from continuing operations before income taxes for the same period of 2019. The Company had a benefit from income taxes of $360,000 in connection with a $2,387,000 loss from continuing operations before income taxes for the first nine months of 2020, as compared to a provision for income taxes included expenses related to federalof $385,000 in connection with a $2,311,000 loss from continuing operations before income tax as well as the net tax benefits related to state operating losses. The changetaxes in the same period of 2019. The difference between the statutory rate and the effective rate of the tax rate inbenefit for the third quarter and the first quarternine months of 2020 was primarily due to adjustments resulting from the first quarterfinalization of the 2019 was duetax return when compared to the effect of discontinued operations.

In the quarter ended July 31,April 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.year-end tax provision.

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 industry 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 2019 Form 10-K.

Operating Activities

Real estate inventory decreased from $57,773,000 at April 30, 2019 to $55,515,000$54,084,000 at JulyJanuary 31, 2019,2020, primarily due to real estate land sales, which were offset in part by an increase in land development activity. Investment assets, net decreasedincreased from $17,227,000 at April 30, 2019 to $17,108,000$17,658,000 at JulyJanuary 31, 2019,2020, primarily due to capitalization of costs related to the construction of a single tenant retail building, offset in part by the sale of investment land and depreciation.

Accounts payable and accrued expenses increased from $2,964,000 at April 30, 2019 to $3,009,000$3,451,000 at JulyJanuary 31, 2019,2020, primarily due to new accounting forincreased construction activity plus accrual of additional lease liabilities at JulyJanuary 31, 2019,2020, offset partiallypartly by a reduction incosts associated with forfeited builder deposits in connection with sales activity. Trade accounts payable also declined as construction activity was slower during the period.third quarter of 2020.

Accrued pension costs decreased from $6,401,000 at April 30, 2019 to $2,527,000 at January 31, 2020, primarily due to a voluntary contribution of $3,600,000 to the Company’s defined benefit pension plan. Refer to Note 10 to the consolidated financial statements contained in the 2019 Form 10-K for detail regarding the acceleration of the funding of $5,194,000 of accrued pension-related obligations to the Company’s defined benefit pension plan and the Company’s election to satisfy this accelerated funding obligation over a period of seven years beginning in fiscal year 2021. Notwithstanding such election, the contribution to the pension plan of $3,600,000 during 2020 eliminated any requirement for the Company to further satisfy the $5,194,000 of accelerated accrued pension-related obligations to the pension plan.

Refer to Note 11 of the notes to the consolidated financial statements included in this report on Form 10-Q for detail about a settlement agreement entered into in February 2020 with the Company’s former fulfillment services business and its buyer and with respect to real property owned by the Company in Palm Coast, Florida.

Financing Activities

Notes payable, net decreased from $1,319,000 at April 30, 2019 to $842,000$982,000 at JulyJanuary 31, 2019,2020, primarily due to repayments in excess of new borrowings made on financings for land development activity. The Company’s financing arrangements in effect during the first quarter of 2020 are described below:

Investing Activities

Capital expenditures totaled $1,000 forincreased from $4,000 in the first quarternine months of 2020, primarily2019 to $18,000 for computer equipment. There were no capital expenditures in the same period of 2019.2020, primarily due to an increase in the purchase of computer equipment.

The Company received life insurance proceeds of $85,000 during the first quarternine months 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 firstthird 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, (5) the timing of recognizing unrecognized compensation expense related to shares of common stock issued under the AMREP Corporation 2006 Equity Compensation Plan or the AMREP Corporation 2016 Equity Compensation Plan, (6) the future issuance of deferred stock units to directors of the Company, (7) the future business conditions that may be experienced by the Company, and (8) the recognitiontiming and amount of a non-cash pre-tax pensionany payments contemplated by the settlement chargeagreement (including exhibits) entered into in February 2020 with the quarter ending October 31, 2019.Company’s former fulfillment services business and its buyer, (9) whether any provision or agreement of such settlement agreement (including exhibits) becomes effective and (10) the expected source of cash for the closing of the purchase of the 11 Commerce Property pursuant to the Purchase Agreement. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement 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

Refer to Note 2 to the consolidated financial statements contained in the annual report on Form 10-K for the year ended April 30, 2019 of the Company, which was filed with the Securities and Exchange Commission on July 26, 2019, for detail regarding the following agreements: the triple net lease agreement, dated as of April 26, 2019 (the “2 Commerce Lease Agreement”), between Palm Coast Data LLC (“PCD”) and Two Commerce LLC (“TC”), pursuant to which PCD leases from TC a 61,000 square foot facility located at 2 Commerce Boulevard, Palm Coast, Florida; and the triple net lease agreement, dated as of April 26, 2019 (the “11 Commerce Lease Agreement”), between PCD and Commerce Blvd Holdings, LLC (“CBH”), pursuant to which PCD leases from CBH a 143,000 square foot facility located at 11 Commerce Boulevard, Palm Coast, Florida. TC and CBH are subsidiaries of the Company.

On December 19, 2019, each of TC and CBH filed a complaint in the Circuit Court of the Seventh Judicial District in and for Flagler County, Florida against PCDLLC. Each complaint included claims for damages and for the eviction of PCDLLC from the leased properties as a result of PCDLLC’s failure to pay rent required under the 2 Commerce Lease Agreement and the 11 Commerce Lease Agreement. Refer to Note 11 of the notes to the consolidated financial statements included in this report on Form 10-Q for detail about a settlement agreement entered into in February 2020 to resolve this litigation.

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.

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