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)

ThreeNine Months Ended JulyJanuary 31, 20172018 and 20162017

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 two business segments: 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. The Company’s foreign sales are insignificant. 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 otherwise qualified, all references to 2018 and 2017 are to the fiscal years ending April 30, 2018 and 2017 and all references to the firstthird quarter and first threenine months of 2018 and 2017 mean the fiscal three month and nine month periods ended JulyJanuary 31, 20172018 and 2016.2017.

The unaudited consolidated financial statements herein should be read in conjunction with the Company’s annual report on Form 10-K for the year ended April 30, 2017, which was filed with the SEC on July 18, 2017 (the “2017 Form 10-K”). Certain 2017 balances in these financial statements have been reclassified to conform to the current year presentation with no effect on theeither net income or loss or shareholders’ equity.

Recently Issued Accounting Pronouncements

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 may be required under Topic 606 than are currently required under generally accepted accounting principles. The two permitted transition methods under Topic 606 are (i) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or (ii) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of adoption. The Company intends to use the modified retrospective transition method upon adoption. In August 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the required adoption date until May 1, 2018 for the Company, although an earlier adoption is permitted. The Company does not intend to early adopt Topic 606.

The Company is currently evaluatinghas established an implementation team to evaluate the impact of Topic 606 on the Company’s accounting policies, processes and system requirements, as well as its consolidated financial statements. The Company is also evaluating the transition method it will select upon adoption. Depending on the results of the evaluation, there could be changes to the timing of recognition of revenues and related costs. As theThe Company considers itself to be in the initial stages ofcontinues its evaluation of the impact of Topic 606,606. As of January 31, 2018, the Company doeshad not know and cannot reasonablydetermined a reasonable estimate quantitative information related toof the impact of these new ASUs on its consolidated financial statements, including the effect on the Company’s operating results.results, if any. The implementation team has reported the progress and status of its evaluation to the Audit Committee of the Company’s Board of Directors.

In February 2016, the FASB issued ASU No. 2016-02,Leases. 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 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. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU will be effective for the Company for fiscal year 2020 beginning on May 1, 2019. The Company has not yet concluded how the new standard will impact its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09,Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for the Company’s fiscal year 2018 beginning May 1, 2017, including interim periods within that fiscal year. The adoption of ASU 2016-09 by the Company did not have a material effect on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The purpose of ASU 2016-15 is to reduce the diversity in practice regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for the Company’s fiscal year 2019 beginning May 1, 2018. Early adoption is permitted, but the Company does not expect to early adopt ASU 2016-15. A retrospective transition method is to be used in the application of this amendment. The adoption of ASU 2016-15 by the Company is not expected to have a material effect on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09,Stock Compensation – Scope of Modification Accounting, guidance that clarifies that all changes to share-based payment awards are not necessarily accounted for as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions or the classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for the Company’s fiscal year 2019 beginning May 1, 2018, including interim periods within those periods, with early adoption permitted. Since inception of the Company’s share-based payment awards, there have been no modifications of the awards issued, including for the quarter ended July 31, 2017. The Company will account for future modifications, if any, on a prospective basis. As such, the Company has early adopted ASU 2017-09 without a material impact on its consolidated financial statements.

Receivables, net consist of:

During the first quarternine months of 2018, revenues from one major customer of the Company’s fulfillment services business totaled $1,081,000$3,189,000 or approximately 10%10.3% of total revenues for the Company. As of JulyJanuary 31, 2017,2018, the Company’s fulfillment services business had $713,000$682,000 of outstanding accounts receivable from this customer, which was reducedcollected in full by collections to $360,000 by September 11, 2017.March 16, 2018. This customer has given the Company’s fulfillment services business notice that a significant portion of its business will be transferred from Palm Coast duringat the end of 2018.

Property, plant and equipment, net consist of:

Depreciation of property, plant and equipment charged to operations was $321,000$319,000 and $360,000$954,000 for the three and nine month periods ended JulyJanuary 31, 20172018 and 2016.$341,000 and $1,051,000 for the three and nine month periods ended January 31, 2017.

Other assets consist of:

Deferred order entry costs represent costs incurred in connection with the data entry of customer subscription information to database files and are charged directly to operations generally over a twelve month period.

Accounts payable and accrued expenses consist of:

The JulyFulfillment Services: As of January 31, 20172018, the accounts payable and accrued expenses total for the Company’s fulfillment services business included customer postage deposits of $3,112,000,$3,362,000, accrued expenses of $1,494,000,$496,000, trade payables of $631,000$443,000 and other of $1,252,000. The$1,119,000. As of April 30, 2017, the accounts payable and accrued expenses total for the Company’s fulfillment services business included customer postage deposits of $3,178,000, accrued expenses of $1,669,000,$488,000, trade payables of $619,000$617,000 and other of $1,569,000.$1,354,000.

Real Estate: As of January 31, 2018, the accounts payable and accrued expenses total for the Company’s real estate business included accrued expenses of $900,000, trade payables of $1,961,000, real estate customer deposits of $490,000 and other of $5,000. As of April 30, 2017, the accounts payable and accrued expenses total for the Company’s real estate business included accrued expenses of $967,000, trade payables of $0, real estate customer deposits of $155,000 and other of $16,000.

Notes payable consist of:

During December 2017, Lomas Encantadas Development Company LLC (“LEDC”), an indirect subsidiary of AMREP Corporation, entered into a Development Loan Agreement with BOKF, NA dba Bank of Albuquerque (“Lender”). The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note, dated December 18, 2017, and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and Lender, dated November 16, 2017, with respect to 343 planned residential lots within the Lomas Encantadas subdivision (the “Mortgaged Property”) located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement, dated December 18, 2017, entered into by AMREP Southwest in favor of Lender, AMREP Southwest has guaranteed LEDC’s obligations under each of the above agreements. The Development Loan Agreement, Non-Revolving Line of Credit Promissory Note, Mortgage, Security Agreement and Financing Statement, Guaranty Agreement and other related transaction documents are collectively referred to as the “Loan Documentation.”

Pursuant to the Loan Documentation, Lender agrees to lend up to $4,750,000 to LEDC on a non-revolving line of credit basis to partially fund the development of the Mortgaged Property. LEDC expects to fully utilize the $4,750,000 for its land development activities. Interest on the outstanding principal amount of the loan is payable monthly 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. Lender is required to release the lien of its mortgage on any lot included in the Mortgaged Property upon LEDC making a principal payment of $43,000 or $53,000 depending on the location of the lot. LEDC is required to make periodic principal repayments to the extent not previously paid as follows: $1,370,000 on or before August 18, 2019, $599,000 on or before November 18, 2019, $599,000 on or before February 18, 2020, $599,000 on or before May 18, 2020, $599,000 on or before August 18, 2020 and $599,000 on or before November 18, 2020. The outstanding principal amount of the loan as of January 31, 2018 was $638,000. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature on December 18, 2021. LEDC incurred certain customary costs and expenses and paid certain fees to Lender in connection with the loan.

LEDC and AMREP Southwest have made certain representations and warranties in the Loan Documentation and are required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The Loan Documentation contains customary events of default for similar financing transactions, including: LEDC’s failure to make principal, interest or other payments when due; the failure of LEDC or AMREP Southwest to observe or perform their respective covenants under the Loan Documentation; the representations and warranties of LEDC or AMREP Southwest being false; the insolvency or bankruptcy of LEDC or AMREP Southwest; and the failure of AMREP Southwest to maintain a tangible net worth of at least $35 million. Upon the occurrence and during the continuance of an event of default, Lender may declare the outstanding principal amount and all other obligations under the Loan Documentation immediately due and payable. At January 31, 2018, both LEDC and AMREP Southwest were in compliance with the covenants contained within the Loan Documentation.

Other revenues for the third quarter and first nine months of 2018 and 2017 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 2017 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 resultIn June 2009, Palm Coast received $3,000,000 pursuant to an agreement with the State of Florida (the “Award Agreement”) as part of the settlement agreement,incentives made available in connection with the consolidation of the Company’s fulfillment services operations at its Palm Coast, Florida location. The Award Agreement included certain performance requirements in terms of job retention, job creation and capital investment which, if not met by Palm Coast, entitled the State of Florida to obtain the return of a portion, or all, of the $3,000,000. Palm Coast had not met certain of the performance requirements in the Award Agreement. During the first quarter of 2018, Palm Coast entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the State of Florida. Pursuant to the Settlement Agreement, (1) the Award Agreement was terminated, (2) each of the parties released all claims relating to the Award Agreement that the releasing party may have had against the other party and (3) Palm Coast agreed to pay the State of Florida $1,763,000 as follows: (a) $163,000 during the first quarter of 2018 and (b) 40 quarterly payments of $40,000 each, without interest, on the first business day of each calendar quarter starting on October 1, 2017 and ending on July 1, 2027. Palm Coast timely paid the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, leaving a balance owed to the State of Florida of $1,520,000 as of January 31, 2018.

In the Company’s consolidated financial statements and as a result of entering into the Settlement Agreement, Palm Coast reduced its previously recorded liability of $3,000,000 and a related $26,000 interest accrual by $1,620,000 to $1,406,000 by recognizing a pre-tax gain of $1,318,000 and recording deferred revenue of $302,000. The $1,318,000 pre-tax gain was determined based on depreciation previously taken on assets acquired with Award Agreement funds that were retained by Palm Coast and was recognized in Other revenues during the first nine months of 2018. The $302,000 deferred revenue will be recognized over the remaining life of these assets (approximately seven years from January 31, 2018), with $61,000 having been recognized during the first nine months of 2018 resulting in a deferred gainrevenue balance of $302,000. In connection with the settlement, Palm Coast made$241,000 as of January 31, 2018. As a paymentresult of $163,000 topaying the State of Florida $163,000 during the first quarter of 2018, thereby reducing its remaining liability to $1,243,000. The $1,318,000 pre-tax gain is included in Other revenues in the accompanying financial statements. The deferred gain of $302,000 was reduced to $282,000$40,000 during the firstsecond quarter of 2018 and $40,000 during the third quarter of 2018, Palm Coast recognized $41,000 of imputed interest expense and reduced its remaining balance sheet liability of $1,406,000 as of the date of the Settlement Agreement to $1,204,000 as of January 31, 2018. These balance sheet liability numbers are less than the amounts owed to the State of Florida of $1,763,000 as of the date of the Settlement Agreement and $1,520,000 as of January 31, 2018 because they have been adjusted to reflect the present values of these deferred non-interest bearing obligations. In February 2018, the Company, Palm Coast and the State of Florida entered into an agreement with respect to the $20,000 reduction being a non-cash credit to operating expenses. The remaining deferred gain of $282,000 will be recognized over a period of approximately eight years from July 31, 2017.payment obligations under the Settlement Agreement (see Note 10).

In addition, refer to Note 10 to the consolidated financial statements contained in the 2017 Form 10-K for detail about the Oil and Gas Lease and the Addendum thereto with Thrust Energy, Inc. and Cebolla Roja, LLC. No royalties under the Lease were received during the first quarternine months of 2018. Revenue from this transaction is being recorded over the lease term and approximately $57,000 and $171,000 was recognized during the third quarter and first quarternine months of each of 2018 and 2017. At JulyJanuary 31, 2017,2018, there was $246,000approximately $133,000 of deferred revenue remaining to be recognized before the end of the lease term in future periods.September 2018.

During the first quarter of 2017, a subsidiary of AMREP Southwest sold a single tenant retail commercial building in Rio Rancho, New Mexico, which resulted in a pre-tax gain of $1,496,000 that was includedrecognized in Other revenues for that quarter.

Other revenues forduring the first quarternine months of 2018 and 2017 consist of:2018.

Retirement plan

The Company has a defined benefit retirement plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. The Company has secured $4,535,000 of accrued pension-related obligations with first lien mortgages on certain real property in favor of the Pension Benefit Guaranty Corporation (the “PBGC”). 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 firstthird quarter of 2018, 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.

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 (loss) net of the related deferred income tax effect. The Company recognized other comprehensive income of $225,000 and $674,000 for the three and nine months ended January 31, 2018, and $248,000 and $746,000 for the same periods of 2017, related to the amortization of the plan’s unrecognized net loss included in the Accumulated other comprehensive loss, net in the accompanying financial statements.

The Company funds the pension plan in compliance with IRS funding requirements. The Company contributed $1,040,000 to the pension plan during the nine months ended January 31, 2018 and none for the same period of 2017.

Equity compensation plan

In September 2016, the AMREP Corporation 2016 Equity Compensation Plan (the “2016 Equity Plan”) replaced the AMREP Corporation 2006 Equity Compensation Plan (together with the 2016 Equity Plan, the “Equity Plans”). The Company issued 11,25025,750 shares of restricted common stock under the 2016 Equity Planduring the first nine months of 2018. In addition, 5,000 shares of restricted common stock issued under the 2006 Equity Plan prior to 2018 were returned to the Company during the second quarter of 2018.2018 and will not vest due to the retirement of an employee. During the first quarternine months of 2018, 8,000 shares10,500 shares of restricted common stock previously issued under the Equity Plansvested leaving 27,75034,750 restricted shares issued under the Equity Plans that had not vested as of JulyJanuary 31, 2017.2018. For the third quarter and first quartersnine months of 2018, and 2017, the Company recognized $18,000$31,000 and $15,000$76,000 of non-cash compensation expense related to the restrictedshares shares of common stock.stock issued, and $19,000 and $48,000 for the same periods of 2017. As ofJuly January 31, 2017,2018, there was $113,000$138,000 of unrecognized compensation expense related to restricted sharesshares of common stock issued under the Equity Plans which had not vested as of that date,, which is expected to be recognized over the remaining vesting term not to exceed three years.

On the last trading day of calendar year 2017, and based upon days of service, 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 $20,000 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 $7.02 on December 29, 2017, the Company issued a total of 11,396 deferred common share units to members of the Company’s Board of Directors. Director compensation expense is recognized for the annual grant of deferred common share units ratably over the director’s service in office during the calendar year.During the first nine months of 2018,the total non-cash director fee compensation related to the deferred common share units was $60,000.

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 reduces 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 will be phased in, resulting in a U.S. statutory federal corporate tax rate of approximately 29.7% for our fiscal year ending April 30, 2018, and a 21% rate for subsequent fiscal years. The 29.7% federal corporate tax rate is a blended rate for the April 30, 2018 fiscal year-end based on a prorated percentage of the number of days prior and subsequent to the January 1, 2018 effective date.

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”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.

As of January 31, 2018, the Company had not completed its accounting for the tax effects of the Act, but was able to make reasonable estimates of the impact of the reduction in corporate tax rate and the re-measurement of deferred tax balances:

The Company’s effective tax rate for the third quarter and first nine months was increased by the effect of a net income tax expense increase of $3,057,000 related to accounting for the tax effects of the Act. Excluding this increase, the Company’s effective tax rate was 27.7% and 32.5% for the third quarter and first nine months of 2018 compared to 35.5% and 32.5% for the same periods of 2017. The difference between the statutory rate and the effective rate of the tax provision after excluding the $3,057,000 was primarily due to state taxes.

The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both January 31, 2018 and April 30, 2017 was $58,000, which, if recognized, would have an impact on the effective tax rate. The Company believes it is reasonably possible that the liability for unrecognized tax benefits will not change in the next twelve months.

Refer to Note 7 for detail about the Settlement Agreement between the State of Florida and Palm Coast entered into in the first quarter of 2018. In February 2018, Palm Coast and the Company entered into a Release Agreement (the “Release Agreement”) with the State of Florida. Pursuant to the Release Agreement, (1) Palm Coast paid the State of Florida $956,000, (2) each of the parties released all claims relating to the guaranty agreement (the “Guaranty Agreement”) between the Company and the State of Florida entered into in the first quarter of 2018 and the payment obligations under the Settlement Agreement that the releasing party may have had against each of the other parties and (3) each of the Guaranty Agreement and the payment obligations under the Settlement Agreement shall be deemed terminated and none of the parties shall have any further liabilities or obligations with respect thereto. The Company expects to recognize a gain related to the Release Agreement of approximately $257,000 during the fourth quarter of 2018.

The following tables set forth summarized data relative to the industry segments in which the Company operated for the three and nine month periods ended JulyJanuary 31, 20172018 and 20162017 (in thousands):

INTRODUCTION

AMREP Corporation (the “Company”), through its subsidiaries, is primarily engaged in two business segments: 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. Information concerning industry segments is set forth in Note 811 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. The Company’s foreign sales and activities are not significant.

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 unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q and with the Company’s annual report on Form 10-K for the year ended April 30, 2017, which was filed with the Securities and Exchange Commission on July 18, 2017 (the “2017 Form 10-K”). Many of the amounts and percentages presented in this Item 2 have been rounded for convenience of presentation. Unless otherwise qualified, all references to 2018 and 2017 are to the fiscal years ending April 30, 2018 and 2017 and all references to the firstthird quarter and first threenine months of 2018 and 2017 mean the fiscal three month and nine month periods ended JulyJanuary 31, 20172018 and 2016.2017.

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 2017 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 2017 Form 10-K. 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.

The critical accounting policies, assumptions and estimates are described in Item 7 of Part II of the 2017 Form 10-K. There have been no changes in these accounting policies.

The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements contained in the 2017 Form 10-K. 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 2017 Form 10-K and in the notes to the unaudited consolidated financial statements included in this quarterly report on Form 10-Q. The Company did not adopt any accounting policy in the first quarternine months of 2018 that had a material impact on its consolidated financial statements.

RESULTS OF OPERATIONS

For the firstthird quarter of 2018, the Company recorded a net incomeloss of $1,448,000,$2,851,000, or $0.18$0.35 per share, compared to net income of $630,000,$174,000, or $0.08$0.02 per share, for the firstthird quarter of 2017. For the first nine months of 2018, the Company recorded a net loss of $1,125,000, or $0.14 per share, compared to net income of $916,000, or $0.11 per share, for the same period of 2017. Operating results included an increase in income tax expense of $3,057,000, or $0.38 per share, for the third quarter and first nine months of 2018 as a result federal tax law changes enacted during the third quarter of 2018.

Revenues were $11,326,000$10,379,000 and $30,880,000 for the third quarter and first quarternine months of 2018 compared to $12,208,000$9,777,000 and $33,450,000 for the same period inperiods of the prior year.

Revenues from land sales at AMREP Southwest and its subsidiaries were $2,677,000$2,510,000 and $6,603,000 for the third quarter and first quarternine months of 2018 compared to $2,720,000$1,461,000 and $7,710,000 for the same periodperiods of 2017. $2,044,000 of the $2,677,000$6,603,000 of revenues from land sales for the first quarternine months of 2018 was for an approximate five acre undeveloped commercial property in Colorado, which was sold in the first quarter of 2018 and had a gross profit percentage of 65%.

For the third quarter and first quartersnine months of 2018 and 2017, the Company’s land sales in New Mexico were as follows (dollars in thousands):

The average gross profit percentage on New Mexico land sales was 18%16% and 17% for the third quarter and first quarternine months of 2018 compared to 5%42% and 17% for the same periodperiods of 2017. The increased profit percentage wasis attributable to the mix of lots sold with 2018 reflecting favorable lot pricing relative to costs on developed lots having a lower profit percentage compared to 2017.undeveloped lots. 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.

Operating and selling expenses for real estate increased from $370,000 and $1,188,000 for the third quarter and first nine months of 2017 to $470,000 and $1,563,000 for the same periods of 2018, primarily due to increased costs of storm water pollution prevention, broker commissions on sales activity and personnel costs, offset in part by lower consulting fees.

Revenues from the Company’s fulfillment services operations decreased from $7,828,000$8,222,000 and $23,908,000 for the third quarter and first quarternine months of 2017 to $7,243,000$7,676,000 and $22,952,000 for the same periodperiods in 2018. The lower revenues were attributable to reduced business volumes from existing customers, certain price concessions on renewed contracts and lost business. 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 Palm Coast and its competitors when contracts are up for bid or renewal. One customer of the fulfillment services business whose revenues were approximately 10%10.3% of the total Company revenues for the first quarternine months of 2018 has given notice that a significant portion of its business will be transferred from Palm Coast duringat the end of 2018. Operating and selling expenses for fulfillment services decreased from $6,673,000$6,855,000 and $20,235,000 for the third quarter and first quarternine months of 2017 to $6,094,000$6,338,000 and $18,415,000 for the same periodperiods in 2018, primarily attributabledue to lower payroll and benefits as well as lower supplies expense,and order entry costs, resulting from reduced business volumes, together with lower communications, software and communication costs.equipment maintenance costs, offset in part by increased bad debt expense.

Other revenues decreased from $1,660,000were $193,000 and $1,685,000 for the third quarter and first nine months of 2018 compared to $94,000 and $1,832,000 for the same periods of 2017. Other revenues for the first threenine months of 2017 to $1,406,000 for the same period of 2018. Other revenues in 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 67 of the notes to the consolidated financial statements included in this report on Form 10-Q). Other revenues infor the first nine months of 2017 were primarily the result of the sale of a retail commercial property by AMREP Southwest, which resulted in a pre-tax gain of $1,496,000. Operating and selling expenses for real estate increased from $411,000 forIn addition to these pre-tax gains, Other revenues includes the first quarterrecognition of 2017 to $511,000 for the same period of 2018, primarily due to increased employee costs, land maintenance and broker commissions on sales activity, offset in part by the capitalization of certain engineering department costsdeferred revenue related to land developmentan oil and lower consulting costs.gas lease, as well as fees and forfeited deposits from customers earned by AMREP Southwest, together with miscellaneous other income items.

Fulfillment services general and administrative expenses decreased from $352,000$345,000 and $1,025,000 for the third quarter and first nine months of 2017 to $313,000 and $970,000 for the same periods of 2018, primarily due to lower payroll and benefits, professional costs, bank fees and amortization of intangible assets. Real estate general and administrative expenses increased from $130,000 for the third quarter of 2017 to $349,000$156,000 for the same period of 2018, primarily due to reduced amortization of other assets.an increase in payroll and benefit costs. Real estate general and administrative expenses decreased from $169,000 in$433,000 for the first quarter ofnine months in 2017 to $114,000$356,000 for the same period inof 2018, primarily due to reduced costs related to payroll and benefits,reductions in rent, outside serviceslegal expense and insurance. Corporate general and administrative expenses decreased from $834,000$787,000 and $2,364,000 in the third quarter and first quarternine months of 2017 to $808,000$690,000 and $2,194,000 for the same periodperiods of 2018, primarily due to lower professionalpension costs, consulting fees and pension costs,legal expenses, offset in part by increasedhigher payroll and benefits costs.

Imputed interestInterest expense was $18,000 and $49,000 for the third quarter and first nine months of 2018 compared to $22,000 and $328,000 for the same periods of 2017. Interest expense in 2018 was primarily related to the settlement and remaining liability with the State of Florida noted above was $13,000 for the first quarter of 2018 compared to $224,000 ofand interest expense for the same period ofin 2017 was primarily related to two notes payable of AMREP Southwest that were paid in full during 2017. There was no capitalized interest for the first quarternine months of 2018 compared to $18,000$45,000 and $83,000 for the same periodthird quarter and first nine months of 2017.

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 reduces 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 will be phased in, resulting in a U.S. statutory federal corporate tax rate of approximately 29.7% for our fiscal year ending April 30, 2018, and a 21% rate for subsequent fiscal years. The 29.7% federal corporate tax rate is a blended rate for the April 30, 2018 fiscal year-end based on a prorated percentage of the number of days prior year.and subsequent to the January 1, 2018 effective date.

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”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.

As of January 31, 2018, the Company had not completed its accounting for the tax effects of the Act, but was able to make reasonable estimates of the impact of the reduction in corporate tax rate and the re-measurement of deferred tax balances:

The Company’s effective tax rate was 34.6% for the third quarter and first nine months was increased by the effect of a net income tax expense increase of $3,057,000 related to accounting for the tax effects of the Act. Excluding this increase, the Company’s effective tax rate was 27.7% and 32.5% for the third quarter and first nine months of 2018 compared to 34.9%35.5% and 32.5% for the same periodperiods of 2017. The difference between the statutory tax rate and the effective rate of the tax provision in 2018 and 2017after excluding the $3,057,000 was primarily due to state income taxes.

The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both JulyJanuary 31, 20172018 and April 30, 2017 was $58,000, which, if recognized, would have an impact on the effective tax rate. The Company believes it is reasonably possible that the liability for unrecognized tax benefits will not change in the next twelve months.

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 may also seek bank financing on specific real estate projects. The Company’s liquidity is affected by many factors, including some that are based on normal operations and some that are related to the industries 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 2017 Form 10-K.

Refer to Note 9 to the consolidated financial statements contained in the 2017 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 resultIn June 2009, Palm Coast received $3,000,000 pursuant to an agreement with the State of Florida (the “Award Agreement”) as part of the settlement agreement,incentives made available in connection with the consolidation of the Company’s fulfillment services operations at its Palm Coast, Florida location. The Award Agreement included certain performance requirements in terms of job retention, job creation and capital investment which, if not met by Palm Coast, entitled the State of Florida to obtain the return of a portion, or all, of the $3,000,000. Palm Coast had not met certain of the performance requirements in the Award Agreement. During the first quarter of 2018, Palm Coast entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the State of Florida. Pursuant to the Settlement Agreement, (1) the Award Agreement was terminated, (2) each of the parties released all claims relating to the Award Agreement that the releasing party may have had against the other party and (3) Palm Coast agreed to pay the State of Florida $1,763,000 as follows: (a) $163,000 during the first quarter of 2018 and (b) 40 quarterly payments of $40,000 each, without interest, on the first business day of each calendar quarter starting on October 1, 2017 and ending on July 1, 2027. Palm Coast timely paid the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, leaving a balance owed to the State of Florida of $1,520,000 as of January 31, 2018.

In the Company’s consolidated financial statements and as a result of entering into the Settlement Agreement, Palm Coast reduced its previously recorded liability of $3,000,000 and a related $26,000 interest accrual by $1,620,000 to $1,406,000 by recognizing a pre-tax gain of $1,318,000 and recording deferred revenue of $302,000. The $1,318,000 pre-tax gain was determined based on depreciation previously taken on assets acquired with Award Agreement funds that were retained by Palm Coast and was recognized in Other revenues during the first nine months of 2018. The $302,000 deferred revenue will be recognized over the remaining life of these assets (approximately seven years from January 31, 2018), with $61,000 having been recognized during the first nine months of 2018 resulting in a deferred gainrevenue balance of $302,000. In connection with the settlement, Palm Coast made$241,000 as of January 31, 2018. As a paymentresult of $163,000 topaying the State of Florida $163,000 during the first quarter of 2018, thereby reducing$40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, Palm Coast recognized $41,000 of imputed interest expense and reduced its remaining balance sheet liability of $1,406,000 as of the date of the Settlement Agreement to $1,243,000. The $1,318,000 pre-tax gain is included$1,204,000 as of January 31, 2018. These balance sheet liability numbers are less than the amounts owed to the State of Florida of $1,763,000 as of the date of the Settlement Agreement and $1,520,000 as of January 31, 2018 because they have been adjusted to reflect the present values of these deferred non-interest bearing obligations.

In February 2018, Palm Coast and the Company entered into a Release Agreement (the “Release Agreement”) with the State of Florida. Pursuant to the Release Agreement, (1) Palm Coast paid the State of Florida $956,000, (2) each of the parties released all claims relating to the guaranty agreement (the “Guaranty Agreement”) between the Company and the State of Florida entered into in Other revenues in the accompanying financial statements included in this quarterly report on Form 10-Q. The deferred gain of $302,000 was reduced to $282,000 during the first quarter of 2018 and the payment obligations under the Settlement Agreement that the releasing party may have had against each of the other parties and (3) each of the Guaranty Agreement and the payment obligations under the Settlement Agreement shall be deemed terminated and none of the parties shall have any further liabilities or obligations with respect thereto. The Company expects to recognize a gain related to the $20,000 reduction being a non-cash credit to operating expenses in the accompanying consolidated financial statements included in this quarterly report on Form 10-Q. The remaining deferred gain of $282,000 will be recognized over a periodRelease Agreement of approximately eight years from July 31, 2017.$257,000 during the fourth quarter of 2018.

Operating Activities

Receivables, net decreased from $6,379,000 at April 30, 2017 to $5,948,000 at July 31, 2017, primarily due to the timing of collections. Accounts payable and accrued expenses decreasedincreased from $7,035,000 at April 30, 2017 to $6,489,000$9,187,000 at JulyJanuary 31, 2017,2018, primarily due to lower business volumes and the timing of payments to vendors.an increase in land development activity in Rio Rancho, New Mexico.

Real estate inventory decreasedincreased from $56,090,000 at April 30, 2017 to $55,358,000$58,271,000 at JulyJanuary 31, 2017,2018, primarily due to an increase in land development activity in Rio Rancho, New Mexico, offset in part by real estate land sales at AMREP Southwest.sales. Property, plant and equipment decreased from $10,852,000 at April 30, 2017 to $10,541,000$10,028,000 at JulyJanuary 31, 20172018 due to normal depreciation of fixed assets.

Other liabilities and deferred revenue decreased from $3,376,000 at April 30, 2017 to $1,843,000$1,653,000 at JulyJanuary 31, 2017,2018, primarily due to the previously described settlement agreement between Palm Coast and the State of Florida.

Investing Activities

Capital expenditures totaled $10,000$130,000 for the first threenine months of 2018 and $39,000$63,000 for the same period of 2017, allprimarily for the fulfillment services business.

Financing Activities

During December 2017, Lomas Encantadas Development Company LLC (“LEDC”), an indirect subsidiary of AMREP Corporation, entered into a Development Loan Agreement with BOKF, NA dba Bank of Albuquerque (“Lender”). The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note, dated December 18, 2017, and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and Lender, dated November 16, 2017, with respect to 343 planned residential lots within the Lomas Encantadas subdivision (the “Mortgaged Property”) located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement, dated December 18, 2017, entered into by AMREP Southwest in favor of Lender, AMREP Southwest has guaranteed LEDC’s obligations under each of the above agreements. The Development Loan Agreement, Non-Revolving Line of Credit Promissory Note, Mortgage, Security Agreement and Financing Statement, Guaranty Agreement and other related transaction documents are collectively referred to as the “Loan Documentation.”

Pursuant to the Loan Documentation, Lender agrees to lend up to $4,750,000 to LEDC on a non-revolving line of credit basis to partially fund the development of the Mortgaged Property. LEDC expects to fully utilize the $4,750,000 for its land development activities. Interest on the outstanding principal amount of the loan is payable monthly 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. Lender is required to release the lien of its mortgage on any lot included in the Mortgaged Property upon LEDC making a principal payment of $43,000 or $53,000 depending on the location of the lot. LEDC is required to make periodic principal repayments to the extent not previously paid as follows: $1,370,000 on or before August 18, 2019, $599,000 on or before November 18, 2019, $599,000 on or before February 18, 2020, $599,000 on or before May 18, 2020, $599,000 on or before August 18, 2020 and $599,000 on or before November 18, 2020. The outstanding principal amount of the loan as of January 31, 2018 was $638,000. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature on December 18, 2021. LEDC incurred certain customary costs and expenses and paid certain fees to Lender in connection with the loan.

LEDC and AMREP Southwest have made certain representations and warranties in the Loan Documentation and are required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The Loan Documentation contains customary events of default for similar financing transactions, including: LEDC’s failure to make principal, interest or other payments when due; the failure of LEDC or AMREP Southwest to observe or perform their respective covenants under the Loan Documentation; the representations and warranties of LEDC or AMREP Southwest being false; the insolvency or bankruptcy of LEDC or AMREP Southwest; and the failure of AMREP Southwest to maintain a tangible net worth of at least $35 million. Upon the occurrence and during the continuance of an event of default, Lender may declare the outstanding principal amount and all other obligations under the Loan Documentation immediately due and payable. At January 31, 2018, both LEDC and AMREP Southwest were in compliance with the covenants contained within the Loan Documentation.

Statement of Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 (the “Act”) 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 Act. 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, the expected loss of a material customer contract and the effect of such loss, the effect of recent accounting pronouncements on the Company, the timing of recognizing unrecognized compensation expense related to shares of restricted common stock issued under the Equity Plans, the liability for unrecognized tax benefits not changing in the next twelve months, the seekingavailability of bank financing for real estate projects, the expected utilization of existing bank financing, the impact of the U.S. Tax Cuts and Jobs Act on the Company and the future business conditions that may be experienced by the Company. 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 financialexecutive officer and the other person whose certification accompanies this quarterly report,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 and such other person 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 financialexecutive officer and such other person,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 Item 3 of Part I of the Company’s annual report on Form 10-K for the year ended April 30, 2017, which was filed with the Securities and Exchange Commission on July 18, 2017, for detail about the settlement agreement entered into between Palm Coast Data LLC and the State of Florida in the first quarter of 2018.

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