Results of Operations

The following table sets forth, for the periods indicated, information derived
from the Consolidated Statements of Operations as a percentage of total
revenues.
                                                          Three Months Ended January 31
                                                                ($ In thousands)
                                                        2009                        2008
Revenues:
   Printing                                  $   22,515         62.1 %  $      25,180        62.5 %
   Office products and office furniture           9,237         25.5           10,078        25.0
   Newspaper                                      4,513         12.4            5,036        12.5
Total revenues                                   36,265       100.00           40,294      100.00
Cost of sales and newspaper operating
costs:
   Printing                                      17,349         47.8           17,801        44.2
   Office products and office furniture           6,697         18.5            7,325        18.2
Newspaper cost of sales and operating
costs                                             2,440          6.7            2,271         5.6
    Total cost of sales and newspaper
operating costs                                  26,486         73.0           27,397        68.0
   Gross profit                                   9,779         27.0           12,897        32.0
Selling, general and administrative
expenses                                          9,807         27.0            9,693        24.0
Hurricane and relocation costs, net of
recoveries                                          (30 )        0.0                -         0.0
Income from operations                                2          0.0            3,204         8.0
Interest income                                       3          0.0               25         0.0
   Interest expense                              (1,099 )       (3.0 )         (1,749 )      (4.3 )
Other income                                         24          0.1               13         0.0
(Loss) income before taxes                       (1,070 )       (2.9 )          1,493         3.7
Income tax benefit (expense)                        777          2.1             (215 )      (0.5 )

Three Months Ended January 31, 2009 Compared to Three Months Ended January 31, 2008

Revenues

Total revenues decreased 10.0% in the first quarter of 2009 compared to the same period in 2008 from $40.3 million to $36.3 million. Printing revenue decreased 10.6% in the first quarter of 2009 to $22.5 million from $25.2 million in the first quarter of 2008. Office products and office furniture revenue decreased 8.3% in the first quarter of 2009 to $9.2 million from $10.1 million in the first quarter of 2008. The decrease in printing sales was due to sluggish sales in several of our commercial plants that operate primarily in the sheetfed arena. The decrease in office products and office furniture sales was due to weaker sales in both office products and office furniture sales. The Company recorded newspaper revenues associated with the acquisition of The Herald-Dispatch of approximately $4.5 million consisting of advertising revenue of approximately $3.5 million and $1.0 million in circulation revenues for the first quarter of 2009. This compares to newspaper revenues of approximately $5.0 million consisting of advertising revenue of approximately $3.9 million and $1.1 million in circulation revenues for the first quarter of 2008. The on-line revenues for the three months ended January 31, 2009 and 2008 approximated $264,000 and $340,000 and are recorded as a component of advertising revenue.

Cost of Sales

Total cost of sales decreased 3.3% in the first quarter of 2009 to $26.5 million from $27.4 million in the first quarter of 2008. Printing cost of sales in the first quarter of 2009 decreased $452,000 over the prior year but increased as a percent of printing sales from 70.7% in 2008 to 77.1% in 2009. The increase in printing cost of sales as a percentage of printing sales is primarily related to higher material costs as a percent of printing sales. Office products and office furniture cost of sales decreased in 2009 from 2008 levels and decreased as a percent of sales from 72.7% in 2008 to 72.5% in 2009. Newspaper cost of sales and operating costs as a percent of newspaper sales were 54.1% for the three months ended January 31, 2009 compared with 45.1% for the three months ended January 31, 2008.

Operating Expenses

In the first quarter of 2009, selling, general and administrative expenses (S,G&A) increased on a gross dollar basis to $9.8 million from $9.7 million in 2008, an increase of $115,000. As a percentage of total sales, the expenses increased on a quarter to quarter basis in 2009 to 27.0% from 24.0% in 2008 of total sales. The increase in S,G&A as a percent of sales was primarily reflective of lower sales and a slight increase in S,G&A on a gross dollar basis.

The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. As required by SFAS No. 142, the Company tests for impairment of goodwill annually (at year-end) or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The required two-step approach uses accounting judgements and estimates of future operating results. Changes in estimates or the application of alternative assumptions could produce significantly different results. Impairment is done at a reporting unit level. The Company performs this testing at its operating segments, which are also considered reporting units under SFAS No. 142. An impairment loss generally is recognized when the carrying amount of the reporting units net assets exceeds the estimated fair value of the reporting unit. The estimates and judgements that most significantly affect the fair value calculation are assumptions related to revenue growth, Earnings Before, Interest, Taxes, Depreciation and Amortization (EBITDA), newsprint prices, compensation levels and discount rate. The Company primarily relies on evaluating cash flows of its segments in evaluating goodwill impairment. The Company determined that it should perform its impairment testing of goodwill as of January 31, 2009, due to the continuing challenging business conditions and the resulting weakness in the Company's operating performance as of the end of its first quarter. This performance would appear to be related, in part, to the current global economic crisis.

Newspaper trademark and masthead (newspaper titles and website domain names ) are not subject to amortization and are tested for impairment annually (at year end), or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of these intangible assets with their carrying amount. The Company performed impairment tests on newspaper trademark and mastheads as of January 31, 2009.

Intangible assets subject to amortization (primarily advertiser and subscriber lists) are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of each asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of such asset group. The Company performed impairment tests on its long lived assets (including intangible assets subject to amortization) as of January 31, 2009.

No impairment loss was recognized on goodwill, trademarks, masthead or amortizing intangibles at January 31, 2009. The Company will continue to monitor market conditions due to existence of certain indicators which may lead to impairment charges in future periods.

Income from Operations and Other Income and Expenses

Income from operations decreased in the first quarter of 2009 to $2,000 from $3.2 million in the first quarter of 2008. This decrease is the result of decreased contributions from each of the Company's business segments.

Other expenses (net), decreased approximately $638,000 from 2008 to 2009 primarily due to decreases in interest expense, resulting from lower average borrowings and lower rates primarily associated with the financing to purchase The Herald-Dispatch.

Income Taxes

The Company's effective income tax benefit (expense) rate was a benefit of 72.6% in the first quarter of 2009 and an expense of (14.4%) for the first quarter of 2008. The income tax benefit (expense) rate is reflective of amortization expense deductions recorded as a permanent difference due to the acquisition of The Herald-Dispatch. The effective income tax rate approximates the combined federal and state, net of federal benefit, statutory income tax rate.

Net (Loss) Income

Net loss for the first quarter of 2009 was ($293,000) compared to net income of $1,278,000 in the first quarter of 2008. Basic and diluted (loss) earnings per share for the three months ended January 31, 2009 and 2008 were ($0.03) and $0.13.

Inflation and Economic Conditions

Management believes that the effect of inflation on the Company's operations has not been material and will continue to be immaterial for the foreseeable future. The Company does not have long-term sales and purchase contracts; therefore, to the extent permitted by competition, it has the ability to pass through to the customer most cost increases resulting from inflation, if any.

The United States economy has been in a recession since December 2007, according to the National Bureau of Economic Research, and it is widely believed that certain elements of the economy, such as housing, were in decline before that time. The duration and depth of an economic recession in markets in which the Company operates may further reduce its future advertising and circulation revenue, printing revenue, office products revenue and office furniture revenue operating results and cash flows.

Seasonality

Historically, the Company has experienced a greater portion of its profitability in the second and fourth quarters than in the first and third quarters. The second quarter generally reflects increased orders for printing of corporate annual reports and proxy statements. A post-Labor Day increase in demand for printing services and office products coincides with the Company's fourth quarter.

Our business is subject to seasonal fluctuations that we expect to continue to be reflected in our operating results in future periods. On a historical basis The Herald-Dispatch's first and third calendar quarters of the year tended to be the weakest because advertising volume is as it lowest levels following the holiday season and a seasonal slowdown in the summer months. Correspondingly, on a historical basis the fourth calendar quarter followed by the second calendar quarter tended to be the strongest quarters. The fourth calendar quarter included heavy holiday season advertising. Other factors that affect our quarterly revenues and operating results may be beyond our control, including changes in the pricing policies of our competitors, the hiring and retention of key personnel, wage and cost pressures, distribution costs, changes in newsprint prices and general economic factors.

Liquidity and Capital Resources

Net cash provided by operations for the three months ended January 31, 2009, was $4.1 million compared to net cash provided by operations of $1.5 million during the same period in 2008. This change in net cash from operations is due primarily to timing changes in assets and liabilities partially offset by a net loss in 2009 compared with net income in 2008.

Net cash used in investing activities for the three months ended January 31, 2009 was $526,000 compared to $1.9 million during the same period in 2008. The net cash used in investing activities during the first three months of 2009 primarily related to the purchase of equipment and vehicles. The net cash used in investing activities during the first three months of 2008 primarily related to the payment of the working capital adjustment associated with the acquisition of the Herald-Dispatch and the purchase of equipment and vehicles.

Net cash used in financing activities for the three months ended January 31, 2009 was $3.5 million compared to $4.9 million during the same period in 2008. This decrease is primarily due to payments on the line of credit in 2008 partially offset by higher scheduled principal payments on indebtedness related to cash flow recapture provisions in 2009.

The Company's off balance sheet arrangements at January 31, 2009 relate to the Syscan acquisition and are associated with a put option from Williams Land Corporation to sell a building to the Company for $1.5 million. This option may be exercised no later than 60 days prior to the end of the lease and closing of said purchase cannot exceed 45 days from the end of the lease. The lease term concludes effective September 1, 2009.

Working capital on January 31, 2009 was ($45.5) million and at October 31, 2008 was $20.4 million. The decrease in working capital is associated with the classification as a current liability of $64.5 million of debt which was long-term. This debt was reclassified due to the Company's inability to remain in compliance with certain of its financial covenants. The Company has been working with the different creditors to restructure the existing debt; however, an agreement satisfactory to the Company has not been reached.

Environmental Regulation

The Company is subject to the environmental laws and regulations of the United States, and the states in which it operates, concerning emissions into the air, discharges into the waterways and the generation, handling and disposal of waste materials. The Company's past expenditures relating to environmental compliance have not had a material effect on the Company. These laws and regulations are constantly evolving, and it is impossible to predict accurately the effect they may have upon the capital expenditures, earnings, and competitive position of the Company in the future. Based upon information currently available, management believes that expenditures relating to environmental compliance will not have a material impact on the financial position of the Company.

Special Note Regarding Forward-Looking Statements

Certain statements contained in this Form 10-Q, including without limitation statements including the word "believes," "anticipates," "intends," "expects" or words of similar import, constitute "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, changes in business strategy or development plans and other factors referenced in this Form 10-Q , including without limitations under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.