The Company continues to operate as two different businesses: (1) The "traditional business", being the business of newspaper and magazine publishing and related services that the Company had before 1999 when it purchased Sustain, and (2) the Sustain software business, which supplies case management software systems and related products to courts and other justice agencies, including administrative law organizations.

During the six months ended March 31, 2012, consolidated pretax income decreased by $936,000 (15%) to $5,360,000 from $6,296,000 in the prior year period. Consolidated revenues declined by $1,883,000, and costs and expenses decreased by $558,000. Dividends and interest income increased by $299,000. The Company's traditional business segment pretax profit decreased by $575,000 (8%) to $6,333,000 from $6,908,000 primarily because of a reduction in trustee sale notice and related service fee revenues. Sustain's business segment had a pretax loss of $973,000 compared to $612,000 in the prior year period primarily due to a decrease in consulting and support revenues from governmental agencies, reflecting in part continuing governmental budget constraints. Comprehensive income includes net income and net unrealized gains on investments, net of taxes.

                              Comprehensive Income

                                                      Six months ended March 31
                                                        2012              2011

   Net income                                       $   3,750,000     $  4,026,000
   Unrealized gains on investments (net of taxes)      16,840,000        6,692,000
   Comprehensive income                             $  20,590,000     $ 10,718,000


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          Financial Information for the Company's Reportable Segments

                                       Traditional
                                         business         Sustain          Total
     Six months ended March 31, 2012
     Revenues                          $ 14,528,000     $ 1,458,000     $ 15,986,000
     Pretax income (loss)                 6,333,000        (973,000 )      5,360,000
     Income tax benefit (expense)        (2,235,000 )       625,000       (1,610,000 )
     Net income (loss)                    4,098,000        (348,000 )      3,750,000

     Six months ended March 31, 2011
     Revenues                          $ 16,257,000     $ 1,612,000     $ 17,869,000
     Pretax income (loss)                 6,908,000        (612,000 )      6,296,000
     Income tax benefit (expense)        (2,490,000 )       220,000       (2,270,000 )
     Net income (loss)                    4,418,000        (392,000 )      4,026,000

Consolidated revenues were $15,986,000 and $17,869,000 for the six months ended March 31, 2012 and 2011, respectively. This decrease of $1,883,000 (11%) was primarily from decreases of $1,587,000 (22%) in trustee sale notice and related service fee revenues, $60,000 (6%) in government notice revenues, $22,000 (3%) in classified advertising revenues, $26,000 (2%) in display advertising revenues, $85,000 (3%) in circulation revenues and $147,000 (32%) in Sustain consulting revenues, partially offset by increases of $51,000 in legal advertising notice and service fees. Although public notice advertising revenues were down compared to the prior year period, the Company still continued to benefit from the large number of foreclosures in California and Arizona for which public notice advertising is required by law. Sustain's information systems and services revenues decreased by $154,000 (10%) primarily because of the decrease in consulting and support revenues. The Company's revenues derived from Sustain's operations constituted about 9% of the Company's total revenues for both of the six months ended March 31, 2012 and 2011. (Consolidated revenues were $8,066,000 and $8,574,000 for the three months ended March 31, 2012 and 2011, respectively.)

Costs and expenses decreased by $558,000 (5%) to $11,542,000 from $12,100,000. Total personnel costs decreased by $155,000 (2%) to $6,850,000 primarily due to a $300,000 reduction in expenses related to the Company's Management Incentive Plan ("Incentive Plan") partially offset by annual salary adjustments. The reduction in Incentive Plan expenses consisted of a decrease of $470,000 in the Incentive Plan accrual during the six months ended March 31, 2012 due to reduced consolidated pretax profits before this accrual versus a decrease of $170,000 in the prior year period. Other general and administrative expenses decreased by $255,000 (13%) primarily resulting from reduced professional service fees. (Costs and expenses were $5,882,000 and $5,992,000 for the three months ended March 31, 2012 and 2011, respectively.) This trend of revenues and expenses was driven by the same factors for the three-month period as in the six-month period.

The traditional business segment revenues are very much dependant on the number of California and Arizona foreclosure notices. The number of foreclosure notices published by the Company decreased by 21% during six months ended March 31, 2012 as compared to the prior year period. Because this slowing is expected to continue, we anticipate there will be fewer foreclosure notice advertisements and declining revenues in fiscal 2012. We do not expect to experience an offsetting increase in commercial advertising as a result of this trend because of the continuing challenges in the commercial advertising business. The Company's smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals ("The Daily Journals"), accounted for about 96% of the total public notice advertising revenues in the six-month period. Public notice advertising revenues and related advertising and other service fees constituted about 56% of the Company's total revenues during this period. Advertising service fees and other are traditional business segment revenues, which include primarily (i) agency commissions received from outside newspapers in which the advertising is placed and (ii) fees generated when filing notices with government agencies. The Daily Journals accounted for about 84% of the Company's total circulation revenues in the six-month period. The court rule and judicial profile services generated about 13% of the total circulation revenues during this period, with the other newspapers and services accounting for the balance.

Sustain's consulting revenues, which are subject to uncertainty because they depend on (i) the timing of the acceptance of the completed consulting tasks,
(ii) the unpredictable needs of Sustain's existing customers, and (iii) Sustain's ability to secure new customers, continued to decline in the six months ended March 31, 2012 in part because many governments have reduced their budgets for services like those provided by Sustain. Revenues from Sustain's new installation projects will only be recognized, if at all, upon completion and acceptance of Sustain's services by the various customers. The Company's expenditures for the development of new Sustain software products are significant and will materially impact overall results at least through fiscal 2012. These costs are expensed as incurred until technological feasibility of the product has been established, at which time such costs are capitalized, subject to expected recovery. Sustain expensed personnel costs of $2,059,000 and $1,833,000 for the development and implementation of its Web-based case management system during the six months ended March 31, 2012 and 2011, respectively. If Sustain's internal development programs are not successful, they will significantly and adversely impact the Company's ability to maximize its existing investment in the Sustain software, to service its existing customers and to compete for new opportunities in the case management software business. However, Sustain recently has installed its Web-based case management system in several courts and government agencies, and additional installations are in progress. Sustain expects to receive license fees on account of these installations, but because license fee revenue is recognized over the term of the license, these fees will not have a material impact on Sustain's earnings in the short-term.

On a pretax profit of $5,360,000 and $6,296,000 for the six months ended March 31, 2012 and 2011, respectively, the Company recorded a tax provision of $1,610,000 and $2,270,000 respectively, which was lower in each case than the amount computed using the statutory rate because of the available dividends received deduction and the domestic production activity deduction. In addition, the Company reached an agreement with the Internal Revenue Service in March 2012 to settle the Company's previously claimed research and development credits in its tax returns for the years 2002 to 2007. As a result, the Company's previously recorded provision for this matter of approximately $700,000 was reduced by $282,000, and the interest expense accrual for this matter of $286,000 was reduced by $66,000. Consequently, the Company's effective tax rate was 30.04% and 36.05% for the six months ended March 31, 2012 and 2011, respectively. The Company files federal income tax returns in the United States and with various state jurisdictions, and it is no longer subject to examinations for the years before 2010 with regard to federal income taxes. Net income per share decreased to $2.72 from $2.92.

Liquidity and Capital Resources

During the six months ended March 31, 2012, the Company's cash and cash equivalents, U.S. Treasury Bills and marketable security positions increased by $31,790,000. Cash and cash equivalents and U.S. Treasury Bills were used primarily for the purchase of marketable securities of $13,581,000 and capital assets of $300,000 (mostly computer software and office equipment). In February 2009, the Company purchased shares of common stock of two Fortune 200 companies and certain bonds of a third, and during the second and the third quarters of fiscal 2011, the Company bought shares of common stock of two foreign manufacturing companies. During the first quarter of fiscal 2012, the Company bought shares of common stock of another Fortune 200 company. The investments in marketable securities, which cost approximately $45,166,000 and had a market value of about $97,686,000 at March 31, 2012, generated approximately $843,000 in dividends and interest income during the six months ended March 31, 2012, which lowers the effective income tax rate because of the dividends received deduction. As of March 31, 2012, there were unrealized pretax gains of $52,520,000 as compared to $24,532,000 at September 30, 2011. Most of the unrealized gains were in the common stocks.

The cash provided by operating activities of $4,101,000 included a net increase in deferred subscription and other revenues of $143,000. Proceeds from the sale of subscriptions from newspapers, court rule books and other publications and for software licenses and maintenance and other services are recorded as deferred revenue and are included in earned revenue only when the services are rendered. Cash flows from operating activities decreased by $687,000 during the six months ended March 31, 2012 as compared to the prior year period primarily resulting from the decreases in accrued liabilities and accounts payable of $592,000 and net income of $276,000, partially offset by the decreases in accounts receivable of $447,000.

As of March 31, 2012, the Company had working capital of $78,624,000, including the liability for deferred subscription and other revenues of $5,548,000 which are scheduled to be earned within one year, and the deferred tax liability of $20,920,000 for the unrealized gains described above.

The Company believes that it will be able to fund its operations for the foreseeable future through its cash flows from operating activities and its current working capital and expects that any such cash flows will be invested in its two businesses. The Company also may entertain business acquisition opportunities. Any excess cash flows will be invested as management and the Board of Directors deem appropriate at the time.

Such investments may include additional securities of the companies in which the Company has already invested, securities of other companies, government securities (including U.S. Treasury Notes and Bills) or other instruments. The decision as to particular investments will be driven by the Company's belief about the risk/reward profile of the various investment choices at the time, and it may utilize government securities as a default if attractive opportunities for a better return are not available. The Company's Chairman of the Board, Charles Munger, is also the vice chairman of Berkshire Hathaway Inc., which maintains a substantial investment portfolio. The Company's Board of Directors has utilized his judgment and suggestions, as well as those of J.P. Guerin, the Company's vice chairman, when selecting investments, and both of them will continue to play an important role in monitoring existing investments and selecting any future investments.

As noted above, however, the investments are concentrated in just six companies. Accordingly, a significant decline in the market value of one or more of the Company's investments may not be offset by the hypothetically better performance of other investments, and that could result in a large decrease in the Company's shareholders' equity and, under certain circumstances, in the recognition of impairment losses in the Company's income statement.

Critical Accounting Policies

The Company's financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management's application of accounting policies. Management believes that revenue recognition, accounting for capitalized software costs and income taxes are critical accounting policies.

The Company's critical accounting policies are detailed in its Annual Report on Form 10-K for the year ended September 30, 2011. The above discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this report.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Certain statements contained in this document, including but not limited to those in "Management's Discussion and Analysis of Financial Condition and Results of Operations", are "forward-looking" statements that involve risks and uncertainties that may cause actual future events or results to differ materially from those described in the forward-looking statements. Words such as "expects," "intends," "anticipates," "should," "believes," "will," "plans," "estimates," "may," variations of such words and similar expressions are intended to identify such forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new information, future developments, or otherwise. There are many factors that could cause actual results to differ materially from those contained in the forward-looking statements. These factors include, among others: risks associated with Sustain's internal software development efforts; Sustain's reliance on the professional services engagement with California courts for a substantial portion of its consulting revenues; material changes in the costs of postage and paper; possible changes in the law, particularly changes limiting or eliminating the requirements for public notice advertising; a decline in public notice advertising revenues because of fewer foreclosures; a further decline in subscriber and commercial advertising revenues; collectibility of accounts receivable; the Company's reliance on its president and chief executive officer; changes in accounting guidance; and declines in the market prices of the Company's investments. In addition, such statements could be affected by general industry and market conditions, general economic conditions (particularly in California) and other factors. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements are disclosed in this Form 10-Q, including in conjunction with the forward-looking statements themselves. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in documents filed by the Company with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2011.