Results of Operations

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 and New Dawn software businesses, which supply case management software systems and related products to courts and other justice agencies, including administrative law organizations. In December 2012, the Company purchased all of the outstanding stock of New Dawn based in Logan, Utah, which provides products and services similar to those of Sustain to more than 350 justice agencies in 39 states, three U.S. territories and two countries. The acquisition expands the Company's position in the marketplace.

During fiscal 2012, consolidated pretax income decreased by $4,099,000 (34%) to $7,901,000 from $12,000,000 in the prior year, primarily resulting from the recording of the other-than-temporary impairment losses on investments of $2,855,000 and a reduction in trustee sale notice and its related service fee revenues of $2,216,000, partially offset by a reduction in operating costs and expenses of $519,000 and an increase in dividends and interest income of $734,000. The write-down on the investment does not necessarily indicate the loss in value is permanent. Security prices may remain below cost for a period of time that may be deemed excessive from the standpoint of interpreting existing accounting rules, even though other factors suggest that the prices will eventually recover. As a result, accounting regulations require that the Company recognize other-than-temporary impairment losses like these in earnings rather than in accumulated comprehensive income even in instances where the Company may strongly believe that the market price of the impaired security will recover to at least its original cost and where the Company possesses the ability and intent to hold the security until at least that time.

The Company's traditional business segment income from operations decreased by $1,547,000 (12%) to $10,877,000 from $12,424,000 primarily because of the reduction in trustee sale notice and its related service fee revenues of $2,216,000 partially offset by the reduction in operating costs and expenses of $1,029,000. Sustain's business segment had a pretax loss of $2,188,000 compared to $1,622,000 in the prior year period primarily due to an increase in personnel costs and 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

                                                          Fiscal ended September 30
                                                            2012              2011

Net income                                             $    5,541,000     $   7,840,000
Net change in unrealized appreciation of investments
(net of taxes)                                             15,085,000        (3,627,000 )
Reclassification of other-than-temporary
impairment losses recognized in net income (net of
taxes)                                                      1,720,000              ---
Comprehensive income                                   $   22,346,000     $   4,213,000

                                       Reportable Segments

                                                   Traditional
                                                    business          Sustain           Total

Fiscal 2012
Revenues                                          $  28,956,000     $  2,918,000     $ 31,874,000
Income (loss) from operations                        10,877,000       (2,195,000 )      8,682,000
Other-than-temporary impairment losses on
investments                                           2,855,000              ---        2,855,000
Pretax income (loss)                                 10,089,000       (2,188,000 )      7,901,000
Income tax (expense) benefit                         (3,340,000 )        980,000       (2,360,000 )
Net income (loss)                                     6,749,000       (1,208,000 )      5,541,000

Fiscal 2011
Revenues                                          $  31,532,000     $  2,981,000     $ 34,513,000
Income (loss) from operations                        12,424,000       (1,622,000 )     10,802,000
Pretax income (loss)                                 13,622,000       (1,622,000 )     12,000,000
Income tax benefit (expense)                         (4,735,000 )        575,000       (4,160,000 )
Net income (loss)                                     8,887,000       (1,047,000 )      7,840,000

Consolidated revenues were $31,874,000 and $34,513,000 for fiscal 2012 and 2011, respectively. This decrease of $2,639,000 (8%) was primarily from decreases of $2,216,000 (17%) in trustee sale notice and its related service fee revenues and $237,000 (4%) in circulation revenues. 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 $63,000 (2%) 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 fiscal 2012 and 2011.

Operating costs and expenses decreased by $519,000 (2%) to $23,192,000 from $23,711,000. Total personnel costs increased by $119,000 (1%) to $13,592,000 primarily due to annual salary adjustments partially offset by a $470,000 reduction in expenses related to the Company's Management Incentive Plan ("Incentive Plan"). The reduction in Incentive Plan expenses consisted of a decrease of $970,000 in the Incentive Plan accrual during fiscal 2012 due to reduced projected consolidated pretax profits before this accrual versus a decrease of $500,000 in the prior year period. Other general and administrative expenses decreased by $271,000 (7%) primarily resulting from reduced professional service fees and rents.

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 20% during fiscal 2012 as compared to the prior year. Because this slowing is expected to continue, we anticipate there will be fewer foreclosure notice advertisements and declining revenues in fiscal 2013. 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 twelve-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. Because of this concentration, the Company's revenues would be significantly affected if California (and to a lesser extent Arizona) eliminated the legal requirement to publish public notices in adjudicated newspapers of general circulation, as has been proposed from time to time. Furthermore, a California appeals court recently ruled that the Company's newspaper in one California county could no longer prove it met adjudication requirements prior to 1923, and the publication has now been discontinued. If more of the Company's newspapers were to have their adjudications revoked, those newspapers would no longer be eligible to publish public notice advertising, and it could have a material adverse effect on the Company's revenues. 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. The court rule and judicial profile services generated about 13% of the total circulation revenues, 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 fiscal 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 the foreseeable future. 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 $4,415,000 and $3,877,000 for the development and implementation of its Web-based case management system during fiscal 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 $7,901,000 and $12,000,000 for the twelve months ended September 30, 2012 and 2011, respectively, the Company recorded a tax provision of $2,360,000 and $4,160,000 respectively, which was lower in each case than the amount computed using the statutory rate because of (i) the available dividends received deduction and the domestic production activity deduction, and (ii) the reversal of an uncertain tax liability as 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 of $286,000 previously recognized for this matter was reduced by $100,000. Consequently, the Company's effective tax rate was about 30% and 35% for fiscal 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 $4.01 from $5.68.

Liquidity and Capital Resources

During fiscal 2012, the Company's cash and cash equivalents, U.S. Treasury Bills and marketable security positions increased by $31,667,000. Cash and cash equivalents and U.S. Treasury Bills were used primarily for the purchase of marketable securities of $20,961,000 and capital assets of $372,000 (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. During the third and the fourth quarters of fiscal 2012, the Company purchased additional shares of common stock of one of the foreign manufacturing companies in which it had previously invested. The investments in marketable securities, which cost approximately $49,692,000 and had a market value of about $102,156,000 at September 30, 2012, generated approximately $1,967,000 in dividends and interest income, which lowers the effective income tax rate because of the dividends received deduction. As of September 30, 2012, there were unrealized pretax gains of $52,464,000 as compared to $24,532,000 at September 30, 2011. Most of the unrealized gains were in the common stocks. During the first quarter of fiscal 2013, the Company borrowed $14 million to purchase all of the outstanding stock of New Dawn and pledged its marketable securities to obtain favorable financing.

The cash provided by operating activities of $6,959,000 included a net increase in deferred subscription and other revenues of $49,000. 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 $3,358,000 during fiscal 2012 as compared to the prior year primarily resulting from the increases in accounts receivable of $1,728,000 and the decreases in accounts payable and accrued liabilities of $514,000 and net income of $579,000, excluding the after-tax impairment losses of $1,720,000.

As of September 30, 2012, the Company had working capital of $80,591,000, including the liability for deferred subscription and other revenues of $5,454,000 which are scheduled to be earned within one year, and the deferred tax liability of $20,898,000 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, as it did in acquiring New Dawn. 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. The Company continues to have the ability to borrow against its marketable securities on favorable terms as it did for the New Dawn acquisition.

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 (such as the other-than-temporary impairment losses of $2,855,000 recognized in the third quarter of 2012).

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, fair value measurement and disclosures, and income taxes are critical accounting policies.

The Company recognizes revenues from both the lease and sale of software products. Revenues from leases of software products are recognized over the life of the lease while revenues from software product sales are recognized normally upon delivery, installation or acceptance pursuant to a signed agreement. Revenues from annual maintenance contracts generally call for the Company to provide software updates and upgrades to customers and are recognized ratably over the maintenance period. Consulting and other services are recognized as performed or upon acceptance by the customers. Proceeds from the sale of subscriptions for newspapers, court rule books and other publications and other services are recorded as deferred revenue and are included in earned revenue only when the services are provided, generally over the subscription or lease term. Advertising revenues are recognized when advertisements are published and are net of commissions.

Accounting Standards Codification ("ASC") 985-20, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, provides that costs related to the research and development of a new software product are to be expensed as incurred until the technological feasibility of the product is established. Accordingly, costs related to the development of new Sustain software products are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized, subject to expected recoverability. In general, "technological feasibility" is achieved when the developer has established the necessary skills, hardware and technology to produce a product and a detailed program design has been (i) completed, (ii) traced to the product specifications and (iii) reviewed for high-risk development issues.

ASC 820, Fair Value Measurement and Disclosures, requires the Company to (i) disclose the amounts of transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers and (ii) present separately information about purchases, sales, issuances and settlements in the reconciliation of Level 3 measurements. This guidance also provides clarification of existing disclosures requiring the Company to determine each class of the investments based on risk and to disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 measurements.

ASC 740, Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. This accounting guidance also prescribes recognition thresholds and measurement attributes for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company's financial position or its results of operations. See Note 3 of Notes to Consolidated Financial Statements for further discussion.

The above discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in this report.