DAILY JOURNAL CORP [DJCO] Filings

10-Q 1 djco20240630_10q.htm FORM 10-Q djco20240630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-14665

DAILY JOURNAL CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina	95-4133299
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

915 East First Street
Los Angeles, California	90012-4050
(Address of principal executive offices)	(Zip code)

(213) 229-5300

(Registrant's telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	DJCO	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes: ☒

No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes: ☒

No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large Accelerated Filer: ☐	Accelerated Filer: ☐
	Non-accelerated Filer: ☐	Smaller Reporting Company: ☒
		Emerging Growth Company: ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ☐ No: ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 1,377,426 shares outstanding at July 31, 2024

DAILY JOURNAL CORPORATION

INDEX

	Page Nos.

PART I Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets ‑ June 30, 2024 and September 30, 2023	3

Consolidated Statements of Income and Comprehensive Income ‑ Three months ended June 30, 2024 and 2023	4

Consolidated Statements of Income and Comprehensive Income ‑ Nine months ended June 30, 2024 and 2023	5

Consolidated Statements of Shareholders’ Equity ‑ Nine months ended June 30, 2024 and 2023	6

Consolidated Statements of Cash Flows ‑ Nine months ended June 30, 2024 and 2023	7

Notes to Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 4. Controls and Procedures	26

Part II Other Information

Item 6. Exhibits	27

PART I

Item 1. FINANCIAL STATEMENTS

DAILY JOURNAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30			September 30
	2024			2023
ASSETS
Current assets
Cash and cash equivalents	$	9,991,000		$	20,844,000
Restricted cash		2,168,000			2,100,000
Non-qualified deferred compensation plan - trust account asset value		716,000			194,000
Marketable securities at fair value -- common stocks		325,021,000			303,128,000
Accounts receivable, less allowance for doubtful accounts of $250,000 at June 30, 2024 and September 30, 2023		22,090,000			18,687,000
Inventories		35,000			72,000
Prepaid expenses and other current assets		518,000			380,000
Total current assets		360,539,000			345,405,000

Property, plant and equipment, at cost
Land, buildings and improvements		16,418,000			16,400,000
Furniture, office equipment and computer software		1,685,000			1,703,000
Machinery and equipment		1,521,000			1,521,000
		19,624,000			19,624,000
Less accumulated depreciation		(10,453,000	)		(10,264,000	)
		9,171,000			9,360,000
Operating lease right-of-use assets		151,000			95,000
Total assets	$	369,861,000		$	354,860,000

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	6,776,000		$	6,643,000
Accrued liabilities		7,691,000			8,789,000
Income tax payable		1,916,000			1,069,000
Note payable collateralized by real estate		162,000			158,000
Deferred subscriptions		2,771,000			2,678,000
Deferred consulting fees		4,102,000			5,828,000
Deferred maintenance agreements and others		18,593,000			17,033,000
Total current liabilities		42,011,000			42,198,000

Long term liabilities
Investment margin account borrowings		27,500,000			75,000,000
Note payable collateralized by real estate		997,000			1,120,000
Deferred maintenance agreements		526,000			1,000,000
Accrued liabilities		2,879,000			4,274,000
Accrued non-qualified deferred compensation		652,000			200,000
Deferred income taxes		43,442,000			30,599,000
Total long-term liabilities		75,996,000			112,193,000

Commitments and contingencies (Notes 10 and 11)

Shareholders' equity
Preferred stock, $.01 par value, 5,000,000 shares authorized and no shares issued		---			---
Common stock, $.01 par value, 5,000,000 shares authorized; 1,805,053 shares issued, including 428,027 treasury shares, at June 30, 2024 and September 30, 2023		14,000			14,000
Additional paid-in capital		1,755,000			1,755,000
Retained earnings		250,085,000			198,700,000
Total shareholders' equity		251,854,000			200,469,000
Total liabilities and shareholders' equity	$	369,861,000		$	354,860,000

See accompanying Notes to Consolidated Financial Statements.

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

	Three months ended June 30
	2024			2023

Revenues
Advertising	$	2,536,000		$	2,304,000
Circulation		1,089,000			1,100,000
Advertising service fees and other		802,000			726,000
Licensing and maintenance fees		7,161,000			7,060,000
Consulting fees		3,438,000			4,393,000
Other public service fees		2,468,000			2,121,000
Total revenues		17,494,000			17,704,000

Costs and expenses
Salaries and employee benefits		12,069,000			10,817,000
Decrease to the long-term supplemental compensation accrual		(580,000	)		(95,000	)
Agency commissions		315,000			261,000
Outside services		1,726,000			1,905,000
Postage and delivery expenses		189,000			171,000
Newsprint and printing expenses		150,000			218,000
Depreciation and amortization		67,000			68,000
Equipment maintenance and software		418,000			467,000
Credit card merchant discount fees		558,000			505,000
Rent expenses		71,000			70,000
Accounting and legal fees		328,000			261,000
Other general and administrative expenses		1,093,000			743,000
Total costs and expenses		16,404,000			15,391,000
Income from operations		1,090,000			2,313,000
Other income (expense)
Dividends and interest income		2,999,000			1,987,000
Net unrealized gains (losses) on marketable securities		28,018,000			(2,735,000	)
Net unrealized gains on non-qualified compensation plan		173,000			---
Interest expense on margin loans and others		(435,000	)		(1,172,000	)
Interest expense on note payable collateralized by real estate		(10,000	)		(11,000	)
Income before income taxes		31,835,000			382,000
Income tax provisions		(8,480,000	)		295,000
Net income	$	23,355,000		$	677,000

Weighted average number of common shares outstanding - basic and diluted		1,377,026			1,377,026
Basic and diluted net income per share	$	16.96		$	0.49

Comprehensive income	$	23,355,000		$	677,000

See accompanying Notes to Consolidated Financial Statements.

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

	Nine months ended June 30
	2024			2023

Revenues
Advertising	$	6,939,000		$	6,498,000
Circulation		3,283,000			3,306,000
Advertising service fees and other		2,204,000			2,203,000
Licensing and maintenance fees		20,572,000			17,134,000
Consulting fees		9,939,000			11,148,000
Other public service fees		7,121,000			5,870,000
Total revenues		50,058,000			46,159,000

Costs and expenses
Salaries and employee benefits		35,427,000			30,453,000
Decrease to the long-term supplemental compensation accrual		(1,410,000	)		(815,000	)
Agency commissions		857,000			705,000
Outside services		4,976,000			4,885,000
Postage and delivery expenses		548,000			505,000
Newsprint and printing expenses		515,000			610,000
Depreciation and amortization		200,000			213,000
Equipment maintenance and software		1,130,000			1,124,000
Credit card merchant discount fees		1,668,000			1,385,000
Rent expenses		212,000			213,000
Accounting and legal fees		739,000			756,000
Other general and administrative expenses		2,850,000			2,903,000
Total costs and expenses		47,712,000			42,937,000
Income from operations		2,346,000			3,222,000
Other income (expense)
Dividends and interest income		5,857,000			7,119,000
Realized gains on sales of marketable securities		14,261,000			422,000
Net unrealized gains on marketable securities		48,211,000			29,934,000
Net unrealized gains on non-qualified compensation plan		173,000			---
Interest expense on margin loans and others		(2,622,000	)		(3,085,000	)
Interest expense on note payable collateralized by real estate		(31,000	)		(35,000	)
Income before income taxes		68,195,000			37,577,000
Income tax provisions		(16,810,000	)		(9,640,000	)
Net income	$	51,385,000		$	27,937,000

Weighted average number of common shares outstanding - basic and diluted		1,377,026			1,377,026
Basic and diluted net income per share	$	37.32		$	20.29

Comprehensive income	$	51,385,000		$	27,937,000

See accompanying Notes to Consolidated Financial Statements.

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

											Additional				Total
	Common Stock				Treasury Stock						Paid-in		Retained		Shareholders'
	Share		Amount		Share			Amount			Capital		Earnings		Equity

Balance at September 30, 2022		1,805,053	$	18,000		(428,027	)	$	(4,000	)	$	1,755,000	$	177,248,000	$	179,017,000
Net income		---		---		---			---			---		17,827,000		17,827,000
Balance at December 31, 2022		1,805,053		18,000		(428,027	)		(4,000	)		1,755,000		195,075,000		196,844,000
Net income		---		---		---			---			---		9,433,000		9,433,000
Balance at March 31, 2023		1,805,053		18,000		(428,027	)		(4,000	)		1,755,000		204,508,000		206,277,000
Net income		---		---		---			---			---		677,000		677,000
Balance at June 30, 2023		1,805,053	$	18,000		(428,027	)	$	(4,000	)	$	1,755,000	$	205,185,000	$	206,954,000

Balance at September 30, 2023		1,805,053	$	18,000		(428,027	)	$	(4,000	)	$	1,755,000	$	198,700,000	$	200,469,000
Net income		---		---		---			---			---		12,615,000		12,615,000
Balance at December 31, 2023		1,805,053		18,000		(428,027	)		(4,000	)		1,755,000		211,315,000		213,084,000
Net income		---		---		---			---			---		15,415,000		15,415,000
Balance at March 31, 2024		1,805,053		18,000		(428,027	)		(4,000	)		1,755,000		226,730,000		228,499,000
Net income		---		---		---			---			---		23,355,000		23,355,000
Balance at June 30, 2024		1,805,053	$	18,000		(428,027	)	$	(4,000	)	$	1,755,000	$	250,085,000	$	251,854,000

See accompanying Notes to Consolidated Financial Statements.

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended June 30
	2024			2023
Cash flows from operating activities
Net income	$	51,385,000		$	27,937,000
Adjustments to reconcile net income to net cash (used in) provided from operations
Depreciation and amortization		200,000			213,000
Net unrealized gains on marketable securities		(48,211,000	)		(29,934,000	)
Realized gains on sales of marketable securities		(14,261,000	)		(422,000	)
Stock dividends		---			(2,978,000	)
Deferred income taxes		12,843,000			8,729,000
Changes in operating assets and liabilities
(Increase) decrease in current assets
Accounts receivable, net		(3,403,000	)		(274,000	)
Inventories		37,000			(1,000	)
Prepaid expenses and other assets		(194,000	)		(40,000	)
Income tax receivable		---			882,000
Increase (decrease) in liabilities
Accounts payable		133,000			1,052,000
Accrued liabilities, including non-qualified deferred compensation		(2,041,000	)		(2,383,000	)
Income tax payable		847,000			---
Deferred subscriptions		93,000			107,000
Deferred consulting fees		(1,726,000	)		1,691,000
Deferred maintenance agreements and others		1,086,000			3,845,000
Net cash (used in) provided from operating activities		(3,212,000	)		8,424,000

Cash flows from investing activities
Proceeds from sales of marketable securities		40,579,000			2,826,000
Purchases of marketable securities		---			(10,001,000	)
Purchases of property, plant and equipment		(11,000	)		(86,000	)
Net cash provided from (used in) investing activities		40,568,000			(7,261,000	)

Cash flows from financing activities
Proceeds from margin loan borrowing		---			6,011,000
Payment to margin loan borrowing		(47,500,000	)		(11,000	)
Payment of real estate loan principal		(119,000	)		(114,000	)
Net cash (used in) provided from financing activities		(47,619,000	)		5,886,000

(Decrease) increase in cash and restricted cash and cash equivalents		(10,263,000	)		7,049,000

Cash and restricted cash and cash equivalents, and non-qualified deferred compensation plan-trust account asset value
Beginning of period		23,138,000			15,468,000
End of period	$	12,875,000		$	22,517,000
Interest paid during period	$	2,733,000		$	3,053,000
Net income taxes paid	$	3,206,000		$	88,000

See accompanying Notes to Consolidated Financial Statements.

DAILY JOURNAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - The Corporation and Operations

Daily Journal Corporation (“Daily Journal” or “the Company”) publishes newspapers and websites covering California and Arizona and produces several specialized information services. It also serves as a newspaper representative specializing in public notice advertising. This is sometimes referred to as the Company’s “Traditional Business”.

Journal Technologies, Inc. (“Journal Technologies”), a wholly-owned subsidiary of the Company, supplies case management software systems and related products to courts, prosecutor and public defender offices, probation departments and other justice agencies, including administrative law organizations, city and county governments and bar associations. These organizations use the Journal Technologies family of products to help manage cases and information electronically, to interface with other critical justice partners and to extend electronic services to the public, including e-filing and a website to pay traffic citations and fees online. These products are licensed or subscribed to in approximately 30 states and internationally.

Essentially all of the Company’s U.S. operations are based in California, Arizona and Utah. The Company also has a presence in Australia where Journal Technologies is working on three software installation projects and in British Columbia, Canada, where the Company established a new wholly-owned subsidiary, Journal Technologies (Canada) Inc., in August 2022.

Note 2 - Basis of Presentation

In the opinion of the Company, the accompanying interim unaudited consolidated financial statements present fairly the financial position of the Company as of June 30, 2024 and September 30, 2023, the results of operations and consolidated statements of shareholders' equity for the three- and nine-month periods ended June 30, 2024 and 2023, and cash flows for the nine-month periods ended June 30, 2024 and 2023. The results of operations for the nine months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year.

The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Certain reclassifications of previously reported amounts have been made to conform to the current year’s presentation.

Note 3 - Accounting Standards Adopted in Fiscal 2024

On October 1, 2023, the Company adopted Current Expected Credit Losses under Accounting Standards Update 2016-13, a credit loss accounting standard (model) issued by the Financial Accounting Stands Board, requiring financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard eliminates the threshold for initial recognition in current U.S. GAAP and reflects an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. The adoption of this guidance has no material effect on the Company’s consolidated financial statements.

Note 4 – Right-of-Use (ROU) Asset and Liabilities

At June 30, 2024, the Company had a ROU asset and lease liability of approximately $151,000 for its operating office and equipment leases, including approximately $92,000 beyond one year. Operating office and equipment leases are included in operating lease ROU assets, current accrued liabilities and long-term accrued liabilities in the Company’s accompanying consolidated balance sheets.

Note 5 – Revenue Recognition

The Company recognizes revenues in accordance with the provisions of ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606).

For the Traditional Business, 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 term. Advertising revenues are recognized when advertisements are published.

Journal Technologies contracts may include several products and services, which are generally distinct and include separate transaction pricing and performance obligations. Most are one-transaction contracts. These current subscription-type contract revenues include (i) implementation consulting fees to configure the system to go-live, (ii) subscription software license, maintenance (including updates and upgrades) and support fees, and (iii) third-party hosting fees when used. Revenues for consulting are recognized at point of delivery (go-live) upon completion of services. These contracts include assurance warranty provisions for limited periods and do not include financing terms. For some contracts, the Company acts as a principal with respect to certain services, such as data conversion, interfaces and hosting that are provided by third-parties, and recognizes such revenues on a gross basis. For legacy contracts with perpetual license arrangements, licenses and consulting services are recognized at point of delivery (go-live), and maintenance revenues are recognized ratably after the go-live. Other public service fees are earned and recognized as revenues when the Company processes credit card payments on behalf of the courts via its websites through which the public can e-file cases or pay traffic citations and other fees.

The adoption of ASC 606 also requires the capitalization of certain costs of obtaining contracts, specifically sales commissions which are to be amortized over the expected term of the contracts. For its software contracts, the Company incurs an immaterial amount of sales commission costs which have no significant impact on the Company’s financial condition and results of operations. In addition, the Company’s implementation and fulfillment costs do not meet all criteria required for capitalization.

Since the Company recognizes revenues when it can invoice the customer pursuant to the contract for the value of completed performance, as a practical expedient and because reliable estimates cannot be made, it has elected not to include the transaction price allocated to unsatisfied performance obligations. Furthermore, there are no fulfillment costs to be capitalized for the software contracts because these costs do not generate or enhance resources that will be used in satisfying future performance obligations.

Note 6 - Treasury stock and net income per common share

In June 2022, the Company received from the late Charles T. Munger 3,720 shares of Daily Journal common stock as his gracious personal gift (worth approximately $1 million on the date of the gift) for the purpose of establishing a new senior management equity incentive plan, which has been approved by the Board of Directors and shareholders. (On July 24, 2024, the Board granted 400 shares and 400 restricted stock units to the Company’s Chief Executive Officer, Steven Myhill-Jones.) These donated shares were considered treasury stock, and the Company accounted for them using the par method which resulted in an immaterial effected amount on Treasury Stock and Additional Paid-in Capital. In addition, the number of outstanding shares of the Company was reduced by these 3,720 shares to reflect the actual number of outstanding shares of 1,377,026 at June 30, 2024. The net income per common share is based on the weighted average number of shares outstanding during each year. The shares used in the calculation were 1,377,026 for both the three- and nine-month periods ended June 30, 2024 and 2023.

Note 7 - Basic and Diluted Net Income Per Share

The Company did not have any common stock equivalents as of June 30, 2024 or 2023, and therefore basic and diluted net income per share are the same.

Note 8 - Investments in Marketable Securities

All investments are classified as “Current assets” because they are available for sale at any time. These “available-for-sale” marketable securities are stated at fair value. The Company uses quoted prices in active markets for identical assets (consistent with the Level 1 definition in the fair value hierarchy) to measure the fair value of its investments on a recurring basis pursuant to ASC 820, Fair Value Measurement. As of June 30, 2024 and September 30, 2023, there were net accumulated pretax unrealized gains of $185,927,000 and $137,716,000, respectively, recorded in the accompanying consolidated balance sheets. Most of the accumulated pretax unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

During the nine months ended June 30, 2024, the Company recorded and included in its net income the net unrealized gains on marketable securities of $48,211,000, as compared with $29,934,000, in the prior year period.

In March 2024, the Company sold part of its marketable securities for approximately $40,579,000, realizing net gains of $14,261,000. The Company used these proceeds and excess cash from operations to pay down the margin loan balance to $27,500,000 from $75,000,000 at September 30, 2023, aggregating a paydown of approximately $47,500,000 during the nine months ended June 30, 2024.

In December 2022, the Company sold part of its marketable securities for approximately $2,826,000, realizing net gains of $422,000, and borrowed an additional $6,011,000 from the margin loan account to purchase additional marketable securities with a total cost of approximately $10,001,000. The Company repaid $11,000 subsequently in fiscal 2023. In addition, the Company received stock dividends in March 2023 worth approximately $2,978,000 from one of the companies in which it holds marketable securities.

Our long-serving director and former chairman, Charles T. Munger, had managed the Company’s marketable securities portfolio since the original purchases were made with the Company’s excess cash in 2009. Mr. Munger passed away in November 2023, and the Company remains committed to using the portfolio as a source of strength in support of its operating businesses, just as it has for the past 15 years. The Board has been evaluating ways to ensure the prudent and effective management of these assets in the context of the current market and the needs of the businesses, and the recent sales of a portion of the portfolio and the concurrent paydown of the Company’s margin loan, each as described above, are reflective of that evaluation.

Investments in marketable securities as of June 30, 2024 and September 30, 2023 are summarized below.

Investment in Financial Instruments

	June 30, 2024						September 30, 2023
	Aggregate fair value		Amortized/ Adjusted cost basis		Pretax unrealized gains		Aggregate fair value		Amortized/ Adjusted cost basis		Pretax unrealized gains
Marketable securities
Common stocks	$	325,021,000	$	139,094,000	$	185,927,000	$	303,128,000	$	165,412,000	$	137,716,000

Note 9 - Income Taxes

For the nine months ended June 30, 2024, the Company recorded an income tax provision of $16,810,000 on the pretax income of $68,195,000. The income tax provision consisted of tax provisions of $3,690,000 on the realized gains on marketable securities, $12,480,000 on the unrealized gains on marketable securities, $50,000 on income from foreign operations, and $1,440,000 on income from US operations and dividend income, partially offset by a tax benefit of $330,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $520,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. Consequently, the overall effective tax rate for the nine months ended June 30, 2024 was 24.65%, after including the taxes on the realized and unrealized gains on marketable securities.

For the nine months ended June 30, 2023, the Company recorded an income tax provision of $9,640,000 on the pretax income of $37,577,000. The income tax provision consisted of a tax provision of $110,000 on the realized gains on marketable securities, $7,950,000 on the unrealized gains on marketable securities, and a tax provision of $1,890,000 on income from operations and dividend income, partially offset by a tax benefit of $250,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $60,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. Consequently, the overall effective tax rate for the nine months ended June 30, 2023 was 25.7%, after including the taxes on the realized and unrealized gains on marketable securities.

The Company files consolidated federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for fiscal years before fiscal 2021 with regard to federal income taxes and fiscal 2020 for state income taxes.

Note 10 - Debt and Commitments

During fiscal 2013, the Company borrowed from its investment margin account the aggregate purchase price of $29.5 million for two acquisitions, in each case pledging its marketable securities as collateral. At June 30, 2024, the margin loan balance was approximately $27.5 million. The interest rate for these investment margin account borrowings fluctuates based on the Federal Funds Rate plus 50 basis points with interest only payable monthly. The interest rate as of June 30, 2024 was 6%. These investment margin account borrowings do not mature.

In November 2015, the Company purchased a 30,700 square foot office building constructed in 1998 on about 3.6 acres in Logan, Utah that had been previously leased for Journal Technologies. The Company paid $1.24 million and financed the balance with a real estate bank loan of $2.26 million which had a fixed interest rate of 4.66%. This loan is secured by the Logan facility and can be paid off at any time without prepayment penalty. In October 2020, the Company executed an amendment to lower the interest rate of this loan to a fixed rate of 3.33% for the remaining 10 years. This real estate loan had a balance of approximately $1.16 million as of June 30, 2024. Each monthly installment payment is approximately $16,700. In April 2022, the Company sold approximately 17,564 square feet of the land along the front of its Logan building to the City of Logan for approximately $381,000 in connection with the City of Logan’s street widening project. In October 2022, the Company again amended this real estate loan contract as the bank transferred its index to the Secured Overnight Financing Rate from London Interbank Offered Rate which was ceased by the Federal Reserve and the Alternative Reference Rates Committee in the United States. The term of the loan, including the interest rate and the balance, remains unchanged.

The Company also owns its facilities in Los Angeles and leases space for its other offices under operating leases which expire at various dates through June 2026.

Effective January 1, 2023, the Company began sponsoring a 401(k) retirement plan and a 409(A) non-qualified deferred compensation plan for its employees. As of June 30, 2024, there were deferred compensation liabilities of approximately $652,000, which were held under a 409(A) plan trust account secured by a company-owned life insurance policy.

Note 11 - Contingencies

From time to time, the Company is subject to contingencies, including litigation, arising in the normal course of its business. While it is not possible to predict the results of such contingencies, management does not believe the ultimate outcome of these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Note 12 - Operating Segments

The Company’s Traditional Business is one reportable segment and the other is Journal Technologies which includes Journal Technologies, Inc. and Journal Technologies (Canada) Inc. All inter-segment transactions were eliminated. Additional detail about each of the reportable segments and its income and expenses is set forth below:

Overall Financial Results (000)

For the nine months ended June 30

	Reportable Segments
	Traditional Business						Journal Technologies						Corporate income and expenses						Total

	2024			2023			2024			2023			2024			2023			2024			2023
Revenues
Advertising	$	6,939		$	6,498		$	---		$	---		$	---		$	---		$	6,939		$	6,498
Circulation		3,283			3,306			---			---			---			---			3,283			3,306
Advertising service fees and other		2,204			2,203			---			---			---			---			2,204			2,203
Licensing and maintenance fees		---			---			20,572			17,134			---			---			20,572			17,134
Consulting fees		---			---			9,939			11,148			---			---			9,939			11,148
Other public service fees		---			---			7,121			5,870			---			---			7,121			5,870
Total revenues		12,426			12,007			37,632			34,152			---			---			50,058			46,159
Operating expenses
Salaries and employee benefits		7,829			6,799			27,598			23,654			---			---			35,427			30,453
Decrease to the long-term Supplemental Compensation accrual		(1,380	)		(795	)		(30	)		(20	)		---			---			(1,410	)		(815	)
Others		4,376			3,691			9,319			9,608			---			---			13,695			13,299
Total operating expenses		10,825			9,695			36,887			33,242			---			---			47,712			42,937
Income from operations		1,601			2,312			745			910			---			---			2,346			3,222
Dividends and interest income		---			---			---			---			5,857			7,119			5,857			7,119
Gains on sales of marketable securities, net		---			---			---			---			14,261			422			14,261			422
Net unrealized gains on marketable securities		---			---			---			---			48,211			29,934			48,211			29,934
Net unrealized gains on non-qualified compensation plan		---			---			---			---			173			---			173			---
Interest expenses on margin loans and others		---			---			---			---			(2,622	)		(3,085	)		(2,622	)		(3,085	)
Interest expenses on note payable collateralized by real estate		---			---			---			---			(31	)		(35	)		(31	)		(35	)
Pretax income		1,601			2,312			745			910			65,849			34,355			68,195			37,577
Income tax expense		(390	)		(595	)		(380	)		(175	)		(16,040	)		(8,870	)		(16,810	)		(9,640	)
Net income	$	1,211		$	1,717		$	365		$	735		$	49,809		$	25,485		$	51,385		$	27,937
Total assets	$	12,893		$	15,794		$	31,231		$	34,143		$	325,737		$	316,038		$	369,861		$	365,975
Capital expenditures	$	23		$	70		$	---		$	16		$	---		$	---		$	23		$	86

Overall Financial Results (000)

For the three months ended June 30

	Reportable Segments
	Traditional Business						Journal Technologies						Corporate income and expenses						Total

	2024			2023			2024			2023			2024			2023			2024			2023
Revenues
Advertising	$	2,536		$	2,304		$	---		$	---		$	---		$	---		$	2,536		$	2,304
Circulation		1,089			1,100			---			---			---			---			1,089			1,100
Advertising service fees and other		802			726			---			---			---			---			802			726
Licensing and maintenance fees		---			---			7,161			7,060			---			---			7,161			7,060
Consulting fees		---			---			3,438			4,393			---			---			3,438			4,393
Other public service fees		---			---			2,468			2,121			---			---			2,468			2,121
Total revenues		4,427			4,130			13,067			13,574			---			---			17,494			17,704
Operating expenses
Salaries and employee benefits		2,656			2,300			9,413			8,517			---			---			12,069			10,817
Decrease to the long-term Supplemental Compensation accrual		(580	)		(95	)		---			---			---			---			(580	)		(95	)
Others		1,611			1,256			3,304			3,413			---			---			4,915			4,669
Total operating expenses		3,687			3,461			12,717			11,930			---			---			16,404			15,391
Income from operations		740			669			350			1,644			---			---			1,090			2,313
Dividends and interest income		---			---			---			---			2,999			1,987			2,999			1,987
Net unrealized gains (losses) on marketable securities		---			---			---			---			28,018			(2,735	)		28,018			(2,735	)
Net unrealized gains on non-qualified compensation plan		---			---			---			---			173			---			173			---
Interest expenses on margin loans and others		---			---			---			---			(435	)		(1,172	)		(435	)		(1,172	)
Interest expenses on note payable collateralized by real estate		---			---			---			---			(10	)		(11	)		(10	)		(11	)
Pretax income (loss)		740			669			350			1,644			30,745			(1,931	)		31,835			382
Income tax (expense) benefit		(190	)		(160	)		(290	)		(310	)		(8,000	)		765			(8,480	)		295
Net income (loss)	$	550		$	509		$	60		$	1,334		$	22,745		$	(1,166	)	$	23,355		$	677
Total assets	$	12,893		$	15,794		$	31,231		$	34,143		$	325,737		$	316,038		$	369,861		$	365,975
Capital expenditures	$	---		$	---		$	---		$	12		$	---		$	---		$	----		$	12

During the nine months ended June 30, 2024, the Traditional Business had total operating revenues of $12,426,000 with $9,143,000 recognized after services were provided and $3,283,000 recognized ratably over the subscription terms, as compared with total operating revenues of $12,007,000 with $8,701,000 recognized after services were provided and $3,306,000 recognized ratably over the subscription terms in the prior fiscal year period. Total operating revenues for the Company’s software business were $37,632,000 with $17,329,000 recognized upon completion of services and $20,303,000 recognized ratably over the subscription periods, as compared with total operating revenues of $34,152,000 with $16,835,000 recognized upon completion of services and $17,317,000 recognized ratably over the subscription periods in the prior fiscal year period.

During the three months ended June 30, 2024, the Traditional Business had total operating revenues of $4,427,000 with $3,338,000 recognized after services were provided and $1,089,000 recognized ratably over the subscription terms, as compared with total operating revenues of $4,130,000 with $3,030,000 recognized after services were provided and $1,100,000 recognized ratably over the subscription terms in the prior fiscal year period. Total operating revenues for the Company’s software business were $13,067,000 with $5,945,000 recognized upon completion of services and $7,122,000 recognized ratably over the subscription periods, as compared with total operating revenues of $13,574,000 with $6,148,000 recognized upon completion of services and $7,426,000 recognized ratably over the subscription periods in the prior fiscal year period.

Approximately 75% of the Company’s revenues during the nine-month period ended June 30, 2024 were derived from Journal Technologies, as compared with 74% in the prior year period. In addition, the Company’s revenues have been primarily from the United States with approximately 10% from foreign countries during the nine months ended June 30, 2024. Journal Technologies’ revenues are primarily from governmental agencies.

Note 13 - Subsequent Events

The Company has completed an evaluation of all subsequent events through the issuance date of these financial statements and concluded that no subsequent events occurred that required recognition to the financial statements or disclosures in the Notes to Consolidated Financial Statements, except for the event mentioned below.

In July 2024, the Board approved the conversion of the consulting arrangement the Company had with Mr. Steven Myhill-Jones, the Company’s chairman and chief executive officer, to an employment relationship directly with Mr. Myhill-Jones. In addition, the Company’s Compensation Committee granted Mr. Myhill-Jones, 400 fully vested shares of the Company’s common stock and 400 restricted stock units, both under the Company’s 2024 Equity Incentive Plan.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The Company continues to operate as two different businesses: (1) The Traditional Business, being the business of newspaper publishing and related services that the Company had before 1999 when it purchased a software development company, and (2) Journal Technologies, Inc., which supplies case management software systems and related products to courts, prosecutor and public defender offices, probation departments and other justice agencies, including administrative law organizations, city and county governments and bar associations. These organizations use the Journal Technologies family of products to help manage cases and information electronically, to interface with other critical justice partners and to extend electronic services to the public, including e-filing and a website to pay traffic citations and fees online. These products are licensed or subscribed to in approximately 30 states and internationally.

Reportable Segments

The Company’s Traditional Business is one reportable segment and the other is Journal Technologies which includes Journal Technologies, Inc. and Journal Technologies (Canada) Inc. All inter-segment transactions were eliminated. Additional detail about each reportable segment and its income and expenses is set forth below:

Overall Financial Results (000)

For the nine months ended June 30

	Reportable Segments
	Traditional Business						Journal Technologies						Corporate income and expenses				Total

	2024			2023			2024			2023			2024		2023		2024			2023
Revenues
Advertising	$	6,939		$	6,498		$	---		$	---		$	---	$	---	$	6,939		$	6,498
Circulation		3,283			3,306			---			---			---		---		3,283			3,306
Advertising service fees and other		2,204			2,203			---			---			---		---		2,204			2,203
Licensing and maintenance fees		---			---			20,572			17,134			---		---		20,572			17,134
Consulting fees		---			---			9,939			11,148			---		---		9,939			11,148
Other public service fees		---			---			7,121			5,870			---		---		7,121			5,870
Total revenues		12,426			12,007			37,632			34,152			---		---		50,058			46,159
Operating expenses
Salaries and employee benefits		7,829			6,799			27,598			23,654			---		---		35,427			30,453
Decrease to the long-term Supplemental Compensation accrual		(1,380	)		(795	)		(30	)		(20	)		---		---		(1,410	)		(815	)
Others		4,376			3,691			9,319			9,608			---		---		13,695			13,299
Total operating expenses		10,825			9,695			36,887			33,242			---		---		47,712			42,937
Income from operations		1,601			2,312			745			910			---		---		2,346			3,222
Dividends and interest income		---			---			---