Company Quick10K Filing
Daily Journal
Price247.00 EPS-18
Shares1 P/E-14
MCap341 P/FCF211
Net Debt-11 EBIT-23
TEV330 TEV/EBIT-14
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-07
10-Q 2020-03-31 Filed 2020-05-11
10-Q 2019-12-31 Filed 2020-02-07
10-K 2019-09-30 Filed 2019-12-12
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-Q 2018-12-31 Filed 2019-02-11
10-K 2018-09-30 Filed 2018-12-12
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-08
10-Q 2017-12-31 Filed 2018-02-08
10-K 2017-09-30 Filed 2017-12-13
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-05-09
10-Q 2016-12-31 Filed 2017-02-09
10-K 2016-09-30 Filed 2016-12-14
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-10
10-Q 2015-12-31 Filed 2016-02-08
10-K 2015-09-30 Filed 2015-12-14
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-08
10-Q 2014-12-31 Filed 2015-02-13
10-K 2014-06-30 Filed 2015-01-28
10-Q 2014-06-30 Filed 2014-08-18
10-Q 2014-03-31 Filed 2014-08-15
10-Q 2013-12-31 Filed 2014-08-13
10-K 2013-09-30 Filed 2014-06-24
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-Q 2012-12-31 Filed 2013-02-14
10-K 2012-09-30 Filed 2012-12-14
10-Q 2012-03-31 Filed 2012-05-11
10-Q 2011-12-31 Filed 2012-02-10
10-K 2011-09-30 Filed 2011-12-12
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-Q 2010-12-31 Filed 2011-02-11
10-K 2010-09-30 Filed 2010-12-15
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-12
10-Q 2009-12-31 Filed 2010-02-10
8-K 2020-08-31 Officers
8-K 2020-02-12
8-K 2019-05-14
8-K 2019-02-14
8-K 2018-02-14

DJCO 10Q Quarterly Report

Part I
Item 1. Financial Statements
Note 1 - The Corporation and Operations
Note 2 - Basis of Presentation
Note 3 - Accounting Standards Adopted in Fiscal 2020
Note 4 – Revenue Recognition
Note 5 - Basic and Diluted Income per Share
Note 6 - Investments in Marketable Securities
Note 7 - Income Taxes
Note 8 - Debt and Commitments
Note 9 - Contingencies
Note 10 - Operating Segments
Note 11 - Subsequent Events
Item 2.  Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
Item 4.   Controls and Procedures
Part II
Item 1A.   Risk Factors
Item 6.   Exhibits
EX-31 ex_197281.htm
EX-32 ex_197282.htm

Daily Journal Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
2902321741165802012201420172020
Assets, Equity
20112-7-16-252012201420172020
Rev, G Profit, Net Income
1593-3-9-152012201420172020
Ops, Inv, Fin

djco20200630_10q.htm
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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, 2020

or

 

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: 1,380,746 shares outstanding at July 31, 2020

 

1

 

 

DAILY JOURNAL CORPORATION

 

 

INDEX

 

 

 

  Page Nos.
   

PART I   Financial Information

 
   

Item 1.   Financial Statements

 
   

Consolidated Balance Sheets - June 30, 2020 and September 30, 2019

3

   

Consolidated Statements of Comprehensive Income - Three months ended June 30, 2020 and 2019

4

   

Consolidated Statements of Comprehensive Loss - Nine months ended June 30, 2020 and 2019

5

   

Consolidated Statements of Shareholders’ Equity - Nine months ended June 30, 2020 and 2019

6

   

Consolidated Statements of Cash Flows - Nine months ended June 30, 2020 and 2019

7

   

Notes to Consolidated Financial Statements

8

   

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

15

   

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

24

   

Item 4.   Controls and Procedures

24

   

Part II    Other Information

 
   

Item 1A.   Risk Factors

25

   

Item 6.   Exhibits

25

 

2

 

 

PART I

Item 1. FINANCIAL STATEMENTS

DAILY JOURNAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

  

June 30

  

September 30

 
  

2020

  

2019

 

ASSETS

        

Current assets

        

Cash and cash equivalents

 $9,867,000  $10,630,000 

Marketable securities at fair value -- common stocks of $153,390,000 at June 30 2020 and $194,581,000 at September 30, 2019

  153,390,000   194,581,000 

Accounts receivable, less allowance for doubtful accounts of $250,000 at June 30, 2020 and $200,000 at September 30, 2019

  9,352,000   7,036,000 

Inventories

  51,000   40,000 

Prepaid expenses and other current assets

  700,000   508,000 

Income tax receivable

  812,000   153,000 

Total current assets

  174,172,000   212,948,000 
         

Property, plant and equipment, at cost

        

Land, buildings and improvements

  16,599,000   16,499,000 

Furniture, office equipment and computer software

  2,188,000   2,119,000 

Machinery and equipment

  1,749,000   1,750,000 
   20,536,000   20,368,000 

Less accumulated depreciation

  (9,956,000)  (9,572,000)
   10,580,000   10,796,000 

Operating lease right-of-use assets

  244,000   --- 

Deferred income taxes - Federal

  11,592,000   12,596,000 

Deferred income taxes - State

  1,376,000   1,036,000 
  $197,964,000  $237,376,000 
         

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities

        

Accounts payable

 $3,458,000  $4,520,000 

Accrued liabilities

  5,730,000   5,173,000 

Note payable collateralized by real estate

  131,000   126,000 

Deferred subscriptions

  3,014,000   3,195,000 

Deferred installation contracts

  483,000   1,932,000 

Deferred maintenance agreements and others

  16,421,000   15,722,000 

Total current liabilities

  29,237,000   30,668,000 
         

Long term liabilities

        

Investment margin account borrowings

  30,493,000   29,493,000 

Note payable collateralized by real estate

  1,610,000   1,709,000 

Deferred maintenance agreements

  562,000   335,000 

Accrued liabilities

  318,000   230,000 

Deferred income taxes

  25,886,000   37,241,000 

Total long term liabilities

  58,869,000   69,008,000 
         

Commitments and contingencies (Notes 8 and 9)

  ---   --- 
         

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 424,307 treasury shares, at June 30, 2020 and September 30, 2019

  14,000   14,000 

Additional paid-in capital

  1,755,000   1,755,000 

Retained earnings

  108,089,000   135,931,000 

Total shareholders' equity

  109,858,000   137,700,000 
  $197,964,000  $237,376,000 

 

See accompanying Notes to Consolidated Financial Statements

 

3

 

 

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

  

Three months

ended June 30

 
  

2020

  

2019

 
         

Revenues

        

Advertising

 $1,297,000  $2,453,000 

Circulation

  1,259,000   1,319,000 

Advertising service fees and other

  575,000   735,000 

Licensing and maintenance fees

  5,531,000   5,814,000 

Consulting fees

  3,147,000   2,627,000 

Other public service fees

  1,065,000   1,570,000 
   12,874,000   14,518,000 
         

Costs and expenses

        

Salaries and employee benefits

  9,662,000   8,715,000 

Outside services

  586,000   444,000 

Postage and delivery expenses

  151,000   218,000 

Newsprint and printing expenses

  157,000   186,000 

Depreciation and amortization

  128,000   141,000 

Equipment maintenance and software

  276,000   380,000 

Credit card merchant discount fees

  244,000   367,000 

Rent expenses

  158,000   216,000 

Accounting and legal fees

  272,000   499,000 

Other general and administrative expenses

  647,000   2,228,000 
   12,281,000   13,394,000 

Income from operations

  593,000   1,124,000 

Other income (expense)

        

Dividends and interest income

  1,596,000   1,368,000 

Other income

  ---   10,000 

Net unrealized gains on investments

  16,489,000   3,214,000 

Interest expense on note payable collateralized by real estate

  (20,000)  (22,000)

Interest expense on margin loans and others

  (64,000)  (251,000)

Income before income taxes

  18,594,000   5,443,000 

Provision for income taxes

  (4,320,000)  (1,620,000)

Net income

 $14,274,000  $3,823,000 
         

Weighted average number of common shares outstanding - basic and diluted

  1,380,746   1,380,746 

Basic and diluted net income per share

 $10.34  $2.77 
         

Comprehensive income

 $14,274,000  $3,823,000 

 

See accompanying Notes to Consolidated Financial Statements.

 

4

 

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

  

Nine months

ended June 30

 
  

2020

  

2019

 
         

Revenues

        

Advertising

 $5,415,000  $6,753,000 

Circulation

  3,857,000   3,930,000 

Advertising service fees and other

  1,923,000   2,028,000 

Licensing and maintenance fees

  16,246,000   15,244,000 

Consulting fees

  5,065,000   3,567,000 

Other public service fees

  4,401,000   4,136,000 
   36,907,000   35,658,000 
         

Costs and expenses

        

Salaries and employee benefits

  28,227,000   26,161,000 

Outside services

  2,600,000   2,846,000 

Postage and delivery expenses

  552,000   627,000 

Newsprint and printing expenses

  528,000   548,000 

Depreciation and amortization

  384,000   444,000 

Equipment maintenance and software

  1,102,000   1,133,000 

Credit card merchant discount fees

  1,014,000   1,012,000 

Rent expenses

  500,000   731,000 

Accounting and legal fees

  730,000   1,298,000 

Other general and administrative expenses

  3,293,000   4,926,000 
   38,930,000   39,726,000 

Loss from operations

  (2,023,000)  (4,068,000)

Other income (expense)

        

Dividends and interest income

  4,573,000   4,039,000 

Other income

  3,000   29,000 

Net unrealized losses on investments

  (41,191,000)  (16,929,000)

Interest expense on note payable collateralized by real estate

  (63,000)  (67,000)

Interest expense on margin loans and others

  (401,000)  (676,000)

Loss before income taxes

  (39,102,000)  (17,672,000)

Benefit from income taxes

  11,260,000   4,980,000 

Net loss

 $(27,842,000) $(12,692,000)
         

Weighted average number of common shares outstanding - basic and diluted

  1,380,746   1,380,746 

Basic and diluted loss per share

 $(20.16) $(9.19)
         

Comprehensive loss

 $(27,842,000) $(12,692,000)

 

See accompanying Notes to Consolidated Financial Statements.

 

5

 

 

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

                          

Accumulated

     
                  

Additional

      

Other

  

Total

 
  

Common Stock

  

Treasury Stock

  

Paid-in

  

Retained

  

Comprehensive

  

Shareholders'

 
  

Share

  

Amount

  

Share

  

Amount

  

Capital

  

Earnings

  

Income

  

Equity

 
                                 

Balance at September 30, 2018

  1,805,053  $18,000   (424,307) $(4,000) $1,755,000  $45,361,000  $115,786,000  $162,916,000 

Adoption of new accounting pronouncement

  ---   ---   ---   ---   ---   115,786,000   (115,786,000)  --- 

Net loss

  ---   ---   ---   ---   ---   (21,533,000)  ---   (21,533,000)

Balance at December 31, 2018

  1,805,053   18,000   (424,307)  (4,000)  1,755,000   139,614,000   ---   141,383,000 

Net income

  ---   ---   ---   ---   ---   5,018,000   ---   5,018,000 

Balance at March 31, 2019

  1,805,053   18,000   (424,307)  (4,000)  1,755,000   144,632,000   ---   146,401,000 

Net income

  ---   ---   ---   ---   ---   3,823,000   ---   3,823,000 

Balance at June 30, 2019

  1,805,053  $18,000   (424,307) $(4,000) $1,755,000  $148,455,000  $---  $150,224,000 
                                 
                                 

Balance at September 30, 2019

  1,805,053  $18,000   (424,307) $(4,000) $1,755,000  $135,931,000  $---  $137,700,000 

Net income

  ---   ---   ---   ---   ---   14,210,000   ---   14,210,000 

Balance at December 31, 2019

  1,805,053   18,000   (424,307)  (4,000)  1,755,000   150,141,000   ---   151,910,000 

Net loss

  ---   ---   ---   ---   ---   (56,326,000)  ---   (56,326,000)

Balance at March 31, 2020

  1,805,053   18,000   (424,307)  (4,000)  1,755,000   93,815,000   ---   95,584,000 

Net income

  ---   ---   ---   ---   ---   14,274,000   ---   14,274,000 

Balance at June 30, 2020

  1,805,053  $18,000   (424,307) $(4,000) $1,755,000  $108,089,000  $---  $109,858,000 

 

See accompanying Notes to Consolidated Financial Statements

 

6

 

 

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Nine months

ended June 30

 
  

2020

  

2019

 

Cash flows from operating activities

        

Net loss

 $(27,842,000) $(12,692,000)

Adjustments to reconcile net loss to net cash used in operations

        

Depreciation and amortization

  384,000   444,000 

Increase in bad debt allowance

  50,000   --- 

Net unrealized losses on investments

  41,191,000   16,929,000 

Deferred income taxes

  (10,691,000)  (5,087,000)

Changes in operating assets and liabilities

        

(Increase) decrease in current assets

        

Accounts receivable, net

  (2,366,000)  (3,741,000)

Inventories

  (11,000)  5,000 

Prepaid expenses and other assets

  (192,000)  278,000 

Income tax receivable

  (659,000)  134,000 

Increase (decrease) in liabilities

        

Accounts payable

  (1,062,000)  1,481,000 

Accrued liabilities

  401,000   621,000 

Deferred subscriptions

  (181,000)  81,000 

Deferred maintenance agreements and others

  926,000   1,685,000 

Deferred installation contracts

  (1,449,000)  (744,000)

Net cash used in operating activities

  (1,501,000)  (606,000)
         

Cash flows from investing activities

        

Purchases of property, plant and equipment

  (168,000)  (97,000)

Net cash used in investing activities

  (168,000)  (97,000)
         

Cash flows from financing activities

        

Proceeds from margin loan borrowing

  1,000,000   --- 

Payment of real estate loan principal

  (94,000)  (90,000)

Net cash provided by (used in) financing activities

  906,000   (90,000)
         

Decrease in cash and cash equivalents

  (763,000)  (793,000)
         

Cash and cash equivalents

        

Beginning of period

  10,630,000   9,301,000 

End of period

 $9,867,000  $8,508,000 
         

Interest paid during period

 $460,000  $760,000 

Net income taxes paid (refunded)

 $5,000  $(118,000)

 

See accompanying Notes to Consolidated Financial Statements.

 

7

 

DAILY JOURNAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1 - The Corporation and Operations

 

Daily Journal Corporation (the “Company”) publishes newspapers and web sites 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 Daily Journal, 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 efiling and a website to pay traffic citations and fees online, and bar members. These products are licensed to more than 500 organizations in 42 states and internationally.

 

       Essentially all of the Company’s U.S. operations are based in California, Arizona, Colorado and Utah. The Company also has a presence in Australia where Journal Technologies is working on two software installation projects.

 

 

Note 2 - Basis of Presentation

 

        In the opinion of the Company, the accompanying interim unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of its financial position as of June 30, 2020, its results of operations for the three- and nine-months periods ended June 30, 2020 and 2019, its consolidated statements of shareholders’ equity for the nine months ended June 30, 2020 and 2019 and cash flows for the nine months ended June 30, 2020 and 2019. The results of operations for the nine months ended June 30, 2020 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, 2019.

 

8

 

 

Note 3 - Accounting Standards Adopted in Fiscal 2020

 

      In February 2016, the Financial Accounting Standard Board issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) which requires that all leases be recognized by lessees on the balance sheet through a right-of-use (ROU) asset and corresponding lease liability, including today’s operating leases. During the first quarter of fiscal 2020, the Company adopted this standard using the modified retrospective method, which does not require an adjustment to comparative period financial statements. At June 30, 2020, the Company recorded a right-of-use (ROU) asset and lease liability of approximately $244,000 for its operating office leases. As allowed by the guidance, the Company has elected not to recognize ROU assets and lease liabilities for short-term (less than one year) leases of any class of underlying asset. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make rental payments from the leases. ROU assets and liabilities are required to be recognized based on the present value of lease payments over the lease term. At June 30, 2020, the Company had office lease obligations of approximately $18,000 beyond one year; it is deemed immaterial for the present value difference. Operating office leases are included in operating lease ROU assets, current accrued liabilities and long-term accrued liabilities in the Company’s accompanying Consolidated Balance Sheets. The Company’s adoption of this new standard had no significant impact on the Company’s financial condition, results of operations or disclosures.

 

 

Note 4 – Revenue Recognition

 

      The Company recognizes revenues in accordance with the provisions of ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), which it adopted effective October 1, 2017, using the modified retrospective method.

 

       For the Company’s 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 and are net of agency commissions.

 

      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, 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 efile cases and pay traffic citations and other fees.

 

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. Also, as a practical expedient, the Company has elected not to include its evaluation of variable consideration of certain usage-based public service fees that are included in some contracts. 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.

 

9

 

 

Note 5 - Basic and Diluted Income Per Share

 

The Company does not have any common stock equivalents, and therefore basic and diluted income (loss) per share are the same.

 

 

Note 6 - 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, 2020 and September 30, 2019, there were net accumulated unrealized gains of $99,501,000 and $140,692,000, respectively, recorded in the accompanying Consolidated Balance Sheets. Most of the accumulated unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

 

The Company adopted ASU No. 2016-01, Subtopic 825-10 in the prior fiscal year. For the three- and nine-months ended June 30, 2020, the Company recorded and included in its net income (loss) the net unrealized gains on investments of $16,489,000 and net unrealized losses on investments of $41,191,000 as compared with net unrealized gains on investments of $3,214,000 and net unrealized losses on investments of $16,929,000, respectively, in the prior year periods.

 

Investments in marketable securities as of June 30, 2020 and September 30, 2019 are summarized below.

 

 Investments in Marketable Securities

 

  

June 30, 2020

  

September 30, 2019

 
  

Aggregate

fair value

  

Adjusted

cost basis

  

Pretax net

unrealized

gains

  

Aggregate

fair value

  

Amortized/

Adjusted

cost basis

  

Pretax

unrealized

gains

 

Marketable securities

                        

Common stocks

 $153,390,000  $53,889,000  $99,501,000  $194,581,000  $53,889,000  $140,692,000 

 

 

Note 7 - Income Taxes

 

For the nine months ended June 30, 2020, the Company recorded an income tax benefit of $11,260,000 on a pretax loss of $39,102,000.   This was the net result of applying the effective tax rate anticipated for fiscal 2020 to the pretax loss, before the unrealized losses on investments, for the nine months ended June 30, 2020.  The effective tax rate was more than the statutory rate primarily due to the dividends received deduction, which increased the taxable loss, and state tax benefits.   In addition, the Company recorded tax benefits of (i) $187,000 resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act (see below) and (ii) $11,166,000 for the unrealized losses on investments during the nine months ended June 30, 2020.  The effective tax rate for the nine months ended June 30, 2020 was 29%, after including the tax benefits from the CARES Act and the unrealized losses on investments.

 

The CARES Act, which was signed into law on March 27, 2020, contains two federal tax provisions beneficial to the Company.  One provision provides that net operating losses arising in tax years beginning in 2018, that were previously only available to be carried forward, can now be carried back to the five previous years.  In addition, any alternative minimum tax credits carried forward from prior years can be claimed as a refund in years beginning in 2018.  Consequently, the Company recorded a tax benefit resulting from carrying back a portion of the net operating loss generated in fiscal 2019 to fiscal 2014.  The Company anticipates receiving a refund for all taxes and alternative minimum taxes paid in fiscal 2014.  The resulting tax benefit from carrying back the net operating loss is primarily attributable to the difference in the federal tax rates of 34% in fiscal 2014 and 21% in fiscal 2019.

 

10

 

For the nine months ended June 30, 2019, the Company recorded an income tax benefit of $4,980,000 on a pretax loss of $17,672,000.   This was the net result of applying the effective tax rate anticipated for fiscal 2019 to the pretax loss for the nine months ended June 30, 2019. The effective tax rate was greater than the statutory rate primarily due to the dividends received deduction and state tax benefits. 

 

The Company’s effective tax rate was 29% for the nine months ended June 30, 2020 as compared with 28% in the prior year period. 

 

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 2016 with regard to federal income taxes and fiscal 2015 for state income taxes. 

 

 

Note 8 - 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. During this quarter, the Company borrowed an additional $1 million from this investment margin account bringing the total up to $30.5 million as of June 30, 2020. (This additional $1 million was subsequently repaid in July 2020.) 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, 2020 was 0.75%. These investment margin account borrowings do not mature.

 

In 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 by Journal Technologies. The Company paid $1.24 million and financed the balance with a real estate bank loan of $2.26 million which bears a fixed interest rate of 4.66% and is repayable in equal monthly installments of about $17,600 through 2030. This loan is secured by the Logan facility and can be paid off at any time without prepayment penalty. This real estate loan had a balance of approximately $1.74 million as of June 30, 2020.

 

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 fiscal 2022.

 

 

Note 9 - 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 effect on the Company’s financial position or results of operations or cash flows.

 

11

 

 

Note 10 - Operating Segments

 

The Company’s reportable segments are: (i) the Traditional Business and (ii) Journal Technologies. All inter-segment transactions were eliminated. Summarized financial information regarding the Company’s reportable segments is shown in the following table:

 

  

Reportable Segments

         
  

Traditional

Business

  

Journal

Technologies

  

Corporate income

and expenses

  

 

Total

 

Nine months ended June 30, 2020

                

Revenues

                

Advertising

 $5,415,000  $---  $---  $5,415,000 

Circulation

  3,857,000   ---   ---   3,857,000 

Advertising service fees and other

  1,923,000   ---   ---   1,923,000 

Licensing and maintenance fees

  ---   16,246,000   ---   16,246,000 

Consulting fees

  ---   5,065,000   ---   5,065,000 

Other public service fees

  ---   4,401,000   ---   4,401,000 

Operating expenses

  11,766,000   27,164,000   ---   38,930,000 

Loss from operations

  (571,000)  (1,452,000)  ---   (2,023,000)

Dividends and interest income

  ---   ---   4,573,000   4,573,000 

Other income

  ---   ---   3,000   3,000 

Net unrealized losses on investments

  ---   ---   (41,191,000)  (41,191,000)

Interest expenses on note payable collateralized by real estate

  (63,000)  ---   ---   (63,000)

Interest expenses on margin loans and others

  ---   ---   (401,000)  (401,000)

Pretax loss

  (634,000)  (1,452,000)  (37,016,000)  (39,102,000)

Income tax benefit

  185,000   380,000   10,695,000   11,260,000 

Net income (loss)

  (449,000)  (1,072,000)  (26,321,000)  (27,842,000)

Total assets

  17,752,000   24,667,000   155,545,000   197,964,000 

Capital expenditures

  99,000   69,000   ---   168,000 

 

  

Reportable Segments

         
  

Traditional

Business

  

Journal

Technologies

  

Corporate income

and expenses

  

 

Total

 

Nine months ended June 30, 2019

                

Revenues

                

Advertising

 $6,753,000  $---  $---  $6,753,000 

Circulation

  3,930,000   ---   ---   3,930,000 

Advertising service fees and other

  2,028,000   ---   ---   2,028,000 

Licensing and maintenance fees

  ---   15,244,000   ---   15,244,000 

Consulting fees

  ---   3,567,000   ---   3,567,000 

Other public service fees

  ---   4,136,000   ---   4,136,000 

Operating expenses

  12,485,000   27,241,000   ---   39,726,000 

Income (loss) from operations

  226,000   (4,294,000)  ---   (4,068,000)

Dividends and interest income

  ---   ---   4,039,000   4,039,000 

Other income

  ---   ---   29,000   29,000 

Net unrealized losses on investments

  ---   ---   (16,929,000)  (16,929,000)

Interest expenses on note payable collateralized by real estate

  (67,000)  ---   ---   (67,000)

Interest expenses on margin loans

  ---   ---   (676,000)  (676,000)

Pretax income (loss)

  159,000   (4,294,000)  (13,537,000)  (17,672,000)

Income tax (expense) benefit

  (110,000)  1,155,000   3,935,000   4,980,000 

Net income (loss)

  49,000   (3,139,000)  (9,602,000)  (12,692,000)

Total assets

  18,276,000   33,903,000   197,576,000   249,755,000 

Capital expenditures

  63,000   34,000   ---   97,000 

 

12

 
  

Reportable Segments

         
  

Traditional

Business

  

Journal

Technologies

  

Corporate income

and expenses

  

 

Total

 

Three months ended June 30, 2020

                

Revenues

                

Advertising

 $1,297,000  $---  $---  $1,297,000 

Circulation

  1,259,000   ---   ---   1,259,000 

Advertising service fees and other

  575,000   ---   ---   575,000 

Licensing and maintenance fees

  ---   5,531,000   ---   5,531,000 

Consulting fees

  ---   3,147,000   ---   3,147,000 

Other public service fees

  ---   1,065,000   ---   1,065,000 

Operating expenses

  3,860,000   8,421,000   ---   12,281,000 

Income (loss) from operations

  (729,000)  1,322,000   ---   593,000 

Dividends and interest income

  ---   ---   1,596,000   1,596,000 

Net unrealized losses on investments

  ---   ---   16,489,000   16,489,000 

Interest expenses on note payable collateralized by real estate

  (20,000)  ---   ---   (20,000)

Interest expenses on margin loans and others

  ---   ---   (64,000)  (64,000)

Pretax income (loss)

  (749,000)  1,322,000   18,021,000   18,594,000 

Income tax benefit (expense)

  215,000   (545,000)  (3,990,000)  (4,320,000)

Net (loss) income

  (534,000)  777,000   14,031,000   14,274,000 

Total assets

  17,752,000   24,667,000   155,545,000   197,964,000 

Capital expenditures

  ---   ---   ---   --- 

 

  

Reportable Segments

         
  

Traditional

Business

  

Journal

Technologies

  

Corporate income

and expenses

  

 

Total

 

Three months ended June 30, 2019

                

Revenues

                

Advertising

 $2,453,000  $---  $---  $2,453,000 

Circulation

  1,319,000   ---   ---   1,319,000 

Advertising service fees and other

  735,000   ---   ---   735,000 

Licensing and maintenance fees

  ---   5,814,000   ---   5,814,000 

Consulting fees

  ---   2,627,000   ---   2,627,000 

Other public service fees

  ---   1,570,000   ---   1,570,000 

Operating expenses

  4,137,000   9,257,000   ---   13,394,000 

Income from operations

  370,000   754,000   ---   1,124,000 

Dividends and interest income

  ---   ---   1,368,000   1,368,000 

Other income

  ---   ---   10,000   10,000 

Net unrealized gains on investments

  ---   ---   3,214,000   3,214,000 

Interest expenses on note payable collateralized by real estate

  (22,000)  ---   ---   (22,000)

Interest expenses on margin loans

  ---   ---   (251,000)  (251,000)

Pretax income

  348,000   754,000   4,341,000   5,443,000 

Income tax expense

  (225,000)  (145,000)  (1,250,000)  (1,620,000)

Net income

  123,000   609,000   3,091,000   3,823,000 

Total assets

  18,276,000   33,903,000   197,576,000   249,755,000 

Capital expenditures

  13,000   ---   ---   13,000 

 

During the nine months ended June 30, 2020 and 2019, the Traditional Business had total revenues of $11,195,000 and $12,711,000 of which $7,338,000 and $8,781,000, respectively, were recognized, at a point of time, after services were provided, and $3,857,000 and $3,930,000, respectively, were recognized ratably over the subscription terms. Total revenues for the Journal Technologies’ software business were $25,712,000 and $22,947,000 of which $9,889,000 and $8,611,000, respectively, were recognized upon completion of services with customer acceptance, while $15,823,000 and $14,336,000, respectively, were recognized ratably over the license and maintenance periods.

 

13

 

During the three months ended June 30, 2020 and 2019, the Traditional Business had total revenues of $3,131,000 and $4,507,000 of which $1,872,000 and $3,188,000, respectively, were recognized, at a point of time, after services were provided, and $1,259,000 and $1,319,000, respectively, were recognized ratably over the subscription terms. Total revenues for the Journal Technologies’ software business were $9,743,000 and $10,011,000 of which $4,258,000 and $4,576,000, respectively, were recognized upon completion of services with customer acceptance, while $5,485,000 and $5,435,000, respectively, were recognized ratably over the license and maintenance periods.

 

Approximately 76% and 70% of the Company’s revenues during the three- and nine-month periods ended June 30, 2020 were derived from Journal Technologies, as compared with 69% and 64% in the prior year periods. In addition, the Company’s revenues have been primarily from the United States with approximately 1% from foreign countries. Journal Technologies’ revenues are primarily from governmental agencies.

 

The following table sets forth certain deferred obligations from October 1, 2019 through June 30, 2020:

 

  

Beginning

Balance

Oct. 1, 2019

  

 

 

Addition

  

 

 

Recognized

  

Ending

Balance

June 30, 2020

 
                 

Deferred subscriptions

 $3,195,000  $3,676,000  $(3,857,000) $3,014,000 

Deferred installation contracts

  1,932,000   4,039,000   (5,488,000)  483,000 

Deferred maintenance agreements and others

  16,057,000   16,749,000   (15,823,000)  16,983,000 

 

 

Note 11 - 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.

 

14

 

 

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. (“Journal Technologies”), a wholly-owned subsidiary 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 efiling and a website to pay traffic citations and fees online, and bar members. These products are licensed to more than 500 organizations in 42 states and internationally.

 

Impact of the Coronavirus (COVID-19) Pandemic

 

On March 13, 2020, the United States declared the outbreak