DAILY JOURNAL CORP
For the period ended Jun 30, 2024. Filed Aug 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 14, 2024
Contents
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
CONSOLIDATED BALANCE SHEETS
| 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 |
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| 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 |
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| 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 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| 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 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 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 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.