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Item 7. Management’s Discussion and Analysis

2021-12-17 compared with 2020-12-17 · 86 added, 116 removed, 92 unchanged (69% of the section changed)

4 unchanged sentences

(“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.

These products are licensed in 42 states and internationally.

Impact of the COVID-19 Pandemic

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customers, which are primarily courts and governmental agencies in the United States, Canada and Australia, were either closed or significantly scaled back their activities.

Similarly, many law firms and companies from which the Traditional Business derives advertising and subscription revenues also curtailed their operations and spending.

In light of this extraordinary situation, on April 30, 2020, the Company made a difficult decision to reorganize its part-time and full-time workforce at both The Traditional Business and Journal Technologies, which included some layoffs and temporary furloughs. 

Management believes that the COVID-19 pandemic has had, and, with the recent resurgence of COVID-19 cases, will continue to have a significant impact on the Company’s business operations.

This might include a substantial decrease in the value of the Company’s marketable securities portfolio, which is concentrated in the common stocks of three U.S.

financial institutions, or at least a fair degree of volatility.

In the future, dividends from the Company’s portfolio are expected to decrease as some banks reduce their dividends.

It might also include the unprecedented continued closure, renewed closure or scaling back of operations of courts and other governmental agencies that are the customers of Journal Technologies, and fundamental changes in the way the advertisers and subscribers of the Traditional Business conduct operations.

Even if courts, governmental agencies and other businesses return to more normal operations, there are likely to be changes in those operations and personal behaviors going forward, including limitations on travel and more working from home, that will adversely affect the Company, its financial results and cash flows.

Similarly, many law firms and companies from which the Traditional Business derives advertising and subscription revenues also curtailed their in-person operations and spending.

Management believes that the COVID-19 pandemic has had, and, with the Delta and Omicron variant cases, will continue to have, a significant impact on the Company’s business operations.

Among other things, dividends from the Company’s securities portfolio have declined and are expected to remain lower than in the past even though some banks have recently started to increase their dividends.

It is also possible that governments may again take extreme actions in response to the pandemic and the Delta and Omicron variants, such as the renewed closure, or scaling back of operations, of courts and other governmental agencies that are the customers of the Company.

Furthermore, even as courts, governmental agencies and other businesses return to more normal operations, there are likely to be changes in those operations and personal behaviors going forward, including limitations on travel and more working from home, that will adversely affect the Company, its financial results and cash flows.

Due to the uncertainties associated with the duration and severity of the COVID-19 pandemic, the efforts to contain it, and the changes in business operations and personal behaviors that are likely to follow from it, management cannot at this point estimate the magnitude of its impact on the Company’s business operations.

In recent years, the newspaper industry, including our Traditional Business, has declined, and we expect this to continue at an accelerated pace due to the impacts of COVID-19 and its aftermath, as advertising and subscription revenues decrease.

In recent years, the newspaper industry, including our Traditional Business, has declined, and we expect this to continue due to the impacts of COVID-19 and its aftermath, as advertising and subscription revenues decrease.

For Journal Technologies, there have been several delays or cancellations in government procurement processes.

Also, although we have been able to complete some existing projects remotely, we have been unable to finish certain implementations and trainings because of inability to work with clients in-person.

Also, although we have been able to complete some existing projects remotely, we have been unable to finish certain implementations and trainings because of our inability to work with clients in-person.

Given that we are typically paid for implementation services upon “go-live”

of a system, receipt of those revenues is being delayed.

In addition, there has been a reduction in efiling revenues and delayed client payments as many courts and other justice agencies were closed for much of the year.

On the other side of the coin, the Company has seen a reduction in operating costs due to less business travel.

Fiscal 2020 compared with fiscal 2019

The Company’s reportable segments, and its corporate income and expenses, for the fiscal 2020 and 2019, is set forth below:

of a system, receipt of those revenues has been delayed.

On the other side of the coin, the Company has seen a reduction in operating costs primarily due to lower headcount and reduced business travel.

Reportable Segments

The Company’s Traditional Business is one reportable segment and the other is Journal Technologies.

Additional details about each of the reportable segments and its corporate income and expenses is set forth below:

Overall Financial Results (000)

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Salaries and employee benefits

Goodwill impairment

Total operating expenses

1 unchanged sentence

Dividends and interest income

Net unrealized losses on investments

Interest expenses on note payable collateralized by real estate and other

1 unchanged sentence

Gains on sales of marketable securities, net

Net unrealized gains (losses) on marketable securities

Pretax income (loss)

Consolidated revenues were $49,942,000 and $48,655,000 for the fiscal 2020 and 2019, respectively.

This increase of $1,287,000 (3%) was primarily from increased Journal Technologies’

license and maintenance fees of $1,468,000, consulting fees of $2,179,000 and public service fees of $38,000, partially offset by a reduction in the Traditional Business’

display advertising (including conferences which were discontinued) net revenues of $1,009,000, classified advertising net revenues of $218,000, trustee sale notice advertising net revenues of $282,000, legal notice advertising net revenues of $523,000 and circulation revenues of $159,000.

The Company’s revenues derived from Journal Technologies’

operations constituted about 71% and 65% of the Company’s total revenues for fiscal 2020 and 2019, respectively.

Consolidated operating expenses, excluding last year’s goodwill impairment write-off of $13,400,000, decreased by $2,254,000 (4%) to $51,225,000 from $53,479,000.

Total salaries and employee benefits increased by $2,788,000 (8%) to $37,802,000 from $35,014,000 primarily resulting from additional personnel costs for Journal Technologies as independent contractors were transferred to employee status.

Outside services decreased by $446,000 (12%) to $3,428,000 from $3,874,000 mainly because of decreased contractor costs for Journal Technologies.

Income tax (expense) benefit

Net income (loss)

Capital expenditures

During fiscal 2021 and 2020, the Traditional Business had total operating revenues of $14,895,000 and $14,695,000 of which $10,319,000 and $9,605,000, respectively, were recognized after services were provided while $4,576,000 and $5,090,000, respectively, were recognized ratably over the subscription terms.

Total operating revenues for the Company’s software business were $34,494,000 and $35,247,000, of which $14,787,000 and $14,025,000, respectively, were recognized upon completion of services while $19,707,000 and $21,222,000, respectively, were recognized ratably over the subscription periods.

Fiscal 2021 compared with fiscal 2020

Consolidated Financial Comparison

Consolidated revenues were $49,389,000 and $49,942,000 for fiscal 2021 and 2020, respectively.

This decrease of $553,000 (1%) was primarily from decreases in (i) Journal Technologies’

license and maintenance fees of $603,000 and consulting fees of $1,399,000, and (ii) the Traditional Business’

trustee sale notice advertising net revenues of $264,000, display advertising net revenues of $92,000 and circulation revenues of $514,000, partially offset by increases in (i) Journal Technologies’ public service fees of $1,249,000 and (ii) the Traditional Business’

classified advertising net revenues of $13,000, legal notice advertising net revenues of $663,000 and government notice advertising net revenues of $158,000.

Approximately 70% of the Company’s revenues during fiscal 2021 were derived from Journal Technologies, as compared with 71% in the prior fiscal year.

In addition, the Company’s revenues have been primarily from the United States, with approximately 4% from foreign countries.

Almost all of Journal Technologies’

revenues are from governmental agencies.

Consolidated operating expenses decreased by $3,988,000 (8%) to $47,237,000 from $51,225,000.

Total salaries and employee benefits decreased by $1,737,000 (5%) to $36,065,000 from $37,802,000 primarily resulting from lower headcount.

Outside services decreased by $344,000 (10%) to $3,084,000 from $3,428,000 mainly because of decreased independent contractor costs for Journal Technologies.

Postage and delivery expenses decreased by $58,000 (8%), and newsprint and printing expenses also decreased by $74,000 (11%) to $625,000 from $699,000 primarily resulting from reduced subscribers.

Depreciation and amortization costs decreased by $44,000 (8%) to $480,000 from $524,000 because of more fully-depreciated assets.

Rent expenses decreased by $405,000 (40%) to $612,000 from $1,017,000 because of the closure of both the San Francisco and Modesto offices in October 2019 and the Colorado office in August 2020.

Accounting and legal fees decreased by $666,000 (41%) to $939,000 from $1,605,000 primarily because of decreased legal fees to review and negotiate Journal Technologies’

contracts with customers, more of which was done in-house.

Other general and administrative expenses decreased by $3,042,000 (44%) to $3,848,000 from $6,890,000 mainly resulting from reduced business travel expenses and miscellaneous office equipment purchases.

The Company’s non-operating income, net of expenses, increased by $18,761,000 to a gain of $5,509,000 from a loss of $13,252,000 primarily because of the recording of (i) net gains of $4,193,000 on partial sales of marketable securities as compared with none in the prior fiscal year and (ii) net unrealized losses on investments of $3,099,000 during the fiscal 2020 as compared with $17,715,000 during the prior fiscal year.

During fiscal 2020, consolidated pretax income was $4,226,000, as compared with a pretax loss of $31,476,000 in the prior fiscal year.

There was consolidated net income of $4,041,000 ($2.93 per share) for fiscal 2020, as compared with net loss of $25,216,000 (-$18.26 per share) in the prior fiscal year.

During fiscal 2020, the Company’s cash and restricted cash and cash equivalents increased by $18,333,000 to $28,963,000 from $10,630,000, primarily because of the proceeds of $16,307,000 from the sales of some marketable securities.

Rent expenses decreased by $326,000 (53%) to $286,000 from $612,000 because of the closures of the Colorado office in August 2020 and the Corona, California office in March 2021.

Equipment maintenance and software decreased by $229,000 (18%) to $1,039,000 from $1,268,000 primarily resulted from reduced maintenance and software costs due to the above-mentioned office closures.

Other general and administrative expenses decreased by $1,612,000 (42%) to $2,236,000 from $3,848,000 mainly resulting from reduced business travel expenses due to the pandemic.

The Company’s non-operating income, net of expenses, increased by $145,389,000 to a gain of $150,898,000 from $5,509,000 in the prior fiscal year primarily because of the realized gains on sales of marketable securities of $41,749,000 and the recording of net unrealized gains on marketable securities of $106,499,000 during fiscal 2021, as compared with realized gains of $4,193,000 and unrealized losses of $3,099,000 during the prior fiscal year.

During fiscal 2021, consolidated pretax income was $153,050,000, as compared to $4,226,000 in the prior fiscal year.

There was consolidated net income of $112,900,000 ($81.77 per share) for fiscal 2021, as compared with $4,041,000 ($2.93 per share) in the prior fiscal year.

During fiscal 2021, the Company’s cash and cash equivalents and restricted cash decreased by $14,324,000 to $14,639,000 from $28,963,000, primarily because of the purchase of additional marketable securities.

At September 30, 2021, the aggregate fair market value of the Company’s marketable securities was $347,573,000.

These securities had approximately $137,593,000 of net unrealized gains before taxes of $35,870,000, and generated approximately $4,965,000 in dividends income during fiscal 2020, which lowers the Company’s effective income tax rate because of the dividends received deduction.

These securities had approximately $244,093,000 of net unrealized gains before taxes of $64,115,000.

They generated approximately $2,908,000 in dividends income during fiscal 2021, as compared with $4,965,000 in the prior fiscal year.

Most of the unrealized gains were in the common stocks of three U.S.

financial institutions and one foreign manufacturer.

For fiscal 2020, the Company recorded an income tax provision of $185,000 on pretax income of $4,226,000.  The effective tax rate was less than the statutory rate primarily due to the dividends received deduction (“DRD”), a benefit resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and net state tax benefits.   The effective tax rate for fiscal 2020 was 4.4%, after including the DRD, the tax benefits from the CARES Act and state taxes, as compared with 20% in the prior fiscal year.

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 tax benefit of $187,000 resulting 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.

During fiscal 2020, the Company recorded net unrealized losses on investments of $3,099,000.

For fiscal 2021, the Company recorded a provision for income taxes of $40,150,000 on pretax income of $153,050,000.  

The effective rate of 26% was higher than the statutory rate of 21% primarily due to the recording of (i) state taxes, which were offset by the dividends received deduction (“DRD”), resulting in a tax provision of $1,260,000 on pretax income before the unrealized and realized gains on marketable securities, (ii) a tax provision of $27,938,000 on the unrealized gains on marketable securities and (iii) a tax provision of $10,952,000 on the realized gains on marketable securities.  The Company was able to utilize all of its federal and certain state net operating losses (“NOLs”) carryforward in fiscal 2021.

For fiscal 2020, the Company recorded an income tax provision of $185,000 on pretax income of $4,226,000.  The effective tax rate was less than the statutory rate primarily due to the DRD, a benefit resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and net state tax benefits.   The effective tax rate for fiscal 2020 was 4.4%, after including the DRD, the tax benefits from the CARES Act and state taxes.

The CARES Act, which was signed into law on March 27, 2020, contained two federal tax provisions beneficial to the Company:

(i) net operating losses arising in tax years beginning in 2018, that were previously only available to be carried forward, were allowed to be carried back to the five previous years, and (ii) any alternative minimum tax credits carried forward from prior years could be claimed as a refund in years beginning in 2018.

Consequently, the Company recorded a tax benefit, in fiscal 2020, resulting from carrying back a portion of the net operating loss generated in fiscal 2019 to fiscal 2014. 

The Company received refunds for all taxes and alternative minimum taxes paid in fiscal 2014. 

The tax benefit of $187,000 resulting from carrying back the net operating loss was primarily attributable to the difference in the federal tax rates of 34% in fiscal 2014 and 21% in fiscal 2019.

During fiscal 2020, the Company recorded net unrealized losses on marketable securities of $3,099,000.

An income tax benefit of $1,371,000 resulting from these losses was recorded as a temporary difference in deferred income taxes.

The Company also recorded a net gain of $4,193,000 on the sales of marketable securities.

For fiscal 2019, the Company recorded an income tax benefit of $6,260,000 on a pretax loss of $31,476,000. 

The effective tax rate was below the statutory rate due to the impairment of goodwill, partially offset by the DRD and a benefit for state taxes.

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 2018 with regard to federal income taxes and fiscal 2017 for state income taxes. 

The Traditional Business

The Traditional Business had a pretax loss of $1,814,000, representing a $1,833,000 decrease in income from pretax income of $19,000 in the prior fiscal year.

Advertising revenues decreased by $2,028,000 (22%) to $7,104,000 from $9,132,000, primarily because of decreased display advertising (including conferences which were discontinued) net revenues of $1,009,000, classified advertising net revenues of $218,000, trustee sale notice advertising net revenues of $282,000 and legal notice advertising net revenues of $523,000.

The Traditional Business’

pretax income increased by $955,000 (187%) to $443,000 from a pretax loss of $512,000 in the prior fiscal year.

Advertising revenues increased by $531,000 (7%) to $7,635,000 from $7,104,000, primarily because of increased legal notice advertising net revenues of $663,000 mainly from fictitious business name publishing (as counties have tried to catch up with their backlogs), government notice advertising net revenues of $158,000 and classified advertising net revenues of $13,000.

These increases were partially offset by decreased display advertising net revenues of $92,000 and trustee sale notice advertising net revenues of $264,000 primarily because of limited foreclosures due to the temporary halt or suspension of mortgage foreclosures in accordance with the federal COVID-19 related “Eviction and Foreclosure Orders”

which started in February 2020 and expired in July 2021 with the eviction portion extended through the end of September 2021.

In addition, although the national eviction ban has lapsed, many states or cities continue to have their own moratoriums.

For example, Los Angeles County’s “COVID-19 Tenant Protection”

essentially prevents evictions for residential and commercial tenants through January 31, 2022.

Trustee sale notices are very much dependent on the number of California and Arizona foreclosures for which public notice advertising is required by law.

The number of foreclosure notices published by the Company decreased by 34% during fiscal 2020 as compared to the prior fiscal year.

Unless the economic impact of the efforts to contain COVID-19 result in significant additional foreclosures in California and Arizona, management expects there will be fewer foreclosure notice and other public notice advertisements and declining revenues for fiscal 2021.

The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 86% of the total public notice advertising revenues in the twelve months ended September 30, 2020.

Public notice advertising revenues and related advertising and other service fees constituted about 15% and 18% of the Company’s total revenues for fiscal 2020 and 2019, respectively.

Because of this concentration, the Company’s revenues would be significantly adversely affected if California and Arizona eliminated the legal requirement to publish public notices in adjudicated newspapers of general circulation, as was implemented in Arizona in 2017 for one notice type that had represented approximately $500,000 in annual revenues for the Company.

Also, if the adjudication of one or more of the Company’s newspapers was challenged and revoked, those newspapers would no longer be eligible to publish public notice advertising, and it could have a material adverse effect on the Company’s revenues.

The number of foreclosure notices published by the Company decreased by 43% during the twelve months ended September 30, 2021 as compared to the prior fiscal year, primarily because of limited foreclosures, as discussed above.

The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 87% of the total public notice advertising revenues in fiscal 2021.

Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 17% of the Company's total operating revenues in fiscal 2021 and 15% in 2020.

The Daily Journals accounted for about 91% of the Traditional Business’

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Advertising service fees and other are Traditional Business segment revenues, which include primarily (i) agency commissions received from outside newspapers in which the advertising is placed, and (ii) fees generated when filing notices with government agencies.

The Traditional Business segment operating expenses decreased by $556,000 (3%) to $16,425,000 from $16,981,000, primarily due to decreased rent, outside contract printing and distributing costs.

The Traditional Business segment operating expenses decreased by $755,000 (5%) to $14,452,000 from $15,207,000, primarily resulting from reduced outside services.

Journal Technologies

During fiscal 2021, Journal Technologies’

business segment pretax income increased by $5,383,000 (109%) to $447,000 from a pretax loss of $4,936,000 in the prior fiscal year, excluding the goodwill impairment loss of $13,400,000 in 2019.

Revenues increased by $3,685,000 (12%) to $35,247,000 from $31,562,000 in the prior fiscal year.

Licensing and maintenance fees increased by $1,468,000 (7%) to $21,647,000 from $20,179,000.

Consulting fees increased by $2,179,000 (39%) to $7,718,000 from $5,539,000 due to more go-lives.

Deferred revenues on installation contracts primarily represent the fair value of advances from customers of Journal Technologies for installation services and are recognized upon final project go-lives.

business segment pretax income increased by $2,480,000 (322%) to $1,709,000 from a pretax loss of $771,000 in the prior fiscal year.

Revenues decreased by $753,000 (2%) to $34,494,000 from $35,247,000 in the prior fiscal year.

Licensing and maintenance fees decreased by $603,000 (3%) to $21,044,000 from $21,647,000 primarily resulting from the reduction in legacy software products’

maintenance and support revenues as the Company ended effective July 1, 2021 the maintenance of these legacy software products, so as to focus on supporting the Company’s main eSeries products.

Consulting fees decreased by $1,399,000 (18%) to $6,319,000 from $7,718,000 due to fewer go-lives.

Other public service fees increased by $1,249,000 (21%) to $7,131,000 from $5,882,000 primarily due to increased traffic citation fee revenues and efiling fee revenues.

Deferred consulting fees primarily represent advances from customers of Journal Technologies for installation services and are recognized upon final project go-lives.

Deferred revenues on license and maintenance contracts represent prepayments of annual license and maintenance fees and are recognized ratably over the maintenance period.

Other public service fees increased by $38,000 (1%) to $5,882,000 from $5,844,000 primarily due to additional efiling fee revenues.

Operating expenses decreased by $1,698,000 (5%) to $34,800,000 from $36,498,000, excluding prior year’s goodwill impairment loss of $13,400,000, primarily because of decreased business travel expenses and legal fees to review and negotiate Journal Technologies’

contracts with customers, more of which was done in-house.

Operating expenses decreased by $3,233,000 (9%) to $32,785,000 from $36,018,000 primarily because of decreased personnel costs primarily due to lower headcount and reduced business travel expenses.

Journal Technologies continues to update and upgrade its software products.

These costs are expensed as incurred and will impact earnings at least through the foreseeable future.

Reportable Segments

The Company’s Traditional Business is one reportable segment and the other is Journal Technologies.

Additional details about each of the reportable segments and its corporate income and expenses is set forth below:

Reportable Segments

Advertising service fees and other

Licensing and maintenance fees

Consulting fees

Other public service fees

Operating expenses

Income (loss) from operations

Dividends and interest income

Net unrealized losses on investments

Interest expenses on note payable collateralized by real estate

Interest expenses on margin loans

Gains on sales of marketable securities, net

Pretax income

Income tax expense

Capital expenditures

Reportable Segments

Advertising service fees and other

Licensing and maintenance fees

Consulting fees

Other public service fees

Operating expenses

Income (loss) from operations

Dividends and interest income

Net unrealized losses on investments

Interest expenses on note payable collateralized by real estate

Interest expenses on margin loans

Pretax income

Income tax expense

Capital expenditures

* included goodwill impairment of $13,400,000

During fiscal 2020 and 2019, the Traditional Business had total operating revenues of $14,695,000 and $17,093,000 of which $9,605,000 and $11,844,000, respectively, were recognized after services were provided while $5,090,000 and $5,249,000, respectively, were recognized ratably over the subscription terms.

Total operating revenues for the Company’s software business were $35,247,000 and $31,562,000, of which $14,025,000 and $12,353,000, respectively, were recognized upon completion of services while $21,222,000 and $19,209,000, respectively, were recognized ratably over the subscription periods.

Approximately 71% of the Company’s revenues during fiscal 2020 were derived from Journal Technologies, as compared with 65% in the prior fiscal year.

In addition, the Company’s revenues have been primarily from the United States, with approximately 1% from foreign countries.

Almost all of Journal Technologies’

revenues are from governmental agencies.

Liquidity and Capital Resources

During fiscal 2020, the Company’s cash and restricted cash and cash equivalents and marketable security positions increased by $3,120,000, including net unrealized losses on investments of $3,099,000.

Cash and cash equivalents were used for the purchase of capital assets of $184,000 and payment for loan principal of $126,000.

There were cash provided by operating activities of $2,336,000 which included net decreases of $1,808,000 in deferred subscriptions, deferred installation contracts and deferred maintenance agreements and others.

During fiscal 2021, the Company’s cash and cash equivalents, restricted cash, and marketable security positions increased by $153,881,000, after additional net borrowing of $2,507,000 and net pretax unrealized gains on marketable securities of $106,499,000.

Cash, cash equivalents and the proceeds from the sales of marketable securities were primarily used to purchase additional marketable securities of $64,990,000 and pay down the real estate loan principal of $131,000.

The investments in marketable securities, which had an adjusted cost basis of approximately $103,480,000 and a market value of about $347,573,000 at September 30, 2021, generated approximately $2,908,000 in dividends income during fiscal 2021.

These securities had approximately 244,093,000 of net unrealized gains before estimated taxes of $64,115,000 which will become due only when we sell securities in which there is unrealized appreciation.

Beginning in fiscal 2019, changes in unrealized gains (losses) on investments are included in the Company’s net income (loss) and thus may have a significant impact depending on the fluctuations of the market prices of the invested securities.

Cash flows from operating activities increased by $721,000 during fiscal 2020 as compared to the prior fiscal year, primarily due to increases in net income of $29,257,000, decreases in deferred tax assets of $6,982,000 and decreases in accounts receivable of $2,542,000 primarily resulting from more payment collections, partially offset by this year’s net gains on sales of marketable securities of $4,193,000, last year’s goodwill impairment expenses of $13,400,000 and decreases in (i) unrealized losses on investments of $14,616,000, (ii) accounts payable and accrued liabilities of $2,208,000 because of the timing difference in remitting efiling fees to the courts and (iii) net deferred subscriptions, deferred maintenance agreements and others and deferred installation contracts of $2,902,000.

As of September 30, 2020, the Company had working capital of $188,318,000, including the liabilities for deferred subscriptions, deferred installation and maintenance agreements and others of $18,926,000.

Cash flows from operating activities increased by $950,000 during fiscal 2021 as compared to the prior fiscal year, primarily due to (i) decreases in the Company’s income tax receivable of $1,049,000 and deferred tax assets of $31,305,000, (ii) increases in the Company’s income tax payable of $6,244,000;

accounts payable and accrued liabilities of $1,055,000 (because of the timing difference in remitting efiling fees to the courts) and the additional accrual to the long-term supplemental compensation accrual of $1,835,000 and (iii) a net increase in deferred revenues of $757,000.

This was partially offset by (i) a decrease in net income of $38,295,000, excluding the additional realized gains on sales of marketable securities of $37,556,000 and increases in unrealized gains on marketable securities of $109,598,000 and (ii) an increase in accounts receivable of $3,106,000 primarily resulting from more billings.

Cash provided from operating activities of $3,286,000 included net decreases of $1,051,000 in total current and long-term deferred revenues of $18,325,000.

As of September 30, 2021, the Company had working capital of $338,324,000, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $17,330,000.

The Company believes that it will be able to fund its operations for the foreseeable future through its cash flows from operations and its current working capital and expects that any such cash flows will be invested in its businesses.

COVID-19 and the efforts to contain it, however, have significantly impacted the Company’s cash flows from operations and the value of its marketable securities portfolio.

The Company may or may not have the ability to borrow additional amounts against its marketable securities and, among other possibilities, it may be required to consider selling some of those securities to generate cash if needed to fund ongoing operations.

As of September 30, 2020, the investments were concentrated in just five companies.

Accordingly, a significant decline in the market value of one or more of the Company’s investments may not be offset by the hypothetically better performance of other investments, and that could result in a large decrease in the Company’s shareholders’

equity and net income.

The amount available for borrowing is based on the market value of the Company’s investment portfolio and fluctuates depending on the value of the underlying securities. 

In addition, the Company could be subject to margin calls should the balance of the investment decrease significantly. 

(Also see “Risks Associated with Our Holdings of Marketable Securities”

mentioned above.)

The Company is not a smaller version of Berkshire Hathaway Inc. 

Instead, it hopes to be a significant software company while it also holds its traditional business.

Instead, it hopes to be a significant software company while it also operates its Traditional Business.

Critical Accounting Policies and Estimates

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(i) the Traditional Business and (ii) Journal Technologies.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis