What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-12-17 compared with 2020-12-17 · 132 added, 280 removed, 483 unchanged (46% of the section changed)

3 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Daily Journal Corporation (the Company) as of September 30, 2020 and 2019, the related consolidated statements of comprehensive income (loss), shareholders' equity and cash flows for years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Daily Journal Corporation (the Company) as of September 30, 2021 and 2020, the related consolidated statements of comprehensive income, shareholders’

equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Software Revenue Recognition

As discussed in Notes 2 to the consolidated financial statements, the Company generates revenue from the sale of products that include software licenses, maintenance, support fees, and services.

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer related to the Journal Technologies segment.

Arrangements with customers can involve multiple performance obligations and rights.

 The Company recognized $21.04 million of licensing and maintenance fees for the year ended September 30, 2021.

We identified the evaluation of the Company’s analysis of terms and conditions in significant software and license contracts with customers and their effect on revenue recognition as a critical audit matter.

Complex auditor judgment was required to assess the Company’s determination of the performance obligations and allocation of transaction price.

The primary procedures we performed to address this critical audit matter included:

Obtaining an understanding of the Company’s revenue recognition policy and evaluated for appropriateness

Evaluating the design and implementation of certain internal controls related to the Company’s revenue recognition process, including controls related to the Company’s analysis of terms and conditions in software and license contracts with customers and their effect on revenue recognition.

Inquiring of personnel outside of the accounting function to corroborate our understanding of certain terms and conditions for a selection of revenue transactions.

Testing a sample of software and license transactions by inspecting the underlying customer agreements and invoices, and evaluating the Company’s recognition in accordance with revenue recognition policy.

/s/ Baker Tilly US, LLP

 We have served as the Company's auditor since 2016.

Los Angeles, California

December 17, 2020     

December 17, 2021

DAILY JOURNAL CORPORATION

4 unchanged sentences

$ 26,922,000  

Restricted cash  

2,043,000  

2,041,000  

Marketable securities at fair value -- common stocks of $ 179,368,000 at September 30, 2020 and $ 194,581,000 at September 30, 2019

Marketable securities at fair value -- common stocks

347,573,000  

179,368,000  

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

Accounts receivable, less allowance for doubtful accounts of $ 250,000 at September 30, 2021 and 2020

9,524,000  

7 unchanged sentences

601,000  

153,000  

Total current assets

20 unchanged sentences

215,000  

Deferred income taxes - Federal

140,000  

12,596,000  

Deferred income taxes - State

Deferred income taxes

8,021,000  

10 unchanged sentences

5,005,000  

Income tax payable

6,244,000  

Note payable collateralized by real estate

4 unchanged sentences

2,899,000  

Deferred installation contracts

Deferred consulting fees

5,498,000  

45 unchanged sentences

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Advertising, net

$ 7,104,000  

$ 9,132,000  

5,090,000  

5,249,000  

Advertising service fees and other

2,501,000  

2,712,000  

Licensing and maintenance fees

21,647,000  

20,179,000  

Consulting fees

7,718,000  

5,539,000  

Other public service fees

5,882,000  

5,844,000  

49,942,000  

48,655,000  

Costs and expenses

Salaries and employee benefits

37,802,000  

35,014,000  

Outside services

3,428,000  

3,874,000  

Postage and delivery expenses

712,000  

838,000  

Newsprint and printing expenses

699,000  

727,000  

Depreciation and amortization

524,000  

589,000  

Goodwill impairment

13,400,000  

Equipment maintenance and software

1,268,000  

1,516,000  

Credit card merchant discount fees

1,393,000  

1,409,000  

Rent expenses

612,000  

1,017,000  

Accounting and legal fees

939,000  

1,605,000  

Other general and administrative expenses

3,848,000  

6,890,000  

51,225,000  

66,879,000  

Loss from operations

( 1,283,000 )  

( 18,224,000 )

Income (loss) from operations

Other income (expenses)

Dividends and interest income

4,965,000  

5,380,000  

38,000  

Net unrealized losses on investments

( 3,099,000 )  

( 17,715,000 )

Net unrealized gains (losses) on investments

Interest expense on note payable collateralized by real estate and others

( 119,000 )  

Interest expense on margin loans

( 434,000 )  

Gains on sales of marketable securities, net

4,193,000  

Income (loss) before taxes

4,226,000  

( 31,476,000 )

(Provision for) benefit from income taxes

( 185,000 )  

6,260,000  

Net income (loss)

$ 4,041,000  

$ ( 25,216,000 )

Income before taxes

Provision for income taxes

Weighted average number of common shares outstanding –

basic and diluted

1,380,746  

Basic and diluted net income (loss) per share

$ 2.93  

Basic and diluted net income per share

See accompanying Notes to Consolidated Financial Statements

2 unchanged sentences

Treasury Stock

Comprehensive

Shareholders'

Balance at September 30, 2019

1,805,053  

$ 18,000  

( 424,307 )  

$ ( 4,000 )  

$ 1,755,000  

$ 45,361,000  

$ 115,786,000  

$ 162,916,000  

( 25,216,000 )  

Adoption of new accounting pronouncement

115,786,000  

( 115,786,000 )  

Balance at September 30, 2020

1,805,053  

18,000  

( 424,307 )  

( 4,000 )  

1,755,000  

135,931,000  

137,700,000  

4,041,000  

Balance at September 30, 2021

1,805,053  

$ 18,000  

( 424,307 )  

$ ( 4,000 )  

$ 1,755,000  

$ 139,972,000  

$ 141,741,000  

See accompanying Notes to Consolidated Financial Statements

2 unchanged sentences

Cash flows from operating activities

Net income (loss)

$ 4,041,000  

$ ( 25,216,000 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

524,000  

589,000  

Goodwill impairment

13,400,000  

Gains on sales of marketable securities, net

( 4,193,000 )  

Deferred income taxes

590,000  

Unrealized (gains) losses on marketable securities

( 106,499,000

Unrealized losses on investments

3,099,000  

17,715,000  

Changes in assets and liabilities

1 unchanged sentence

Accounts receivable, net

309,000  

( 2,233,000 )

Prepaid expenses and other assets

( 105,000 )  

Prepaid expenses and other current assets

Income tax receivable

( 448,000 )  

117,000  

Increase (decrease) in liabilities

Accounts payable

( 594,000 )  

1,700,000  

Accrued liabilities

917,000  

831,000  

Deferred subscription

( 296,000 )  

21,000  

Deferred installation contracts

( 1,792,000 )  

1,695,000  

Income tax payable

Deferred subscriptions

Deferred consulting fees

Deferred maintenance agreements and others

280,000  

Net cash provided by operating activities

2,336,000  

1,615,000  

Cash flows from investing activities

Sales of marketable securities

16,307,000  

Purchases of marketable securities

Purchases of property, plant and equipment, net

( 184,000 )  

Net cash provided by (used in) investing activities

16,123,000  

Net cash (used in) provided by investing activities

Cash flows from financing activities

Proceeds from margin loan borrowing  

1,000,000  

Payment to margin loan borrowing  

( 1,000,000 )  

Payment of loan principal

( 126,000 )  

Net cash used in financing activities

( 126,000 )  

Increase in cash and restricted cash and cash equivalents

18,333,000  

1,329,000  

Cash and restricted cash and cash equivalents

Proceeds from margin loan borrowing

Payment to margin loan borrowing

Payment of real estate loan principal

Net cash provided by (used in) financing activities

(Decrease) increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash

Beginning of year

10,630,000  

9,301,000  

$ 28,963,000  

$ 10,630,000  

Interest paid during year

$ 529,000  

$ 963,000  

Income taxes refunded during year

$ ( 47,000 )  

$ ( 121,000 )

Income taxes paid (refunded) during year

See accompanying Notes to Consolidated Financial Statements

6 unchanged sentences

(“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.

These products are licensed in 42 states and internationally.

Essentially all of the Company’s U.S.

5 unchanged sentences

All intercompany accounts and transactions have been eliminated in consolidation.

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

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

Concentrations of Credit Risk:

7 unchanged sentences

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Restricted Cash:     

The Company considers cash to be restricted when withdrawal or general use is legally restricted.

Restricted cash of $ 2,041,000 and $ 2,015,000  at September 30, 2020 and 2019, respectively, represents cash held to secure two letters of credit issued by a bank for a software installation contract in Australia.

Restricted cash of $ 2,043,000 and $ 2,041,000 at September 30, 2021 and 2020, respectively, represents cash held to secure two letters of credit issued by a bank for a software installation contract in Australia.

Fair Value of Financial Instruments:

7 unchanged sentences

This ASU requires an entity that holds financial assets or owes financial liabilities to, among other things, measure equity investments at fair value and recognize unrealized gains (losses) through net income (loss).

Accordingly, the Company’s net income of $ 4,041,000 for fiscal 2020, included net unrealized losses on investments of $ 3,099,000 .

In fiscal 2019, the Company’s net loss of $ 25,216,000 included net unrealized losses on investments of $ 17,715,000 .

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 Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosures .

Accordingly, the Company’s net income of $ 112,900,000 for fiscal 2021, included net unrealized gains on marketable securities of $ 106,499,000 .

In fiscal 2020, the Company’s net income of $ 4,041,000 included net unrealized losses on marketable securities of $ 3,099,000 .

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 marketable securities on a recurring basis pursuant to Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosures .

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

These investments had approximately $ 137,593,000 of net unrealized gains before taxes of $ 35,870,000 .

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

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

financial institutions.   At September 30, 2019, the Company had marketable securities at fair market value of approximately $ 194,581,000 , including approximately $ 140,692,000 of unrealized net gains before taxes of $ 37,241,000 .

All investments are classified as “Current assets”

financial institutions and one foreign manufacturer.

At September 30, 2020, the Company had marketable securities at fair market value of approximately $ 179,368,000 , including approximately $ 137,593,000 of unrealized net gains before taxes of $ 35,870,000 .

All marketable securities are classified as “Current assets”

because they are available for sale at any time.

In August 2020, the Company sold part of its investments for $ 16,307,000 , realizing a net gain of approximately $ 4,193,000 .

During fiscal 2021, the Company sold part of its marketable securities for approximately $ 45,033,000 , realizing a total gain of approximately $ 41,749,000 , and simultaneously bought some other companies’

marketable securities for an aggregated cost of approximately $ 64,990,000 .

During the prior fiscal year, the Company sold part of its marketable securities for $ 16,307,000 , realizing a net gain of approximately $ 4,193,000 .

Investment in Financial Instruments

9 unchanged sentences

$ 137,593,000  

As of September 30, 2020, there were no unrealized losses related to the marketable securities. 

The entire goodwill of $ 13,400,000 was concluded to be impaired and thus fully written off as of September 30, 2019 ( fiscal 2019 ).

As of September 30, 2021, there existed unrealized losses related to one of the newly acquired marketable securities.

Inventories, comprised of newsprint and paper, are stated at cost, on a first -in, first -out basis, which does not exceed current net realizable value.

23 unchanged sentences

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.

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.

33 unchanged sentences

Certificate interests entitled participants to receive 4.96 % and 7.51 % (amounting to $ 332,940 and $ 502,700 , respectively) of Daily Journal non-consolidated income before taxes, workers’

compensation, supplemental compensation and certain other items, 9.4 % and 9.00 % (amounting to $ 0 and $ 0 for fiscal 2020 and 2019, respectively) for Journal Technologies and 8.2 % and 8.2 % (amounting to $ 452,900 and $ 0 , respectively) for Daily Journal consolidated in fiscal 2020 and 2019, respectively.

The Company accrued $ 1,445,000 and $ 230,000 as of September 30, 2020 and 2019, respectively, for the Plan’s future commitment for those who will still have Certificates at the age of 65.

compensation, supplemental compensation and certain other items, 12.33 % and 9.78 % (amounting to $ 255,300 and $ 0 , respectively) for Journal Technologies and 12.24 % and 8.2 % (amounting to $ 1,049,750 and $ 452,900 , respectively) for Daily Journal consolidated in fiscal 2021 and 2020, respectively.

(During fiscal 2021, three employees were transferred from the “Daily Journal non-consolidated”

program to the “Daily Journal consolidated”

program.) The Company accrued $ 3,280,000 and $ 1,445,000 as of September 30, 2021 and 2020, respectively, for the Plan’s future commitment for those who will still have Certificates at the age of 65.

This future commitment included an increase in the accrual in fiscal 2021 of $ 1,835,000 or $ 1.33 per outstanding share on an adjusted pretax basis as compared with an increase in fiscal 2020 of $ 1,215,000 or $.88 per outstanding share, in each case due to increased estimated future pretax income.

The estimated Incentive Plan’s future commitment is calculated based on an average of the past year and the current year pretax earnings before certain items, discounted to the present value at 6 % since each granted Certificate will expire over its remaining life term of up to 10 years.

The estimated Incentive Plan’s future commitment is calculated based on an average of the past year and the current year pretax earnings before certain items, discounted to the present value at 6 % because each granted Certificate will expire over its remaining life term of up to 10 years.

Income taxes:

6 unchanged sentences

In addition, previously recognized benefits from tax positions that no longer meet the new criteria would be derecognized.

Net income (loss) per common share :

   The net income (loss) per common share is based on the weighted average number of shares outstanding during each year.

Net income per common share:

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 1,380,746 for fiscal 2021 and 2020.

1 unchanged sentence

Use of Estimates:

The presentation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 

Accounting Standards Adopted in Fiscal 20 20

At the beginning of fiscal 2020, the Company adopted 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 asset and corresponding lease liability, including today’s operating leases.

There has been no significant impact on the Company’s financial condition, results of operations or disclosures. At September 30, 2020, the Company recorded a right-of-use asset and lease liability of approximately $ 140,000 for its operating office leases, including approximately $ 10,000 beyond one year. 

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.  

Right-of-Use (ROU) Asset

At the beginning of fiscal 2020, the Company adopted 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.

There has been no significant impact on the Company’s financial condition, results of operations or disclosures.

At September 30, 2021, the Company recorded a ROU asset and lease liability of approximately $ 215,000 for its operating office and equipment leases, including approximately $ 103,000 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. 

Accrued Liabilities

Accrued liabilities primarily consisted of accrued payroll at September 30, 2021 and 2020.

New Accounting Pronouncement:

2 unchanged sentences

$ 5,420,000  

$ ( 420,000 )

2,835,000  

3 unchanged sentences

808,000  

( 4,685,000 )

7,510,000  

( 1,707,000 )

31,895,000  

( 6,392,000 )

590,000  

$ ( 6,260,000 )

$ 40,150,000  

$ 185,000  

The difference between the statutory federal income tax rate and the Company’s effective rate is summarized below:

3 unchanged sentences

Effect of state rate change on beginning balance of deferred tax liabilities

( 9.4 )  

Business meals/gifts/other permanent differences

Goodwill impairment

Dividends received deduction

1 unchanged sentence

Revenue recognized for book but not tax

Prior year true-up

Foreign tax credits

( 0.4 )  

CARES Act benefits

( 4.4 )  

Effective tax rate

26.2 %  

The Company’s deferred income tax assets and liabilities were comprised of the following:

3 unchanged sentences

$ 415,000  

Impairment losses on investments

Impairment losses on marketable securities

113,000  

21 unchanged sentences

Deferred tax liabilities attributable to:

Unrealized gains on investments

Unrealized gains on marketable securities

( 64,115,000 )  

3 unchanged sentences

$ ( 24,199,000 )

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 the 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, 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, 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.  

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 dividends received deduction and a benefit for state taxes.

The Company’s effective tax rate was 4.4% for fiscal 2020 as compared with 20 % in the prior fiscal year.

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 Company has federal and state income tax net operating losses (“NOLs”).

A portion of the fiscal 2017 federal and state NOLs were carried back to previous years and a portion of the fiscal 2019 federal NOL was carried back to fiscal 2014.

As of September 30, 2020, the Company had federal, California and other state NOL carryforwards of $ 20.1 million, $ 6.1 million and $ 2.6 million, respectively.

These NOLs will expire at various dates from fiscal 2036 through 2039, as follows:

The Company is utilizing all of its federal and certain state net operating losses in fiscal 2021.

California has suspended the use of NOLs for fiscal years beginning in 2020, 2021 and 2022.

As a result, the Company has $ 5.5 million of California NOLs expiring in fiscal years 2038 and 2039.

The Company also has NOLs in other states, expiring as follows:

Fiscal Year ended

California NOL

Other State NOL

(in millions)

California NOLs

Other State NOLs

September 30, 2032

3 unchanged sentences

No expiration

The Company believes it is more likely than not that the benefit of these NOLs will be realized in the future.

Consequently, the Company has not provided a valuation allowance.

DEBTS AND COMMITMENTS

4 unchanged sentences

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 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.

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.

This real estate loan had a balance of approximately $ 1.71 million as of September 30, 2020.

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 of its 10 years.

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.

The Company leased approximately 6,200 square feet of office space in San Francisco, but the Company closed its San Francisco office upon the end of the lease in October 2019.

This real estate loan had a balance of approximately $ 1.58 million as of September 30, 2021.

Each monthly installment payment is about $ 16,700 .

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 October 2023.

The Company is responsible for a portion of maintenance, insurance and property tax expenses relating to the leased properties.

Rental expenses for fiscal years 2020 and 2019 were $ 612,000 and $ 1,017,000 , respectively.

The following table represents the Company’s future obligations

Rental expenses, inclusive of these expenses, for fiscal years 2021 and 2020 were $ 286,000 and $ 612,000 , respectively.

The following table represents the Company ’

s future obligations

Payments due by Fiscal Year

11 unchanged sentences

225,000  

Long-term accrued liabilities and other*

10,000  

Long-term accrued liabilities*

1,102,000  

21 unchanged sentences

All inter-segment transactions were eliminated.

Summarized financial information concerning the Company’s reportable segments and Corporate income and expenses is shown in the following table.

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)

For the twelve months ended September 30

Reportable Segments

4 unchanged sentences

Advertising service fees and other

2,501,000  

Licensing and maintenance fees

1 unchanged sentence

21,647  

Consulting fees

21,044  

21,647  

Consulting fees

Other public service fees

5,882,000  

Operating expenses

16,425,000  

34,800,000  

51,225,000  

Income (loss) from operations

( 1,730,000 )  

447,000  

( 1,283,000 )

Dividends and interest income

4,965,000  

Net unrealized losses on investments

( 3,099,000 )  

Interest expenses on note payable collateralized by real estate

( 84,000 )  

( 35,000 )  

Interest expenses on margin loans

( 434,000 )  

Gains on sales of marketable securities, net

Total operating revenues

14,895  

14,695  

Pretax income

34,494  

2 unchanged sentences

49,942  

Income tax expense

Operating expenses

Salaries and employee benefits

10,021  

6 unchanged sentences

13,423  

Total operating expenses

14,452  

1 unchanged sentence

32,785  

Capital expenditures

36,018  

1 unchanged sentence

51,225  

Reportable Segments

Income (loss) from operations

( 512 )  

( 771 )  

Dividends and interest income

Interest expenses on note payable collateralized by real estate and other

( 94 )  

( 119 )  

Advertising service fees and other

( 94 )  

Interest expense on margin loans

( 233 )  

Licensing and maintenance fees

( 434 )  

( 233 )  

Consulting fees

Gains on sales of marketable securities, net

41,749  

Other public service fees

Net unrealized gains (losses) on marketable securities

106,499  

( 3,099 )  

Operating expenses

106,499  

Pretax income (loss)

( 512 )  

Income (loss) from operations

( 771 )  

150,898  

( 18,224,000 )

Dividends and interest income

153,050  

Income tax (expense) benefit

( 115 )  

1 unchanged sentence

( 39,610 )  

Net unrealized losses on investments

( 385 )  

( 17,715,000 )

Interest expenses on note payable collateralized by real estate

( 40,150 )  

Interest expenses on margin loans

Net income (loss)

$ ( 412 )  

Pretax income

$ 1,284  

1 unchanged sentence

$ 111,288  

( 31,476,000 )

Income tax expense

$ 5,124  

5 unchanged sentences

$ 22,277  

( 25,216,000 )

$ 347,685  

3 unchanged sentences

Capital expenditures

132,000  

33,000  

165,000  

* included goodwill impairment of $ 13,400,000

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.

4 unchanged sentences

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 8. Financial Statements and Supplementary Data