Daily Journal(DJCO) - 2021 Q2 - Quarterly Report

Revenue Performance - Consolidated revenues increased by $357,000 (1%) to $24,390,000 for the six months ended March 31, 2021, compared to $24,033,000 in the prior year, driven by Journal Technologies' license and maintenance fees [71]. - Journal Technologies' operations accounted for approximately 71% of total revenues for the six months ended March 31, 2021, up from 66% in the prior year [71]. - Consolidated revenues increased by $1,614,000 (13%) to $13,970,000 for the three months ended March 31, 2021, primarily driven by increased Journal Technologies' license and maintenance fees [92]. - Journal Technologies' revenues increased by $2,087,000 (25%) to $10,511,000, with licensing and maintenance fees rising by $850,000 (15%) [99]. Operating Expenses - Consolidated operating expenses decreased by $3,249,000 (19%) to $23,400,000 from $26,649,000, primarily due to pandemic-related layoffs and reduced business travel [73]. - Operating expenses decreased by $789,000 (6%) to $12,665,000 from $13,454,000, with total salaries and employee benefits increasing by $223,000 (2%) [93]. - Operating expenses for Journal Technologies decreased by $1,382,000 (14%) to $8,310,000, primarily due to reduced personnel costs [100]. Net Income and Loss - Consolidated net income for the six months ended March 31, 2021, was $71,746,000 ($51.96 per share), compared to a net loss of $42,116,000 (-$30.50 per share) in the prior year [75]. - Consolidated net income for the three months ended March 31, 2021, was $12,476,000 ($9.04 per share), compared to a net loss of $56,326,000 (-$40.79 per share) in the prior fiscal year [95]. - The Traditional Business reported a pretax loss of $382,000, a decrease of $783,000 (195%) from pretax income of $401,000 in the prior year [81]. - Journal Technologies' pretax income increased by $4,398,000 (144%) to $1,338,000 from a pretax loss of $3,060,000 in the prior fiscal year period [86]. Non-Operating Income - Non-operating income increased by $150,751,000 (274%) to $95,671,000, primarily due to realized gains on marketable securities of $18,478,000 and net unrealized gains of $76,068,000 [74]. - The Company's non-operating income increased by $89,994,000 (118%) to $13,906,000, primarily due to realized gains of $18,478,000 on sales of marketable securities [94]. Cash and Investments - The Company's cash and cash equivalents decreased by $20,752,000 to $8,211,000, primarily due to the purchase of additional marketable securities [76]. - As of March 31, 2021, the investments in marketable securities had an adjusted cost basis of approximately $80.25 million and a market value of about $293.91 million, generating approximately $1.29 million in dividends income during the six months ended March 31, 2021 [104]. - The Company had working capital of $287.21 million as of March 31, 2021, which includes liabilities for deferred subscriptions and other deferred fees totaling $14.98 million [106]. - The Company expects to fund its operations for the foreseeable future through cash flows from operations and current working capital, with potential considerations for selling marketable securities if needed [107]. - Investments were concentrated in just six companies, indicating that a significant decline in the market value of one or more investments could lead to a large decrease in shareholders' equity and net income [108]. Tax and Accounting - The effective tax rate for the six months ended March 31, 2021, was 25.8%, influenced by dividends received deductions and taxes on realized and unrealized gains [77]. - Critical accounting policies include revenue recognition, accounting for software costs, fair value measurement, and income taxes, which are essential for preparing financial statements [111]. Business Operations and Risks - The Company experienced delays in government procurement processes affecting Journal Technologies, impacting revenue recognition for implementation services [69]. - The number of foreclosure notices published by the Company decreased by 62% during the six months ended March 31, 2021, primarily due to the federal COVID-19 related "Eviction and Foreclosure Orders" [83]. - Traditional Business segment total circulation revenues declined by $266,000 (10%) to $2,332,000 from $2,598,000 [84]. - The Company aims to be a significant software company while also operating its Traditional Business, differentiating itself from being a smaller version of Berkshire Hathaway Inc. [109]. - The Company has disclosed forward-looking statements that involve risks and uncertainties, including software development risks, reliance on professional services, and potential impacts from COVID-19 [113].