SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ____________________
Commission File Number 0-14665
DAILY JOURNAL CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 95-4133299
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
355 South Grand Ave., 34th floor
Los Angeles, California 90071-1560
- ----------------------- ----------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (213) 624-7715
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at January 31, 2001
- ------------------------------- ------------------------------
Common Stock, par value $ .01 per share 1,533,521 shares
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DAILY JOURNAL CORPORATION
INDEX
Page Nos.
PART I Financial Information
Item 1. Financial statements
Consolidated Balance Sheets -
December 31, 2000 and September 30, 2000 3
Consolidated Statements of Operations -
Three months ended December 31, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Three months ended December 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 10
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PART I
Item 1. Financial Statements
DAILY JOURNAL CORPORATION - CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31 September 30
2000 2000
---------------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 684,000 $ 380,000
U.S. Treasury Bills, at cost plus discount earned -- 1,972,000
Accounts receivable, less allowance for doubtful
account of $500,000 9,030,000 8,975,000
Income tax receivable 2,708,000 2,709,000
Inventories 19,000 61,000
Prepaid expenses and other assets 203,000 171,000
Deferred income taxes 544,000 1,143,000
------------ -----------
Total current assets 13,188,000 15,411,000
------------ ------------
Property, plant and equipment, at cost:
Land, buildings and improvements 8,452,000 8,363,000
Furniture and office equipment 6,824,000 6,442,000
Machinery and equipment 1,400,000 1,385,000
----------- -----------
16,676,000 16,190,000
Less accumulated depreciation (7,019,000) (6,618,000)
------------ -----------
9,657,000 9,572,000
Capitalized software, net 11,382,000 8,786,000
Intangible assets, at cost, less accumulated amortization
of $608,000 and $506,000 respectively 1,287,000 1,281,000
----------- -----------
$35,514,000 $ 35,050,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,336,000 $ 3,714,000
Accrued liabilities 3,499,000 2,058,000
Deferred subscription revenue and other revenues 7,433,000 7,908,000
------------ ------------
Total current liabilities 15,268,000 13,680,000
------------ ------------
Deferred income taxes 2,304,000 2,934,000
------------ ------------
Minority Interest (7% and 9%, respectively) 641,000 578,000
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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;
1,533,581 shares and 1,553,256 shares, respectively, outstanding 15,000 16,000
Other paid-in capital 1,950,000 1,974,000
Retained earnings 16,125,000 16,657,000
Less 43,271 treasury shares, at cost (789,000) (789,000)
------------ -------------
Total shareholders' equity 17,301,000 17,858,000
------------ -------------
$ 35,514,000 $ 35,050,000
============ =============
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months
ended December 31
-----------------
2000 1999
----------- ------------
Revenues:
Advertising $ 4,481,000 $ 4,666,000
Circulation 2,889,000 2,996,000
Information systems and services 417,000 500,000
Advertising service fees and other 777,000 758,000
------------ ------------
8,564,000 8,920,000
------------ ------------
Costs and expenses:
Salaries and employee benefits 4,308,000 4,430,000
Newsprint and printing expenses 777,000 712,000
Commissions and other outside services 1,468,000 1,192,000
Postage and delivery expenses 486,000 537,000
Depreciation and amortization 655,000 483,000
Other, including interest expenses 949,000 896,000
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8,643,000 8,250,000
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Income (Loss) before taxes (79,000) 670,000
(Benefits from) provision for income taxes (30,000) 315,000
------------ ------------
Income (Loss) before minority interest in net loss of subsidiary (49,000) 355,000
Minority interest in net loss of subsidiary 46,000 80,000
------------ ------------
Net income (loss) $ (3,000) $ 435,000
============ ============
Weighted average number of common
shares outstanding - basic and diluted 1,508,677 1,561,494
------------ ------------
Basic and diluted net income (loss) per share $ (.00) $ .28
------------ ------------
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months
ended December 31
--------------------------
2000 1999
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (3,000) $ 435,000
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 655,000 483,000
Minority interest in consolidated subsidiary (46,000) (80,000)
Deferred income taxes (31,000) 309,000
Income tax receivable 1,000 --
Discount earned on U.S. Treasury Bills -- (98,000)
Changes in assets and liabilities:
(Increase) decrease in current assets
Accounts receivable, net (55,000) 1,387,000
Inventories 42,000 (8,000)
Prepaid expenses and other assets (32,000) 21,000
Increase (decrease) in current liabilities
Accounts payable 622,000 (712,000)
Accrued liabilities 1,441,000 (576,000)
Income taxes payable -- 5,000
Deferred subscription and other revenues (475,000) (336,000)
----------- -----------
Cash provided by operating activities 2,119,000 830,000
----------- -----------
Cash flows from investing activities:
Net sales in U.S. Treasury Bills 1,972,000 396,000
Capital and capitalized software expenditures:
Purchases of property, plant and equipment, net (487,000) (601,000)
Capitalized software (2,746,000) --
----------- -----------
Net cash used for investing activities (1,261,000) (205,000)
----------- -----------
Cash flows from financing activities:
Purchase of common stock (554,000) (124,000)
----------- -----------
Cash used for financing activities (554,000) (124,000)
----------- -----------
Increase in cash and cash equivalents 304,000 501,000
Cash and cash equivalents:
Beginning of period 380,000 181,000
----------- -----------
End of period $ 684,000 $ 682,000
=========== ===========
Interest paid during period $ -- $ --
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - The Corporation and Operations:
Daily Journal Corporation (the "Company") publishes newspapers in
California, Washington, Arizona, Colorado and Nevada, as well as the California
Lawyer and Corporate Counsel magazines and produces several specialized
information services. It also publishes The Code of Colorado Regulations and
serves as a newspaper representative specializing in public notice advertising.
SUSTAIN Technologies, Inc. ("Sustain"), now a 93% owned subsidiary as of
December 31, 2000, has been consolidated since it was acquired in January 1999.
It provides the SUSTAIN(R) family of products which consist of technologies and
applications to enable justice agencies to automate their operations and will in
the future allow users to file cases electronically and the courts to publish
information online. Essentially all of the Company's operations are based in
California, Arizona, Colorado, Nevada, Washington and Virginia.
Note 2 - Basis of Presentation:
In the opinion of the Company, the accompanying interim unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary for a fair statement of its financial
position as of December 31, 2000, the results of operations for the three-month
periods ended December 31, 2000 and 1999 and its cash flows for the three months
ended December 31, 2000 and 1999.
The results of operations for the three months ended December 31, 2000 and
1999 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, 2000.
Note 3 - Basic and Diluted Income (Loss) Per Share:
The Company does not have any common stock equivalents, and therefore the
basic and diluted income (loss) per share are the same.
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Note 4 - Operating Segments:
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
Operating Segments
------------------------------------------------------
Daily Journal Sustain Total
------------- ------- -----
Three months ended December 31, 2000
- ------------------------------------
Revenues $ 8,137,000 $ 427,000 $ 8,564,000
Segment net income (loss) after minority interest 589,000 (592,000) (3,000)
Total assets 17,282,000 18,232,000 35,514,000
Capital expenditures 440,000 2,793,000 3,233,000
Depreciation and amortization 348,000 307,000 655,000
Income tax expenses (benefits) 340,000 (370,000) (30,000)
Daily Journal Sustain Total
------------- ------- -----
Three months ended December 31, 1999
- ------------------------------------
Revenues $8,388,000 $ 532,000 $ 8,920,000
Segment net income (loss) after minority interest 741,000 (306,000) 435,000
Total assets 24,261,000 5,877,000 30,138,000
Capital expenditures 353,000 248,000 601,000
Depreciation and amortization 248,000 235,000 483,000
Income tax expenses (benefits) 490,000 (175,000) 315,000
Note 5 - Capitalized Software, net:
Capitalized Software, net, represents software costs accounted for pursuant
to Statement of Financial Accounts Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. It is comprised of
purchased software of $3,023,000 capitalized upon the acquisition of Sustain and
development costs of $9,689,000 for software products that have reached
technological feasibility but are not available for general release. The
purchased software is being amortized over five years. As of December 30, 2000
and September 30, 2000, capitalized software costs totaled $12,712,000 (less
accumulated amortization of $1,330,000) and $9,966,0000 (less amortization of
$1,180,000), respectively.
Note 6 - Debt:
In January 2001, the Company obtained a $4 million revolving bank line of
credit bearing interest payable monthly at a quarter point under the prime rate
and due in January 2002. Such line of credit is secured by substantially all of
the Company's non-real estate assets. In January, the Company borrowed $3
million under this line of credit. In addition, the Company obtained a $2
million real estate loan on its current Los Angeles facilities. This loan bears
interest at approximately 8% to be repayable in equal monthly installments
through 2016. The real estate loan is secured by the Company's existing
facilities in Los Angeles.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues were $8,564,000 and $8,920,000 for the three months ended December
31, 2000 and 1999, respectively. This decrease of $356,000 (4%) was primarily
attributable to the decline in revenues from display advertising and Sustain's
consulting revenues, partially offset by the advertising and subscription rate
increases.
Display advertising and conference revenues were down by $303,000 primarily
because of a downturn in .com advertising while classified advertising revenues
increased by $96,000. Public notice advertising revenues increased by $22,000
primarily resulting from increased government notices. The Company's smaller
newspapers, those other than the Los Angeles and San Francisco Daily Journals
("The Daily Journals"), accounted for about 92% of the total public notice
advertising revenues. Public notice advertising revenues and related advertising
and other service fees constituted about 27% of the Company's total revenues.
Circulation revenues decreased an aggregate of $107,000 primarily because of
fewer subscriptions to the court rule services; some courts are now providing
their rules online. The Daily Journals accounted for about 72% of the Company's
total circulation revenues, and their circulation levels decreased slightly. The
court rule and judicial profile services generated about 18% of the total
circulation revenues, with the other newspapers and services accounting for the
balance. Sustain's revenues were down by $105,000.
Costs and expenses increased by $393,000 (5%) to $8,643,000 from
$8,250,000. Total personnel costs were $4,308,000, representing a decrease of
$122,000 (3%). Newsprint and printing expenses increased by $65,000 (9%)
primarily because of the newsprint price increases. Commissions and other
outside services increased by $276,000 (23%) primarily for Sustain's additional
outside service expenses of $202,000. Postage and delivery expenses declined by
$51,000 (9%) mainly because of reduced newspaper bonus issues. Depreciation and
amortization expenses increased by $172,000 (36%) primarily as a result of the
amortization of Sustain's assets, including the Daily Journal's purchased
computer software and goodwill of $179,000. The increase in other expenses of
$53,000 (6%) primarily resulted from increased accounting and legal expenses.
The Daily Journal's business segment pretax profit decreased by $349,000 to
$897,000 from $1,246,000 primarily because of a decline in .com display
advertising and fewer court rule subscriptions. Sustain's business segment
pretax loss increased by $399,000 primarily because of reduced consulting
revenues and increased depreciation and amortization and outside services. The
consolidated net loss was $3,000 as compared with a net income of $435,000 in
the comparable prior year period. Net income (loss) per share decreased to
($.00) from $.28.
Liquidity and Capital Resources
During the three months ended September 30, 2000, the Company's cash and
cash equivalent position increased by $304,000, and the investments in U.S.
Treasury Bills decreased by $1,972,000. Cash and cash equivalents were used for
the net purchase of capital assets of $3,233,000, including significant
investments in Sustain software and to purchase common stock for an aggregate
amount of $554,000. The cash provided by operating activities of $2,119,000
included a net decrease in prepayments for subscriptions and others of $475,000.
Proceeds from the sale of subscriptions from newspapers, court rule books and
other publications and for software maintenance and other services are booked as
deferred revenue and are included in earned revenue only when the services are
provided. The cash flows from
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operating activities increased by $1,289,000 during the three months ended
December 31, 2000 primarily due to the changes in accounts payable and accrued
liabilities. As of December 31, 2000, the Company had working capital of
$5,353,000 before deducting the liability for deferred subscription revenues and
other revenues of $7,433,000 which will be earned within one year.
The Company expects its expenditures in fiscal 2001 to include an estimated
$2 million for the construction of a new building in Los Angeles. The Company
also expects its expenditures in support of the development of the Sustain
software to continue at a rate in excess of cash flow. In January the Company
obtained a $4 million revolving bank line of credit due in January 2002 and
secured by substantially all of the Company's non-real estate assets. In
January the Company borrowed $3 million under this line of credit. The Company
expects that it will be able to extend or refinance the amounts outstanding
under this line of credit on or before the maturity date. There can be no
assurance, however, that a change in the Company's business or prospects will
not result in an inability to refinance on the same or similar terms. The
Company also obtained a $2 million real estate loan secured by its current Los
Angeles facilities. The Company also has a commitment from a bank to loan the
Company up to an additional $2 million when its new building is completed. The
Company cannot predict whether the amounts received from these borrowings will
be sufficient to fully fund its development of the Sustain software. If
additional funds are required to support such development, the Company may,
among other things, change its development strategy or attempt to secure
additional financing, which may or may not be available to the Company on
acceptable terms.
Disclosure regarding Forward-Looking Statements
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Certain statements contained in
this document, including without limitation those contained under the captions
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," are forward-looking statements. Forward-looking statements include
statements which are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as "expects", "anticipates",
"intends", "plans", "believes", "estimates", or similar expressions. In
addition, any statements concerning future financial performance (including
future revenues, earnings or growth rates), ongoing business strategies or
prospects, and possible future Company actions, which may be provided by
management, are also forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from those in the forward-looking statements are disclosed in this
Report, including without limitation in conjunction with the forward-looking
statements themselves. The Company has no specific intention to update these
forward-looking statements.
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DAILY JOURNAL CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits - The following exhibit is filed herewith:
10.1 Note Secured by Deed of Trust, dated January 2, 2001, in the
principal amount of $2,000,000 executed by Daily Journal
Corporation in favor of City National Bank.
10.2 Deed of Trust, Assignment of Rents and Fixture Filing, dated
January 2, 2001, executed by Daily Journal Corporation in favor
of City National Bank.
10.3 Letter Agreement, dated January 2, 2001, regarding the Promissory
Note dated January 2, 2001 in the principal amount of $4,000,000
executed by Daily Journal Corporation and Sustain Technologies,
Inc. in favor of City National Bank.
10.4 Promissory Note, dated January 2, 2001, in the principal amount
of $4,000,000 executed by Daily Journal Corporation and Sustain
Technologies, Inc. in favor of City National Bank.
10.5 Commercial Security Agreement, dated January 2, 2001, executed by
Daily Journal Corporation in favor of City National Bank.
10.6 Commercial Security Agreement, dated January 2, 2001, executed by
Sustain Technologies, Inc. in favor of City National Bank.
27 Financial Data Schedule.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAILY JOURNAL CORPORATION
(Registrant)
/s/ Gerald L. Salzman
Gerald L. Salzman
Chief Financial Officer
DATE: February 9, 2001
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