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 March 31, 2001 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 April 30, 2001 - --------------------------------------- ----------------------------- Common Stock, par value $ .01 per share 1,533,521 shares 1 of 14
DAILY JOURNAL CORPORATION INDEX <TABLE> <CAPTION> Page Nos. <S> <C> PART I Financial Information Item 1. Financial statements Consolidated Balance Sheets - March 31, 2001 and September 30, 2000 3 Consolidated Statements of Operations - Three months ended March 31, 2001 and 2000 4 Consolidated Statements of Operations - Six months ended March 31, 2001 and 2000 5 Consolidated Statements of Cash Flows - Six months ended March 31, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II Other Information Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 14 </TABLE> 2 of 14
PART I Item 1. Financial Statements DAILY JOURNAL CORPORATION - CONSOLIDATED BALANCE SHEETS (Unaudited) <TABLE> <CAPTION> March 31 September 30 2001 2000 -------------- -------------- <S> <C> <C> ASSETS Current assets Cash and cash equivalents $ 347,000 $ 380,000 U.S. Treasury Bills, at cost plus discount earned --- 1,972,000 Accounts receivable, less allowance for doubtful accounts of $500,000 11,955,000 8,975,000 Income tax receivable 257,000 2,709,000 Inventories 47,000 61,000 Prepaid expenses and other assets 185,000 171,000 Deferred income taxes 524,000 1,143,000 -------------- ------------- Total current assets 13,315,000 15,411,000 -------------- ------------- Property, plant and equipment, at cost: Land, buildings and improvements 8,499,000 8,363,000 Furniture and office equipment 6,773,000 6,442,000 Machinery and equipment 1,390,000 1,385,000 -------------- ------------- 16,662,000 16,190,000 Less accumulated depreciation (7,065,000) (6,618,000) -------------- ------------- 9,597,000 9,572,000 -------------- ------------- Deferred income taxes 3,006,000 --- -------------- ------------- Capitalized software, net 1,541,000 8,786,000 -------------- ------------- Intangible assets, at cost, less accumulated amortization of $711,000 and $506,000 respectively 1,184,000 1,281,000 -------------- ------------- $ 28,643,000 $ 35,050,000 ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,074,000 $ 3,714,000 Accrued liabilities 1,716,000 2,058,000 Notes payable, current portion 65,000 --- Deferred subscription revenue and other revenues 7,498,000 7,908,000 -------------- ------------- Total current liabilities 16,353,000 13,680,000 -------------- ------------- Deferred income taxes --- 2,934,000 -------------- ------------- Long-term notes payable 1,929,000 --- -------------- ------------- Minority Interest (7% and 9%, respectively) 36,000 578,000 -------------- ------------- 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; 1,533,521 shares and 1,553,256 shares, respectively, outstanding 15,000 16,000 Other paid-in capital 1,949,000 1,974,000 Retained earnings 9,150,000 16,657,000 Less 43,271 treasury shares, at cost (789,000) (789,000) -------------- ------------- Total shareholders' equity 10,325,000 17,858,000 -------------- ------------- $ 28,643,000 $ 35,050,000 ============== ============= </TABLE> See accompanying notes to consolidated financial statements. 3 of 14
DAILY JOURNAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> Three months ended March 31 ---------------------------- 2001 2000 ------------ ------------ <S> <C> <C> Revenues: Advertising $ 4,629,000 $ 5,201,000 Circulation 2,780,000 2,770,000 Information systems and services 491,000 1,074,000 Advertising service fees and other 838,000 752,000 ------------ ------------ 8,738,000 9,797,000 ------------ ------------ Costs and expenses: Salaries and employee benefits 4,385,000 4,527,000 Newsprint and printing expenses 804,000 784,000 Commissions and other outside services 1,277,000 1,339,000 Postage and delivery expenses 522,000 520,000 Depreciation and amortization 696,000 712,000 Other general and administrative expenses 1,089,000 1,131,000 Write-off of capitalized software 12,792,000 --- ------------ ------------ 21,565,000 9,013,000 ------------ ------------ (Loss) Income from operations (12,827,000) 784,000 Other income and expenses: Interest income 36,000 133,000 Interest expense (77,000) --- ------------ ------------ (Loss) Income before taxes (12,868,000) 917,000 (Benefits from) Provision for income taxes (5,290,000) 425,000 ------------ ------------ (Loss) Income before minority interest in net loss of subsidiary (7,578,000) 492,000 Minority interest in net loss of subsidiary 604,000 54,000 ------------ ------------ Net (loss) income $ (6,974,000) $ 546,000 ============ ============ Weighted average number of common shares outstanding - basic and diluted 1,490,270 1,558,849 ------------ ------------ Basic and diluted net (loss) income per share $ (4.68) $ 0.35 ------------ ------------ </TABLE> See accompanying notes to consolidated financial statements. 4 of 14
DAILY JOURNAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> Six months ended March 31 ---------------------------- 2001 2000 ------------ ------------ <S> <C> <C> Revenues: Advertising $ 9,110,000 $ 9,867,000 Circulation 5,669,000 5,766,000 Information systems and services 908,000 1,574,000 Advertising service fees and other 1,579,000 1,394,000 ------------ ------------ 17,266,000 18,601,000 ------------ ------------ Costs and expenses: Salaries and employee benefits 8,693,000 8,957,000 Newsprint and printing expenses 1,581,000 1,496,000 Commissions and other outside services 2,745,000 2,531,000 Postage and delivery expenses 1,008,000 1,057,000 Depreciation and amortization 1,351,000 1,195,000 Other general and administrative expenses 2,038,000 2,027,000 Write-off of capitalized software 12,792,000 -- ------------ ------------ 30,208,000 17,263,000 ------------ ------------ (Loss) Income from operations (12,942,000) 1,338,000 Other income and expenses: Interest income 72,000 249,000 Interest expense (77,000) -- ------------ ------------ (Loss) Income before taxes (12,947,000) 1,587,000 (Benefits from) Provision for income taxes (5,320,000) 740,000 ------------ ------------ (Loss) Income before minority interest in net loss of subsidiary (7,627,000) 847,000 Minority interest in net loss of subsidiary 650,000 134,000 ------------ ------------ Net (loss) income $ (6,977,000) $ 981,000 ============ ============ Weighted average number of common shares outstanding - basic and diluted 1,499,575 1,560,179 ------------ ------------ Basic and diluted net (loss) income per share $ (4.65) $ 0.63 ------------ ------------ </TABLE> See accompanying notes to consolidated financial statements. 5 of 14
DAILY JOURNAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Six months ended March 31 -------------- 2001 2000 ------------ ------------ <S> <C> <C> Cash flows from operating activities: Net (loss) income $ (6,977,000) $ 981,000 Adjustments to reconcile net income to net cash provided by operations: Write-off of capitalized software 12,792,000 -- Depreciation and amortization 1,351,000 1,195,000 Minority interest in consolidated subsidiary (650,000) (134,000) Deferred income taxes (5,321,000) 255,000 Discount earned on U.S. Treasury Bills -- (105,000) Changes in assets and liabilities: (Increase) decrease in current assets Accounts receivable, net (2,980,000) 141,000 Income tax receivable 2,452,000 -- Inventories 14,000 (9,000) Prepaid expenses and other assets (14,000) 89,000 Increase (decrease) in current liabilities Accounts payable 3,360,000 1,214,000 Accrued liabilities (342,000) (291,000) Income taxes payable -- (122,000) Deferred subscription and other revenues (410,000) (500,000) ------------ ------------ Cash provided by operating activities 3,275,000 2,714,000 ------------ ------------ Cash flows from investing activities: Net sales in U.S. Treasury Bills 1,972,000 1,872,000 Capital and capitalized software expenditures: Purchases of property, plant and equipment (869,000) (1,098,000) Capitalized software (5,849,000) (2,042,000) ------------ ------------ Net cash used for investing activities (4,746,000) (1,268,000) ------------ ------------ Cash flows from financing activities: Loan proceeds, net 1,994,000 -- Purchase of common stock (556,000) (767,000) ------------ ------------ Net cash provided by (used for) financing activities 1,438,000 (767,000) ------------ ------------ (Decrease) increase in cash and cash equivalents (33,000) 679,000 Cash and cash equivalents: Beginning of period 380,000 181,000 ------------ ------------ End of period $ 347,000 $ 860,000 ============ ============ Interest paid during period $ 77,000 $ -- </TABLE> See accompanying notes to consolidated financial statements. 6 of 14
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 March 31, 2001, 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 March 31, 2001, the results of operations for the three- and six-month periods ended March 31, 2001 and 2000 and its cash flows for the six-months ended March 31, 2001 and 2000. The results of operations for the three- and six-months ended March 31, 2001 and 2000 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. Certain prior period amounts have been reclassified to conform to current period presentation. Note 3 - Basic and Diluted Income (Loss) Per Share: The Company does not have any common stock equivalents, and therefore basic and diluted (loss) income per share are the same. Note 4 - Capitalized Software: The Company's expenditures in support of the Sustain software are significant. In the periods ended December 31, 2000 and March 31, 2001, substantially all of such expenditures have been for services provided to Sustain by an outside software development service provider. As of September 30, 2000, capitalized Sustain software costs consisted of purchased software of $3,023,000 that was capitalized upon the acquisition of Sustain and $6,943,000 for expenses related to the use of the outside service provider for a software development project that had reached technological feasibility but required 7 of 14
further development prior to being a commercial product. During the six months ended March 31, 2001, the Company invested an additional $5,849,000 in the development project, all of which represents costs related to the use of the outside service provider. Those development efforts have now been discontinued, and the outside service provider's work has been terminated. The software development project was not completed and was, therefore, of little commercial value. As a result, the Company has written off through March 31, 2001 expenditures totaling $12,792,000 through that period or $7,612,000 net of tax benefits of $5,180,000. The Company intends to continue its software development work, and the Company is reviewing its product development alternatives, including expanding its internal development efforts and/or establishing or expanding relationships with other service providers. Although the Company has not yet decided on any particular course of action, each of these alternatives could potentially have a significant impact on the Company's Sustain-related costs. In addition, if the development programs are not successful, they will significantly and adversely impact the Company's ability to maximize its existing investment in the Sustain software, to service its existing customers, and to compete for new opportunities in the case management software business. 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. As of March 31, 2001 and September 30, 2000, capitalized software costs totaled $3,023,000 (less accumulated amortization of $1,482,000) and $9,966,000 (less amortization of $1,180,000), respectively. The purchased software is being amortized over five years. Note 5 - 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, which expires in January 2002. Such line of credit is secured by substantially all of the Company's non-real estate assets. As of March 31, 2001, there was no borrowing, but in May the Company has a net borrowing of $300,000 under this line of credit. In addition, the Company has a $2 million real estate loan which 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. 8 of 14
Note 6 - Operating Segments: Summarized financial information concerning the Company's reportable segments is shown in the following table: <TABLE> <CAPTION> Operating Segments ---------------------------------------------- Daily Journal Sustain Total ------------- ------- ----- <S> <C> <C> <C> Six months ended March 31, 2001 - ------------------------------- Revenues $ 16,359,000 $ 907,000 $ 17,266,000 Segment net income (loss) after minority interest 1,006,000 (7,983,000) (6,977,000) Total assets 20,177,000 8,466,000 28,643,000 Capital expenditures 797,000 5,921,000 6,718,000 Write-off of capitalized software -- 12,792,000 12,792,000 Depreciation and amortization 736,000 615,000 1,351,000 Income tax expenses (benefits) 570,000 (5,890,000) (5,320,000) Six months ended March 31, 2000 - ------------------------------- Revenues $ 17,085,000 $ 1,516,000 $ 18,601,000 Segment net income (loss) after minority interest 1,577,000 (596,000) (981,000) Total assets 23,634,000 8,010,000 31,644,000 Capital expenditures 752,000 2,388,000 3,140,000 Depreciation and amortization 560,000 635,000 1,195,000 Income tax expenses (benefits) 1,055,000 (315,000) 740,000 Three months ended March 31, 2001 - --------------------------------- Revenues $ 8,248,000 $ 490,000 $ 8,738,000 Segment net income (loss) after minority interest 417,000 (7,391,000) (6,974,000) Total assets 20,177,000 8,466,000 28,643,000 Capital expenditures 357,000 3,128,000 3,485,000 Write-off of capitalized software -- 12,792,000 12,792,000 Depreciation and amortization 388,000 308,000 696,000 Income tax expenses (benefits) 230,000 (5,520,000) (5,290,000) Three months ended March 31, 2000 - --------------------------------- Revenues $ 8,781,000 $ 1,016,000 $ 9,797,000 Segment net income (loss) after minority interest 836,000 (290,000) 546,000 Total assets 23,634,000 8,010,000 31,644,000 Capital expenditures 399,000 2,140,000 2,539,000 Depreciation and amortization 312,000 400,000 712,000 Income tax expenses (benefits) 565,000 (140,000) 425,000 </TABLE> 9 of 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Revenues were $17,266,000 and $18,601,000 for the six months ended March 31, 2001 and 2000, respectively. This decrease of $1,335,000 (7%) 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. (Revenues were $8,738,000 and $9,797,000 for the three months ended March 31, 2001 and 2000, respectively.) Display advertising and conference revenues declined by $693,000, including a downturn in .com advertising, and classified advertising revenues also decreased by $34,000. Public notice advertising revenues declined by $30,000 primarily resulting from decreased trustee notice sales. The Company's smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals ("The Daily Journals"), accounted for about 93% 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 $97,000 primarily because of fewer subscriptions to the court rule services; some courts are now providing their rules online. The Daily Journals accounted for about 70% 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 $609,000 primarily because of reduced consulting revenues. Costs and expenses, excluding the write-off of capitalized Sustain software costs, increased by $153,000 to $17,416,000 from $17,263,000 for the six months ended March 31, 2001 and 2000, respectively. Total personnel costs were $8,693,000, representing a decrease of $264,000 (3%). Newsprint and printing expenses increased by $85,000 (6%) primarily because of the newsprint price increases. Commissions and other outside services increased by $214,000 (8%) primarily because of Sustain's additional outside service expenses of $300,000. Postage and delivery expenses declined by $49,000 (5%) mainly because of reduced newspaper bonus issues. Depreciation and amortization expenses increased by $156,000 (13%) primarily resulting from more software amortization, including the Daily Journal's purchased computer software and goodwill of $442,000. (Costs and expenses, excluding the write-off of capitalized Sustain software costs, were $8,773,000 and $9,013,000 for the three months ended March 31, 2001 and 2000, respectively.) In January 1999, the Company purchased 80% of the capital stock of Sustain from Sustain and its shareholders. As of March 31, 2001, the Company owned 93% of Sustain. The Sustain family of products consists 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. Sustain has installations in nine state and three countries, and many of its clients have more than a decade of experience with the Sustain product line. The Company's revenues derived from Sustain's operation constituted about 5% of the Company's total revenues in fiscal 2000 and for the first six months of fiscal 2001. The Company's expenditures in support of the Sustain software are significant. In the periods ended December 31, 2000 and March 31, 2001, substantially all of such expenditures have been for services provided to Sustain by an outside software development service provider. As of September 30, 2000, capitalized Sustain software costs consisted of purchased software of $3,023,000 that was capitalized upon 10 of 14
the acquisition of Sustain and $6,943,000 for expenses related to the use of the outside service provider for a software development project that had reached technological feasibility but required further development prior to being a commercial product. During the six months ended March 31, 2001, the Company invested an additional $5,849,000 in the development project, all of which represents costs related to the use of the outside service provider. Those development efforts have now been discontinued, and the outside service provider's work has been terminated. The software development project was not completed and, therefore, was of little commercial value. As a result, the Company has written off through March 31, 2001 expenditures totaling $12,792,000 through that period or $7,612,000 net of tax benefits of $5,180,000. The Company intends to continue its software development work, and the Company is reviewing its product development alternatives, including expanding its internal development efforts and/or establishing or expanding relationships with other service providers. Although the Company has not yet decided on any particular course of action, each of these alternatives could potentially have a significant impact on the Company's Sustain-related costs. In addition, if the development programs are not successful, they will significantly and adversely impact the Company's ability to maximize its existing investment in the Sustain software, to service its existing customers, and to compete for new opportunities in the case management software business. Interest income decreased by $177,000 (71%) to $72,000 from $249,000 during the six months ended March 31, 2001 and 2000, respectively, primarily resulting from the investment in Sustain software. There were interest expenses of $77,000 for the three months ended March 31, 2001 on the bank loans. The Daily Journal's business segment pretax profit decreased by $1,025,000 to $1,577,000 from $2,602,000, including a downturn in .com display advertising and fewer court rule subscriptions. Sustain's business segment pretax loss increased by $13,509,000 primarily because of the write-off of the capitalized Sustain software costs of $12,792,000 and reduced consulting revenues. The consolidated net loss for the six months ended March 31, 2001 was $6,977,000 as compared with a consolidated net income of $981,000 in the comparable prior year period. (Consolidated net loss was $6,974,000 as compared with a consolidated net income of $546,000 for the three months ended March 31, 2001 and 2000, respectively.) Net loss per share was $4.65 as compared with net income per share of $0.63 for the six month comparable periods. Liquidity and Capital Resources During the six months ended March 31, 2001, the Company's cash and cash equivalent position decreased by $33,000, and the investments in U.S. Treasury Bills decreased by $1,972,000. Cash and cash equivalents were used for the purchase of capital assets of $6,718,000, including significant investments in Sustain software which were written off in March 2001, and to purchase common stock for an aggregate amount of $556,000. The cash provided by operating activities of $3,275,000 included a net decrease in prepayments for subscriptions and others of $410,000. 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 operating activities increased by $561,000 during the six months ended March 31, 2001 primarily due to the changes in Sustain's operations as more fully discussed in Item 5. Both the accounts receivable and payable increased primarily because of services provided by others to governmental agencies with the payable due upon such receipts. The increase in deferred income taxes primarily represents the net operating loss carry-forward resulting from the Sustain losses. As of March 31, 2001, the Company had working capital of $4,460,000 before deducting the liability for deferred subscription revenues and other revenues of $7,498,000 which will be earned within one year. 11 of 14
The Company expects its expenditures in support of the development of the Sustain software to continue at a rate in excess of cash flow but below the level of the prior year. In January the Company obtained a $4 million revolving bank line of credit, which expires in January 2002 and is secured by substantially all of the Company's non-real estate assets. As of March 31, 2001, there was no borrowing, but in May the Company has a net borrowing of $300,000 under this line of credit. The Company expects that it will be able to extend or refinance the amounts available or 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 now has a $2 million real estate loan secured by its current Los Angeles facilities. The Company intends to begin construction of a new building in Los Angeles estimated to cost about $2 million possibly by fiscal yearend, and it 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. 12 of 14
DAILY JOURNAL CORPORATION PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders: The Company's annual meeting was held on February 7, 2001. The matters submitted to a vote of security holders were the election of directors and the ratification of the appointment of Ernst & Young LLP as independent accountants for the Company for the current fiscal year. Each of the nominees to the Board of directors was elected. The following votes were received as to the election of the board of directors: <TABLE> <CAPTION> Votes ------------------------------------------------------------ Withheld Broker Nominee's Name For Authority Non-Votes - -------------- --- --------- --------- <S> <C> <C> <C> Charles T. Munger 1,472,099 10,042 0 J. P. Guerin 1,472,129 10,042 0 Gerald L. Salzman 1,472,099 10,042 0 Donald W. Killian, Jr. 1,472,069 10,042 0 George C. Good 1,472,039 10,042 0 </TABLE> Ernst & Young LLP was ratified as the Company's independent accountants with 1,472,316 votes in favor, 8,145 votes against, 1,710 abstentions and no broker non-votes. 13 of 14
DAILY JOURNAL CORPORATION PART II - OTHER INFORMATION Item 5. Other Information: On May 14, 2001, Sustain formally notified its primary software development service provider that Sustain was terminating the service provider's work as the result of performance-related issues, including significant delays resulting in escalating costs. The incomplete work and the delays were not acceptable to Sustain's customers. Sustain has begun the process of working with its customers on the appropriate adjustments necessary to complete its projects, and intends to continue its software development work. At this time, however, Sustain cannot predict whether any adjustments will be required; or how much of the cost of any such adjustments will be borne by Sustain, the customers and the terminated service provider, respectively; or whether the projects can be completed to the customers' reasonable satisfaction. Sustain is currently evaluating various alternatives to provide the services previously provided by the terminated service provider. Among these alternatives are providing such services using Sustain employees and/or establishing or expanding relationships with other service providers. Although Sustain has not yet decided on any particular course of action, each of these alternatives could potentially have a significant impact on Sustain's costs. Sustain is in the process of attempting to resolve certain issues between it and the terminated service provider, including the amounts due to each of them from the other. In addition, Sustain's financial statements include a receivable from an important customer and a corresponding payable to the terminated service provider which provided the services that are now being questioned. If adjustments to the accounts receivable are made without a corresponding adjustment to the accounts payable to the terminated service provider, the amount of that difference, if material, will have a material adverse effect on Sustain. There can be no assurance that Sustain, the service provider and the customer will come to a mutually acceptable resolution of these issues or that the pendency of these issues will not impact Sustain's ability to attract new customers or work with its existing customers. 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: May 15, 2001 14 of 14