10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

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.)
915 East First Street
Los Angeles, California	90012-4050
(Address of principal executive offices)	(Zip code)

(213) 229-5300

(Registrant's telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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 by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes: X                 No:

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer:	Accelerated Filer:   X
Non-accelerated Filer:	Smaller Reporting Company:
	Emerging Growth Company:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes:        No: X

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, 2019
Common Stock, par value $ .01 per share	1,380,746 shares

1

DAILY JOURNAL CORPORATION

INDEX

			Page Nos.
PART I  Financial Information
	Item 1.	Financial Statements
	Consolidated Balance Sheets - December 31, 2018 and September 30, 2018		3
	Consolidated Statements of Comprehensive (Loss) Income - Three months ended December 31, 2018 and 2017		4
	Consolidated Statements of Shareholders’ Equity – Three months ended December 31, 2018 and 2017		5
	Consolidated Statements of Cash Flows - Three months ended December 31, 2018 and 2017		6
	Notes to Consolidated Financial Statements		7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
	Item 4.	Controls and Procedures	20
Part II  Other Information
	Item 6.	Exhibits	21

2

PART I

Item 1. FINANCIAL STATEMENTS

DAILY JOURNAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31			September 30
	2018			2018
ASSETS
Current assets
Cash and cash equivalents	$	6,691,000		$	9,301,000
Marketable securities at fair value		183,656,000			212,296,000
Accounts receivable, less allowance for doubtful accounts of $200,000		7,033,000			4,803,000
Inventories		55,000			46,000
Prepaid expenses and other current assets		491,000			512,000
Income tax receivable		58,000			270,000
Total current assets		197,984,000			227,228,000
Property, plant and equipment, at cost
Land, buildings and improvements		16,472,000			16,422,000
Furniture, office equipment and computer software		2,911,000			2,877,000
Machinery and equipment		1,749,000			1,749,000
		21,132,000			21,048,000
Less accumulated depreciation		(9,981,000	)		(9,828,000	)
		11,151,000			11,220,000
Goodwill		13,400,000			13,400,000
Deferred income taxes - Federal		9,753,000			9,269,000
Deferred income taxes - State		2,828,000			2,881,000
	$	235,116,000		$	263,998,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	4,036,000		$	2,820,000
Accrued liabilities		3,804,000			4,402,000
Note payable collateralized by real estate		123,000			121,000
Deferred subscriptions		2,947,000			3,174,000
Deferred installation contracts		2,442,000			2,554,000
Deferred maintenance agreements and others		14,624,000			14,186,000
Total current liabilities		27,976,000			27,257,000
Long term liabilities
Investment margin account borrowings		29,493,000			29,493,000
Note payable collateralized by real estate		1,804,000			1,835,000
Deferred maintenance agreements		106,000			176,000
Accrued liabilities		180,000			170,000
Deferred income taxes		34,174,000			42,151,000
Total long term liabilities		65,757,000			73,825,000
Commitments and contingencies (Notes 9 and 10)		---			---
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; 1,805,053 shares issued, including 424,307 treasury shares, at December 31, 2018 and September 30, 2018		14,000			14,000
Additional paid-in capital		1,755,000			1,755,000
Retained earnings		139,614,000			45,361,000
Accumulated other comprehensive income		---			115,786,000
Total shareholders' equity		141,383,000			162,916,000
	$	235,116,000		$	263,998,000

See accompanying Notes to Consolidated Financial Statements

3

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

	Three months ended December 31
	2018			2017
Revenues
Advertising	$	2,192,000		$	2,116,000
Circulation		1,338,000			1,363,000
Advertising service fees and other		669,000			602,000
Licensing and maintenance fees		4,790,000			4,350,000
Consulting fees		541,000			995,000
Other public service fees		898,000			826,000
		10,428,000			10,252,000
Costs and expenses
Salaries and employee benefits		8,655,000			8,197,000
Outside services		945,000			1,039,000
Postage and delivery expenses		204,000			217,000
Newsprint and printing expenses		176,000			212,000
Depreciation and amortization		153,000			1,218,000
Other general and administrative expenses		2,816,000			2,814,000
		12,949,000			13,697,000
Loss from operations		(2,521,000	)		(3,445,000	)
Other income (expense)
Dividends and interest income		1,530,000			1,483,000
Other income and capital gains		10,000			11,000
Net unrealized losses on investments		(28,640,000	)		---
Interest expense on note payable collateralized by real estate		(23,000	)		(24,000	)
Interest expense on margin loans		(206,000	)		(136,000	)
Loss before income taxes		(29,850,000	)		(2,111,000	)
Benefit from income taxes		8,317,000			16,850,000
Net (loss) income	$	(21,533,000	)	$	14,739,000
Weighted average number of common shares outstanding - basic and diluted		1,380,746			1,380,746
Basic and diluted net (loss) income per share	$	(15.60	)	$	10.67
Comprehensive (loss) income
Net (loss) income	$	(21,533,000	)	$	14,739,000
Net increase in unrealized appreciation of marketable securities (net of taxes)		---			12,118,000
	$	(21,533,000	)	$	26,857,000

See accompanying Notes to Consolidated Financial Statements.

4

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

																Accumulated
											Additional					Other			Total
	Common Stock				Treasury Stock						Paid-in		Retained			Comprehensive			Shareholders'
	Share		Amount		Share			Amount			Capital		Earnings			Income			Equity
Balance at September 30, 2018		1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	45,361,000		$	115,786,000		$	162,916,000
Adoption of new accounting pronouncement		---		---		---			---			---		115,786,000			(115,786,000	)		---
Net loss		---		---		---			---			---		(21,533,000	)		---			(21,533,000	)
Balance at December 31, 2018		1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	139,614,000		$	---		$	141,383,000
Balance at September 30, 2017		1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	57,150,000		$	100,822,000		$	159,741,000
Net income		---		---		---			---			---		14,739,000			---			14,739,000
Unrealized gains on investments, net		---		---		---			---			---		---			12,118,000			12,118,000
Balance at December 31, 2017		1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	71,889,000		$	112,940,000		$	186,598,000

See accompanying Notes to Consolidated Financial Statements

5

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended December 31
	2018			2017
Cash flows from operating activities
Net (loss) income	$	(21,533,000	)	$	14,739,000
Adjustments to reconcile net (loss) income to net cash used in operations
Depreciation and amortization		153,000			1,218,000
Net unrealized losses on investments		28,640,000			---
Deferred income taxes		(8,408,000	)		(16,778,000	)
Discounts earned on bonds		---			(1,000	)
Changes in operating assets and liabilities
(Increase) decrease in current assets
Accounts receivable, net		(2,230,000	)		1,166,000
Inventories		(9,000	)		---
Prepaid expenses and other assets		21,000			157,000
Income tax receivable		212,000			(78,000	)
Increase (decrease) in liabilities
Accounts payable		1,216,000			(98,000	)
Accrued liabilities		(588,000	)		(701,000	)
Deferred subscriptions		(227,000	)		(149,000	)
Deferred maintenance agreements and others		368,000			419,000
Deferred installation contracts		(112,000	)		(708,000	)
Net cash used in operating activities		(2,497,000	)		(814,000	)
Cash flows from investing activities
Purchases of property, plant and equipment		(84,000	)		(34,000	)
Net cash used in investing activities		(84,000	)		(34,000	)
Cash flows from financing activities
Payment of real estate loan principal		(29,000	)		(28,000	)
Net cash used in financing activities		(29,000	)		(28,000	)
Decrease in cash and cash equivalents		(2,610,000	)		(876,000	)
Cash and cash equivalents
Beginning of period		9,301,000			3,384,000
End of period	$	6,691,000		$	2,508,000
Interest paid during period	$	152,000		$	169,000
Net income taxes (refunded) paid during period	$	(121,000	)	$	6,000

See accompanying Notes to Consolidated Financial Statements.

6

DAILY JOURNAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - The Corporation and Operations

Daily Journal Corporation (the “Company”) publishes newspapers and web sites covering California and Arizona and produces several specialized information services. It also serves as a newspaper representative specializing in public notice advertising. This is sometimes referred to as the Company’s Traditional Business”.

Journal Technologies, Inc. (“Journal Technologies”), a wholly-owned subsidiary, 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 online, and bar members. These products are licensed to more than 500 organizations in 42 states and internationally.

Essentially all of the Company’s operations are based in California, Arizona, Colorado and Utah.

Note 2 - Basis of Presentation

In the opinion of the Company, the accompanying interim unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of its financial position as of December 31, 2018, and its results of operations and cash flows for the three-month periods ended December 31, 2018 and 2017. The results of operations for the three months ended December 31, 2018 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, 2018.

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

Note 3 - Accounting Standards Adopted in Fiscal 2019 and Recent Accounting Pronouncements

Accounting Standards Adopted in Fiscal 2019

On October 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. 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 loss of $21,533,000 for the three month ended December 31, 2018, included net unrealized losses on investments of $28,640,000. For the prior year’s period, the Company recorded net unrealized gains for its available-for-sale marketable securities in other comprehensive income. In addition, ASU 2016-01 prohibits the restatement of prior year financial statements but requires that the Company reclassify net after-tax unrealized gains on investments of $115,786,000 on adoption day from “accumulated other comprehensive income” to “retained earnings”, both of which are listed under the “Shareholders’ equity” section of the Company’s Consolidated Balance Sheets. This represented an increase to retained earnings and a decrease to accumulated other comprehensive income.

7

Other Recent Accounting Pronouncements

The Company will continue to evaluate the other new accounting pronouncements as detailed in its Annual Report on Form 10-K for the year ended September 30, 2018.

Note 4 – Revenue Recognition

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.

For the Company’s 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. Advertising revenues are recognized when advertisements are published and are net of agency commissions.

Journal Technologies contracts may include several products and services, which are generally distinct and include separate transaction pricing and performance obligations. Most are one-transaction contracts. These current subscription-type contract revenues include (i) implementation consulting fees to configure the system to go-live, (ii) subscription software license, maintenance (including updates and upgrades) and support fees, and (iii) third-party hosting fees when used. Revenues for consulting are recognized at point of delivery (go-live) upon completion of services, and subscription and advertising revenues are recognized ratably (using the output method based on time-elapsed) after the go-live. These contracts include assurance warranty provisions for limited periods and do not include financing terms. For some contracts, the Company acts as a principal with respect to certain services, such as data conversion, interfaces and hosting that are provided by third-parties, and recognizes such revenues on a gross basis. For legacy contracts with perpetual license arrangements, licenses and consulting services are recognized at point of delivery (go-live), and maintenance revenues are recognized ratably after the go-live. Other public service fees are earned and recognized as revenues when the Company processes credit card payments on behalf of the courts via its websites through which the public can efile cases and pay traffic citations and other fees.

The adoption of ASC 606 also requires the capitalization of certain costs of obtaining contracts, specifically sales commissions, which are to be amortized over the expected term of the contracts. For its software contracts, the Company incurs an immaterial amount of sales commission costs which have no significant impact on the Company’s financial condition and results of operations. In addition, the Company’s implementation and fulfillment costs do not meet all criteria required for capitalization.

8

Since the Company recognizes revenues when it can invoice the customer pursuant to the contract for the value of completed performance, as a practical expedient and because reliable estimates cannot be made, it has elected not to include the transaction price allocated to unsatisfied performance obligations. Also, as a practical expedient, the Company has elected not to include its evaluation of variable consideration of certain usage-based public service fees that are included in some contracts. Furthermore, there are no fulfillment costs to be capitalized for the software contracts because these costs do not generate or enhance resources that will be used in satisfying future performance obligations.

Note 5 - Basic and Diluted Income Per Share

The Company does not have any common stock equivalents, and therefore basic and diluted income (loss) per share are the same.

Note 6 - Investments in Marketable Securities

All investments are classified as “Current assets” because they are available for sale at any time. These “available-for-sale” marketable securities are stated at fair value. 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 ASC 820, Fair Value Measurement.

As of December 31, 2018, there were net unrealized gains of $129,767,000 with these investments. With the adoption of ASU No. 2016-01, Subtopic 825-10, as stated in Note 3, the Company recorded and included in its net loss the net unrealized losses on investments of $28,640,000 for the three months ended December 31, 2018. At September 30, 2018, net unrealized gains of $158,407,000 were recorded before taxes of $42,151,000 in the accumulated other comprehensive income in the accompanying Consolidated Balance Sheets. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

Investments in equity securities as of December 31, 2018 and September 30, 2018 are summarized below.

   Investments in Financial Instruments

	December 31, 2018						September 30, 2018
	Aggregate fair value		Amortized/ Adjusted cost basis		Pretax net unrealized gains		Aggregate fair value		Amortized/ Adjusted cost basis		Pretax net unrealized gains
Marketable securities	$	183,656,000	$	53,889,000	$	129,767,000	$	212,296,000	$	53,889,000	$	158,407,000

As of December 31, 2018, the Company performed an evaluation for an equity security with a fair value below cost to determine if the unrealized loss was other-than-temporary. This evaluation considers a number of factors including, but not limited to, the length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer and the Company’s ability and intent to hold the security until fair value recovers. The assessment of the ability and intent to hold this security to recovery focuses on liquidity needs, asset/liability management objectives and security portfolio objectives. Based on the result of the evaluation, the Company concluded that as of December 31, 2018, the unrealized loss related to an equity security it owns was temporary.

9

Note 7 – Goodwill

       The Company accounts for goodwill in accordance with Accounting Standards Codification (ASC) 350, Intangibles — Goodwill and Other. Goodwill, which is not amortized for financial statement purposes, is amortized over a 15-year period for tax purposes, but evaluated for impairment annually, or whenever events or changes in circumstances indicate that the value may not be recoverable. Considered factors for potential goodwill impairment evaluation with respect to Journal Technologies include, among other things, the current year’s business profitability before intangible amortization, fluctuations of revenues, changes in the marketplace, the status of deferred installation contracts and new business.

In addition, ASU 2011-08, Intangible – Goodwill and Others -- Testing Goodwill for Impairment, allows for the option of performing a qualitative assessment before calculating the fair value of a reporting unit. If it is determined based on qualitative factors that there is no impairment to goodwill, then the fair value of a reporting unit is not needed. If a quantitative analysis is required and the unit’s carrying amount exceeds its fair value, then the second step is performed to measure the amount of potential impairment. The Company’s annual goodwill impairment analysis in fiscal 2018 did not result in an impairment charge based on the qualitative assessment. There was no indicator of impairment during the three-month periods ended December 31, 2018 and 2017.

Note 8 - Income Taxes

For the three months ended December 31, 2018, the Company recorded an income tax benefit of $8,317,000 on a pretax loss of $29,850,000.  This was the net result of applying the effective tax rate anticipated for fiscal 2019 to the pretax loss for the three months ended December 31, 2018.  The effective tax rate was greater than the statutory rate primarily due to state tax benefits. 

      During the prior fiscal year, the December 2017 Tax Cuts and Jobs Act reduced the maximum corporate income tax rate from 35% to 21%.  The impact to the Company’s financial statements was as follows:  (i) fiscal 2018 income tax expense or benefit was calculated using a blended rate of 24.28% pursuant to IRC Section 15, (ii) deferred tax expense included a discrete net tax benefit of approximately $16 million resulting from a revaluation of deferred tax assets and liabilities to the expected tax rate that will be applied when temporary differences are expected to reverse, (iii) items that were expected to reverse during fiscal 2018 were valued at the blended rate of 24.28% while temporary differences that will reverse after fiscal 2018 were valued at the 21% rate, and (iv) approximately $20 million of the revaluation of deferred taxes related to items that were initially recorded as accumulated other comprehensive income. This revaluation of approximately $20 million was recorded as a component of income tax expense or benefit in continuing operations.  Consequently, on a pretax loss of $2,111,000 for the three months ended December 31, 2017, the Company recorded an income tax benefit of $16,850,000. The income tax benefit was also the result of applying the effective tax rate anticipated for fiscal 2018 to the pretax loss for the three-month period ended December 31, 2017.   The effective tax rate (before the discrete item discussed above) was greater than the statutory rate primarily due to the dividends received deduction which increases the loss for tax purposes. 

      The Company’s effective tax rate was 28% for the three months ended December 31, 2018 as compared with 798% in the prior year period. The difference in the effective tax rate was primarily due to the effect of the tax cuts in the prior year period as discussed above.

      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 2015 with regard to federal income taxes and fiscal 2013 for state income taxes. 

10

Note 9 - Debt and Commitments

During fiscal 2013, the Company borrowed from its investment margin account the aggregate purchase price of $29.5 million for two acquisitions, in each case pledging its marketable securities as collateral. The interest rate for these investment margin account borrowings fluctuates based on the Federal Funds Rate plus 50 basis points with interest only payable monthly. The interest rate as of December 31, 2018 was 3%. These investment margin account borrowings do not mature.

In 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. 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 $1.93 million as of December 31, 2018.

      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 2021. During fiscal 2014, the Company renewed its office lease for its San Francisco office for five years to end on October 31, 2019 with a current monthly rent of approximately $28,000 for about 6,200 square feet. Beginning in fiscal 2017, the Company leased approximately 9,800 square feet of office space (expiring in August 2020) in Englewood, Colorado, for a monthly rent of approximately $21,000.

The Company is responsible for a portion of maintenance, insurance and property tax expenses relating to the leased properties. Rental expenses were $258,000 for the three-month period ended December 31, 2018, as compared with $237,000 in the prior year period.

Note 10 - Contingencies

From time to time, the Company is subject to contingencies, including litigation, arising in the normal course of its business. While it is not possible to predict the results of such contingencies, management does not believe the ultimate outcome of these matters will have a material effect on the Company’s financial position or results of operations or cash flows.

11

Note 11 - Operating Segments

The Company’s reportable segments are: (i) the Traditional Business and (ii) Journal Technologies. All inter-segment transactions were eliminated. Summarized financial information regarding the Company’s reportable segments is shown in the following table:

	Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended December 31, 2018
Revenues
Advertising	$	2,192,000		$	---		$	---		$	2,192,000
Circulation		1,338,000			---			---			1,338,000
Advertising service fees and other		669,000			---			---			669,000
Licensing and maintenance fees		---			4,790,000			---			4,790,000
Consulting fees		---			541,000			---			541,000
Other public service fees		---			898,000			---			898,000
Operating expenses		4,208,000			8,741,000			---			12,949,000
Loss from operations		(9,000	)		(2,512,000	)		---			(2,521,000	)
Dividends and interest income		---			---			1,530,000			1,530,000
Other income		---			---			10,000			10,000
Net unrealized losses on investments		---			---			(28,640,000	)		(28,640,000	)
Interest expenses on note payable collateralized by real estate		(23,000	)		---			---			(23,000	)
Interest expenses on margin loans		---			---			(206,000	)		(206,000	)
Pretax (loss) income		(32,000	)		(2,512,000	)		(27,306,000	)		(29,850,000	)
Income tax benefit (expense)		80,000			585,000			7,652,000			8,317,000
Net income (loss)		48,000			(1,927,000	)		(19,654,000	)		(21,533,000	)
Total assets		18,702,000			30,571,000			185,843,000			235,116,000
Capital expenditures		50,000			34,000			---			84,000

	Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended December 31, 2017
Revenues
Advertising	$	2,116,000		$	---		$	---		$	2,116,000
Circulation		1,363,000			---			---			1,363,000
Advertising service fees and other		602,000			---			---			602,000
Licensing and maintenance fees		---			4,350,000			---			4,350,000
Consulting fees		---			995,000			---			995,000
Other public service fees		---			826,000			---			826,000
Operating expenses		4,314,000			9,383,000			---			13,697,000
Loss from operations		(233,000	)		(3,212,000	)		---			(3,445,000	)
Dividends and interest income		---			---			1,483,000			1,483,000
Other income and capital gains		---			---			11,000			11,000
Interest expenses on note payable collateralized by real estate		(24,000	)		---			---			(24,000	)
Interest expenses on margin loans		---			---			(136,000	)		(136,000	)
Pretax (loss) income		(257,000	)		(3,212,000	)		1,358,000			(2,111,000	)
Income tax benefit (expense)		(680,000	)		(2,185,000	)		19,715,000			16,850,000
Net income (loss)		(937,000	)		(5,397,000	)		21,073,000			14,739,000
Total assets		17,259,000			26,768,000			245,863,000			289,890,000
Capital expenditures		34,000			---			---			34,000
Amortization of intangible assets		---			1,062,000			---			1,062,000

12

        During the three months ended December 31, 2018, the Traditional Business had total revenues of $4,199,000 of which $2,861,000 were recognized, at a point of time, after services were provided and $1,338,000 were recognized ratably over the subscription terms. Total revenues for the Company’s software business were $6,229,000 of which $1,935,000 were recognized upon completion of services with customer acceptance while $4,294,000 were recognized ratably over the subscription periods.

       Approximately 60% of the Company’s revenues during the three-month periods ended December 31, 2018 were derived from Journal Technologies, as compared with 60% in the prior year period. In addition, the Company’s revenues have been primarily from the United States with approximately 1% from foreign countries. Journal Technologies’ revenues are all from governmental agencies.

      The following table sets forth certain deferred obligations from October 1, 2018 through December 31, 2018:

	Beginning Balance		Addition		Recognized			Ending Balance
Deferred subscriptions	$	3,174,000	$	1,111,000	$	(1,338,000	)	$	2,947,000
Deferred installation contracts		2,554,000		925,000		(1,037,000	)		2,442,000
Deferred maintenance agreements and others		14,362,000		4,662,000		(4,294,000	)		14,730,000

Note 12 - Subsequent Events

The Company has completed an evaluation of all subsequent events through the issuance date of these financial statements and concluded that no subsequent events occurred that required recognition to the financial statements or disclosures in the Notes to Consolidated Financial Statements or Cash Flows.

13

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The Company continues to operate as two different businesses: (1) The Traditional Business, being the business of newspaper publishing and related services that the Company had before 1999 when it purchased a software development company, and (2) Journal Technologies, Inc. (“Journal Technologies”), a wholly-owned subsidiary which supplies case management software systems and related products to courts, prosecutor and public defender offices, probation departments and other justice agencies, including administrative law organizations, city and county governments and bar associations. These organizations use the Journal Technologies family of products to help manage cases and information electronically, to interface with other critical justice partners and to extend electronic services to the public, including efiling and a website to pay traffic citations online, and bar members. These products are licensed to more than 500 organizations in 42 states and internationally.

Comprehensive (Loss) Income

Comprehensive (loss) income includes net (loss) income and net unrealized (losses) gains on investments, net of taxes, as summarized below:

Comprehensive (Loss) Income
	Three months ended December 31
	2018			2017
Net (loss) income	$	(21,533,000	)	$	14,739,000
Net increase in unrealized appreciation of marketable securities (net of taxes)		---			12,118,000
	$	(21,533,000	)	$	26,857,000

Comparable three-month periods ended December 31, 2018 and 2017

Consolidated revenues were $10,428,000 and $10,252,000 for the three months ended December 31, 2018 and 2017, respectively. This increase of $176,000 was primarily from increased (i) Journal Technologies’ license and maintenance fees of $440,000 and public service fees of $72,000 and (ii) the Traditional Business’ government notices and agency commission revenues of $92,000, partially offset by a reduction in Journal Technologies’ consulting fees of $454,000 due to fewer go-lives. The Company’s revenues derived from Journal Technologies’ operations constituted about 60% of the Company’s total revenues for both the three months ended December 31, 2018 and 2017.

Consolidated operating expenses decreased by $748,000 (5%) to $12,949,000 from $13,697,000, mainly because all intangible assets for Journal Technologies were fully amortized at last year-end. Total personnel costs increased by $458,000 (6%) to $8,655,000 from $8,197,000 primarily resulting from additional personnel costs for Journal Technologies. Outside services decreased by $94,000 (9%) to $945,000 from $1,039,000 mainly because of decreased contractor costs for Journal Technologies. Depreciation and amortization costs, which included primarily the amortization of Journal Technologies’ intangible assets of $0 and $1,062,000 for the three months ended December 31, 2018 and 2017, respectively, decreased by $1,065,000 to $153,000 from $1,218,000.

14

The Company’s non-operating income, net of expenses, decreased to a loss of $27,329,000 from income of $1,334,000 primarily because of the recording of the net unrealized losses on investments of $28,640,000 and increases in the interest rates on the Company's two acquisition margin loans.

During the three months ended December 31, 2018, consolidated pretax loss was $29,850,000, as compared with $2,111,000 in the prior year period. There was a consolidated net loss of $21,533,000 (-$15.60 per share) after tax benefits for the three months ended December 31, 2018, as compared with net income of $14,739,000 ($10.67 per share) in the prior year period mainly resulting from the prior year’s adjustments relative to the benefits related to the December 2017 Tax Cuts and Job Act.

At December 31, 2018, the aggregate fair market value of the Company’s marketable securities was $183,656,000. These securities had approximately $129,767,000 of net unrealized gains before taxes of $34,174,000, and generated approximately $1,530,000 in dividends and interest income during the three months ended December 31, 2018, which lowers the Company’s effective income tax rate because of the dividends received deduction. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

Additional detail about each of the Company’s reportable segments, and its corporate income and expenses, is set forth below:

Overall Financial Results (000)

For the three months ended December 31

	Reportable Segments
	Traditional Business						Journal Technologies						Corporate income and expenses						Total
	2018			2017			2018			2017			2018			2017			2018			2017
Revenues
Advertising	$	2,192		$	2,116		$	---		$	---		$	---		$	---		$	2,192		$	2,116
Circulation		1,338			1,363			---			---			---			---			1,338			1,363
Advertising service fees and other		669			602			---			---			---			---			669			602
Licensing and maintenance fees		---			---			4,790			4,350			---			---			4,790			4,350
Consulting fees		---			---			541			995			---			---			541			995
Other public service fees		---			---			898			826			---			---			898			826
Total revenues		4,199			4,081			6,229			6,171			---			---			10,428			10,252
Operating expenses
Salaries and employee benefits		2,624			2,568			6,031			5,629			---			---			8,655			8,197
Amortization of intangible assets		---			---			---			1,062			---			---			---			1,062
Others		1,584			1,746			2,710			2,692			---			---			4,294			4,438
Total operating expenses		4,208			4,314			8,741			9,383			---			---			12,949			13,697
Loss from operations		(9	)		(233	)		(2,512	)		(3,212	)		---			---			(2,521	)		(3,445	)
Dividends and interest income		---			---			---			---			1,530			1,483			1,530			1,483
Other income and capital gains		---			---			---			---			10			11			10			11
Net unrealized losses on investments		---			---			---			---			(28,640	)		---			(28,640	)		---
Interest expenses on note payable collateralized by real estate		(23	)		(24	)		---			---			---			---			(23	)		(24	)
Interest expenses on margin loans		---			---			---			---			(206	)		(136	)		(206	)		(136	)
Pretax (loss) income	$	(32	)	$	(257	)	$	(2,512	)	$	(3,212	)	$	(27,306	)	$	1,358		$	(29,850	)	$	(2,111	)

15

The Traditional Business

      The Traditional Business segment’s pretax loss decreased by $225,000 to $32,000 from $257,000.

Advertising revenues increased by $76,000 to $2,192,000 from $2,116,000, primarily because of more conference revenues of $86,000 and net government notice advertising revenues of $32,000, partially offset by declines in trustee sale notice advertising revenues of $58,000.

Trustee sale notices are very much dependent on the number of California and Arizona foreclosures for which public notice advertising is required by law. The number of foreclosure notices published by the Company decreased by 14% during the three months ended December 31, 2018 as compared to the prior year period. Because this slowing is expected to continue, the Company expects there will be fewer foreclosure notice and other public notice advertisements and declining revenues in fiscal 2019, and the Company’s print-based earnings will also likely decline because it will be impractical for the Company to offset all revenue losses by expense reduction. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 88% of the total public notice advertising revenues in the three months ended December 31, 2018. Public notice advertising revenues and related advertising and other service fees constituted about 21% and 20% of the Company’s total revenues for the three months ended December 31 2018 and 2017, respectively. Because of this concentration, the Company’s revenues would be significantly adversely affected if California and Arizona eliminated the legal requirement to publish public notices in adjudicated newspapers of general circulation, as was recently implemented in Arizona for one notice type that had represented approximately $500,000 in annual revenues for the Company. Also, if the adjudication of one or more of the Company’s newspapers was challenged and revoked, those newspapers would no longer be eligible to publish public notice advertising, and it could have a material adverse effect on the Company’s revenues.

The Daily Journals accounted for about 89% of The Traditional Business’ total circulation revenues, which declined by $25,000 to $1,338,000 from $1,363,000. The court rule and judicial profile services generated about 8% of the total circulation revenues, with the other newspapers and services accounting for the balance. Advertising service fees and other are Traditional Business segment revenues, which include primarily (i) agency commissions received from outside newspapers in which the advertising is placed, and (ii) fees generated when filing notices with government agencies.

The Traditional Business segment operating expenses decreased by $106,000 (2%) to $4,208,000 from $4,314,000, primarily due to decreased contractor costs.

Journal Technologies

Journal Technologies’ business segment pretax loss decreased by $700,000 (22%) to $2,512,000 from $3,212,000, after including the amortization costs of intangible assets of $0 and $1,062,000 for the three months ended December 31, 2018 and 2017, respectively.

Revenues increased by $58,000 to $6,229,000 from $6,171,000 in the prior year period. Licensing and maintenance fees increased by $440,000 (10%) to $4,790,000 from $4,350,000. Consulting fees decreased by $454,000 (46%) to $541,000 from $995,000 due to fewer go-lives. Deferred revenues on installation contracts primarily represent the fair value of advances from customers of Journal Technologies for installation services and are recognized upon final project go-lives. Deferred revenues on license and maintenance contracts represent prepayments of annual license and maintenance fees and are recognized ratably over the maintenance period. Other public service fees increased by $72,000 (9%) to $898,000 from $826,000 primarily due to additional efiling fee revenues.

16

Operating expenses decreased by $642,000 (7%) to $8,741,000 from $9,383,000, primarily because the amortization costs of intangible assets were fully amortized at last year-end, partially offset by increased personnel costs.

Goodwill, which is not amortized for financial statement purposes, is amortized over 15 years for tax purposes. Goodwill represents the expected synergies in expanding the Company’s software business. Goodwill is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the value may not be recoverable. Considered factors for potential goodwill impairment evaluation include the current year’s operating financial results before intangible amortization, fluctuations of revenues, changes in the market place, the status of installation contracts and new business, among other things. There was no indicator of impairment during the three-month periods ended December 31, 2018 and 2017. Journal Technologies is continuing to update and upgrade its software products. These costs are expensed as incurred and will impact earnings at least through the foreseeable future.

Taxes

For the three months ended December 31, 2018, the Company recorded an income tax benefit of $8,317,000 on a pretax loss of $29,850,000.  This was the net result of applying the effective tax rate anticipated for fiscal 2019 to the pretax loss for the three months ended December 31, 2018.  The effective tax rate was greater than the statutory rate primarily due to state tax benefits. 

      During the prior fiscal year, the December 2017 Tax Cuts and Jobs Act reduced the maximum corporate income tax rate from 35% to 21%. The impact to the Company’s financial statements was as follows:  (i) fiscal 2018 income tax expense or benefit was calculated using a blended rate of 24.28% pursuant to IRC Section 15, (ii) deferred tax expense included a discrete net tax benefit of approximately $16 million resulting from a revaluation of deferred tax assets and liabilities to the expected tax rate that will be applied when temporary differences are expected to reverse, (iii) items that were expected to reverse during fiscal 2018 were valued at the blended rate of 24.28% while temporary differences that will reverse after fiscal 2018 were valued at the 21% rate, and (iv) approximately $20 million of the revaluation of deferred taxes related to items that were initially recorded as accumulated other comprehensive income. This revaluation of approximately $20 million was recorded as a component of income tax expense or benefit in continuing operations.  Consequently, on a pretax loss of $2,111,000 for the three months ended December 31, 2017, the Company recorded an income tax benefit of $16,850,000. The income tax benefit was also the result of applying the effective tax rate anticipated for fiscal 2018 to the pretax loss for the three-month period ended December 31, 2017.   The effective tax rate (before the discrete item discussed above) was greater than the statutory rate primarily due to the dividends received deduction which increases the loss for tax purposes. 

      The Company’s effective tax rate was 28% for the three months ended December 31, 2018 as compared with 798% in the prior year period. The difference in the effective tax rate was primarily due to the effect of the tax cuts in the prior year period as discussed above.

      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 2015 with regard to federal income taxes and fiscal 2013 for state income taxes. 

17

Liquidity and Capital Resources

During the three months ended December 31, 2018, the Company’s cash and cash equivalents and marketable security positions decreased by $31,250,000 to $190,347,000. Cash and cash equivalents were used for the purchase of capital assets of $84,000 and operating activities of $2,497,000 which included net increases of $29,000 in deferred subscriptions, deferred installation contracts and deferred maintenance agreements and others.

The investments in marketable securities, which had an adjusted cost basis of approximately $53,889,000 and a market value of about $183,656,000 at December 31, 2018, generated approximately $1,530,000 in dividends and interest income. Beginning in fiscal 2019, changes in unrealized gains (losses) on investments are included in the Company’s net income (loss) and thus may have a significant impact depending on the fluctuations of the market prices of the invested securities.

Cash flows from operating activities decreased by $1,683,000 during the three months ended December 31, 2018 as compared to the prior year period, primarily due to (i) decreases in net income of $7,632,000 to $7,107,000 from $14,739,000, excluding the non-cash unrealized losses on investments of $28,640,000, which was recorded in year-to-date earnings versus in accumulated other comprehensive income in the prior year, and (ii) increases in accounts receivable of $3,396,000 resulting from more billings, partially offset by increases in accounts payable and accrued liabilities of $1,427,000 because of additional efiling fees collected on behalf of the courts and other agencies, and increased deferred income tax assets of $8,370,000 of which $7,977,000 related to the net unrealized losses on investments.

As of December 31, 2018, the Company had working capital of $170,008,000, including the liabilities for deferred subscriptions, deferred installation and maintenance agreements and others of $20,013,000.

The Company believes that it will be able to fund its operations for the foreseeable future through its cash flows from operations and its current working capital and expects that any such cash flows will be invested in its businesses. The Company may or may not have the ability to borrow against its marketable securities. The Company also may entertain additional business acquisition opportunities. Any excess cash flows could be used to reduce the investment margin account liability or note payable collateralized by real estate or invested as management and the Board of Directors deem appropriate at the time.

Such investments may include additional securities of the companies in which the Company has already invested, securities of other companies, government securities (including U.S. Treasury Notes and Bills) or other instruments. The decision as to particular investments will be driven by the Company’s belief about the risk/reward profile of the various investment choices at the time, and it may utilize government securities as a default if attractive opportunities for a better return are not available. The Company’s Chairman of the Board, Charles Munger, is also the vice chairman of Berkshire Hathaway Inc., which maintains a substantial investment portfolio. The Company’s Board of Directors has utilized his judgment and suggestions, as well as those of J.P. Guerin, the Company’s vice chairman, when selecting investments, and both of them will continue to play an important role in monitoring existing investments and selecting any future investments.

As of December 31, 2018, the investments were concentrated in just six companies. Accordingly, a significant decline in the market value of one or more of the Company’s investments may not be offset by the hypothetically better performance of other investments, and that could result in a large decrease in the Company’s shareholders’ equity and net income.

18

Critical Accounting Policies and Estimates

        The Company’s financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Management believes that revenue recognition, accounting for software costs, fair value measurement and disclosures (including for the long-term Incentive Plan liabilities), testing for goodwill impairment and income taxes are critical accounting policies and estimates.

     The Company’s critical accounting policies are detailed in its Annual Report on Form 10-K for the year ended September 30, 2018. The above discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this report.

Disclosure Regarding Forward-Looking Statements

     This Quarterly Report on Form 10-Q 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 but not limited to those in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking” statements that involve risks and uncertainties that may cause actual future events or results to differ materially from those described in the forward-looking statements. Words such as “expects,” “intends,” “anticipates,” “should,” “believes,” “will,” “plans,” “estimates,” “may,” variations of such words and similar expressions are intended to identify such forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new information, future developments, or otherwise. There are many factors that could cause actual results to differ materially from those contained in the forward-looking statements. These factors include, among others: risks associated with software development and implementation efforts; Journal Technologies’ reliance on professional services engagements with justice agencies; material changes in the costs of postage and paper; possible changes in the law, particularly changes limiting or eliminating the requirements for public notice advertising; possible loss of the adjudicated status of the Company’s newspapers and their legal authority to publish public notice advertising; a further decline in public notice advertising revenues because of fewer foreclosures; a further decline in subscriber and commercial advertising revenues; possible security breaches of the Company’s software or websites; the Company’s reliance on its president and chief executive officer, who has recently reduced his work schedule due to a health issue; changes in accounting guidance; material weaknesses in the Company’s internal control over financial reporting; and declines in the market prices of the securities owned by the Company. In addition, such statements could be affected by general industry and market conditions, general economic conditions (particularly in California) and other factors.  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 discussed in this Form 10-Q, including in conjunction with the forward-looking statements themselves. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in documents filed by the Company with the Securities and Exchange Commission, including in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

19

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     For information regarding the Company’s market risk, refer to Item  7A – Quantitative and Qualitative Disclosures about Market Risk in the Company’s Form 10-K for the fiscal year ended September 30, 2018. There have been no material changes to the Company’s market risk exposures since September 30, 2018.

Item 4. CONTROLS AND PROCEDURES

    In light of the material weaknesses in the Company’s internal control over financial reporting discussed in the Company’s Form 10-K for the fiscal year ended September 30, 2018, management concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2018.  There were no material changes in the Company’s internal control over financial reporting or in other factors reasonably likely to affect its internal control over financial reporting during the quarter ended December 31, 2018.

20

PART II

Item 6. Exhibits

31 Certification by Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 Certification by Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS** XBRL Instance

101.SCH** XBRL Taxonomy Extension Schema

101.CAL** XBRL Taxonomy Extension Calculation

101.DEF** XBRL Taxonomy Extension Definition

101.LAB** XBRL Taxonomy Extension Labels

101.PRE** XBRL Taxonomy Extension Presentation

** XBRL information is furnished and not filed as a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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

Chief Executive Officer

President

Chief Financial Officer

Treasurer

(Principal Executive Officer,

Principal Financial Officer and

Principal Accounting Officer) 

DATE: February 11, 2019

21

EX-31

Exhibit 31

CERTIFICATIONS BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 I, Gerald L. Salzman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Daily Journal Corporation;  

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;  

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;  

4.  I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;  

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and  

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):  

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 11, 2019

/s/ Gerald L. Salzman

Gerald L. Salzman

Chief Executive Officer, President,

Chief Financial Officer and Treasurer  

EX-32

Exhibit 32

CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

     In connection with the Quarterly Report on Form 10-Q of Daily Journal Corporation (the "Company") for the period ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerald L. Salzman, President, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gerald L. Salzman

Gerald L. Salzman
Chief Executive Officer, President,
Chief Financial Officer and Treasurer

February 11, 2019

     The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, and is not being filed as part of the Report or as a separate disclosure document.

XML

Document And Entity Information - shares	3 Months Ended
	Dec. 31, 2018	Jan. 31, 2019
Document Information [Line Items]
Entity Registrant Name	DAILY JOURNAL CORPORATION
Entity Central Index Key	0000783412
Trading Symbol	djco
Current Fiscal Year End Date	--09-30
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		1,380,746
Document Type	10-Q
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets (Unaudited) - USD ($)	Dec. 31, 2018	Sep. 30, 2018
Current assets
Cash and cash equivalents	$ 6,691,000	$ 9,301,000
Marketable securities at fair value	183,656,000	212,296,000
Accounts receivable, less allowance for doubtful accounts of $200,000	7,033,000	4,803,000
Inventories	55,000	46,000
Prepaid expenses and other current assets	491,000	512,000
Income tax receivable	58,000	270,000
Total current assets	197,984,000	227,228,000
Property, plant and equipment, at cost
Land, buildings and improvements	16,472,000	16,422,000
Furniture, office equipment and computer software	2,911,000	2,877,000
Machinery and equipment	1,749,000	1,749,000
	21,132,000	21,048,000
Less accumulated depreciation	(9,981,000)	(9,828,000)
	11,151,000	11,220,000
Goodwill	13,400,000	13,400,000
Deferred income taxes - Federal	9,753,000	9,269,000
Deferred income taxes - State	2,828,000	2,881,000
	235,116,000	263,998,000
Current liabilities
Accounts payable	4,036,000	2,820,000
Accrued liabilities	3,804,000	4,402,000
Note payable collateralized by real estate	123,000	121,000
Total current liabilities	27,976,000	27,257,000
Long term liabilities
Investment margin account borrowings	29,493,000	29,493,000
Note payable collateralized by real estate	1,804,000	1,835,000
Deferred maintenance agreements	106,000	176,000
Accrued liabilities	180,000	170,000
Deferred income taxes	34,174,000	42,151,000
Total long term liabilities	65,757,000	73,825,000
Commitments and contingencies (Notes 9 and 10)
Shareholders' equity
Preferred stock, $.01 par value, 5,000,000 shares authorized and no shares issued	0	0
Common stock, $.01 par value, 5,000,000 shares authorized; 1,805,053 shares issued, including 424,307 treasury shares, at December 31, 2018 and September 30, 2018	14,000	14,000
Additional paid-in capital	1,755,000	1,755,000
Retained earnings	139,614,000	45,361,000
Accumulated other comprehensive income		115,786,000
Total shareholders' equity	141,383,000	162,916,000
	235,116,000	263,998,000
Subscription and Circulation [Member]
Current liabilities
Deferred revenue	2,947,000	3,174,000
Installation Contracts [Member]
Current liabilities
Deferred revenue	2,442,000	2,554,000
License and Maintenance [Member]
Current liabilities
Deferred revenue	$ 14,624,000	$ 14,186,000

XML

Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($)	Dec. 31, 2018	Sep. 30, 2018
Accounts receivable, allowance for doubtful accounts	$ 200,000	$ 200,000
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	5,000,000	5,000,000
Common stock, shares issued (in shares)	1,805,053	1,805,053
Common stock, treasury shares (in shares)	424,307	424,307

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Revenue
Revenues	$ 10,428,000	$ 10,252,000
Costs and expenses
Salaries and employee benefits	8,655,000	8,197,000
Outside services	945,000	1,039,000
Postage and delivery expenses	204,000	217,000
Newsprint and printing expenses	176,000	212,000
Depreciation and amortization	153,000	1,218,000
Other general and administrative expenses	2,816,000	2,814,000
	12,949,000	13,697,000
Loss from operations	(2,521,000)	(3,445,000)
Other income (expense)
Dividends and interest income	1,530,000	1,483,000
Other income and capital gains	10,000	11,000
Net unrealized losses on investments	(28,640,000)
Loss before income taxes	(29,850,000)	(2,111,000)
Benefit from income taxes	8,317,000	16,850,000
Net (loss) income	$ (21,533,000)	$ 14,739,000
Weighted average number of common shares outstanding - basic and diluted (in shares)	1,380,746	1,380,746
Basic and diluted net (loss) income per share (in dollars per share)	$ (15.60)	$ 10.67
Comprehensive (loss) income
Net (loss) income	$ (21,533,000)	$ 14,739,000
Net increase in unrealized appreciation of marketable securities (net of taxes)		12,118,000
	(21,533,000)	26,857,000
Real Estate Bank Loan Secured by Logan Office [Member]
Other income (expense)
Interest expense on debt	(23,000)	(24,000)
Margin Account [Member]
Other income (expense)
Interest expense on debt	(206,000)	(136,000)
Advertising [Member]
Revenue
Revenues	2,192,000	2,116,000
Subscription and Circulation [Member]
Revenue
Revenues	1,338,000	1,363,000
Advertising Service Fees and Other [Member]
Revenue
Revenues	669,000	602,000
License and Maintenance [Member]
Revenue
Revenues	4,790,000	4,350,000
Consulting Fees [Member]
Revenue
Revenues	541,000	995,000
Service, Other [Member]
Revenue
Revenues	$ 898,000	$ 826,000

XML

Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Sep. 30, 2017	1,805,053	(424,307)
Balance at Sep. 30, 2017	$ 18,000	$ (4,000)	$ 1,755,000	$ 57,150,000	$ 100,822,000	$ 159,741,000
Net (loss) income				14,739,000		14,739,000
Unrealized gains on investments, net					12,118,000	12,118,000
Balance (in shares) at Dec. 31, 2017	1,805,053	(424,307)
Balance at Dec. 31, 2017	$ 18,000	$ (4,000)	1,755,000	71,889,000	112,940,000	186,598,000
Balance (in shares) at Sep. 30, 2018	1,805,053	(424,307)
Balance at Sep. 30, 2018	$ 18,000	$ (4,000)	1,755,000	45,361,000	115,786,000	162,916,000
Net (loss) income				(21,533,000)		(21,533,000)
Unrealized gains on investments, net
Balance (in shares) at Dec. 31, 2018	1,805,053	(424,307)
Balance at Dec. 31, 2018	$ 18,000	$ (4,000)	1,755,000	139,614,000		141,383,000
Adoption of new accounting pronouncement				$ 115,786,000	$ (115,786,000)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities
Net (loss) income	$ (21,533,000)	$ 14,739,000
Adjustments to reconcile net (loss) income to net cash used in operations
Depreciation and amortization	153,000	1,218,000
Net unrealized losses on investments	28,640,000
Deferred income taxes	(8,408,000)	(16,778,000)
Discounts earned on bonds		(1,000)
(Increase) decrease in current assets
Accounts receivable, net	(2,230,000)	1,166,000
Inventories	(9,000)
Prepaid expenses and other assets	21,000	157,000
Income tax receivable	212,000	(78,000)
Increase (decrease) in liabilities
Accounts payable	1,216,000	(98,000)
Accrued liabilities	(588,000)	(701,000)
Net cash used in operating activities	(2,497,000)	(814,000)
Cash flows from investing activities
Purchases of property, plant and equipment	(84,000)	(34,000)
Net cash used in investing activities	(84,000)	(34,000)
Cash flows from financing activities
Payment of real estate loan principal	(29,000)	(28,000)
Net cash used in financing activities	(29,000)	(28,000)
Decrease in cash and cash equivalents	(2,610,000)	(876,000)
Cash and cash equivalents
Beginning of period	9,301,000	3,384,000
End of period	6,691,000	2,508,000
Interest paid during period	152,000	169,000
Net income taxes (refunded) paid during period	(121,000)	6,000
Subscription and Circulation [Member]
Increase (decrease) in liabilities
Deferred revenue arrangements	(227,000)	(149,000)
License and Maintenance [Member]
Increase (decrease) in liabilities
Deferred revenue arrangements	368,000	419,000
Installation Contracts [Member]
Increase (decrease) in liabilities
Deferred revenue arrangements	$ (112,000)	$ (708,000)

XML

Note 1 - The Corporation and Operations

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1

- The Corporation and Operations

Daily Journal Corporation (the “Company”) publishes newspapers and web sites covering California and Arizona and produces several specialized information services. It also serves as a newspaper representative specializing in public notice advertising. This is sometimes referred to as the Company’s Traditional Business”.

Journal Technologies, Inc. (“Journal Technologies”), a wholly-owned subsidiary, 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 online, and bar members. These products are licensed to more than

500

organizations in

42

states and internationally.

Essentially all of the Company’s operations are based in California, Arizona, Colorado and Utah.

XML

Note 2 - Basis of Presentation

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Basis of Accounting [Text Block]

Note

2

- Basis of Presentation

In the opinion of the Company, the accompanying interim unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of its financial position as of

December 31, 2018,

and its results of operations and cash flows for the

three

-month periods ended

December 31, 2018

and

2017.

The results of operations for the

three

months ended

December 31, 2018

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, 2018.

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

XML

Note 3 - Accounting Standards Adopted in Fiscal 2019 and Recent Accounting Pronouncements

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note

3

- Accounting Standards Adopted in Fiscal

2019

and Recent Accounting Pronouncements

Accounting Standards Adopted in Fiscal

201

9

On

October 1, 2018,

the Company adopted Accounting Standards Update (“ASU”)

No.

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

): Recognition and Measurement of Financial Assets and Financial Liabilities

. 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 loss of

$21,533,000

for the

three

month ended

December 31, 2018,

included net unrealized losses on investments of

$28,640,000.

For the prior year’s period, the Company recorded net unrealized gains for its available-for-sale marketable securities in other comprehensive income. In addition, ASU

2016

-

01

prohibits the restatement of prior year financial statements but requires that the Company reclassify net after-tax unrealized gains on investments of

$115,786,000

on adoption day from “accumulated other comprehensive income” to “retained earnings”, both of which are listed under the “Shareholders’ equity” section of the Company’s Consolidated Balance Sheets. This represented an increase to retained earnings and a decrease to accumulated other comprehensive income.

Other Recent Accounting Pronouncements

The Company will continue to evaluate the other new accounting pronouncements as detailed in its Annual Report on Form

10

-K for the year ended

September 30, 2018.

XML

Note 4 - Revenue Recognition

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note

4

– Revenue Recognition

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.

For the Company’s 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. Advertising revenues are recognized when advertisements are published and are net of agency commissions.

Journal Technologies contracts

may

include several products and services, which are generally distinct and include separate transaction pricing and performance obligations. Most are

one

-transaction contracts. These current subscription-type contract revenues include (i) implementation consulting fees to configure the system to go-live, (ii) subscription software license, maintenance (including updates and upgrades) and support fees, and (iii)

third

-party hosting fees when used. Revenues for consulting are recognized at point of delivery (go-live) upon completion of services, and subscription and advertising revenues are recognized ratably (using the output method based on time-elapsed) after the go-live. These contracts include assurance warranty provisions for limited periods and do

not

include financing terms. For some contracts, the Company acts as a principal with respect to certain services, such as data conversion, interfaces and hosting that are provided by

third

-parties, and recognizes such revenues on a gross basis. For legacy contracts with perpetual license arrangements, licenses and consulting services are recognized at point of delivery (go-live), and maintenance revenues are recognized ratably after the go-live. Other public service fees are earned and recognized as revenues when the Company processes credit card payments on behalf of the courts via its websites through which the public can efile cases and pay traffic citations and other fees.

The adoption of ASC

606

also requires the capitalization of certain costs of obtaining contracts, specifically sales commissions, which are to be amortized over the expected term of the contracts. For its software contracts, the Company incurs an immaterial amount of sales commission costs which have

no

significant impact on the Company’s financial condition and results of operations. In addition, the Company’s implementation and fulfillment costs do

not

meet all criteria required for capitalization.

Since the Company recognizes revenues when it can invoice the customer pursuant to the contract for the value of completed performance, as a practical expedient and because reliable estimates cannot be made, it has elected

not

to include the transaction price allocated to unsatisfied performance obligations. Also, as a practical expedient, the Company has elected

not

to include its evaluation of variable consideration of certain usage-based public service fees that are included in some contracts. Furthermore, there are

no

fulfillment costs to be capitalized for the software contracts because these costs do

not

generate or enhance resources that will be used in satisfying future performance obligations.

XML

Note 5 - Basic and Diluted Income Per Share

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

5

- Basic and Diluted Income Per Share

The Company does

not

have any common stock equivalents, and therefore basic and diluted income (loss) per share are the same.

XML

Note 6 - Investments in Marketable Securities

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note

6

- Investments in Marketable Securities

All investments are classified as “Current assets” because they are available for sale at any time. These “available-for-sale” marketable securities are stated at fair value. 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 ASC

820,

Fair Value Measurement

.

As of

December 31, 2018,

there were net unrealized gains of

$129,767,000

with these investments. With the adoption of ASU

No.

2016

-

01,

Subtopic

825

-

10,

as stated in Note

3,

the Company recorded and included in its net loss the net unrealized losses on investments of

$28,640,000

for the

three

months ended

December 31, 2018.

At

September 30, 2018,

net unrealized gains of

$158,407,000

were recorded before taxes of

$42,151,000

in the accumulated other comprehensive income in the accompanying Consolidated Balance Sheets. Most of the unrealized gains were in the common stocks of

three

U.S. financial institutions and

one

foreign manufacturer.

Investments in equity securities as of

December 31, 2018

and

September 30, 2018

are summarized below.

   

Investment

s

in Financial Instruments

	December 31, 2018						September 30, 2018
	Aggregate fair value		Amortized/ Adjusted cost basis		Pretax net unrealized gains		Aggregate fair value		Amortized/ Adjusted cost basis		Pretax net unrealized gains
Marketable securities	$	183,656,000	$	53,889,000	$	129,767,000	$	212,296,000	$	53,889,000	$	158,407,000

As of

December 31, 2018,

the Company performed an evaluation for an equity security with a fair value below cost to determine if the unrealized loss was other-than-temporary. This evaluation considers a number of factors including, but

not

limited to, the length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer and the Company’s ability and intent to hold the security until fair value recovers. The assessment of the ability and intent to hold this security to recovery focuses on liquidity needs, asset/liability management objectives and security portfolio objectives. Based on the result of the evaluation, the Company concluded that as of

December 31, 2018,

the unrealized loss related to an equity security it owns was temporary.

XML

Note 7 - Goodwill

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Goodwill Disclosure [Text Block]

Note

7

– Goodwill

       The Company accounts for goodwill in accordance with Accounting Standards Codification (ASC)

350,

Intangibles — Goodwill and Other

. Goodwill, which is

not

amortized for financial statement purposes, is amortized over a

15

-year period for tax purposes, but evaluated for impairment annually, or whenever events or changes in circumstances indicate that the value

may

not

be recoverable. Considered factors for potential goodwill impairment evaluation with respect to Journal Technologies include, among other things, the current year’s business profitability before intangible amortization, fluctuations of revenues, changes in the marketplace, the status of deferred installation contracts and new business.

In addition, ASU

2011

-

08,

Intangible – Goodwill and Others -- Testing Goodwill for Impairment

, allows for the option of performing a qualitative assessment before calculating the fair value of a reporting unit. If it is determined based on qualitative factors that there is

no

impairment to goodwill, then the fair value of a reporting unit is

not

needed. If a quantitative analysis is required and the unit’s carrying amount exceeds its fair value, then the

second

step is performed to measure the amount of potential impairment. The Company’s annual goodwill impairment analysis in fiscal

2018

did

not

result in an impairment charge based on the qualitative assessment. There was

no

indicator of impairment during the

three

-month periods ended

December 31, 2018

and

2017.

XML

Note 8 - Income Taxes

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

8

- Income Taxes

For the

three

months ended

December 31, 2018,

the Company recorded an income tax benefit of

$8,317,000

on a pretax loss of

$29,850,000.

  This was the net result of applying the effective tax rate anticipated for fiscal

2019

to the pretax loss for the

three

months ended

December 31, 2018.  

The effective tax rate was greater than the statutory rate primarily due to state tax benefits. 

      During the prior fiscal year, the

December 2017

Tax Cuts and Jobs Act reduced the maximum corporate income tax rate from

35%

to

21%.

  The impact to the Company’s financial statements was as follows:  (i) fiscal

2018

income tax expense or benefit was calculated using a blended rate of

24.28%

pursuant to IRC Section

15,

(ii) deferred tax expense included a discrete net tax benefit of approximately

$16

million resulting from a revaluation of deferred tax assets and liabilities to the expected tax rate that will be applied when temporary differences are expected to reverse, (iii) items that were expected to reverse during fiscal

2018

were valued at the blended rate of

24.28%

while temporary differences that will reverse after fiscal

2018

were valued at the

21%

rate, and (iv) approximately

$20

million of the revaluation of deferred taxes related to items that were initially recorded as accumulated other comprehensive income. This revaluation of approximately

$20

million was recorded as a component of income tax expense or benefit in continuing operations.  Consequently, on a pretax loss of

$2,111,000

for the

three

months ended

December 31, 2017,

the Company recorded an income tax benefit of

$16,850,000.

The income tax benefit was also the result of applying the effective tax rate anticipated for fiscal

2018

to the pretax loss for the

three

-month period ended

December 31, 2017.  

The effective tax rate (before the discrete item discussed above) was greater than the statutory rate primarily due to the dividends received deduction which increases the loss for tax purposes. 

      The Company’s effective tax rate was

28%

for the

three

months ended

December 31, 2018

as compared with

798%

in the prior year period. The difference in the effective tax rate was primarily due to the effect of the tax cuts in the prior year period as discussed above.

      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

2015

with regard to federal income taxes and fiscal

2013

for state income taxes. 

XML

Note 9 - Debts and Commitments

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Commitments Disclosure [Text Block]

Note

9

- Debt and Commitments

During fiscal

2013,

the Company borrowed from its investment margin account the aggregate purchase price of

$29.5

million for

two

acquisitions, in each case pledging its marketable securities as collateral. The interest rate for these investment margin account borrowings fluctuates based on the Federal Funds Rate plus

50

basis points with interest only payable monthly. The interest rate as of

December 31, 2018

was

3%.

These investment margin account borrowings do

not

mature.

In

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.

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

$1.93

million as of

December 31, 2018.

      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

2021.

During fiscal

2014,

the Company renewed its office lease for its San Francisco office for

five

years to end on

October 31, 2019

with a current monthly rent of approximately

$28,000

for about

6,200

square feet. Beginning in fiscal

2017,

the Company leased approximately

9,800

square feet of office space (expiring in

August 2020)

in Englewood, Colorado, for a monthly rent of approximately

$21,000.

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

$258,000

for the

three

-month period ended

December 31, 2018,

as compared with

$237,000

in the prior year period.

XML

Note 10 - Contingencies

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

10

- Contingencies

From time to time, the Company is subject to contingencies, including litigation, arising in the normal course of its business. While it is

not

possible to predict the results of such contingencies, management does

not

believe the ultimate outcome of these matters will have a material effect on the Company’s financial position or results of operations or cash flows.

XML

Note 11 - Operating Segments

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

11

- Operating Segments

The Company’s reportable segments are: (i) the Traditional Business and (ii) Journal Technologies. All inter-segment transactions were eliminated. Summarized financial information regarding the Company’s reportable segments is shown in the following table:

	Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended December 31, 2018
Revenues
Advertising	$	2,192,000		$	---		$	---		$	2,192,000
Circulation		1,338,000			---			---			1,338,000
Advertising service fees and other		669,000			---			---			669,000
Licensing and maintenance fees		---			4,790,000			---			4,790,000
Consulting fees		---			541,000			---			541,000
Other public service fees		---			898,000			---			898,000
Operating expenses		4,208,000			8,741,000			---			12,949,000
Loss from operations		(9,000	)		(2,512,000	)		---			(2,521,000	)
Dividends and interest income		---			---			1,530,000			1,530,000
Other income		---			---			10,000			10,000
Net unrealized losses on investments		---			---			(28,640,000	)		(28,640,000	)
Interest expenses on note payable collateralized by real estate		(23,000	)		---			---			(23,000	)
Interest expenses on margin loans		---			---			(206,000	)		(206,000	)
Pretax (loss) income		(32,000	)		(2,512,000	)		(27,306,000	)		(29,850,000	)
Income tax benefit (expense)		80,000			585,000			7,652,000			8,317,000
Net income (loss)		48,000			(1,927,000	)		(19,654,000	)		(21,533,000	)
Total assets		18,702,000			30,571,000			185,843,000			235,116,000
Capital expenditures		50,000			34,000			---			84,000

	Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended December 31, 2017
Revenues
Advertising	$	2,116,000		$	---		$	---		$	2,116,000
Circulation		1,363,000			---			---			1,363,000
Advertising service fees and other		602,000			---			---			602,000
Licensing and maintenance fees		---			4,350,000			---			4,350,000
Consulting fees		---			995,000			---			995,000
Other public service fees		---			826,000			---			826,000
Operating expenses		4,314,000			9,383,000			---			13,697,000
Loss from operations		(233,000	)		(3,212,000	)		---			(3,445,000	)
Dividends and interest income		---			---			1,483,000			1,483,000
Other income and capital gains		---			---			11,000			11,000
Interest expenses on note payable collateralized by real estate		(24,000	)		---			---			(24,000	)
Interest expenses on margin loans		---			---			(136,000	)		(136,000	)
Pretax (loss) income		(257,000	)		(3,212,000	)		1,358,000			(2,111,000	)
Income tax benefit (expense)		(680,000	)		(2,185,000	)		19,715,000			16,850,000
Net income (loss)		(937,000	)		(5,397,000	)		21,073,000			14,739,000
Total assets		17,259,000			26,768,000			245,863,000			289,890,000
Capital expenditures		34,000			---			---			34,000
Amortization of intangible assets		---			1,062,000			---			1,062,000

        During the

three

months ended

December 31, 2018,

the Traditional Business had total revenues of

$4,199,000

of which

$2,861,000

were recognized, at a point of time, after services were provided and

$1,338,000

were recognized ratably over the subscription terms. Total revenues for the Company’s software business were

$6,229,000

of which

$1,935,000

were recognized upon completion of services with customer acceptance while

$4,294,000

were recognized ratably over the subscription periods.

       Approximately

60%

of the Company’s revenues during the

three

-month periods ended

December 31, 2018

were derived from Journal Technologies, as compared with

60%

in the prior year period. In addition, the Company’s revenues have been primarily from the United States with approximately

1%

from foreign countries. Journal Technologies’ revenues are all from governmental agencies.

      The following table sets forth certain deferred obligations from

October 1, 2018

through

December 31, 2018:

	Beginning Balance		Addition		Recognized			Ending Balance
Deferred subscriptions	$	3,174,000	$	1,111,000	$	(1,338,000	)	$	2,947,000
Deferred installation contracts		2,554,000		925,000		(1,037,000	)		2,442,000
Deferred maintenance agreements and others		14,362,000		4,662,000		(4,294,000	)		14,730,000

XML

Note 12 - Subsequent Events

3 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

Note

12

- Subsequent Events

The Company has completed an evaluation of all subsequent events through the issuance date of these financial statements and concluded that

no

subsequent events occurred that required recognition to the financial statements or disclosures in the Notes to Consolidated Financial Statements or Cash Flows.

XML

Note 6 - Investments in Marketable Securities (Tables)

3 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	December 31, 2018						September 30, 2018
	Aggregate fair value		Amortized/ Adjusted cost basis		Pretax net unrealized gains		Aggregate fair value		Amortized/ Adjusted cost basis		Pretax net unrealized gains
Marketable securities	$	183,656,000	$	53,889,000	$	129,767,000	$	212,296,000	$	53,889,000	$	158,407,000

XML

Note 11 - Operating Segments (Tables)

3 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended December 31, 2018
Revenues
Advertising	$	2,192,000		$	---		$	---		$	2,192,000
Circulation		1,338,000			---			---			1,338,000
Advertising service fees and other		669,000			---			---			669,000
Licensing and maintenance fees		---			4,790,000			---			4,790,000
Consulting fees		---			541,000			---			541,000
Other public service fees		---			898,000			---			898,000
Operating expenses		4,208,000			8,741,000			---			12,949,000
Loss from operations		(9,000	)		(2,512,000	)		---			(2,521,000	)
Dividends and interest income		---			---			1,530,000			1,530,000
Other income		---			---			10,000			10,000
Net unrealized losses on investments		---			---			(28,640,000	)		(28,640,000	)
Interest expenses on note payable collateralized by real estate		(23,000	)		---			---			(23,000	)
Interest expenses on margin loans		---			---			(206,000	)		(206,000	)
Pretax (loss) income		(32,000	)		(2,512,000	)		(27,306,000	)		(29,850,000	)
Income tax benefit (expense)		80,000			585,000			7,652,000			8,317,000
Net income (loss)		48,000			(1,927,000	)		(19,654,000	)		(21,533,000	)
Total assets		18,702,000			30,571,000			185,843,000			235,116,000
Capital expenditures		50,000			34,000			---			84,000

	Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended December 31, 2017
Revenues
Advertising	$	2,116,000		$	---		$	---		$	2,116,000
Circulation		1,363,000			---			---			1,363,000
Advertising service fees and other		602,000			---			---			602,000
Licensing and maintenance fees		---			4,350,000			---			4,350,000
Consulting fees		---			995,000			---			995,000
Other public service fees		---			826,000			---			826,000
Operating expenses		4,314,000			9,383,000			---			13,697,000
Loss from operations		(233,000	)		(3,212,000	)		---			(3,445,000	)
Dividends and interest income		---			---			1,483,000			1,483,000
Other income and capital gains		---			---			11,000			11,000
Interest expenses on note payable collateralized by real estate		(24,000	)		---			---			(24,000	)
Interest expenses on margin loans		---			---			(136,000	)		(136,000	)
Pretax (loss) income		(257,000	)		(3,212,000	)		1,358,000			(2,111,000	)
Income tax benefit (expense)		(680,000	)		(2,185,000	)		19,715,000			16,850,000
Net income (loss)		(937,000	)		(5,397,000	)		21,073,000			14,739,000
Total assets		17,259,000			26,768,000			245,863,000			289,890,000
Capital expenditures		34,000			---			---			34,000
Amortization of intangible assets		---			1,062,000			---			1,062,000

Contract with Customer, Asset and Liability [Table Text Block]

	Beginning Balance		Addition		Recognized			Ending Balance
Deferred subscriptions	$	3,174,000	$	1,111,000	$	(1,338,000	)	$	2,947,000
Deferred installation contracts		2,554,000		925,000		(1,037,000	)		2,442,000
Deferred maintenance agreements and others		14,362,000		4,662,000		(4,294,000	)		14,730,000

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Note 3 - Accounting Standards Adopted in Fiscal 2019 and Recent Accounting Pronouncements (Details Textual) - USD ($)	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Oct. 01, 2018
Net Income (Loss) Attributable to Parent, Total	$ (21,533,000)	$ 14,739,000
Unrealized Gain (Loss) on Investments, Total	(28,640,000)
Cumulative Effect of New Accounting Principle in Period of Adoption
AOCI Attributable to Parent [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	(115,786,000)
Retained Earnings [Member]
Net Income (Loss) Attributable to Parent, Total	(21,533,000)	$ 14,739,000
Cumulative Effect of New Accounting Principle in Period of Adoption	$ 115,786,000
Accounting Standards Update 2016-01 [Member] | AOCI Attributable to Parent [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption			$ (115,786,000)
Accounting Standards Update 2016-01 [Member] | Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption			$ 115,786,000

XML

Note 6 - Investments in Marketable Securities (Details Textual) - USD ($)	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018
Available-for-sale Securities, Accumulated Gross Unrealized Gain, before Tax, Total	$ 129,767,000		$ 158,407,000
Unrealized Gain (Loss) on Investments, Total	$ (28,640,000)
Deferred Tax Liabilities, Investments			$ 42,151,000

XML

Note 6 - Investments in Marketable Securities - Summary of Investments (Details) - USD ($)	Dec. 31, 2018	Sep. 30, 2018
Aggregate fair value	$ 183,656,000	$ 212,296,000
Amortized/Adjusted cost basis	53,889,000	53,889,000
Pretax unrealized gains	$ 129,767,000	$ 158,407,000

XML

Note 7 - Goodwill (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Mar. 31, 2018	Sep. 30, 2017
Goodwill, Useful Life for Tax Purposes			15 years
Goodwill, Impairment Loss	$ 0	$ 0		$ 0

XML

Note 8 - Income Taxes (Details Textual) - USD ($)		3 Months Ended		12 Months Ended
	Jan. 01, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2017
Income Tax Expense (Benefit), Total		$ (8,317,000)	$ (16,850,000)
Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Noncontrolling Interest, Total		$ 29,850,000	$ 2,111,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%	24.28%		35.00%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability		$ (16,000,000)
Income Tax Expense (Benefit), Continuing Operations, Revaluation Differences in Deferred Taxes		$ (20,000,000)
Effective Income Tax Rate Reconciliation, Percent, Total		28.00%	798.00%
Domestic Tax Authority [Member] | Earliest Tax Year [Member]
Open Tax Year		2015
State and Local Jurisdiction [Member] | Earliest Tax Year [Member]
Open Tax Year		2013

XML

Note 9 - Debts and Commitments (Details Textual)	1 Months Ended	3 Months Ended		12 Months Ended
	Nov. 30, 2015 USD ($) ft² a	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2013 USD ($)	Sep. 30, 2017 ft²	Sep. 30, 2014 ft²
Payments to Acquire Property, Plant, and Equipment, Total		$ 84,000	$ 34,000
Operating Leases, Rent Expense, Net, Total		258,000	$ 237,000
San Francisco Office [Member]
Area of Real Estate Property | ft²						6,200
Lessee, Operating Lease, Renewal Term						5 years
Operating Lease, Monthly Rent		28,000
Englewood, Colorado Office [member]
Area of Real Estate Property | ft²					9,800
Operating Lease, Monthly Rent		$ 21,000
UTAH | Building [Member]
Area of Real Estate Property | ft²	30,700
UTAH | Land [Member]
Area of Land | a	3.6
UTAH | Land and Building [Member]
Payments to Acquire Property, Plant, and Equipment, Total	$ 1,240,000
Margin Account [Member]
Proceeds from Issuance of Debt				$ 29,500,000
Margin Account [Member] | Fed Funds Rate [Member]
Debt Instrument, Basis Spread on Variable Rate				0.50%
Debt Instrument, Interest Rate, Effective Percentage		3.00%
Real Estate Bank Loan Secured by Logan Office [Member]
Loans Payable to Bank, Total	$ 2,260,000	$ 1,930,000
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	4.66%
Debt Instrument, Periodic Payment, Total	$ 17,600

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Note 11 - Operating Segments (Details Textual) - USD ($)	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Revenue from Contract with Customer, Including Assessed Tax	$ 10,428,000	$ 10,252,000
Product Concentration Risk [Member] | Sales Revenue, Net [Member]
Concentration Risk, Percentage	60.00%	60.00%
Product Concentration Risk [Member] | Sales Revenue, Net [Member] | Non-US [Member]
Concentration Risk, Percentage	1.00%
Traditional Business [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 4,199,000
Traditional Business [Member] | Transferred at Point in Time [Member]
Revenue from Contract with Customer, Including Assessed Tax	2,861,000
Traditional Business [Member] | Transferred over Time [Member]
Revenue from Contract with Customer, Including Assessed Tax	1,338,000
Journal Technologies [Member]
Revenue from Contract with Customer, Including Assessed Tax	6,229,000
Journal Technologies [Member] | Transferred at Point in Time [Member]
Revenue from Contract with Customer, Including Assessed Tax	1,935,000
Journal Technologies [Member] | Transferred over Time [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 4,294,000

XML

Note 11 - Reportable Segments - Summarized Financial Information for Reportable Segments (Details) - USD ($)	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018
Revenues	$ 10,428,000	$ 10,252,000
Operating expenses	12,949,000	13,697,000
Loss from operations	(2,521,000)	(3,445,000)
Dividends and interest income	1,530,000	1,483,000
Other income	10,000
Net unrealized losses on investments	(28,640,000)
Pretax (loss) income	(29,850,000)	(2,111,000)
Income tax benefit (expense)	8,317,000	16,850,000
Net (loss) income	(21,533,000)	14,739,000
Total assets	235,116,000	289,890,000	$ 263,998,000
Capital expenditures	84,000	34,000
Other income and capital gains	10,000	11,000
Payments to Acquire Property, Plant, and Equipment, Total	84,000	34,000
Amortization of intangible assets		1,062,000
Real Estate Bank Loan Secured by Logan Office [Member]
Interest expense on debt	(23,000)	(24,000)
Margin Account [Member]
Interest expense on debt	(206,000)	(136,000)
Advertising [Member]
Revenues	2,192,000	2,116,000
Subscription and Circulation [Member]
Revenues	1,338,000	1,363,000
Advertising Service Fees and Other [Member]
Revenues	669,000	602,000
License and Maintenance [Member]
Revenues	4,790,000	4,350,000
Consulting Fees [Member]
Revenues	541,000	995,000
Service, Other [Member]
Revenues	898,000	826,000
Traditional Business [Member]
Revenues	4,199,000
Journal Technologies [Member]
Revenues	6,229,000
Operating Segments [Member] | Traditional Business [Member]
Operating expenses	4,208,000	4,314,000
Loss from operations	(9,000)	(233,000)
Dividends and interest income
Other income
Net unrealized losses on investments
Pretax (loss) income	(32,000)	(257,000)
Income tax benefit (expense)	80,000	(680,000)
Net (loss) income	48,000	(937,000)
Total assets	18,702,000	17,259,000
Capital expenditures	50,000	34,000
Other income and capital gains
Payments to Acquire Property, Plant, and Equipment, Total	50,000	34,000
Amortization of intangible assets
Operating Segments [Member] | Traditional Business [Member] | Real Estate Bank Loan Secured by Logan Office [Member]
Interest expense on debt	(23,000)	(24,000)
Operating Segments [Member] | Traditional Business [Member] | Margin Account [Member]
Interest expense on debt
Operating Segments [Member] | Traditional Business [Member] | Advertising [Member]
Revenues	2,192,000	2,116,000
Operating Segments [Member] | Traditional Business [Member] | Subscription and Circulation [Member]
Revenues	1,338,000	1,363,000
Operating Segments [Member] | Traditional Business [Member] | Advertising Service Fees and Other [Member]
Revenues	669,000	602,000
Operating Segments [Member] | Traditional Business [Member] | License and Maintenance [Member]
Revenues
Operating Segments [Member] | Traditional Business [Member] | Consulting Fees [Member]
Revenues
Operating Segments [Member] | Traditional Business [Member] | Service, Other [Member]
Revenues
Operating Segments [Member] | Journal Technologies [Member]
Operating expenses	8,741,000	9,383,000
Loss from operations	(2,512,000)	(3,212,000)
Dividends and interest income
Other income
Net unrealized losses on investments
Pretax (loss) income	(2,512,000)	(3,212,000)
Income tax benefit (expense)	585,000	(2,185,000)
Net (loss) income	(1,927,000)	(5,397,000)
Total assets	30,571,000	26,768,000
Capital expenditures	34,000
Other income and capital gains
Payments to Acquire Property, Plant, and Equipment, Total	34,000
Amortization of intangible assets		1,062,000
Operating Segments [Member] | Journal Technologies [Member] | Real Estate Bank Loan Secured by Logan Office [Member]
Interest expense on debt
Operating Segments [Member] | Journal Technologies [Member] | Margin Account [Member]
Interest expense on debt
Operating Segments [Member] | Journal Technologies [Member] | Advertising [Member]
Revenues
Operating Segments [Member] | Journal Technologies [Member] | Subscription and Circulation [Member]
Revenues
Operating Segments [Member] | Journal Technologies [Member] | Advertising Service Fees and Other [Member]
Revenues
Operating Segments [Member] | Journal Technologies [Member] | License and Maintenance [Member]
Revenues	4,790,000	4,350,000
Operating Segments [Member] | Journal Technologies [Member] | Consulting Fees [Member]
Revenues	541,000	995,000
Operating Segments [Member] | Journal Technologies [Member] | Service, Other [Member]
Revenues	898,000	826,000
Corporate, Non-Segment [Member]
Operating expenses
Loss from operations
Dividends and interest income	1,530,000	1,483,000
Other income	10,000
Net unrealized losses on investments	(28,640,000)
Pretax (loss) income	(27,306,000)	1,358,000
Income tax benefit (expense)	7,652,000	19,715,000
Net (loss) income	(19,654,000)	21,073,000
Total assets	185,843,000	245,863,000
Capital expenditures
Other income and capital gains		11,000
Payments to Acquire Property, Plant, and Equipment, Total
Amortization of intangible assets
Corporate, Non-Segment [Member] | Real Estate Bank Loan Secured by Logan Office [Member]
Interest expense on debt
Corporate, Non-Segment [Member] | Margin Account [Member]
Interest expense on debt	(206,000)	(136,000)
Corporate, Non-Segment [Member] | Advertising [Member]
Revenues
Corporate, Non-Segment [Member] | Subscription and Circulation [Member]
Revenues
Corporate, Non-Segment [Member] | Advertising Service Fees and Other [Member]
Revenues
Corporate, Non-Segment [Member] | License and Maintenance [Member]
Revenues
Corporate, Non-Segment [Member] | Consulting Fees [Member]
Revenues
Corporate, Non-Segment [Member] | Service, Other [Member]
Revenues

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Note 11 - Operating Segments - Deferred Revenue Obligations (Details)	3 Months Ended
	Dec. 31, 2018 USD ($)
Subscription and Circulation [Member]
Deferred revenue	$ 3,174,000
Deferred Revenue, Additions	1,111,000
Deferred Revenue, Revenue Recognized	(1,338,000)
Deferred revenue	2,947,000
Installation Contracts [Member]
Deferred revenue	2,554,000
Deferred Revenue, Additions	925,000
Deferred Revenue, Revenue Recognized	(1,037,000)
Deferred revenue	2,442,000
License and Maintenance [Member]
Deferred revenue	14,362,000
Deferred Revenue, Additions	4,662,000
Deferred Revenue, Revenue Recognized	(4,294,000)
Deferred revenue	$ 14,730,000