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Significant Accounting Policies (Policies)

12 Months Ended

Sep. 30, 2019

Consolidation, Policy [Policy Text Block]

Basis of Presentation:

The consolidated financial statements include the accounts of the Daily Journal and Journal Technologies (collectively the “Company”). All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification, Policy [Policy Text Block]

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

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentrations of Credit Risk:

The Company extends unsecured credit to most of its advertising customers. The Company recognizes that extending credit and setting appropriate reserves for receivables is largely a subjective decision based on knowledge of the customer and the industry. Credit limits, setting and maintaining credit standards, and managing the overall quality of the credit portfolio is largely centralized. The level of credit is influenced by the customer’s credit and payment history which the Company monitors when establishing a reserve.

The Company maintains the reserve account for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate or its judgments about their abilities to pay are incorrect, additional allowances might be required and its results of operations could be materially affected.

Cash and Cash Equivalents, Unrestricted Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents:

The Company considers all highly liquid investments with original maturities of

three

months or less to be cash equivalents.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash:

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

$2,015,000

included in the cash balance at

September 30, 2019

represents cash held to secure

two

letters of credit issued by a bank for a software installation contract in Australia.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments:

The carrying amounts of cash, accounts receivable and accounts payable approximate fair value because of their short maturities. In addition, the Company has investments in marketable securities, all categorized as “available-for-sale” and stated at fair market value. On

October 1, 2018,

the Company adopted Accounting Standards Update (“ASU”)

No.

2016

01,

Financial Instruments – Overall (Subtopic

825

): 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

$25,216,000

for fiscal

2019,

included net unrealized losses on investments of

$17,715,000.

For the prior fiscal years, the Company recorded net unrealized (losses) gains for its available-for-sale marketable securities in “other comprehensive income”. The Company uses quoted prices in active markets for identical assets (consistent with the Level

definition in the fair value hierarchy) to measure the fair value of its investments on a recurring basis pursuant to Accounting Standards Codification (“ASC”)

Topic

820,

Fair Value Measurement and Disclosures

. At

September 30, 2019,

the aggregate fair market value of the Company’s marketable securities was

$194,581,000.

These investments had approximately

$140,692,000

of net unrealized gains before taxes of

$37,241,000.

Most of the unrealized net gains were in the common stocks of

three

U.S. financial institutions. At

September 30, 2018,

the Company had marketable securities at fair market value of approximately

$212,296,000,

including approximately

$158,407,000

of unrealized net gains before taxes of

$42,151,000.

All investments are classified as “Current assets” because they are available for sale at any time. In

February 2018,

the Company sold its bond investments for

$8,125,000,

realizing a gain of approximately

$3,180,000,

and simultaneously reclassified a previously lodged tax effect of

$30,000

from accumulated other comprehensive income to retained earnings. This represented a decrease to retained earnings and an increase to accumulated other comprehensive income. (The Company uses an “individual security approach” to release stranded tax effects for its available-for-sale securities when sold or extinguished.)

Investment in Financial Instruments

	September 30, 2019						September 30, 2018
	Aggregate fair value		Amortized/ Adjusted cost basis		Pretax unrealized gains		Aggregate fair value		Amortized/ Adjusted cost basis		Pretax unrealized gains
Marketable securities
Common stocks	$	194,581,000	$	53,889,000	$	140,692,000	$	212,296,000	$	53,889,000	$	158,407,000

The Company performed separate evaluations for equity securities with a fair value at

September 30, 2019

and

2018

below cost to determine if the unrealized losses were other-than-temporary. This evaluation considered a number of factors including, but

not

limited to, the financial condition and near term prospects of the issuer, the Company’s ability and intent to hold the securities until fair value recovers, and the length of time and extent to which the fair value had been less than cost. The assessment of the ability and intent to hold these securities to recovery focuses on liquidity needs, asset/liability management and portfolio objectives. As of

September 30, 2019,

the Company concluded that the unrealized losses related to the marketable securities of

one

issuer were temporary. U.S. GAAP requires that the Company recognize other-than-temporary impairment losses on investments in earnings when the security prices remain below cost for a period of time that

may

be deemed excessive even in instances where the Company possesses the ability and intent to hold the security. In fiscal

2018,

there were other-than-temporary impairment losses of

$4,560,000

(

$3,350,000

net of taxes) related to the marketable securities of

one

issuer.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Intangible Assets:

September 30, 2019

and

2018,

intangible assets were composed of (i) customer relationships of

and

(net of the accumulated amortization expenses of

and

$21,950,000

), respectively, and (ii) developed technology of

and

(net of accumulated amortization expenses of

and

$2,525,000

), respectively. These intangible assets were being amortized over

five

years based on their estimated useful lives. All intangible assets became fully amortized as of

September 30, 2018.

Intangible amortization expense was

$0,

$3,058,000

and

$4,895,000

for fiscal

2019,

2018

and

2017,

respectively.

Inventory, Policy [Policy Text Block]

Intangible Assets:

September 30, 2019

and

2018,

intangible assets were composed of (i) customer relationships of

and

(net of the accumulated amortization expenses of

and

$21,950,000

), respectively, and (ii) developed technology of

and

(net of accumulated amortization expenses of

and

$2,525,000

), respectively. These intangible assets were being amortized over

five

years based on their estimated useful lives. All intangible assets became fully amortized as of

September 30, 2018.

Intangible amortization expense was

$0,

$3,058,000

and

$4,895,000

for fiscal

2019,

2018

and

2017,

respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Property, plant and equipment:

Property, plant and equipment are carried on the basis of cost or fair value for assets acquired in business combinations. Depreciation of assets is provided in amounts sufficient to depreciate the cost of related assets over their estimated useful lives ranging from

–

years. At

September 30, 2019,

the estimated useful lives were (i)

–

years for building and improvements, (ii)

–

years for furniture, office equipment and software, and (iii)

–

years for machinery and equipment. Leasehold improvements are amortized over the term of the related leases or the useful life of the assets, whichever is shorter. Assets are depreciated using the straight-line method for financial statements and accelerated method for tax purposes. Depreciation and amortization expenses were

$589,000,

$620,000

and

$691,000

for fiscal

2019,

2018

and

2017,

respectively.

Significant expenditures which extend the useful lives of existing assets are capitalized. Maintenance and repair costs are expensed as incurred. Gains or losses on dispositions of assets are reflected in current earnings.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-Lived Assets:

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset

may

not

be recoverable. There were

such impairments identified during fiscal

2019

and

2018.

Research, Development, and Computer Software, Policy [Policy Text Block]

Journal Technologies’ Software Development Costs:

Development costs related to software products for sale or licensing are expensed as incurred until the technological feasibility of the product has been established. Thereafter, until the product is released for sale, software development costs are capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The establishment of technological feasibility and the ongoing assessment of recoverability of costs require considerable judgment by the Company with respect to certain internal and external factors, including, but

not

limited to, anticipated future product revenue, estimated economic life and changes in hardware and software technology.

The Company believes its process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly,

software development costs have been capitalized to date.

Revenue [Policy Text Block]

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 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. 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

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 fees (i.e. public service fees) that are included in some contracts. Furthermore, there are

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.

Approximately

65%,

58%

and

58%

of the Company’s revenues in fiscal

2019,

2018

and

2017,

respectively, were derived from sales of software licenses, annual software licenses, maintenance and support agreements and consulting services that typically include implementation and training.

The change in allowance for doubtful accounts is as follows:

Allowance for Doubtful Accounts

Description	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Accounts Charged off less Recoveries			Balance at End of Year
Fiscal 2019
Allowance for doubtful accounts	$	200,000	$	8,000	$	(8,000	)	$	200,000
Fiscal 2018
Allowance for doubtful accounts	$	200,000	$	6,000	$	(6,000	)	$	200,000
Fiscal 2017
Allowance for doubtful accounts	$	200,000	$	33,000	$	(33,000	)	$	200,000

Share-based Payment Arrangement [Policy Text Block]

Management Incentive Plan:

In fiscal

1987,

the Company implemented a Management Incentive Plan (the “Incentive Plan”) that entitles a participant to participate in pretax earnings before adjustment for certain items of the Company. In

2003,

the Company modified the Incentive Plan to provide participants with

three

different types of non-negotiable incentive certificates based on the nature of the particular participants’ responsibilities. Each certificate entitles the participant to a specified share of the applicable pretax earnings in the year of grant and to receive the same percentage of pretax earnings to be generated in each of the next

nine

years provided they remain with the Company or are in retirement after working for the Company to age

65.

If a participant dies while any of his or her certificates remain outstanding, future payments under those certificates will be made to the deceased participant’s beneficiaries.

In fiscal

2015,

after combining Sustain, New Dawn and ISD into

one

company, the Company converted each existing Sustain Non-negotiable Incentive Certificate along with its supplemental Addendum to a “Journal Technologies Non-negotiable Incentive Certificate” coupled with a similar supplemental Addendum which defines how the value of the Journal Technologies Certificate will be paid upon a triggering event such as a sale of Journal Technologies or an initial public offering. Employees and consultants of Journal Technologies are eligible to participate in these “Journal Technologies Certificates”. Payouts under the Journal Technologies Certificates are calculated based on the pretax income of Journal Technologies before supplemental compensation expenses, workers’ compensation expenses, goodwill write-offs, amortization of intangible assets, and any interest and penalty provisions for uncertain tax positions. Also effective fiscal

2019,

the calculation of payouts under the Daily Journal Non-Consolidated Certificates is based on the pretax earnings of the traditional publishing business before supplemental compensation expenses, workers’ compensation expenses, financing costs of the non-traditional business activities, realized and unrealized gains (losses) on investments, and any write-downs of unrealized losses on investments. The calculation of payouts under the Daily Journal Consolidated Certificate is based on consolidated pretax earnings of the Company as a whole before supplemental compensation expenses, workers’ compensation expenses, realized and unrealized gains (losses) on investments, and any write-downs of unrealized losses on investments. For any certificate held by an employee who is expected to become retirement eligible during the

year period of the certificate, the Company recognizes the future commitments at each fiscal year-end over the period from the grant date through retirement eligibility.

Certificate interests entitled participants to receive

6.79%,

6.09%

and

5.12%

(amounting to

$465,500,

$367,400

and

$268,250,

respectively) of Daily Journal non-consolidated income before taxes, workers’ compensation, supplemental compensation and certain other items,

9.00%,

8.72%

and

8.53%

(amounting to

$0,

and

for fiscal

2019,

2018

and

2017,

respectively) for Journal Technologies and

8.2%,

8.2%

and

8.2%

(amounting to

$0,

and

$0,

respectively) for Daily Journal consolidated in fiscal

2019,

2018

and

2017,

respectively. The Company accrued

$230,000

and

$170,000

as of

September 30, 2019

and

2018,

respectively, for the Plan’s future commitment for those who will still have Certificates at the age of

65.

This future commitment included an increase in the accrual in fiscal

2019

$60,000

$.04

per outstanding share on an adjusted pretax basis as compared with an increase in fiscal

2018

$35,000

$.03

per outstanding share, in each case due to increased estimated future pretax income. The estimated Incentive Plan’s future commitment is calculated based on an average of the past year and the current year pretax earnings before certain items, discounted to the present value at

since each granted Certificate will expire over its remaining life term of up to

years.

Income Tax, Policy [Policy Text Block]

Income taxes:

The Company accounts for income taxes using an asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax basis of the assets and liabilities. The Company accounts for uncertainty in income taxes under ASC

740

which prescribes a recognition threshold and measurement methodology to recognize and measure an income tax position taken, or expected to be taken, in a tax return. The evaluation of a tax position is based on a

two

-step approach. The

first

step requires an entity to evaluate whether the tax position would “more likely than

not”

be sustained upon examination by the appropriate taxing authority. The

second

step requires the tax position be measured at the largest amount of tax benefit that is greater than

50%

likely of being realized upon ultimate settlement. In addition, previously recognized benefits from tax positions that

longer meet the new criteria would be derecognized.

Earnings Per Share, Policy [Policy Text Block]

Net (loss) income per common share

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

1,380,746

for fiscal

2019,

2018

and

2017.

The Company does

not

have any common stock equivalents, and therefore basic and diluted net income per share is the same.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates:

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

inputs, as defined in the fair value hierarchy, based on an average of the past year’s and the current year’s pretax earnings, discounted to the present value at

since each granted Unit will expire over its remaining life term of up to

years. Actual results could differ from these estimates.

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Standards Adopted in Fiscal

201

October 1, 2018,

the Company adopted Accounting Standards Update (“ASU”)

No.

2016

01,

Financial Instruments – Overall (Subtopic

825

): Recognition and Measurement of Financial Assets and Financial Liabilities

$25,216,000

for fiscal

2019,

included net unrealized losses on investments of

$17,715,000.

For the prior fiscal years, the Company recorded net unrealized gains for its available-for-sale marketable securities in “other comprehensive income”. In addition, ASU

2016

prohibited the restatement of prior fiscal year financial statements but required 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.

January 2017,

FASB issued ASU

No.

2017

04,

Intangibles – Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment

. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step

from the goodwill impairment test and requiring impairment charges to be based on Step

which is to compare the fair value of a reporting unit with its carrying amount. A goodwill impairment should be recognized in the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company early adopted this ASU during the last quarter of fiscal

2019.

The goodwill amount reported in the consolidated balance sheets all related to Journal Technologies. In connection with the Company’s annual impairment test, the fair value of Journal Technologies was less than the carrying value pursuant to a

third

-party appraiser’s valuation report. Consequently, the entire goodwill of

$13,400,000

was concluded to be impaired and thus fully written off as of

September 30, 2019.

New Accounting Pronouncements:

February 2016,

the FASB issued ASU

2016

02,

Leases (Topic

842

)

. This update requires that all leases be recognized by lessees on the balance sheet through a right-of-use asset and corresponding lease liability, including today’s operating leases. This standard is required to be adopted for annual periods beginning after

December 15, 2018,

including interim periods within that annual period, which is the Company’s fiscal year

2020.

October 1, 2019,

the Company adopted this ASU and believes that there is

significant impact on the Company’s financial condition, results of operations or disclosures. The Company currently has operating lease obligations of approximately

$40,000

beyond

one

year.

other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s consolidated financial statements.