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 ~~March 31,~~June 30, 2019

☐ 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 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: 1,380,746 shares outstanding at ~~April 30,~~July 31, 2019

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per ~~share~~ shar	DJCO	The NASDAQ Stock Market

DAILY JOURNAL CORPORATION

INDEX

Page Nos.

PART I Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets - ~~March 31,~~June 30, 2019 and September 30, 2018	3

Consolidated Statements of Comprehensive Income (Loss) - Three months ended ~~March 31,~~June 30, 2019 and 2018	4

Consolidated Statements of Comprehensive (Loss) Income - ~~Six~~Nine months ended ~~March 31,~~June 30, 2019 and 2018	5

Consolidated Statements of Shareholders’ Equity - ~~Six~~Nine months ended ~~March 31,~~June 30, 2019 and 2018	6

Consolidated Statements of Cash Flows - ~~Six~~Nine months ended ~~March 31,~~June 30, 2019 and 2018	7

Notes to Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3. Quantitative and Qualitative Disclosures about Market Risk	23

Item 4. Controls and Procedures	23

Part II Other Information

Item 6. Exhibits	24

	March 31			September 30			June 30			September 30
	2019			2018			2019			2018
ASSETS
Current assets
Cash and cash equivalents	$	5,782,000		$	9,301,000		$	8,508,000		$	9,301,000
Marketable securities at fair value		192,153,000			212,296,000			195,367,000			212,296,000
Accounts receivable, less allowance for doubtful accounts of $200,000		7,342,000			4,803,000			8,544,000			4,803,000
Inventories		43,000			46,000			41,000			46,000
Prepaid expenses and other current assets		389,000			512,000			234,000			512,000
Income tax receivable		263,000			270,000			136,000			270,000
Total current assets		205,972,000			227,228,000			212,830,000			227,228,000

Property, plant and equipment, at cost
Land, buildings and improvements		16,472,000			16,422,000			16,485,000			16,422,000
Furniture, office equipment and computer software		2,911,000			2,877,000			2,911,000			2,877,000
Machinery and equipment		1,749,000			1,749,000			1,749,000			1,749,000
		21,132,000			21,048,000			21,145,000			21,048,000
Less accumulated depreciation		(10,132,000	)		(9,828,000	)		(10,272,000	)		(9,828,000	)
		11,000,000			11,220,000			10,873,000			11,220,000
Goodwill		13,400,000			13,400,000			13,400,000			13,400,000
Deferred income taxes - Federal		12,087,000			9,269,000			11,845,000			9,269,000
Deferred income taxes - State		1,004,000			2,881,000			807,000			2,881,000
	$	243,463,000		$	263,998,000		$	249,755,000		$	263,998,000

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	4,571,000		$	2,820,000		$	4,301,000		$	2,820,000
Accrued liabilities		4,328,000			4,402,000			5,013,000			4,402,000
Note payable collateralized by real estate		123,000			121,000			125,000			121,000
Deferred subscriptions		2,978,000			3,174,000			3,255,000			3,174,000
Deferred installation contracts		2,428,000			2,554,000			1,810,000			2,554,000
Deferred maintenance agreements and others		14,535,000			14,186,000			15,911,000			14,186,000
Total current liabilities		28,963,000			27,257,000			30,415,000			27,257,000

Long term liabilities
Investment margin account borrowings		29,493,000			29,493,000			29,493,000			29,493,000
Note payable collateralized by real estate		1,773,000			1,835,000			1,741,000			1,835,000
Deferred maintenance agreements		47,000			176,000			136,000			176,000
Accrued liabilities		180,000			170,000			180,000			170,000
Deferred income taxes		36,606,000			42,151,000			37,566,000			42,151,000
Total long term liabilities		68,099,000			73,825,000			69,116,000			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 March 31, 2019 and September 30, 2018		14,000			14,000
Common stock, $.01 par value, 5,000,000 shares authorized; 1,805,053 shares issued, including 424,307 treasury shares, at June 30, 2019 and September 30, 2018								14,000			14,000
Additional paid-in capital		1,755,000			1,755,000			1,755,000			1,755,000
Retained earnings		144,632,000			45,361,000			148,455,000			45,361,000
Accumulated other comprehensive income		---			115,786,000		---				115,786,000
Total shareholders' equity		146,401,000			162,916,000			150,224,000			162,916,000
	$	243,463,000		$	263,998,000		$	249,755,000		$	263,998,000

	Three months ended March 31						Three months ended June 30
	2019			2018			2019			2018

Revenues
Advertising	$	2,108,000		$	2,209,000		$	2,453,000		$	2,375,000
Circulation		1,273,000			1,356,000			1,319,000			1,346,000
Advertising service fees and other		624,000			659,000			735,000			724,000
Licensing and maintenance fees		4,640,000			3,981,000			5,814,000			4,756,000
Consulting fees		399,000			212,000			2,627,000			940,000
Other public service fees		1,668,000			921,000			1,570,000			866,000
		10,712,000			9,338,000			14,518,000			11,007,000

Costs and expenses
Salaries and employee benefits		8,791,000			8,555,000			8,715,000			8,475,000
Outside services		1,244,000			1,238,000			444,000			606,000
Postage and delivery expenses		205,000			216,000			218,000			217,000
Newsprint and printing expenses		186,000			191,000			186,000			186,000
Depreciation and amortization		150,000			899,000			141,000			905,000
Equipment maintenance and software		410,000			401,000			380,000			339,000
Credit card merchant discount fees		375,000			261,000			367,000			265,000
Rent expenses		257,000			250,000			216,000			254,000
Accounting and legal fees		396,000			187,000			499,000			482,000
Other general and administrative expenses		1,369,000			1,513,000			2,228,000			1,987,000
		13,383,000			13,711,000			13,394,000			13,716,000
Loss from operations		(2,671,000	)		(4,373,000	)
Income (loss) from operations								1,124,000			(2,709,000	)
Other income (expense)
Dividends and interest income		1,141,000			1,024,000			1,368,000			1,215,000
Gain on sale of bonds		---			3,180,000
Other income and capital gains		9,000			10,000			10,000			9,000
Net unrealized gains on investments		8,497,000			---			3,214,000			---
Interest expense on note payable collateralized by real estate		(22,000	)		(24,000	)		(22,000	)		(24,000	)
Interest expense on margin loans		(219,000	)		(149,000	)		(251,000	)		(173,000	)
Income (loss) before income taxes		6,735,000			(332,000	)		5,443,000			(1,682,000	)
(Provision for) benefit from income taxes		(1,717,000	)		100,000			(1,620,000	)		710,000
Net income (loss)	$	5,018,000		$	(232,000	)	$	3,823,000		$	(972,000	)

Weighted average number of common shares outstanding - basic and diluted		1,380,746			1,380,746			1,380,746			1,380,746
Basic and diluted net income (loss) per share	$	3.63		$	(0.17	)	$	2.77		$	(0.70	)

Comprehensive income (loss)
Net income (loss)	$	5,018,000		$	(232,000	)	$	3,823,000		$	(972,000	)
Net decrease in unrealized appreciation of marketable securities (net of taxes)		---			(13,861,000	)	---				(7,613,000	)
	$	5,018,000		$	(14,093,000	)	$	3,823,000		$	(8,585,000	)

	Six months ended March 31						Nine months ended June 30
	2019			2018			2019			2018

Revenues
Advertising	$	4,300,000		$	4,325,000		$	6,753,000		$	6,700,000
Circulation		2,611,000			2,719,000			3,930,000			4,065,000
Advertising service fees and other		1,293,000			1,261,000			2,028,000			1,985,000
Licensing and maintenance fees		9,430,000			8,331,000			15,244,000			13,087,000
Consulting fees		940,000			1,207,000			3,567,000			2,147,000
Other public service fees		2,566,000			1,747,000			4,136,000			2,613,000
		21,140,000			19,590,000			35,658,000			30,597,000

Costs and expenses
Salaries and employee benefits		17,446,000			16,752,000			26,161,000			25,227,000
Outside services		2,402,000			2,489,000			2,846,000			3,095,000
Postage and delivery expenses		409,000			433,000			627,000			650,000
Newsprint and printing expenses		362,000			403,000			548,000			589,000
Depreciation and amortization		303,000			2,117,000			444,000			3,022,000
Equipment maintenance and software		753,000			688,000			1,133,000			1,027,000
Credit card merchant discount fees		645,000			503,000			1,012,000			768,000
Rent expenses		515,000			487,000			731,000			741,000
Accounting and legal fees		799,000			558,000			1,298,000			1,040,000
Other general and administrative expenses		2,698,000			2,978,000			4,926,000			4,965,000
		26,332,000			27,408,000			39,726,000			41,124,000
Loss from operations		(5,192,000	)		(7,818,000	)		(4,068,000	)		(10,527,000	)
Other income (expense)
Dividends and interest income		2,671,000			2,507,000			4,039,000			3,722,000
Gains on sales of bonds		---			3,180,000			---			3,182,000
Other income and capital asset		19,000			21,000			29,000			28,000
Net unrealized losses on investments		(20,143,000	)		---			(16,929,000	)		---
Interest expense on note payable collateralized by real estate		(45,000	)		(48,000	)		(67,000	)		(72,000	)
Interest expense on margin loans		(425,000	)		(285,000	)		(676,000	)		(458,000	)
Loss before income taxes		(23,115,000	)		(2,443,000	)		(17,672,000	)		(4,125,000	)
Benefit from income taxes		6,600,000			16,950,000			4,980,000			17,660,000
Net (loss) income	$	(16,515,000	)	$	14,507,000		$	(12,692,000	)	$	13,535,000

Weighted average number of common shares outstanding - basic and diluted		1,380,746			1,380,746			1,380,746			1,380,746
Basic and diluted net (loss) income per share	$	(11.96	)	$	10.51		$	(9.19	)	$	9.80

Comprehensive (loss) income
Net (loss) income	$	(16,515,000	)	$	14,507,000		$	(12,692,000	)	$	13,535,000
Net decrease in unrealized appreciation of marketable securities (net of taxes)		---			(1,743,000	)	---				(9,356,000	)
	$	(16,515,000	)	$	12,764,000		$	(12,692,000	)	$	4,179,000

																Accumulated																					Accumulated
											Additional					Other			Total													Additional					Other			Total
	Common Stock				Treasury Stock						Paid-in		Retained			Comprehensive			Shareholders'			Common Stock				Treasury Stock						Paid-in		Retained			Comprehensive			Shareholders'
	Share		Amount		Share			Amount			Capital		Earnings			Income			Equity			Share		Amount		Share			Amount			Capital		Earnings			Income			Equity

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			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			---		---		---			---			---		14,739,000			---			14,739,000
Unrealized gains on investments, net		---		---		---			---			---		---			12,118,000			12,118,000			---		---		---			---			---		---			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			1,805,053		18,000		(424,307	)		(4,000	)		1,755,000		71,889,000			112,940,000			186,598,000
Stranded tax effects reclassification resulted from Tax Cuts and Jobs Act		---		---		---			---			---		(19,990,000	)		19,990,000			---			---		---		---			---			---		(19,990,000	)		19,990,000			---
Net income		---		---		---			---			---		(232,000	)		---			(232,000	)
Net loss																							---		---		---			---			---		(232,000	)		---			(232,000	)
Realized gains on bond investment, net of taxes																	(2,553,000	)		(2,553,000	)		---		---		---			---			---					(2,553,000	)		(2,553,000	)
Unrealized losses on investments, net		---		---		---			---			---		---			(13,861,000	)		(13,861,000	)		---		---		---			---			---		---			(13,861,000	)		(13,861,000	)
Balance at March 31, 2018		1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	51,667,000		$	116,516,000		$	169,952,000			1,805,053		18,000		(424,307	)		(4,000	)		1,755,000		51,667,000			116,516,000			169,952,000
Net loss																							---		---		---			---			---		(972,000	)		---			(972,000	)
Unrealized losses on investments, net																							---		---		---			---			---		---			(7,613,000	)		(7,613,000	)
Balance at June 30, 2018																							1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	50,695,000		$	108,903,000		$	161,367,000



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			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	)		---			---		---		---			---			---		115,786,000			(115,786,000	)		---
Net loss		---		---		---			---			---		(21,533,000	)		---			(21,533,000	)		---		---		---			---			---		(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			1,805,053		18,000		(424,307	)		(4,000	)		1,755,000		139,614,000			---			141,383,000
Net income		---		---		---			---			---		5,018,000			---			5,018,000			---		---		---			---			---		5,018,000			---			5,018,000
Balance at March 31, 2019		1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	144,632,000		$	---		$	146,401,000			1,805,053		18,000		(424,307	)		(4,000	)		1,755,000		144,632,000			---			146,401,000
Net income																							---		---		---			---			---		3,823,000			---			3,823,000
Balance at June 30, 2019																							1,805,053	$	18,000		(424,307	)	$	(4,000	)	$	1,755,000	$	148,455,000		$	---		$	150,224,000

	Six months ended March 31						Nine months ended June 30
	2019			2018			2019			2018
Cash flows from operating activities
Net (loss) income	$	(16,515,000	)	$	14,507,000		$	(12,692,000	)	$	13,535,000
Adjustments to reconcile net (loss) income to net cash used in operations
Depreciation and amortization		304,000			2,117,000			444,000			3,022,000
Net unrealized losses on investments		20,143,000			---			16,929,000			---
Deferred income taxes		(6,486,000	)		(17,012,000	)		(5,087,000	)		(17,157,000	)
Gains on sale of bonds		---			(3,180,000	)		---			(3,182,000	)
Changes in operating assets and liabilities
(Increase) decrease in current assets
Accounts receivable, net		(2,539,000	)		1,119,000			(3,741,000	)		(2,954,000	)
Inventories		3,000			(6,000	)		5,000			(13,000	)
Prepaid expenses and other assets		123,000			186,000			278,000			311,000
Income tax receivable		7,000			55,000			134,000			(599,000	)
Increase (decrease) in liabilities
Accounts payable		1,751,000			(151,000	)		1,481,000			567,000
Accrued liabilities		(64,000	)		(180,000	)		621,000			361,000
Deferred subscriptions		(196,000	)		(167,000	)		81,000			(47,000	)
Deferred maintenance agreements and others		220,000			(711,000	)		1,685,000			1,268,000
Deferred installation contracts		(126,000	)		(730,000	)		(744,000	)		(1,362,000	)
Net cash used in operating activities		(3,375,000	)		(4,153,000	)		(606,000	)		(6,250,000	)

Cash flows from investing activities
Sales of marketable securities		---			8,125,000			---			8,125,000
Purchases of property, plant and equipment		(84,000	)		(75,000	)		(97,000	)		(199,000	)
Net cash (used in) provided by investing activities		(84,000	)		8,050,000			(97,000	)		7,926,000

Cash flows from financing activities
Payment of real estate loan principal		(60,000	)		(57,000	)		(90,000	)		(86,000	)
Net cash used in financing activities		(60,000	)		(57,000	)		(90,000	)		(86,000	)

(Decrease) increase in cash and cash equivalents		(3,519,000	)		3,840,000			(793,000	)		1,590,000

Cash and cash equivalents
Beginning of period		9,301,000			3,384,000			9,301,000			3,384,000
End of period	$	5,782,000		$	7,224,000		$	8,508,000		$	4,974,000

Interest paid during period	$	470,000		$	329,000		$	760,000		$	524,000
Net income taxes (refunded) paid during period	$	(121,000	)	$	6,000		$	(118,000	)	$	6,000

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 ~~March 31,~~June 30, 2019, its results of operations for the three-and ~~six-months~~nine-months periods ended ~~March 31,~~June 30, 2019 and 2018, its consolidated statements of shareholders’ equity as of ~~March 31,~~June 30, 2019 and 2018 and cash flows for the ~~six-month~~nine-month ended ~~March 31,~~June 30, 2019 and 2018. The results of operations for the ~~six~~nine months ended ~~March 31,~~June 30, 2019 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 ~~$16,515,000~~$12,692,000 for the ~~six~~nine months ended ~~March 31,~~June 30, 2019, included net unrealized losses on investments of ~~$20,143,000.~~$16,929,000. For the prior year’s period, the Company recorded net unrealized gains for its available-for-sale marketable securities in ~~other~~“other comprehensive ~~income.~~income”. In addition, ASU 2016-01 ~~prohibits~~prohibited the restatement of prior year financial statements but ~~requires~~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.

Other Recent Accounting Pronouncements

In 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. The Company has finished assessing the evaluation of this ASU and concluded that it will have no significant impact on the Company’s financial condition, results of operations or disclosures.

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. 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, 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.

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.

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 ~~March 31,~~June 30, 2019, there were net unrealized gains of ~~$138,264,000~~$141,478,000 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 ~~$20,143,000~~$16,929,000 for the ~~six~~nine months ended ~~March 31,~~June 30, 2019. At September 30, 2018, net unrealized gains of $158,407,000 were recorded in the ~~accumulated~~“accumulated other comprehensive ~~income~~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 ~~March 31,~~June 30, 2019 and September 30, 2018 are summarized below.

Investments in Financial Instruments

March 31, 2019

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
$ 192,153,000 $ 53,889,000 $ 138,264,000 $ 212,296,000 $ 53,889,000 $ 158,407,000

	June 30, 2019						September 30, 2018
	Aggregate fair value		Adjusted cost basis		Pretax net unrealized gains		Aggregate fair value		Adjusted cost basis		Pretax net unrealized gains

Marketable securities	$	195,367,000	$	53,889,000	$	141,478,000	$	212,296,000	$	53,889,000	$	158,407,000

As of ~~March 31,~~June 30, 2019, 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~~considered 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 ~~March 31,~~June 30, 2019, the unrealized loss related to an equity security it owns was temporary.

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 ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2019 and 2018.

Note 8 - Income Taxes

For the ~~six~~nine months ended ~~March 31,~~June 30, 2019, the Company recorded an income tax benefit of ~~$6,600,000~~$4,980,000 on a pretax loss of ~~$23,115,000.~~$17,672,000. This was the net result of applying the effective tax rate anticipated for fiscal 2019 to the pretax loss for the ~~six~~nine months ended ~~March 31,~~June 30, 2019. The effective tax rate was greater than the statutory rate primarily due to the dividends received deduction and 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 ~~$2,443,000~~$4,125,000 for the ~~six~~nine months ended ~~March 31,~~June 30, 2018, the Company recorded an income tax benefit of ~~$16,950,000.~~$17,660,000. The income tax benefit was also the result of applying the effective tax rate anticipated for fiscal 2018 to the pretax loss for the ~~six-month~~nine-month period ended ~~March 31,~~June 30, 2018. 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 ~~29%~~28% for the ~~six~~nine months ended ~~March 31,~~June 30, 2019 as compared with ~~694%~~428% 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~~2014 for state income taxes.

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 ~~March 31,~~June 30, 2019 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 ~~$1.9~~$1.87 million as of ~~March 31,~~June 30, 2019.

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~~$27,000 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.~~$23,000.

The Company is responsible for a portion of maintenance, insurance and property tax expenses relating to the leased properties. Rental expenses were ~~$515,000~~$731,000 for the ~~six-month~~nine-month period ended ~~March 31,~~June 30, 2019, as compared with ~~$487,000~~$741,000 in the prior year period.

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												Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total			Traditional Business			Journal Technologies			Corporate income and expenses			Total
Six months ended March 31, 2019
Nine months ended June 30, 2019
Revenues
Advertising	$	4,300,000		$	---		$	---		$	4,300,000		$	6,753,000		$	---		$	---		$	6,753,000
Circulation		2,611,000			---			---			2,611,000			3,930,000			---			---			3,930,000
Advertising service fees and other		1,293,000			---			---			1,293,000			2,028,000			---			---			2,028,000
Licensing and maintenance fees		---			9,430,000			---			9,430,000			---			15,244,000			---			15,244,000
Consulting fees		---			940,000			---			940,000			---			3,567,000			---			3,567,000
Other public service fees		---			2,566,000			---			2,566,000			---			4,136,000			---			4,136,000
Operating expenses		8,348,000			17,984,000			---			26,332,000			12,485,000			27,241,000			---			39,726,000
Loss from operations		(144,000	)		(5,048,000	)		---			(5,192,000	)
Income (loss) from operations														226,000			(4,294,000	)		---			(4,068,000	)
Dividends and interest income		---			---			2,671,000			2,671,000			---			---			4,039,000			4,039,000
Other income		---			---			19,000			19,000			---			---			29,000			29,000
Net unrealized losses on investments		---			---			(20,143,000	)		(20,143,000	)		---			---			(16,929,000	)		(16,929,000	)
Interest expenses on note payable collateralized by real estate		(45,000	)		---			---			(45,000	)		(67,000	)		---			---			(67,000	)
Interest expenses on margin loans		---			---			(425,000	)		(425,000	)		---			---			(676,000	)		(676,000	)
Pretax (loss) income		(189,000	)		(5,048,000	)		(17,878,000	)		(23,115,000	)
Income tax benefit (expense)		115,000			1,300,000			5,185,000			6,600,000
Pretax income (loss)														159,000			(4,294,000	)		(13,537,000	)		(17,672,000	)
Income tax (expense) benefit														(110,000	)		1,155,000			3,935,000			4,980,000
Net income (loss)		(74,000	)		(3,748,000	)		(12,693,000	)		(16,515,000	)		49,000			(3,139,000	)		(9,602,000	)		(12,692,000	)
Total assets		17,399,000			31,710,000			194,354,000			243,463,000			18,276,000			33,903,000			197,576,000			249,755,000
Capital expenditures		50,000			34,000			---			84,000			63,000			34,000			---			97,000

	Reportable Segments												Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total			Traditional Business			Journal Technologies			Corporate income and expenses			Total
Six months ended March 31, 2018
Nine months ended June 30, 2018
Revenues
Advertising	$	4,325,000		$	---		$	---		$	4,325,000		$	6,700,000		$	---		$	---		$	6,700,000
Circulation		2,719,000			---			---			2,719,000			4,065,000			---			---			4,065,000
Advertising service fees and other		1,261,000			---			---			1,261,000			1,985,000			---			---			1,985,000
Licensing and maintenance fees		---			8,331,000			---			8,331,000			---			13,087,000			---			13,087,000
Consulting fees		---			1,207,000			---			1,207,000			---			2,147,000			---			2,147,000
Other public service fees		---			1,747,000			---			1,747,000			---			2,613,000			---			2,613,000
Operating expenses		8,507,000			18,901,000			---			27,408,000			12,721,000			28,403,000			---			41,124,000
Loss from operations		(202,000	)		(7,616,000	)		---			(7,818,000	)
Income (loss) from operations														29,000			(10,556,000	)		---			(10,527,000	)
Dividends and interest income		---			---			2,507,000			2,507,000			---			---			3,722,000			3,722,000
Gains on sales of bonds		---			---			3,180,000			3,180,000
Other income and capital asset		---			---			21,000			21,000
Gains on sales of bonds and capital asset														---			---			3,182,000			3,182,000
Other income														---			---			28,000			28,000
Interest expenses on note payable collateralized by real estate		(48,000	)		---			---			(48,000	)		(72,000	)		---			---			(72,000	)
Interest expenses on margin loans		---			---			(285,000	)		(285,000	)		---			---			(458,000	)		(458,000	)
Pretax (loss) income		(250,000	)		(7,616,000	)		5,423,000			(2,443,000	)		(43,000	)		(10,556,000	)		6,474,000			(4,125,000	)
Income tax benefit (expense)		(785,000	)		(935,000	)		18,670,000			16,950,000
Net income (loss)		(1,035,000	)		(8,551,000	)		24,093,000			14,507,000
Income tax (expense) benefit														---			(455,000	)		18,115,000			17,660,000
Net (loss) income														(43,000	)		(11,011,000	)		24,589,000			13,535,000
Total assets		22,347,000			26,592,000			217,803,000			266,742,000			20,851,000			29,818,000			207,499,000			258,168,000
Capital expenditures		75,000			---			---			75,000
Capital expenditures, net														199,000			---			---			199,000
Amortization of intangible assets		---			1,810,000			---			1,810,000			---			2,559,000			---			2,559,000

	Reportable Segments												Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total			Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended March 31, 2019
Three months ended June 30, 2019
Revenues
Advertising	$	2,108,000		$	---		$	---		$	2,108,000		$	2,453,000		$	---		$	---		$	2,453,000
Circulation		1,273,000			---			---			1,273,000			1,319,000			---			---			1,319,000
Advertising service fees and other		624,000			---			---			624,000			735,000			---			---			735,000
Licensing and maintenance fees		---			4,640,000			---			4,640,000			---			5,814,000			---			5,814,000
Consulting fees		---			399,000			---			399,000			---			2,627,000			---			2,627,000
Other public service fees		---			1,668,000			---			1,668,000			---			1,570,000			---			1,570,000
Operating expenses		4,140,000			9,243,000			---			13,383,000			4,137,000			9,257,000			---			13,394,000
Loss from operations		(135,000	)		(2,536,000	)		---			(2,671,000	)
Income from operations														370,000			754,000			---			1,124,000
Dividends and interest income		---			---			1,141,000			1,141,000			---			---			1,368,000			1,368,000
Other income		---			---			9,000			9,000			---			---			10,000			10,000
Net unrealized gains on investments		---			---			8,497,000			8,497,000			---			---			3,214,000			3,214,000
Interest expenses on note payable collateralized by real estate		(22,000	)		---			---			(22,000	)		(22,000	)		---			---			(22,000	)
Interest expenses on margin loans		---			---			(219,000	)		(219,000	)		---			---			(251,000	)		(251,000	)
Pretax income (loss)		(157,000	)		(2,536,000	)		9,428,000			6,735,000
Income tax benefit (expense)		35,000			715,000			(2,467,000	)		(1,717,000	)
Net (loss) income		(122,000	)		(1,821,000	)		6,961,000			5,018,000
Pretax income														348,000			754,000			4,341,000			5,443,000
Income tax expense														(225,000	)		(145,000	)		(1,250,000	)		(1,620,000	)
Net income														123,000			609,000			3,091,000			3,823,000
Total assets		17,399,000			31,710,000			194,354,000			243,463,000			18,276,000			33,903,000			197,576,000			249,755,000
Capital expenditures		---			---			---			---			13,000			---			---			13,000

	Reportable Segments												Reportable Segments
	Traditional Business			Journal Technologies			Corporate income and expenses			Total			Traditional Business			Journal Technologies			Corporate income and expenses			Total
Three months ended March 31, 2018
Three months ended June 30, 2018
Revenues
Advertising	$	2,209,000		$	---		$	---		$	2,209,000		$	2,375,000		$	---		$	---		$	2,375,000
Circulation		1,356,000			---			---			1,356,000			1,346,000			---			---			1,346,000
Advertising service fees and other		659,000			---			---			659,000			724,000			---			---			724,000
Licensing and maintenance fees		---			3,981,000			---			3,981,000			---			4,756,000			---			4,756,000
Consulting fees		---			212,000			---			212,000			---			940,000			---			940,000
Other public service fees		---			921,000			---			921,000			---			866,000			---			866,000
Operating expenses		4,193,000			9,518,000			---			13,711,000			4,214,000			9,502,000			---			13,716,000
Income (loss) from operations		31,000			(4,404,000	)		---			(4,373,000	)		231,000			(2,940,000	)		---			(2,709,000	)
Dividends and interest income		---			---			1,024,000			1,024,000			---			---			1,215,000			1,215,000
Gains on sales of bonds		---			---			3,180,000			3,180,000
Other income and capital asset		---			---			10,000			10,000
Other income														---			---			9,000			9,000
Interest expenses on note payable collateralized by real estate		(24,000	)		---			---			(24,000	)		(24,000	)		---			---			(24,000	)
Interest expenses on margin loans		---			---			(149,000	)		(149,000	)		---			---			(173,000	)		(173,000	)
Pretax income (loss)		7,000			(4,404,000	)		4,065,000			(332,000	)		207,000			(2,940,000	)		1,051,000			(1,682,000	)
Income tax benefit (expense)		(105,000	)		1,250,000			(1,045,000	)		100,000			785,000			480,000			(555,000	)		710,000
Net (loss) income		(98,000	)		(3,154,000	)		3,020,000			(232,000	)
Net income (loss)														992,000			(2,460,000	)		496,000			(972,000	)
Total assets		22,347,000			26,592,000			217,803,000			266,742,000			20,851,000			29,818,000			207,499,000			258,168,000
Capital expenditures		41,000			---			---			41,000
Capital expenditures, net														124,000			---			---			124,000
Amortization of intangible assets		---			748,000			---			748,000			---			749,000			---			749,000

During the ~~six~~nine months ended ~~March 31,~~June 30, 2019, the Traditional Business had total revenues of ~~$8,204,000~~$12,711,000 of which ~~$5,593,000~~$8,781,000 were recognized, at a point of time, after services were provided and ~~$2,611,000~~$3,930,000 were recognized ratably over the subscription terms. Total revenues for the ~~Company’s~~Journal Technologies’ software business were ~~$12,936,000~~$22,947,000 of which ~~$4,035,000~~$8,611,000 were recognized upon completion of services with customer acceptance while ~~$8,901,000~~$14,336,000 were recognized ratably over the ~~subscription~~maintenance periods.

During the three months ended ~~March 31,~~June 30, 2019, the Traditional Business had total revenues of ~~$4,005,000~~$4,507,000 of which ~~$2,732,000~~$3,188,000 were recognized, at a point of time, after services were provided and ~~$1,273,000~~$1,319,000 were recognized ratably over the subscription terms. Total revenues for the ~~Company’s~~Journal Technologies’ software business were ~~$6,707,000~~$10,011,000 of which ~~$2,100,000~~$4,576,000 were recognized upon completion of services with customer acceptance while ~~$4,607,000~~$5,435,000 were recognized ratably over the ~~subscription~~maintenance periods.

Approximately ~~63%~~69% and ~~61%~~64% of the Company’s revenues during the three-and ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2019 were derived from Journal Technologies, as compared with ~~55%~~60% and 58% in the prior year ~~period.~~periods. In addition, the Company’s revenues have been primarily from the United States with approximately 1% from foreign countries. Journal Technologies’ revenues are ~~all~~primarily from governmental agencies.

The following table sets forth certain deferred obligations from October 1, 2018 through ~~March 31,~~June 30, 2019:

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

Comparable ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2019 and 2018

Consolidated revenues were ~~$21,140,000~~$35,658,000 and ~~$19,590,000~~$30,597,000 for the ~~six~~nine months ended ~~March 31,~~June 30, 2019 and 2018, respectively. This increase of ~~$1,550,000 (8%~~$5,061,000 (17%) was primarily from (i) increased ~~(i)~~ Journal Technologies’ license and maintenance fees of ~~$1,099,000~~$2,157,000, consulting fees of $1,420,000 and public service fees of ~~$819,000~~$1,523,000, and (ii) ~~the~~increased Traditional Business’ ~~government notices and agency commission~~conference revenues of ~~$80,000,~~$172,000, display advertising net revenues of $129,000 and legal notice advertising net revenues of $68,000, partially offset by a reduction in ~~Journal Technologies’ consulting fees of $267,000 due to fewer go-lives, and the reduction in~~ the Traditional Business’ classified advertising net revenues of $141,000, trustee sale notice advertising net revenues of ~~$100,000~~$183,000 and circulation revenues of ~~$108,000.~~$135,000. The Company’s revenues derived from Journal Technologies’ operations constituted about ~~61%~~64% and 58% of the Company’s total revenues for the ~~six~~nine months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Consolidated operating expenses decreased by ~~$1,076,000 (4%~~$1,398,000 (3%) to ~~$26,332,000~~$39,726,000 from ~~$27,408,000,~~$41,124,000, mainly because all intangible assets for Journal Technologies were fully amortized atby last year-end. Total salaries and employee benefits increased by ~~$694,000~~$934,000 (4%) to ~~$17,446,000~~$26,161,000 from ~~$16,752,000~~$25,227,000 primarily resulting from additional personnel costs for Journal Technologies. Outside services decreased by ~~$87,000 (3%~~$249,000 (8%) to ~~$2,402,000~~$2,846,000 from ~~$2,489,000~~$3,095,000 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 ~~$1,810,000~~$2,559,000 for the ~~six~~nine months ended ~~March 31,~~June 30, 2019 and 2018, respectively, decreased by ~~$1,814,000~~$2,578,000 to ~~$303,000~~$444,000 from ~~$2,117,000.~~$3,022,000. Credit card merchant discount fees, which represent fees paid to credit card service providers to process payments for the public service fee revenues, increased by ~~$142,000 (28%~~$244,000 (32%) to ~~$645,000~~$1,012,000 from ~~$503,000~~$768,000 mainly resulting from increased efilings. Accounting and legal fees increased by ~~$241,000 (43%~~$258,000 (25%) to ~~$799,000~~$1,298,000 from ~~$558,000~~$1,040,000 primarily because of additional legal fees to review and negotiate Journal Technologies’ contracts with customers. ~~Other general and administrative expenses decreased by $280,000 (9%) to $2,698,000 from $2,978,000 mainly resulting from reduced miscellaneous office equipment purchases.~~

The Company’s non-operating income, net of expenses, decreased to a loss of ~~$17,923,000~~$13,604,000 from income of ~~$5,375,000~~$6,402,000 primarily because of the recording of the net unrealized losses on investments of ~~$20,143,000~~$16,929,000 and increases in the interest rates on the two acquisition margin loans, as compared with a capital gain of $3,180,000 from the sale of bonds during the prior year period.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2019, consolidated pretax loss was ~~$23,115,000,~~$17,672,000, as compared with ~~$2,443,000~~$4,125,000 in the prior year period. There was a consolidated net loss of ~~$16,515,000~~$12,692,000 (-$~~11.96~~9.19 per share) after tax benefits for the ~~six~~nine months ended ~~March 31,~~June 30, 2019, as compared with net income of ~~$14,507,000~~$13,535,000 ($~~10.51~~9.80 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 ~~March 31,~~June 30, 2019, the aggregate fair market value of the Company’s marketable securities was ~~$192,153,000.~~$195,367,000. These securities had approximately ~~$138,264,000~~$141,478,000 of net unrealized gains before taxes of ~~$36,606,000,~~$37,566,000, and generated approximately ~~$2,671,000~~$4,039,000 in dividends income during the ~~six~~nine months ended ~~March 31,~~June 30, 2019, 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)	Overall Financial Results (000)																									Overall Financial Results (000)
For the six months ended March 31
For the nine months ended June 30																										For the nine months ended June 30

		Reportable Segments																									Reportable Segments
		Traditional Business						Journal Technologies						Corporate income and expenses						Total							Traditional Business						Journal Technologies						Corporate income and expenses						Total
		2019			2018			2019			2018			2019			2018			2019			2018				2019			2018			2019			2018			2019			2018			2019			2018
Revenues
Advertising		$	4,300		$	4,325		$	---		$	---		$	---		$	---		$	4,300		$	4,325			$	6,753		$	6,700		$	---		$	---		$	---		$	---		$	6,753		$	6,700
Circulation			2,611			2,719			---			---			---			---			2,611			2,719				3,930			4,065			---			---			---			---			3,930			4,065
Advertising service fees and other			1,293			1,261			---			---			---			---			1,293			1,261				2,028			1,985			---			---			---			---			2,028			1,985
Licensing and maintenance fees			---			---			9,430			8,331			---			---			9,430			8,331				---			---			15,244			13,087			---			---			15,244			13,087
Consulting fees			---			---			940			1,207			---			---			940			1,207				---			---			3,567			2,147			---			---			3,567			2,147
Other public service fees			---			---			2,566			1,747			---			---			2,566			1,747				---			---			4,136			2,613			---			---			4,136			2,613
Total revenues			8,204			8,305			12,936			11,285			---			---			21,140			19,590				12,711			12,750			22,947			17,847			---			---			35,658			30,597
Operating expenses
Salaries and employee benefits			5,203			5,188			12,243			11,564			---			---			17,446			16,752				7,833			7,718			18,328			17,509			---			---			26,161			25,227
Amortization of intangible assets			---			---			---			1,810			---			---			---			1,810				---			---			---			2,559			---			---			---			2,559
Others			3,145			3,319			5,741			5,527			---			---			8,886			8,846				4,652			5,003			8,913			8,335			---			---			13,565			13,338
Total operating expenses			8,348			8,507			17,984			18,901			---			---			26,332			27,408				12,485			12,721			27,241			28,403			---			---			39,726			41,124
Loss from operations			(144	)		(202	)		(5,048	)		(7,616	)		---			---			(5,192	)		(7,818	)
Income (loss) from operations																												226			29			(4,294	)		(10,556	)		---			---			(4,068	)		(10,527	)
Dividends and interest income			---			---			---			---			2,671			2,507			2,671			2,507				---			---			---			---			4,039			3,722			4,039			3,722
Other income and capital gains			---			---			---			---			19			3,201			19			3,201				---			---			---			---			29			3,210			29			3,210
Net unrealized losses on investments			---			---			---			---			(20,143	)		---			(20,143	)		---				---			---			---			---			(16,929	)		---			(16,929	)		---
Interest expenses on note payable collateralized by real estate			(45	)		(48	)		---			---			---			---			(45	)		(48	)			(67	)		(72	)		---			---			---			---			(67	)		(72	)
Interest expenses on margin loans			---			---			---			---			(425	)		(285	)		(425	)		(285	)			---			---			---			---			(676	)		(458	)		(676	)		(458	)
Pretax (loss) income		$	(189	)	$	(250	)	$	(5,048	)	$	(7,616	)	$	(17,878	)	$	5,423		$	(23,115	)	$	(2,443	)
Pretax income (loss)																											$	159		$	(43	)	$	(4,294	)	$	(10,556	)	$	(13,537	)	$	6,474		$	(17,672	)	$	(4,125	)

The Traditional Business ~~segment’s~~had pretax income of $159,000, representing a $202,000 increase from a pretax loss ~~decreased by $61,000 (24%) to $189,000 from $250,000.~~of $43,000 in the prior year period.

Advertising revenues ~~decreased~~increased by ~~$25,000~~$53,000 to ~~$4,300,000~~$6,753,000 from ~~$4,325,000,~~$6,700,000, primarily because of increased conference revenues of $172,000, display advertising net revenues of $129,000 and legal notice advertising net revenues of $68,000, partially offset by reduced classified advertising net revenues of $141,000 and trustee sale notice advertising net revenues of ~~$100,000 and classified advertising revenues of $107,000, partially offset by more conference revenues of $117,000 and net display advertising revenues of $22,000.~~$183,000.

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 ~~15%~~16% during the ~~six~~nine months ended ~~March 31,~~June 30, 2019 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 for all of 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.~~2019. 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 ~~six~~nine months ended ~~March 31,~~June 30, 2019. Public notice advertising revenues and related advertising and other service fees constituted about ~~20%~~18% and ~~22%~~21% of the Company’s total revenues for the ~~six~~nine months ended ~~March 31,~~June 30, 2019 and 2018, 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 Los Angeles Daily ~~Journals~~Journal and San Francisco Daily Journal accounted for about ~~90%~~86% of The Traditional Business’ total circulation revenues, which declined by ~~$108,000 (4%~~$135,000 (3%) to ~~$2,611,000~~$3,930,000 from ~~$2,719,000.~~$4,065,000. 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 ~~$159,000~~$236,000 (2%) to ~~$8,348,000~~$12,485,000 from ~~$8,507,000,~~$12,721,000, primarily due to decreased personnel costs and outside contract printing and distributing costs.

Journal Technologies’ business segment pretax loss decreased by ~~$2,568,000 (34%~~$6,262,000 (59%) to ~~$5,048,000~~$4,294,000 from ~~$7,616,000,~~$10,556,000, after including the amortization costs of intangible assets of $0 and ~~$1,810,000~~$2,559,000 for the ~~six~~nine months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Revenues increased by ~~$1,651,000 (15%~~$5,100,000 (29%) to ~~$12,936,000~~$22,947,000 from ~~$11,285,000~~$17,847,000 in the prior year period. Licensing and maintenance fees increased by ~~$1,099,000 (13%~~$2,157,000 (16%) to ~~$9,430,000~~$15,244,000 from ~~$8,331,000.~~$13,087,000. Consulting fees ~~decreased~~increased by ~~$267,000 (22%~~$1,420,000 (66%) to ~~$940,000~~$3,567,000 from ~~$1,207,000~~$2,147,000 due to ~~fewer~~more 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 ~~$819,000 (47%~~$1,523,000 (58%) to ~~$2,566,000~~$4,136,000 from ~~$1,747,000~~$2,613,000 primarily due to additional efiling fee revenues.

Operating expenses decreased by ~~$917,000 (5%~~$1,162,000 (4%) to ~~$17,984,000~~$27,241,000 from ~~$18,901,000,~~$28,403,000, primarily because the amortization costs of intangible assets were fully amortized atby last year-end, partially offset by increased salaries and employee benefit 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 ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2019 and 2018. 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.

Consolidated revenues were ~~$10,712,000~~$14,518,000 and ~~$9,338,000~~$11,007,000 for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively. This increase of ~~$1,374,000 (15%~~$3,511,000 (32%) was primarily from increased Journal Technologies’ license and maintenance fees of ~~$659,000~~$1,058,000, consulting fees of $1,687,000 and public service fees of ~~$747,000.~~$704,000. The Company’s revenues derived from Journal Technologies’ operations constituted about ~~63%~~69% and ~~55%~~60% of the Company’s total revenues for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Consolidated operating expenses decreased by ~~$328,000~~$322,000 (2%) to ~~$13,383,000~~$13,394,000 from ~~$13,711,000,~~$13,716,000, mainly because all intangible assets for Journal Technologies were fully amortized atby last year-end. Total salaries and employee benefits increased by ~~$236,000~~$240,000 (3%) to ~~$8,791,000~~$8,715,000 from ~~$8,555,000~~$8,475,000 primarily resulting from additional personnel costs for Journal Technologies. Depreciation and amortization costs, which included primarily the amortization of Journal Technologies’ intangible assets of $0 and ~~$748,000~~$749,000 for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively, decreased by ~~$749,000 (83%~~$764,000 (84%) to ~~$150,000~~$141,000 from ~~$899,000.~~$905,000. Credit card merchant discount fees, which represent fees paid to credit card service providers to process payments for the public service fee revenues, increased by ~~$114,000 (44%~~$102,000 (38%) to ~~$375,000~~$367,000 from ~~$261,000~~$265,000 mainly resulting from increased efilings. ~~Accounting and legal fees increased by $209,000 (112%) to $396,000 from $187,000 primarily because of additional legal fees to review and negotiate Journal Technologies’ contracts with customers.~~ Other general and administrative expenses ~~decreased~~increased by ~~$144,000 (10%~~$241,000 (12%) to ~~$1,369,000~~$2,228,000 from ~~$1,513,000~~$1,987,000 mainly resulting from ~~reduced~~increased miscellaneous office equipment purchases.

The Company’s non-operating income, net of expenses, increased by ~~$5,365,000~~$3,292,000 to ~~$9,406,000~~$4,319,000 from ~~$4,041,000~~$1,027,000 primarily because of the recording of the net unrealized gains on investments of ~~$8,497,000, as compared with a capital gain of $3,180,000 from the sale of bonds during the prior year period.~~$3,214,000.

During the three months ended ~~March 31,~~June 30, 2019, consolidated pretax income was ~~$6,735,000,~~$5,443,000, as compared with a pretax loss of ~~$332,000~~$1,682,000 in the prior year period. There was consolidated net income of ~~$5,018,000~~$3,823,000 ($~~3.63~~2.77 per share) after tax benefits for the three months ended ~~March 31,~~June 30, 2019, as compared with net loss of ~~$232,000~~$972,000 (-$~~0.17~~0.70 per share) in the prior year period.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2019, the Company’s cash and cash equivalents and marketable security positions decreased by ~~$23,662,000,~~$17,722,000, including unrealized losses on investments of ~~$20,143,000.~~$16,929,000. Cash and cash equivalents were used for the purchase of capital assets of ~~$84,000~~$97,000 and operating activities of ~~$3,375,000~~$606,000 which included net ~~decreases~~increases of ~~$102,000~~$1,022,000 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 ~~$192,153,000~~$195,367,000 at ~~March 31,~~June 30, 2019, generated approximately ~~$2,671,000~~$4,039,000 in dividends income. These securities had approximately $141,478,000 of net unrealized gains before estimated taxes of $37,566,000 which will become due only when we sell securities in which there is unrealized appreciation. 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 increased by ~~$778,000~~$5,644,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2019 as compared to the prior year period, primarily due to ~~increased net~~(i) increases in accounts payable and accrued liabilities of ~~$2,018,000~~$1,174,000 because of additional efiling fees to be remitted to the courts, ~~and increased deferred income tax liabilities of $10,526,000, of which $5,545,000 related to the net unrealized losses on investments. This was partially offset by (i) decreases~~(ii) increases in net ~~income~~deferred subscriptions, deferred maintenance agreements and others and deferred installation contracts of $7,699,000 to $3,628,000 from $11,327,000, excluding the non-cash unrealized losses on investments of $20,143,000, which was recorded in year-to-date earnings versus in accumulated other comprehensive income in the prior year,$1,163,000, and ~~the prior year period’s gain on sale of bonds of $3,180,000 which relates to in the investment activities, and (ii) increases~~(iii) decreases in accounts receivable of ~~$3,658,000~~$787,000 resulting from more ~~billings for~~collections from the efilings.

As of ~~March 31,~~June 30, 2019, the Company had working capital of ~~$177,009,000,~~$182,415,000, including the liabilities for deferred subscriptions, deferred installation and maintenance agreements and others of ~~$19,941,000.~~$20,976,000.

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 ~~March 31,~~June 30, 2019, 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.

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.

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 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.

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.

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 ~~March 31,~~June 30, 2019. 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 ~~March 31,~~June 30, 2019.

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.

	Beginning Balance		Addition		Recognized			Ending Balance		Beginning Balance Oct. 1, 2018		Addition		Recognized			Ending Balance June 30, 2019

Deferred subscriptions	$	3,174,000	$	2,415,000	$	(2,611,000	)	$	2,978,000	$	3,174,000	$	4,011,000	$	(3,930,000	)	$	3,255,000
Deferred installation contracts		2,554,000		1,343,000		(1,469,000	)		2,428,000		2,554,000		3,731,000		(4,475,000	)		1,810,000
Deferred maintenance agreements and others		14,362,000		9,121,000		(8,901,000	)		14,582,000		14,362,000		16,021,000		(14,336,000	)		16,047,000

	March 31, 2019						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	$	192,153,000	$	53,889,000	$	138,264,000	$	212,296,000	$	53,889,000	$	158,407,000