form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

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

For the quarterly period ended June 30, 2008

or

o
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  incorporation or organization)
(I.R.S. Employer 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: o

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

 
Large Accelerated Filer: o
Accelerated Filer: o
 
Non-accelerated Filer: o
Smaller Reporting Company: x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes: o     No: x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Class
  
Outstanding at July 31, 2008
Common Stock, par value $ .01 per share
  
1,500,299 shares
 
 
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DAILY JOURNAL CORPORATION

INDEX

   
Page Nos.
     
PART I  Financial Information
  
     
 
Item 1.  Financial Statements
  
     
 
3
 
 
 
 
4
     
 
5
     
 
6
 
 
 
 
7
     
 
11
     
 
13
     
Part II  Other Information
  
     
 
14
     
 
15

 
2 of 15

PART I
Item 1. FINANCIAL STATEMENTS
DAILY JOURNAL CORPORATION
CONSOLIDATED BALANCE SHEETS
 
   
June 30
2008
    
September 30
2007
  
   
(Unaudited)
        
ASSETS
            
Current assets
            
Cash and cash equivalents
   $ 2,484,000     $ 1,069,000  
U.S. Treasury Notes and Bills
     16,931,000       15,396,000  
Accounts receivable, less allowance for doubtful accounts of $300,000 and $200,000 at June 30, 2008 and September 30, 2007, respectively
     8,435,000       5,537,000  
Inventories
     39,000       23,000  
Prepaid expenses and other assets
     210,000       187,000  
Deferred income taxes
      614,000        582,000  
Total current assets
      28,713,000       22,794,000  
                 
Property, plant and equipment, at cost
                
Land, buildings and improvements
     12,961,000       12,953,000  
Furniture, office equipment and computer software
     3,843,000       3,637,000  
Machinery and equipment
      2,044,000       1,942,000  
      18,848,000       18,532,000  
Less accumulated depreciation
      (7,878,000 )      (7,211,000 )
      10,970,000       11,321,000  
U.S. Treasury Notes
     1,658,000       4,596,000  
Deferred income taxes
      1,450,000        1,211,000  
    $ 42,791,000     $ 39,922,000  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                
Current liabilities
                
Accounts payable
   $ 2,819,000     $ 1,625,000  
Accrued liabilities
     3,269,000       3,120,000  
Income taxes
     1,044,000       662,000  
Notes payable – current portion
     ---       209,000  
Deferred subscription and other revenues
     5,395,000       6,218,000  
Total current liabilities
     12,527,000       11,834,000  
                 
Long term liabilities
                
Accrued liabilities
     2,750,000       2,000,000  
Notes payable
  
---
        3,803,000  
Total long term liabilities
      2,750,000        5,803,000  
Commitments and contingencies (Notes 8 and 9)
     ---       ---  
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; 1,500,299 shares, at June 30, 2008 and September 30, 2007, outstanding
     15,000       15,000  
Additional paid-in capital
     1,907,000       1,907,000  
Retained earnings
     26,418,000       21,269,000  
Accumulated other comprehensive income
     80,000       ---  
Less 47,445 treasury shares, at June 30, 2008 and September 30, 2007, at cost
     (906,000 )      (906,000 )
Total shareholders' equity
      27,514,000       22,285,000  
    $ 42,791,000     $ 39,922,000  


See accompanying Notes to Consolidated Financial Statements.

 
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
Three months
ended June 30
  
   
2008
    
2007
  
Revenues
            
Advertising
   $ 6,608,000     $ 5,162,000  
Circulation
     2,133,000       2,245,000  
Information systems and services
     1,283,000       904,000  
Advertising service fees and other
      1,130,000        844,000  
       11,154,000        9,155,000  
                 
Costs and expenses
                
Salaries and employee benefits
     4,611,000       4,368,000  
Newsprint and printing expenses
     619,000       560,000  
Other outside services
     912,000       843,000  
Postage and delivery expenses
     458,000       424,000  
Depreciation and amortization
     234,000       268,000  
Other general and administrative expenses
      993,000        861,000  
       7,827,000        7,324,000  
Income from operations
     3,327,000       1,831,000  
Other income and (expense)
                
Interest income
     184,000       223,000  
Interest expense
      (10,000 )      (90,000 )
Income before taxes
     3,501,000       1,964,000  
Provision for income taxes
      1,280,000        790,000  
Net income
   $ 2,221,000     $ 1,174,000  
                 
Weighted average number of common shares outstanding - basic and diluted
       1,452,854         1,452,862  
Basic and diluted net income per share
   $ 1.53     $ .81  


See accompanying Notes to Consolidated Financial Statements.

 
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
Nine months
ended June 30
  
   
2008
    
2007
  
Revenues
            
Advertising
   $ 17,339,000     $ 14,024,000  
Circulation
     6,499,000       6,752,000  
Information systems and services
     3,478,000       2,777,000  
Advertising service fees and other
      2,762,000        2,505,000  
       30,078,000       26,058,000  
                 
Costs and expenses
                
Salaries and employee benefits
     13,385,000       13,077,000  
Newsprint and printing expenses
     1,621,000       1,602,000  
Other outside services
     2,595,000       2,503,000  
Postage and delivery expenses
     1,309,000       1,200,000  
Depreciation and amortization
     692,000       741,000  
Other general and administrative expenses
      2,745,000        2,544,000  
       22,347,000       21,667,000  
Income from operations
     7,731,000       4,391,000  
Other income and (expense)
                
Interest income
     687,000       623,000  
Interest expense
      (119,000 )      (334,000 )
Income before taxes
     8,299,000       4,680,000  
Provision for income taxes
     3,150,000        2,470,000  
Net income
   $ 5,149,000     $ 2,210,000  
                 
Weighted average number of common shares outstanding - basic and diluted
       1,452,854         1,452,934  
Basic and diluted net income per share
   $ 3.54     $ 1.52  
 
See accompanying Notes to Consolidated Financial Statements.

 
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Nine months
ended June 30
  
   
2008
    
2007
  
Cash flows from operating activities
            
Net income
   $ 5,149,000     $ 2,210,000  
Adjustments to reconcile net income to net cash provided by operations
                
Depreciation and amortization
     692,000       741,000  
Deferred income taxes
     (321,000 )     (177,000 )
Discount earned on U.S. Treasury Bills
     (28,000 )     (80,000 )
Changes in assets and liabilities
                
(Increase) decrease in current assets
                
Accounts receivable, net
     (2,898,000 )     (598,000 )
Inventories
     (16,000 )     15,000  
Prepaid expenses and other assets
     (23,000 )     (84,000 )
Increase (decrease) in current liabilities
                
Accounts payable
     1,194,000       177,000  
Accrued liabilities
     899,000       954,000  
Income taxes
     382,000       795,000  
Deferred subscription and other revenues
     (823,000 )     (66,000 )
Cash provided by operating activities
      4,207,000        3,887,000  
                 
Cash flows from investing activities
                
Maturities and sales of U.S. Treasury Notes and Bills
     11,119,000       6,493,000  
Purchases of U.S. Treasury Notes and Bills
     (9,558,000 )     (9,851,000 )
Purchases of property, plant and equipment, net
     (341,000 )     (232,000 )
Net cash received (used) for investing activities
      1,220,000       (3,590,000 )
Cash flows from financing activities
                
Payment of loan principals
     (4,012,000 )     (146,000 )
Purchase of common stock
  
-
       (7,000 )
Cash used for financing activities
     (4,012,000 )     (153,000 )
Increase in cash and cash equivalents
      1,415,000        144,000  
                 
Cash and cash equivalents
                
Beginning of period
      1,069,000        617,000  
End of period
   $ 2,484,000     $ 761,000  
Interest paid during period
   $ 77,000     $ 215,000  

Supplemental non-cash investment activities:
U.S. Treasury Notes and Bills are categorized as "available-for-sale" with the unrealized gains and losses, net of taxes, reported in accumulated other comprehensive income.  This non-cash activity for the nine months ended June 30, 2008 included an increase in U.S. Treasury Notes and Bills of $130,000 and a decrease in Deferred income taxes of $50,000.  There was no such non-cash activity for the nine months ended June 30, 2007 because the above-mentioned investments were categorized as "held-to-maturity".

See accompanying Notes to Consolidated Financial Statements.

 
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DAILY JOURNAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - The Corporation and Operations

The Daily Journal Corporation (the “Company”) publishes newspapers and web sites covering California, Arizona and Nevada, as well as the California Lawyer and 8-K magazines, and produces several specialized information services. Sustain Technologies, Inc. (“Sustain”), a wholly owned subsidiary, has been consolidated since January 1999.  Sustain supplies case management software systems and related products to courts and other justice agencies, including district attorney offices and administrative law organizations.  These courts and agencies use the Sustain family of products to help manage cases and information electronically and to interface with other critical justice partners.  Sustain’s products are designed to help users manage electronic case files from inception to disposition, including all aspects of calendaring and accounting, report and notice generation, the implementation of standards and business rules and other corollary functions. Essentially all of the Company’s operations are based in California, Arizona, Colorado and Nevada.

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 statement of its financial position as of June 30, 2008, the results of operations for the three- and nine-month periods ended June 30, 2008 and 2007 and its cash flows for the nine months ended June 30, 2008 and 2007.  The results of operations for the nine months ended June 30, 2008 and 2007 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, 2007.

Note 3 - Basic and Diluted Income Per Share

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

Note 4 - Revenue Recognition

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 commissions.

The Company recognizes revenues from both the lease and sale of software products.  Revenues from leases of software products are recognized over the life of the lease while revenues from software product sales are recognized normally upon delivery, installation or acceptance pursuant to a signed agreement.  Revenues from annual maintenance contracts generally call for the Company to provide software updates and upgrades to customers and are recognized ratably over the maintenance period.  Consulting and other services are recognized as performed or upon acceptance by the customers.

 
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Note 5 - Income Taxes

On a pretax profit of $8,299,000 for the nine months ended June 30, 2008, the Company recorded a tax provision of $3,150,000 using approximately the statutory rate.  On a pretax profit of $4,680,000 for the nine months ended June 30, 2007, the Company recorded a tax provision of $2,470,000 which included a reserve for research and development tax credits claimed by the Company in prior years.  The Internal Revenue Service has been examining the tax returns for years 2002 to 2006 and has proposed an assessment that, if upheld, would result in disallowance of about $700,000 of previously claimed credits.  The Company is continuing to contest the issue, and the ultimate resolution of this dispute cannot be ascertained at this time.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109), which was effective for fiscal years beginning after December 15, 2006 with earlier adoption encouraged. This Interpretation was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return.  The Company adopted this Interpretation on October 1, 2007 and recognized no material adjustment to the liability for unrecognized tax benefits.  At October 1, 2007 and at the quarter ended June 30, 2008, the Company had approximately $700,000 of unrecognized tax benefits, all of which would have an effective rate impact if recognized.

Interest accrued related to unrecognized tax benefits is recorded as interest expense, and as of June 30, 2008, the Company has accrued $170,000, including an additional $41,000 during this nine-month period. The Company has not accrued the penalties related to any potential assessment.  The Company files federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for years before 2002.

Note 6 - Investment of U.S. Treasury Notes and Bills

Investments in U.S. Treasury Notes and Bills for the nine-month period are categorized as “available-for-sale” in lieu of “held-to-maturity” and stated at fair value, with the unrealized gains and losses, net of taxes, reported in accumulated other comprehensive income.  Consequently, as of June 30, 2008, an unrealized gain of $80,000, net of taxes, has been recorded in accumulated other comprehensive income in the accompanying Consolidated Balance Sheet.

Note 7 - Comprehensive Income

Comprehensive income, which includes net income plus net unrealized gains (losses) on U.S. Treasury Notes and Bills classified as “available-for-sale” securities, was $5,229,000 for the nine-month period ended June 30, 2008.  Comprehensive income for the nine-month period ended June 30, 2007 was $2,210,000 and was equal to net income because there were no unrealized gains (losses) on such investments.

Note 8 - Commitments

The Company owns its facilities in Los Angeles and leases space for its other offices under operating leases, which expire at various dates through 2012.  The Company is responsible for a portion of maintenance, insurance and property tax expenses relating to certain leased property.  Rental expenses for comparable nine-month periods ended June 30, 2008 and 2007 were $443,000 and $460,000, respectively. In January 2008, the Company paid off the balance of two real estate loans aggregating $3,961,000 that were secured by the facilities in Los Angeles.

 
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Note 9 - Contingencies

Sustain received a letter in April 2003 from counsel to the Ontario, Canada Ministry of the Solicitor General, Ministry of Public Safety and Security and Ministry of the Attorney General (collectively, the “Ministries”).  The Ministries had entered into a contract with Sustain, dated as of April 22, 1999 (the “Contract”), pursuant to which the Ministries sought to license a software product that was to be developed by an outside service provider engaged by Sustain.  The Contract was formally terminated in June 2002.  The letter from counsel purported to invoke the dispute resolution process set forth in the Contract and claimed damages in the amount of $20 million.  Counsel for Sustain and counsel for the Ministries engaged in preliminary discussions with respect to this matter, and the dispute resolution process set forth in the Contract was not utilized.  Counsel for Sustain last communicated with counsel for the Ministries by a letter sent in April 2003.  Management is unable to determine whether this matter will have a material adverse effect on Sustain and the Company.

From time to time, the Company is involved in other litigation incidental to its business.  The Company believes that any provisions or reserves made for potential losses arising out of currently pending litigation are adequate, and that any such losses should not have a materially adverse effect on the Company's financial position or results of operations.

 
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Note 10 - Operating Segments

Summarized financial information for the Company’s reportable segments is shown in the following table:


   
Reportable Segments
     Total Results for both Segments  
   
Traditional Business
    
Sustain
      
                   
Nine months ended June 30, 2008
                  
Revenues
   $ 26,600,000     $ 3,478,000     $ 30,078,000  
Income (loss) before taxes
     8,324,000       (25,000 )     8,299,000  
Total assets
     41,401,000       1,390,000       42,791,000  
Capital expenditures
     330,000       11,000       341,000  
Depreciation and amortization
     650,000       42,000       692,000  
Income tax benefit (provision)
     (3,160,000 )     10,000       (3,150,000 )
Net income (loss)
     5,164,000       (15,000 )     5,149,000  
                         
Nine months ended June 30, 2007
                        
Revenues
   $ 23,281,000     $ 2,777,000     $ 26,058,000  
Income (loss) before taxes
     5,168,000       (488,000 )     4,680,000  
Total assets
     36,918,000       2,702,000       39,620,000  
Capital expenditures
     211,000       21,000       232,000  
Depreciation and amortization
     715,000       26,000       741,000  
Income tax benefit (provision)
     (2,665,000 )     195,000       (2,470,000 )
Net income (loss)
     2,503,000       (293,000 )     2,210,000  
                         
Three months ended June 30, 2008
                        
Revenues
   $ 9,871,000     $ 1,283,000     $ 11,154,000  
Income before taxes
     3,434,000       67,000       3,501,000  
Total assets
     41,401,000       1,390,000       42,791,000  
Capital expenditures
     90,000       ---       90,000  
Depreciation and amortization
     221,000       13,000       234,000  
Income tax provision
     (1,255,000 )     (25,000 )     (1,280,000 )
Net income
     2,179,000       42,000       2,221,000  
                         
Three months ended June 30, 2007
                        
Revenues
   $ 8,251,000     $ 904,000     $ 9,155,000  
Income (loss) before taxes
     2,173,000       (209,000 )     1,964,000  
Total assets
     36,918,000       2,702,000       39,620,000  
Capital expenditures
     -       12,000       12,000  
Depreciation and amortization
     258,000       10,000       268,000  
Income tax benefit (provision)
     (875,000 )     85,000       (790,000 )
Net income (loss)
     1,298,000       (124,000 )     1,174,000  

 
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 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenues were $30,078,000 and $26,058,000 for the nine months ended June 30, 2008 and 2007, respectively.  This increase of $4,020,000 (15%) was primarily the result of an increase in public notice advertising revenues.  (Revenues were $11,154,000 and $9,155,000 for the three months ended June 30, 2008 and 2007, respectively.)

During the nine months ended June 30, 2008, the Company continued to benefit from the large number of foreclosure sales in California and Arizona, for which public notice advertising is required by law.  Public notice advertising revenues increased by $4,527,000 over the same period last year.  The Company's smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals ("The Daily Journals"), accounted for about 95% of the total public notice advertising revenues.  Public notice advertising revenues and related advertising and other service fees constituted about 45% of the Company's total revenues.  Display advertising revenues decreased by $114,000 (3%).   Classified advertising revenues decreased by $1,098,000 (27%) primarily due to a downturn in the employment advertising marketplace.

Total circulation revenues decreased by $253,000 (4%).  The Daily Journals accounted for about 77% of the Company's total circulation revenues.  The court rule and judicial profile services generated about 14% of the total circulation revenues, with the other newspapers and services accounting for the balance.  Information system and service revenues increased by $701,000 (25%) primarily because of increases in Sustain’s consulting revenues. The Company’s revenues derived from Sustain’s operations constituted about 12% and 11% of the Company’s total revenues for the nine months ended June 30, 2008 and 2007, respectively.

Costs and expenses increased by $680,000 (3%) to $22,347,000 from $21,667,000.  Total personnel costs increased by $308,000 (2%) to $13,385,000.  Postage and delivery expenses increased by $109,000 (9%) mainly because of postal rate increases and pallet/sack/tray fees recently imposed by the Post Office. Other general and administrative expenses increased by $201,000 (8%) primarily due to increased bad debt exposure in the trustee sale marketplace.  (Costs and expenses were $7,827,000 and $7,324,000 for the three months ended June 30, 2008 and 2007, respectively.)

The Company’s expenditures for the development of new Sustain software products are highly significant and will materially impact overall results at least through fiscal 2009.  These costs are expensed as incurred until technological feasibility of the product has been established, at which time such costs are capitalized, subject to expected recovery.  Sustain’s internal development costs, which are primarily incremental costs for both employees and outside contractors, aggregated $1,332,000 and $991,000 for the nine months ended June 30, 2008 and 2007, respectively.  If Sustain’s internal development programs are not successful, they will significantly and adversely impact the Company’s ability to maximize its existing investment in the Sustain software, to service its existing customers and to compete for new opportunities in the case management software business.

The Company’s traditional business segment pretax profit increased by $3,156,000 (61%) from $5,168,000 to $8,324,000 primarily because of the increase in trustee foreclosure sale notices, partially offset by the decrease in commercial advertising revenues.  Sustain’s business segment pretax loss decreased $463,000 (95%) from $488,000 to $25,000, primarily because of the increased consulting revenues.  Future consulting revenues are subject to uncertainty because they depend on (i) the timing of the acceptance of the completed consulting tasks, (ii) the unpredictable needs of Sustain’s existing customers, and (iii) Sustain’s ability to secure new customers.

 
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Consolidated net income was $5,149,000 and $2,210,000 for the nine months ended June 30, 2008 and 2007, respectively.  On a pretax profit of $8,299,000 for the nine months ended June 30, 2008, the Company recorded a tax provision of $3,150,000 using approximately the statutory rate.  On a pretax profit of $4,680,000 for the nine months ended June 30, 2007, the Company recorded a tax provision of $2,470,000 which included a reserve for research and development tax credits claimed by the Company in prior years. The Internal Revenue Service has been examining the tax returns for years 2002 to 2006 and has proposed an assessment that, if upheld, would result in disallowance of about $700,000 of previously claimed credits.  The Company is continuing to contest the issue, and the ultimate resolution of this dispute cannot be ascertained at this time.    Net income per share increased to $3.54 from $1.52.

Liquidity and Capital Resources

During the nine months ended June 30, 2008, the Company's cash and cash equivalents and U.S. Treasury Note and Bill positions increased by $12,000.  Cash and cash equivalents were used primarily for paying off two real estate loans of $4,012,000, including $3,961,000 in January 2008, and for the purchase of capital assets of $341,000, primarily for computer software and office equipment.  The cash provided by operating activities of $4,207,000 included a net decrease in deferred subscription and other revenues of $823,000.  Proceeds from the sale of subscriptions from newspapers, court rule books and other publications and for software licenses and maintenance and other services are recorded as deferred revenue and are included in earned revenue only when the services are rendered.  Cash flows from operating activities increased by $320,000 for the nine months ended June 30, 2008 as compared to the prior comparable period primarily due to the increases in net income of $2,939,000 and accounts payable of $1,017,000, partially offset by increases in accounts receivable of $2,300,000 and decreases in deferred subscription and other revenues of $757,000.  As of June 30, 2008, the Company had working capital of $21,581,000 before deducting the liability for deferred subscription and other revenues of $5,395,000, which are scheduled to be earned within one year.  In addition, the Company had long-term U.S. Treasury Notes of about $1,658,000 at June 30, 2008.

Critical Accounting Policies
 
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 capitalized software costs and income taxes are critical accounting policies.

The Company’s critical accounting policies are detailed in its Annual Report on Form 10-K for the year ended September 30, 2007.  As of June 30, 2008, there were no material changes to these disclosures, except for the accounting pronouncement related to Accounting for Uncertainty in Income Taxes that was adopted by the Company on October 1, 2007.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109), which was effective for fiscal years beginning after December 15, 2006 with earlier adoption encouraged.  This Interpretation was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return.   The Company recognized no material adjustment to the liability for unrecognized tax benefits upon adoption of this interpretation.  At October 1, 2007 and at the quarter ended June 30, 2008, the Company had approximately $700,000 of unrecognized tax benefits, all of which would have an effective rate impact if recognized.

 
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The above discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in this report.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain statements contained in this document, including but not limited to those in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, are “forward-looking” statements that involve risks and uncertainties that may cause actual future events or results to differ materially from those described in the forward-looking statements.  Words such as “expects,” “intends,” “anticipates,” “should,” “believes,” “will,” “plans,” “estimates,” “may,” variations of such words and similar expressions are intended to identify such forward-looking statements.  We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new information, future developments, or otherwise.  There are many factors that could cause actual results to differ materially from those contained in the forward-looking statements.  These factors include, among others: risks associated with Sustain’s internal software development efforts; Sustain’s reliance on the time and materials professional services engagement with the California Administrative Office of the Courts for a substantial portion of its consulting revenues; the ultimate resolution, if any, of the dispute with the Ontario, Canada Ministries; an adverse outcome of the Internal Revenue Service’s audit of our past research and development tax credits; material changes in the costs of postage and paper; a further decline in subscriber and commercial advertising revenues; collectibility of accounts receivable; the Company’s reliance on its president and chief executive officer; and changes in accounting guidance.  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 disclosed 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 Item 1A – “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

Item 4T.  CONTROLS AND PROCEDURES
 
An evaluation was performed under the supervision and with the participation of the Company’s management, including Gerald L. Salzman, its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2008.  Based on that evaluation, Mr. Salzman concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934, as amended, is (1) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and (2) accumulated and communicated to the Company’s management, including Mr. Salzman, in such a way as to allow timely decisions regarding required disclosure.  There have been 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 June 30, 2008.

 
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PART II


Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES
 
 
 
Period
 
Total Number
of Shares
Purchased
 
 
Average Price Paid
 per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or Programs
Maximum Number
of Shares that May
 Yet Be Purchased
Under the Plans
or Programs
4/1/08-4/30/08
-
-
 (a)
Not applicable
5/1/08-5/31/08
-
-
 (a)
Not applicable
6/1/08-6/30/08
-
-
 (a)
Not applicable
Total
-
-
 (a)
Not applicable

(a) The Company’s common stock repurchase program was implemented in 1987 in combination with the Company’s Deferred Management Incentive Plan, and therefore the Company’s per share earnings have not been diluted by grants of “units” under the Deferred Management Incentive Plan.  Each unit entitles the recipient to a designated share of the pre-tax earnings of the Company on a consolidated basis, or a designated share of the pre-tax earnings attributable to only Sustain or the Company's traditional business, depending on the recipient’s responsibilities.  There were no shares purchased during the third quarter of fiscal 2008. The Company’s stock repurchase program remains in effect, and the Company plans to repurchase shares from time to time as it deems appropriate (including, if necessary, to prevent any additional dilution that may be caused by the Deferred Management Incentive Plan).

 
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Item 6.  EXHIBITS


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

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


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
DAILY JOURNAL CORPORATION
 
(Registrant)
   
 
/s/ Gerald L. Salzman
   
 
Gerald L. Salzman
 
Chief Executive Officer
 
President
 
Chief Financial Officer
 
Treasurer

DATE:  August 12, 2008
 

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