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
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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)
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
DJCO
The Nasdaq Stock Market
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: ☒ 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).
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:
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: ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 1,377,426 shares outstanding at July 31, 2025
INDEX
Page Nos.
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2025 and September 30, 2024
3
Consolidated Statements of Income and Comprehensive Income - Three months ended June 30, 2025 and 2024
4
Consolidated Statements of Income and Comprehensive Income - Nine months ended June 30, 2025 and 2024
5
Consolidated Statements of Shareholders’ Equity - Nine months ended June 30, 2025 and 2024
6
Consolidated Statements of Cash Flows - Nine months ended June 30, 2025 and 2024
7
Notes to Consolidated Financial Statements
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
18
Item 4. Controls and Procedures
26
Part II Other Information
Item 6. Exhibits
27
PART I
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited) (000)
June 30
September 30
2025
2024
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Non-qualified deferred compensation plan – trust account asset value
Marketable securities at fair value
Accounts receivable, less allowance for credit losses
Inventories
Prepaid expenses and other current assets
Derivative asset
Income tax receivable
Total current assets
Property, plant and equipment, at cost
Land, buildings and improvements
Furniture, office equipment and computer software
Machinery and equipment
Less accumulated depreciation
Total property, plant and equipment, net
Operating lease right-of-use assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued liabilities
Note payable collateralized by real estate
Income taxes
Deferred subscriptions
Deferred consulting fees
Deferred maintenance agreements and others
Total current liabilities
Long-term liabilities
Investment margin account borrowings
Deferred maintenance agreements
Accrued non-qualified deferred compensation
Deferred income taxes
Total long-term liabilities
Commitments and contingencies (Notes 10 and 11)
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 427,627 treasury shares At June 30, 2025 and September 30, 2024
Additional paid-in capital
Retained earnings
Total shareholders' equity
Total liabilities and shareholders’ equity
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three months
ended June 30
Revenues
Advertising
Circulation
Advertising service fees and other
Licensing and maintenance fees
Consulting fees
Other public service fees
Total revenues
Costs and expenses
Salaries and employee benefits
Stock-based compensation
Increase (decrease) to the long-term supplemental compensation accrual
Agency commissions
Outside services
Postage and delivery expenses
Newsprint and printing expenses
Depreciation and amortization
Equipment maintenance and software
Credit card merchant discount fees
Rent expenses
Accounting and legal fees
Other general and administrative expenses
Total costs and expenses
Income from operations
Other income (expense)
Dividends and interest income
Rental income
Decrease in fair value of derivative asset
Net unrealized gains on non-qualified compensation plan
Net realized and unrealized gains on marketable securities
Interest expense on margin loans and others
Interest expense on note payable collateralized by real estate
Income before income taxes
Income tax provision
Net income
Weighted average number of common shares outstanding - basic and diluted
Basic and diluted net income per share
Comprehensive income
Nine months
Decrease to the long-term supplemental compensation accrual
Increase in fair value of derivative asset
Net unrealized (losses) gains on non-qualified compensation plan
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Additional
Total
Treasury Stock
Paid-in
Retained
Shareholders'
Share
Amount
Capital
Earnings
Equity
Balance at September 30, 2023
Balance at December 31, 2023
Balance at March 31, 2024
Balance at June 30, 2024
Balance at September 30, 2024
Restricted stock unit cost amortization
Balance at December 31, 2024
Balance at March 31, 2025
Balance at June 30, 2025
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided from (used in) operations
Changes in operating assets and liabilities
(Increase) decrease in current assets
Accounts receivable, net
Prepaid expenses and other assets
Increase (decrease) in liabilities
Accrued liabilities, including non-qualified deferred compensation
Income tax payable
Net cash provided from (used in) operating activities
Cash flows from investing activities
Proceeds from sales of marketable securities
Purchases of property, plant and equipment
Net cash provided from investing activities
Cash flows from financing activities
Payment to margin loan borrowing
Payment of real estate loan principal
Net cash used in financing activities
Increase (decrease) in cash and restricted cash and cash equivalents
Cash and cash equivalents and restricted cash
Beginning of year
End of period
Interest paid during year
Income taxes (refund) paid during year
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - The Corporation and Operations
Daily Journal Corporation (“Daily Journal” or “the Company”) publishes newspapers and websites 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 of Daily Journal, 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 e-filing and a website to pay traffic citations and fees online. These products are licensed or subscribed to in approximately 32 states and internationally.
Essentially all of the Company’s U.S. operations are based in California, Arizona and Utah. The Company also has a presence in Australia and in British Columbia, Canada, where the Company has a wholly-owned subsidiary, Journal Technologies (Canada) Inc.
Note 2 – Summary of Significant Accounting Policies
In the opinion of the Company, the accompanying interim unaudited consolidated financial statements present fairly the financial position of the Company as of June 30, 2025 and September 30, 2024, its results of operations and consolidated statements of shareholders’ equity for the three and nine months ended June 30, 2025 and 2024, and cash flows for the nine months ended June 30, 2025 and 2024. The results of operations for the nine months ended June 30, 2025 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 and in accordance with the generally accepted accounting principles in the United States. 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, 2024.
Certain reclassifications of previously reported amounts have been made to conform to the current year’s presentation. Financial monetary figures presented in the tables are reported in thousands except for the number of shares and the per share price.
The change in allowance for credit losses is as follows:
Allowance for Credit Losses (000)
Description
Balance at
Beginning
of Year
Additions
charged to
Costs and
Expenses
Accounts
charged
off less
Recoveries
Balance
at End
Allowance for doubtful accounts
Advertising: The Company’s policy is to expense advertising expenses as incurred, if any. There were no advertising expenses during both the nine months ended June 30, 2025 and 2024 as the Company advertises itself via its own newspapers and websites.
Stock-based Compensation: The Company has implemented two equity incentive plans, one for key employees and one for non-employee directors, each providing for the grant of incentive stock options, non-qualified stock options, restricted stock units, and other equity-based awards. As of June 30, 2025, there were 4,725 shares available for future grants from the 5,720 shares authorized for grant under the equity incentive plans. Restricted stock unit grants generally vest ratably over two years of continuous service from the date of grant. We account for share-based compensation using the fair market value on the grant day pursuant to ASC 718.
For restricted stock units, we use the closing market price on the date of grant as their fair market value. We have not historically paid any cash dividends on our common stock and as a result do not reduce the grant-date fair value per share by the present value of dividends expected to be paid during the requisite service period for restricted stock units. We amortize the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.
We will recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited. That is, we recognize the effect of forfeitures in compensation cost when they occur. Previously recognized compensation cost for an award is reversed in the period the award is forfeited.
The following table summarized stock unit activity during the periods presented:
Number of Shares
Weighted Average
Grant Date Fair Value
per Share
Unvested at October 1, 2024
Granted
Vested
Forfeited
Unvested at June 30, 2025
As of June 30, 2025, we had total unrecognized compensation cost of approximately $99,000 related to unvested restricted stock units which is expected to be amortized over a weighted average amortization period of approximately 1.05 years.
The following table summarizes stock-based compensation expense related to share-based awards which is recorded in the consolidated statements of comprehensive income in thousands (000):
Fiscal 2025
as of June 30,
Total stock-based compensation expense
Total tax benefit
Net decrease in net income
Note 3 – New Accounting Pronouncement
During November 2023, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU No. 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis. The amendments are intended to enable investors to develop more decision-useful financial analyses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company believes that the adoption of ASU No. 2023-07 does not have a material effect on its consolidated financial statements.
Note 4 – Right-of-Use (ROU) Asset and Liabilities
ROU: At June 30, 2025, the Company recorded a current ROU asset and current lease liabilities of approximately $59,000 for its operating office and equipment leases. At June 30, 2024, there were ROU asset and lease liabilities of $151,000 with $92,000 beyond one year. Operating office and equipment leases are included in operating lease ROU assets, current accrued liabilities and long-term accrued liabilities in the Company’s accompanying Consolidated Balance Sheets.
Accrued Liabilities: Accrued current liabilities primarily consisted of (i) accrued vacation of $3,425,000 and $3,350,000 at June 30, 2025 and 2024, respectively, (ii) the current portion of the supplemental compensation accrual of $2,910,000 and $2,280,000 at June 30, 2025 and 2024, respectively, and (iii) accrued payroll, including non-qualified compensation and other of $2,535,000 and $2,887,000 at June 30, 2025 and 2024, respectively. Accrued long-term liabilities primarily consist of the long-term portion of the supplemental compensation accruals at June 30, 2025 and 2024, respectively.
Note 5 – Revenue Recognition
The Company recognizes revenues in accordance with the provisions of ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606).
For the Traditional Business, proceeds from the sale of subscriptions for newspapers, court rule books and other publications and other services are recorded as deferred revenue and are included in earned revenue only when the services are provided, generally over the subscription term. Advertising service fees and other revenues, which represent primarily agency commissions received from outside newspapers in which the advertising is placed, are recognized when advertisements are published and are recorded on a net basis.
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 revenue contracts 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. For contracts containing multiple performance obligations, the Company allocates the transaction price on the basis of the relative standalone selling price of each distinct good or service, and utilizes the residual approach to estimate the standalone selling price of implementation consulting fees, whereby the standalone selling price is estimated by reference to the total transaction price less the sum of the observable standalone selling prices of its subscription software licenses, maintenance and support fees, and third-party hosting fees. These contracts include assurance-type warranty provisions for limited periods and do not include financing terms. For most contracts, the Company acts as a principal with respect to certain services, such as data conversion, interfaces. Hosting services are provided with support by third parties, and the company recognizes such revenues and related costs on a gross basis The Company considers several factors to determine if it controls the good or service and therefore is the principal. These factors include (1) if we have primary responsibility for fulfilling the promise; and (2) if we have discretion in establishing price for the specified good or service. 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.
The Traditional Business and Journal Technologies issue invoices that have payment terms which require payment within 30 days. Contracts do not have a significant financing component and do not have variable consideration. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the required performance services have been completed. Proceeds from subscription-type revenues, including circulation revenue, license, maintenance and support services, and hosting services, are deferred at the time of sale and are recognized on a pro-rata basis over the terms of the subscriptions or service period, and unearned proceeds are recognized within deferred subscriptions and deferred maintenance agreements and others in the consolidated balance sheets. Proceeds from consulting fees are recognized at point of delivery upon service completion, and unearned consulting fee proceeds are recorded under deferred consulting fees on the consolidated balance sheets. 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 e-file 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. These unallocated prices primarily relate to the eFile-it™ and ePay-it™ transactions for which service fees are collected and recognized when the Company processes credit card payments on behalf of the courts via its websites through which the public e-file cases or pay traffic citations. Furthermore, there are no fulfillment costs that are capitalized for the software contracts.
Approximately 77% of the Company’s revenues for the nine months ended June 30, 2025 and 75% for the nine months ended in June 30, 2024 were derived from sales of software licenses, annual software licenses, maintenance and support agreements and consulting services that typically include implementation and training.
The changes in total deferred revenues, including the long-term portion, are as follows:
Changes in total deferred revenues (000)
Addition to
the Deferral
Recognition from
Deferral
Total deferred revenues
Note 6 - Treasury Stock and Net Income per Common Share
In June 2022, the Company received from Charles T. Munger 3,720 shares of Daily Journal common stock as his gracious personal gift for the purpose of establishing a new senior management equity incentive plan. These donated shares were considered treasury stock, and the Company accounted for them using the par method which had an immaterial effect on the amount on Treasury Stock and Additional Paid-in Capital. The number of outstanding shares of the Company was reduced by these 3,720 shares to reflect the actual number of outstanding shares of 1,377,026 at September 30, 2022. In July 2024, the Board approved the grant of 400 shares to the Company’s Chief Executive Officer, and these shares were transferred to him in December 2024. The net income per common share is based on the weighted average number of shares outstanding during each period. The shares used in the calculation were 1,377,321 and 1,377,026 for the nine months ended June 30, 2025 and 2024, respectively. For the three months ended June 30, 2025 and 2024, the shares used in the calculation were 1,377,426 and 1,377,026, respectively,
Note 7 - Basic and Diluted Net Income Per Share
The Company did not have any common stock equivalents at June 30, 2024. At June 30, 2025, there were shares of common stock, and restricted stock units which were roughly equivalent to shares of common stocks, and, therefore, basic and diluted net income per share were essentially the same.
Note 8 - Fair value of Financial Instruments
The Company’s financial instruments include marketable securities and cash equivalents that are measured at fair value on a recurring basis.
Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
●
Level 1 — defined as observable inputs based on unadjusted quoted prices for identical instruments in active markets;
Level 2 — defined as inputs other than Level 1 that are either directly or indirectly observable in the marketplace for identical or similar instruments in markets that are not active; and
Level 3 — defined as unobservable inputs in which little or no market data exists where valuations are derived from techniques in which one or more significant inputs are unobservable.
The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The carrying amounts of cash, restricted cash, accounts receivable, accrued liabilities and accounts payable approximate fair value because of the short maturity and high liquidity of these instruments. Marketable securities and cash equivalents, which consist of money market funds, are measured and recorded at fair value on the Company’s consolidated balance sheet using Level 1 inputs. The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments. There were no transfers between Level 1 and Level 2 or transfers in or out of Level 3 during the three or nine months ended June 30, 2025.
The following table summarizes the fair value hierarchy of the Company’s financial assets measured at fair value as of June 30, 2025 (in thousands):
Level 1
Level 2
Level 3
Money market funds (cash equivalent)
Marketable securities
The following table summarizes the fair value hierarchy of financial assets measured at fair value as of September 30, 2024 (in thousands):
As of June 30, 2025 and September 30, 2024, there were net accumulated pretax unrealized gains of marketable securities of $303,917,000 and $219,597,000, respectively, recorded in the accompanying consolidated balance sheets. Most of the accumulated pretax unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.
During the nine months ended June 30, 2025, the Company recorded and included in its net income the net unrealized and realized gains on marketable securities of $84,320,000, as compared with $62,472,000, in the prior fiscal year period. There were no purchases or sales of marketable securities during the nine months ended June 30, 2025. In March 2024, the Company sold part of its marketable securities for approximately $40,579,000, realizing net gains of $14,261,000.
Our long-serving director and former chairman, Charles T. Munger, had managed the Company’s marketable securities portfolio since the original purchases were made with the Company’s excess cash in 2009. Mr. Munger passed away in November 2023, and the Company remains committed to using the portfolio as a source of strength in support of its operating businesses, just as it has for the past 16 years. The Board continues to work to ensure the prudent and effective management of these assets in the context of the current market and the needs of the businesses, including consultation with outside advisors to which the Board has access. The March 2024 sales of a portion of the portfolio (approximately 10%) to reduce the Company’s margin loan are aspects of that work.
Investments in marketable securities as of June 30, 2025 and September 30, 2024 are summarized below.
Investment in Financial Instruments (000)
June 30, 2025
September 30, 2024
Aggregate
fair value
Amortized/
Adjusted
cost basis
Pretax
unrealized
gains
Common stocks
Note 9 - Income Taxes
For the nine months ended June 30, 2025, the Company recorded an income tax provision of $24,410,000 on the pretax income of $94,396,000. The income tax provision consisted of tax provisions of $21,990,000 on the unrealized gains on marketable securities, $70,000 on income from foreign operations, $2,530,000 on income from US operations and dividend income and $170,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability, partially offset by a tax benefit of $350,000 for the dividends received deduction and other permanent book and tax differences. Consequently, the overall effective tax rate for the nine months ended June 30, 2025 was 25.9%, after including the taxes on the unrealized gains on marketable securities.
For the nine months ended June 30, 2024, the Company recorded an income tax provision of $16,810,000 on the pretax income of $68,195,000. The income tax provision consisted of tax provisions of $3,690,000 on the realized gains on marketable securities, $12,480,000 on the unrealized gains on marketable securities, $50,000 on income from foreign operations, and $1,440,000 on income from US operations and dividend income, partially offset by a tax benefit of $330,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $520,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. Consequently, the overall effective tax rate for the nine months ended June 30, 2024 was 24.65%, after including the taxes on the realized and unrealized gains on marketable securities.
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 2021 with regard to federal income taxes and fiscal 2020 for state income taxes.
Note 10 - 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. In addition, there were subsequent borrowings of $45.5 million to purchase additional marketable securities bringing the margin loan balance up to $75 million during fiscal 2023. In March 2024, the Company sold a portion of its marketable securities for approximately $40.6 million and used these proceeds and excess cash from operations to pay down the margin loan balance to $27.5 million at last year-end. During the quarter ended March 31, 2025, the Company was able to use excess cash from operations to pay down an additional $2.5 million of this margin loan. At June 30, 2025, the margin loan balance was $25 million.
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 June 30, 2025 was approximately 5%. These investment margin account borrowings do not mature.
In November 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 for Journal Technologies. The Company paid $1.24 million and financed the balance with a real estate bank loan of $2.26 million which had a fixed interest rate of 4.66%. This loan is secured by the Logan facility and can be paid off at any time without prepayment penalty. In October 2020, the Company executed an amendment to lower the interest rate of this loan to a fixed rate of 3.33% for the remaining 10 years. This real estate loan had a balance of approximately $997,300 as of June 30, 2025. Each monthly installment payment is approximately $16,700.
The Company owns its facilities in Los Angeles, California. The Company also leases space for its other offices under operating leases which expire at various dates through May 2026.
The Company is responsible for a portion of maintenance, insurance and property tax expenses relating to the leased properties. Rental expenses, inclusive of these expenses, for the nine months ended June 30, 2025 and 2024 were $253,000 and $212,000, respectively. For the three months ended June 30, 2025 and 2024, rental expenses were $96,000 and $71,000, respectively.
Effective January 1, 2023, the Company began sponsoring a 401(k) retirement plan and a non-qualified deferred compensation plan for its employees. The 401(k) retirement plan is a defined contribution plan available to employees meeting minimum service requirements. Eligible employees can contribute up to 100% of their current compensation to the plan subject to certain statutory limitations. The Company matches 50% of the 401(k) contribution up to 4% of total compensation. Employer contributions to the retirement plan were $460,000 and $471,000 for the nine months ended June 30, 2025 and 2024, respectively. Employer contributions for the three months ended June 30, 2025 and 2024 were $126,000 and $139,000, respectively. As of June 30, 2025, there were deferred compensation liabilities of approximately $1,398,000 of which $1,158,000 were held under a trust account for the non-qualified deferred compensation plan. There were deferred compensation liabilities of approximately $716,000 which were all held under a trust account for the non-qualified deferred compensation plan in the prior fiscal year period.
Note 11 - Contingencies
From time to time, the Company is subject to contingencies, including litigation, arising in the normal course of its business. While it is not possible to predict the results of such contingencies, management does not believe the ultimate outcome of these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Note 12 - Operating Segments
The Company’s Traditional Business is one reportable segment and the other is Journal Technologies, which includes Journal Technologies, Inc. and Journal Technologies (Canada) Inc. All inter-segment transactions were eliminated. Corporate is presented below as a non-operating segment to reconcile segment results to the Company’s consolidated financial statement line-item totals. Additional detail about each of the reportable segments and its income and expenses is set forth below:
Overall Financial Results (000)
For the nine months ended June 30
Reportable Segments
Traditional
Business
Journal
Technologies
Corporate
Total operating revenues
Operating expenses
(Decrease) increase to the long-term supplemental compensation accrual
Others
Total operating expenses
Pretax income
Income tax expense
Capital expenditures
For the three months ended June 30
Interest expense on margin loans and other
Net unrealized gains on marketable securities
During the nine months ended June 30, 2025, the Traditional Business had total operating revenues of $13,352,000 with $10,156,000 recognized after services were provided and $3,196,000 recognized ratably over the subscription terms, as compared with total operating revenues of $12,426,000 with $9,143,000 recognized after services were provided and $3,283,000 recognized ratably over the subscription terms in the prior fiscal year period. Total operating revenues for the Company’s software business were $45,934,000 with $23,033,000 recognized upon completion of services and $22,901,000 recognized ratably over the subscription periods, as compared with total operating revenues of $37,632,000 with $17,329,000 recognized upon completion of services and $20,303,000 recognized ratably over the subscription periods in the prior fiscal year period.
During the three months ended June 30, 2025, the Traditional Business had total operating revenues of $4,881,000 with $3,812,000 recognized after services were provided and $1,069,000 recognized ratably over the subscription terms, as compared with total operating revenues of $4,427,000 with $3,338,000 recognized after services were provided and $1,089,000 recognized ratably over the subscription terms in the prior fiscal year period. Total operating revenues for the Company’s software business were $18,525,000 with $10,561,000 recognized upon completion of services and $7,964,000 recognized ratably over the subscription periods, as compared with total operating revenues of $13,067,000 with $5,945,000 recognized upon completion of services and $7,122,000 recognized ratably over the subscription periods in the prior fiscal year period.
Approximately 79% of the Company’s revenues were derived from Journal Technologies during the three months ended June 30, 2025 and 75% during the three months ended June 30, 2024. In addition, the Company’s revenues have been primarily from the United States with approximately 9% from foreign countries during the nine months ended June 30, 2024. Journal Technologies’ revenues are primarily from governmental agencies.
Note 13 - Subsequent Events
The Company has completed an evaluation of all subsequent events through the issuance date of these financial statements and concluded that no subsequent events occurred that required recognition in the financial statements or disclosures in the Notes to Consolidated Financial Statements.
* * * * * * * * * * * * * * * * *
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company continues to operate as two different businesses: (1) The Traditional Business, being the business of newspaper publishing and related services that the Company had before 1999 when it purchased a software development company, and (2) Journal Technologies, Inc., 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 e-filing and a website to pay traffic citations and fees online. These products are licensed or subscribed to in approximately 32 states and internationally.
The Company’s Traditional Business is one reportable segment and the other is Journal Technologies which includes Journal Technologies, Inc. and Journal Technologies (Canada) Inc. All inter-segment transactions were eliminated. Additional detail about each reportable segment and its income and expenses is set forth below:
Comparable nine-month periods ended June 30, 2025 and 2024
Consolidated Financial Comparison
Consolidated revenues were $59,286,000 and $50,058,000 for the nine months ended June 30, 2025 and 2024, respectively. This increase of $9,228,000 (18%) was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $2,418,000, consulting fees of $1,853,000, and other public service fees of $4,031,000, and (ii) the Traditional Business’ advertising revenues of $703,000 and advertising service fees and other of $310,000.
Approximately 77% of the Company’s revenues during the nine months ended June 30, 2025 were derived from Journal Technologies. In addition, the Company’s revenues during the nine months ended June 30, 2025 were primarily from the United States, with approximately $5,586,000 (9%) from foreign countries. Almost all of Journal Technologies’ revenues were from governmental agencies.
Consolidated operating expenses increased by $6,645,000 (14%) to $54,357,000 from $47,712,000. Total salaries and employee benefits increased by $4,093,000 (12%) to $39,520,000 from $35,427,000 primarily due to annual salary adjustments and the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the Company’s installation projects. Outside services increased by $102,000 (2%) to $5,322,000 from $5,220,000 mainly because of increased third-party hosting fees which were billed to clients. Equipment and maintenance and software went up by $203,000 (18%) to $1,333,000 from $1,130,000 primarily because of purchases of additional equipment for the new hires. Accounting and legal fees increased by $291,000 (39%) to $1,030,000 from $739,000 primarily resulting from increased legal fees.
The Company’s non-operating income, net of expenses, increased by $23,618,000 (36%) to $89,467,000 from $65,849,000 in the prior fiscal year period primarily because of the recording of net unrealized gains on marketable securities of $84,320,000 as compared with realized and unrealized gains on marketable securities of $62,472,000 in the prior fiscal year period. There was also an increase in dividends and interest income of $301,000 (5%) to $6,158,000 from $5,857,000.
During the nine months ended June 30, 2025, the Company’s consolidated pretax income was $94,396,000, as compared to $68,195,000 in the prior fiscal year period. There was consolidated net income of $69,986,000 ($50.81 per share) for the nine months ended June 30, 2025, as compared with $51,385,000 ($37.32 per share) in the prior fiscal year period.
At June 30, 2025, the aggregate fair market value of the Company’s marketable securities was $443,011,000. These securities had approximately $303,917,000 of net unrealized gains before taxes of $79,260,000. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.
Taxes
The Traditional Business
The Traditional Business’ pretax income decreased by $1,364,000 (85%) to $237,000 from $1,601,000. This decrease primarily resulted from increased expenses of $2,290,000 mainly due to increases in the long-term supplemental compensation accrual, partially offset by increased revenues of $926,000.
During the nine months ended June 30, 2025, the Traditional Business had total operating revenues of $13,352,000, as compared with $12,426,000 in the prior fiscal year period. Advertising revenues increased by $703,000 (10%) to $7,642,000 from $6,939,000, primarily resulting from increased commercial advertising revenues of $380,000, legal notice advertising revenues of $154,000, trustee sale notice advertising revenues of $108,000, and government notice advertising revenues of $61,000. In addition, advertising service fees and other revenues increased by $310,000 (14%) to $2,514,000 from $2,204,000.
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 increased by 12% during the nine months ended June 30, 2025 as compared to the prior fiscal year period. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 84% of the total public notice advertising revenues during the nine months ended June 30, 2025. Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 13% of the Company's total operating revenues for the nine months ended June 30, 2025 and 14% for the nine months ended June 30, 2024.
The Daily Journals accounted for about 94% of the Traditional Business’ total circulation revenues, which decreased by $87,000 (3%) to $3,196,000 from $3,283,000. The court rule and judicial profile services generated about 4% 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, excluding the adjustments to the long-term supplemental compensation accrual, increased by $980,000 (8%) to $13,185,000 from $12,205,000 primarily due to increased personnel costs and agency commission expenses.
Journal Technologies
During the nine months ended June 30, 2025, Journal Technologies’ business segment pretax income increased by $3,947,000 (530%) to $4,692,000 from $745,000 in the prior fiscal year period primarily resulting from increased operating revenues of $8,302,000, which were partially offset by increased operating expenses of $4,355,000.
Revenues increased by $8,302,000 (22%) to $45,934,000 from $37,632,000 in the prior fiscal year period. Licensing and maintenance fees increased by $2,418,000 (12%) to $22,990,000 from $20,572,000. Consulting fees increased by $1,853,000 (19%) to $11,792,000 from $9,939,000 mainly due to more customer projects being completed during the fiscal 2025 period. Other public service fees increased by $4,031,000 (57%) to $11,152,000 from $7,121,000 primarily because of increased e-filing fee revenues.
Deferred consulting fees primarily represent advances from customers of Journal Technologies for installation services that are recognized upon the completion of service obligations. Deferred revenues on license and maintenance contracts represent prepayments of annual license and maintenance fees and are recognized ratably over the maintenance periods.
Operating expenses increased by $4,355,000 (12%) to $41,242,000 from $36,887,000 primarily because of (i) increased personnel costs because of annual salary adjustments, (ii) additional contractor services and the hiring of additional staff members to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on the Company’s installation projects, and (iii) increased third-party hosting fees which were billed to clients.
Journal Technologies continues to update and upgrade its software products, which includes work deemed necessary by management to strengthen product management and quality assurance/quality control, as well as update aspects like user experience, documentation, regionalization, and ease of ongoing customer upgrades (which the Company believes should correspondingly reduce costs for Journal Technologies over the longer term). These costs are expensed as incurred and will impact earnings at least through the foreseeable future. The Company will capitalize software development costs if those costs are required to be capitalized under GAAP, which generally means development costs incurred during the typically short period of time, if any, between a product’s technological feasibility and general release. There are also new investments getting underway flowing from research and development related to new possibilities afforded by emerging technologies to offer new types of capabilities to customers and to streamline the process of building and upgrading applications.
Comparable Segments (for the three-month periods ended June 30, 2025 and 2024)
Consolidated revenues were $23,406,000 and $17,494,000 for the three months ended June 30, 2025 and 2024, respectively. This increase of $5,912,000 (34%) was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $803,000, consulting fees of $3,091,000 and other public service fees of $1,564,000, and (ii) the Traditional Business’ advertising revenues of $262,000, and advertising service fees and other of $212,000.
Approximately 79% of the Company’s revenues during the three months ended June 30, 2025 were derived from Journal Technologies. In addition, the Company’s revenues during the three months ended June 30, 2025 were primarily from the United States, with approximately $3,833,000 (16%) from foreign countries. Almost all of Journal Technologies’ revenues were from governmental agencies.
Consolidated operating expenses increased by $3,778,000 (23%) to $20,182,000 from $16,404,000. Total salaries and employee benefits increased by $2,709,000 (22%) to $14,778,000 from $12,069,000 primarily due to annual salary adjustments and the hiring of additional staff members at Journal Technologies to strengthen operational efficiencies, conduct product development and address technical debt, and bolster teams working on and supporting the Company’s installation projects. Accounting and legal fees increased by $115,000 (35%) to $443,000 from $328,000 primarily resulting from increased legal fees.
The Company’s non-operating income, net of expenses, decreased by $15,738,000 (51%) to $15,007,000 from $30,745,000 in the prior fiscal year period primarily because of the recording of net unrealized gains on marketable securities of $11,521,000 as compared with $28,018,000 in the prior fiscal year period. There was an increase in dividends and interest income of $797,000 (27%) to $3,796,000 from $2,999,000.
During the three months ended June 30, 2025, the Company’s consolidated pretax income was $18,231,000, as compared to $31,835,000 in the prior fiscal year period. There was consolidated net income of $14,421,000 ($10.47 per share) for the three months ended June 30, 2025, as compared with $23,355,000 ($16.96 per share) in the prior fiscal year period.
The Traditional Business’ pretax income decreased by $1,674,000 (226% to a loss of $934,000 from a profit of $740,000. This decrease primarily resulted from increased expenses of $2,128,000 mainly due to increases in the long-term supplemental compensation accrual of $1,145,000, partially offset by increased in revenues of $454,000.
During the three months ended June 30, 2025, the Traditional Business had total operating revenues of $4,881,000, as compared with $4,427,000 in the prior fiscal year period. Advertising revenues increased by $262,000 (10%) to $2,798,000 from $2,536,000, primarily resulting from increased commercial advertising revenues of $155,000, legal notice advertising revenues of $90,000 and trustee sale notice advertising revenues of $27,000, partially offset by decreased government notice advertising revenues of $10,000.
During the three months ended June 30, 2025, Journal Technologies’ business segment pretax income increased by $3,808,000 (1088%) to $4,158,000 from $350,000 in the prior fiscal year period primarily resulting from increased operating revenues of $5,458,000, which were partially offset by increased operating expenses of $1,650,000.
Revenues increased by $5,458,000 (44%) to $18,525,000 from $13,067,000 in the prior fiscal year period. Licensing and maintenance fees increased by $803,000 (11%) to $7,964,000 from $7,161,000. Consulting fees increased by $3,091,000 (90%) to $6,529,000 from $3,438,000 mainly due to more customer project being completed. Other public service fees increased by $1,564,000 (63%) to $4,032,000 from $2,468,000 primarily because of increased e-filing fee revenues.
Operating expenses increased by $1,650,000 (13%) to $14,367,000 from $12,717,000 primarily because of additional contractor services and the hiring of additional staff members and increased third-party hosting fees which were billed to clients.
Liquidity and Capital Resources
During the nine months ended June 30, 2025, the Company’s cash and cash equivalents, restricted cash, and marketable security positions increased by $90,097,000 after the recording of net pretax unrealized gains on marketable securities of $84,320,000, and a payment of $2.5 million to reduce the margin loan balance to $25 million.
The investments in marketable securities, which had an adjusted cost basis of approximately $139,094,000 and a market value of about $443,011,000 at June 30, 2025, generated approximately $6,158,000 in dividends and interest income during the nine months ended June 30, 2025. These securities had approximately $303,917,000 of net unrealized gains before estimated taxes of $79,260,000 that will become due only when we sell securities in which there is unrealized appreciation. The balance on the Company’s margin loan secured by the securities portfolio was $25,000,000 at June 30, 2025, as compared to $27,500,000 at September 30, 2024.
Cash flows from operating activities increased by $12,022,000 during the nine months ended June 30, 2025 as compared to the prior fiscal year period, primarily due to (i) decreases in accounts receivable of $3,056,000, and (ii) increases the Company’s deferred income tax liabilities of $9,943,000, income tax payable of $768,000, accounts payable of $2,122,000 and accrued liabilities (which included non-qualified deferred compensation) of $2,911,000. This was partially offset by decreases in deferred revenues of $3,496,000, and net income of $3,247,000, after excluding the increases in realized and unrealized gains on marketable securities of $21,848,000.
As of June 30, 2025, the Company had working capital of $446,595,000, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $20,164,000.
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 additional amounts against its marketable securities and, among other possibilities, it may be required to consider selling additional securities to generate cash if needed to fund ongoing operations. The amount available for borrowing is based on the market value of the Company’s investment portfolio and fluctuates depending on the value of the underlying securities. In addition, the Company could be subject to margin calls should the balance of the investment decrease significantly.
Critical Accounting Policies and Estimates
The Company’s financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Management believes that revenue recognition, accounting for software costs, fair value measurement and disclosures, 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, 2024. The above discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this report.
Disclosure Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain statements contained in this document, including but not limited to those in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking” statements that involve risks and uncertainties that may cause actual future events or results to differ materially from those described in the forward-looking statements. Words such as “expects,” “intends,” “anticipates,” “should,” “believes,” “will,” “plans,” “estimates,” “may,” variations of such words and similar expressions are intended to identify such forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new information, future developments, or otherwise. There are many factors that could cause actual results to differ materially from those contained in the forward-looking statements. These factors include, among others: risks associated with software development and implementation efforts, and disruptive new technologies like artificial intelligence; Journal Technologies’ reliance on professional services engagements with justice agencies; material changes in the costs of postage and paper; additional 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 decline in subscriber revenues; possible security breaches of the Company’s software or websites; 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, 2024.
Item 4. CONTROLS AND PROCEDURES
In light of the material weaknesses in the Company’s internal control over financial reporting discussed in the Company’s Form 10-K for the fiscal year ended September 30, 2024, management concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2025. 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 June 30, 2025, except for the remediation activities described below.
Specifically, during the third quarter of fiscal 2025, the Company:
Hired additional finance and accounting personnel to strengthen the design, operation, and documentation of internal control over financial reporting.
Commenced the implementation of a new consolidated enterprise resource planning (ERP) system to improve the accuracy, consistency, and efficiency of financial reporting processes.
Enhanced internal review procedures and related processes to ensure proper timing of revenue recognition and improved oversight.
Engaged a third-party consulting firm to update its risk assessment and document and validate remediation actions.
Searched for (and following the third quarter, hired) a Director of SEC Reporting to focus on the Company’s compliance with its public reporting requirements.
Management and the Board intend to continue with these and other efforts until they are satisfied that the Company’s material weaknesses in internal control over financial reporting have been remediated. The Company naturally expects these remediation activities to result in additional costs, which will be allocated to the appropriate reportable segments.
PART II
Item 6.
Exhibits
31
Certifications by Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certifications by Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation
101.DEF
Inline XBRL Taxonomy Extension Definition
101.LAB
Inline XBRL Taxonomy Extension Labels
101.PRE
Inline XBRL Taxonomy Extension Presentation
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101
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.
DATE: August 14, 2025