Annual Report for Fiscal Year Ending 09-30, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The Company continues to operate as two different businesses: (1) The Traditional Business, being the business of newspaper publishing and related services that the Company had before 1999 when it purchased a software development company, and (2) Journal Technologies, Inc. ("Journal Technologies"), a wholly-owned subsidiary which supplies case management software systems and related products to courts, prosecutor and public defender offices, probation departments and other justice agencies, including administrative law organizations, city and county governments and bar associations. These organizations use the Journal Technologies family of products to help manage cases and information electronically, to interface with other critical justice partners and to extend electronic services to the public, including e-filing and a website to pay traffic citations and fees online. These products are licensed or subscribed to in approximately 37 states and internationally.

Reportable 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. Additional details about each of the reportable segments and the Company's corporate income and expenses are set forth below:

Overall Financial Results (in thousands)
For the twelve months ended September 30
		Reportable Segments
		Traditional Business								Journal Technologies								Corporate								Total
		2025				2024				2025				2024				2025				2024				2025				2024
Revenues
Advertising		$	10,081			$	9,325			$	-			$	-			$	-			$	-			$	10,081			$	9,325
Circulation			4,269				4,462				-				-				-				-				4,269				4,462
Advertising service fees and other			3,412				3,039				-				-				-				-				3,412				3,039
Licensing and maintenance fees			-				-				31,720				28,265				-				-				31,720				28,265
Consulting fees			-				-				22,735				15,086				-				-				22,735				15,086
Other public service fees			-				-				15,483				9,754				-				-				15,483				9,754
Total operating revenues			17,762				16,826				69,938				53,105				-				-				87,700				69,931
Operating expenses
Personnel			10,467				9,492				44,032				36,998				2,967				395				57,466				46,885
Other segment items*			7,460				5,360				13,246				13,616				-				-				20,706				18,976
Total operating expenses			17,927				14,852				57,278				50,614				2,967				395				78,172				65,861
Income from operations			(165	)			1,974				12,660				2,491				(2,967	)			-				9,528				4,070
Dividends and interest income			-				-				-				-				7,459				7,102				7,459				7,102
Interest expense			-				-				-				-				(1,381	)			(3,087	)			(1,381	)			(3,087	)
Net realized and unrealized gains on marketable securities			-				-				-				-				134,304				96,142				134,304				96,142
Other			-				-				-				-				177				51				177				51
Pretax income			(165	)			1,974				12,660				2,491				137,592				100,208				150,087				104,278
Income tax benefit (expense)			180				(395	)			(3,665	)			(735	)			(34,465	)			(25,035	)			(37,950	)			(26,165	)
Net income		$	15			$	1,579			$	8,995			$	1,756			$	103,127			$	75,173			$	112,137			$	78,113

* Other segment items within net income include rental income, net unrealized gains on non-qualified compensation plan, interest expense on note payable collateralized by real estate, decrease in fair value of derivative asset, 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, and other general and administrative expenses.

Comparison of the fiscal year ended September 30, 2025 to the fiscal year ended September 30, 2024

Consolidated Financials Comparison

Consolidated revenues were $87.7 million and $69.9 million for fiscal years 2025 and 2024, respectively. This increase of $17.8 million (25%) was primarily from increases in (i) Journal Technologies' consulting fees of $7.6 million, other public service fees of $5.7 million, and license and maintenance fees of $3.5 million, and (ii) the Traditional Business' advertising revenues of $0.7 million.

Approximately 80% of our revenues during fiscal years 2025 and 2024 were derived from Journal Technologies. In addition, our revenues during fiscal year 2025 were primarily from the United States, with approximately $10.0 million (11%) from foreign countries. Almost all of Journal Technologies' revenues are from governmental agencies.

Consolidated operating expenses increased by $12.3 million (19%) to $78.1 million from $65.9 million. Total salaries and employee benefits increased by $3.4 million (7%) to $50.6 million from $47.2 million 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 our installation projects. Outside services increased by $0.9 million (13%) to $8.1 million from $7.2 million mainly because of additional contractor services and increased third-party hosting fees which were billed to clients. Accounting and legal fees increased by $0.4 million (36%) to $1.4 million from $1.0 million primarily resulting from increased accounting advisory and legal fees primarily associated with the remediation of material weaknesses in our internal controls.

Our other income, net of expenses, rose by $40.4 million (40%) to $140.6 million from $100.2 million in the previous fiscal year. This increase was primarily driven by unrealized gains on marketable securities, totaling $134.3 million compared to $96.1 million, which included realized gains of $14.3 million, as well as a reduction in interest expense by $1.7 million (55%) to $1.4 million from $3.1 million, after our repayment of $5.5 million against the outstanding balance during the fiscal year ended September 30, 2025.

During fiscal year 2025, our consolidated pretax income was $150.1 million, as compared to $104.3 million in the prior fiscal year. Consolidated net income was $112.1 million ($81.41 per both basic and diluted shares, respectively) for fiscal year 2025, as compared with $78.1 million ($56.73 per share) in the prior fiscal year.

As of September 30, 2025, the aggregate fair market value of the Company's marketable securities was $493.0 million. These securities had approximately $353.9 million of cumulative unrealized gains before taxes of $91.4 million. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

Taxes

During fiscal year 2025, the Company recorded an income tax provision of $38.0 million on pretax income of $150.1 million. The income tax provision consisted of tax expense of $34.3 million on unrealized gains on marketable securities, and $4.2 million on operating income, partially offset by a tax benefit of $0.5 million for the dividends received deduction and other permanent differences. Consequently, the overall effective tax rate for fiscal year 2025 was 25.3%, after including the taxes on the unrealized gains on marketable securities.

During fiscal year 2024, the Company recorded an income tax provision of $26.2 million on pretax income of $104.3 million. The income tax provision consisted of tax expense of $24.5 million on the realized and unrealized gains on marketable securities, and $2.2 million on operating income, partially offset by a tax benefit of $0.5 million for the dividends received deduction and other permanent differences. Consequently, the overall effective tax rate for fiscal year 2024 was 25.1%, after including the taxes on the realized and unrealized gains on marketable securities.

The Company files consolidated federal income tax returns, with its domestic subsidiary, in the United States and with various state jurisdictions and is no longer subject to examinations for fiscal years before fiscal year 2020 with regard to federal income taxes and fiscal year 2019 for state income taxes. The Canadian subsidiary files a federal and provincial tax return in Canada.

Journal Technologies

During fiscal year 2025, Journal Technologies' business segment pretax income increased by $10.2 million (408%) to $12.7 million from $2.5 million in the prior fiscal year primarily resulting from increased revenue of $16.8 million, which were partially offset by increased operating expenses of $6.7 million.

Revenues increased by $16.8 million (32%) to $69.9 million from $53.1 million in the prior fiscal year. Licensing and maintenance fees increased by $3.5 million (12%) to $31.7 million from $28.3 million. Consulting fees increased by $7.6 million (51%) to $22.7 million from $15.1 million mainly due to timing of deferred revenue recognition and more project go-lives. Other public service fees increased by $5.7 million (59%) to $15.5 million from $9.8 million primarily because of increased e-filing fee revenues.

Deferred consulting fees primarily represent advances from customers of Journal Technologies for installation services and are recognized upon final project go-lives. Deferred revenues on license and maintenance contracts represent prepayments of annual license and maintenance fees and are recognized ratably over the maintenance periods.

Operating expenses increased by $6.7 million (13%) to $57.3 million from $50.6 million primarily due to: (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.

Traditional Business

The Traditional Business' pretax income decreased by $2.1 million (108%) to a pretax loss of $0.2 million from pretax income of $2.0 million in the prior fiscal year. This decrease was primarily resulting from an increase in long-term supplemental compensation accrual, increased personnel costs, additional merchant discount fees, and promotional expenses.

During fiscal year 2025, the Traditional Business had total revenues of $17.8 million, up from $16.8 million in the prior fiscal year. Advertising revenues increased by $0.8 million (8%) to $10.1 million from $9.3 million, primarily resulting from increased commercial advertising revenues of $0.5 million, legal notice advertising revenues of $0.2 million, and trustee sale notice advertising revenues of $0.1 million.

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 during fiscal year 2025 remained consistent as compared to the prior fiscal year. The Company's smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals ("The Daily Journals"), accounted for approximately 84% of the total public notice advertising revenues during fiscal year 2025.

The Daily Journals accounted for approximately 94% of the Traditional Business' total circulation revenues, which decreased by $0.2 million (4%) to $4.3 million from $4.5 million. The court rule and judicial profile services generated approximately 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 increased by $3.0 million (21%) to $17.9 million from $14.9 million, primarily resulting from increased personnel costs, merchant discount fees, additional promotional expenses, and accounting advisory fees primarily associated with the remediation of material weaknesses in our internal controls.

Liquidity and Capital Resources

During fiscal year 2025, the Company's cash and cash equivalents, restricted cash, and marketable securities increased by $142.0 million, reflecting net pretax unrealized gains on marketable securities of $134.3 million. The investments in marketable securities, which had an adjusted cost basis of approximately $139.1 million and a market value of approximately $493.0 million as of September 30, 2025, generated approximately $7.4 million in dividends and interest income during fiscal year 2025. These securities had approximately $353.9 million of cumulative unrealized gains before estimated taxes of $91.4 million which will become due only when we sell securities in which there is unrealized appreciation.

No marketable securities were sold during fiscal year 2025. The margin loan principal balance was paid down by $5.5 million using excess cash from operations. In fiscal year 2024, marketable securities totaling approximately $40.6 million were sold to pay down the margin loan balance by $47.5 million. The loan balance was $22 million and $27.5 million as of September 30, 2025, and 2024, respectively.

As of September 30, 2025, we had working capital of $500.4 million, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $18.7 million.

We believe that we will be able to fund our operations for the foreseeable future through our cash flows from operations and our current working capital, and we expect that any such cash flows will be invested in our businesses. We may or may not have the ability to borrow additional amounts against our marketable securities and, among other possibilities, we may be required to consider selling securities to generate cash if needed to fund ongoing operations. The amount available for borrowing is based on the market value of our investment portfolio and fluctuates depending on the value of the underlying securities. In addition, we could be subject to margin calls should the value of the investments decrease significantly.

Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):

		September 30, 2025				September 30, 2024				Change
Net cash provided by (used in):
Operating activities		$	13,333			$	(89	)		$	13,422
Investing activities			(8	)			40,534				(40,542	)
Financing activities			(5,664	)			(47,658	)			41,994
Net increase (decrease) in cash and cash equivalents		$	7,661			$	(7,213	)		$	14,874

Operating Activities

In fiscal year 2025, net cash provided by operating activities consisted of net income of $112.1 million, less non-cash items of $99.2 million and cash used for working capital of $0.4 million. Adjustments for non-cash items consist primarily of $134.3 million in unrealized gains on our marketable securities, $34.7 million change in our deferred tax provision, $0.3 million of depreciation and amortization expense, and $0.1 million of stock-based compensation expense. The decrease in cash from changes in working capital is primarily due to a $1.8 million increase in accounts receivable, a $0.2 million increase in prepaid expenses and other assets, a $0.9 million increase in income tax payable, and a $5.4 million decrease in deferred revenue, including deferred subscription, consulting fees, and maintenance agreements, partially offset by a $1.0 million increase in accounts payable and a $5.9 million increase in accrued liabilities, including non-qualified deferred compensation.

In fiscal year 2024, net cash used in operating activities totaled $0.1 million, consisting of net income of $78.1 million, less non-cash items of $73.6 million and cash used for working capital of $4.6 million. Adjustments for non-cash items consist primarily of $96.1 million in net realized and unrealized gains on our marketable securities, a $22.0 million change in our deferred tax provision, $0.3 million of depreciation and amortization expense, and a $0.2 million of stock-based compensation expense. The decrease in cash from changes in working capital is primarily due to a $0.5 million increase in accounts receivable, a $0.2 million increase in prepaid expenses and other assets, a $0.6 million decrease in accounts payable, a $0.2 million decrease in accrued liabilities, a $1.1 million decrease in income tax payable, and a $2.0 million decrease in deferred revenue, including deferred subscription, consulting fees, and maintenance agreements.

Investing Activities

In fiscal year 2025, net cash used for investing activities was negligible.

In fiscal year 2024, net cash provided by investing activities was $40.5 million, primarily related to $40.6 million in proceeds from sales of marketable securities, partially offset by $0.1 million in purchases of property and equipment purchases and capital asset sales.

Financing Activities

During fiscal year 2025, net cash used in financing activities totaled $5.7 million, which primarily consisted of a $5.5 million repayment on the outstanding principal of the investment margin loan and a $0.2 million principal payment on the real estate loan.

During fiscal year 2024, net cash used in financing activities totaled $47.7 million, which primarily consisted of a $47.5 million repayment on the outstanding principal of the investment margin loan and a $0.2 million principal payment on the real estate loan.

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 and income taxes are critical accounting policies. Critical accounting estimates include fair value measurements and the long-term supplemental compensation accrual.

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 revenues are recognized when advertisements are published.

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

ASC 985-20, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, provides that costs related to the research and development of a new software product are to be expensed as incurred until the technological feasibility of the product is established, subject to expected recoverability. In general, "technological feasibility" is achieved when the developer has established the necessary skills, hardware and technology to produce a product and a detailed program design has been (i) completed, (ii) traced to the product specifications and (iii) reviewed for high-risk development issues. If there is no program design completed, technological feasibility is reached upon the completion of a working model. Capitalization of software development costs ceases and amortization of capitalized software development costs (if any) commences when the products are available for general release. The Company believes its process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no software development costs have been capitalized to date.

ASC 820, Fair Value Measurement and Disclosures, requires the Company to (i) disclose the amounts of transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers and (ii) present separately information about purchases, sales, issuances and settlements in the reconciliation of Level 3 measurements. This guidance also provides clarification of existing disclosures requiring the Company to determine each class of its investments based on risk and to disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 measurements. The Company made no transfers in and out of Level 1 and Level 2 measurements in fiscal years 2025 and 2024. During that time, all of the Company's investments have been quoted on public markets and, therefore, all fair value calculations have been based on Level 1 measurements.

ASC 710, Compensation-General, requires the Company to recognize compensation cost for its Management Incentive Plan over the requisite service period based on the estimated obligation attributable to services rendered to date. The estimated future commitment under the Incentive Plan is calculated using management's best estimates, which include assumptions related to future pretax earnings before certain items, based on an average of the prior fiscal year and the current year. The resulting estimated obligation is discounted to present value at a rate of 6%, reflecting the time value of money, as each granted Management Incentive Plan award may remain outstanding over a remaining life of up to 10 years. Changes in estimates of the expected payout or timing of payments are recognized prospectively as adjustments to compensation expense in the period of change.

ASC 740, Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. This accounting guidance also prescribes recognition thresholds and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company's financial position or its results of operations and its deferred tax liabilities related to the unrealized net gains on investments. See Note 6 of Notes to Consolidated Financial Statements for further discussion.

ASC 280-10, Segment Reporting, defines an operating segment as a component of a public entity that has discrete financial information that is evaluated regularly by the Company's Chief Executive Officer to decide how to allocate resources and to assess performance. In accordance with ASC 280-10, the Company has two reportable business segments which are: (i) the Traditional Business and (ii) Journal Technologies and Journal Technologies (Canada).

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