DJCO 10-K & 10-Q changes, risk factors and insider trading

For the Traditional Business, there may be new and additional opportunities to automate or reduce the cost of content creation,creation and doing business, or perhaps allow monetization of existing and/or historic content in new ways. Likewise, AI may negatively impact the business in ways that will prove difficult to circumvent.

For Journal Technologies, use of AI may fundamentally alter or automate key customer workflows over time, obviating the need for its technology. AI will likely also create new and better ways for customers to achieve their mandates.mandates, of which the Company is positioning to play a valuable role. The Company is allocating certain resources to ensure it has the capacity to recognize and pursue these opportunities, whether through in-house engineering, partnership,and may also do so through partnerships, or mergers and acquisitions,acquisitions. but whetherWhether it will be successful is uncertain.

The process and approach to engineering software itself may change in notable ways, and this could impact the underlying business model of Journal Technologies. Monitoring potential impacts of AI on companies in the marketable securities portfolio will also require ongoing attention.

From time to time, the legislatures in California and Arizona (and elsewhere) have considered and/or implemented various proposals that would result in the elimination or reduction of the amount of public notice advertising in printed newspapers required by statute. These proposals typically focus on the availability of alternative means of providing public notices, such as via the Internet. Some proposals also question the need for public notices at all. As noted above, some of these proposals have already become law. To the extent more of these proposals are adopted, particularly in California and Arizona, they could materially adversely affect the revenues of the Traditional Business.

In September 2023, the California legislature passed a bill (AB542) effective January 1, 2024 that set in motion a decline in legal advertising revenue of approximately $14,000 during fiscal year 2024 by reducing the number of required publication days in a newspaper for self-service storage facility lien sales. Another bill (AB721) relative to school budget hearing notices was also passed in September 2023. Effective January 1, 2027, these notices are to be moved to posting on the school district’s website in lieu of being published in a newspaper.

Competition for readers and advertisers is very intense,competitive, both from established publications and from new entrants into the market. The Daily Journals face aggressive competition. The Company’s court rules publications face competition in both Northern and Southern California from document management programs, online court rules services, and the courts themselves.

After personnel costs, postage and paper costs are typically the Company’sTraditional Business next two largest expenses. An adequate supply of newsprint and other paper is important to the operations of the Traditional Business. The Company currently does not have a contract with any paper supplier, and in the past, shortages of newsprint sometimes resulted in higher prices. Recently, there have been consolidations of newsprint suppliers, and paper prices may fluctuate substantially in the future.future or otherwise be affected by tariffs and/or changes to trade agreements.

The newspaper industry continues to experience significant secular decline, although the number of subscriptions to The Daily Journals has increased recently primarily due to promotional efforts.decline. The Company believes the long-term trend will be in the direction of fewer subscriptions to the Daily Journals and court rule publications, and that trend will certainly impact the Company’s future revenues.

Journal Technologies’ success depends on the continued improvement of its products, and the costs to update and upgrade those products consistently represent a large portion of Journal Technologies’ expenses. There are many uncertainties in the process of courts and other justice agencies migrating to newer case management systems, including whether Journal Technologies’ versions of these systems will find general acceptance and whether the modification of such systems can be done in a cost-effective manner. TheUnder the relevant accounting guidance, the costs to update and upgrade Journal Technologies’ products are generally expensed as incurred and will impact earnings at least through the foreseeable future. ToThe buildCompany outcontinues to invest in the development of new and next-generation technology thereas ispart up-frontof investmentits required,broader whichproduct is now underway and will increase.strategy. Likewise, investment is required to improve existing technology to simplify the process of configuring, managing and updating systems.systems (and related obligations including documentation, user experience improvements, and more). These investments are being made to both improve win rates and maximize the efficiency of building and deploying customer systems. The intention is to improve profitability, but if thisfoundational development is not done effectively, it may not yield the expected competitive advantages or intended efficiencies.

There is significant competition among a limited number of companies to provide services and software to courts and other justice agencies, and some of these companies are much larger and have greater access to capital and other resources than Journal Technologies. Normally, the vendor is selected through a bidding process, and often the customers will express a specific preference for, or eveneffectively require, larger vendors.vendors having completed similar types of projects. An inability to successfully compete in this difficult market could materially affect the earnings of Journal Technologies. Likewise, specialized vendors in specific vertical markets may develop or continue to enhance specific solutions for certain customer types that are sufficiently focused and turnkey, or leverage disruptive new approaches, that Journal Technologies will struggle to compete with them.

The customers of Journal Technologies are public sector entities, thus creating specialunique issues and risks.

Almost all of the customers of Journal Technologies are courts, justice agencies, and other government entities. Accordingly, we face specialunique risks associated with governmental budget constraints, especially during stressfulchallenging economic times, which could force government entities to defer or forego consulting services or even stop paying their annual software license and maintenance fees. In addition, weeconomic conditions could affect our ability to win new customers as a result of heightened competition for new business following a decrease in new initiatives available for bidding. We encounter risks related to a longer and more complicated sales cycle than exists for commercial customers, political issues related to resource allocation, administration turnover and preferences for internal case management solutions or for a particular vendor, complicated bidding procedures, and fluctuations in the demand for information technology products and services. Project success frequently involves dependencies on customers or third-party vendors/partners completing their responsibilities in an organized, workmanlike, and timely fashion.

InAccordingly, manyfor cases,these installation fees are not due until the customer has indicated its satisfaction with the installed system, and it has “gone live” or upon completion of certain milestones. Accordingly,projects we do not recognize revenues for such installation services or for most other consulting services until after the services have been performed and accepted. There are significant risks associated with our ability to complete our services to the satisfaction of our customers and to fulfill the requirements that entitle us to be paid. An inability to realize payment for services performed could materially affect the earnings of Journal Technologies. Additional costs may not be recoverable for historic projects with flexible scopes or scopes that are subject to interpretation, or projects that require adjustments due to technology changes that occur due to the passage of time.

A large portion of the Company’s assets isare held in publicly traded securities, and the prices of those securities may decline.

As of September 30, 2024,2025, the Company held marketable securities worth approximately $358,691,000,$493.0 million, with ana cumulative unrealized gain of $353.9 million for financial statement purposes of $219,597,000.purposes. While this portfolio has enabled the Company to borrow on favorable terms for acquisitions and to better compete for case management software opportunities that are usually limited to “large” firms, it is unusual for a public company to invest a significant amount of its available cash in the marketable securities of other public companies. The value of these securities could decline, which would adversely affect net income and shareholders’ equity.

At times, the Company may hold marketable securities denominated in currencies other than the United States Dollar. When it does, the Company may be at risk for significant fluctuations in the applicable foreign currency exchange rates, which would affect the profitability of such marketable securities. The Company currently owns one such investment that is denominated in Hong Kong Dollars.

As noted above, beginning in fiscal year 2019, changes in unrealized gains (losses) on marketable securities are included in the Company’s net income (loss) and thus may have a significant impact on the Company’s reported results depending on the fluctuations of the prices of the marketable securities owned by the Company.

TheRisks CompanyRelated hasto identifiedOur materialInternal weaknessesControl inOver itsFinancial internal control over financial reporting.Reporting

The Company has identified a material weaknessesweakness in its internal control over financial reporting.reporting related primarily to segregation of duties and access controls that originated in prior periods. The Company’s internal control over financial reporting has beenis designed to provide management and the Board of Directors with reasonable assurance regarding the preparation and fair presentation of the Company’s consolidated financial statements.statements Asin aaccordance smallwith company,accounting weprinciples aregenerally accepted in the United States (“GAAP”). Although management has implemented significant improvements and enhanced controls during fiscal year 2025, including increased finance personnel, enhanced review procedures, and continued enterprise resource planning modernization efforts, the Company has not yet been able to segregatefully dutiesremediate tothis thematerial extentweakness weas couldof ifSeptember we30, had2025. moreCertain people,controls andwere wenewly implemented or significantly enhanced during fiscal year 2025 and, as a result, have not sufficientlyoperated designedfor controlsa sufficient period of time to allow management to conclude that support an effective assessment of our internal controls relating to the preventionmaterial of fraud and possible management override of controls. Further, the Company does not have an internal audit group, andweakness has notbeen engagedfully an outside firm to complete the documentation of its internal control assessment to the level required by the applicable criteria.remediated.

The existence of a material weaknessesweakness means that there is a reasonable possibility that a material misstatement of ourthe Company’s financial statements will not be prevented or detected on a timely basis. If wethe areCompany notis ableunable to correctremediate this material weaknessesweakness or any future deficiencies in internal controlscontrol over financial reporting in a timely way,manner, ourthe Company’s ability to record, process, summarizesummarize, and report financial information accurately and within the time periods specified in the SEC’s rules and forms willcould be adversely affected. Such a resultThis could negatively impact investor confidence in the Company’s reported financial information, the market price and trading liquidity of ourthe Company’s common stock, weakenand investor confidence in our reported financial information,could subject usthe Company to civilincreased andscrutiny criminalby investigationsregulators, andlitigation, penalties,or andother generallyadverse consequences, which could materially and adversely affect ourthe businessCompany’s business, financial condition, and financialresults condition.of operations.

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 detaildetails about each of the reportable segments and the Company’s corporate income and expenses isare set forth below:

Consolidated FinancialFinancials Comparison

Consolidated revenues were $69,931,000$87.7 million and $67,709,000$69.9 million for fiscal 2024years 2025 and 2023,2024, respectively. This increase of $2,222,000$17.8 million (3%25%) was primarily from increases in (i) Journal Technologies’ license and maintenanceconsulting fees of $4,762,000,$7.6 andmillion, other public service fees of $1,577,000,$5.7 partiallymillion, offsetand bylicense decreasedand consultingmaintenance fees of $4,690,000,$3.5 million, and (ii) the Traditional Business’ advertising revenues of $370,000$0.7 and advertising service fees and other of $144,000.million.

Approximately 76%80% of the Company’sour revenues during fiscal 2024years 2025 and 20232024 were derived from Journal Technologies. In addition, the Company’sour revenues during fiscal 2024year 2025 were primarily from the United States, with approximately $6,153,000$10.0 million (9%11%) from foreign countries. Almost all of Journal Technologies’ revenues are from governmental agencies.

Consolidated operating expenses increased by $4,804,000$12.3 million (8%19%) to $65,861,000$78.1 million from $61,057,000.$65.9 million. Total salaries and employee benefits increased by $3,728,000$3.4 million (9%7%) to $47,178,000$50.6 million from $43,450,000$47.2 million primarily due to the 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’sour installation projects. Outside services increased by $383,000$0.9 million (6%13%) to $7,151,000$8.1 million from $6,768,000$7.2 million mainly because of additional contractor services and increased third-party hosting fees which were billed to clients. Equipment and maintenance and software went up by $259,000 (20%) to $1,574,000 from $1,315,000 primarily because of purchases of additional equipment for new hires. Accounting and legal fees increased by $86,000$0.4 million (9%36%) to $1,026,000$1.4 million from $940,000$1.0 million primarily resulting from increased legalaccounting fees. Other generaladvisory and administrativelegal expensesfees decreasedprimarily slightlyassociated by $25,000 (2%) to $3,851,000 from $3,876,000 mainly because there were decreased business travel expenses as compared towith the prior fiscal year, partially offset by the purchaseremediation of directorsmaterial andweaknesses officersin insuranceour andinternal additional accruals for the directors’ stipends.controls.

During fiscal 2024,year the2025, Company’sour consolidated pretax income was $104,278,000,$150.1 million, as compared to $28,102,000$104.3 million in the prior fiscal year. There was consolidatedConsolidated net income ofwas $78,113,000$112.1 million ($56.73$81.41 per shareboth basic and diluted shares, respectively) for fiscal 2024,year 2025, as compared with $21,452,000$78.1 million ($15.58$56.73 per share) in the prior fiscal year.

AtAs of September 30, 2024,2025, the aggregate fair market value of the Company’s marketable securities was $358,691,000.$493.0 million. These securities had approximately $219,597,000$353.9 million of netcumulative unrealized gains before taxes of $57,100,000.$91.4 million. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

During fiscal 2024,year 2025, the Company recorded an income tax provision of $26,165,000$38.0 million on pretax income of $104,278,000.$150.1 million. The income tax provision consisted of tax expensesexpense of $24,534,000$34.3 million on the realized and unrealized gains on marketable securities, and $2,175,000$4.2 million on operating income, partially offset by a tax benefit of $544,000$0.5 million for the dividends received deduction and other permanent differences. Consequently, the overall effective tax rate for fiscal 2024year 2025 was 25.1%,25.3%, after including the taxes on the realized and unrealized gains on marketable securities.

During fiscal 2023,year 2024, the Company recorded an income tax provision of $6,650,000$26.2 million on pretax income of $28,102,000.$104.3 million. The income tax provision consisted of tax provisionsexpense of $4,250,000$24.5 million on the realized and unrealized gains on marketable securities, and $2,803,000$2.2 million on operating income, partially offset by a tax benefit of $403,000$0.5 million for the dividends received deduction and other permanent differences. Consequently, the overall effective tax rate for fiscal 2023year 2024 was 23.7%,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.

During fiscal 2024,year 2025, Journal Technologies’ business segment pretax income decreasedincreased by $2,480,000$10.2 million (50%408%) to $2,491,000$12.7 million from $4,971,000$2.5 million in the prior fiscal year primarily resulting from increased operating expensesrevenue of $4,129,000,$16.8 million, which were partially offset by increased operating revenuesexpenses of $1,649,000.$6.7 million.

Revenues increased by $1,649,000$16.8 million (3%32%) to $53,105,000$69.9 million from $51,456,000$53.1 million in the prior fiscal year. Licensing and maintenance fees increased by $4,762,000$3.5 million (20%12%) to $28,265,000$31.7 million from $23,503,000.$28.3 million. Consulting fees decreasedincreased by $4,690,000$7.6 million (24%51%) to $15,086,000$22.7 million from $19,776,000$15.1 million mainly due to fewertiming of deferred revenue recognition and more project go-lives. Other public service fees increased by $1,577,000$5.7 million (19%59%) to $9,754,000$15.5 million from $8,177,000$9.8 million primarily because of increased e-filing fee revenues.

Operating expenses increased by $4,129,000$6.7 million (9%13%) to $50,614,000$57.3 million from $46,485,000$50.6 million primarily becausedue ofto: (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.

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 $139,094,000$139.1 million and a market value of aboutapproximately $358,691,000$493.0 atmillion as of September 30, 2024,2025, generated approximately $7,102,000$7.4 million in dividends and interest income during fiscal 2024.year 2025. These securities had approximately $219,597,000$353.9 million of netcumulative unrealized gains before estimated taxes of $57,100,000$91.4 million which 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 $27,500,000 and $75,000,000 at September 30, 2024, and September 30, 2023, respectively.

As of September 30, 2024,2025, the Companywe had working capital of $356,052,000,$500.4 million, including the liabilities for deferred subscriptions, deferred consulting fees and deferred maintenance agreements and others of $23,713,000.$18.7 million.

TheWe Company believesbelieve that itwe will be able to fund itsour operations for the foreseeable future through itsour cash flows from operations and itsour current working capitalcapital, and expectswe expect that any such cash flows will be invested in itsour businesses. The CompanyWe may or may not have the ability to borrow additional amounts against itsour marketable securities and, among other possibilities, itwe 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’sour investment portfolio and fluctuates depending on the value of the underlying securities. In addition, the Companywe could be subject to margin calls should the balancevalue of the investmentinvestments decrease significantly.

The Company’s financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Management believes that revenue recognition, accounting for software costs, fair value measurement and disclosures (including the long-term Incentive Plan liabilities) and income taxes are critical accounting policiespolicies. Critical accounting estimates include fair value measurements and estimates.the long-term supplemental compensation accrual.

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. Accordingly, costs related to the development of new software products are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized, 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 20242025 and 2023.2024. 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. The estimated Incentive Plan’s future commitment is calculated using Level 3 inputs, based on an average of the prior fiscal year (fiscal 2023) and the current year’s pretax earnings before certain items, discounted to the present value at 6% since each granted Incentive Plan Unit will expire over its remaining life term of up to 10 years.

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 for the sixnine months ended MarchJune 31,30, 2026 and 2025, are set forth below (in thousands):

Comparison of the sixnine months ended MarchJune 31,30, 2026 to the sixnine months ended MarchJune 31,30, 2025

*Other segment items within net income (loss) include rental income, net unrealized gains on non-qualified compensation plan, interest expense on note payable collateralized by real estate, 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 expense.expenses.

Consolidated revenues were $42.3$69.2 million and $35.9$59.3 million for the sixnine months ended MarchJune 31,30, 2026 and 2025, respectively. This increase of $6.4$9.9 million (17.8%16.8%) was primarily from increases in (i) Journal Technologies’ other public service fees of $2.2$3.9 million, license and maintenance fees of $2.0$3.3 million, and consulting fees of $1.8$2.4 million, and (ii) the Traditional Business’ advertising revenues of $0.3$0.2 million.

Approximately 79%80% and 76%77% of our revenues during the sixnine months ended MarchJune 31,30, 2026 and 20252025, respectively, were derived from Journal Technologies. In addition, our revenues during the sixnine months ended MarchJune 31,30, 2026 were primarily from the United States, with approximately $3.3$6.3 million (7.9%9.1%) from foreign countries.countries and U.S. territories. Almost all of Journal Technologies’ revenues are from governmental agencies.

Consolidated operating expenses increased by $4.6$6.1 million (13.5%11.3%) to $38.8$60.5 million from $34.2$54.4 million. Total salaries and employee benefits increased by $1.8 million (7.6%4.6%) to $26.0$41.4 million from $ 24.2$39.6 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 $0.7$0.4 million (19.4%8.4%) to $4.3$5.8 million from $3.6$5.3 million mainly because of additional contractor services and increased third-party hosting fees which were billed to clients. Other general and administrative expenses increased by $2.6$4.4 million (93.6%104.0%) to $5.4$8.7 million from $2.8$4.3 million, primarily driven by a $1.5 million increase in accounting and legal fees, including higher accounting costs associated with efforts to remediate previously identified material weaknesses in internal control over financial reporting and higher legal and service provider expenses related to proxy solicitation and stockholder outreach activities, as well as a $0.4 million increase in costs related to the adoption and implementation of software and related process changes supporting the Company’s modernization initiatives. The Company expects these costs to remain elevated in the near term as these initiatives continue Other income (expense) for the six months ended March 31, 2026 decreased by $135.0 million, resulting in $60.6 million of other expense, compared with $74.5 million of other income for the six months ended March 31, 2025. This change was primarily driven by unrealized losses on marketable securities of $62.9 million, compared with unrealized gains of $72.8 million in the prior-year period.continue.

During the sixnine months ended MarchJune 31,30, 2026 and 2025, consolidated pretax loss was $57.1$73.1 million and pretax income was $76.2$94.4 million, respectively, and consolidated net loss was $42.6$53.5 million and net income was $55.6$70.0 million, respectively.

As of MarchJune 31,30, 2026, the aggregate fair market value of the Company’s marketable securities was $430.1$406.0 million. These securities had approximately $291.0$266.9 million of cumulative unrealized gains before estimated taxes of $75.7$68.7 million. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

During the sixnine months ended MarchJune 31,30, 2026, the Company recorded an income tax benefit of $14.5$19.6 million on the pretax loss of $57.1$73.1 million. The income tax benefit and expense consisted primarily of tax benefit of $15.8$22.4 million related to unrealized losses on marketable securities, and tax expense of $1.4$3.2 million on income from USU.S. operations and dividend income. Consequently, the overall effective tax rate for the sixnine months ended MarchJune 31,30, 2026 was 25.3%26.8% after including the taxes on the unrealized gainslosses on marketable securities.

For the sixnine months ended MarchJune 31,30, 2025, the Company recorded an income tax provision of $20.6$24.4 million on pretax income of $76.2$94.4 million. The income tax provision consisted of $19.2$22.0 million related to unrealized gains on marketable securities, $0.9$2.5 million related to income from U.S. operations and dividend income, and a tax provision of $0.6$0.2 million for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. These tax liabilities were partially offset by a tax benefit of $0.1$0.3 million for the dividends received deduction and other permanent book and tax differences. Consequently, the overall effective tax rate for the sixnine months ended MarchJune 31,30, 2025 was 27%,25.9%, after including the taxes on the unrealized gains on marketable securities.

For the sixnine months ended MarchJune 31,30, 2026, Journal Technologies’ pretax income increased by $3.7$5.1 million to $4.2$9.8 million, compared to $0.5$4.7 million for the sixnine months ended MarchJune 31,30, 2025. The increase was primarily attributable to higher revenues of $6.0$9.6 million, partially offset by increased operating expenses of $2.3$4.6 million.

For the sixnine months ended MarchJune 31,30, 2026, the Traditional Business reported a pretax loss of $1.1$0.6 million, compared to pretax income of $1.2$0.2 million for the sixnine months ended MarchJune 31,30, 2025. This decrease was primarily attributable to increased accounting and consulting fees and other operating expenses.

The Traditional Business segment operating expenses increased by $2.6$1.2 million (36.0%8.7%) to $9.9$14.3 million from $7.3$13.1 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 and higher legal and service provider expenses associated with proxy solicitation and stockholder outreach activities.activities, partially offset by decreased personnel costs.

Comparison of the three months ended MarchJune 31,30, 2026 to the three months ended MarchJune 31,30, 2025

*Other segment items within net income (loss) include rental income, net unrealized gains on non-qualified compensation plan, interest expense on note payable collateralized by real estate, 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 expense.expenses.

Consolidated revenues were $22.7$27.0 million and $18.2$23.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. This increase of $4.5$3.6 million (25.0%15.3%) was primarily from increases in (i) Journal Technologies’ consulting fees of $2.3$0.6 million, other public service fees of $1.2$1.7 million, and license and maintenance fees of $1.0$1.3 million.

Approximately 80%82% and 76%79% of our revenues during the three months ended MarchJune 31,30, 2026 and 2025 were derived from Journal Technologies. In addition, our revenues during the three months ended MarchJune 31,30, 2026 were primarily from the United States, with approximately $2.2$3.0 million (9.7%11.0%) from foreign countries.countries and U.S. territories.

Consolidated operating expenses increased by $2.5$1.5 million (14.6%7.6%) to $19.7$21.7 million from $17.2$20.2 million. Total salaries and employee benefits remained essentially flat at $15.4 million, as increased Journal Technologies personnel costs were offset by $0.7decreased millionTraditional (6.1%)Business topersonnel $13.1 million from $12.3 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.costs. Outside services decreased by $0.1$0.3 million (3.7%14.7%) to $1.7$1.5 million from $1.8$1.7 million. Other general and administrative expenses increased by $2.0$1.8 million (147.6%123.7%) to $3.4$3.3 million from $1.4$1.5 million, primarily due to higher accounting and consulting fees associated with remediation of material weaknesses in internal controls.

Other expensesincome (expense) for the three months ended MarchJune 31,30, 2026 was $50.0$21.3 million of other expense, compared with $60.3$15.0 million of other income for the three months ended MarchJune 31,30, 2025. This change was primarily driven by unrealized losses on marketable securities of $51.2$24.1 million, compared with unrealized gains of $59.4$11.5 million in the prior-year quarter.

During the three months ended MarchJune 31,30, 2026 and 2025, consolidated pretax loss was $47.0$16.0 million and pretax income was $61.3$18.2 million, respectively, and consolidated net loss was $34.6$10.9 million and net income was $44.7$14.4 million, respectively.

For the three months ended MarchJune 31,30, 2026, Journal Technologies’ pretax income was $3.1$5.5 million compared to $0.1$4.2 million for the three months ended MarchJune 31,30, 2025. The increase was primarily attributable to higher revenues of $4.4$3.6 million, partially offset by increased operating expenses of $1.4$2.2 million.

For the three months ended MarchJune 31,30, 2026, the Traditional Business reported a pretax lossincome of $0.5 million, compared to pretax incomeloss of $0.9 million for the three months ended MarchJune 31,30, 2025. This decreaseincrease was primarily attributable to otherdecreased operating expenses.expenses, driven by lower personnel costs.

Total revenues increaseddecreased by less than $0.1 million (2.3%0.8%) to $4.5$4.8 million from $4.4$4.9 million in the prior-year quarter. Advertising andrevenues decreased by $0.1 million (1.5%), while circulation revenues increased by less than $0.1 million (5.3% 1.7%).

The Traditional Business segment operating expenses increaseddecreased by $1.5 million (42.0%25.5%) to $5.0$4.3 million from $3.5$5.8 million, primarily resulting from decreased personnel costs, partially offset by increased merchant discount fees, additional promotional expenses, and accounting advisory fees primarily associated with the remediation of material weaknesses in our internal controls, as well asand higher legal and service provider expenses associated with proxy solicitation and stockholder outreach activities.expenses.

During the sixnine months ended MarchJune 31,30, 2026, our cash and cash equivalents, restricted cash, and marketable securities decreased by $62.8$76.4 million, reflecting net pretax unrealized losses on marketable securities of $62.9$87.0 million. The investments in marketable securities, which had an adjusted cost basis of approximately $139.1 million and a market value of approximately $430.1$406.0 million as of MarchJune 31,30, 2026, generated approximately $2.6$5.5 million in dividends and interest income during the sixnine months ended MarchJune 31,30, 2026. These securities had approximately $291.0$266.9 million of cumulative unrealized gains before estimated taxes of $75.7$68.7 million which will become due only when we sell securities in which there is realized appreciation.

No marketable securities were sold during the sixnine months ended MarchJune 31,30, 2026. The margin loan principal balance was paid down by $2.0 million using excess cash from operations. The loan balance was $20.0 million and $22.0 million as of MarchJune 31,30, 2026 and September 30, 2025, respectively.

As of MarchJune 31,30, 2026, we had working capital of $441.7$424.1 million, including the liabilities for deferred revenue of $16.4$17.9 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 securitiesassets 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.

For the sixnine months ended MarchJune 31,30, 2025,2026, net cash provided by operating activities was $1.6$12.9 million. Cash provided by operating activities consisted of a net incomeloss of $55.6$53.5 million, adjusted for non-cash items of $52.3$65.1 million, and increased by cash usedprovided forby working capital of $1.6$1.3 million. Adjustments for non-cash items consisted primarily of $72.8$87.0 million of net unrealized gainslosses on marketable securities, and partially offset by $20.3$22.2 million of deferred income tax expense, as well as $0.1 million of depreciation and amortization and $0.1 million of stock-based compensation.benefit. The use of cash fromprovided by changes in operating assets and liabilities was primarily attributable to a $6.5$3.1 million decrease in deferredaccounts revenuereceivable, reflecting improved collections, a $3.0 million increase in accounts payable, a $1.6 million increase in income taxes payable, and a $2.5$0.5 million increase in deferred revenue, partially offset by a $4.5 million decrease in accrued liabilities, including non-qualified deferred compensation, partially offset byand a $7.4$2.4 million decreaseincrease in accountsprepaid receivable,expenses reflectingand improvedother collections.assets.

For the sixnine months ended MarchJune 31,30, 2026 and 2025 ,2025, net cash used in investing activities was negligible or nil.

For the sixnine months ended MarchJune 31,30, 2026, net cash used in financing activities totaled $2.1 million, consisting primarily of a $2.0 million repayment on the outstanding balance of the Company’s investment margin loan.

There were no material changes to our critical accounting policies in the three months ended MarchJune 31,30, 2026 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2025 Annual Report.