DAILY JOURNAL CORP

Daily Journal Corporation operates in two distinct industries: newspaper publishing and related information services (the Traditional Business) and case management software systems for justice agencies (Journal Technologies). The Traditional Business publishes 10 newspapers of general circulation covering California and Arizona news, produces specialized information publications, and serves as a newspaper representative specializing in public notice advertising. Journal Technologies 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, with products licensed or subscribed to in approximately 37 states and internationally. The newspaper industry continues to experience significant secular decline, and the Company believes subscriptions to its publications and the amount of advertising will decline over the long term. Journal Technologies faces significant competition in markets characterized by a limited number of vendors competing for a finite number of large procurements, with customers frequently selected through formal competitive bidding processes.

The Traditional Business faces aggressive competition in Los Angeles and San Francisco for The Daily Journals, and competes with at least one significant competitor for public notice advertising revenue in each of its markets. Journal Technologies faces significant competition from vendors with substantially greater scale, longer operating histories, and deeper penetration in particular jurisdictions and customer segments, including competitors with long-standing experience with statewide implementations. In the prosecutor market, the Company competes with small and mid-sized vendors that focus on higher volumes of smaller, more price-sensitive agencies. The Company also competes with specialized vendors in adjacent or niche justice verticals that may offer highly focused, turnkey solutions or adopt new technologies more quickly. The Company believes The Daily Journals are the most important newspapers serving California lawyers on a daily basis.

The Company generates revenue through two reportable segments: the Traditional Business, which earns advertising, circulation, and advertising service fees and other revenues, and Journal Technologies, which earns licensing and maintenance fees, consulting fees, and other public service fees. For the Traditional Business, proceeds from subscriptions are recorded as deferred revenue and recognized over the subscription term, while advertising revenues are recognized when advertisements are published. Journal Technologies earns revenues from license, maintenance and support fees, hosting services, consulting fees for installation and implementation services, and fees generated by secure websites through which the public can pay traffic citations and e-file cases. Journal Technologies' operations constituted approximately 80% and 76% of the Company's total revenues in fiscal years 2025 and 2024, respectively. The Company's revenues during fiscal year 2025 were primarily from the United States, with approximately $10.0 million (11%) from foreign countries.

The Traditional Business publishes 10 newspapers of general circulation, including the Los Angeles Daily Journal and the San Francisco Daily Journal (together, The Daily Journals), which focus on law and its impact on society and are distributed by mail and hand delivery. As of September 30, 2025, the Los Angeles Daily Journal had approximately 3,636 paid subscribers and the San Francisco Daily Journal had approximately 2,045 paid subscribers, compared to total paid subscriptions for both of The Daily Journals of 5,687 as of September 30, 2024. The regular yearly subscription rate for each of The Daily Journals is $895 plus tax. The Traditional Business also offers specialized information services including multi-volume, loose-leaf court rules sets for state and federal courts in California updated on a monthly basis, single-volume rules for Los Angeles and San Diego counties, and the Judicial Profiles service containing information concerning nearly all active judges in California. Other revenues include fees from attorneys taking continuing legal education tests published in The Daily Journals and online, and other miscellaneous fees including reprint services.

Journal Technologies provides case management software and related services based on its core eSeries Framework technology, with product solutions including eCourt, eProsecutor, eDefender and eSupervision (formerly eProbation) — browser-based case processing systems that are highly configurable. Complementary products include eFile-it, a browser-based interface for electronic filing of documents with the court, and ePay-it, a service primarily for the online payment of traffic citations. Journal Technologies also provides hosting services through AWS GovCloud for customers who choose to have it. During fiscal year 2025, Journal Technologies' revenues increased by $16.8 million (32%) to $69.9 million from $53.1 million in the prior fiscal year, with licensing and maintenance fees increasing by $3.5 million (12%) to $31.7 million from $28.3 million, consulting fees increasing by $7.6 million (51%) to $22.7 million from $15.1 million, and other public service fees increasing by $5.7 million (59%) to $15.5 million from $9.8 million primarily because of increased e-filing fee revenues. The Company's revenues from Journal Technologies' foreign customers were approximately $11.9 million in fiscal year 2025 and $6.2 million in fiscal year 2024.

During fiscal year 2025, no marketable securities were sold, but the margin loan principal balance was paid down by $5.5 million to $22.0 million as of September 30, 2025, using excess cash from operations. In fiscal year 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 as of September 30, 2024. The Company did not repurchase any shares during fiscal years 2025 and 2024. The Company did not declare or pay any dividends during fiscal years 2025 or 2024. The Company had approximately 415 full-time employees and contractors and approximately 9 part-time employees as of September 30, 2025. The Company is not a party to any collective bargaining agreements. The Company has identified a material weakness in its internal control over financial reporting related primarily to segregation of duties and access controls that originated in prior periods, and although management has implemented significant improvements and enhanced controls during fiscal year 2025, the Company has not yet been able to fully remediate this material weakness as of September 30, 2025.

Consolidated revenues were $87.7 million and $69.9 million for fiscal years 2025 and 2024, respectively, an increase of $17.8 million (25%). Consolidated operating expenses increased by $12.3 million (19%) to $78.1 million from $65.9 million. 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) for fiscal year 2025, as compared with $78.1 million ($56.73 per share) in the prior fiscal year. Other income, net of expenses, rose by $40.4 million (40%) to $140.6 million from $100.2 million, driven primarily 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.

Journal Technologies is pursuing growth through continued investment in the development of new and next-generation technology as part of its broader product strategy, with investment required to improve existing technology to simplify the process of configuring, managing and updating systems. The Company has begun developing next-generation development patterns and practices to address technical debts that exist within current generation offerings. The Company has already introduced AI features in some of its products and states that to continue delivering value to customers and outpacing the competition, it must further invest in these cutting-edge technologies. The Company is allocating resources to pursue AI opportunities through in-house engineering and may also do so through partnerships, or mergers and acquisitions. Journal Technologies' staff includes employees focused on marketing with the intention of growing market share over time, via additional consulting projects and licensing of products.

The Company is pursuing international growth through its presence in Australia, where Journal Technologies is working on four software installation projects, and in British Columbia, Canada, where the Company has operated a wholly-owned subsidiary, Journal Technologies (Canada), Inc. since August 2022. The Company's revenues from Journal Technologies' foreign customers were approximately $11.9 million in fiscal year 2025 and $6.2 million in fiscal year 2024. Geopolitical developments, changes in trade policy, or related uncertainty may affect procurement behavior in international markets, and in certain jurisdictions, prospective customers may prefer local vendors or exhibit reluctance to contract with United States-based companies.

The Company's investment margin account has an interest rate that fluctuates based on the Federal Funds Rate plus 50 basis points with interest only payable monthly, and the interest rate as of September 30, 2025 was 4.75%. The Company's interest expense on the margin account has decreased primarily due to the reduction to the investment margin account borrowings during fiscal year 2025. The Company has experienced the effects of inflation primarily through increases in costs of personnel, which have generally been offset by increased license, maintenance and support fees that often contain a periodic cost-of-living adjustment. The Company continues to invest in the development of new and next-generation technology, and the costs to update and upgrade products are generally expensed as incurred and will impact earnings at least through the foreseeable future.

The Company's Traditional Business uses the U.S. Postal Service for distribution of a majority of its newspapers and products, and postal rates have increased during the past several years and may increase more in the future. The Company currently does not have a contract with any paper supplier, and paper prices may fluctuate substantially in the future or otherwise be affected by tariffs and/or changes to trade agreements. The Company may not be able to pass on increases in paper and postage costs to its customers. The Company's Traditional Business segment continues to experience challenges in maintaining its commercial advertising and circulation revenues, particularly due to the growth of Internet sites, and these trends are expected to continue and adversely affect the Traditional Business.

The Company believes it has sufficient cash and marketable securities to support its operations for the foreseeable future. If the Company's overall cash needs exceed cash flow and its current working capital, the Company may still have the ability to borrow against its marketable securities on favorable terms, or it may attempt to secure additional financing, which may or may not be available on acceptable terms. The Company expects to manage and harvest its marketable securities portfolio primarily to support the further development of Journal Technologies and its business, and does not anticipate initiating new investments in public common stocks unrelated to its core businesses. The Company's stock repurchase program remains in effect, but the Company did not repurchase any shares during fiscal years 2025 and 2024. The Board of Directors does not expect that the Company will pay any dividends or other distributions to shareholders in the foreseeable future.

The Traditional Business faces structural headwinds from the ongoing secular decline of the newspaper industry, with the Company believing the long-term trend will be in the direction of fewer subscriptions to the Daily Journals and court rule publications. Changes in the legal requirement to publish public notice advertising in printed newspapers, particularly in California and Arizona, could materially adversely affect revenues. 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 for self-service storage facility lien sales, and another bill (AB721) relative to school budget hearing notices was passed effective January 1, 2027, moving these notices to posting on the school district's website in lieu of being published in a newspaper. The Traditional Business also faces risks from fluctuations in postage and paper costs, with postal rates having increased during the past several years and paper prices potentially fluctuating substantially due to tariffs or changes to trade agreements.

Journal Technologies faces execution risks related to its reliance on government customers, with almost all customers being courts, justice agencies, and other government entities, creating unique risks associated with governmental budget constraints, longer and more complicated sales cycles, political issues related to resource allocation, administration turnover, and complicated bidding procedures. The success of Journal Technologies depends in large part on the technological update and upgrade of its software products, and the costs to update and upgrade those products consistently represent a large portion of Journal Technologies' expenses. The end-of-life process for legacy products and customer transitions to new products must be handled effectively, as disruptions that affect long-standing customer relationships can have negative reputational implications. The Company faces risks related to the maturation of artificial intelligence technologies, which may fundamentally alter or automate key customer workflows over time, potentially obviating the need for its technology.

The Company faces material risk from the concentration of its marketable securities portfolio, which as of September 30, 2025 was concentrated in just six companies with an aggregate fair value of approximately $493.0 million ¹ and cumulative unrealized gains of $353.9 million ²; a significant decline in the market value of one or more holdings may not be offset by better performance of other holdings and could have a pronounced effect on net income and shareholders' equity. The irreplaceable manager of the portfolio, Charles T. Munger, passed away in November 2023, and the Company does not expect future financial performance of the portfolio to rival its past performance. The Traditional Business faces material risk from changes in legal requirements for public notice advertising, with California bills already reducing required publication days for self-service storage facility lien sales (resulting in a decline of approximately $14,000 ³ in fiscal year 2024) and moving school budget hearing notices to websites effective January 1, 2027. Journal Technologies faces material risk from its reliance on government customers, where budget constraints could force deferral or foregoing of consulting services or stopping payment of annual software license and maintenance fees, and from the highly unpredictable nature of competitive bidding processes for new software installation and licensing projects. The Company has identified a material weakness in internal control over financial reporting related to segregation of duties and revenue review controls that has not been fully remediated as of September 30, 2025, creating risk that a material misstatement of financial statements will not be prevented or detected on a timely basis.

Management's message to shareholders emphasizes the Company's two distinct businesses and the significant financial performance driven by unrealized gains on marketable securities. Management highlights that 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. Management notes that the Company continues to invest in the development of new and next-generation technology as part of its broader product strategy, with investments being made to both improve win rates and maximize the efficiency of building and deploying customer systems, with the intention to improve profitability. Management also emphasizes that following the passing of Charles T. Munger in November 2023, the Company does not expect the future financial performance of its marketable securities portfolio to rival its past performance, and henceforth expects to manage and harvest its marketable securities portfolio primarily to support the further development of Journal Technologies and its business. Management's strategic priorities include remediating the material weakness in internal control over financial reporting, with the Company having engaged an independent third-party advisory firm and implemented significant improvements including increased finance personnel, enhanced review procedures, and continued enterprise resource planning modernization efforts.