Disclosure Regarding Forward-Looking Statements

This Annual Report on Form 10-K 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; Journal Technologies’ reliance on professional services engagements with justice agencies; material changes in the costs of postage and paper; 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; the impacts of Coronavirus (COVID-19)COVID-19 variants and the efforts to contain it on the Company’s customers, advertisers and subscribers, particularly the closure or scaling back of operations of courts, justice agencies and other businesses; a further decline in public notice advertising revenues because of fewer foreclosures; a further decline in subscriber and commercial advertising revenues; possible security breaches of the Company’s software or websites; the Company’s reliance on its president and chief executive officer, who has reduced his work schedule due to a health issue; 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-K, 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.

PART I

Item 1. Business

Daily Journal Corporation (the “Company”) publishes newspapers and websites reporting California and Arizona news 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 the Company, 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 efiling and a website to pay traffic citations and fees online, and bar members.online. These products are licensed to more than 500 organizations in 42approximately 30 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 where Journal Technologies is working on three software installation projects. In August 2022, the Company established a new wholly-owned subsidiary, Journal Technologies (Canada) Inc., in Victoria BC, Canada. Financial information of the Company, including information about each of the Company’s reportable segments, is set forth in Item 8 (“Financial Statements and Supplementary Data”).

Products and Services

The Traditional Business

Newspapers and related online publications. The Company publishes 10 newspapers of general circulation. Each newspaper, in addition to news of interest to the general public, has a particular area of in-depth focus for its news coverage, attracting readers interested in obtaining specific information through a newspaper format.

The publications are based in the following cities:

The Daily Journals. The Los Angeles Daily Journal and the San Francisco Daily Journal (together, “The Daily Journals”) are each published every weekday except certain holidays and were established in 1888 and 1893, respectively. In addition to covering state and local news of general interest, these newspapers focus on law and its impact on society. Generally, The Daily Journals seek to be of special use to lawyers and judges.

The Daily Journals share much content. The Los Angeles Daily Journal is the largest newspaper published by the Company, both in terms of revenues and circulation. At September 30, 2020,2022, the Los Angeles Daily Journal had approximately 4,0003,570 paid subscribers and the San Francisco Daily Journal had approximately 2,3002,070 paid subscribers as compared with total paid subscriptions for both of The Daily Journals of 6,8005,700 at September 30, 2019.2021. The Daily Journals carry commercial advertising (display and classified) and public notice advertising required or permitted by law to be published in a newspaper of general circulation. The main source of commercial advertising revenue has been law firms and businesses wishing to reach the legal professional community. The gross revenues generated directly by The Daily Journals are attributable approximately 67%57% to subscriptions and 33%43% to the sale of advertising and other revenues. Revenues from The Daily Journals constituted approximately 14%13% of the Company's total operating revenues in fiscal 2020 revenues2022 and 16%14% in 2019.

It is the policy of The Daily Journals (1) to take no editorial position on the legal and political controversies of the day but instead to publish well-written editorial views of others on many sides of a controversy, and (2) to try to report on factual events with technical competence, objectivity and accuracy. It is believed that this policy suits a professional readership of exceptional intelligence and education, which is the target readership for the newspapers. Moreover, the Company believes that The Daily Journals bear a duty to their readership, particularly judges and justices, as a self-imposed public trust, regardless, within reason, of short-term income penalties. The Company believes that this policy of The Daily Journals is in the long-term interest of the Company’s shareholders.fiscal 2021.

The Daily Journals include the Daily Appellate Report, providing full text and case summaries of all opinions certified for publication by the California Supreme Court, the California Courts of Appeal, the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit and the U.S. Bankruptcy Appellate Panel for the Ninth Circuit. The Daily Journals also include a monthly court directory in booklet form. This directory includes a comprehensive list of sitting judges in all California courts as well as courtroom assignments, phone numbers and courthouse addresses, plus ''Judicial Transitions'' which lists judicial appointments, elevations, confirmations, resignations, retirements and deaths.

The Daily Journals are distributed by mail and hand delivery. The regular yearly subscription rate for each of The Daily Journals is $853$887 plus tax.

Most of the information published in The Daily Journals is available to subscribers online at www.dailyjournal.com.

Daily Commerce. Published since 1917, the Daily Commerce is based in Los Angeles and covers news of general interest, columns of interest to real estate investors and brokers, and information on distressed properties in Los Angeles County. The nature of the news coverage enhances the effectiveness of public notice advertising by distributing information about foreclosures to potential buyers. Features include default listings and probate sale notices. The Daily Commerce carries both public notice and commercial advertising. It is published each business day. A subscription includes online access to the Los Angeles County foreclosure listing and public record database.

The Daily Recorder. The Daily Recorder, based in Sacramento, began operations in 1911. It is published each business day. In addition to general news items, it includes legal news and columns of interest to the Sacramento legal and real estate communities. It includes the Daily Appellate Report and carries commercial and public notice advertising. A subscription includes online access to the Sacramento County foreclosure listing and public record database.

The Inter-City Express. The Inter-City Express (the “Express”) has been published since 1909. It covers general news of local interest and focuses its coverage on news about the real estate and legal communities in the Oakland/San Francisco area. The Express carries public notice advertising and is published each business day. A subscription includes online access to the Alameda County foreclosure listing and public record database.

San Jose Post-Record. The San Jose Post-Record (the “Post-Record”) has been published since 1910. In addition to general news of local interest, the Post-Record focuses on legal and real estate news. It is published every business day and carries public notice advertising. A subscription includes online access to the Santa Clara County foreclosure listing and public record database.

Orange County Reporter. The Orange County Reporter (“Reporter”) has been an adjudicated newspaper of general circulation since 1922. In addition to general news of local interest, the Reporter publishes local and state legal, business and real estate news, and carries public notice advertising. The Reporter is published three days a week. A subscription includes online access to the Orange County foreclosure listing and public record database.

The Daily Transcript. The Daily Transcript is based in San Diego and published each business day. It reports general news items and San Diego commercial real estate, business and construction news. It has been an adjudicated newspaper of general circulation since 1909. It carries commercial and public notice advertising. A subscription includes online access to the San Diego County foreclosure listing and public record database.

Business Journal. The Business Journal, established in 1991, publishes news of general interest and provides coverage of the business and professional communities in Riverside County. It also carries public notice advertising and is published each business day. The subscription includes online access to the Riverside/San Bernardino County foreclosure listing and public record database.

The Record Reporter (Arizona). The Record Reporter has been in existence since 1914. In addition to general news of local interest, The Record Reporter, which is published three days a week, focuses on legal news and public record information and carries primarily public notice advertising. The subscription includes online access to the Maricopa and Pinal County public record database.

Information Services. The specialized information services offered by the Company have grown out of its newspaper operations or have evolved in response to requests of its newspaper subscribers.

The Company has several court rules services, including multi-volume, loose-leaf sets for certain state and federal courts in California. The Northern California set consists of nine volumes. The Southern California set has eight volumes. The Company updates these court rules on a monthly basis. In addition, the Company publishes single-volume rules for (1) Los Angeles County; (2) Orange County; (3) San Diego County; (4) the Ninth Circuit and the Central District of California. The single volumes are normally updated or replaced when there are rule changes.

The Judicial Profiles service contains information concerning nearly all active judges in California. The Judicial Profiles include an interview-based article previously published in The Daily Journals, biographical data and information supplied by participating judges on courtroom procedures and policies. Subscribers may purchase the ten-volume set for Southern California, the eight-volume set for Northern California or individual profiles online.

The Company also provides online foreclosure information to about seven customers. This service primarily provides distressed property information, some of which also appears in some of the Company's newspapers.

Advertising and Newspaper Representative. The Company's publications carry commercial advertising and public notice advertising. Commercial advertising consists of display and classified advertising and constituted about 4% of the Company’s total operating revenues in both fiscal 20202022 and 6% in 2019. Classified advertising revenues have continued to decline primarily due to the continued downturn in the employment advertising marketplace and online competition.2021.

Public notice advertising consists of many different types of legal notices required by law to be published in an adjudicated newspaper of general circulation, including notices of death, fictitious business names, trustee sale notices and notices of governmental hearings. The major types of public notice advertisers are real estate-related businesses and trustees, governmental agencies, attorneys, and businesses or individuals filing fictitious business name statements. Many government agencies use the Company’s Internet-based advertising system to produce and send their notices to the Company for publication. A fictitious business name website enables individuals to send their statements to the Company for filing and publication, and another website enables attorneys and individuals to send probate, civil, corporate, public sale and other types of public notices to the Company.  California Newspaper Service Bureau (“CNSB”), a division of the Company, is a statewide newspaper representative (commission-earning selling agent) specializing since 1934 in public notice advertising. CNSB places public notices and other forms of advertising with adjudicated newspapers of general circulation, most of which are not owned by the Company, and produces a legal advertising page for some other newspapers.

Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 15%‐‐17% of the Company's total operating revenues in both fiscal 20202022 and 18% in 2019.fiscal 2021. Most of these revenues were generated by (i) notices published in the Company’s newspapers, (ii) commissions and similar fees received from other publications in which the advertising was placed, and (iii) service fees to file notices with government agencies.

TrusteeFor several years, trustee sales legal advertising revenues alone represented about 1% of the Company’s total operating revenues in fiscal 2020 and 2% in 2019. For several years, these revenues were driven by the large number of foreclosures in California and Arizona, for which public notice advertising is required by law, but the number oflaw. Recently, however, there have been far fewer foreclosures, has continued to decline since 2010. In addition, in many states, including California and Arizona, legislatures have considered various proposals which would result in the elimination or reductiontrustee sales legal advertising revenues represented only about 2% of the amount of public notice advertising required by statute,Company’s total operating revenues in fiscal 2022 and Arizona approved one such proposal effective1% in 2017 that virtually eliminated the publication of one particular notice type. There is a risk that such laws could change in a manner that would have a significant adverse impact on the Company’s public notice advertising revenues.fiscal 2021.

Other revenues are attributable to service fees from users of an online foreclosure/fictitious business name databases, fees from attorneys taking continuing legal education tests published in The Daily Journals and online, and other miscellaneous fees.fees including reprint services of articles published in The Daily Journals.

Journal Technologies

Journal Technologies provides case management software and related services to courts and other justice agencies. Its operations constituted about 71% of the Company’s total operating revenues in fiscal 20202022 and 65%69% in 2019.fiscal 2021. Journal Technologies earns revenuerevenues from license, maintenance and support fees paid by customers to use its software products; consulting fees paid by customers for installation, implementation and training services; and fees generated by the use of secure websites through which the general public can pay traffic citations and fees and e-file cases.  Journal Technologies has the following main “eSeries” products:

eCourt®, eProsecutor™, eDefender™ and eProbation™ —― browser-based case processing systems that can be used by courts and other justice agencies for all case types because the screens, data elements, business rules, work queues, searches and alerts are highly configurable. 

eFile™ —― a browser-based interface that allows attorneys and the general public to electronically file documents with the court.

ePayIt™ —― a service primarily for the online payment of traffic citations.  Users can pay traffic citations by credit card and get information on traffic school.

Almost all of Journal Technologies’ customers are government agencies, and most new software installation and licensing projects are subject to competitive bidding procedures. Accordingly, the ability of Journal Technologies to get new customers is highly unpredictable. In addition, budget constraints, especially during stressful economic times, could force governmental agencies to defer or forgo consulting services or even to stop paying their annual software maintenance fees. As a technology-based company, Journal Technologies’ success depends on the continued improvement of its products, which is why the costs to update and upgrade them consistently constitute such a significant portion of the Company’s expenses.

The Company’s revenues from Journal Technologies’ foreign customers were $1,687,000approximately $4,638,000 in fiscal 20202022 and $436,000$2,055,000 in 2019.2021. All of the Company’s other revenues in those years were attributable to the United States.

There were no business activities for the newly formed Journal Technologies (Canada) Inc. during fiscal 2022.

Materials and Postage

After personnel costs (included in “Salaries and employee benefits” and in “Outside services” in the accompanying consolidated statements of comprehensive income (loss)) income), postage and paper costs are typically the next two largest expenses for The Traditional Business. Paper and postage accounted for approximately 4% of our traditional publishing segment's operating costs in both fiscal 20202022 and 2019. Paper prices may fluctuate substantially in the future, and periodic postal rate increases could significantly impact income from operations. Further, we may not be able to pass on such increases to our customers.2021.

An adequate supply of newsprint and other paper is important to the Company's operations. The Company currently does not have a contract with any paper supplier. The Company has always been able to obtain sufficient newsprint for its operations, although past shortages of newsprint have sometimes resulted in higher prices. TheDuring fiscal 2022, the price of newsprint did not increase during fiscal 2020, but we anticipate future increases.increased by 23%.

We use the U.S. Postal Service for distribution of roughly 45% of our newspapers. During the past several years, the Company has instituted changes in an attempt to mitigate higher postage costs. These changes have included contracting for hand delivery in selected sections of the San Francisco Bay area and in Santa Clara, Alameda, San Diego, Riverside, San Bernardino, Orange and Los Angeles counties, delivering pre-sorted newspapers to the post office on pallets, which facilitates delivery and improves service, and bundling newspapers to reduce per-piece charges. In addition, the Company has an ink jet labeler which eliminates paper labels and enables the Company to receive bar code discounts from the postal service on some of its newspapers.

Postal rates are dependent on the operating efficiency of the U.S. Postal Service and on legislative mandates imposed upon the U.S. Postal Service. During the past several years, the U.S. Postal Service has increased postal rates. (Decreases in the Company’s aggregateDuring fiscal 2022, postage costs during fiscal 2020 were primarily dueincreased slightly by $4,000 (1%) to subscriber loss and increased online-only subscribers during the COVID-19 period.)   $437,000 from $433,000.

Marketing

The Company actively promotes its individual newspapers and its multiple newspaper network as well as its other publications. The specialization of each publication creates both target subscribers and target advertisers. Subscribers are likely to be attracted because of the nature of the information carried by the particular publication, and likely advertisers are those interested in reaching such consumer groups. In marketing products, the Company also focuses on its ancillary products which can be of service to subscribers, such as its specialized information services.

The Company receives, on a non-exclusive basis, public notice advertising forfrom a number of service providers. Such agencies ordinarily receive a commission of 15% to 25% on their sales of advertising in Company and other publications. Commercial advertising agencies also place advertising (including nearly 100% of display advertising) in Company publications and receive commissions for advertising sales.

Journal Technologies’ staff includes employees who provide marketing and consulting services which may also result in additional consulting projects and the licensing of products. Most of Journal Technologies’ new projects come from a competitive bidding process.

Competition

Competition for readers and advertisers is very intense, both by established publications and by new entries into the market. The Daily Journals face aggressive competition in Los Angeles and San Francisco. All of the Company's business publications and products face strong competition from other publications and service companies. Readers of specialized newspapers focus on the amount and quality of general and specialized news, amount and type of advertising, timely delivery and price. The Company designs its newspapers to fill niches in the news marketplace that are not covered as well by major metropolitan dailies. The in-depth news coverage which the Company's newspapers provide, along with general news coverage, attracts readers who, for personal or professional reasons, desire to keep abreast of topics to which a major newspaper cannot devote significant news space. Other newspapers do provide some of the same subject coverage as does the Company, but the Company believes its coverage, particularly that of The Daily Journals, is more complete. The Company believes that The Daily Journals are the most important newspapers serving California lawyers on a daily basis.

The Company's court rules publications face competition from case management systems and the courts themselves. Subscriptions to the single and multi-volume court rules continued to decline during fiscal 2020.2022. The Company's Judicial Profile services have indirect competition because some of the same information is available through other sources, including the courts.

The steady decline in recent years in the number of subscriptions to The Daily Journals and court rule publications is likely to continue and will certainly impact the Company’s future revenues.

In attracting commercial advertisers, the Company competes with other newspapers and magazines, television, radio and other media, including electronic and online systems for employment-related classified advertising. Factors which may affect competition for advertisers are the cost for such advertising compared with other media, and the size and characteristics of the readership of the Company's publications. Internet sites devoted to personnel recruitment have become significant competitors of our newspapers and websites for classified advertising.

In addition, there has been a steady consolidation of companies serving the legal marketplace, resulting in an ever-smaller group of companies placing display advertising. Consequently, retaining advertising revenues remains a challenge. To reduce costs, the Company has contracted with an outside advertising agency to conduct sales of its display advertising.

The Company competes with at least one serious competitor for public notice advertising revenue in each of its markets. Large metropolitan general interest newspapers normally do not carry a significant amount of legal advertising, although recently they too have solicited certain types of public notice advertising. CNSB, the Company’s commission-earning selling agent, faces competition from a number of companies based in California, some of which specialize in placing certain types of notices.

There is significant competition among a limited number of companies to provide services and software to the 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. Others provide services for a limited number of customers. As part of the competitive bidding process, many customers will express a preference for, or even require, larger vendors.

Many customers desire Internet-basedexternally-hosted-Software-as-a-Service (SaaS) solutions to centralize operations, facilitate electronic filing, interface with other justice partners and the public, and publish certain information from case management systems.systems, and simplify provision of these services. Certain Journal Technologies’ product lines now provide versions of these services, but there are many uncertainties in the process of courts and other agencies migrating to newer Internet-based systems, including whether Journal Technologies’ versions of case management systems will find general acceptance and whether the update, upgrade and modification of such systems can be done in a cost-effective manner. To focus on supporting the Company’s main eSeries products, the Company has announced an end to the maintenance of legacy software products purchased as part of the New Dawn and ISD acquisitions in fiscal 2013 on June 30, 2021.SaaS pattern. The Company competes on a variety of factors, including price, technological capabilities and services to accommodate the individual requirements of each customer.

Employees

The Company had approximately 312‐‐‐‐315 full-time employees and contractors and about 810 part-time employees as of September 30, 2020,2022, including about 215 full-time220 employees and contractors at Journal Technologies. The Company is not a party to any collective bargaining agreements. Certain benefits, including medical insurance, are provided to all full-time employees. Management considers its employee relations to be good.

Working Capital

Traditionally, the Company had generated sufficient cash flow and dividends from operations to cover all its needs without significant borrowing. The Company owns marketable securities with dividends and significant appreciation, providing the Company with additional working capital, subject, of course, to the normal risks associated with owning securities. To a considerable extent, the Company also benefits from the fact that subscriptions and some licenses, maintenance and customer support and consulting fees are paid in advance. In fiscal 2013, the Company borrowed $14 million from its investment margin account to purchase all of the outstanding stock of New Dawn Technologies, Inc. (“New Dawn”), and another $15.5 million to acquire substantially all of the operating assets and liabilities of ISD Technologies, Inc. (“ISD”), in each case pledging its marketable securities to obtain favorable financing. In addition, there were subsequent borrowings of $45.5 million to purchase additional marketable securities bringing the margin loan balance up to $75 million as of September 30, 2022.

The Company believes it has sufficient cash and marketable securities 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 has sold some securities and could sell additional marketable securities to generate cash, if necessary.

The Company extends unsecured credit to most of its advertising customers.customers and some government agencies. The Company maintains a reserve account for estimated losses resulting from the inability of these customers to make required payments, but if the financial conditions of these customers were to deteriorate or the Company’s judgments about their abilities to pay are incorrect, additional allowances might be required, and the Company’s cash flows and results of operations could be materially affected.

Inflation

The effects of inflation are not significantly any more or less adverse on the Company's businesses than they are on other publishing and software companies. The Company has experienced the effects of inflation primarily through increases in costs of personnel. These costs have generally been offset by increased license, maintenance and support fees, which often contain a periodic cost-of- livingcost-of-living adjustment.

Also, the Company maintains an investment margin account for which the interest rate fluctuates based on the Federal Funds Rate plus 50 basis points with interest only payable monthly. The interest rate as of September 30, 2022 was 3%, and it may increase in the future, particularly if the Federal Reserve continues to increase interest rates to help combat inflation. The outstanding balance was $75 million at September 30, 2022. Because the Federal Reserve has increased interest rates to help combat inflation and may continue to do so, the Company’s interest expense on the margin account has increased and could increase more in the future.

Access to Our Information

The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). These filings are not available on our website, www.dailyjournal.com, which is generally dedicated to the content of our publications and services. We will, however, provide these filings in electronic or paper format free of charge upon request addressed to our Secretary at our principal executive offices. Our SEC filings are also available to the public over the Internet at the SEC’s website at www.sec.gov.

Item 1A. Risk Factors

The foregoing business discussion and the other information included in this Form 10-K should be read in conjunction with the following risks, trends and uncertainties, any of which, either individually or in the aggregate, could materially and adversely affect our business, operating results or financial condition.

Risks Associated with Coronavirus (COVID-19) Pandemic

The Company’sCompany’s business is likely to be materially and adversely affected by an epidemic or pandemic such as COVID-19, or by a similar event or the fear of such an event, and the measures that governmental authorities implement to address it.

As COVID-19 began to spread in March and April 2020, and again more recently, governmental authorities and health officials implemented numerous unprecedented measures to contain the virus, including “stay at home” orders for non-essential workers, travel restrictions, quarantines and business shutdowns. Most of Journal Technologies’ customers, which are primarily courts and governmental agencies in the United States, Canada and Australia, either closed or significantly scaled back their activities. Similarly, many law firms and companies from which the Traditional Business derives advertising and subscription revenues also curtailed their operations and spending.

The impact on economic activity of these actions or similar actions in the future are likely to significantly impact the Traditional Business’ advertising and subscription revenues. The trend of working from home and using on-line services is also likely to put additional pressure on the newspaper business by impacting circulation numbers that may not be replaced by on-line revenues. Actions restricting travel, requiring non-essential workers to “stay at home” or causing courts and justice agencies to close or cut back operations can impact the ability of Journal Technologies to complete certain projects that are typically done in-person (and for which payment is usually received upon completion), reduce efiling revenues, affect procurement processes and result in overall payment delays. In addition, the Company relies on its portfolio of marketable securities for dividend income and balance sheet support, and the value of the portfolio can be materially affected by declines in stock prices, particularly among the common stocks of the three U.S. financial institutions and one foreign manufacturer that make up a substantial portion of the portfolio.

Due to the uncertainties associated with the duration and severity of an event like COVID-19, the efforts to contain it, and the changes in business operations and personal behaviors that are likely to follow from it, it is difficult to estimate the magnitude of its impact on the Company’s business in future periods, but it could materially affect the Company’s operations, staffing levels, financial condition, liquidity and cash flows going forward. Also, while the vast majority of the Company’s employees are currently working from home effectively, a resurgence in serious COVID-19 infections could cause the Company to experience a lack of availability of employees to perform key job functions at particular points in time.

Risks Associated with thethe Traditional Business

A continuing reduction in the number of residential foreclosures in California and Arizona will result in fewer trustee sale notices being published in the Company’s newspapers.

For several years, the revenues of The Traditional Business were driven by the large number of foreclosures in California and Arizona, for which public notice advertising is required by law. With improvements in the economy, the number of foreclosures continued to decline in 2020. We expect this trend to continue, and it will significantly and adversely impact the earnings of The Traditional Business because it will be impractical for the Company to offset the expected revenue loss with expense reductions.

Changes in the legal requirement to publish public notice advertising or in the legal ability of our newspapers to publish those notices would have a significant adverse impact on The Traditional Business.

From time to time, the legislatures in California and Arizona (and elsewhere) have considered various proposals that would result in the elimination or reduction of the amount of public notice advertising in printed newspapers required by statute, and Arizona approved one such proposal for a particular notice type in fiscal 2017. 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. To the extent these proposals become law, particularly in California and Arizona, they could materially affect the revenues of The Traditional Business.

In addition, if the adjudication, which is what gives publishers the legal ability to publish public notice advertising, of one or more of the Company’s newspapers were challenged and revoked, those newspapers would no longer be eligible to publish public notice advertising, and it could materially affect the revenues of The Traditional Business.

The Traditional Business faces strong competition in each of its markets.

Competition for readers and advertisers is very intense, 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. The steady decline in recent years in the number of subscriptions to The Daily Journals and the court rule publications is likely to continue and adversely impact The Traditional Business’ future revenues.

The Traditional Business also competes with serious competitors for public notice advertising in all of its markets. As the amount of this advertising has decreased due to the reduction in the number of foreclosures discussed above, the competition to publish the remaining public notices has intensified and may result in a further decline in The Traditional Business’ public notice advertising revenues.

The Traditional Business continues to experience challenges in maintaining its commercial advertising and circulation revenues, particularly due to the growth of Internet sites.

Internet sites devoted to recruitment have become significant competitors of our newspapers and websites for classified advertising. In addition, there has been a steady consolidation of companies serving the legal marketplace, resulting in an ever-smaller group of companies placing display advertising. Furthermore, newspapers like ours have been struggling to compete for display advertising generally, given the many other forums (including Internet sites) that compete for advertising dollars. These trends are expected to continue and would adversely affect The Traditional Business. The Company has contracted with a third-party agency to sell display advertising for the Company.

Circulation revenues have continued to decline as more and more information has become available online. Law firm mergers have also reduced the number of firms that purchase multiple subscriptions of our newspapers. It is not practical to assume that we will be able to offset the decline in subscriptions with increases in the subscription rate, and we expect that our circulation revenues will continue to decline.

The Traditional Business is exposed to risks associated with fluctuations in postage and paper costs.

After personnel costs, postage and paper costs are typically the Company’s 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 have sometimes resulted in higher prices. The priceRecently, there have been consolidations of newsprint did not increasesuppliers, and paper prices may fluctuate substantially in fiscal 2020, but we anticipate future increases.the future.

The Traditional Business uses the U.S. Postal Service for distribution of a majority of its newspapers and products. Postal rates are dependent on the operating efficiency of the U.S. Postal Service and on legislative mandates imposed upon the U.S. Postal Service. During the past several years, postal rates have increased. Postal rates and fees may increase more in the future. Further, we may not be able to pass on increases in paper and postage costs to our customers.

Risks Associated with Journal Technologies

The success of Journal Technologies depends in large part on the technological update and upgrade of its software products.

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 effectivecost-effective manner. The costs to update and upgrade Journal Technologies’ products are expensed as incurred and will impact earnings at least through the foreseeable future.

Journal Technologies faces significant competition from other case management software vendors.

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 preference for, or even require, larger vendors. An inability to successfully compete in this difficult market could materially affect the earnings of Journal Technologies.

The customers of Journal Technologies are public sector entities, which create special issues and risks.

Almost all of the customers of Journal Technologies are courts, justice agencies, and other government entities. Accordingly, we face special risks associated with governmental budget constraints, especially during stressful 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, 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.

Journal Technologies generally recognizes revenues for software installations only upon completion of the applicable services and customer acceptance of the software system.

In most cases, installation fees are not due until the customer has indicated its satisfaction with the installed system, and it has “gone live”. Accordingly, we do not recognize revenues for 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.

The end-of-life process for legacy products and customer transitions to new products must be handled effectively.

Disruptions that affect long standing customer relationships can have negative reputational implications for Journal Technologies and that can affect its earnings.

Risks Associated with Our Holdings of Marketable Securities

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

As of September 30, 2020,2022, the Company held marketable securities worth approximately $179,368,000,$275,529,000, with an unrealized gain for financial statement purposes of $137,593,000.$120,692,000. While this portfolio has enabled the Company to borrow on very 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.

Also, as of September 30, 2020,2022, the Company’s holdings of marketable securities were concentrated in just five companies and included one based in foreign currency.eight companies. Accordingly, a significant decline in the market value and unfavorable changes in the foreign exchange rates of one or more of the Company’s holdings may not be offset by hypothetically better performance of other holdings. This concentration of risk may result in a more pronounced effect on net income and shareholders’ equity.

The Company is required to recognize losses in a particular security for financial statement purposes even though the Company has not actually sold the security.

Under new accounting rules that became effective in fiscal 2019, changes in the unrealized gains and losses on investmentsmarketable securities are now included in the Company’s reported net income (loss), even though the Company has not actually realized any gain or loss by selling such investments.marketable securities. Accordingly, changes in the market prices of the Company’s marketable securities can have a significant impact on the Company’s reported results for a particular period, even though those changes do not bear on the performance of the Company’s operating businesses.

The Company may be subject to fluctuations in foreign currency rates for marketable securities that are not denominated in the United States Dollar.

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 Dollar.

General Corporate Risks

The Company relies heavily on the services of Gerald Salzman.

Gerald Salzman, 81, serves as the Company’s president, chief executive officer, chief financial officer, treasurer and assistant secretary. He is also the president, chief executive officer, chief financial officer and secretary of Journal Technologies. Although Mr. Salzman has started delegating certain of his duties to other managers, it is unlikely that the Company could find a single replacement to perform the rest of the duties now handled by him, and it could have a significant adverse effect on the Company’s business. The Company does not carry key man life insurance, nor has it entered into an employment agreement with Mr. Salzman.

Changes in accounting guidance could have a significant effect on the Company’sCompany’s reported financial results.

Preparing consolidated financial statements requires the Company’s management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies and the prevailing accounting guidance. The Company considers fair value measurement and disclosures, revenue recognition, accounting for software costs and income taxes to be critical accounting policies and estimates. A change in the accounting guidance with respect to one or more of these areas could materially affect the Company’s reported financial results.

As noted above, beginning in fiscal 2019, changes in unrealized gains (losses) on investmentsmarketable 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.

We cannot be sure that customer information and systems are fully protected against security breaches.

Journal Technologies’ software processes and stores customer information in the conduct of its business, including in some cases by utilizing cloud-based systems supplied by third-party vendors.  Despite our efforts to maintain up-to-date security controls, it is possible that our system could be improperly used to access or misappropriate customer systems or information, including personally identifiable or other confidential information.  A material security breach of this nature could harm our reputation, cause us to lose current and potential customers, require us to allocate more resources to information security, or subject us or our customers to liability, resulting in increased costs, loss of revenue, or both.  The Traditional Business also operates certain websites that process and, in certain cases, store customer information.  A minor security breach was discovered on a website operated by The Traditional Business in early fiscal 2015, and although it was remediated, there can be no assurance that there will not be more material breaches in the future.  Also, our insurance may not cover all of the costs that we may incur as a result of a material security breach.    

The Company has identified material weaknesses in its internal control over financial reporting.

The Company has identified material weaknesses in its internal control over financial reporting. The Company’s internal control over financial reporting has been 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. As a small company, we are not able to segregate duties to the extent we could if we had more people, and we have not sufficiently designed controls that support an effective assessment of our internal controls relating to the prevention of fraud and possible management override of controls. Further, the Company does not have an internal audit group, and has not engaged an outside firm to complete the documentation of its internal control assessment to the level required by the applicable criteria.

We believe that our overall internal control environment is sufficient for a company of our size. However, the existence of material weaknesses means that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. If we are not able to correct material weaknesses or deficiencies in internal controls in a timely way, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the SEC’s rules and forms will be adversely affected. Such a result could negatively impact the market price and trading liquidity of our stock, weaken investor confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely affect our business and financial condition.

None.

The Company owns office and printing facilities in Los Angeles and an office building in Logan, Utah, and leases space for its other offices under operating leases which expire at various dates through 2022.October 2023.

The main Los Angeles property is comprised of a two-story, 34,000 square foot building constructed in 1990, which is fully occupied by the Company. Approximately 75% of the building is devoted to office space and the remainder to printing and production equipment and facilities. In 2003, the Company finished building an adjacent 37,000 square foot building and parking facilities on properties it acquired in 1996 and 1998. This building provides additional office, production and storage space. The Company and Journal Technologies occupy this building’s first floor and will complete the build-out of the second floor when needed.

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.

From time to time, the Company is subject to litigation arising in the normal course of its business. While it is not possible to predict the results of such litigation, management does not believe the ultimate outcome of these types of matters will have a material adverse effect on the Company’s financial position or results of operations or cash flows.

Not applicable.

Part II

Item 5.   Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following table sets forth the sales prices of the Company’s common stock for the periods indicated. Quotations are as reported by the NASDAQ Capital Market.

As of December 15, 2020,9, 2022, there were approximately 410340 holders of record of the Company’s common stock, and the last trade was at $301.50$261.15 per share.

The Company did not declare or pay any dividends during fiscal 20202022 or 2019.2021. A determination by the Company whether or not to pay dividends in the future will depend on numerous factors, including the Company’s earnings, cash flow, financial condition, capital requirements, future prospects, acquisition opportunities, and other relevant factors. The Board of Directors does not expect that the Company will pay any dividends or other distributions to shareholders in the foreseeable future.

The Company does not have any equity compensation plans, and it did not sell any securities, whether or not registered under the Securities Act of 1933, during the past threetwo fiscal years.

From time to time, the Company has repurchased shares of its common stock and may do so in the future. The Company maintains a common stock repurchase program that was implemented in 1987 in combination with the Company’s Management Incentive Plan. See Note 2 of Notes to Consolidated Financial Statements for more information. The Company’s stock repurchase program remains in effect, but the Company did not repurchase any shares during fiscal 20202022 and 2019.2021.

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 efiling and a website to pay traffic citations and fees online, and bar members.online. These products are licensed to more than 500 organizations in 4230 states and internationally.

Impact of the COVID-19 Pandemic

On March 13, 2020, the United States declared the outbreak of COVID-19 to be a national emergency, and several states and municipalities also declared public health emergencies. Unprecedented actions were taken by public health and other governmental authorities to contain and combat the spread of COVID-19, including “stay-at-home” orders and similar mandates that restricted the daily activities of individuals and limited the operation of businesses that were deemed “non-essential.”“non-essential”. In addition, most of Journal Technologies’ customers, which are primarily courts and governmental agencies in the United States, Canada and Australia, were either closed or significantly scaled back their activities. Similarly, many law firms and companies from which the Traditional Business derives advertising and subscription revenues also curtailed their in-person operations and spending.

In light of this extraordinary situation, on April 30, 2020, the Company made a difficult decision to reorganize its part-time and full-time workforce at both The Traditional Business and Journal Technologies, which included some layoffs and temporary furloughs. 

Management believes that the COVID-19 pandemic has had, and, with the recent resurgence of COVID-19Delta and Omicron variant cases, and most recently the more contagious BA.4.6 and BA.5 sub-variant cases, will continue to have, a significant impact on the Company’s business operations. This might includeIt is also possible that governments may again take actions in response to the pandemic and new variants and sub-variants, such as a substantial decrease in the value of the Company’s marketable securities portfolio, which is concentrated in the common stocks of three U.S. financial institutions, or at least a fair degree of volatility. In the future, dividends from the Company’s portfolio are expected to decrease as some banks reduce their dividends. It might also include the unprecedented continued closure, renewed closure, or scaling back of operations, of courts and other governmental agencies that are the customers of Journal Technologies, and fundamental changes in the way the advertisers and subscribers of the Traditional Business conduct operations. Even ifCompany. Furthermore, even as courts, governmental agencies and other businesses return to more normal operations, there are likely to be changes in those operations and personal behaviors going forward, including limitations on travel and more working from home, thatwhich will adversely affect the Company, its financial results and cash flows.

Due to the uncertainties associated with the duration and severity of the COVID-19 pandemic, the efforts to contain it, and the related changes in business operations and personal behaviors, that are likely to follow from it, management cannot at this point estimate the magnitude of its impact on the Company’s business operations. In recent years, the newspaper industry, including our Traditional Business, has declined, and we expect this general trend to continue at an accelerated pace due to the impacts of COVID-19 and its aftermath, including fewer lawyers receiving our newspapers at their offices as advertising and subscription revenues decrease.they continue to work from home.

For Journal Technologies, there have been several delays or cancellations in government procurement processes. Also, although we have been able to complete some existing projects remotely, we have been unable to finishdelayed in finishing certain implementations and trainings because of our inability to work with clients in-person. Given that we are typically paid for implementation services upon “go-live” of a system, receipt of those revenues is being delayed. In addition, there has been delayed.

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. (In August 2022, the Company established a reductionnew wholly-owned subsidiary, Journal Technologies (Canada) Inc., in efiling revenues and delayed client payments as many courts and other justice agenciesVictoria BC, Canada. Except for a nominal founding cost of approximately $4,000, there were closedno business activities for muchthis new Canadian company during fiscal 2022.) All inter-segment transactions were eliminated. Additional details about each of the year. Onreportable segments and its corporate income and expenses is set forth below:

During fiscal 2022 and 2021, the other sideTraditional Business had total operating revenues of $15,922,000 and $15,431,000 of which $11,528,000 and $10,855,000, respectively, were recognized after services were provided while $4,394,000 and $4,576,000, respectively, were recognized ratably over the coin,subscription terms. Total operating revenues for the Company has seen a reduction in operating costs due to lessCompany’s software business travel.were $38,087,000 and $34,494,000, of which $19,459,000 and $14,787,000, respectively, were recognized upon completion of services while $18,628,000 and $19,707,000, respectively, were recognized ratably over the subscription periods.

Fiscal 20202022 compared with fiscal 20192021

The Company’s reportable segments, and its corporate income and expenses, for the fiscal 2020 and 2019, is set forth below:Consolidated Financial Comparison

Overall Financial Results (000)

For the twelve months ended September 30

Consolidated revenues were $49,942,000$54,009,000 and $48,655,000$49,925,000 for the fiscal 20202022 and 2019,2021, respectively. This increase of $1,287,000 (3%$4,084,000 (8%) was primarily from increasedincreases in Journal Technologies’ consulting fees of $5,546,000 and the Traditional Business’ advertising revenues of $420,000 and advertising service fees and other of $253,000, partially offset by decreases in (i) Journal Technologies’ license and maintenance fees of $1,468,000, consulting fees of $2,179,000$1,852,000 and other public service fees of $38,000, partially offset by a reduction in$101,000, and (ii) the Traditional Business’ display advertising (including conferences which were discontinued) net revenues of $1,009,000, classified advertising net revenues of $218,000, trustee sale notice advertising net revenues of $282,000, legal notice advertising net revenues of $523,000 and circulation revenues of $159,000. The$182,000.

Approximately 71% of the Company’s revenues during fiscal 2022 were derived from Journal Technologies’ operations constituted about 71% and 65% ofTechnologies, as compared with 69% in the prior fiscal year. In addition, the Company’s total revenues for fiscal 2020 and 2019, respectively.have been primarily from the United States, with approximately $4,638,000 (9%) from foreign countries. Almost all of Journal Technologies’ revenues are from governmental agencies.

Consolidated operating expenses excluding last year’s goodwill impairment write-off of $13,400,000, decreasedincreased by $2,254,000 (4%$4,247,000 (9%) to $51,225,000$52,020,000 from $53,479,000.$47,773,000. Total salaries and employee benefits increased by $2,788,000$2,705,000 (8%) to $37,802,000$36,935,000 from $35,014,000$34,230,000 primarily because of salary adjustments. Agency commissions increased by $369,000 (69%) to $905,000 from $536,000 primarily due to increased display advertising agency commissions during fiscal 2022. Outside services increased by $917,000 (30%) to $4,001,000 from $3,084,000 mainly because of increased third-party hosting fees which were billed to clients. Newsprint and printing expenses increased by $114,000 (18%) to $739,000 from $625,000 primarily resulting from newsprint price increases and additional personnel costs for Journal Technologies as independent contractors were transferred to employee status. Outside services decreased by $446,000 (12%) to $3,428,000 from $3,874,000 mainly becausepurchases of decreased contractor costs for Journal Technologies. Depreciation and amortization costs decreased by $65,000 (11%) to $524,000 from $589,000 because of more fully-depreciated assets. Rent expenses decreased by $405,000 (40%) to $612,000 from $1,017,000 because of the closure of both the San Francisco and Modesto offices in October 2019 and the Colorado office in August 2020. Accounting and legal fees decreased by $666,000 (41%) to $939,000 from $1,605,000 primarily because of decreased legal fees to review and negotiate Journal Technologies’ contracts with customers, more of which was done in-house.printing supplies. Other general and administrative expenses decreasedincreased by $3,042,000 (44%$1,122,000 (50%) to $3,848,000$3,358,000 from $6,890,000$2,236,000 mainly resulting from reducedbecause there were increased miscellaneous office equipment and software license purchases and business travel expenses and miscellaneous office equipment purchases.as compared to the prior fiscal year.

The Company’s non-operating income, net of expenses, increaseddecreased by $18,761,000$255,436,000 to a loss of $104,538,000 from a gain of $5,509,000 from a loss of $13,252,000 primarily because of the recording of (i) net gains of $4,193,000 on partial sales of marketable securities as compared with none$150,898,000 in the prior fiscal year and (ii)primarily because of the recordings of (i) net unrealized losses on investmentsmarketable securities of $3,099,000$123,401,000 during the fiscal 20202022 as compared with $17,715,000 duringnet unrealized gains of $106,499,000 in the prior year, and (ii) realized net gains on sales of marketable securities of $14,249,000 during fiscal year.2022 as compared with $41,749,000 in the prior year, partially offset by gains of $272,000 on a partial land sale associated with the City of Logan’s street widening project during fiscal 2022 and increases in dividends and interest income of $2,543,000.

During fiscal 2020,2022, the Company’s consolidated pretax incomeloss was $4,226,000,$102,549,000, as compared with ato pretax lossincome of $31,476,000$153,050,000 in the prior fiscal year. There was consolidated net incomeloss of $4,041,000 ($2.93$75,624,000 (-$54.81 per share) for fiscal 2020,2022, as compared with consolidated net lossincome of $25,216,000 (-$18.26$112,900,000 ($81.77 per share) in the prior fiscal year.

During fiscal 2020, the Company’s cash and restricted cash and cash equivalents increased by $18,333,000 to $28,963,000 from $10,630,000, primarily because of the proceeds of $16,307,000 from the sales of some marketable securities. At September 30, 2020,2022, the aggregate fair market value of the Company’s marketable securities was $179,368,000.$275,529,000. These securities had approximately $137,593,000$120,692,000 of net unrealized gains before taxes of $35,870,000, and$32,120,000. They generated approximately $4,965,000$5,451,000 in dividends income during fiscal 2020, which lowers2022, as compared with $2,908,000 in the Company’s effective income tax rate because of the dividends received deduction.prior fiscal year. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.

Taxes

For fiscal 2020, the Company recorded an income tax provision of $185,000 on pretax income of $4,226,000.  The effective tax rate was less than the statutory rate primarily due to the dividends received deduction (“DRD”), a benefit resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and net state tax benefits.   The effective tax rate for fiscal 2020 was 4.4%, after including the DRD, the tax benefits from the CARES Act and state taxes, as compared with 20% in the prior fiscal year.

The CARES Act, which was signed into law on March 27, 2020, contains two federal tax provisions beneficial to the Company.  One provision provides that net operating losses arising in tax years beginning in 2018, that were previously only available to be carried forward, can now be carried back to the five previous years.  In addition, any alternative minimum tax credits carried forward from prior years can be claimed as a refund in years beginning in 2018.  Consequently, the Company recorded a tax benefit resulting from carrying back a portion of the net operating loss generated in fiscal 2019 to fiscal 2014.  The Company anticipates receiving a refund for all taxes and alternative minimum taxes paid in fiscal 2014.  The tax benefit of $187,000 resulting from carrying back the net operating loss is primarily attributable to the difference in the federal tax rates of 34% in fiscal 2014 and 21% in fiscal 2019.

During fiscal 2020, the Company recorded net unrealized losses on investments of $3,099,000. An income tax benefit of $1,371,000 resulting from these losses was recorded as a temporary difference in deferred income taxes. The Company also recorded a net gain of $4,193,000 on the sales of marketable securities.

ForTaxes

 During fiscal 2019,2022, the Company recorded an income tax benefit of $6,260,000$26,925,000 on athe pretax loss of $31,476,000.$102,549,000.   The income tax benefit consisted of a tax benefit of $32,840,000 on the unrealized losses on marketable securities and a benefit of $340,000 for the dividends received deduction and other permanent book and tax differences, offset by tax provisions of $3,790,000 on the realized gains on marketable securities, $1,735,000 on income from operations, and $730,000 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 fiscal 2022 was below26.3%, after including the taxes on the realized gains and unrealized losses on marketable securities.

For fiscal 2021, the Company recorded a provision for income taxes of $40,150,000 on pretax income of $153,050,000.   The effective rate of 26.2% was higher than the statutory rate of 21% primarily due to the impairmentrecording of goodwill, partially(i) state taxes, which were offset by the DRDdividends received deduction, resulting in a tax provision of $1,260,000 on pretax income before the unrealized and realized gains on marketable securities, (ii) a benefit for state taxes.tax provision of $27,938,000 on the unrealized gains on marketable securities and (iii) a tax provision of $10,952,000 on the realized 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 20172019 with regard to federal income taxes and fiscal 20162018 for state income taxes. 

The Traditional Business

The Traditional Business had a pretax loss of $1,814,000, representing a $1,833,000 decrease in income fromBusiness’ pretax income increased by $259,000 (58%) to $702,000 from $443,000 in the prior fiscal year, primarily resulting from a decrease to the long-term supplemental compensation accrual of $19,000$665,000 (37%) to $1,130,000 from $1,795,000 in the prior fiscal year.

During fiscal 2022, the Traditional Business had total operating revenues of $15,922,000, as compared with $15,431,000 in the prior fiscal year. Advertising revenues decreasedincreased by $2,028,000 (22%$420,000 (5%) to $7,104,000$8,591,000 from $9,132,000,$8,171,000, primarily because of decreased displayincreased commercial advertising (including conferences which were discontinued) net revenues of $1,009,000, classified$227,000, legal notice advertising net revenues of $218,000,$104,000 and trustee sale notice advertising net revenues of $282,000$234,000 primarily resulting from the lifting of the foreclosure moratoriums relative to the “Eviction and legalForeclosure Orders” and lenders’ processing files that were already in the pipeline when the pandemic struck. These increases were offset by decreased government notice advertising net revenues of $523,000.$145,000.

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 decreasedincreased by 34%53% during fiscal 20202022 as compared to the prior fiscal year. Unless the economic impactyear, primarily because of the efforts to contain COVID-19 result in significant additional foreclosures in California and Arizona, management expects there will be fewerlifting of foreclosure notice and other public notice advertisements and declining revenues for fiscal 2021.moratoriums, as discussed above. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 86%88% of the total public notice advertising revenues in the twelve months ended September 30, 2020.during fiscal 2022. Public notice advertising revenues and related advertising and other service fees, including trustee sales legal advertising revenues, constituted about 15% and 18%17% of the Company’sCompany's total operating revenues for both fiscal 20202022 and 2019, respectively. Because of this concentration, the Company’s revenues would be significantly adversely affected if California and Arizona eliminated the legal requirement to publish public notices in adjudicated newspapers of general circulation, as was implemented in Arizona in 2017 for one notice type that had represented approximately $500,000 in annual revenues for the Company. Also, if the adjudication of one or more of the Company’s newspapers was challenged and revoked, those newspapers would no longer be eligible to publish public notice advertising, and it could have a material adverse effect on the Company’s revenues.2021.

The Daily Journals accounted for about 91%92% of the Traditional Business’ total circulation revenues, which declined by $159,000 (3%$182,000 (4%) to $5,090,000$4,394,000 from $5,249,000.$4,576,000. The court rule and judicial profile services generated about 7%6% 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, decreasedexcluding the adjustments to the long-term supplemental compensation accrual, increased by $556,000 (3%$897,000 (7%) to $16,425,000$14,090,000 from $16,981,000,$13,193,000, primarily due to decreased rent, outside contract printing and distributing costs.resulting from the salary adjustments.

Journal Technologies

During fiscal 2020,2022, Journal Technologies’ business segment pretax income increaseddecreased by $5,383,000 (109%$422,000 (25%) to $447,000$1,287,000 from a pretax loss of $4,936,000$1,709,000 in the prior fiscal year, excluding the goodwill impairment loss of $13,400,000 in 2019.year.

Revenues increased by $3,685,000 (12%$3,593,000 (10%) to $35,247,000$38,087,000 from $31,562,000$34,494,000 in the prior fiscal year. Licensing and maintenance fees increaseddecreased by $1,468,000 (7%$1,852,000 (9%) to $21,647,000$19,192,000 from $20,179,000.$21,044,000 primarily resulting from the reduction in legacy software products’ maintenance and support revenues as the Company ended effective July 1, 2021 the maintenance of these legacy software products, so as to focus on supporting the Company’s main eSeries products. Consulting fees increased by $2,179,000 (39%$5,546,000 (88%) to $7,718,000$11,865,000 from $5,539,000$6,319,000 mainly resulting from a few long-term projects that went live during the last quarter of fiscal 2022. Other public service fees decreased by $101,000 (1%) to $7,030,000 from $7,131,000 primarily due to more go-lives.decreased traffic citation fee revenues.

Deferred revenues on installation contractsconsulting fees primarily represent the fair value of 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 period. Other public service fees increased by $38,000 (1%) to $5,882,000 from $5,844,000 primarily due to additional efiling fee revenues.

Operating expenses decreasedincreased by $1,698,000 (5%$4,015,000 (12%) to $34,800,000$36,800,000 from $36,498,000, excluding prior year’s goodwill impairment loss of $13,400,000,$32,785,000 primarily because of decreased(i) increased personnel costs resulting from the salary adjustments, (ii) increased third-party hosting fees which were billed to clients and (iii) additional miscellaneous office equipment and software license purchases and increased business travel expenses and legal fees to review and negotiate Journal Technologies’ contracts with customers, more of which was done in-house.expenses.

Journal Technologies continues to update and upgrade its software products. These costs are expensed as incurred and will impact earnings at least through the foreseeable future.

Reportable Segments

The Company’s Traditional Business is one reportable segment and the other is Journal Technologies. Additional details about each of the reportable segments and its corporate income and expenses is set forth below:

* included goodwill impairment of $13,400,000

During fiscal 2020 and 2019, the Traditional Business had total operating revenues of $14,695,000 and $17,093,000 of which $9,605,000 and $11,844,000, respectively, were recognized after services were provided while $5,090,000 and $5,249,000, respectively, were recognized ratably over the subscription terms. Total operating revenues for the Company’s software business were $35,247,000 and $31,562,000, of which $14,025,000 and $12,353,000, respectively, were recognized upon completion of services while $21,222,000 and $19,209,000, respectively, were recognized ratably over the subscription periods.

Approximately 71% of the Company’s revenues during fiscal 2020 were derived from Journal Technologies, as compared with 65% in the prior fiscal year. In addition, the Company’s revenues have been primarily from the United States, with approximately 1% from foreign countries. Almost all of Journal Technologies’ revenues are from governmental agencies.

Liquidity and Capital Resources

During fiscal 2020,2022, the Company’s cash and cash equivalents, restricted cash, and cash equivalents and marketable security positions increaseddecreased by $3,120,000, including$71,215,000, after the sales of marketable securities of approximately $80,570,000 and additional net borrowing of $43,000,000 from the margin loan account, partially offset by the recording of net pretax unrealized losses on investmentsmarketable securities of $3,099,000.$123,401,000. Cash, and cash equivalents, the proceeds from the sales of marketable securities and additional net borrowing were primarily used for theto purchase additional marketable securities of capital assets of $184,000 and payment for loan principal of $126,000. There were cash provided by operating activities of $2,336,000 which included net decreases of $1,808,000 in deferred subscriptions, deferred installation contracts and deferred maintenance agreements and others.$117,678,000.

The investments in marketable securities, which had an adjusted cost basis of approximately $41,775,000$154,837,000 and a market value of about $179,368,000$275,529,000 at September 30, 2020,2022, generated approximately $4,965,000$5,451,000 in dividends income during fiscal 2020.2022. These securities had approximately $137,593,000$120,692,000 of net unrealized gains before estimated taxes of $35,870,000$32,120,000 which will become due only when we sell securities in which there is unrealized appreciation. Beginning in fiscal 2019, changes in unrealized gains (losses) on investments are included in the Company’s net income (loss) and thus may have a significant impact depending on the fluctuations of the market prices of the invested securities.

Cash flows from operating activities increaseddecreased by $721,000$8,547,000 during fiscal 20202022 as compared to the prior fiscal year, primarily due to (i) increases in net income of $29,257,000, decreases in deferred tax assetsbenefit of $6,982,000$62,716,000, the Company’s income tax receivable of $1,620,000, and decreases in accounts receivable of $2,542,000 primarily$4,610,000 mainly resulting from more payment collections, partially offset by this year’s net gains on sales of marketable securities of $4,193,000, last year’s goodwill impairment expenses of $13,400,000 andadditional billings for go-live projects, (ii) decreases in (i) unrealized losses on investmentsthe Company’s income tax payable of $14,616,000, (ii)$12,488,000 and (iii) decreases in net accounts payable and accrued liabilities of $2,208,000 because$212,000 (because of the timing difference in remitting efiling fees to the courtscourts). This was partially offset by (i) increases in net income of $68,604,000, excluding the gains on land sale of $272,000, the increases in unrealized losses on marketable securities of $229,900,000 and (iii)decreases in realized net gains on sales of marketable securities of $27,500,000 and (ii) increases in deferred subscriptions, deferred maintenance agreements and others and deferred installation contractsrevenues of $2,902,000.$4,441,000.

As of September 30, 2020,2022, the Company had working capital of $188,318,000,$275,835,000, including the liabilities for deferred subscriptions, deferred installationconsulting fees and deferred maintenance agreements and others of $18,926,000.$21,345,000.

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. COVID-19 and the efforts to contain it, however, have significantly impacted the Company’s cash flows from operations and the value of its marketable securities portfolio. 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 some of those securities to generate cash if needed to fund ongoing operations.

As of September 30, 2020, the investments were concentrated in just five companies. Accordingly, a significant decline in The amount available for borrowing is based on the market value of one or morethe Company’s investment portfolio and fluctuates depending on the value of the Company’s investments may notunderlying securities.  In addition, the Company could be offset bysubject to margin calls should the hypothetically better performancebalance of other investments, and that could result in a largethe investment decrease in the Company’s shareholders’ equity and net income.significantly. 

The Company is not a smaller version of Berkshire Hathaway Inc.  Instead, it hopes to be a significant software company while it also holdsoperates its traditional business.Traditional Business.

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 (including the long-term Incentive Plan liabilities) and income taxes and segment reporting are critical accounting policies and estimates.

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 and are net of agency commissions.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 recognized at point of delivery (go-live) 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 efile 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. 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. 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 20202022 and 2019.2021. 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 2019)2021) 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.

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 statementsstatement 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 3 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.

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

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders of Daily Journal Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Daily Journal Corporation (the Company) as of September 30, 20202022 and 2019,2021, the related consolidated statements of comprehensive (loss) income, (loss), shareholders'shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

\s\ Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

DAILY JOURNAL CORPORATION

CONSOLIDATED BALANCE SHEETS

See accompanying Notes to Consolidated Financial Statements

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)

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See accompanying Notes to Consolidated Financial Statements

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

See accompanying Notes to Consolidated Financial Statements

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

See accompanying Notes to Consolidated Financial Statements

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS