References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated (the “Company”). References to “2022”, “2021" and the like refer to the fiscal years ended the last Sunday in September.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains information that may be deemed forward-looking that is based largely on our current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties, which in some instances are beyond our control, are:

Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered forward-looking statements. Statements regarding our plans, strategies, prospects and expectations regarding our business and industry, including statements regarding the impacts that the COVID-19 pandemic and our responses thereto may have on our future operations, are forward-looking statements. They reflect our expectations, are not guarantees of performance and speak only as of the date the statement is made. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this report. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.

PART I

FINANCIAL INFORMATION

Item 1.       Financial Statements

LEE ENTERPRISES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

The accompanying Notes are an integral part of the Consolidated Financial Statements.

The accompanying Notes are an integral part of the Consolidated Financial Statements.

LEE ENTERPRISES, INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

LEE ENTERPRISES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

LEE ENTERPRISES, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Basis of Presentation

The accompanying unaudited, interim, Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Lee Enterprises, Incorporated and its subsidiaries (the “Company”) as of DecemberJune 26, 20212022, and our results of operations and cash flows for the periods presented. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2021 Annual Report on Form 10-K.

The Company's fiscal year ends on the last Sunday in September. Fiscal year 2022 ends on September 25, 2022, and fiscal year 2021 ended September 26, 2021. Fiscal year 2022 and 2021 are 52-week years with 13 weeks in each quarter. Because of seasonal and other factors, the results of operations for the 13three weeksand nine months ended DecemberJune 26, 2022, 2021,are not necessarily indicative of the results to be expected for the full year.

References to “we”, “our”, “us” and the like throughout the Consolidated Financial Statements refer to the Company. References to “2022”,“2021” and the like refer to the fiscal years ended the last Sunday in September.

The Consolidated Financial Statements include our accounts and those of our wholly owned subsidiaries, as well as our 82.5% interest in INN Partners, L.C. (“TownNews.com”TownNews”), our.

Our 50% interest in TNI Partners (“TNI”("TNI") and our 50% interest in Madison Newspapers, Inc. (“MNI”("MNI").

Investments in TNI and MNI are accounted for using the equity method and are reported at cost, plus our share of undistributed earnings since acquisition less, for TNI, amortization of intangible assets.

On March 16, 2020, the Company completed the acquisition of BH Media Group, Inc. and The Buffalo News, Inc. for a combined purchase price of $140,000,000 (collectively, the "Transactions").

COVID-19 Pandemic

The ongoing COVID-19 pandemic and related measures to contain its spread have resulted in significant volatility and economic uncertainty, which is expected to continue in the near term. The COVID-19 pandemic has had and the Company currently expects that it will continue to have a significant negative impact on the Company’s business and operating results in the near term. While vaccines have become widely available in the United States, the long-term impact of the COVID-19 pandemic remains uncertain and unpredictable as it will depend on the pace of vaccine distribution, government responses to future outbreaks, the spread of variants, as well as changes in consumer behavior, all of which are highly uncertain. Despite the significant negative impacts on our operating results, we have operated uninterrupted in providing local news, information and advertising in our print and digital editions.

The following table presents our revenue disaggregated by source:

Recognition principles: Revenue is recognized when a performance obligation is satisfied by the transfer of control of the contracted goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

Total Digital Revenue in the prior year was reclassified to conform to the current year presentation. Total Digital Revenue is defined as digital advertising and marketing services revenue (including Amplified)including revenue from our wholly owned digital marketing agency Amplified Digital TM("Amplified"), digital-only subscription revenue and digital services revenue. Previously other digital subscription revenue was included. All periods have been restated for the reclassification.

Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenue from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers.

Contract Assets and Liabilities: The Company’s primary source of contract liabilities is unearned revenue from subscriptions paid in advance of the service provided. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next twelve months in accordance with the terms of the subscriptions and other contracts with customers. Revenue recognized in the quarternine months ended December June 26, 2021 2022,that was included in the contract liability as of September 26, 2021,was $36,347,000.$52,718,000.

Accounts receivable, excluding allowance for credit losses was $80,375,000$82,369,000 and $71,644,000 as of DecemberJune 26, 20212022, and September 26, 2021,, respectively. Allowance for credit losses was $7,182,000$7,458,000 and $6,574,000 as of DecemberJune 26, 20212022, and September 26, 2021,, respectively.

Sales commissions are expensed as incurred as the associated contractual periods are one year or less. These costs are recorded within compensation. The vast majorityMost of our contracts have original expected lengths of one year or less and revenue is earned at a rate and amount that corresponds directly with the value to the customer.

TNI Partners

In Tucson, Arizona, TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”), and Gannets Co. Inc.'s subsidiary Citizen Publishing Company (“Citizen”), a subsidiary of Gannett Co. Inc., is responsible for printing, delivery, advertising, and subscription activities of the Arizona Daily Star as well as the related digital platforms and specialty publications. TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media.

Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.

Summarized results of TNI are as follows:

TNI makes periodic distributions of its earnings and for the quarterthree months ended December June 26, 2021 2022,and December June 27, 2020 2021,we received $859,000$676,000 and $1,056,000$544,000 in distributions, respectively. In the nine months ended June 26,2022, and June 27,2021, we received $2,935,000 and $3,161,000 in distributions, respectively.

Madison Newspapers, Inc.

We have a 50% ownership interest in MNI, which publishes daily and Sunday newspapers, and other publications in Madison, Wisconsin, and other Wisconsin locations, and operates their related digital platforms. Net income or loss of MNI (after income taxes) is allocated equally to us and The Capital Times Company (“TCT”). MNI conducts its business under the trade name Capital Newspapers.

Summarized results of MNI are as follows:

MNI makes periodic distributions of its earnings and in the quarterthree months ended DecemberJune 26,2022 and June 27,2021, we received $200,000 and $750,000, respectively. In the nine months ended June 26, 2022, and June 27,2021,we received dividends of $300,000. NaN dividends were received in the quarter ended December 27, 2020.$1,000,000 and $1,900,000, respectively.

IdentifiedGoodwill and identified intangible assets consist of the following:

The weighted average amortization period for amortizable assets is 13.212.7 years.

The Company has debt consisting of a single 25-year term loan with BH Finance LLC, (“BH Finance”), inwith an aggregate principal balance of $462,554,000 at a 9% annual rate and maturesmaturing on March 16, 2045 (referred to herein as “Credit Agreement” and “Term Loan”). OnAt December June 26, 2021, 2022,based on market quotations, the fair value approximates carrying value. This represents a level 2 fair value measurement.

During the quarterthree months ended DecemberJune 26, 2021,2022, we made 0 principal debt payments. During the nine months ended June 26, 2022, we made principal debt payments of $20,062,000. For$20,062,000.For the quarter,nine months ended, payments consisted of $10,450,000 from the sale of non-core assets, $6,112,000 from September 26, 2021 excess cash flow, and $3,500,000 in voluntary prepayments. All payments were made at par. Future payments are contingent on the Company's ability to generate future excess cash flow, as defined in the Credit Agreement. As of December June 26, 2021 2022,there was no excess cash flow payment due (as such term is defined in the Term Loan).due.

Warrants

We entered into a Warrant Agreement dated as of March 31, 2014 (the “Warrant Agreement”). Under the Warrant Agreement, certain warrant holders received warrants to purchase, in cash, an initial aggregate of 600,000 shares of Common Stock, subject to adjustment pursuant to anti-dilution provisions and at an exercise price of $41.90 per share (the “Warrants”). The Warrants can be exercised at a price of $41.90 per share and expire inexpired on March 31, 2022.

The Warrant Agreement contains provisions requiringrequired the Warrants to be measured at fair value and included in warrants and other liabilities in our Consolidated Balance Sheets. The initial fair value of the Warrants was $16,930,000. We re-measure the fair value of the liability each reporting period using the Black-Scholes option pricing model. The change in fair value of $1,929,000 $71,000 for the nine months ended June 26, 2022 is reported as expenseincome in other, net non-operating income (expense).

In connection with the issuance of the Warrants, we entered into a Registration Rights Agreement dated as of March 31, 2014 (the “Registration Rights Agreement”). The Registration Rights Agreement requires,required, among other matters, that we use our commercially reasonable efforts to maintain the effectiveness for certain specified periods of a shelf registration statement related to the shares of Common Stock to be issued upon exercise of the Warrants.

We have several defined benefit pension plans that together cover selectedcertain employees, including plans established under collective bargaining agreements. At the endAs of September 26, 2021 two of seven plans had future benefits under the plan frozen and no new participants are permitted. Additionally, we provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. Through DecemberJune 26, 2021,2022, our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations.

During the quarter ended December 26, 2021, we notified certain participants infour of our defined benefit plans of changes to be made to the plans. The Company froze future benefits for an additional four of the defined benefit plans. The freeze of future benefits resulted in a non-cash curtailment gain of $1,027,000 related to the four plans. In connection with the freeze the Company provided certain plan enhancements that resulted in an increase to our net pension liability and a decrease to Accumulated Other Comprehensive income of $6,507,000. Additionally, the Company merged the six frozen plans into one defined benefit plan effective in the second quarter of fiscal 2022.

During the quarter ended December 27, 2020, we notified certain participants in one of our post-employment benefit plans of changes to be made to the plans, including elimination of coverage for certain participants. The changes resulted in a non-cash curtailment gain of $23,830,000 and a reduction in our benefit obligation by $23,830,000. This is recorded within Curtailment gain and Postretirement and postemployment benefit obligations. 

The net periodic pension and postretirement cost (benefit) components for our plans are as follows:

In the quarternine months ended DecemberJune 26, 20212022, we had 0 required contributions to our pension plans. In the quarternine months ended December June 27, 2020 2021,we contributed $400,000$965,000 to our pension plans. We have no required contributions to our pension plans for 2022 and therefore do not expect to make contributions to our pension trust during the remainder of fiscal 2022. 

Multiemployer Pension Plans

DuringIn prior periods, the quarter endedCompany effectuated withdrawals from several multiemployer plans. We recorded estimates of withdrawal liabilities as of the time the contracts agreeing to withdraw from those plans are ratified. As of December 27, 2020,June 26,2022, and September 26, 2021, we withdrew from a multiemployer pension planhad $24,337,020 and recorded a $12,310,000 charge. The$23,471,000 withdrawal liability isliabilities recorded in Warrants and other and will be paidOther Liabilities in our Consolidated Balance Sheets. The liabilities reflect the estimated value of payments to the fund, payable over 20 years. The first payment was made March 1, 2021.20-years.

We recorded an income tax expense of $5,351,000$156,000 related to income before taxes of $18,550,000$352,000 for the Quarterthree months ended December June 26, 2021. For the Quarter ended December 27, 2020, 2022,we recorded $6,311,000 in and income tax expense of $2,363,000 related to income before taxes of $22,714,000.$9,064,000 for the nine months ended June 26,2022. We recorded an income tax expense of $1,366,000 related to income before taxes of $5,103,000 for the three months ended June 27,2021, and income tax expense of $7,106,000 related to income before taxes of $26,638,000 for the nine months ended June 27,2021. The effective income tax rates for the Quarterthree and nine months ended DecemberJune 26, 20212022, was 28.9%.were 44.3% and 26.1%, respectively. The effective income tax rate for the Quarterthree and nine months ended DecemberJune 27, 20202021, was 27.8%.were 26.8% and 26.7%, respectively.

The primary differences between these rates and the U.S. federal statutory rate of 21% are due to the effectbecause of state taxes, non-deductible expenses, adjustments to reserves for uncertain tax positions, including any related interest, and mark-to-market adjustments to value stock warrants.

We file a consolidated federal tax return, as well as combined and separate tax returns in approximately 27 state and local jurisdictions.  We do not currently have any federal or material state income tax examinations in progress. Our income tax returns have generally been audited or closed to audit through 2014. 

The following table sets forth the computation of basic and diluted earnings per common share:

For the quarterthree months ended DecemberJune 26, 20212022 andno shares were considered in the computation of diluted earnings per common share because the Company recorded net losses. For the December 27, 2020nine, 600,000 and 641,300 months endedJune 26,2022, 74,804 shares were not considered in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per share amounts. For the three and nine months ended June 27, 2021, 600,000 anti-dilutive shares were excluded.

Rights Agreement

On November 24, 2021, our Board of Directors adopted a stockholder rights plan (the “Rights Agreement”). Pursuant to the Rights Agreement, on November 24, 2021, our Board of Directors declared a dividend of one1 preferred share purchase right (a “Right”), payable on December 6, 2021, for each share of our Common Stock outstanding to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one-thousandth of a share of Series B Participating Convertible Preferred Stock, without par value (the “Preferred Shares”), of the Company at a price of $120.00 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment.

The Rights will initially trade with our Common Stock and will generally become exercisable only if any person or group, other than certain exempt persons, acquires beneficial ownership of 10% (or 20% in the case of certain passive investors) or more of our Common Stock outstanding. In the event the Rights become exercisable, each holder of a Right, other than the triggering person(s), will be entitled to purchase additional shares of our Common Stock at a 50% discount or the Company may exchange each Right held by such holders for one share of our Common Stock. The Rights Agreement will continue in effect until November 23, 2022, or unless earlier redeemed or terminated by the Company, as provided in the Rights Agreement. The Rights have no voting or dividend privileges, and, unless and until they become exercisable, have 0 dilutive effect on the earnings of the Company.

The Rights Agreement applies equally to all current and future stockholders and is not intended to deter offers or preclude our Board of Directors from considering acquisition proposals that are fair and otherwise in the best interest of our stockholders. However, the overall effect of the Rights Agreement may render it more difficult or discourage a merger, tender offer, or other business combination involving us that is not supported by our Board of Directors.

Legal Proceedings

We are involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for certain of these matters. While we are unable to predict the ultimate outcome of these legal actions, it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial Statements, taken as a whole.

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the 13 weeksthree and nine months ended DecemberJune 26, 2021.2022. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein, and our 2021 Annual Report on Form 10-K.

EXECUTIVE OVERVIEW

Lee Enterprises, Incorporated is a leading provider of high quality, trusted, local news and information in the markets we serve with rapidly growing digital subscription and advertising platforms.

We operate 77 principally mid-sized local media operations.

We reach nearly 70% of all adults in our larger markets through a combination of our print and digital content offerings.

Our products include daily newspapers, websites and mobile applications, mobile news and advertising, video products, a digital marketing agency, digital services including web hosting and content management, niche publications and community newspapers. Our local media operations range from large daily newspapers and their associated digital products, such as the St. Louis Post-Dispatch and the Buffalo News, to non-daily newspapers with news websites and digital platforms serving smaller communities.

We also operate Amplified Digital, a full service digital marketing agency offering omnichannel marketing solutions, audience targeted display, social audience targeting, social media management, email marketing, banners, video streaming and much more. Amplified Digital serves more than 4,500 customers in 49 states.

We also operate TownNews through our 82.5% owned subsidiary INN Partners, L.C. TownNewswhich provides state-of-the-art web hosting, content management services and video management services to nearly 2,200 other media organizations including broadcast.   

STRATEGY

We are a major subscription and advertising platform, a trusted local news provider and innovative, digitally focuseddigitally-focused marketing solutions company. Our focus is on the local market - including local news and information, local advertising and marketing services to top local accounts, and digital services to local content curators. To align with the core strength of our Company, our post-pandemic operating strategy is locally focused around three pillars:

QUARTERTHREE MONTHS ENDED DecemberJune 26, 20212022

Operating results as reported in the Consolidated Financial Statements, are summarized below.

References to the “2022 Quarter” refer to the 13 weeksthree months ended DecemberJune 26, 2021.2022. Similarly, references to the “2021 Quarter” refer to the 13 weeksthree months ended DecemberJune 27, 2020.2021. 

Operating Revenue

Total operating revenue was $202,282,000$195,037,000 in the 2022 Quarter, down $9,535,000,$1,453,000, or 4.5%0.7%, compared to the prior year.

Advertising and marketing services revenue totaled $98,754,000$91,001,000 in the 2022 Quarter, down 3.8%0.1% compared to the prior year.2021 Quarter. Print advertising revenues were $55,970,000$44,814,000 in the 2022 Quarter, down 16.0%18% compared to the prior year2021 Quarter due to continued secular declines in demand for print advertising. Digital advertising and marketing services totaled $42,784,000$46,187,000 in the 2022 Quarter, up 18.8%26.6% compared to the prior year.2021 Quarter. These gains resulted from in an increase in Amplified Digital revenue and an increase in digital advertising on our owned and operated sites. Digital advertising and marketing services represented 43.3%50.8% of the 2022 Quarter total advertising and marketing services revenue, compared to 35%40.1% in the same period last year.

Subscription revenue totaled $87,519,000$89,048,000 in the 2022 Quarter, down 4.2%up 0.3% compared to the 2021 Quarter. The growth in digital only subscribers and selective priceSelective increases on our full access subscriptions, growth in digital-only subscribers and price increases on digital subscriptions, were partially offset by a decline in full access volume, consistent with historical and industry trends. Digital onlyDigital-only subscribers grew 57%48.6% since the 2021 Quarter and now total 450,000.501,000.

Other revenue, which primarily consists of commercial printing revenue and digital services from TownNews, decreased $1,870,000,$1,588,000, or 10.5%9.6%, in the 2022 Quarter compared to the 2021 Quarter. Digital services revenue totaled $4,624,000$4,317,000 in the 2022 Quarter, a 4.0%an 8.1% decrease compared to the 2021 Quarter. Commercial printing revenue totaled $5,723,000$5,341,000 in the 2022 Quarter, a 15.2%15.7% decrease compared to the 2021 Quarter, primarily driven by the continued downward trendreduction in traditional print product demand.volumes from our partners.

Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $55,299,000$61,473,000 in the 2022 Quarter, an increase of 17.4%26.8% over the 2021 Quarter, and represented 27.3%31.5% of our total operating revenue in the 2022 Quarter.

Equity in earnings of TNI and MNI increased $11,000decreased $639,000 in the 2022 Quarter.

Operating Expenses

Total operating expenses were $178,922,000$189,648,000 in the 2022 Quarter, a 7.2% decrease2.8% increase compared to the 2021 Quarter. Operating expenses include compensation expense, newsprint and ink, other operating expenses, depreciation, amortization, restructuring and other expenses, assets gain (loss) on sales, and impairments. Cash Costs a non-GAAP financial measure used to summarize certain operating expense (see reconciliation of Non-GAAP financial measures below) were $178,320,000, a 2.5% increase compared toup 1.0% in the 20212022 Quarter.

Compensation expense increased $531,000decreased $4,605,000 in the 2022 Quarter, or 0.6%5.6%, compared to the 2021 Quarter due to investments in digital talent and increasing average compensation levels partially offset byfrom reductions in FTE'sfull time employees ("FTEs") due to continued business transformation efforts.efforts, partially offset by investments in digital talent.

Newsprint and ink costs decreased $348,000increased $491,000 in the 2022 Quarter, or 4.4%7.0%, compared to the 2021 Quarter. The decreaseincrease is attributable to higher newsprint prices offset by declines in newsprint volumes offset by higher newsprint prices.volumes. See Item 3, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.

Other operating expenses increased $4,215,000$5,887,000 in the 2022 Quarter, or 5.2%7.2%, compared to the 2021 Quarter. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and other.assets loss on sales, impairments, and other, net. The largest components are costs associated with printing and distribution of our printed products, digital cost of goods sold and facility expenses. The increase is attributable to increases in investments to fund our digital growth strategy partially offset by lower delivery and other print-related costs due to lower volumes of our print editions.

Restructuring costs and other totaled $3,200,000$6,072,000 and $3,167,000$1,419,000 in the 2022 Quarter and 2021 Quarter, respectively. TheseRestructuring costs relate toand other include severance costs, litigation expenses, restructuring expenses, and advisor expenses in the 2022 quarter associated with the hostile takeover attemptunsolicited offer in November 2021 in the 2022 Quarter.2021. Restructuring costs in the 2021 Quarter are predominately severance related to our ongoing business transformation.

Depreciation and amortization expense decreased $765,000,$2,018,000, or 7.3%18.6%, in the 2022 Quarter. The decrease in both is attributable to assets becoming fully depreciated or amortized.

Assets (gain) loss on sales, impairments and other, was a net gainloss of $12,274,000$1,086,000 in the 2022 Quarter compared to a net loss of $5,222,000$242,000 in the 2021 Quarter. The gains and losses and impairments in the 2022 Quarter and in the 2021 Quarter were the result of the disposition of non-core assets, including real estate.

The factors noted above resulted in an operating income of $25,114,000$6,439,000 in the 2022 Quarter compared to $20,808,000operating income of $13,783,000 in the 2021 Quarter.

Non-operating Income and Expense

Interest expense decreased $1,219,000,$718,000, or 10.3%6.5%, to $10,663,000$10,292,000 in the 2022 Quarter, compared to the same period last year. The decrease was due to a lower outstanding balance on our Term Loan. Debt has been reduced by $113,400,000 million since our refinancing in March 2020. Our weighted average cost of debt was 9.0% at the end of the 2022 Quarter and 2021 Quarter.

Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants. We recorded $4,448,000$3,598,000 periodic pension and other postretirement benefits in the 2022 Quarter compared to $2,343,000$2,228,000 in the 2021 Quarter. We recorded non-operating expenseincome of $1,929,000$0 in the 2022 Quarter and non-operating incomeexpense of $116,000$237,000 in the 2021 Quarter, related to the changes in the value of the Warrants.

Income Tax Expense

We recorded an income tax expense of $156,000, or 44.3% of pretax income in the 2022 Quarter. In the 2021 Quarter, we recognized an income tax expense of $1,366,000, or 26.8% of pretax loss.

Net Income and Earnings (losses) Per Share

Net income was $196,000 and diluted losses per share were $0.05 for the 2022 Quarter compared to net income of $3,737,000 and diluted earnings per share of $0.55 for the 2021 Quarter. The change reflects the various items discussed above.

NINE MONTHS ENDEDJune 26, 2022