Supporting Financial Information

Accounts Receivable



			(in thousands)
		September 30,			September 30,
	Ref		2014			2013
Billed receivables			$	2,569		$	2,408
Unbilled receivables	(a)		9,803			9,535
Total accounts receivable			12,372			11,943
Less: Allowance for doubtful accounts	(b)		—			—
Accounts receivable, net			$	12,372		$	11,943

Ref (a): Includes $9.3 million related to retroactive billings submitted to incorporate the impact of relevant wage determinations on certain contracts. Revenues related to these retroactive billings were recognized in fiscal 2008 in accordance with GAAP, as follows: (1) the Company developed and calculated an amount for such prior period services and had a contractual right to bill for such amounts under its arrangements, which was formalized in a contract modification (2) there were no remaining unfulfilled conditions for approval of such billings and (3) collectibility was reasonably assured based on historical practices with, and contractual requirements of, the DVA. The related direct costs, principally comprised of salaries and benefits, were accrued to match the recognized reimbursements from the Federal agency; upon approval, wages will be processed for payment to the employees. During the year ended September 30, 2008, DLH recognized revenues of $10.8 million revenue related to these non-recurring adjustments, of which $1.5 million was subsequently billed and collected. DLH has had ongoing interactions with the customer during fiscal 2014, and in September 2014, we submitted a claim to the DVA to seek a final determination by the DVA’s contracting officer of the amount due to DLH and immediate payment of such amount. We expect closure on this issue within the next twelve months.

Ref (b): Accounts receivable are unsecured and carried at fair value, which is net of an allowance for doubtful accounts. We evaluate our receivables on a quarterly basis and determine whether an allowance is appropriate based on specific collection issues. Our allowance for doubtful accounts was zero at both September 30, 2014 and 2013.

Other Current Assets



			(in thousands)
		September 30,			September 30,
	Ref		2014			2013
Workers' compensation receivable	(a)		$	199		$	358
Prepaid insurance expense			176			143
Other prepaid expenses			135			98
Total other current assets			$	510		$	599

Ref (a): As part of the Company’s discontinued PEO operations, DLH had a workers’ compensation program with Zurich American Insurance Company (“Zurich”) which covered the period from March 22, 2002 through November 16, 2003, inclusive. DLH estimates that the remaining workers compensation receivable of approximately $0.2 million will be received within the next twelve months.

Debt Obligations



			(in thousands)
		September 30,			September 30,
	Ref		2014			2013
Bank loan payable			$	—		$	951
Current portion of capital lease obligation			—			22
Convertible debenture, net	(a)		—			340
Total debt obligations			$	—		$	1,313

Ref (a): See Note 12 regarding maturity and closure of the convertible debenture.

Accrued Payroll



			(in thousands)
		September 30,			September 30,
	Ref		2014			2013
Accrued current payroll			$	2,440		$	2,302
Accrued payroll related to unbilled accounts receivable			9,025			8,836
Total accrued payroll			$	11,465		$	11,138

Equipment and Improvements, net



			(in thousands)
		September 30,				September 30,
	Ref		2014				2013
Furniture and equipment			$	139			$	139
Computer equipment			126				126
Computer software			430				417
Leasehold improvements			24				24
			719				706
Less accumulated depreciation and amortization			(656		)		(550		)
Equipment and improvements, net	(a)		$	63			$	156

Ref (a): Equipment and improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful asset lives (3 to 5) and the shorter of the initial lease term or estimated useful life for leasehold improvements. Maintenance and repair costs are expensed as incurred.

Accounts Payable, Accrued Expenses, and Other Current Liabilities



			(in thousands)
		September 30,			September 30,
	Ref		2014			2013
Accounts payable			$	779		$	1,396
Accrued benefits			720			596
Accrued bonus and incentive compensation			693			860
Accrued workers compensation insurance			767			563
Other accrued expenses			339			534
Payroll tax accrual	(a)		1,448			1,394
Total accrued expenses and other current liabilities			$	4,746		$	5,343

Ref (a): From 2006 through 2009, DLH received notices from the Internal Revenue Service (“IRS”) claiming taxes, interest and penalties due related to payroll taxes. These notices are predominantly related to the former PEO operations which were sold in fiscal 2003. The liability includes estimated accrued penalties and interest through the date of the financial statements totaling approximately $630 thousand.

Other Income (Expense)



		(in thousands)
		Year Ended
		September 30,
	Ref	2014			2013
Interest expense, net		$	(99	)	$	(172	)
Amortization of deferred financing costs		(10		)	(177		)
Change in value of derivative financial instruments	(a)	99			(42		)
Other income (expense), net		6			(16		)
Total other expense, net		$	(4	)	$	(407	)

Ref (a): Represents the adjustment to fair value of embedded conversion feature and warrants related to the Company's convertible debentures. Such instruments did not meet the requirements for qualified hedge accounting under GAAP.