Supporting Financial Information

Accounts Receivable



			(in thousands)
		June 30,			September 30,
	Ref		2015			2014
Billed receivables			$	2,523		$	2,569

Unbilled receivables-retroactive payment claim	(a)		—			9,306
Unbilled receivables-other			556			497
Total unbilled receivables			556			9,803

Total accounts receivable			3,079			12,372
Less: Allowance for doubtful accounts	(b)		—			—
Accounts receivable, net			$	3,079		$	12,372

Ref (a): As previously reported, during the fiscal year ended September 30, 2008, DLH Holdings Corp. (the “Company”) accrued salaries and benefits of $10.1 million related to the estimated resolution of retroactive payment cases asserted by the Department of Labor (“DOL”). During the same period, the Company recognized revenues of $10.8 million related to expected recovery of these costs, plus estimated indirect costs, under contractual arrangements with the Department of Veterans Affairs (“DVA”). At September 30, 2014, the amount of the remaining accounts receivable with the DVA approximated $9.3 million and accrued liabilities for salaries to employees and related benefits totaled $8.7 million. The $9.3 million in accounts receivable was unbilled to the DVA at September 30, 2014.

In September 2014, we submitted a claim to the DVA seeking a final determination and resolution of this matter. During the quarter ended March 31, 2015, we were advised that the DOL would not take further action with respect to the retroactive payment cases and that it would not object to the DVA’s resolution of this matter with the Company. As a result, we had no obligation for the payment of these accrued salaries and benefits. Because no retroactive wage payments were required, we have no contractual recovery of costs from the DVA. Accordingly, in order to resolve this matter, on March 30, 2015, we entered into a mutual release of claims with the DVA, pursuant to which both parties agreed to fully release each other from any and all claims arising pursuant to this matter.

As a result of the closure of this issue, as a part of our reporting for the quarter ended March 31, 2015, we removed the accruals of estimated revenue and expense which were recorded in the year ended September 30, 2008. Further, we reported a reduction of $9.3 million in accounts receivable, a reduction of $8.7 million in accrued liabilities for salaries to employees and related benefits, and a net charge to our earnings of approximately $629 thousand for the fiscal quarter ended March 31, 2015 relating to the resolution of this matter. The net expense related to this issue was non-cash and not related to income from current operations.

Ref (b): Accounts receivable are non-interest bearing, 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 June 30, 2015 and September 30, 2014.

Other Current Assets



			(in thousands)
		June 30,			September 30,
	Ref		2015			2014
Workers’ compensation receivable	(a)		$	39		$	199
Prepaid insurance expense			214			176
Prepaid benefits			53			—
Other prepaid expenses			112			135
Other current assets			$	418		$	510

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 $39 thousand will be received within the next twelve months.

Equipment and improvements, net



			(in thousands)
		June 30,				September 30,
	Ref		2015				2014
Furniture and equipment			$	139			$	139
Computer equipment			292				126
Computer software			433				430
Leasehold improvements			24				24
Total fixed assets			888				719
Less accumulated depreciation and amortization			(701		)		(656		)
Equipment and improvements, net	(a)		$	187			$	63

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.

Accrued Payroll



			(in thousands)
		June 30,			September 30,
	Ref		2015			2014
Accrued payroll related to billed receivables			$	1,759		$	2,440

Accrued payroll related to retroactive payment claim	(a)		—			8,677
Accrued payroll related to unbilled accounts receivable			350			348
Total accrued payroll related to unbilled accounts receivable			350			9,025

Total accrued payroll			$	2,109		$	11,465

Ref (a): Related to retroactive payment claim described above in “Accounts Receivable”.

Accounts Payable, Accrued Expenses, and Other Current Liabilities



			(in thousands)
		June 30,			September 30,
	Ref		2015			2014
Accounts payable			$	128		$	779
Accrued benefits			1,026			720
Accrued bonus and incentive compensation			558			693
Accrued workers compensation insurance			1,125			767
Other accrued expenses			312			339
Payroll tax accrual	(a)		1,493			1,448
Accounts payable, accrued expenses, and other current liabilities			$	4,642		$	4,746

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 totaling approximately $674 thousand.

Other Income (Expense)



		(in thousands)						(in thousands)
		Three Months Ended						Nine Months Ended
		June 30,						June 30,
	Ref	2015			2014			2015			2014
Interest expense, net		$	(23	)	$	(24	)	$	(72	)	$	(75	)
Amortization of deferred financing costs		—			—			—			(10		)
Change in value of financial instruments	(a)	—			—			—			99
Miscellaneous other income (expense), net	(b)	(11		)	7			(651		)	9
Other income (expense), net		(34		)	(17		)	(723		)	23

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. See Note 12 regarding maturity and closure of the convertible debentures.

Ref (b): Current fiscal year activity reflects $629 thousand charge related to retroactive payment claim described above in “Accounts Receivable.”