Supporting Financial Information

Accounts Receivable



			(in thousands)
		December 31,			September 30,
	Ref		2014			2014
Billed receivables			$	2,189		$	2,569
Unbilled receivables	(a)		10,088			9,803
Total accounts receivable			12,277			12,372
Less: Allowance for doubtful accounts	(b)		—			—
Accounts receivable, net			$	12,277		$	12,372

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 had ongoing interactions with the customer during fiscal 2014, and we submitted a claim to the DVA in September 2014 seeking a final determination by the DVA’s contracting officer of the amount due to DLH and immediate payment of such amount. Although the timing cannot be guaranteed, at present, the Company expects to bill and collect such amounts within the next twelve months. The remaining $0.8 million and $0.5 million of unbilled accounts receivable at December 31, 2014 and September 30, 2014, respectively, relates to 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 December 31, 2014 and September 30, 2014.

Other Current Assets



			(in thousands)
		December 31,			September 30,
	Ref		2014			2014
Workers' compensation receivable	(a)		$	197		$	199
Prepaid insurance expense			105			176
Other prepaid expenses			308			135
Total other current assets			$	610		$	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 $0.2 million will be received within the next twelve months.

Accrued Payroll



			(in thousands)
		December 31,			September 30,
	Ref		2014			2014
Accrued current payroll			$	1,890		$	2,440
Accrued payroll related to unbilled accounts receivable	(a)		9,176			9,025
Total accrued payroll			$	11,066		$	11,465

Ref (a): Includes $8.7 million related to retroactive billings submitted to incorporate the impact of relevant wage determinations on certain contracts. The remaining $0.5 million and $0.3 million of accrued payroll for unbilled accounts receivable at December 31, 2014 and September 30, 2014, respectively, relates to current operations.

Equipment and Improvements, net



			(in thousands)
		December 31,				September 30,
	Ref		2014				2014
Furniture and equipment			$	139			$	139
Computer equipment			220				126
Computer software			430				430
Leasehold improvements			24				24
			813				719
Less accumulated depreciation and amortization			(679		)		(656		)
Equipment and improvements, net	(a)		$	134			$	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.

Accounts Payable, Accrued Expenses, and Other Current Liabilities



			(in thousands)
		December 31,			September 30,
	Ref		2014			2014
Accounts payable			$	599		$	779
Accrued benefits			816			720
Accrued bonus and incentive compensation			97			693
Accrued workers compensation insurance			1,106			767
Other accrued expenses			489			339
Payroll tax accrual	(a)		1,463			1,448
Total accrued expenses and other current liabilities			$	4,570		$	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 $644 thousand.

Other Income (Expense)



		(in thousands)
		Three Months Ended
		December 31,
	Ref	2014			2014
Interest expense, net		$	(24	)	$	(22	)
Amortization of deferred financing costs		—			(10		)
Change in value of financial instruments	(a)	—			99
Miscellaneous other expense, net		(12		)	—
Total other income (expense), net		(36		)	67

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.